Do privately run ports have the edge?

Private ports are already a reality in India. At Nhava Sheva, Chennai and Tuticorin exist privately owned and operated container ports.

In the context of growing and concerted external pressure to fully privatise major ports, a Bill has been introduced in the Lok Sabha to corporatise major morts as a prelude to their privatisation.

World over, private ports are just a fad. The predominance of public ports continues for the simple reason that no responsible government can hand over common user facilities which, in public interest, can only remain under public control.

Fortunately, an overview of reality about top 100 container ports worldwide is available from a series of studies from the year 1995 by Dr Alfred J. Baird, Head, TRI Maritime Research Group, Napier University, Edinburgh (UK). An updated version of the study was presented recently in a paper presented by Dr Baird at International Association of Maritime Economists (IAME) Conference held in Hong Kong.

Excerpts from the paper, Privatisation trends at the world_s top- 100 container ports, are published here with the permission given by Dr Baird to K. V. A. Iyer

IN RECENT years the role of the private sector in ports has greatly expanded. Yet, in practice the extent of privatisation of ports differs significantly, in part due to the different methods employed to bring about private sector participation. This paper identifies and analyses, through a survey of ports, the recent trends in privatisation at the worlds top-100 container ports. The survey has benefited from, and seeks to extend, a previous survey by the International Association of Ports and Harbours (IAPH).

The findings suggest that although the influence of private sector actors in ports is growing, the role of public sector agencies also remains significant. Some 92 per cent of the ports that responded to the IAPH survey were public organisations. Of these, 71 per cent were either a public agency or corporation, and 21 per cent a department of government. Only 7 per cent were private companies, and of these, over two-thirds had government shareholding from 60 per cent to 100 per cent. The overwhelming majority of seaports, therefore, appear to be in some form of public ownership.

The few private ports where the state does not have a vested interest are primarily in the UK, where the policy has been towards outright disposal of port property rights, duties, and obligations, to private sector successor companies. Whilst the IAPH survey states that more ports are considering some form of privatisation over the medium term (that is, over the next five years), this is expected to relate to private sector provision of port assets and port services, rather than outright transfer of port property rights as in the UK.

Nevertheless, when considering the survey findings, it is worth remembering that of the port authorities mentioned, 7 per cent are private (or partially private), the remainder public.

Port operations

For ease of analysis, the evaluation of public and private sector intervention in port services, based on IAPH data, has been split into three categories:

* Port navigation services

* Stevedoring services

* Added value services

The port authority (of which, to restate, 7 per cent are private, or partially private) provide navigation aids in 56 per cent of cases, the harbour master (54 per cent), dredging (55 per cent), pilotage (42 per cent), and towage (40 per cent).

Private companies provide navigation aids in 12 per cent of cases, harbour master (6 per cent), dredging (26 per cent), pilotage (28 per cent), and towage (31 per cent).

In regard to port added value services, port authorities have a significant role in providing warehousing and port information services, whilst private companies mostly provide other services such as ships agency, land transport, and shipping.

Aims of privatisation

By far the most common aim or motivation behind a port seeking to bring in the private sector is to increase efficiency, and consequently to lower port costs, with half of the ports mentioning this factor. Expanding trade as a specific aim of privatisation was mentioned by 27 per cent of the ports, and reducing the cost of investment to the public sector by 23 per cent. To obtain management knowhow was mentioned by 15 per cent of ports. A significant 21 per cent of ports mentioned a number of other reasons or aims behind bringing in the private sector to operate and/or develop container terminals. These reasons included the speed of developing new terminals, complying with ports and harbour legislation, developing a public-private partnership, and increasing port revenue,

Methods of privatisation

Terminal concessions and leasehold arrangements are the most common methods used by ports to facilitate private sector intervention. These methods have been used by 52 per cent of ports. Build-operate-transfer (BOT) has been used by 19 per cent of ports, joint venture by 10 per cent, and outright sale of port land by 4 per cent.

Corporatisation of a port authority (13 per cent) is generally combined with some form of concession/lease arrangement for terminal operations, with a number of ports mentioning both methods.

Other methods of privatisation largely relate to shorter-term terminal rentals, or formation of a separate container terminal corporation, which might be wholly or partially owned either by the port authority or by some other public body.

Public and private sector investment

In approximately half of all ports, the level of investment over the last five years exceeded $100 million, for both public and private sector entities, with absolute investments (for both sectors) appearing to be relatively equal.

What the data also indicates is that the public sector matches, and in some cases exceeds private sector investments made in container terminals. Moreover, this excludes the cost of creating basic infrastructure (for example, dredging, breakwater, etc.) which to a great extent is an additional cost met by the public sector.

Labour reform

Respondents were asked to consider the importance of dockworker labour reform in attracting private sector investment.

Some 17 per cent of ports regarded labour reform as a critical element, with a further 30 per cent claiming it was either very important, or important. Overall, a slight majority of ports considered labour reform to be a significant issue. However, about 40 per cent of ports viewed labour reform to be of rather less significance.

There appeared to be no geographical similarity in this aspect of the study. For example, while some ports in North America and in Asia regarded labour reform as critical, other ports in the same regions viewed it to be rather less important. It is not the aim of this study to consider the reasons for such divergent views, but there is perhaps a need for other researchers to establish why there are different views within the same regions, albeit in different countries/states.

Role of public sector port authority

A significant 63 per cent of ports believed that the role of the public port authority should include creating basic infrastructure). Other roles for a public port authority included overseeing port regulation and safety (46 per cent), ensuring fair competition and pricing (42 per cent), and protecting the public good aspect (40 per cent).

Additional functions a public port authority was expected to undertake included planning and marketing (25 per cent), and monitoring efficiency (19 per cent).

Survey highlights

The IAPH survey highlighted a number of issues with regard to changing institutional arrangements in the context of seaports. The main findings of the study are summarised as follows:

* The port authority is to all intents and purposes generally a public body, with very few exceptions;

* The port authority, or some other form of public body, will generally hold title to virtually all port land/terminals and access channels, with very few exceptions;

* Private companies are increasing their role in providing cargo handling equipment, but the role of the port authority/public bodies in this regard is still significant;

* The private sector now has a major role in provision of stevedoring services, although the port authority/ public bodies are also significant in this aspect;

* Provision and maintenance of navigation aids, channels (dredging) and harbour master responsibilities are still largely port authority/public body activities. However, private companies appear to be increasing their role, particularly in pilotage and towage;

* The port authority/public body is largely responsible for provision of warehousing and port information services, whilst the private sector provide most other port added value services.

The Napier survey sought to build and extend upon the IAPH survey, albeit more specifically in the context of the top 100 container ports. The objectives of the Napier study were to consider the aims of privatisation, the methods of privatisation, and the investment role of both private and public sector organisations over the past five years. The Napier survey also sought to probe some of the advantages and disadvantages of increasing private sector intervention in seaports.

The principle findings of this survey were:

* Lower port costs and improved efficiency (stated by 50 per cent of ports), expanding trade, and reducing the dependence on public sector investment, appear to be the main aims of port privatisation;

* Terminal concession or lease (52 per cent of ports) is the most common method of privatisation, followed by BOT, joint venture, and terminal rental;

* Investments in container terminals amongst the top 100 ports appear to be relatively evenly split between private and public sector. However, this tends to mask the reality in that, while some ports do have a mix of public and private investment, others depend mainly on private sector capital, whereas other ports depend mainly on public sector investment;

* In attracting private sector investment, almost half the ports (47 per cent) consider port labour reform to be either critical, very important, or important;

* The main advantages to the port of private sector investment are sharing costs (50 per cent), improved productivity (44 per cent), and helping trade growth (38 per cent);

* The main disadvantages of private sector investment are loss of control (31 per cent), political and commercial ambiguity, difficulties associated with selecting an operator, and the lengthy process this entails;

* The role of a public port authority is considered to include creating basic infrastructure (63 per cent), regulation and safety (46 per cent), ensuring fair competition and pricing (42 per cent), and the public good (40 per cent).

A key conclusion from this paper is that there does not appear to be a single, common, standard approach to port investment/port privatisation. Yes, some approaches or models are used more than others, and particularly the public port authority/private concession or lease arrangement. But, in general, the method used, and the public/private investment split, will depend on a range of factors. Such factors will inevitably include prevailing local/national laws, the local way of doing things, the level of demand/supply, and the extent and nature of competition.

However, while the evidence suggests significant involvement of the private sector, especially in port operations and services, this does not detract from the fact that the public sector, in virtually all instances, takes much more than just a passing interest in its seaport system.