Labor Toolkit

Financial Implications of Port Reform

PART A: PUBLIC-PRIVATE PARTNERSHIPS IN PORTS: RISK ANALYSIS, SHARING, AND MANAGEMENT

Introduction

We are witnessing a vast movement toward the privatization or private management of public services throughout the world, in industrialized as well as in developing countries. This trend is especially marked in the port sector, where calls for tenders to introduce private management to ports previously under the control of the government or other public entity have increased substantially in the last few years. This trend has created a market for companies to develop port concessions. Projects of this type, which are frequently set up on a project financing basis, generate significant risks for the various parties involved (private sector, investors, and lenders).

Port reform also requires public authorities to take on a new role, that of “concessioning authority” or regulating authority. These changes permit the public authority to concentrate on its essential tasks of economic, social, spatial, and temporal regulation to achieve the best balance among the interests and demands of the various port and shipping entities and of the general public.

Part A of this module will review a number of financial aspects of port reform using the example of a public landlord port that has decided to transfer a terminal into the hands of a private operator. (See Module 3 for a full discussion of service, tool, and landlord ports.) This involves to a greater or lesser degree the delegation of design, construction, and operating functions to the private sector. In this context, the partnership established between the port authority and operator can take a number of different forms. These are difficult to describe accurately by means of a simple topology as many different types of contracts can be used (see Module 4). Apart from the usual distinctions in terms of the delegated services, ownership of the facilities or the point in time at which the operator intervenes during the lifetime of the project (operation and maintenance contracts, lease contracts, concession, BOT [build-operatetransfer], or BOO [build-own-operate] agreement, and so forth), particular attention will be paid to the problem of risk sharing between the port authority and the operator. All public-private partnerships are defined in a contract, the content of which must be adapted according to the characteristics of the particular project. These contracts reflect the mutual commitments of the parties and in defining them, the risks assumed by each party.

One of the essential conditions for the success of port reform projects is the ability to identify risks. This is a prerequisite to determining optimum risk sharing between the various participants according both to their respective capacity for risk management and their willingness to carry these risks. We shall therefore address the question of risk sharing analysis in greater depth, by means of a pragmatic examination of what it signifies from the terminal operator’s viewpoint. The tools we will employ will include a set of principles constituting a code of good practice that have proven acceptable to all parties for risk allocation and sharing in various situations, and an assessment grid that can be used to perform a quick evaluation of the main risks of a project and the ability of a candidate operator to manage these risks.



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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

Financial Implications of Port Reform

Introduction

Part A: Public-Private Partnerships in Ports

Characteristics of the Port Operator

Risk Management

Concluding Thoughts

Part B
Principles of Financial Modeling, Engineering, and Analysis

Measuring Economic Profitability from Perspective of the Concessioning Authority

Rating Risk from the Perspective of the Concession Holder

Financial Project Engineering

Financial Modeling of the Project

Appendix

Port Regulation:
Overseeing the Economic Public Interest in Ports

Labor Reform and Related Social Issues

Implementing Port Reform

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