1 8q2H Viewpoint Note No. 167 December 1998 Port Privatization and Competition in Colombia J/u1a1 (aviria Most of Colombia's general cargo trade has been handled by four public ports: Barranquilla, Cartagena, and Santa Marta on the Atlantic coast and Buenaventura on the Pacific coast.' These four ports were concessioned in 1993 to regional port "societies" established under company law. These societies are responsible for contracting with port operators for the use of facilities and supervising the facilities' use-they do not provide services directly. New laws abolished restrictive labor practices and have allowed stevedoring services to compete freely at each port. The liberalization of labor practices along with the privatization of port services has resulted in large and rapid improvements in productivity, lower fees for port users, and very attractive returns for the concessionaires. Productivity levels are higher than in most newly privatized ports in other Latin American countries-where in many cases the ports have been privatized with limited competition. The improvements have been realized with low initial investments, though recently the port societies have gone beyond investing in shoreside equipment and are starting to invest in infrastructure expansion. TABLE 1 OPERATING PERFORMANCE-BEFORE AND AFTER REFORM Indicator 1996 Average vessel waiting time (days) 10 No wait or in hours, depending on the port Working days per year 280 365 Working hours per day 16 24 Tons per vessel per day Bulk cargo 500 2,500a General cargo 750 1,700 Containers per vessel per hour (gross) 16 25 a. Minimum. Source: Puertos(Colombia General Port Superintendent July 1997). The World Bank Group * Finance, Private Sector, and Infrastructure Network Port Privatization and Competition in Colombia Like most ports around the world, Colombia's reforms were put in place and due diligence were inefficient and costly to nin- Restrictive labor was conducted to assess the ports' assets- A rules had led to inefficient operating practices, separate concession was offered for each port. costly delays, and unnecessary costs for cargo The concessionaires can set tariffs within guide- lhandling and storage. The port sector was lines established by the port regulator, and they fragmented and loosely regulated through the are obligated to work with the government on 1950s. There have been several attempts since to future investment plans. The concessions were improve efficiency. In the early 1960s man- awarded to the highest lease offer for twenty agement and operation of the main ports were years within an ownership structure that en- centralized under a new national monopoly port courages a 70/30 split between the private and authority, Colpuertos. But the absence of a clear public sectors, with the governmient retaining regulatory policy or incentives to increase invest- ownership of the port infrastructure. The pub- ments in the sector led to continuing problems, lic sector share was divided among the national particularly underinvestment. Starting in the 1970s government (3 percent), the state government the government allowed private firms to operate (12 percent), and the municipality (15 percent). terminals and berths in the major port districts alongside the public terminals managed by Uncertainty about the initial terms of the con- Colpuertos. These private berths handled mainly cession agreements and the role of Colpuertos liquid and solid bulk trades, which have dampened investor enthusiasm. The government accounted for about 70 to 80 percent of the total clarified the risks and the concession terms suf- traded volume in the country (64 million tons in ficiently to attract bids from local investors but 1996). Despite the successful opening of bulk not enough to attract foreign investors and ex- trade to the private sector, Colpuertos maintained perienced international operators. The winning its monopoly over general cargo movements. In concessionaires vary in structure from port to 1980 Colpuertos was commercialized as a state- port. In Cartagena a few local private investors owned enterprise, but its performance did not control 85 percent of the port society, with the improve. Inefficient and burdened by growing municipality having sold its share. In Buena- pension fund liabilities, Colpuertos slipped into ventura ownership is more fragmented, with financial crisis by the end of the 1980s as rising about 210 shareholders. And in Barranquilla and costs led to high tariffs for poor service. Santa Marta ownership is concentrated in a few companies, some of them the main users of the At the end of 1990 it was finally agreed that broad port, holding 70 percent of the shares. sector reforms were necessary. A law enacted in January 1991 defined private regional port societies The main role of the industry regulatory au- as concessionaires responsible for administration thority, the General Port Superintendent. is to and management of the general cargo ports, estab- set the guidelines for tariffs, to ensure that port lished the General Port Superintendent as regula- services are not too expensive, and to prevent tor of the concessions, and defined conditions of unfair competition. It also sets the minimum operation to ensure free and fair competition among rates of return for each port society. port societies and among port operators. New laws dismantLed Colpuertos in a long, painful, and costly Lessons process involving the establishment of a new pen- sion fund to cover a substantial labor retrenchment The concessionaires quickly found that the affecting at least 8,500 staff. business can be very successful and have be- come quite competitive. Productivity has in- Concession terms and process creased dramatically (table 1). In 1993 alone the public ports registered a 45 percent increase Privatizing the general cargo port terminals took in general cargo throughput (although this three years (1991-93), during which the legal growth coincided with economic liberalization TABLE 2 INVESTMENT IN NEW PORT INFRASTRUCTURE AND EQUIPMENT, 1993-2000 Millions of U.S. dollars Source of investment 1993-96 1997-2000 Private 199 270 Regional port societies 59 240 Berths 90 30 Stevedores 50 Government (dredging} 17 12 - Not available. Source: Puertos (Colombia General Port Superintendent July 1997). that boosted the country's trade). The increases cdropped from wN-ell over USS600 to less than in prodluctivity have prompted many global LTSS15O. shipping lines to begin including port calls in Colomria. Ancl the concessionaires'success has Nev investment by the private regional port ensured a steady flow of lease revenue for the societies was lowv in the initial years but has governmiient, amounting to about US$25 mil- since increased substantially ancl is forecast to lion in 1996. continue to clo so (table 2) The experience in Colombia suggests that new concessionaires The ports' procLuctiVity increases in 1994-96 tend to focus first on improving the productiv- resultecl mainly from increased comiipetition ity of existing assets and only later consicler among private stevedores at each port ancl from major new infrastrUcture investments. new investments in container hancdling equip- ment. The port operators started investing The returns to the four m ain port societies have heavily in container cranes, and stevedore com- been substantially higher than the government s panies invested in shoresicle ecquipment. includ- projection of 23 percent returns on the assets ing reaclh spreaders, top lifters, tractors and of tlhe new companies (table 3). Even with re- chassis, and other yard eqLuipimient. Improved cent higli levels of investment, the port societ- management of stevedore companies has also ics continue to enjoy strong investment returns, contributed to productivityincreasesevery y-ear higoher than the average for transport service since privatization. companies in Colombia. As a result of the increases in productivity and But a lack of clarity about the roles of the clif- the comiipetition among ports (Santa Marta, Ba- ferent parties in the sector has had two m ain rranquilla, and Cartagena are in a corridlor of drawbacks. First, it cdeterred experienced inter- less than 150 miles) and among steveclores at national port operators from bidding, so the eaclh port, shipping lines and importers and government's lease revenue fromn the conces- exporters have enjoyed somlle of the low-est sions is probably less than it could have been. stevecloring and port services rates in Southl Second, ambiiguity about the regulator's role lLas America for the past several years. Betws-een allowed the regulator to become more interAven- 1994 and 1996 nates fell in real terms bvy more tionist over time: it has become involved in in- than 50 percent. Ancd rates per container have tense efforts to design ancd monitor an allowable Port Privatization and Competition in Colombia TABLE 3 RETURNS ON INVESTMENT FOR PRIVATE PORT SOCIETIES, 1995-96 S S * S ~~~ ~~~~~~~~S S S : Barranquilla 2,106.8 2,631.9 7.99 214.1 Buenaventura 5,015.8 3,837.3 3.03 132.5 Cartagena 2,306.1 4,006.3 -9.03 155.1 Santa Marta 3,3229 3,133.3 23.44 304.3 Source: Puedtos (Colombia General Pon Superintendent July 1997). band for stevedoring and port tariff.s before tar- ports-such as Altamira, Manzanillo, and iffs are fully deregulated. To establish such a Veracruz-have resulted in better management tariff band, the regulator insists that it must esti- and higher tariffs. But the single-concessionaire mate the cost of investments, their viability, structure-in wlhich one concessionaire oper- aspects affecting competitiveness, and the need ates all ports-impedes competition and often for furtlher investments. But the limitecd capaci- results in tariffs close to or equal to the ceiling ties of the regulator mean that it will be unable of the band authorizecl by the government. In a Viewpoint is an open to assess several of these factors adequately until more positive case in Brazil the container ter- forum intended to full cleregulation occurs, further enhancing minal at Santos was privatized in 1997 and encoUrage dissemina- competition. In the medium term the end users awarclecl to a concessionaire that aims to reduce tion of end debate on ideas, innovations, and ancl shipping lines can put forward a clear case costs from tJS$500 to LJSS150 per twenty-foot- best practices for ex- for complete liberalization of port tariffs. The equivalent unit (teu) in two years. The container panding the private port societies with the most aggressive invest- terminal will compete with the terminal oper- sector. The views pub- lished are those of the ment plans would probably he the first to sup- ated by the Grupo Libra in the same port as authors and should not port such efforts as a way to ensure that their- well as witlh others now being concessionecl to be attributed to the tlhrouglhput grows in accordance with the opti- private operators. In the long run the port of World Bank or any of its affiliated organsms- mistic expansion forecasts. Santos will adopt thie model successfully level- tions. Nor do any of the oped in BLuenos Aires, vhere five international conclusions represent A problematic effect of the reforms has been terminal operators have taken over long-term official policy of the World Bank or of its some long-term unemployment. In Buena- concessions. But even after huge investments Executive Directors ventura the local economy depends heavily on productivity in Argentina is only about 25 teus or the countries thev the port. The substantial cuts in port jobs- per vessel per hour (gross), reportedly the av- represent. from 2,000 in 1991 to 200 in the port society erage in Colombia after relatively modest in- To order additional toclay-have resultecl in high unemployment vestments in shoreside equipment. copies please call in this Pacific coast port, one of the poorest in 202-458-1111 or contact I In 1997 tile Zgglegzje gleglemlneilgo lourgighulp oft le froir gnelrl.l Suzanne Smith, editor, thie country. Local authorities have struggled cargo poits amounted to h,IoLrt 11 million tons. inclullding aboLt Room Fl 1 K-208, withiouit much sLuccess to address the social J(r(r rcaII. The World Bank, problems that have been exacerbated by this 1818 H Street, NW, Washington, D.C. 20433, unemploymiient. These results suggest that la- Juan Gavi/ia (j,gaviria@uworldlbaink.org), Senior or Internet address bor redunclancy packages need to go beyond Transport Specialist ssmith7@worldbank.org. severance pay to inclucle some retraining and The series is also sm--all business promotion. available on-line (www.worldbank.org/ html/fpd/notes/I. Comparecd vith the results of otlher port privati- @ Printed on recycled zations in Latin America, Colombia's look very paper. good. In Mexico thie concessions for major