1. Module 3
Alternative Port Management Structures and Ownership Models

2. Alternative Port Management Structures
and Ownership Models
Objectives and Overview
Evolution of Port Institutional Framework
Port Functions, Services and Administration Models
Port Finance Overview
Port Reform Modalities
Reform Tools
Marine Services and Port Reform
Module 3

3. Overview
Evolution of Port Institutional Framework : respective roles of the public and private sectors
Port Functions, Services and Administration Models : typical management structures
Port Finance Overview : funding for infrastructure development, management impacts
Port Reform Modalities : strengths and weaknesses of the different options
Reform Tools : managing the shift in public/private sectors balance of power
Marine Services and Port Reform : description of marine services and possible reform approaches thereof.
Module 3

4. Alternative Port Management Structures
and Ownership Models
Objectives and Overview
Evolution of Port Institutional Framework
Port functions, services and administration models
Port Finance Overview
Reform Tools
Marine Services and Port Reform
Module 3

5. Why did Private Sector Participation emerge?
Supply/distribution chains : ports as bottlenecks
Labor Practices : labor unions often ignored the need to reduce the labor force and upgrade skills implied by the modernization of port-handling equipment.
Centralized government control was too rigid and slowed down the pace of planning, control and command structures, limiting responsiveness to market demand.
Public investment in port infrastructure was often insufficient or inadequate, and implied heavy reliance on state budget.
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6. Appropriate division of responsibilities between the Public and the Private Sectors
Public Sector : planner, facilitator and regulator
Private Sector : service provider, operator and developer
Shifting the boundary line : results rather than ideology
Increased service levels for infrastructure users
Increased efficiency in operations
Improved allocation of limited public funds
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7. Ports integrated in global logistics chains
Local benefits also have global and regional attributes
Private port services providers are increasingly global in scope and scale
Globalization will challenge the protection of “public” and local interests
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8. Alternative Port Management Structures
and Ownership Models
Objectives and Overview
Evolution of Port Institutional Framework
Port functions, services and administration models
Port Finance Overview
Port Reform Modalities
Reform Tools
Marine Services and Port Reform
Module 3

9. Port functions, services and administration models : table of contents
Port activities and new trends
Choosing a framework to operate public intervention
Interaction with port cities
Role of a Port Authority
The delicate function of planning
Role of a Transport Ministry
Port administration models : the four categories
Globalization of port operation
Port management and Port competition
Value-added services : a means to attract clients
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10. Ports activities and new trends
Ports produce :
Public Goods : create positive externalities that justify public intervention. Ex : coastal protection works.
Private Goods : generate direct economic benefits that can be captured in market transactions.
The mix of public and private goods can create economic multiplier effects
New trends in activities :
Clustering of activities : heavy industries, manufacturing
Development of value-added services
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11. Choosing a normative framework for public intervention
Market surrogate framework : remedy market imperfections and capture non-market externalities (ex: competition “for the market”).
Public interest framework : pursue explicit goals designed to satisfy the demand for public goods
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12. Interaction with port cities : two major trends
Increasing space intensity of ports takes them away from urban centers.
Abandoned urban industrial zones close to deep water show a potential for redevelopment by…
Retaining the surplus of port land within the Port Authority for redevelopment (Barcelona)
Transferring it to the local authority (Baltimore)
Creating a special development corporation for this specific purpose (London Docklands)
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13. Objectives of a Port Authority
Definition : State, Municipal, public or private body, which is largely responsible for the tasks of construction, administration and sometimes operation of the port facilities
Objectives :
Fully recover all port-related costs
Attract outside investment
Stimulate innovation
Generate internal cash-flows to replace and expand infrastructure
Compete according to market rules
Limit cross-subsidization
Avoid dissipation of the Port Authority’s asset base.
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14. Role of a National Authority
Statutory powers :
Approval of proposals for port investment
Setting of financial objectives for ports
Regulation of rates and charges
Definition of a labor policy
Establishment of principles for licensing
Facilitation of data collection and research about the port
Legal advice to local port authorities
Parallel roles :
Regulation of shipping and port operations
Oversight of nautical operations
Port marketing and promotion
Strategic planning …
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15. The delicate function of planning
Planning requires the Port Authority and the municipality to coordinate and to take into account …
The global context of the proposed investment
Investment plans of industrial and commercial port operators
The integration of individual master plans at the national level
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16. Role of a Transport Ministry
Policy making : planning and development of basic maritime infrastructure, of ports and of port hinterland connexions
Legislation : drafting and implementation of laws, regulations and decrees
International relations : representation of the country, negotiation of agreements
Financial and economic affairs : planning, assessing and assisting in financing projects of national importance
Auditing
Executive functions : Maritime Administration Directorate
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17. Maritime Administration Directorate : Typical Functions
Ship safety oversight
Traffic safety and environment
Aids to navigation
Maritime education and training
Search and rescue
Execution of national port policy
Moved to local autonomous Port Authorities under regulatory board oversight
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18. Port Functions Infrastructure landlord
Regulator of economic activities and operations
Planning for future development
Marketing and promotion of port services
Operation of nautical services
Supplier of cargo-handling and storage services
Provider of ancillary facilities
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19. Port Administration Models : the 4 categories
Public Service Port : the public Port Authority offers all the services required for the functioning of the seaport system
Tool Port : the Port Authority manages the port infrastructure and heavy superstructure, with private cargo-handling companies providing commercial services
Landlord Port : the Port Authority acts as a regulatory body and as a landlord. Port operations are carried out by private companies.
Fully Privatized or Private Service Port : the port is privately owned, operated and sometimes self-regulated.
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20. Basic Port Management Models
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21. Globalization of Port Terminal Operations
The major global container trades are increasingly dominated by :
a few major carriers alliances, aiming at controlling the full chain of logistics
a few independent terminal operators, aiming at making a profit only by offering terminal services
Relationships between ports and carriers :
traffic volume / transshipment / competitive pressure
common user facilities / dedicated terminals
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22. Port Management and Port Competition
The Port Authorities aim at stimulating intra-port competition, with the objectives to…
Ensure fair competition among operators in the port
Control monopolies and mergers
Prevent anti-competitive practices
Inter-port competition depends on a port’s…
Geographical location
Financial resources
Institutional and socio-economic climate
Efficiency and price
Image
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23. Value-added services : a means to attract clients
Module 3

24. Alternative Port Management Structures
and Ownership Models
Objectives and Overview
Evolution of Port Institutional Framework
Port functions, services and administration models
Port Finance Overview
Port Reform Modalities
Reform Tools
Marine Services and Port Reform
Module 3

25. Financing Port Projects
Ports are increasingly considered as separate economic entities
Who finances what ?
Basic infrastructure : government-financed
Operational infrastructure :
government-financed under the Service and Tool port scheme,
concessionaire- or lessee-financed under the Landlord port scheme.
Superstructure : usually financed and owned by the operator under the Landlord port scheme
Compensation payment for the personnel : triangular and direct financing
Port operations : debt financing or flotation of equity shares
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26. Securities for lenders
Guarantee from the State or the Municipality (if the Port Authority is the borrower)
Concession or lease contracts to private operators
Other assets, above all when they can be used in other ports
Cash flow generated by the port or terminal
Governmental guarantee against political risk
Provision of additional governmental support
Land’s value can vary significantly and its use as a security be complicated
Public-Private partnerships can be set up : sharing risks and rewards
Module 3

27. Alternative Port Management Structures
and Ownership Models
Objectives and Overview
Evolution of Port Institutional Framework
Port functions, services and administration models
Port Finance Overview
Port Reform Modalities
Reform Tools
Marine Services and Port Reform
Module 3

28. Definitions
Modernization : introduction of more suitable systems, working practices, etc. within the existing system of bureaucratic constraints.
Liberalization/de-regulation : reform or partial elimination of government rules, enabling private companies to operate in a previously publicly-operated area.
Commercialization : the public port is given more autonomy, made accountable for its decisions and overall performance, and applies private sector management accounting principles.
Corporatization : the public port is given the legal status of a private company, although the public sector sill retains ownership
Privatization : transfer of ownership of assets from the public to the private sector, or the application of private capital to fund investments in port facilities, equipment and systems. It can be comprehensive or partial.
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29. Modernization
Possible improvements not implying any legal or policy changes:
Adoption of corporate planning practices
Application of Human Resources Development planning
Development of tools to improve port administration and communication, such as…
Computer applications
Management Information Systems
Electronic Data Interchange
Information and Communication Technology
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30. Liberalization
Temporary advantage : the public operator may continue to exist as a form of insurance against disruption in service, while unsuccessful private port operators can be replaced.
Disadvantages : possibility for remaining internal and external cross-subsidies, or other unfair practices from the public sector.
Solution : clear separation of the regulatory and commercial roles in the port, all the commercial activities being transferred to the private sector.
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31. Commercialization Objectives :
Transform the port organization into a truly autonomous Port Authority, whose Board will oversee the organization’s activities
Give the Port Authority financial independence and responsibility for the port’s performance
Enable it to have its own Human Resources management schemes
Common problems :
Continuing interference of the government in port decisions
Insufficient market pressure, leading to potential lack of efficiency
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32. positive and negative aspects
Corporatization :
positive and negative aspects
Corporatization allows to…
Give financial autonomy to the port
Give time for the management to settle into its new role before contemplating full privatization
Overcome the reluctance of private capital suppliers to invest in the company
Protect the public interest during the transition period
Usual negative aspects
Monopoly of the new corporate entity
Lack of efficiency when competition is weak
Possible politicization from the government
Need for a port sector regulator to create a level-playing field
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33. Corporatization : principal steps
Preparation and enactment of any needed legislation
Development of the charter of the corporatized port enterprise, of a corporate plan, of a business plan
Capitalization and vesting of part of the assets/liabilities in the new corporation
Creation of a new labor statute and retraining of management and staff
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34. Privatization Main advantages Removal of trade barriers
Harnessing of the efficiency and know-how of the Private Sector
Elimination of political interference
Reduced demand on the Public Sector budget
Adjustment of port labor
Other objectives : raising revenues for State Treasury…
Core features
Divestiture
Deregulation / Liberalization
Competitive tendering
Private ownership of operational assets with market-based contractual arrangements
Module 3

35. Alternative Port Management Structures
and Ownership Models
Objectives and Overview
Evolution of Port Institutional Framework
Port functions, services and administration models
Port Finance Overview
Port Reform Modalities
Reform Tools
Marine Services and Port Reform
Module 3

36. Spectrum of Port Reform Tools
Public Management and Operations
Outsourcing
Management Contracts
Lease and Rent Contracts
Full Concession including BOT/BOOT/etc.
Build, Own, Operate (BOO)
Divestiture by Sale
Divestiture by license
Private Supply and Operations }
Concessions
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37. Contracting out and Use of Management Contracts
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38. Concession Arrangements : Leasehold
The lessee (a shipping line, an operating company…) has the right to use a fixed asset for a specific period of time, in exchange for periodic payment of an amount of money which is :
Fixed for flat rate lease
Variable with minimum and maximum payments for mini-maxi lease (risks and rewards of investments and operations are shared).
Variable with only a minimum payment for shared revenue lease
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39. Concession Agreements (1/2)
Benefits
Better and more efficient port operations management
Diminished reliance on State budget
Transfer of commercial risk to the private sector
Attraction and use of foreign investment and technology
Difficulties
Need for continuing close government regulation and oversight
Need for an effective legal framework to handle transfer of property rights
Sustainability of the agreement may be endangered by unrealistic financial projections
Possible improper maintenance of the facilities, disagreements between the Port Authority and the concessionaire
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40. Concession Agreements (2/2)
Documents that may be included in the agreement :
Subjects to be dealt with :
Land, facilities and equipment included in the concession
Functional requirements, proposed designs, construction program and time schedule
Rights and responsibilities regarding the construction program
Human resource development
Activities to be carried out
Equal access to common areas
Payment to the Port Authority
Termination of the concession
Leasehold agreement
Terminal access agreement
Port service agreement
Sponsor’s direct agreement
Design contract
Building contract
Financing documents
Management contract
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41. BOT Arrangements
Definition : specialized form of concession designed to increase private financial participation in the creation of port infrastructure/superstructure without changing the landlord structure of the port.
Parts of the Port to be concessioned :
Fairways/channels
Terminals
Entire Port Complexes
Variants :
Build-Own-Operate (BOO)
Equip-Operate-Transfer (EOT)
Build-Transfer-Operate (BTO)
Build-Own-Operate-Transfer (BOOT)
Wraparound-BOT (WBOT)
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42. Comprehensive Privatization
Necessary steps : enactment of new laws
Claimed benefits : revenue for the Treasury, diversification of business of privatized companies, new industrial relations practices, more commercial and entrepreneurial management, greater competition
Actual disadvantages and risks :
Formation of a private monopoly
Threat to macro-economic benefits
Discriminatory treatment of customers
Undermined competition
Over-investment or bad investment
Neglect of the port’s public service function
Reluctance of labor unions and public authorities
Under-evaluation of the port’s market value
Self regulation
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43. Ports as Transport Chain Facilitators
Possibilities :
Complementary terminal facilities
Supply chain management
Facilitation and/or co-financing of terminal facilities outside the port area (ICDs)
Use of the Port Authority’s operational expertise and management
Risk :
Conflict of interests
Module 3

44. Alternative Port Management Structures
and Ownership Models
Objectives and Overview
Evolution of Port Institutional Framework
Port functions, services and administration models
Port Finance Overview
Port Reform Modalities
Reform Tools
Marine Services and Port Reform
Module 3

45. Marine Services
Definition : Port related activities undertaken to ensure the safe and expeditious flow of vessel traffic in port approaches and harbors and the safe stay at berth when moored or at anchor
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46. The Harbormaster’s functions
Management of port activities relating to maritime safety and the protection of the marine environment, in particular :
Efficient traffic flow through port and coastal waters
Coordination of all marine services
Management of the port police
Management or coordination of the Pilotage service
Regulatory oversight of the carriage and storage of dangerous goods in the port area and of the proper use of port reception facilities
The harbormaster should not have his function privatized, and should have freedom of action to carry out his public tasks in an unimpeded manner
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47. Pilotage
Pilots have a strong bargaining power and can greatly influence port reform
Retaining pilots in Port Authority’s Marine Department may be desirable
Two ways of privatization remain possible :
Self-employment of pilots, who are overseen, regulated and licensed by a Maritime Authority
Organization of a private company, regulated by the Port Authority or Maritime administration
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48. Tugboat Operations
Tugboat operations are typically carried out by private firms.
In the case of a single company in the port, the Port Authority should regulate the service with respect to…
Minimum crew size
Minimum bollard pull
Communication equipment and channels
Coordination with vessel traffic management system
Tariffs
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49. Mooring Services
Mooring services are usually carried out by a specialized private firm.
If there is insufficient competition, the Port Authority may have to regulate this activity with respect to…
Minimum manning requirements
Communication equipment and channels
Number of mooring boats and their characteristics
Tariffs
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50. Vessel Traffic Services and Aids to Navigation
- Usually are part of a Port or a Maritime Authority
- When outsourced, should be regulated with regards to :
System functions
Types and specifications of radars and tracking software
Manning level and qualifications
Reporting duties
Tariffs
Aids to Navigation…
- Usually rest with a national Maritime or Port Authority
- Are difficult to privatize
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51. Other Marine Services
Control of dangerous goods is usually performed by a specialized branch of the Port Authority
Waste management services are often privatized under strict control of a Port Authority
Port patrol services should not be privatized
Emergency response services are carried out by the Port Authority, the fire brigade, health services and police
Control of dredging operations should be performed by a sufficiently competent personnel employed by the Port Authority
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52. Prevailing Service Providers under different port management models
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