Labor Toolkit

Legal Tools for Port Reform

Port Authority and Terminal Operations

One important issue to be considered in port laws is the relationship between a port authority and port services providers, in particular the cargo handling companies operating in the portís territory. Generally, it is undesirable for a public port authority to be directly involved in terminal operations. A port law may explicitly prohibit a port authority from providing cargo handling services. A further step to avoid conflict of interest issues would be to prohibit a port authority from being a shareholder in a terminal operating company located in its port area. Notwithstanding potential conflicts of interest, a port authority with the overall responsibility to develop the port area may sometimes opt to make strategic investments to develop a sector of the port business (see Box 9). There is an increasing trend for port authorities, particularly in the event that there is only one major terminal in a port, to acquire minority shareholding (say 10 percent) in the special purpose vehicle (or operator) constructing a terminal under a concession or BOT agreement. There are commonly two reasons for taking shares:

The situation becomes more complicated when a port accommodates more than one major terminal competing against each other. In order not to compromise its independent position as the landlord, a port authority should either possess shares in all terminals or in none at all.

Licensing

A port authority might be authorized to exercise licensing and regulatory functions with respect to marine and port services and facilities. Regulation of marine activities is related to the harbormasterís function, as well as to the transport of dangerous goods and protection of the environment (such as rules pertaining to discharge of ship wastes into port waters, tank cleaning, and the use of port reception facilities). The licensing power of the port authority with respect to port services can be extensive because it usually has the legal power to revoke licenses for violations without administrative appeal.

The law may authorize the issuance of public licenses to operate terminals. Because public licenses require extensive oversight by the port authority and reporting by the licensee, their utility should be balanced against the bureaucratic burden for the port authority and the port licensees. The same goals may be better achieved through concession or leasehold contracts, as these are more flexible for both parties. However, in the event of inclusion of a public license authority in a ports law, rules should be set for transfer, renewal, and cancellation of a license. Unlike for a concession or lease, where breaches are matters of contract and law, license breaches fall under administrative (or even criminal) processes for their resolution.

In this regard, the following reference text may be used:

No person shall provide: (i) any marine service or facility; or (ii) any port service or facility, unless he is authorized to do so by a public license granted by the port authority.

Every public license granted by the authority shall be in such form and for such period and may contain such conditions as the authority may determine.

Usually, a corporatized port authority does not have the power to grant a public license. It can only set conditions for the provision of port services under commercial contracts (such as leases, rent contracts, or concessions) with port service providers.

Marine Management

Marine management tasks form part of either a national maritime administration or of a public port authority. Marine management, which is essentially a public safety task, should be performed separately from a corporatized or privatized port authority to prevent a conflicting mix of commercial and safety objectives. A ports law should make that separation of objectives clear. Because of overriding safety concerns, which may run counter to the profit-making objectives inherent under this type of port authority, combining marine management tasks with managing a corporatized or privatized port may not be the best option for managing navigational port safety (see Box 10 and Box 11).

The function and duties of a port authority regarding marine safety and environmental protection are:

If the harbormasterís function forms part of a national maritime administration, its powers and duties are usually regulated in a Maritime Code. Often, however, the harbormaster (port master or port captain in some jurisdictions) is part of a port authorityís organization. If so, the ports law or relevant port bylaw should include a section dealing with the specific powers and duties of this function. Generally, the harbormaster may issue general and specific directions to shipping within the framework of its powers. The harbormaster is usually the operational commander responsible for marine safety and for combating the effects of incidents involving ships or terminals. At the same time, the harbormaster is involved in regulating traffic and acts as the main nautical adviser to the port authorityís governing board (see Box 12).

Financial Issues

It is very important to regulate a port authorityís financial powers and have them conform with applicable fiscal and public administration laws. A port authority, whether public or private, may do very well in attracting investment, especially from private sources, if it is managed like a commercial business. Many ports, however, are part of an overall state, regional, or municipal structure and subject to the same financial rules and regulations as other parts of the public administration. This is particularly the case for a public service port authority, where the administrative costs of burdensome procurement procedures can be high, as for example when a cabinet of ministers is the only body authorized to approve the purchase of quay cranes or other high-cost equipment.

Another issue that may hamper efficient port management is a legal provision that requires approval of long-term concession agreements by a council of ministers, or even a parliament, as is the case for instance in Croatia and Yemen. A central government may define a general policy with respect to concession agreements in the port sector, but should not interfere in the detailed negotiations on concession agreements, which should (preferably) be conducted by a port authority. This obviously also applies not only to service ports but also to landlord ports.

Since a port is a functional and economic entity that often operates in a competitive market, clear financial powers for port management should be included in a ports law. These include the powers to:

Examples of legal language used to define certain aspects of financial authority include:

Violations

A ports law may explicitly list a number of specific administrative, civil, and criminal offenses and empower the public port authority to assess fines for their violation, subject to administrative or judicial appeal. Such offenses may pertain to:

Appealing Port Authority Regulations

In most ports, safety and security regulations are spelled out in port bylaws. Regulations in the bylaws have a public character and bind all operators in the port area. However, a port authority may decide to issue specific regulations in addition to those which can be found in the bylaws. In that case, the operator should have an opportunity to appeal the application of such regulations, especially if their application will result in significant economic harm to the operator.

Provisions of the concession agreements may further provide the operator with the opportunity to request an expert opinion binding both parties. Pending the decision of the experts, the contested regulation of the port authority would be suspended. The general rules for arbitration of disputes contained in the concession agreement may also apply to this section (see Box 13 and Box 14).

Liability for Damages

The respective liabilities associated with occupancy and use of the site must be clearly presented in leases and concessions. Generally, the operator pays for all damage caused to the site by mooring or unmooring of vessels or during cargo handling operations. In a landlord port, the port authority is responsible for maintenance of the quay wall. The responsibility for damage is therefore limited for a mutually agreed period after a vessel arrives at the quay wall (or pier). Damage to the port authorityís property by a vessel can usually be recouped from a marine insurance company. The operator may be required to pay for damage even if acting pursuant to orders or instructions of officers (such as pilots) of the port authority (see Box 15).

If a port authority carries out marine services, such as pilotage, towage, and other related activities (for example, vessel traffic [radar] services), liability for the effects of default, negligence, or any other wrongful act should be limited as much as possible. Therefore, the law might contain a clause outlining such a limitation. Examples of such a clause are:

Inclusion of such provisions should be considered in light of the overall goals for port development. For example, limitations of liability may have a chilling effect on some investors, who would have to seek someone other than the port authority to assume liability risks that exceed the limit. Therefore, the port authority should be provided with the power to waive such liabilities or readjust the liability limit.

Another liability to consider is concerns the loss or damage of goods. The concession or lease agreement should hold the operator liable for goods deposited in its custody during port operations. The operator should indemnify the port authority against liability for goods at the terminal (see Box 16).



Home

How To Use The Toolkit

Overview

Framework for Port Reform

The Evolution of Ports in a Competitive World

Alternative Port Management Structures and Ownership Models

Legal Tools for Port Reform

Introduction and Overview

General Approach for Drafting a Ports Law

Port Authority and Terminal Operations

Port Regulations

Port Competition Modalities

Full Concession Agreements

BOTs and Construction

Annex I

Financial Implications of Port Reform

Port Regulation:
Overseeing the Economic Public Interest in Ports

Labor Reform and Related Social Issues

Implementing Port Reform

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