port reform toolkit -...

FRAMEWORK FOR PORT REFORM

M O D U L E 1

PORT REFORMTOOLKITSECOND EDITION

THE WORLD BANK

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© 2007 The International Bank for Reconstruction and Development / The World Bank

All rights reserved.

The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of Public-Private Infrastructure Advisory Facility (PPIAF) or the Board of Executive Directors of the World Bank or the governments they represent.

Neither PPIAF nor the World Bank guarantees the accuracy of the data included in this work. The boundaries, colors,denominations, and other information shown on any map in this work do not imply any judgment on the part of PPIAF or theWorld Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.

The material in this work is copyrighted. Copyright is held by the World Bank on behalf of both the World Bank and PPIAF.No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including copying,recording, or inclusion in any information storage and retrieval system, without the prior written permission of the World Bank.The World Bank encourages dissemination of its work and will normally grant permission promptly.

For all other queries on rights and licenses, including subsidiary rights, please contact the Office of the Publisher, World Bank,1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail [email protected].

ISBN-10: 0-8213-6607-6ISBN-13: 978-0-8213-6607-3eISBN: 0-8213-6608-4eISBN-13: 978-0-8213-6608-0DOI: 10.1596/978-0-8213-6607-3

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MODULE ONE CONTENTS1. Introduction and Objectives 12. Context for the Framework Module 33. The Port Business Environment 54. A Road Map for the Port Reform Process 10

4.1. Setting Reform Objectives and Planning for the Creation of Value 104.2. Reform Policy Decision Context 11

4.2.1. Methods of Private Sector Involvement 114.2.2. Modes of Public Interest Oversight 12

4.2.2.1 Regulatory Oversight: Economic and Technical Issues 124.2.2.2. Oversight Administration 13

4.2.3. Port Sector Funding: Financial Implications and Risk Allocation 144.2.4. Legal Framework Adaptation 154.2.5. Service Packaging and Restructuring 164.2.6. Labor Adjustment and Settlement 174.2.7. Responsibility for Implementing Port Reform 184.2.8. Sequencing of Transactions 194.2.9. Transaction Preparation 19

5. Implementing Port Reform: Pulling It All Together 20

BOXESBox 1: Port of Cartagena (Colombia) Performance Improvements since Private

Concessioning in 1994 2Box 2: Argentina: Selected Performance Indicators for the Port of Buenos Aires 3Box 3: Port Projects with Private Participation in Developing Countries 5Box 4: Investments in Port Projects with Private Participation in Developing

Countries by Project Type, 1992–2004 6Box 5: Public-Private Roles in Port Management 9Box 6: Port Reform Decision Tree 11Box 7: The Public-Private Balance of Risk and Regulation 15Box 8: Shifting the Boundary of a Public-Private Partnership 20

Port Reform: A Toolkit

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Acknowledgments

This Second Edition of the Port Reform Toolkit has been produced with the financial assistance of a grant fromTRISP, a partnership between the U.K. Department for International Development and the World Bank, for learningand sharing of knowledge in the fields of transport and rural infrastructure services.

Financial assistance was also provided through a grant from The Netherlands Transport and Infrastructure TrustFund (Netherlands Ministry of Transport, Public Works, and Water Management) for the enhancement of theToolkit’s content, for which consultants of the Rotterdam Maritime Group (RMG) were contracted.

We wish to give special thanks to Christiaan van Krimpen, John Koppies, and Simme Veldman of the RotterdamMaritime Group, Kees Marges formerly of ITF, and Marios Meletiou of the ILO for their contributions to this work.

The First Edition of the Port Reform Toolkit was prepared and elaborated thanks to the financing and technicalcontributions of the following organizations.

The Public-Private Infrastructure Advisory Facility (PPIAF)PPIAF is a multi-donor technical assistance facility aimed at helping developing countries improve the qualityof their infrastructure through private sector involvement. For more information on the facility see the Web site: www.ppiaf.org.

The Netherlands Consultant Trust Fund

The French Ministry of Foreign Affairs

The World Bank

International Maritime Associates (USA)

Mainport Holding Rotterdam Consultancy (formerly known as TEMPO), Rotterdam Municipal PortManagement (The Netherlands)

The Rotterdam Maritime Group (The Netherlands)

Holland and Knight LLP (USA)

ISTED (France)

Nathan Associates (USA)

United Nations Economic Commission for Latin America and the Caribbean (Chile)

PA Consulting (USA)

The preparation and publishing of the Port Reform Toolkit was performed under the management of Marc Juhel,Ronald Kopicki, Cornelis “Bert” Kruk, and Bradley Julian of the World Bank Transport Division.

Comments are welcome.Please send them to the World Bank Transport Help Desk.Fax: 1.202.522.3223. Internet: [email protected]

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The complex reform process through which theToolkit navigates policy makers is a worthwhilejourney. While the reasons for engaging in portreform are many and varied (as discussed inModule 3), the benefits are real and can bequantified as they accrue to exporters, con-sumers, shippers, and entrepreneurs. A success-ful reform program will help free governmentsof unnecessary expenditures, releasing funds forhigh priority social programs; ease bottlenecksto trade and economic development; and moti-vate the adoption of new regulations thatprotect the environment and improve workerand navigational safety.

Generally, the benefits the main stakeholderscan expect from port reform include:

• Governments: At the macroeconomiclevel, improvement of external trade com-petitiveness by reducing transport costs,particularly the cost of port services, andimproving port efficiency at the sea/landinterface; at the microeconomic level,easing the financial burden on nationalbudgets by transferring part of portinvestments and operating costs to theprivate sector, and incidentally, raisingrevenues from asset divestitures.

1Framework for Port ReformSECOND EDITION

1. INTRODUCTION AND OBJECTIVES

The process of institutional reform is complex. Most countries under-take the kinds of fundamental institutional reforms that shift bound-aries between the public and private sectors less than once in each

generation. Hence, in most countries the knowledge necessary to carry thereform process forward needs to be built up from a near zero base. ThePort Reform Toolkit (Toolkit) is designed to shorten the learning curve forinstitutional review and renewal by providing background information,concrete examples of successful and unsuccessful reforms, and specific toolsand methods that policy makers and reformers require to proceed with theconfidence that genuine knowledge affords.

MODULE

• Transport and terminal operators: Morecost-effective port operations and servic-es, allowing for more efficient use oftransport assets and better competitivepositions in transport markets, and morebusiness opportunities in growing sectors(for example, container operations).

• Shippers, exporters, and importers:Reduced port costs and, potentially,lower maritime freight rates, allowinglower costs of imported goods and inter-mediate products and enhanced competi-tiveness for exports.

• Consumers: Lower prices for consumergoods and better access to a wider rangeof products through improved access andincreased competition between suppliers.

Two illustrative examples of port reform benefitsare Colombia and Argentina. In Colombia, theliberalization of port labor practices along withthe transfer of most port services to the privatesector resulted in large and rapid improvementsin productivity, lower fees for port users, andvery attractive returns for the concessionaires(see Box 1). Similarly, in Argentina, the improve-ments following the concessioning of terminaloperations in Buenos Aires have been dramatic:

port charges and shipping tariffs declinedsharply, labor productivity nearly quadrupled,and cargo volumes have jumped by more than50 percent (see Box 2).

The objective of the Toolkit is to provide supportfor policy makers in undertaking sustainable andwell-considered reforms to public institutionsthat provide, direct, and regulate port services indeveloping countries. In particular, the Toolkitoffers public officials with support in:

• Understanding the need for andchallenges associated with sector reformand institutional redesign in light of thechanging business environment affectingport operations.

• Choosing among options for privatesector participation and analyzing theirimplications for redefining interdependentoperational, regulatory, and legal relation-ships between public and private parties.

• Preparing legislation, contracts, and insti-tutional charters to govern private sectorparticipation.

• Managing the transition to increasedprivate sector involvement.

Framework for Port Reform

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Box 1: Port of Cartagena (Colombia) Performance Improvements since Private Concessioning in 1994

Containership waiting time 10 days < 2 hours

Containership turnaround time 72 hours 7 hours

Gross productivity/hour 7 moves/ship hour 52 moves/ship hour

Berth occupancy 90 percent 50 percent

Cost per move $984 $224

Bulk cargo productivity 500 tons/vessel/day 3,900–4,500 tons/vessel/day

Hours worked per day 16 24

Cargo dwell time 30+days 2 days

Port costs $984/per move $222/per move

Source: Kent, Paul E., and Anatoly Hochstein. 1998. “Port Reform and Privatization in Conditions of Limited Competition: TheExperience in Colombia, Costa Rica, and Nicaragua.” Maritime Policy and Management 25(4): 313, and Sociedad PortuariaRegional de Cartagena.

Note: COLPUERTOS is the former national public port entity and SPRC is Sociedad Portuaria Regional de Cargagena, a regionalport entity resulting from the reform process.

PERFORMANCE MEASURE COLPUERTOS (1993) SPRC (2003)

Resources that address port institutional reformin a comprehensive and systematic way or thatclearly explain the processes involved in re-engi-neering public port institutions are not readilyavailable. The Toolkit is designed to fill thisknowledge gap and to provide port reformerswith decision support tools, tested and proveninstitutional reform tactics, and guidelines thatrepresent “best international practice.”

The Toolkit draws together practical institutionaldesigns and alternative approaches for increasingprivate sector involvement without compromisingthe public interest. It presents best internationalpractices in a manner that is relevant to decisionmakers, and is designed to be easily understoodby nonspecialists. It supplements general pointswith specific examples drawn from recent portreform activities around the world.

While the main audience for the Toolkit is pub-lic officials in developing countries who areresponsible for port sector reform, the Toolkitshould also be of interest to other governmentofficials, to executives of port service companiesand shipping companies, as well as port con-sultants and companies that use port services.

In addition to this introduction, this frameworkmodule includes the following sections:

• Context for the Framework Module

• The Port Business Environment

• A Road Map for the Port Reform Process

• Implementing Port Reform: Pulling It AllTogether

2. CONTEXT FOR THEFRAMEWORK MODULE The Toolkit is made up of eight modules. Thefirst of these, this framework module, sets thestage for all of the other modules that follow. Itprovides a unifying “decision framework” thatpolicy makers can use to guide them step-by-step through the processes of reforming and re-inventing port institutions. It also provides acommon language and a set of concepts that areused throughout the Toolkit and that representthe common language port reformers use incommunicating with their various constituen-cies. Importantly, the Framework Module alsoincludes a road map for the other modules thatfollow. It explains the interrelationship of thesemodules with one another, and their relevanceto the framework presented here.

This module lays out an ordered set of decisionsthat are linked together functionally as well astemporally. For each decision, the Toolkitattempts to articulate the principal options andalternatives available to policy makers andassesses the expected consequences associatedwith each option based on recent internationalexperience. The framework is presented in theform of a “decision tree” that provides a


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Box 2: Argentina: Selected Performance Indicators for the Port of Buenos Aires

Cargo (thousands of tons) 4,000 6,000

Containers (thousands of TEUs) 300 540

Capacity (thousands of containers per year) 400 1,000

Operational area (hectares) 65 95

Productivity (tons per worker per year) 800 3,000

Average stay for full containers (days) 2.5 1.5

Cost for container imports ($ per ton) 450 120

Port tariff for exports ($ per ton) 6.7 3.0

Port tariff for imports ($ per ton) 2.1 1.5

Source: Puertos (Colombia General Port Superintendent; July 1997).

Indicator Before 1993 1996

context for understanding the subsequentmodules, which are summarized briefly below.

• Module 2: The Evolution of Ports in aCompetitive World. This module outlinesthe roles and functions of ports and theforces shaping port dynamics in the 21stcentury. Readers of this module will placetheir ports in the context of current andhistoric port developments and under-stand the major trends shaping the portsof the future.

• Module 3: Alternative Port ManagementStructures and Ownership Models. Thismodule describes different port structuresand ownership models and identifies theirstrengths and weaknesses. Upon comple-tion, readers will be able to determine themost effective, efficient, and feasiblestructure for their ports, while taking intoaccount each country’s or community’sunique economic, political, and socialenvironment.

• Module 4: Legal Tools for Port Reform:This module focuses on the legal andcontractual options for port reform andexamines their strengths and weaknesses.Readers of this module will come tounderstand and develop specific portreform measures and legal frameworksbased on the port’s and government’seconomic, financial, political, and socialgoals and objectives.

• Module 5: Financial Implications of PortReform. Risk allocation among portstakeholders, potential sources of fundingfor the reform process, and pricing portservices to achieve revenue and publicpolicy objectives are highlighted in thismodule. Readers of this module willappreciate port finance and its relation-ship to reform as well as how the finan-cial risks and rewards vary from onereform option to another.

• Module 6: Overseeing the EconomicPublic Interest in Ports. This moduledefines the public interest and describes

the oversight mechanisms and techniquesand elements of the public interest. It pro-vides a solid understanding of oversightmechanisms and methods; the role of reg-ulatory bodies, inspections and audits;reporting requirements; and the interplaybetween competition and regulation.

• Module 7: Labor Reform and RelatedSocial Issues. This module focuses on theinstitutional, legal, and industrial frame-works for port reform; establishing aproductive dialogue among port stake-holders; rationalizing the workforce;and overcoming roadblocks. Readers willlearn to plan for and implement rationali-zation of port labor in a manner thattreats affected parties fairly while achiev-ing essential efficiency and economicimprovements.

• Module 8: Implementing Port Reform.How do you get from concept to effectiveimplementation of port reform? Thismodule offers practical advice on how totake the many elements of port reformand put them into a procedurally logicaland politically feasible sequence of stepsthat maximizes the chances for success.

A wider range of reform models and public-pri-vate partnership formats exists for the deliveryof port services than for any other infrastruc-ture-intensive service sector. This is because theensemble of services provided by seaports isvast and requires more diverse and specializedskills and involves more categories of servicethan other public-private institutions. Althoughthe Toolkit does not elaborate on all modelsavailable to sector reformers, it does define theoptions on either end of the public-private spec-trum as well as the most common risk-sharingarrangements, such as concessions and terminaloperating leases. Importantly, it also providestools for assessing hybrid options and forunderstanding their merits and risks.

In dealing with reform in the port sector, theWorld Bank has tried to pool knowledge fromaround the world. This knowledge is abundant:


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over the past 13 years, more than 200 transac-tions have been completed that involveincreased private sector participation in the portsector (see Boxes 3 and 4). The problem con-fronting public policy makers when they takeup the challenge of port reform is not a lack ofinformation, but rather a lack of useful knowl-edge to help them navigate through their ownprocess of reform.

The Toolkit uses a diversity of communicationmedia to convey knowledge and insight to itsusers, including narrative text, mini case stud-ies, graphics, and stylized representations of

decision processes. The World Bank’s objectiveis to provide a comprehensive, easy-to-use toolfor port reform.

3. THE PORT BUSINESSENVIRONMENT Three broad forces, detailed below, are generat-ing momentum for port reform in developingand industrialized countries alike:

• External forces of competition and tech-nology from the shipping industry.

• The acknowledged financial and opera-tional benefits of private participation ininfrastructure development and servicedelivery.

• The diversification and globalization ofinvestors and operators in the port industry.

First is the need to restructure port operations todeal with the external factors that affect portviability, including national competition for globalmarkets, changes in port and transport technology,and increased competition among ports. Portinstitutional models developed in the 19th andearly 20th century significantly constrain portsfrom competing effectively on a service qualitybasis, limit their agility and market responsive-ness in mobilizing resources, and constrain theirability to share risks with private sector partners.In planning how responsibility for future portdevelopment and operations will be dividedbetween the private and public sectors, and indeciding on desired levels of investment to befunded or guaranteed from public sources, policymakers must increasingly regard the competitive-ness of their port(s) in relation to other ports intheir region, and compared to the supply chainalternatives available to their users. In general,these alternatives are more abundant today thanthey were 15 plus years ago. Consequently, theport business is more competitive today than itwas when most port authorities were originallychartered. New institutional models are neededfor this new era of increased competition.

The second force generating momentum forreform is private participation in infrastructure


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Box 3: Port Projects with PrivateParticipation in Developing Countries

1992 9

1993 15

1994 19

1995 25

1996 19

1997 23

1998 26

1999 20

2000 22

2001 10

2002 7

2003 13

2004 12

Total 220

Concession 106

Divestiture 14

Greenfield project 82

Management and 18

lease contract

Total 220

Source: PPI Database, World Bank

Port Projects with Private Participation inDeveloping Countries that Reached Financial

Closure, 1992–2004

Port Projects with Private Participation inDeveloping Countries by Type of Project,

1992–2004

and superstructure. In recent years, world gov-ernments and lending agencies have come toacknowledge that private sector participationcan be a powerful force for enhancing the per-formance of port assets, as with other infra-structure assets. National and regional seaportsare realizing that they cannot compete effective-ly without the efficiencies offered by privateoperators and, equally importantly, withoutaccess to capital provided by private investors.In response, there has been a steady increase inrecent years of private participation in portoperations around the world. Countries with

recent experience of port reform includeArgentina, Brazil, Canada, Chile, China,Colombia, Egypt, Estonia, Germany, India,Indonesia, Japan, the Republic of Korea, Latvia,Lithuania, Malaysia, Mexico, Mozambique,Nigeria, Oman, Panama, the Philippines,Poland, Russia, Tanzania, Thailand, and theUnited Kingdom. Moreover, the pace of privateinvestment in the sector is accelerating. As Box 4demonstrates, private investment in the sectorhas increased progressively since 1990. Overthis period, private sector investment in portsincreased from $243 million in 1992 to $3.9


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Box 4: Investments in Port Projects with Private Participation in Developing Countries by ProjectType, 1992–2004(US$ Million)

1992 160 – 88 – 248

1993 346 149 3 498

1994 850 – 149 – 999

1995 653 – 1,364 4 2,021

1996 411 30 1,257 – 1,698

1997 2,165 80 1,649 – 3,894

1998 827 6 433 8 1,275

1999 1,777 29 667 2,473

2000 398 400 1,611 1 2,409

2001 825 442 3 1,271

2002 334 38 976 7 1,355

2003 781 1,131 1,911

2004 117 1,231 3 1,351

Total $9,644 $583 $11,147 $28 $21,402

Source: PPI Database World Bank

Database Definitions

Divestitures. A private entity buys an equity stake in a state-owned enterprise through an asset sale,public offering, or mass privatization program.

Greenfield Projects. A private entity or a public-private joint venture builds and operates a new facilityfor the period specified in the project contract. The facility may return to the public sector at the endof the concession period.

Management and Lease Contracts. A private entity takes over the management of a state-ownedenterprise for a fixed period while ownership and investment decisions remain with the state.

Concessions. A private entity takes over the management of a state-owned enterprise for a givenperiod during which it also assumes significant investment risk.

Greenfield Management and

Year Concession Divestiture Project lease contract Total

billion in 1997, and to a cumulative amount ofmore than $21 billion by the end of 2003.

The private sector, which has driven recent portdevelopment, has rapidly matured and hasorganized itself into distinct specialized subsec-tors. Today, the port services industry is a$50–55 billion global business that is expectedto grow to $75–80 billion in 2009 and includesseveral distinct specialized segments.

The third force affecting reform is the develop-ment of a global market for port developmentservices, with specialized niches each containinga number of international companies that offerspecialized service capabilities. The markettoday broadly includes four groups of operators:

1) The first wave of “global stevedores,” thefirst to have expanded their operationsinternationally from a strong home base.

2) The second wave, comprising regionaloperators now entering the internationalmarket following the success of theirpredecessors.

3) Shipping lines, investing in terminals.

4) Niche investors, looking more specificallyat small- to medium-scale facilities.

The top five global operators accounted formore than 28 percent of the total containerhandling market in 2005. The second waveincludes 10 or so stevedoring groups mainlyfrom the United States, Europe, and Asia, andis now challenging the first global stevedoreson new development opportunities. The majorshipping lines are reorganizing their terminaloperations as separate corporate entities toalso enter the market. The niche investors, adozen identified so far, can be expected tocontinue to carve out specific market segmentsin the future.

But in this market, as well as in the shippingindustry, consolidation has changed thecompetitive landscape, at least between thedifferent groups above, and within the groupsthemselves. The consequences of consolidation

for regional competitive conditions could besignificant, and will require due attention frompublic authorities. The structure of this globalindustry should, therefore, be considered bypolicy makers when adopting specific reformmodels. Module 2 provides a detailed overviewof prevailing trends in the global port andmaritime industry.

The range of services ports offer differs widely.So, too, do the service reputation and estab-lished commercial relationships with carriersthat global service operators can bring whenthey are selected as investors or operators. Ingeneral, modern ports offer two kinds of services:core and value-added services. The core servicesprovided by most ports include, but are notlimited to:

• Marine services:

~ Access and protection.

~ Pilotage.

~ Towage.

~ Vessel traffic management.

~ Fire protection service.

~ Chandlering.

• Terminal services:

~ Vessel tie-up services.

~ Container handling and transfers.

~ Traditional breakbulk and neobulkcargo handling.

~ Dry and liquid bulk cargo handling.

~ Container stuffing and stripping.

~ Bagging and packaging.

~ Cargo storage, acceptance and delivery.

• Repair services:

~ Dredging and maintaining channelsand basins.

~ Equipment repair and maintenance.

~ (Dry dock) ship repairs.


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~ Container and chassis repairs.

• Estate management services.

• Information management services.

A number of these services can be outsourced tospecialized private sector service providers via anumber of different methods. In general, theappropriateness of specific methods is deter-mined by two main factors:

• The nature of the service itself (for exam-ple, public responsibility or commercialactivity): Public responsibility, forinstance in vessel traffic management,means that regardless of the arrangementadopted to deliver the service, the ulti-mate operational and legal responsibilityfor the service remains with the publicsector, usually the port authority. This iscritical when considering how to optimizeservice delivery while keeping up with thepublic characteristics of the service.Commercial activities in ports also entailsome level of public responsibility, but tovarious degrees. The minimum is usuallythe duty for the port authority to ascer-tain the qualifications of service providersoperating on the public domain througha licensing process. Equally significant isthe requirement for a port authority toensure the availability of basic port serv-ices, including commercial services, to allusers on a nondiscriminatory basis.

• The nature of the assets required to delivereach category of service: The assetsrequired to deliver many marine services,for example, are mobile and can bemoved at relatively low cost from oneport to another. Most of the assetsrequired to provide access and protectionor to deliver terminal services, however,are immobile, and have long economiclives. Moreover, the use of these long-lived assets is indivisible among discreteservice units. In other words, a largeportion of their costs are fixed regardlessof the volume of service units over whichit is amortized.

For the purposes of defining asset “rights” ofownership, lease, rental, casual use, and so forth,it is helpful to differentiate port assets into threecategories: 1) long-lived, high cost infrastructure(for example, breakwaters, channels, and turningbasins) in which incremental benefit can onlyarbitrarily be assigned to individual port users; 2)long-lived, high cost infrastructure (for example,quays and terminals) for which incremental useand benefit can be apportioned in various waysand assigned to discrete service delivery systems;and 3) superstructure and equipment whose useis clearly associated with specific users and spe-cific service delivery systems.

Much of the preparation for port institutionalreform therefore involves:

• Identifying the critical basic public func-tions and public responsibilities that willdefine the role of the national and localpublic authorities in charge of the portsector.

• Identifying the assets needed to supporteach function and category of service,assessing the adequacy of these assets,and determining which services and relat-ed assets to package together and whichamong these to tender to privateinvestors or operators.

Box 5 presents the most common options fortransferring specific categories of rights to repo-sition specific categories of core port servicesfrom the public to the private sector. The differ-ent port models indicated in the table aredefined and discussed in Module 3.

In addition to providing core port services,increasingly ports are delivering nontraditionalservices to their customers as well. These non-traditional services typically expand the role ofport service providers in the supply chains ofshippers. These services create value for ship-pers by expanding the scope of markets they caneconomically access by reducing the deliveredcost of products they sell, or by reducing the costto complete buy/sell transactions. These servicesallow ports to participate in specialized port serv-ice niches and to differentiate themselves from


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competing ports by means other than price andturnaround times.

Improving logistics is now a widely acceptedmeans for companies to improve their competi-tiveness. Logistics, in short, is a procedure tocoordinate all aspects of the manufacturing anddistribution process to ensure the delivery of theright products to the right markets at the righttime. The key elements to develop an advancedlogistics strategy usually include:

• Understanding the cost and operatingbehavior of the entire supply chain andusing this understanding to informdecisions about where to locate manufac-turing, assembly, and distribution centers.

• Promoting strong relationships withcarriers and vendors that include qualitycertification procedures.

• Designing a flexible transportationsystem that allows for quick routing andmode selection changes.

• Integrating the logistics informationsystem with the manufacturing andpurchasing processes.

There are a significant number of activities thatcan be classified as value-added services in thefield of logistics. Generally, they fall into twocategories:

• General logistics services, including stor-age, loading and unloading, stripping and

stuffing, groupage, consolidation, anddistribution.

• Value-added logistics (VAL), includingactivities such as repackaging; customizing;assembly; quality control; testing; repair;on-terminal auto-accessorizing; grainstorage and fumigating; news printstorage and transfer; and in-containergarment assembly.

• General value-added services, commonlyknown as VAS, may include such servicesas equipment maintenance, equipmentrenting and leasing, cleaning facilities,tanking, safety, security services, offices,and information and communicationservices of various kinds.

VAL activities, in particular, are growing inimportance as producers concentrate onmeeting the demands of customers for highquality specialized products. New players in thisfield—third-party logistic services providers—have emerged to take over parts of the productionchain (assembly, quality control, customizing,packaging, and so forth) and of the after-sales(repair, reuse) service.

Ports are in a natural position to participatein this logistics revolution, bringing togetherall modes of transport, information systems,and land for the construction of facilities.Undoubtedly, containerized and general cargohave the highest VAL potential.


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Box 5: Public-Private Roles in Port ManagementPort Cargo

Port Nautical Nautical Port Superstructure Superstructure Handling Mooring OtherActivity Administration Management Infrastructure Infrastructure (equipment) (buildings) Activities Pilotage Towage Services Dredging Functions

Public service port

Tool port

Landlord port

Private service port

Public Responsibility Private Responsibility

4. A ROAD MAP FOR THE PORTREFORM PROCESS Embarking on port reform requires a strongvision combined with proper planning andorganization. The following sections will high-light the main components for putting togethera road map for the port reform process, whichare elaborated further throughout the toolkit,and include setting of objectives to policy deci-sions; methods of involving the private sector;public interests oversight; financing and riskallocation; legal framework; labor reform; andimplementation.

4.1. Setting Reform Objectives andPlanning for the Creation of Value Port reform should only be undertaken after afull and complete assessment of the objectivesthat public officials are trying to achieve.Institutional reform or, indeed, private sectorinvolvement, should not be an end in itself, butonly a means to achieve specific and well-defined public interest objectives. The objectivesunderlying port reform may be as varied as theneed to expand or to modernize containerhandling capacity, the desire to stimulate thegrowth of a distribution-based economycentered on a regional hub port, or the need toreduce government expenditures on the sectorso that limited public funds can be applied toother more pressing social needs. In any case,the private provision of port services and infra-structure is only one tool among others that areavailable to officials to solve specific problemsand to achieve specific public interest objectives.Thus, the decision process should begin withthe consideration of the objectives that portreform is designed to achieve. Module 3 reviewsthose possible objectives in greater detail.

The delivery of port services has become anincreasingly risky undertaking. Increasedcompetition between or among ports, large capitaloutlays, more specialized investments, and theexpansion of port activities beyond traditionalservices all increase the possibility of economiclosses from port operations. Considerations ofrisk and return on social capital should figure

prominently in deliberations of public policymakers concerning public interest objectivesunderlying port reform.

All of the reform design issues touched onabove need to be assessed in the context of theoperating scale of a particular port and theinterest and willingness of private companies toinvest in the particular set of services offered tothem. For example, intraport competition forservices such as stevedoring or terminal opera-tions may be feasible in a large volume port,but not feasible in a small volume port.

Modules 3 and 6 describe circumstances underwhich competition for licenses, rights, or fran-chises may be an effective way to sustain com-petition and maintain incentives for continuousservice enhancement. The modules also identifycircumstances under which competition in themarket may not be feasible. Furthermore,Module 3 in particular discusses advantages ofdesigning competition between or among pri-vate operators into the tendering process for thedelivery of specific categories of service.

Where competition “in the market” for specificcategories of port services is not workable, com-petition “for the market” may still be an optionfor protecting the public interest. While continu-ing and robust competition among multiple serv-ice providers is the best way to ensure low pricesfor services rendered, such competition may notbe feasible in all port environments due to physi-cal constraints or small cargo flows. In such anenvironment, it is still essential to maximize theeconomic benefits of competition and to mini-mize the risks associated with monopoly servicethrough competitive bidding. For the provisionof still other categories of service (for example,those that have significant consequences for theefficient use of assets for both shipping lines andfor terminal operators), retention of these servicesin the public domain may be the best option.Module 3 addresses this issue of packaging coreand noncore services into bundles for privateparticipation.

Port reformers should carefully choose theobjectives they seek to achieve before settling on


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any specific reform model because differentobjectives will require different types of reforms.Options for private sector involvement, invest-ment, and risk sharing range from open entry toservice contracts, management contracts, leases,joint ventures, control of corporate entities andconcessions all the way to full divestiture.Differing forms of private sector involvementresult in different allocations of risk, differentresponsibilities for government, and differenttypes of government oversight. Module 5 delvesinto the issue of risk sharing at greater length.

4.2. Reform Policy DecisionContext The port reform decision process must beginwith the clear definition of the objectives thatthe reforms are intended to achieve. The nextstep is to delineate all of the key institutionaldesign and reform decisions needed to move theprocess to a successful result. Next, for eachdecision point along an ordered reform path,options and alternatives should be developedand assessed. In particular, all of the possibleoutcomes resulting from the selection of anyspecific option need to be fully evaluated withrespect to the stated objectives of reform.

A useful tool for laying out the port reformprocess and feasible options is a decision tree.Key branches comprising this port reform deci-sion tree include:

• Methods of private sector involvement.

• Modes of public interest oversight.

• Port sector funding: Financial implica-tions and risk allocation.

• Legal framework adaptation.

• Service packaging and asset restructuring.

• Labor adjustment and settlement.

• Implementation responsibility.

• Sequencing transactions.

• Transaction preparation.

For each of these key decision points, severaloptions exist. Box 6 shows a notional decisiontree leading port reformers through the manysteps involved in the process.

4.2.1. Methods of Private SectorInvolvement

The nature of private sector involvement in theport sector will be prescribed by the adoptionof a specific institutional model. To assist portreformers in determining which model mightbest apply to their circumstances, Module 3describes four port management models thatcover the spectrum of private sector involve-ment in ports, including: the public service port,the tool port, the landlord port, and the privateservice port.

Within these models, a broad array of optionsexists with respect to the specific form the pub-lic-private partnerships may take. These can sig-nificantly affect the agility and responsiveness ofservice providers, their market orientation andefficiency, and their decision-making autonomy.


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Box 6: Port Reform Decision Tree

Source: Author.

publicinterest

oversightasset

restructuringlabor

settlement fundingsequencing oftransactions

transactionpreparation

implementationresponsibility

modalitiesfor psd

option "a" "two-tier" combination settle pre-transaction combine private

and public sectorfunding with fee

constraintsmost attractiveterminals first

or"packaging"

terminals andother assets

one agency responsiblefor implementing sectorreform; one transactionmanager assigned to

each transaction

engage separatefinancial advisor

for each transaction

The appropriateness of specific models for par-ticular ports needs to be judged, ultimately, byhow well they help achieve the objectives of thereform program. However, a number of otherfactors should also be considered, including:

• The strategic fit with the identified needsof the existing and potential market.

• The competitive consequences for otherports in the same range.

• The compatibility with other approachesto public-private partnerships used inother transport infrastructure projects aswell as other sectors of the economy.

• The fit with the investment capacity andinterests of potential strategic investors.

4.2.2. Modes of Public Interest Oversight

The two key issues involving public interestoversight are what powers and authorities needto be retained by a public oversight body afterreform, and how that body needs to be consti-tuted and at what level of government it needsto operate.

As noted above, increased private sector partici-pation in the delivery of port services should beviewed as an instrument to achieve well-definedpublic interest objectives. Thus, a key elementin port reform must be the creation of a mecha-nism to protect the public interest and makecertain that the objectives of reform are met. Increating such a mechanism, it is important tokeep public statutory and regulatory oversightresponsibilities separate from commercialactivities.

Government oversight typically takes severalforms, such as strategic planning, technical reg-ulation, and economic regulation. Planning thefuture development of ports and sharing thoseplans with private developers who can helpimplement them is a continuing responsibility ofgovernments. As discussed above, every port’svision of its future needs to be realistically set inthe context of its commercial environment andits competitive position versus other ports. Itmust also take into account the likely effects of

proposed increases in capacity on regional mar-kets, since one country’s efforts to increase itsshare of regional trade typically evoke competi-tive responses.

Thus, regardless of which port reform model isselected, strategic transport planning willremain a critical responsibility of governments.Enhancing international competitivenessrequires, among other things, implementing andmaintaining a cost-effective transport system,with the port interface being a critical link tointernational markets. A national ministerialbody, therefore, should be in charge of develop-ing the long-term strategic vision for nationalwaterfront development plans. The port reformvision should also encompass other land trans-port reforms to ensure the complementarydevelopment of interconnected links in thetransport infrastructure. Many examples existaround the world of the inefficiencies and bot-tlenecks created when road and rail links arenot developed at a pace adequate to handleincreased port activity. Further, this planningeffort will have to take into account variousstakeholders’ interests in the long-term develop-ment of coastal areas within the framework of anational Integrated Coastal Zone Management(ICZM) policy.

4.2.2.1 Regulatory Oversight: Economic andTechnical Issues. Safety is a major concern withship movements in and around port mooring andberthing areas and with cargo handling opera-tions ashore. Requirements for handling andstorage of hazardous cargoes must be clearlyspelled out in port regulations and should bebased on international conventions with dueallowance for specific local conditions.Technical regulation of operations is required toensure compliance with security, safety, labor,and environmental protection standards, as wellas to set and monitor appropriate minimumperformance requirements (especially if compe-tition is weak). Forms of technical regulationand the necessity for them do not change signifi-cantly with port reform. Consequently, technicalregulation is not dealt with in detail in theToolkit (more information on the safety and


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handling of hazardous cargoes can be found atthe International Maritime Organization’s Website www.imo.org).

A complex set of mutual obligations typicallybind private operators and users to act in con-cert and in compliance with the rules in the pro-vision and use of port services. The develop-ment and enforcement of operating rules andregulations represents another oversight respon-sibility that most public authorities assume orretain as part of their essential functions.Module 4 elaborates on the kinds of mutualobligations among private service providers andbetween them and public service integratorsthat are needed to ensure the safe and efficientdelivery of services. These technical regulationsare typically articulated in a set of port rulesand regulations. Module 4 will discuss the con-tent of a model set of rules and correspondingenforcement mechanisms that have been usedeffectively in various port reform efforts.Finally, this module also describes the legalsources such as decrees, laws, contracts, licens-ing agreements, and sectoral policies used todefine and enforce obligations on private opera-tors and port users.

Economic regulation, which usually aims atmonitoring market entry and pricing, is neces-sary when competition is weak or nonexistent.Conversely, when significant competitiondevelops, either internally or externally, theneed for strong economic regulation decreases.Indeed, when competitive pressure is wellestablished, there may be little reason to main-tain any price regulation other than a require-ment to publish tariffs, a continuing prohibi-tion against undue discrimination against simi-larly situated port users, and retention of amechanism by which the government can mon-itor the competitiveness of the market andinvestigate alleged anticompetitive activity. Thelevel of competition faced by an individualport, therefore, has important implications forthe nature and degree of regulatory oversightof port operators. Ports with abundant intra-and interterminal competition require minimaleconomic regulation.

In general, the difference in public sectorresponsibilities before and after institutionalreform is the difference between “rowing” theboat and “steering” the boat, respectively.Postreform oversight powers are typically indi-rect and designed to induce socially beneficialactions on the part of the private sector.Oversight may involve the creation of incentivesfor private sector investment, the tendering ofinvestment opportunities, compatibility of allprivate investments with a master plan, andcoinvestment under certain circumstances.Module 6 discusses various aspects of economicpublic interest oversight in depth.

4.2.2.2. Oversight Administration. Once theareas for continuing government oversight havebeen defined, it is necessary to determine aninstitutional framework for administering theoversight. Port administration may be central-ized or decentralized; each approach has itsstrengths and weaknesses. Centralized adminis-tration permits a broader national economicand multimodal perspective for directing portdevelopment policy. Decentralized administra-tion permits a more narrow local perspectivethat aligns port development with the economicinterests and priorities of municipal or regionaleconomies.

In addition to discrete national and localapproaches to port oversight responsibility, atwo-tiered option also exists. For example, anational port council can be formed, to whichlocal port authorities report. Under the best ofcircumstances, this two-tiered arrangementallows for the balancing of national and localinterests and the reconciliation of boththrough deliberative processes. In the worst ofcircumstances, the two-tiered bureaucracy maylead to excessive interference in port opera-tions and management or contradictorypolicies that interfere with planning andinvestment decisions.

The degree of decentralization in policy makingand regulation should:

• Reflect the objectives of the port reformprogram.


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• Consider the institutional capacityand authority of the relevant levels ofgovernment.

• Provide a balance between national eco-nomic goals (such as seamless transportflows and export promotion) and localconcerns (such as labor activity, environ-mental degradation, and industrialdevelopment).

In addition, whether port regulatory responsi-bilities should be concentrated at the centrallevel or decentralized to the local level shouldbe looked at with two concerns in mind: theconsistency of the approach with those general-ly followed throughout the country, and theneed for a transparent and efficient user-friendlyregulatory system. The former would call forsome sort of nationwide unit, likely at the min-isterial level, although at arm’s length from theministry of transport to guarantee independ-ence; the latter could lead governments to con-sider local (state/province) regulatory units clos-er to the field and, therefore, better able to tai-lor decisions to meet local conditions.

To provide for a clear separation of policy andregulatory responsibilities at both the nationaland local levels, a three-tier institutional frame-work has also been employed effectively. Forexample, under the assumption that reformswill result in a landlord port arrangement withcommercial activities fully carried out byprivate operators, the new public oversightframework could be devised along the followinglines:

• A central body comprising senior repre-sentatives from relevant ministries, munic-ipalities of port cities, and port authoritieswould work out national port policy andstrategic planning objectives, and wouldestablish the main sector regulations to beenforced by the port authorities.

• The port authorities, autonomous publicinstitutions or public joint-stock compa-nies, would be granted the right to usestate-owned land; administer, maintain,and develop port infrastructure assets;

manage and enforce navigation safetymeasures; enforce environmental protec-tion regulations; monitor the concessionsand leases governing private sector activi-ties in the port area; and market the portto attract new investors.

• The private operating companies wouldcarry out commercial activities related tocargo traffic management and handlingand market their services to attract newport users.

In such a setting, the national body serves threekey roles: it establishes the basic rules of partici-pation to be applied by all entities, public andprivate; it regulates the public port authorities,in particular with respect to their infrastructurepricing policies; and it provides an appeal levelfor dispute resolution in case private commer-cial operators believe they are unfairly treatedby their local port authority and regulator.

4.2.3. Port Sector Funding: FinancialImplications and Risk Allocation

The two key issues concerning financial riskare:

• Which categories of port assets shouldprivate investors be at risk for providing,maintaining, and repairing versus thosefor which the public sector will beresponsible?

• On what basis should user fees or subsi-dies be used to cover the cost of long-lived port assets?

Module 5 describes the many types of risksinvolved in port projects and assesses the risksassociated with the reform models developed inModule 3. Module 5 also identifies the financialtools that decision makers can use to systematical-ly assess the financial risks and potential rewardsassociated with specific investment programs.(A financial simulation model to assess theviability of specific investment operations is alsoincluded as an Appendix to Module 5). Portreformers should carefully consider what risksthe public sector can afford to bear and onwhat basis specific risks should be transferred


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to the private sector. Port planners have avail-able to them a number of risk mediation tactics,which are also described in Module 5.

Port operations require several categories of long-lived assets, some of which are inherently moreamenable to private investment and user feerecapture than others. For some long-lived, highcost infrastructure assets, such as breakwaters,channels, and turning basins, charges for incre-mental use can only be assigned arbitrarily toindividual users because the marginal benefitderived from using this common infrastructuresignificantly outweighs the marginal cost ofreplacing it. Consequently, a charge scheduledeveloped by a private developer and based onuser benefits could result in monopoly profitsand less use than economically desirable. Portassets also include long-lived, high cost infra-structure, such as quays and terminals, whoseincremental use can be meaningfully assigned tousers and whose marginal cost and marginalbenefit can be balanced through a number ofprice regulation regimes or intraport competi-tion. Finally, port assets include long-livedsuperstructure and equipment whose use isclosely associated with specific users and specificservice delivery systems. Equipment is a mobileasset and can be competitively provided or easilyredeployed. On-dock storage and transshipmentfacilities can be awarded through competitionand assigned to their most productive usethrough open tender.

All three categories of assets can be provided ormaintained by the private sector. However, fromthe perspective of private investors, the firstcategory involves the greatest risk, has thelongest payback, and involves the highest risktradeoff between their ability to set prices inde-pendently without regulatory constraint and thelevel of investment they are prepared to make.In general, private investors are prepared to makelarger investments when they are unconstrained byregulators or when the price schedules (includingescalation mechanisms) they propose in advanceof awards are accepted and locked in for a longterm. In other situations, the funding of long-lived, high cost infrastructure remains in the

public sector and is charged back to users thougha number of different regimes. Modules 3 and 6,respectively, deal with the operational and institu-tional aspects and the regulatory aspects of charg-ing for port infrastructure.

Most port charges involve some combination ofpublic components for the support of publiclyfinanced common use infrastructure and privatecomponents for the provision of terminal infra-structure. The combination of these two pricingfactors determines the competitiveness of portscompared to other competing ports. In general,the greater the degree of competition, the lessthe need for regulatory intervention. Module 6discusses the limited set of circumstances underwhich regulatory intervention into pricing deci-sions made by private service providers may beappropriate.

Box 7 illustrates how the four port managementand operation models array themselves onscales measuring private sector risk and theneed for independent government oversight.

4.2.4. Legal Framework Adaptation

To initiate wide-ranging reform, the legal frame-work that underpins the institutional arrange-ments of the sector may require significantamendment. To ensure credibility, openness,


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Box 7: The Public-Private Balance of Riskand Regulation

Source: Author.importance of regulation

priv

ate

sect

or r

isk

low

low

high

high

publicservice

port

privateservice

port

toolport

landlordport

and transparency in the reform process, and toattract international participation and long-termfinancial commitments from potential investors,a sound and precise legal framework for defin-ing public-private partnerships is essential. Inparticular, prior to any reforms involving build-operate-transfer (BOT) arrangements, govern-ments should enact a concession law spellingout the principles of the process and establish-ing the rules and responsibilities for each party.Further, governments should consider putting inplace a complementary set of regulationsdescribing how the concession law will beapplied in practice.

Since there are ways other than concessions forsecuring private participation in port activities,the national legal framework for public-privatepartnerships must also incorporate these ele-ments, or at least establish which entity will beresponsible for monitoring them. The basis ofany licensing process, for example, must bemade clear in the law, which can then specifythat port authority regulations will articulatemore precisely the implementation criteria.

The following legal documentation should bereviewed to assess the need for modification orthe need for complementary statutes:

• Sector laws: Legislation establishing thenational institutional framework govern-ing ports and clearly describing the man-date of all public entities involved.

• Concession laws or contracts: Since awidely used option for private sector par-ticipation in port activities is concessions,the basic legal framework enabling publicauthorities to enter into such contractualarrangements must be in place, includinga clear and transparent process forawarding contracts and standard contrac-tual language providing for appropriatemonitoring arrangements.

• Port regulations: The set of provisionsgoverning the daily operations in theport; some may apply universally withinthe country (for example, environmentalprotection and labor rules), and some

may apply only to specific localities (forexample, ship movements, access, trafficsafety, and tariff structure).

Since amending a law most often requires goingthrough a legislative process, the earlier in thereform process this can be initiated the better.Sector laws and laws governing contract awardand management between public and privateentities are the most critical elements to beenacted. Port regulations can usually be put inplace by a ministerial decree. Module 4 offersguidance and examples in the drafting of sectorlaws reflecting the sector model to be imple-mented as well as guidance on the contents ofconcession contracts and port regulations.

4.2.5. Service Packaging and Restructuring

Once the main institutional options for sectorreform are decided upon, the issue of assetrestructuring must then be addressed. The twokey issues involving asset restructuring are whatdegree of competition should be designed intoport service markets and what assets (and relat-ed services) should be tendered as packages forsingle source awards.

Port assets can be divided among sets of servicesand tendered as separate packages in a numberof different ways. The consequences of eitherbundling assets (and corresponding services) orunbundling them has a direct effect both oncompetition among private service providersand on the efficiency with which a port canoperate.

In larger ports, competition among terminaloperators is both desirable and practical. Insmaller ports, competition is less feasiblebecause the economies of scale required toattract specialized service providers are notsufficient to assure them of a reasonable profitwhile maintaining charges at reasonable levels.Moreover, effective coordination of cargohandling and marine services can be betterassured in smaller ports by integrating them ina single source service. Module 6 reviews theconsequences of such options from an economicregulatory perspective.


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4.2.6. Labor Adjustment and Settlement

The process of port labor reform often requiresgovernments to eliminate provisions from existinglabor regimes that unduly constrain flexibilityand productivity. Overstaffing, in particular, hasbeen a pervasive feature of most port organiza-tions in both the developing and developedworld. Achieving more cost-efficient operationswill generally require significant reductions inthe workforce. Therefore reducing the work-force in a socially acceptable way must be aprominent concern of public authorities and anintegral part of the reform process.

Addressing the overstaffing issue as one of thefirst steps in the reform process, before involvingthe private sector in operations, will usuallyfacilitate the overall reform process. Since over-staffing in ports is often the result of govern-ment policies that view port organizations asinstruments of social policy and natural sheltersfor the unemployed, governments should takethe lead responsibility in resolving this issue.Often this means creating programs to ease thetransition of port labor into other sectors.Doing this, in turn, requires the application ofsignificant financial and management resourcesearly in the reform process.

If port services and infrastructure are tenderedto the private sector before the labor issue isresolved, for the process to stand a fair chanceto succeed, care should be taken that the privateoperators are allowed to adjust their workforceover time to actual operational requirementsand that existing social protection programswill ensure the labor adjustment process will besmooth and not provoke undue labor unrest.This may sometimes require the establishmentof special government-funded programs toaccompany staff retrenchment, possibly by com-plementing general social programs with sector-specific assistance made available over a definedand limited period of time.

In all cases, this means that organizational andbudgetary resources must be mobilized early inthe reform process to ensure appropriate andsocially acceptable treatment of potential labor

dislocations. In particular, worldwide experi-ence strongly suggests that port labor should beinvolved in the port reform process from its ear-liest conceptual phase. Again, experience indi-cates that the best way to build confidence inthe reform process by all affected parties is tobroaden the sphere of participation and respon-sibility to include port users, port labor, andport and maritime employers. Such broad par-ticipation will allow all stakeholders to sharecommon concerns about competitiveness ofport services and gain a better understanding ofhow any weakening of this competitivenesswould be detrimental to all. This is particularlytrue for the workforce, which would be the firstto bear the consequences of reduced economicactivity, both inside and outside the port.Significantly, the International TransportWorkers Federations (ITF), while cautiousabout the social consequences of port reforms,appreciates the need to improve port efficiency,possibly through increased private sector partic-ipation. It insists, however, on the critical needto involve labor unions from the start so thatmutually acceptable labor rationalization strate-gies can be designed to make the whole processboth economically and socially sustainable.

Institutions for allocating available work amongmembers of a qualified labor pool based on sen-iority or some other rank-ordering principlehave grown up within most traditional ports.Unions typically control entry into these poolsof qualified labor, the result being to close theport labor market to competition and to newentrants. Opening labor markets to competitionis one of the objectives sometimes sought byport reformers. In this context, one of the keyissues to be addressed is the role of these docklabor boards or union labor pools and howthey affect management discretion over therecruitment, qualification, and use of specificemployees.

Three key questions arise when consideringworkforce reductions in the port reformprocess: Who will be responsible for “buyingout” surplus labor, when in the process willlabor separation negotiations be completed, and


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on what basis will postreform labor-manage-ment relationships be conducted?

Theoretically, labor contract issues can beresolved either before or after port services andinfrastructure have been transferred from thepublic to the private sector. Either the publicsector or the new private sector operator canmanage negotiations and can absorb the liabili-ty associated with separating surplus employees.Typically, however, resolving labor separationissues before transactions are completed relievesinvestors of uncertainty and enhances theperceived value of the investment. In general, itis a good idea to make a clean break in laborcontract coverage and the basis for employeeselection and work assignments at the sametime that the rights to control port assets areconveyed. This may involve not only buying outindividual laborers under the terms of existingcontracts, but also buying out the contractitself, thereby giving private operators a cleanslate to negotiate new agreements. Module 7reviews in depth the issues relating to laboradjustment policies in port reform and proposesways to handle them in a manner that meets thejoint objectives of institutional reform andsocial sustainability.

For additional information on labor reform,consult the World Bank’s Toolkit Labor Issuesin Infrastructure Reform and the InternationalLabor Organization’s report, Social Dialogue inthe Process of Structural Adjustment andPrivate Sector Participation in Ports: APractical Guidance Manual.

4.2.7. Responsibility for Implementing PortReform

The key issues of port reform implementationresponsibility concern what government agencyis responsible for port sector reform and whatskills and competencies are required to imple-ment a port sector reform program successfully.The delegation of responsibility for managingport sector reform typically comes in the formof a special decree, law, or other explicit delega-tion of authority. To what organization of gov-ernment should this authority be delegated? It is

rarely possible for a port authority to reformitself, since the inherent conflicts are too greatfor even a well-meaning port authority to adoptand implement significant change. Moreover,the work of implementing port reform is diverseand requires special skills. Some of it, for exam-ple, involves developing regulatory frameworks,some of it involves labor negotiations, and someof it involves preparing individual transactions.

In deciding which agency of government shouldmanage port reform, many questions arise.Should reform be carried out by a temporaryagency of government whose sole purpose isport reform, or should it be delegated to astanding government agency? Should the min-istry responsible for ports also be responsiblefor the process of reform, or should this fall toan agency dealing with privatization generally,and over which the ministry responsible forports has only indirect control? Should theprocess be managed at a national, regional, orlocal level? Should different reform units beorganized for “greenfield” port developmentsand for the privatization of existing facilities?What powers should the reform unit have?How should the unit be funded? To whom willit answer? How will it obtain information fromother organizations? Can part of its responsibil-ities be subcontracted? And importantly, whataccess will the unit have to key political deci-sion makers?

Often, for the reform process to be implement-ed successfully, the mandate given to the reformunit must come from the highest levels of gov-ernment, and the reporting must follow thesame route. This avoids frequent interministeri-al conflicts over competence and jurisdiction.The agencies and individuals comprising mem-bership of the reform unit also must be definedunequivocally by the political leadership.

Several organizational options are available forimplementing port sector reforms. One agencycan manage the entire process with individualtransaction managers within that agencyassigned responsibility for completing discretetransactions. Or, multiple agencies can be


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assigned responsibility for sector reform andtask forces created from these several agenciesto accomplish component tasks and to completeindividual transactions.

In managing the politics of reform, it is impor-tant to account for stakeholder interests andconcerns. Stakeholders in ports include labor,existing public agencies, environmental groups,shippers, shipping companies, and other usersof port services (for example, fishermen or thenavy). Module 8 will examine workableprocesses for actively including stakeholderinterests in policy decisions, or for otherwisefactoring their interests into key decisions.

The reform unit will typically require consultantservices to assist in the reform process. Issuesrelating to the use of consultants include deter-mining what skills are needed, the criteria bywhich consultants will be chosen, the degree towhich consultant services should be bundledtogether, and how consultants should be com-pensated (for example, a flat fee or a success fee).

Module 8 will provide some insights on thesevarious aspects of implementing the reformprocess.

4.2.8. Sequencing of Transactions

In addition to preparing the variety of transac-tions associated with port reform for tenderingor other actions, those charged with reform alsohave to consider the order in which the transac-tions will be undertaken.

When port operations are transferred to the pri-vate sector, the public sector retains only anindirect relationship with the service provider.The new relationship entails new tasks to beperformed in the public sector. New skills arerequired to perform these tasks, requiring aperiod of training and possible assistance fromconsultants or advisers from other ports. Arange of measures can be adopted to help tobuild the public sector’s capacity to perform itsnew role as contract monitor and regulator.Preparing for this new role should be one of thefirst steps in the reform transaction process.

From the commercial perspective, several possi-ble strategies should be considered when sched-uling and programming port reform programsthat include several components and multipletransactions. For example, the most valuableassets might be tendered first to attractinvestors and to increase their confidence in andfamiliarity with procedures in which they wouldencounter in future transactions. Another strate-gy is to offer all components at the same time—a “big bang” approach. This has the benefit ofallowing some transaction preparation costs tobe shared among several transactions and alsoallows a new set of competitive conditions tobecome effective more or less simultaneously.

4.2.9. Transaction Preparation

At implementation, port reform requires thecompletion of a number of complex transac-tions in connection with the tendering of servicefranchises and asset ownership, or use rights.Transactions can be completed only after anelaborate preparation and due diligence process.Two key issues associated with transactionpreparation are whether transaction preparationshould be outsourced or completed by in-housegovernment staff, and what kind of technicalassistance the group responsible for transactionpreparation within government will require.

In general, three approaches to transactionpreparation are possible:

• Engaging a separate financial advisor foreach transaction.

• Engaging one advisor for the entire set oftransactions.

• Engaging no outside advisor, instead,learn about transaction preparation bypreparing them in house.

Financial advisors add credibility to the claimsand representations made in marketing a trans-action. They are also helpful in assessing themarket for port assets without compromisingtransaction integrity, and in packaging transac-tions to be marketable. However, some financialadvisors are better than others. Engaging one is


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services that are the specific target forreform.

• Preparation of redefined authorities andpowers: Redefinition of authorities andpowers results in regulations, rules, tar-iffs, and procedures to ensure that allport activities are adequately coordinatedand operate in a manner consistent withthe public interest.

• Preparation of a legal framework: The legalframework for the port sector must reflectthe principles set out in the strategic analy-sis and the redefinition of institutional rules.

• Transaction preparation: This processresults in the development of tenderingprocesses that are transparent, open, andcompetitive.

Box 8 illustrates these four sets of preparationsand how they interrelate, and Module 8explains them in more detail.

itself a significant transaction involving risks.Consequently, financial advisors should beselected with care, using a competitive processas with other transactions.

5. IMPLEMENTING PORTREFORM: PULLING IT ALLTOGETHER Port reform that shifts the boundary betweenthe roles of the public and private sectorsentails four broad categories of preparations:

• Preparation of a port reform strategy:Strategic preparation involves carefulanalysis of the port’s competitive position,strengths, weaknesses, opportunities,threats, role in the national economy,prospects for growth, and other issues.This analysis results in the selection of aparticular institutional model and theidentification of a set of assets and


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Box 8: Shifting the Boundary of a Public-Private Partnership

Source: Author.

strategic preparationservice designs

institutional model

transactionpreparation

service designsinstitutional model

legal adaptationsector laws

contracting laws

redefinition of authoritiesand powers

rules, regulations,tariffs, procedures

port reform toolkit -...

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