An external view of ports policy. Wexford

Transcription

1 An external view of ports policy Irish Ports Association conference Wexford 30 September 2011

2 2 Agenda Overall aims from port policy Institutional structure / governance Capacity expansion Implications for Port competition Market regulation Financial aspects Ireland

3 3 Background / preparation Read various reports including ports policy statement (2005) and consultation (2010) documents and responses submitted, McCarthy report etc Phone discussions with CEOs of main Irish ports Drawn upon experience of port policy elsewhere in the world Open minded approach to Irish ports - no preconceptions, no bias or axe to grind Presentation ti is thoughts ht and reactions based on the above

4 4 Agenda Overall aims from port policy Institutional structure / governance Capacity expansion Port competition Market regulation Financial aspects

5 5 Overall aims from port policy Basically the same aim the world over: to have enough port capacity, of the right type, in the right place offering efficient and competitive port services to the benefit of the nation Execution varies greatly from full central government planning/control to market driven (laissez faire)

6 6 Overall aims from port policy Not all policies recognise the importance of integrating port policy with other policy (e.g. roads, energy, environment etc) and implement it in a co-ordinated way Not all policies recognise the importance of having financially viable port companies and terminal operators private sector in particular has to be able to make an acceptable margin

7 7 Implications for Ireland Irish port policy aims are in general no different from elsewhere Irish ports policy implementation is towards the market driven (laissez faire) end of the scale Integration of ports policy with other policy is crucial joined up thinking plus need to avoid conflicting policies The profile within Ireland and financial contribution of Irish ports is relatively small but their importance to the economy is huge

8 8 Agenda Overall aims from port policy Institutional structure / governance Capacity expansion Port competition Market regulation Financial aspects

9 9 Good governance A port can be compared to an heirloom. It is a valuable asset safeguarded by the port authority. It has a duty to hand it on in the same or better condition o to succeeding generations. e Port authorities have an obligation to transact port business in the interest of the whole community of stakeholders - openly, accountably and with commercial prudence Adapted from the UK government s Guide to Good Governance for trust ports

10 10 Institutional structure/ governance Publicly owned landlord port authority with private run terminals on long term leases is by far the most common model However all other models are evident including fully private port authorities and operating (cargo handling) port authorities Fully privatised landlord port authorities/companies do work in the UK and in Australia However, they usually avoid competing in the same cargo handling sectors as their tenants (for example all private Australian port companies are landlords only) Multi-port private companies work well in UK (ABP, Peel, Forth) A mixture of ownership structures and types can work in the same country

11 11 Strength of the public landlord PA model: Ability to combine different aims & missions Port authority: duty To be the long term guardian of the port s interests To facilitate growth To be fair, transparent, nondiscriminatory and neutral To not cross-subsidise bidi To generate enough revenue to ensure long term sustainability, but not to be a profit maximiser Terminal operator: profit To maximise profits To ensure long term durability To operate efficiently and give good service

12 12 Institutional structure/ governance Privatisation of port authorities/companies is currently gaining momentum Brisbane and Abbot Point (done) Poti Georgia (done) Monrovia Liberia (done) Eilat (under way) Dover (planned) Piraeus & Thessaloniki (planned) Port Botany (Sydney) (planned) In Australia, long term leases rather than outright sales in some instances e.g. Brisbane and Abbot Point (99 years) Main reasons for the privatisation trend: access to private money access to expertise (developing world especially)

13 13 Implications for Ireland Irish port companies have a commercial mandate but State ownership and politically appointed boards presents a challenge and potential conflict There are a number of successful institutional models - even though the public landlord PA model dominates one size does not fit all Privately owned port authorities/companies likely to become more common in the developed world Important to retain the no conflict position of port companies (especially after any privatisation) so the options are: Publicly owned landlord port company private terminal operators (e.g. as Dublin is today) Privately owned landlord port company - private terminal operators Full service port company (privately owned) Full service port company (publicly owned)

14 14 Agenda Overall aims from port policy Institutional structure / governance Capacity expansion Port competition Market regulation Financial aspects

15 15 Capacity expansion Approach to decisions about permission, location and timing of new ports varies from government control (China) to market driven (UK) Planning consent process for new capacity developments varies dramatically from China (bulldozer approach) to USA (long wrangles) to UK (trying to streamline) to Brazil (endless legal challenges) Port master plan concept being tried in UK: Must be the port company that has the final say on the plan Remains to be seen if it helps speed consent processes Increasing need though to link consent process with other government policies e.g. energy policy, modal shift policy, environmental policy etc Increasing ship sizes is often an underlying driver of need

16 16 Implications for Ireland Market driven approach in Ireland is good - decisions are commercially based rather than politically based Linkage to other government policies needed whilst maintaining laissez faire presents a challenge Streamlining of consent process needed (esp. foreshore) Government policy on road and rail infrastructure has to link with port capacity expansion needs Increasing ship sizes has significant implications for smaller ports (and road haulage distances)

17 17 Agenda Overall aims from port policy Institutional structure / governance Capacity expansion Port competition Market regulation Financial aspects

18 18 Port competition Always strong concerns from government about need for port competition and fears of monopoly Reality is that port competition is usually limited anyway (for gateway as opposed to transhipment cargoes) due to the nature of the port industry (high barriers to entry, oligopolistic, inland transport costs etc) Bulk cargoes cannot bear much in the way of inland transport costs and so are usually tied to the port nearest the point of production or consumption Unitised cargoes have greater flexibility as they can bear greater inland transport costs, and have modal options (lolo, roro etc)

19 19 Port competition Consideration of inland origin-destination of cargoes and cost/quality of hinterland transport t links is key to truly understanding di competition between ports Competition between terminals within the same port usually oligopolistic Can be more intense if terminals are run by shipping lines (and so reflects shipping line competition) Subsidies always distort port competition to lesser or greater degrees

20 20 Implications for Ireland Port competition has to be viewed by cargo sector e.g. unitised vs bulks Competition between (and within) Irish ports appears to be limited in the short/medium term Small number of large ports dominate Captive cargo and/or largely distinct local hinterlands for each port/cargo combination e.g. 75% of Dublin Port s throughput is within a 50 mile radius of the city (concentration of population and economic activity) Estimated 65-80% of Shannon Foynes cargo is captive (major industrial and energy users with high capex investment needing deep water) Market volumes insufficient to support multiple terminal operators within most ports (apart from Dublin)

21 21 Implications for Ireland Inland transport infrastructure improvements will help increase inter-port competition, but fundamentals remain e.g. dominance of Greater Dublin Area Northern Ireland ports also compete to a limited degree, so Irish ports policy does not operate in a vacuum in competition terms Need to avoid the trap of trying to introduce forced competition when market is not big enough to support it, e.g. Buenos Aires privatisation in the 1990s: Less than 500,000 teu volume but 5 competing terminals introduced (then a 6 th ) bankruptcies and a tariff crash followed!

22 22 Implications for Ireland Market share control important, especially if more amalgamation of port companies is pursued Non-geographical amalgamation to avoid reinforcing local monopolies? Are larger ports being expected to take on loss making smaller ones in order to close them?

23 23 Agenda Overall aims from port policy Institutional structure / governance Capacity expansion Port competition Market regulation Financial aspects

24 24 Market regulation Regulation of port operator market share is common, especially in the EU Tariff regulation is quite common, especially in Asia. Can be essential where a port has a potentially dominant market position which could be exploited Various forms exist e.g. tariff caps, tariff setting, rate of return limits This kind of regulation creates administrative challenges for government Many countries, including UK and most of Europe have a free market tariff for cargo handling as there is sufficient competition between ports T iff l ti h t ti ll i t t t d t d bli Tariff regulation happens automatically in state operated ports and public port authorities as the state should not in theory be a profit maximiser. Corporatised state owned port companies face a potential conflict though.

25 25 Market regulation Australian example Australian ports a good comparison to Ireland in terms of competition: Limited competition between Australian ports (large distances involved) Bulk cargoes which have specialised facilities and have to minimise inland transport costs Port authorities have been privatised in Victoria, Queensland and South Australia. New South Wales heading same way Layers of regulatory control in Australia for private ports: 1) Micro level: formulas in privatisation contracts re pricing 2) State govt level: State Essential Services Act can intervene on tariffs if signs of monopoly abuse 3) National govt level: ACCC (Australian Competition & Consumer Commission) carries out regular investigations/monitoring

26 26 Implications for Ireland Market share monitoring will be required if port companies are privatised Could be a tariff regulation issue if the large port companies are privatised and seek to maximise profits by raising prices to what the market will bear and competition cannot be relied upon to regulate Regulation does not have to be bureaucratic, heavy handed or prescriptive Australia provides the best example for privatised port companies

27 27 Agenda Overall aims from port policy Institutional structure / governance Capacity expansion Port competition Market regulation Financial aspects

28 28 Financial aspects Guidelines for port authority profit targets vary but often there are no formal targets, instead the target is simply py to ensure long term viability of the port authority. State funding for port infrastructure is common in many nations, but absent in places like UK Common for the port authority to raise the funds for infrastructure investments through its charges UK ports also having to pay for road/rail upgrades many miles from their ports (and some charging a levy to customers to cover this) Unusual for the state to take dividends from publicly owned port authorities, but state owned corporatised port companies usually do pay Private sector expects EBITDA margins of at least 30% and in some cases as much as 60%

29 29 Implications for Ireland The State cannot continue to receive dividends from ports if they are privatised The State needs to allow privately owned ports to generate enough revenue to fund infrastructure investments in the ports The State cannot expect private ports to pay for road/rail upgrades outside the port (unless it allows them to charge customers for them) If privatising, the State will need to allow privately owned ports to make a high enough EBITDA margin to attract investors Need to avoid large ports being saddled with loss making small ports

30 30 Conclusions Ports policy has to balance: The national interest The need for effective competition The interests of the environment & community The need for some degree of control The need to access investment capital And, if privatising: The needs of investors to make acceptable profit margins The need for operators to have freedom to operate

31 31 Conclusions Irish ports are critical to the economy Irish ports are wide and varied in their nature Port competition is relatively limited Integrated and co-ordinated government policies are crucial A commercial mandate is a good thing The market is usually the best decision maker Greater private sector involvement in ports can be achieved, if required, without compromising fundamental national a needs

32 Drewry - the trusted independent maritime adviser Neil Davidson Senior Advisor - Ports davidson@drewry.co.uk