Public Private Partnerships as an Option to Speed Up Investments

in Intermodal Infrastructureand Services

César Queiroz, Ph.D.Transport Infrastructure Consultant

World BankKlaipeda, Lithuania

19-21 November 2007

InterBaltic Final Conference:“A Future Transport Policy for the Baltic

Sea Region”

Presentation Outline

• The World Bank Lending for Transport• World Maritime Traffic • World Port Container Traffic• Major Container Routes• World Top-10 Container Ports• Global World Port Capacity• Performance Based Contracts (PBC)• From PBC to Concession• World Bank Port Reform Toolkit• Logistics Performance Index (LPI) • Concluding Remarks• References

World Bank Lending for Transport

0

500

1000

1500

2000

2500

3000

3500

4000

FY04 FY05 FY06 FY07 FY08*

Year

Aviation

General Transport

Ports and WaterborneTransport

Railways

Roads and Highways

Lending (US$million)

World Bank-Financed Klaipeda Port Project Includes

• Rehabilitation and extension of breakwaters

• Dredging of the channel entrance• Training of port pilots• Improved navigation systems, wave

current monitoring, wreck removal• Construction of a confined disposal

facility for storage/treatment of contaminated dredging masses

Klaipeda Port: Reconstruction and Extension of Breakwaters

Klaipeda Port: Reconstruction and Extension of Breakwaters

Dredging of Channel Entrance

Wreck Removal from Channel Entrance

Development of World Maritime Transport

0

1

2

3

4

5

6

7

8

1990 1992 1994 1996 1998 2000 2002 2004

Year

Other cargo

Dry bulk

Crude andproducts

Source: UNCTAD Review of Maritime Transport 2006

Total transport (billion tons)

World Port Container Traffic

0

100

200

300

400

500

600

1973 1977 1981 1985 1989 1993 1997 2001 2005 2009*

Year

Source: Containerisation International

Million TEU

Major Container Routes (mio TEU) 2005

Transatlantic2.4

3.5Europe – Far East

9.3

4.9

Trans - Pac

5.1 Trans - Pac

12.9

Total East/West 50.3

Total North/South 20.3

Total Inter-Regional 45.3

World Total 115.9Source: Drewry

World Top 10 Container Ports

24.823.2

21.7

18.5

129.8 9.6 8.9 8.9 8.5

0

5

10

15

20

25

30

Singap

ore

Hong Kong

Shanghai

Shenzh

en

Busan

Kaohsi

ung

Rotterd

am

Hamburg

Dubai

Los Angel

es

2003

2004

2005

2006

Source: Yearbook Containerisation International

Throughput (million TEU)

Relative Growth: Top 10 World Container Ports

0

20

40

60

80

100

120

140

160

180

200

2003 2004

2005 2006

Source: Yearbook Containerisation International

Relative Growth (2003 = 100)

Global Container Port Capacity• Container port capacity is reaching critical

levels

• Development of new port capacity in countries like China is fast, but in other regions (like USA and Europe) much slower, due to many procedures (e.g., public inquiry, EIA, inefficient hinterland connections)

• Example: Le Havre and Yangshang Offshore Terminal in Shanghai

Le Havre and Yangshang • 2000 project in Le Havre: First Phase of

4 berths took 3 years

• Yangshang Offshore Terminal in Shanghai: Phases 1 and 2 (9 berths) and 32.5 km long bridge took 5 years

PPPs are not new!• Toll road at Wadesmill in Hertfordshire, UK,

established in 1663 by Act of Parliament

• 19th century concessions: toll roads, bridges, tunnels in US; railways in France; subway in London

• Suez (1860) and Panama (1880) canals

• Decline around 1930 (great depression)

• Resurgence in the 1980s: collapse of the state-owned monopoly paradigm

Public-Private Partnership (PPP)

A sustained collaborative effort between the public sector (government agencies) and private enterprises to achieve a common objective (e.g., a container terminal project) while they pursue their own interests

Performance Based Contracts for Dredging – a Form of PPP

• Also known as draught guarantee contracts

• The contractor bears sedimentation risks over longer periods and is paid for services with monthly fixed amounts (or alternative financing such as toll – then a concession)

• Most ports and waterways have carried out maintenance dredging by two types of contract: Dredging paid by volume, or Charter contracts

• Before: directly by the government

Where to Apply Performance Based Contracts for Dredging?

• Where a stable level of policy is to be expected

• Where sedimentation can be evaluated within reasonable assumptions of risk

• Where other risks are covered with reasonable contractual limits (for example, extreme weather conditions)

• Sufficient volume to allow competitive bidding

Example of Performance Based Contract (PBC) for Dredging

• BAHIA BLANCA , Argentina

• A 5-year PBC for maintenance dredging

• Phase 1: Capital dredging; Opening Volume preset at 1 million m3; when real opening volume is measured the contract value was adjusted accordingly

• Phase 2: Maintenance dredging during remained of 5-year period

• The bid price was comprised of 60 equal monthly payments, plus the initial dredging

From Performance Based Contract to Concession – A Typical Case

• PBC: The contractor bears sedimentation risks over longer periods and is paid for services with monthly fixed amounts

• Concession: In addition to sedimentation risks, the contractor also bears demand risks, as payments are made by the users (e.g., toll)

Example of Concession for Dredging

• Hidrovia Waterway Concession, Argentina

• Concession contract for 18 years: 1995 – 2013

• Rio Parana and Rio de la Plata from Santa Fe to the Atlantic Ocean

• Mainly for oceangoing traffic, but also river barges use the waterway

• 800 km of main waterway for Argentine exports (> 80% of export)

Hidrovia Waterway Concession• Risk of sedimentation and traffic born by

the concessionaire

• The works include: Capital dredging and installation of buoys in 1995-1996; Deepening works from 9.8 m 10.4 m navigation channel; 800 km maintenance dredging – about 22 million m3/year; Maintenance of the buoys and beacons; Toll system

• Contract clause includes guaranteed depths and safety all year round, 24 hours per day

Hidrovia Waterway Concession• Contractor has to provide sufficient equipment

• Three hopper dredges of 3400 to 6000 m3 holds are constantly working

• Additional hopper dredges assist during sedimentation seasons

• Additionally a large Cutter Suction Dredge maintains a sedimentation trap in the Rio de la Plata estuary on a 2 yearly basis

• Contractor places and maintains buoys

• Survey: 5 survey vessels for constant mapping of draft situation

Hidrovia Waterway Concession• Tolls: paid by all commercial vessels per

tonnage (NRT) and used stretch

• Toll level is revised on regular basis with state to find equilibrium between costs and income

• End costs for typical users: about 1 USD/ton of grain exported; 16 USD/TEU

• Concessionaire: Jan De Nul Group (DJN)

World Bank and Port Reform• World Bank is and has been catalyst

in reforming the Port Sector in Emerging Economies

• Service Port to Landlord Governance model has found wide application

• The Landlord Model has resulted in a clear separation between public and private responsibilities and returns, embedded in a concession contract: investments, tasks, revenues, and risks

World Bank Port Reform Toolkit• A decision support tool to undertaking

reforms of public institutions that provide, direct, and regulate port services in developing countries

• Helps to choose options for private sector participation

• Assists in the analysis of the relationships between public and private parties

• Suggests legislation, contracts, and institutional charters to govern private sector participation

Toolkit’s Main Modules• A 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

• Port Regulation: Overseeing the Economic Public Interest in Ports

• Labor Reform and Related Social Issues

• Implementing Port Reform

Toolkit Availability• Second Edition: Available since 2007

• Free of charge

• http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTTRANSPORT/EXTPRAL/0,,contentMDK:20517158~menuPK:1221870~pagePK:148956~piPK:216618~theSitePK:338594,00.html

• Also available as a CD ROM

The Landlord Model

Lease

Dues

State Subsidy

Port Authority

Fixed Assets

Loans

OPEX

Port Management Models

Type Infra-

structure

Super-

structure

Stevedoring labor

Other functions

Public Service Port

Public Public Public Mainly public

Tool Port Public Public Private Mainly public

Landlord Port Public Private Private Mainly private

Private Service Port

Private Private Private Mainly private

Port Adm Infra Equipm’t

Building

Carg Hand

Mooring

Dredging

Pub

Serv

Tool

Land

Lord

Priv

Serv

Public-Private Roles in Port Management

Public Private

A Good Example of Landlord Port -- Klaipeda

Logistics Performance Index• Scale of 1 to 5 – lowest to highest performance

• Joint effort: World Bank, Turku School of Economics, Global Facilitation Partnership for Transportation and Trade (GFP), International Federation of Freight Forwarders Associations (FIATA), Global Express Association (GEA)

• Available, since November 2007, for 150 countries on the World Bank website

• http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTTRANSPORT/EXTTLF/0,,contentMDK:21514122~menuPK:515440~pagePK:148956~piPK:216618~theSitePK:515434,00.html

LPI assesses the performance of countries in seven areas of the

logistics environment• Infrastructure

• Customs and border crossing

• Logistics competence

• Domestic costs

• Timeliness

• Tracking and Tracing

• Ease of arranging international shipments

LPI in Selected Countries

4.193.82

3.323.02 2.95

2.782.55

2.372.11

1.21

1

2

3

4

5

Sin Fin Chi Lat Est Lit Ukr Rus Taj Afg

LPI in Selected CountriesCountry LPI Custo

msInfra Ease

of Int Ship.

Logist. Comp.

Track Trace

Dom. Logist. Costs

Time liness

Fin 3.8 3.7 3.8 3.3 3.8 4.2 2.2 4.2

Chi 3.3 3.0 3.2 3.3 3.4 3.4 3.0 3.7

Lat 3.0 2.5 2.6 3.3 2.9 3.1 2.9 3.7

Est 2.9 2.8 2.9 2.8 3.0 2.8 3.3 3.3

Lit 2.8 2.6 2.3 3.0 2.7 2.6 3.0 3.4

Ukr 2.5 2.2 2.3 2.5 2.4 2.5 3.2 3.3

Rus 2.4 1.9 2.2 2.5 2.5 2.2 2.4 2.9

Some Concluding Considerations• Since 2006 there has been increasing interest of

investment banks and other financial institutions to invest (in particular) in the container terminal business

• A few examples– Investment Bank Goldman Sachs purchased a 49% stake

in operator SSA Marine

– Insurance conglomerate American International Group (AIG) bought the US terminals of Dubai Ports World

– A unit of Deutsche Bank bought Maher Terminals (New York and New Jersey)

• The long-term Rate of Return is high, secure and stable

• Will this trend continue?

High

Low High

Low

Importance of Regulation

Private Sector Risk

Public Service

Port

Private Service

Port

Landlord Port

Tool Port

Allocation of RisksAllocation of RisksPublic Service Port

High

RISKTO

PUBLIC SECTOR

LowRISK TO PRIVATE SECTOR High

Landlord Port

PBC

Concessions

Decreasing Public Risks,

Increasing Private Risks

Thank you!

WB PPP-related Sites• World Bank Port Reform Toolkit

http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTTRANSPORT/EXTPRAL/0,,contentMDK:20517158~menuPK:1221870~pagePK:148956~piPK:216618~theSitePK:338594,00.html

• How to Hire Expert Advice on PPP http://rru.worldbank.org/Toolkits/Documents/Advisors/Full_Toolkit.pdf

• Labor Issues in Infrastructure Reform www.ppiaf.org/Reports/LaborToolkit/toolkit.html

• World Bank (2006). “Resource Guide for Performance-based Contracting.” Washington, D.C. http://www.worldbank.org/transport/roads/resource-guide/index.html

The Doing Business Project• provides objective measures of business

regulations and their enforcement• ranks economies on their ease of doing

business, from 1 (Singapore) to 178 (D. R. Congo)

• includes 10 dimensions: Starting a Business, Dealing with Licenses, Employing Workers, Registering Property, Getting Credit, Protecting Investors, Paying Taxes, Trading Across Borders, Enforcing Contracts, Closing a Business

• http://www.doingbusiness.org/economyrankings/?direction=Asc&sort=1

Lithuania, Pop 3,396,862 GNI US$7,870/capita

• ranks (26) above the regional and income group averages in six dimensions

• three most problematic factors for doing business: tax rates, inefficient government bureaucracy, and tax regulations

• among the top five countries in the Registering Property indicator, but it ranks in the bottom 10% of countries in non-wage labor cost and rigidity of hours index

• labor regulations are listed among the top 10 obstacles to firm investment

• http://rru.worldbank.org/besnapshots

Estonia, Pop 1,341,042 GNI US$11,410 /capita

• ranks (17) above the income group and regional averages

• three most problematic factors for doing business: an inadequately educated workforce, inefficient government bureaucracy, and poor work ethic in national workforce

• among the bottom 25 countries in the Employing Workers indicator

• labor regulations are ranked as the most significant obstacles to firm investment

• annual GDI growth has been above 10% for the last two years

• http://rru.worldbank.org/besnapshots

Latvia, Pop 2,286,633 GNI US$8,100/capita

• ranks (22) above the regional and income group averages in six dimensions

• in the political risk rating, the primary declines were in external conflict, internal conflict, and government stability

• three most problematic factors for doing business: inflation, tax rates, and corruption

• top constraints to firm investment: tax administration, tax rates, and economic and regulatory policy uncertainty

• annual GDP growth has been above 10% for the last two years

• http://rru.worldbank.org/besnapshots

Major Port Functions• Administration• Infrastructure• Superstructure: Equipment and Buildings• Cargo Handling• Mooring• Dredging• Regulatory function • Planning function• Nautical function • Port marketing and promotion function

• Ownership of infrastructure

• Ownership of superstructure (in particular ship-shore handling equipment)

• Employment of stevedoring labor

Main Distinctions in Port Management Models

Cesar QueirozTransport Infrastructure Consultant

World Bank, 1818 H Street NWWashington DC 20433 USA

Tel +1 202-473 8053Mob +1 301-755 7591

Email: cqueiroz@worldbank.orghttp://www.worldbank.org/transport

Cesar Queiroz is an international consultant on transport infrastructure, with main interest in public-private partnerships (PPP) in infrastructure, performance-based contracts, road management and development, port rehabilitation and reform, improving governance, quality assurance and evaluation, research, teaching and training. Between 1986 and 2006, he held several positions with the World Bank in Washington, D.C., including principal highway engineer, lead highway engineer, and highway advisor. Prior to joining the World Bank, Cesar was the deputy director of the Brazilian Road Research Institute in Rio de Janeiro. He holds a Ph.D. in civil engineering from the University of Texas, USA, a M.Sc. in Production Engineering from the Federal University of Rio de Janeiro, and a B.Sc. in civil engineering from the Federal University of Juiz de Fora, Brazil. Cesar was awarded the Maua Medal for his contribution to transport development in Brazil, and is an elected member of the Russian Academy of Transport. He has published more than 130 papers and articles, including being a co-author of two World Bank main publications on PPP and performance-based contracts, respectively the “Toolkit for PPP in Highways” and the “Resource Guide for Performance-based Contracting.” He has participated actively in several international organizations and conferences.