TOC Asia. Indonesia's Masterplan for Ports, Shipping & Logistics. Activating the Private Sector. Singapore nd April 2015

Transcription

1 TOC Asia Singapore nd April 2015 Indonesia's Masterplan for Ports, Shipping & Logistics Activating the Private Sector Dr Jonathan Beard, Vice President, ICF

2 Agenda PPPs in Indonesia State of the Market Potential for PPPs in the Port Sector Buoyant demand is not enough what else? Common pitfalls

3 Private Sector Involvement in the Port Sector PPP now used to describe a range of models, many not strictly PPPs Public sector risk High Public Service Port Tool Port Landlord Port Low Private Port Low Private Sector Risk High Private Sector Participation Works & Services Contract Operations & Maintenance Contract Concession Agreement Full Privatization 3

4 Indonesia PPPs Great Promise but little delivery so far May 2011: Master Plan for the Acceleration and Expansion of Indonesia s Economic Development (MP3EI) announced. Transform Indonesia into a high income nation: GDP per capita of US$ 15,000 by 2025 (> x4 the current level US$3,500) Critical role of infrastructure development and emphasis on six economic corridors PPP book (BAPPENAS), ~21 projects identified for transaction stage. Another 26 projects in preparation for transaction Only one project approached financial closure: Central Java coal fired power plant project.but did not close due to land acquisition problems Generally limited success due to issues related to land, VGF, policy/ regulatory, coordination between various levels of governments/ agencies, etc. PPP Centre proposed within Indonesian Ministry of Finance to identify and prepare bankable projects similar developments elsewhere in Asia (e.g. Philippines) Private sector involvement is not new in port sector (e.g. HPH in 1990s), but market remains dominated by state owned enterprises / public sector 4

5 Significant Need for Investment in Infrastructure Estimated Infrastructure Investment Need ( ) Source: Bappenas Priority investment need is estimated around USD 477 Billion 5

6 Indonesia s Logistics Performance Some improvement, but a long way to go Indonesia ranked 53 rd in the 2014 LPI rankings issued by the World Bank. Asian counterparts were ranked higher with the exception of Philippines However, there has been a significant improvement in Indonesia s LPI ranking LPI Ranking Indonesia Malaysia Philippines Singapore 2 5 Thailand China India Source: The World Bank 6

7 USD Billion Demand Side Conditions Asia Largely Buoyant It s Big and Growing 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 - Region-wise Merchandise Trade with World Africa Asia Europe Middle East North America South and Central America European Trade still dominates; however, due to recent and persistent macroeconomic challenges, the trade has been stagnating Asia emerging as the key region and with 10 year growth CAGR of ~14% is likely to overtake Europe in the near future Latin America, Africa and Middle East trades have been growing at a CAGR of ~15%, ~16% and ~17% respectively ( ). However, their combined share was only 16% in the overall 2012 world merchandise trade Source: WTO Statistics 7

8 Population Age Composition Drivers of Growth - Population Aging of China will slow growth unless productivity picks up China s employed workforce (million) SE Asia generally skewed towards younger population Source: Global Demographics; ICF GHK based on Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat, World Population Prospects (2008 Edition) and the Department of Statistics, Ministry of Interior, Republic of China. 8

9 Favourable Demand Outlook for Indonesia Continued mid-range economic growth, middle class consumption increasingly important >17,500 islands maritime sector is key Export demand from resource sector closely linked to emerging economies Middle class consumption increasingly significant Cost competitive for manufacturing versus China and less risky than cheapest locations (e.g. Bangladesh) Real GDP Growth ASEAN Indonesia % 5.2% % 5.5% % 5.8% % 6.0% % 6.0% % 6.0% Source: IMF Economic Outlook April 2015 Downside risks and challenges: China slowdown & depressed demand for commodities Removal of subsidies whilst controlling inflation: falling oil prices a major assistance How broad based is economic growth? Overly dependent on China resource play? Annual Minimum Wage and Total Labor Cost (USD) Selected Asian countries 1H14* Annual minimum wage (USD), 1H14 Total cost of labor (minimum wage plus social welfare contribution)(usd) *Social welfare contribution comprises pensions, housing fund contributions, as well as medical, injury, maternity, and unemployment insurance. Data source: China Briefing 9

10 Urgent Need for Port Expansion Demand projections by region to 2030 ~85% of containers handled in 5 ports Source: BAPPENAS

11 ...but Healthy Demand Does Not Guarantee Successful PPPs S Vietnam 11

12 How Responsive is Supply Side Barriers to Entry?.and beware older, inner city terminals they may be surprisingly resilient Older terminals not phased out and more resilient than anticipated a common tale +...Rapid expansion of supply - large capacity overhang & chase to bottom on prices - revisited in W. Java? Unlikely: Cilamaya gone, although another option still proposed for 2020 Public side of PPP has not performed - landside infrastructure has lagged Competition between operators, yes!...but fragmented development with little opportunity to phase / achieve economies of scale Mind the Gap Source: ICF 12

13 Revenue Risk - Cargo Mix Overlapping but different drivers affect competition for Import/Export (I/E) and International Transhipment I/E is the prime market: highest revenue per lift and provides a fixed incentive for carriers to call Indonesia, Vietnam, Thailand, Philippines are well positioned Domestic & feeders may be other segments, especially Indonesia. Typically lower revenue per lift, but still impact terminal capacity International transhipment provides a useful top-up, but competition takes place over greater distance and may often include statebacked competitors potential for Thailand & Indonesia is limited due to diversion (Java, not Batam) and Singapore is very competitive TS Double the Volume but not Double the Revenue ICTSI versus PSA as a Proxy for OD Versus Transhipment USD/TEU Yield per TEU (USD) PSA ICTSI Revenue / TEU ? Source: ICF; ICTSI; UBS 13

14 Singapore dominates regional transhipment market Steady decline in face of direct call ports?... More likely continued dominance and lock-in as Mega-vessel hub? PSA / Government has made strong commitment to expansion Tuas Sends a clear signal to market versus credibility gap of competitors So far, S. Vietnam ports have struggled to pose a threat New Priok and / or Batam? Shanghai will FTZ eventually deliver? Source: ICF 14

15 Revenue Risk Freedom to Price or Tariff Control? and regulation of major cost items, e.g. leases terms / rent Freedom to price is preferred, but surplus capacity will put downward pressure on tariffs Removal of price controls in S. Vietnam originally favoured, but rates fell to < USD 40 for a 20 container before the floor of USD 46 for a 20 was mandated August 2013 Tariff control poses additional regulatory risk, but transparent system with clear scope for adjustment mitigates some of this: Indonesia / Priok: regulated, but transparent mechanism with upward (and downward adjustment) Vs Thailand / Laem Chabang: regulated, but limited transparency and no increase >20yrs Cost control: reviews of rateable value, rents, etc. e.g. Melbourne and possible significant increase for DPW concession (to be independently determined) Competitive concession bid revenue share / upfront payment: seductive for port authority / government, but private bidders often over-commit (e.g. Mumbai) to the detriment of all 15

16 Outside the gate? You re only as good as the weakest link and terminal operators do not control all the supply chain links GOVERNMENT PARTNERSHIP LOCAL REGIONAL NATIONAL OPERATIONS AT PORT CUSTOMER FOCUS Quay IT Yard OPERATIONS NEAR PORT PUBLIC-PRIVATE PARTNERSHIP SEAMLESS CARGO MOVEMENT Infrastructure Logistics parks River-road centre Rail-road centre, etc. Maritime Navigation channels Piloting / towage Ship repair, etc. Support facilities Customs Bank, Insurance, Legal Freight forwarders, etc. Road Inland shipping shortsea feeder International trans-shipment (Pipelines) OPERATIONS AWAY FROM PORT SECURING THE HINTERLAND Source: ICF; also republished in Mark Millar, Global Supply Chain Ecosystems - Strategies for Competitive Advantage in a Complex World,

17 Ability of Government to deliver supporting infrastructure Source: ICF 17

18 Bidding re-runs / programme delay Pushes up project risk and damaging to economic development India, Mumbai JNPT 4 th container terminal (4.8 Mn TEUs). First bidding cancelled due to lack of participation 2 nd round (began in 2009), winning PSA-ABG consortium backed out in 2012, after offering 50% revenue share 2 nd round mired in legal controversies. APMT excluded - won earlier GTI bid hence not permitted to bid. Successfully challenged in court, but then backtracked & decided not to bid. 3 rd round: Neither PSA nor APMT excluded from the bidding process, to the chagrin of some industry stakeholders. Feb 2014, awarded to PSA again at 35.79% revenue share Philippines, Subic Bay: 1996 offered 25 yr lease, bid evaluation on two main criteria: investment plan and royalty payments. 3 bids, offering royalty payments of $20.50/TEU from HPH, $15.08/TEU from Royal Port Services, and $57.80/TEU from ICTSI, but with a smaller development plan - a defensive bid to keep HPH out of the Philippines and protect tariffs at Manila? (see also HPH defensive bids in Hong Kong) Awarded to HPH, challenged and then re-bid in1997 Further delays and challenges not resolved until 2001, new plan and bids, concession finally awarded to ICTSI Despite 10% utilisation (32,000 TEU at 1 st berth) 2 nd berth also awarded to ICTSI 2011 (no other bidders). Meanwhile traffic at congested Manila rose to 3.7m TEU in

19 Environmental Concerns Increasing project risks related to environmental impacts & climate change Overlapping areas of concern: Green port / Green supply chains : broaden focus from biodiversity / ecological, etc. from impact of new developments to additional concerns around air pollutants and Greenhouse Gas Emissions (GHG).will become an issue in emerging markets Climate change: impacts over life cycle of port assets? Long time horizons. Planning, implementation, concessions run years+ (e.g. New Priok IPC II 70-yr concession, London Gateway even longer). Direct impacts for project finance What s at risk? Potential financial impact Non-financial impacts Performance of fixed assets Supply chain integrity Availability and demand for resources (e.g. water, energy) Demand for goods and services Reduced asset value Unplanned CAPEX, increased OPEX Reduced efficiencies Reduced availability of insurance Inability to meet projected financial returns Need for innovation Climate change also has the potential to affect achievement of non-financial objectives, especially on development, community, and environmental issues 19

20 Wrap - Port PPPs & Beyond In an ideal world public sector would establish... Transparent (and simple) selection procedure Clear and committed timelines for phase in (and out) of new capacity including option to develop adequate economies of scale where possible (note impact of mega vessels / alliances at major ports) Deliver supporting infrastructure Regulation via competition is preferred, but may not be possible in early stages Be wary of defensive plays by incumbents Fair and clear allocation of risk and reward between both Ps...and be clear on policy objectives Establish a track record In an ideal world 20

21 Thank You Any Questions? Regional Contacts Ports, Logistics & Transport Services Jonathan Beard Hong Kong & Beijing Anil Gubrele Mumbai Mike Savonis Washington DC ICF Transportation Projects 21

22 Tiger Global Management, LLC 22