. 2240 1 Viewpoint FTrN4fr No. 193 September 1.21' Dirk Sommer Private Participation in Port Facilities- Recent Trends The World Bank's The private sector has become increasingly adopting the landlord model. Under this Private Participation in involved in the operation of common-user port approach public port authorities retain their reg- infrastructure (PPI) Prolect Database covers facilities during the 1990s, following public sec- ulatorv functions and continue to own the land private participation in tor dominance of the sector since the 1940s. and basic infrastructure assets such as berths and infrastructure in During the past decade the reform of port admin- breakwater facilities. But thev divest themselves developing countries i The database records istration has gained momentum in industrial and of the managerial and financial responsibility for details of all projects developing countries alike. Betwveen 1990 and commercial facilities such as terminals and owned or managed by 1998, 112 port projects with private participation equipment in the port area. private companies from 1984 to 1998 in reached financial closure in twenty-eight devel- water, electricity, oping countries, with investment commitments Before the 1990s private involvement in manag- telecommunications, totaling more than US$9 billion (figures 1 and 2; ing and financing ports was largely limited to cap- natural gas transmission and distribution,and boxes 1 and 2). This trend is set to continue. tive facilities. These facilities, typically for bulk transport-the road, cargo, are often verticallv integrated into produc- seaport, airport, and Public port agencies have been moving away tion processes and not actively promoted for use railroad sectors. This Note examines projects from the service port model, under which the by third parties (figure 3). During this period pri- in port infrastructure port authority provides all commercial services vate involvement in common-user ports was Jim- that reacbed financial as well as regulatory functions, and increasingly ited to a few projects: Kingston Port, in Jamaica closure betwveen 1990 and 1998. It describes regional trends in and types of private sector involvement. FIGURE 1 PORT PROJECTS WITH PRIVATE FIGURE 2 TOTAL INVESTMENT IN PORT PARTICIPATION IN DEVELOPING PROJECTS WITH PRIVATE COUNTRIES, 1990-98 PARTICIPATION IN DEVELOPING COUNTRIES, 1990-98 1998 US$ millions 25 2,500 Qamme 20 2,000 15 1,500 10 1,000 t;LLJ 5 lllll5 500 101~~~~~~~~~~~~~~~ 0~~~~~~ 1990 1991 1992 1993 1994 1995 1996 1997 1998 1990 1991 1992 1993 1994 1995 1996 1997 1998 Source: PPI Project Database. Source: PPI Project Database. The World Bank Group * Finance, Private Sector, and Infrastructure Network 2 Private Participation in Port Facilities-Recent Trends *g m._ :. I * ,_., : * Ii Database coverage Operations and management contract with • To be included in the database, a project must major capital expenditure. A private consor- have reached financial closure and directly or tium takes over the management of a state- indirectly serve the general public. owned enterprise for a given period during * The sectors covered are electricity, natural which the private entity also assumes signif- gas, telecommunications, transport, and icant investment risk. This category includes water. build-transfer-operate, build-lease-transfer, * The transport sector includes the following and build-rehabilitate-operate-transfer con- subsectors: airports, seaports, rail, and road. tracts as applied to existing facilities. The seaport subsector includes general cargo Greenfieldproject. A private entity or a public- and container terminals, bulk cargo facilities, private joint venture builds and operates a and port access channels. new facility. This category includes build- * The database excludes movable assets, incin- own-transfer and build-own-operate contracts erators, stand-alone solid waste projects, and as well as merchant power plants. small projects such as windmills. Divestiture. A private consortium buys an * The period covered is 1984-98. equity stake in a state-owned enterprise. The * The database covers developing countries, as private stake may or may not imply private defined and classified by the World Bank, in management of the company. East Asia and the Pacific, Europe and Central Asia, Latin America and the Caribbean, the Definition of financial closure. For greenfield pro- Middle East and North Africa, South Asia, and jects, and for operations and management con- Sub-Saharan Africa. tracts with major capital expenditure, financial closure is defined as the existence of a legally Definition of private participation. The private binding commitment of equity holders or debt company must assume operating risk during the financiers to provide or mobilize funding for the operating period or assume development and project. The funding must account for a significant operating risk during the contract period. In part of the project cost, securing the construction addition, the operator must consist of one or of the facility. For operations and management more corporate entities with significant private contracts, a lease agreement or a contract autho- equity participation that are separate from any rizing the commencement of management or lease government agency. A foreign state-owned com- service must exist. For divestitures, the equity pany is considered a private entity. holders must have a legally binding commitment to acquire the assets of the facility. Definition ota project unit. A corporate entity created to operate infrastructure facilities is Sources considered a project. When two or more physi- * World Wide Web. cal facilities are operated by the same corporate * Commercial databases. entity, all are considered as one project. * Specialized publications. Developers and sponsors. Project types * Regulatory agencies. * Operations and management contract. A pri- vate entity takes over the management of a Contact. The database is maintained by the Pri- state-owned enterprise for a given period. vate Participation in Infrastructure Group of the This category includes management contracts World Bank. For more information contact Mina and leases. Salehi at 202 473 7157 or msalehi@worldbank.org. The World Bank Group 3 BOX 2 PPI PROJECT DATABASE: RECORDING OF INVESTMENT The database records investment differently for different types of projects, because project characteristics and data availability (1967), Port Klang, in Malaysia (1986), and vary. For operations and management contracts with major capital Manila Harbor, in the Philippines (1988). expenditure, investment is recorded as commitments of the private consortium for the entire contract period at closure. For the Aguas Thiven hi twowmard prvaters inovmeths enArgentinas water concession, for example, investment was recorded as US$4 billion, the commitment at financial closure in • The strong growvth in world trade' has led cap- tive port users-unable to switch to other 1994. Most transport and water projects are operations and man- transport modes, such as railways or airports, agement contracts with major capital expenditure. or to other ports-to put enorniious political For greenfield projects, investment is recorded as commit- pressure on autlhorities to improve handling ments for the entire contract period where those commitments efficiency, reduce port user fees, and expand are clearly defined. For example, the US$1.6 billion investment facilities to acconmmo)date larger cargo flows. in the Hub Power Company was recorded in 1994. when the Yet many public port authorities have had only power plant reached financial closure. For other greenfield pro- limitedc success in improving labor and other jects, investments and license fees are recorded periodically. practices to increase the productivity and effi- For the Czech mobile phone operator Polkomtel, investments in ciency of existing installations. network expansions are reported every year there is a major *Economies of scale in cargo shipment have led tEconomthe semergence of carfewglobaipet plavers ic expansion, and license fees are registered in the first year of shipping,eablectoocontrol thobalplocatsion of operations. Greenfield projects are predominantly in electricity shipping, able to control the allocation of and telecommunications. transshipment business to strategically divestitunivations. located, well-equipped. and efficiently man- For divestitures, privatization revenues are reported annually, aged hul) ports. 2 To stay competitive, port and postprivatization investments in privatized companies managed authorities have to modernize and upgrade by private consortia are tracked. For Telmex, for example, divesti- port flacilities to meet the neecls of the large ture revenues are registered annually. And since the sale of a con- shipping lines. But with larger ships, the trolling stake in Telmex to a private consortium, the company's advance of containerization, and the intro- annual investments have been reported as additional investments. cluction of sophisticated cargo information For Korea Telecom, only divestiture revenues are tracked, since the systems, the investment required has often government still owns the controlling stake. Divestitures are pre- g5one beyond the financial andl mana,gerial dominantly in electricity and telecommunications. capacities of public port authorities. This Note, which draws on the World Bank's PPI Project Database, provides an overviewx of the been only a single case of a concession for chan- emerging patterns and trends in private involve- nel dredging and maintenance, awarded in the ment in ports in developing countries. The data- Rio Parana. Part of the project revenues will base does not track very small projectsA and come from direct charges to the future channel covers only seaports that operate on a common- users by the concessionaire. user basis. The database covers only twenty-one bulk facilities, since most are operated as cap- The database depicts two distinct patterns: tive facilities. (Thirteen are dry bulk handling Long-term concession contracts involving pri- facilities, for grain or coal, transferred to private vate operation and management and signifi- management, ancl eight are liquid bulk facilities cant private investment in existing public developed by the private sector.) Among the assets have been the most common arrange- public port facilities attracting private involve- ments; the ownership of land has in most ment that have heen included in the database, cases remained wxith the public port authority. most have been container terminals (sixty-two Private investment has fostered the rehabilita- transactions). The rest have been smaller ports tion of terminals ancd the renevwal of super- handling general and bulk cargo. There has structure, such as cranes and yard equipment. 4 Private Participation in Port Facilities-Recent Trends FIGURE 3 MARITIME CARGO AND THE HANDLING FACILITIES REQUIRED Vertically integrated, captive facilities Common- user facilities Reflecting a pattern observed in other infra- ancd insufficient infrastricture in East Asia have structure sectors, most transactions have taken meant a larger role for new^ port facilities (green- place in Latin America and East Asia. Within field projects) in that region and also explain the regions, the distribution of projects has been high volume of investment tlhere, as in Malaysia. uneven, with five countries accounting for In Latin America the private sector has iriore roughly half the projects in all developing often taken over existing infrastructure assets countries. andl invested in refurbishing andl modernizing superstructure. focusing on increasing thie effi- Concessions involving major private ciencv and productiviry of existing assets. investments dominate Twxenty of the 112 projects are structured as In most projects the new private port operators operations andI management contracts xvithiout have taken on significant investment obligations investment commitments. In these projects pri- for expansion and modernization of existing vate operators have leased existing port infra- facilities (commonly buildings anti equipment), structure. Lease contracts have reached closure assuming full commercial risks for the facilities. for facilities in Latin America (eight projects) and The public port authorities, with fexvN; exceptions, Sub-Saharan Africa (twc0). In East Asia, Thailand hiave retained obligations for investment in (Laem Chabang) and the Republic of Korea berths and breakwater facilities and maintenance (Pusan. Kwangyang) have awarded leases to of access channeLs. operate new container facilities financed by the public sector. Three-quarters of the 112 projects are operations and management contracts with significant cap Divestiture has played a limited role in the port ital expenditure for existing facilities (forty-nine sector. In the Russian Federation ports have been projects) or greenfield development (thirty-five). transformed into joint stock companies through Most of these projects are in Latin America (eight voucher privatization. The stevedoring compa- greenfield projects and tvventy-nine conces- nies, usually former divisions of the port, have sions) or East Asia (eighteen greenfield projects been assigned oxxnership ri7ghts to parts of the and thirteen concessions). Rapid groxxth in trade port infrastructure, such as real estate in the port The World Bank Group 5 TABLE 1 PORT PROJECTS WITH PRIVATE PARTICIPATION IN DEVELOPING COUNTRIES BY REGION, 1990-98 area (St. Petersburg), or to shares in the port Total investment company (Vladivostock), with the state retaining Region (1998 US$ millions) a 49 percent ownership. In Brazil captive port facilities have been divested in the context of pri- East Asia and the Pacific 38 5,410.5 vatization in oil, steel, and mining and have since been opened to third-party access (Tubarao, San Europe and Central Asia 8 23.4 Nicolas). Latin America and the Caribbean 48 2,497.7 Middle East and North Africa 5 376.5 Private involvement remains South Asia 9 942.6 regionally concentrated SubSaharan Africa 4 32.0 Latin America and East Asia have clearly led the Total 112 9,282.7 trend in private involvement in port operations, Source: PPI Project Database. both in the number of projects reaching financial closure and in investment commitments (table 1). This regional pattern is largely consistent with trends in other infrastructure sectors, such as handling charges significantly, mostly through electricity and water and sewerage.4 Within these improved labor productivity, but has also led to regions, projects and investments are unevenly consolidations aimiong the terminals.> distributed. Five countries accounted for half the projects reaching financial closure in 1990-98, Panama and Mexico transferred their major port and more than 65 percent of committed invest- facilities to the private sector between 1995 and ment (figures 4 and 5). 1998. Panama attracted more than UTS$380 mil- lion in investments for four facilities under pri- Latin America and the Caribbean vate management-Manzanillo International Terminal, Col6n Container Terminal, and the Latin America and the Caribbean, with poor per- ports in Cristobal and Balboa; all are strong com- formance by public ports and strong growth in petitors in the container transshipment market. trade, turned to private participation in ports in Mexico awarded concessions for its major port the early 1990s. By 1998 seven countries- facilities in Manzanillo, Ensenada, Altamira, and Argentina, the Bahamas, Brazil. Colombia, Vleracruz. Jamaica, Mexico, and Panama-had transferred control of port facilities to the private sector. Brazil started its port privatization program in 1997 with concessions for the container termi- Colombia led the way in 1993, awarding con- nals in Santos and Rio Grande. Following the cessions for the management of its four major Argentine model, it awarded concessions for sin- general cargo ports to public-private consortia gle terminals. with a majority of votes held by local private companies. These consortia then subconces- In most of the Latin American projects the pri- sioned private terminal operators.5 vate operators have been able to attract signifi- cant private capital investment to refurbish Argentina, as part of a broad program of private infrastructure assets and modernize cargo han- involvement in public infrastructure services, dling equipment. The private terminals have awarded concessions for the terminals of its improved the quality of seiice and reduced main port. Buenos Aires, to four competing pri- costs (although handling charges remain high by vate port operators in 1994. The stiff competition international standards), especially where com- within the port and from a greenfield facility in petition from other terminals in the port or the province of Buenos Aires has brought down among neighboring ports has been strong. 6 Private Participation in Port Facilities-Recent Trends FIGURE 4 TOP TEN DEVELOPING COUNTRIES BY NUMBER OF PORT PROJECTS WITH PRIVATE PARTICIPATION, 1990-98 20 for many years. The Philippines, too. involved the 15 private sector early. handing over manargement of its major container facilities at the lPort of Manila to International Container Terminal Services in 10 1988. China, Inconesia, Korea. Malaxysia, Myan- mar, Thailand, and Vietnam have turnedl to thie 5 C C C * * m private sector since the mid-1980s to manage and invest in port terminals. Malaysia awarcdecl Kelang Container Terminal sqFi« *¢ ssw lb (KCT) a twenty-one-year lease contract to man- es x i N ': x-0 F age and develop container facilities at ]'ort Klang *;%6 01 04 0 ~p AVin 1986 ancd awarded a concession for the port's NJote: India and Indonesia both have four projects. hulk operations to a private coinsortiulll. Klang Source: PPI Project Database. Port Management (KPM), in 1993. lietwveen 1992 ancd 1998 Malaysia attracted significant invest FIGURE 5 TOP TEN DEVELOPING COUNTRIES BY ment commitments for seven othecr major port INVESTMENT IN PORT PROJECTS WITH PRIVATE projects. The most important is Klang West lort, PARTICIPATION, 1990-98 hwliich reached closur-e in 1994. T his project will 1998 US$ millions compete with the other operators in Port Klang 2,500 as well as with the regions dominant transship- ment huh, the port of Singapore. In I)eceniher 2,000 1998 KCT and KPM announced a merger of their operations to achieve economies of scale and 1,500 cost-effectiveness. WXhetlher the resulting loss of competitive pressure will he halanced lb the t000 emergence of Klang West Plort remains to he seen. 500 * - - - | - | China openedl the management of its ports to the private sector heginning in 1991. The lIong Kong 0 l , I PS lIort operator, Hutclhison Whampoa, took over \ '+ sothe deevelopment and management of container *§ ~ f q" facilities in Shanghai in 1993 andl in Yantian in 1994. By 1998 thirteen facilities in China were Source: PPI Project Database, managed hy the private sector. Private operations are generally structured as joint ventules vw ith the public port auttlorities; the competition wvithin Sustaining that competition will depend on a reg- ports seen in Latin America is rare in China. ulatory framework that promotes competition not only among terminals and ports hut also Indonesia introcluced private management in among different modes of transport. 1995, transferring the Koja container terminal at Tanjung lPriok Port. The project ran into difficul- East Asia and the Pacific ties amid the political and economic turmoil of the financial crisis, anci the state-owned port In East Asia and the Pacific the mnodel for private company, PT Pelabuhian Indonesia tI, cancelecl management of port facilities has been the port of the concession contract and took over the facil- Hong Kong, which has heen privately managed ity in 1998. The World Bank Group 7 Elsewhere in the region, Korea (Pusan. tized port facilities. Foreign involvement in man- Kwangyang) and Thailand (Laem Chabang) aging and financing port infrastructure through granted leases for government-owned port facil- 1997 was limited to a lease contract in 1995 for ities to the private sector. Myanmar, Thailand, one minor container facility in Vostochny Port. and Vietnam have attracted minor private invest- Elsewhere in the region, Romania granted a ments for port facilities. license to construct and operate a grain terminal in the port of Constanta to a private consortium Middle East and North Africa in 1997. And in 1998 Latvia privatized a steve- doring company that leases quays and land from Countries in the Middle East have only recently the Riga port authority. opened up their port infrastructure to private involvement. Oman, the United Arab Emirates, South Asia and Yemen awarded one facility each to the pri- vate sector in 1997. The new container facilities in Port projects involving the private sector are a Oman (Poru Raysut) and Yemen (Port Aden) will very recent phenomenon in South Asia, limited compete with each other mainly for transshipment to India and Pakistan.' In India, despite much cargo. Saudi Arabia awarded a concession for a private sector interest, only three projects-in facility in Jeddah and one for a general cargo ter- the ports of Mundra, Pipavav, and Jawaharlal minal in Dammam. And the United Arab Emirates Nehru-had reached financial closure by 1998. awarded a concession for a liquid hulk terminal in The Nhava Sheva container terminal at the the port of Fujaira. In North Africa in early 1999, Jawaharlal Nehru Port Trust is the only signifi- Morocco awarded a contract to a private consor- cant foreign investment. In Pakistan four con- tium for the development of a new container facil- tainer terminals and one liquid bulk facility in ity at the port of Tangiers (Tanger-Atlantique) on the ports of Karachi and Qasim reached finan- a build-operate-transfer (BOT) basis. cial closure between 1995 and 1998. Sub-Saharan Africa Conclusion Mozambique and Kenya have been the only Private participation in port operation has grown countries in Sub-Saharan Africa to award private strongly over the past decade, driven by broader contracts for port operations. Mozambique trends in the transport sector and a new under- awarded lease contracts for Maputo coal termi- standing of the public sector's role in the provi- nals in 1993 and container terminals in 1996.8 sion of infrastructure services. Labor unions, Kenya entered into a management contract for a which play an important role in the sector, container facility with an international operator remain highly critical of private participation, in 1996 that was later canceled. But in 1998 a con- however, mostly because of the changes in labor sortium invested in the development of a grain rules and the workforce reductions introduced and fertilizer terminal at the port of Mombasa. by private operators. Europe and Central Asia The countries leading the way in private partic- ipation have been able to attract significant After launching a reorganization of the maritime private capital investment to refurbish infra- sector in 1991, Russia used vouchers to privatize structure assets and modernize cargo handling its major port facilities (Murmansk, Kaliningrad, equipment. Under private management ports St. Petersburg, Vostochny, Vladivostock, Arkhan- have usually significantly improved their perfor- gel'sk). The joint stock port companies and steve- mance, boosting labor productivity and service doring companies have had difficulties raising quality and reducing handling costs. Whether financing to expand and modernize the priva- these efficiency achievements can be sustained 8 Private Participation in Port Facilities-Recent Trends will depend in large part on the extent to which Dirk Sommer, Private Participation in competitive pressures can be brought to bear on Infrastructure Group private operators, through competition among ports or within ports. Sustaining competition among ports will require coordinating competition policies at a regional level to create a level playing field for ports and avoid dominance by single port operators. A broader approach-aimed at encouraging pri- vate participation and competition in the trans- port sector as a whole-would need to promote competition by ports with other transport sec- tors, such as railroad and road transport, and provide incentives for service providers to com- pete across transport networks by combining transport modes. Latin America recorded annual growth rates of 13 percent for mer- chandise imports and 9 percent for merchandise exports in 1990-97, while in Asia imports grew 9 percent and exports 7.5 Viewpoint is an open percent, according to the World Trade Organization's forum intended to International Trade Statistics 1998 (Geneva, 1998). encourage dissemina- 2 Hub ports seek to consolidate regional cargo by connecting tion of and debate on regional ports through feeder vessels to a main port, the "hub," ideas, innovations, and thus allowing shipping companies to exploit economies of scale best practices for by deploying larger vessels on long routes, such as in transoceanic expanding the private transport. The unloading of feeder vessels, temporary storage of sector The views pub- freight, and loading of large vessels make up the transshipment lished in this series are business. those of the authors and 3 For example, the database does not fuly reflect licenses for the should not be attributed small private stevedoring companies that often operate state- to the World Bank or any owned port equipment, which is a common arrangement in parts of its affiliated organiza- of West Africa (Cameroon, Coe d'Ivoire, Gabon, Guinea, Senegal) tions. Nor do any of the and Latin America. conclusions represent See Ada Karina Izaguirre, "Private Participation in the ELectricity official policy of the Sector-Recent Trends" (Viewpoint 154, September 1998), and World Bank or of its Gisele Silva, Nicola Tynan, and Yesim Yilmaz, "Private Participation Executive Directors or in the Water and Sewerage Sector-Recent Trends" (Viewpoint 147, the countries they repre- August 1998). sent. See also Juan Gaviria, "Port Privatization and Competition in Colombia" (Viewpoint 167, December 1998). To order additional 6 See Antonio Estache and Jose Carbajo, "Competing Private Ports- copies please call Lessons from Argentina" (Viewpoint 100, December 1996). 202 4581111 or contact 7 In early 1999 Hong Kong's Hutchison Whampoa, which operates Suzanne Smith, editor, Java Intemational Terminals at Bojonegara Port jointly with PT Room F1IK-208, The Pelabuhan Indonesia II, announced the acquisition of a 51 per- World Bank, 1818 H cent stake in management of the container terminals in Jakarta Street, NW, Washington, jointly wvith Pelabuhan It, the state-owned port authority. It D.C. 20433, or Internet acquired the twenty-year stake against competition from other address ssmith7@ international port operators. worldbank.org. The 8 Mozambique also awarded the N4 Maputo Corridor toll road con- series is also available cession and three concessions for railroad lines serving the on-line (www.worldbank. Maputo port to consortia with private participation. org/html/fpd/notes/). 9 In early 1999 South Asia Gateway Terminal (P&O Australia) took @ Printed on recycled over the Queen Elizabeth Quay of Colombo Port in Sri Lanka paper. under a thirty-year concession.