FRAMEWORK FOR PORT REFORM

M O D U L E 1

WORLD BANKPORT REFORMTOOL KIT

The Port Reform Toolkit could be elaborated thanks to the financing contributions 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 quality of theirinfrastructure 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

The Port Reform Toolkit Modules have been prepared with the contributions of the following organizations,under the management of the World Bank Transport Division:

International Maritime Associates (USA)

Mainport Holding Rotterdam Consultancy (formerly known as TEMPO),Rotterdam Municipal Port Management

(The Netherlands)

The Rotterdam Maritime Group (The Netherlands)

Holland and Knight LLP (USA)

ISTED (France)

AXELCIUM – Ingenierie et Regulation Financiere (France)

Nathan Associates (USA)

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

PA Consulting (USA)

Comments are welcome. Please send them to the World Bank Transport Help Desk. Fax:1 202 522 32 23.Internet:Transport@worldbank.org

INTRODUCTION AND OBJECTIVES

The process of institutional reform is com-plex. Most countries undertake the kindsof fundamental institutional reforms thatshift boundaries between the public andprivate sectors less than once in each gen-eration. Hence, the knowledge necessaryto carry the reform process forward needsto be built up in most countries from anear zero base. The Port Reform Toolkit(Toolkit) is designed to shorten the learn-ing curve for institutional review andrenewal by providing background infor-mation, concrete examples of successfuland unsuccessful reforms, and specifictools and methods that policy makers andreformers require to proceed with theconfidence that genuine knowledgeaffords.

The complex reform process throughwhich the Toolkit navigates policy makersis a worthwhile journey. While the rea-sons for engaging in port reform aremany and varied (as discussed in Module3), the benefits are real and can be quanti-fied as they accrue to exporters, con-sumers, shippers and entrepreneurs. Asuccessful reform program may free gov-ernments of unnecessary expenditures,releasing funds for high priority socialprograms, ease bottlenecks to trade andeconomic development, and motivate theadoption of new regulations that protectthe environment and improve workmanand navigational safety. More broadly,the benefits the main stakeholders canexpect from port reform include:

• Governments: at the macroeconomiclevel, improvement of external trade

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FRAMEWORK FORPORT REFORM

M O D U L E 1

competitiveness by reducing trans-port costs, and in particular the costof port services, and improving portefficiency at the sea/land interface;at the microeconomic level, easingthe financial burden on nationalbudgets by transferring part of portinvestments and operating costs tothe private sector, and incidentally,raising revenues from asset divesti-tures;

• Transport and Terminal Operators:more cost-effective port operationsand services, allowing for more effi-cient use of transport assets and bet-ter competitive positions in transportmarkets, and more business opportu-nities in growing sectors (e.g., con-tainer operations);

• Shippers, Exporters/Importers:reduced port costs and, potentially,lower maritime freight rates, allow-ing lower costs of imported goodsand intermediate products andenhanced competitiveness forexports; and

• Consumers: lower prices for con-sumer goods and better access to awider range of products throughimproved access and increased com-petition between suppliers.

In Colombia, for instance, the liberaliza-tion of port labor practices along withthe transfer of most port services to theprivate sector has resulted in large andrapid improvements in productivity,lowers fees for port users, and veryattractive returns for the concessionaires(see Box 1). Similarly, in Argentina, theimprovements following the concession-ing of terminal operations in BuenosAires have been dramatic: port chargesand shipping tariffs have declinedsharply, labor productivity has nearlyquadrupled, and cargo volumes havejumped by more than 50% (see Box 2).

The objective of the Port Reform Toolkitis to provide support for policy makersin undertaking sustainable and well-considered reforms to public institutionsthat provide, direct and regulate portservices in developing countries. In par-

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COLOMBIA: OPERATING PERFORMANCE BEFORE AND AFTER REFORM

Indicator Before 1993 1996

Average vessel waiting time (days) 10 No wait or in hours,depending on the port

Working days per year 280 365Working hours per day 16 24Tons per vessel per day

Bulk cargo 500 2,500 minimumGeneral cargo 750 1,700

Containers per vessel per hour (gross) 16 25

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

Box 1

ticular, the Toolkit offers public officialswith support in:

• Understanding the need for andchallenges associated with sectorreform and institutional redesign inlight of the changing business envi-ronment affecting port operations;

• Choosing among options for privatesector participation and analyzingtheir implications for redefininginterdependent operational, regula-tory and legal relationships betweenpublic and private parties;

• Preparing legislation, contracts andinstitutional charters to govern pri-vate sector participation; and

• Managing the transition to increasedprivate sector involvement.

Resources that address port institutionalreform in a comprehensive and system-atic way or that clearly explain theprocesses involved in re-engineeringpublic port institutions are not readily

available. The Toolkit is designed to fillthis knowledge gap and to provide portreformers with decision support tools,tested and proven institutional reformtactics, and guidelines that represent"best international practice."

The Toolkit draws together practicalinstitutional designs and alternativeapproaches for increasing private sectorinvolvement without compromising thepublic interest. It presents "best interna-tional practices" in a manner that is rele-vant to decision makers, and is designedto be easily understood by non-special-ists. It supplements general points withspecific examples drawn from recentport reform activities around the world.

While the main audience for the Toolkitis public officials in developing coun-tries who are responsible for port sectorreform, the Toolkit should also be ofinterest to other government officials, toexecutives with port service companies,shipping companies, port consultants,and companies that use port services.

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ARGENTINA: SELECTED PERFORMANCE INDICATORS FOR THE PORTOF BUENOS AIRES

Indicator Before 1993 1996Cargo (thousands of tons) 4,000 6,000Containers (thousands of TEUs) 300 540Capacity (thousands of containers per year) 400 1,000Operational area (hectares) 65 95Productivity (tons per worker per year) 800 3,000Average stay for full containers (days) 2.5 1.5Cost for container imports (US$ per ton) 450 120Port tariff for exports (US$ per ton) 6.7 3.0Port tariff for imports (US$ per ton) 2.1 1.5

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

Box 2

In addition to this introduction, theFramework Module includes the follow-ing sections:

• Context for the Framework Module

• The Port Business Environment

• A Road Map for the Port ReformProcess

• Implementing Port Reform: PullingIt All Together

CONTEXT FOR THE FRAMEWORKMODULE

The Toolkit is made up of eight mod-ules. The first of these, the FrameworkModule, sets the stage for all of theother modules that follow. It provides aunifying "decision framework" that poli-cy makers can use to guide them step-by-step through the processes of reform-ing and re-inventing port institutions. Italso provides a common language and aset of concepts that are used throughoutthe Toolkit and that represent the com-mon language port reformers use incommunicating with their various con-stituencies. Importantly, the FrameworkModule also includes a road map for theother modules that follow. It explainsthe interrelationship of these moduleswith one another and their relevance tothe framework presented here.

The Framework Module lays out anordered set of decisions that are linkedtogether functionally as well as tempo-rally. For each decision, the Toolkitattempts to articulate the principleoptions and alternatives available to pol-icy makers and to assess the expected

consequences associated with eachoption based on recent internationalexperience. The framework is presentedin the form of a "decision tree" that pro-vides a context for understanding thesubsequent modules, which are:

• Module 2: The Evolution of Ports in aCompetitive World: The roles andfunctions of ports; forces shapingport dynamics in the 21st Century.Readers of this module should beable to place their ports in the con-text of current and historic portdevelopments and to understand themajor trends shaping the ports of thefuture.

• Module 3: Alternative PortManagement Structures andOwnership Models: Description ofdifferent port structures and owner-ship models and identification of thestrengths and weaknesses of each.Readers of this module should beable reach a decision about the mosteffective, efficient, and feasible struc-ture for their ports, given each coun-try’s/community’s unique economic,political, and social environment.

• Module 4: Legal Tools for PortReform: Description of legal andcontractual options and the identifi-cation of the strengths and weak-nesses of each. Readers of this mod-ule should be able to understand andtake steps to develop specific portreform measures and legal frame-works based on the port’s/govern-ment’s economic, financial, political,and social goals and objectives.

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• Module 5: Financial Implicationsof Port Reform: Risk allocationamong port stakeholders; potentialsources of funding for the reformprocess; pricing port services toachieve revenue and public policyobjectives. Readers of this moduleshould gain an appreciation for portfinance and its relationship to reformas well as how the financial risks andrewards vary from one reform optionto another.

• Module 6: Overseeing the EconomicPublic Interest in Ports: Defining thepublic interest; description of over-sight mechanisms and techniques;elements of the public interest.Readers of this module should gain asolid understanding of oversightmechanisms and methods; the role ofregulatory bodies, inspections andaudits; reporting requirements; andthe interplay between competitionand regulation.

• Module 7: Labor Reform and RelatedSocial Issues: Institutional, legal, andindustrial frameworks for portreform; establishing a productivedialogue among port stakeholders;rationalizing the workforce; over-coming roadblocks. Readers of thismodule should be able to plan forand implement rationalization ofport labor in a manner that treatsaffected parties fairly while achiev-ing essential efficiency and economicimprovements.

• Module 8: Implementing PortReform: How to get from concept toeffective implementation. Readers ofthis module will receive practical

advice on how to take the many ele-ments of port reform and put theminto a procedurally logical and politi-cally feasible sequence of steps thatmaximize the chances for success.

A wider range of reform models and ofpublic-private partnership formats existsfor the delivery of port services than forany other infrastructure intensive serv-ice sector. This is because the ensembleof services provided by seaports is vastand requires more diverse and special-ized skills and involves more categoriesof service than other public/ privateinstitutions. Although the Toolkit doesnot elaborate on all models available tosector reformers, it does define theoptions on either end of the public-pri-vate spectrum as well as the most com-mon risk-sharing arrangements such asconcessions and terminal operating leas-es. Importantly, it also provides toolsfor assessing hybrid options and forunderstanding their merits and risks.

In dealing with reform in the port sector,the World Bank has tried to pool knowl-edge from around the world. Thisknowledge is abundant. Over the past10 years more than 100 transactionshave been completed that involveincreased private sector participation inthe sector (see Boxes 3 and 4). The prob-lem confronting public policy makerswhen they take up the challenge of portreform is not a lack of information, butrather a lack of useful knowledge theycan use to support their own process ofreform.

The Toolkit uses a diversity of commu-nication media to convey knowledgeand insight to its users, including narra-

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tive text, mini case studies, graphics andstylized representations of decisionprocesses. The objective of the WorldBank in developing this Toolkit is toprovide not only a comprehensive butalso an easy to use and apply Toolkit forport reform.

THE PORT BUSINESS ENVIRONMENT

Three broad forces are generatingmomentum for port reform in develop-ing and industrialized countries alike:

• External forces of competition andtechnology from the shipping indus-try;

• The acknowledged financial andoperational benefits of private partic-ipation in infrastructure develop-ment and service delivery; and

• The diversification and globalizationof investors and operators in the portindustry.

6

Port Projects with PrivateParticipation in Developing

Countries that Reached FinancialClosure, 1990-99

Year Projects1990 21991 11992 71993 121994 171995 241996 141997 201998 161999 14

Port Projects with PrivateParticipation in Developing

Countries by Type of Project, 1990-99

NumberType of Project of ProjectsDivestiture 8Greenfield Project 41Operations and Maintenance Project 22Operations and Maintenance with

Major Private Capital Expenditure 56

Box 3

Investments in Port Projects withPrivate Participation In Developing

Countries by Project Type1990-1999

(US$ Nominal Million)

Class Year TotalDIVESTITURE 1990 0.00

1991 0.001992 0.001993 0.001994 0.001995 0.001996 30.001997 83.001998 0.001999 0.00

GREENFIELD PROJECT 1990 0.001991 10.001992 88.001993 141.001994 139.001995 1321.001996 1225.001997 1700.001998 248.001999 275.00

OPERATIONS AND MAINTENANCE WITHMAJOR PRIVATE CAPITAL EXPENDITURE

1990 1.001991 0.001992 160.001993 196.001994 850.001995 506.001996 179.001997 2482.001998 540.001999 2251.00

Box 4

These three forces are described below.

First is the need to restructure port oper-ations to deal with the external factorsthat affect port viability includingnational competition for global markets,changes in port and transport technolo-gy and increased competition amongports. Port institutional models devel-oped in the 19th and early 20th centurytoday significantly constrain ports fromcompeting effectively on a service quali-ty basis, limit their agility and marketresponsiveness in mobilizing resourcesand constrain their ability to share riskswith private sector partners. In plan-ning how responsibility for future portdevelopment and operations will bedivided between the private and publicsectors and in deciding on desired levelsof investment to be funded or guaran-teed from public sources, policy makersmust increasingly regard the competi-tiveness of their port(s) vis a vis otherports in their region and vis a vis thesupply chain alternatives available totheir users. In general, these alterna-tives are more abundant today than theywere ten years ago. Consequently, theport business is more competitive todaythan it was when most port authoritieswere originally chartered. New institu-tional models are needed for this newera of increased competition.

The second force generating momentumfor reform is private participation ininfrastructure. In recent years, worldgovernments and lending agencies havecome to acknowledge that private sectorparticipation can be a powerful force forenhancing the performance of portassets, as with other infrastructureassets. National and regional seaports

are realizing that they cannot competeeffectively without the efficienciesoffered by private operators and, equal-ly importantly, without access to capitalprovided by private investors. Inresponse, there has been a steadyincrease in recent years of private partic-ipation in port operations around theworld. Countries with recent experienceof port privatization include Poland,Germany, Lithuania, Estonia, Latvia,Russia, Japan, Malaysia, China,Thailand, the Philippines, Indonesia,Argentina, Chile, Brazil, Mexico,Colombia, Panama, Mozambique,Tanzania, United Kingdom and Canada.The World Bank is currently involved inport reform projects in about twentycountries in various regions worldwide.Moreover, the pace of private invest-ment in the sector is accelerating. AsBox 5 below demonstrates, privateinvestment in the sector has increasedprogressively since 1990. Over this peri-od private sector investment in the portsincreased from $10 million in 1991 to

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INVESTMENTS IN PORT PROJECTS WITHPRIVATE PARTICIPATION BY YEAR

(US$ nominal millions)

Year Investment1990 $11991 101992 2481993 3371994 9891995 1,8271996 1,4351997 4,2641998 7881999 2,526

Total $12,425

Source: PPI Database, World Bank

Box 5

$4.3 billion in 1997, and to a cumulativeamount of more than $12 billion overthe period at the end of 1999.

The private sector, which has drivenrecent port development, has rapidlymatured and has organized itself intodistinct specialized sub-sectors. Today,the port services industry is a US$45-60billion global business that includes sev-eral distinct specialized segments, asBox 6 below demonstrates.

The third force affecting reform is thedevelopment of a global market for portdevelopment services, with specializedniches each containing a number ofinternational companies that offer spe-cialized service capabilities. The markettoday broadly includes four groups ofoperators: 1) the first wave of "globalstevedores," the first to have expandedtheir operations internationally from astrong home base; 2) the second wave,comprising regional operators nowentering the international market follow-ing the success of their predecessors; 3)

the shipping line investors in terminals;and 4) niche investors looking morespecifically at small to medium scalefacilities. The five first-wave operatorstoday operate about 70 terminals world-wide, mostly container operations, andaccounted in 1998 for more than 30% ofthe total container handling market. Thesecond wave includes ten or so stevedor-ing groups from the United States,Europe and Asia, and is now challengingthe first "global stevedores" on newdevelopment opportunities. The majorshipping lines, with three main actors sofar, are reorganizing their terminal oper-ations as separate corporate entities tobetter operate in the market. The nicheinvestors, a dozen identified so far, canbe expected to continue to carve out spe-cific market segments in the future.

But in this market, as well as in the ship-ping industry, consolidation may wellchange the competitive landscape, atleast between the different groups aboveas a starting point, and maybe laterwithin the groups themselves. The con-sequences of consolidation for regionalcompetitive conditions could be signifi-cant, and will require due attention frompublic authorities. The structure of thisglobal industry should, therefore, beconsidered by policy makers whenadopting specific reform models.Module 2 provides a detailed overviewof prevailing trends in the global portand maritime industry.

The range of services ports offer differswidely. So, too, do the service reputa-tion and established commercial rela-tionships with carriers that global serv-ice operators can bring when they areselected as investor/operators.

8

Estimated Available Marketin the Port Sector

(US $billions)

Estimated Annual

Revenues

Container Terminal Operations $30 to 40Tug Assist Services 4 to 5Maintenance Dredging 4 to 5Information Technology 2 to 3Environmental and

Ship Safety Services 1 to 2Other Port Services 4 to 5Total Available Market $45 to 60

Box 6

In general, modern ports offer two kindsof services: core and value added serv-ices. The core services provided by mostports include but may not be limited 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 Neo-

bulk Cargo Handling- Dry and Liquid Bulk Cargo

Handling- Container Stuffing and Stripping - Bagging and Packaging- Cargo Storage

• Repair Services- Dredging and Maintaining

Channels and Basins- Lift Equipment Repair- Dry Dock Ship Repairs- Container and Chassis Repairs

• Estate Management Services

• Information Management Services

A number of these services can be out-sourced to specialized private sectorservice providers via a number of differ-ent methods. In general, the appropri-ateness of specific methods is deter-mined by two main factors:

• The nature of the service itself (e.g.,public responsibility or commercialactivity). Public responsibility, for

instance in vessel traffic manage-ment, means that, regardless of thearrangement adopted to deliver theservice, the ultimate operational andlegal responsibility for the serviceremains with the public sector, usual-ly the Port Authority. This is criticalwhen considering how to optimizeservice delivery while keeping upwith the public characteristics of theservice. Commercial activities inports also entail some level of publicresponsibility, but to various degrees.The minimum is usually the duty forthe Port Authority to ascertain thequalifications of service providersoperating on the public domainthrough a licensing process. Equallysignificant is the requirement for aPort Authority to ensure the avail-ability of basic port services, includ-ing commercial ones, to all users ona non-discriminatory basis.

• The nature of the assets required todeliver each category of service. Theassets required to deliver manymarine services, for example, aremobile and can be moved at relative-ly low cost from one port to another.Most of the assets required to pro-vide access and protection or todeliver terminal services, however,are immobile and have long econom-ic lives. Moreover, the use of theselong-lived assets is indivisible amongdiscrete service units. In otherwords, a large portion of their costsare fixed regardless of the volume ofservice units over which it is amor-tized.

For the purposes of defining asset"rights" of ownership, lease, rental, casu-

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al use, etc., it is helpful to differentiateport assets into three categories: 1) long-lived, high cost infrastructure (e.g.,breakwaters, channels and turningbasins) in which incremental benefit canonly arbitrarily be assigned to individ-ual port users; 2) long-lived, high costinfrastructure (e.g., quays and terminals)whose incremental use and benefit canbe apportioned in various ways andassigned to discrete service delivery sys-tems; and 3) superstructure and equip-ment whose use is clearly associatedwith specific users and specific servicedelivery systems.

Much of the preparation for port institu-tional reform therefore involves:

• Identifying the critical basic publicfunctions and public responsibilitiesthat will define the role of the nation-al and local public authorities incharge of the port sector; and

• Identifying the assets needed to sup-port each function and category ofservice, assessing the adequacy ofthese assets, and determining whichservices and related assets to pack-age together and which among theseto tender to private investors/opera-tors.

Box 7 presents the most commonoptions for transferring specific cate-gories of "rights" to reposition specificcategories of core port services from thepublic to the private sector. The differ-ent port models indicated in the tableare defined and discussed in Module 3.

In addition to providing core port serv-ices, increasingly ports are delivering

non-traditional services to their cus-tomers as well. These non-traditionalservices typically expand the role of portservice providers in the supply chains ofshippers. These services create value forshippers by expanding the scope of mar-kets they can economically access, byreducing the delivered cost of productsthey sell, or by reducing the cost to com-plete buy/sell transactions. These serv-ices allow ports to participate in special-ized port service niches and to differen-tiate themselves from competing portsby means other than price and turn-around times.

Improving logistics is now a widelyaccepted means for companies toimprove their competitiveness.Logistics, in short, is a procedure tocoordinate all aspects of the manufactur-ing and distribution process to ensurethe delivery of the right products to theright markets at the right time. The keyelements to develop an advanced logis-tics strategy will usually include:

• Understanding the cost and operat-ing behavior of the entire supplychain and using this understandingto inform decisions about where tolocate manufacturing, assembly, anddistribution centers;

• Promoting strong relationships withcarriers and vendors that includequality certification procedures;

• Designing a flexible transportationsystem that allows for quick routingand mode selection changes; and

• Developing a logistics informationsystem that is effectively integrated

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with manufacturing and purchasingprocesses.

There is a significant number of activi-ties that can be classified as value addedservices in the field of logistics.Generally, they fall into two categories:

• General Logistics Services includingstorage, loading/unloading, strip-ping/stuffing, groupage, consolida-tion, and distribution; and

• Value Added Logistics (VAL) includ-ingrepackaging, customizing, assem-bly, quality control, testing, repair,on-terminal auto-accesorizing, grainstorage and fumigating, news printstorage and transfer, and in-containergarment assembly.

General value added services mayinclude such services as equipmentmaintenance, equipment renting andleasing, cleaning facilities, tanking, safe-ty, security services, offices, and infor-mation and communication services ofvarious kinds.

VAL activities, in particular, are growingin importance as producers concentrateon meeting the demands of customersfor high quality specialized products.New players in this field–third-partylogistic services providers–haveemerged to take over parts of the pro-duction chain (assembly, quality control,customizing, packaging, etc.) and of theafter-sales (repair, re-use) service.

Ports are in a natural position to partici-pate in this logistics revolution, bring-ing together all modes of transport,information systems, and land for theconstruction of facilities. Undoubtedly,containerized and general cargo havethe highest VAL potential.

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Box 7

Public-Private Roles in Port Management

A ROAD MAP FOR THE PORT REFORMPROCESS

Setting Reform Objectives And PlanningFor The Creation Of Value

Port reform should only be undertakenafter a full and complete assessment ofthe objectives that public officials aretrying to achieve. Institutional reformor, indeed, private sector involvementshould not be an end in itself, but only ameans to achieve specific and welldefined public interest objectives. Theobjectives underlying port reform maybe as varied as the need to expand or tomodernize container handling capacity,the desire to stimulate the growth of adistribution-based economy centered ona regional hub port, or the need toreduce government expenditures on thesector so that limited public funds canbe applied to other more pressing socialneeds. In any case, the private provisionof port services and infrastructure isonly one tool among others that areavailable to officials to solve specificproblems and to achieve specific publicinterest objectives. Thus, the decisionprocess should begin with the consider-ation of the objectives that port reform isdesigned to achieve. Module 3 reviewsthose objectives in greater detail.

The delivery of port services has becomean increasingly risky undertaking.Increased competition between oramong ports, large capital outlays, morespecialized investments, and the expan-sion of port activities beyond traditionalservices all increase the possibility ofeconomic losses from port operations.Considerations of risk and return on

social capital should figure prominentlyin deliberations of public policy makersconcerning public interest objectivesunderlying port reform.

All of the reform design issues touchedon above need to be assessed in the con-text of the operating scale of a particularport and the interest and willingness ofprivate companies to invest in the par-ticular set of services offered to them.For example, intra-port competition forservices such as stevedoring or terminaloperations may be feasible in a largevolume port but not feasible in a smallvolume port.

Modules 3 and 6 describe circumstancesunder which competition for licenses,rights or franchises may be an effectiveway to sustain competition and main-tain incentives for continuous serviceenhancement. They also identify cir-cumstances under which competition inthe market may not be feasible.Furthermore, Module 3 in particular dis-cusses advantages of designing competi-tion between or among private opera-tors into the tendering process for thedelivery of specific categories of service.

Where competition "in the market" forspecific categories of port services is notworkable, competition "for the market"may still be an option for protecting thepublic interest. While continuing androbust competition among multipleservice providers is the best way toensure low prices for services rendered,such competition may not be feasible inall port environments due to physicalconstraints or small cargo flows. In suchan environment, it is still essential tomaximize the economic benefits of com-

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petition and to minimize the risks asso-ciated with monopoly service throughcompetitive bidding. For the provisionof still other categories of service (e.g.,those that have significant consequencesfor the efficient use of assets for bothshipping lines and for terminal opera-tors), retention of these services in thepublic domain may be the best option.Module 3 addresses this issue of packag-ing core and non-core services into bun-dles for private participation.

Port reformers should explicitly assessthe objectives they seek to achievebefore settling on any specific reformmodel, since different objectives haveimportant implications for the types ofreforms being pursued. Options for pri-vate sector involvement, investment andrisk-sharing range from open entry toservice contracts, management contracts,leases, joint ventures, control of corpo-rate entities and concessions all the wayto full divestiture. Differing forms ofprivate sector involvement result in dif-ferent allocations of risk, differentresponsibilities for government, and dif-ferent types of government oversight.Module 5 delves into the issue of risksharing at greater length.

Reform Policy Decision Context

The port reform decision process mustbegin with the clear definition of theobjectives that the reforms are intendedto achieve. The next step is to delineateall of the key institutional design andreform decisions needed to move theprocess to a successful result. Next, foreach decision point along an ordered setof decisions, options and alternativesshould be developed and assessed. In

particular, all of the possible outcomesresulting from the selection of any spe-cific option need to be explicitly evaluat-ed with respect to the stated objectivesof reform.

A useful tool for laying out the portreform process and feasible options is adecision tree. The key "branches" com-prising this port reform decision treeinclude:

• Methods of private sector involve-ment;

• Modes of public interest oversight;

• Funding of the port sector;

• Legal framework adaptation;

• Service packaging and asset restruc-turing;

• Labor adjustment and settlement;

• Implementation responsibility;

• Sequencing transactions; and

• Transaction preparation.

For each of these key decision pointsseveral options exist. Box 8 shows anotional decision tree leading portreformers through the many stepsinvolved in the process.

Methods of Private Sector Involvement

The nature of private sector involvementin the port sector will be prescribed bythe adoption of a specific institutionalmodel. To assist port reformers in deter-mining which approach might bestapply in their circumstances, Module 3

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describes four port management modelsthat cover the spectrum of private sectorinvolvement in ports. These include: 1)the public service port; 2) the tool port;3) the landlord port; and 4) the privateservice port.

Within these models, a broad array ofoptions exists with respect to the specificform public/ private partnerships maytake. These can significantly affect theagility and responsiveness of serviceproviders, their market orientation andefficiency, and their decision makingautonomy.

The appropriateness of specific modelsfor particular ports needs to be judged,ultimately, by how well they helpachieve the objectives of the reform pro-gram. However, a number of other fac-tors should also be considered includ-ing:

• The strategic fit with the identifiedneeds of the existing and potentialmarket;

• The competitive consequences forother ports in the same range;

• The compatibility with otherapproaches to public/private part-

nerships used in other transportinfrastructure projects as well asother sectors of the economy; and

• The fit with the investment capacityand interests of potential strategicinvestors.

Once the main institutional options forsector reform are decided upon, theissue of asset restructuring must then beaddressed. The two key issues involv-ing asset restructuring are:

• What degree of competition shouldbe designed into port service mar-kets; and

• What assets (and related services)should be tendered as packages forsingle source responses?

Port assets can be divided among sets ofservices and tendered as separate pack-ages in a number of different ways. Theconsequences of either bundling assets(and corresponding services) orunbundling them has a direct effect bothon competition among private serviceproviders and on the efficiency withwhich a port can operate.

In larger ports, competition among ter-

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Public Interest

OversightAsset

RestructuringLabor

Settlement FundingSequencing ofTransactions

TransactionPreparation

ImplementationResponsibility

Modalitiesfor PSD

Option "A" "Two-Tier" Combination Settle pre-

transaction Combine privateand public sectorfunding with fee

constraintsMost attractiveterminals first

or"Paackaging"terminals and other assets

One agency responsible for implementing sectorreform; One transaction

manager assigned to each transaction

Engage separatefinancial advisor

for each transaction

Box 8

minal operators is both desirable andpractical. In smaller ports, competitionis less feasible because the economies ofscale required to attract specialized serv-ice providers are not sufficient to assurethem of a reasonable profit while main-taining charges at reasonable levels.Moreover, effective coordination ofcargo handling and marine services canbe better assured in smaller ports byintegrating them in a single source serv-ice. Module 6 reviews the consequencesof such options from an economic regu-latory perspective.

Public Interest Oversight

The two key issues involving publicinterest oversight are:

• What powers and authorities shouldbe retained by a public oversightbody after reform; and

• How should that body be constitutedand at what level of governmentshould it operate?

As noted above, increased private sectorparticipation in the delivery of portservices should be viewed as an instru-ment to achieve well-defined publicinterest objectives. Thus, a key elementin port reform must be the creation of amechanism to protect the public interestand make certain that the objectives ofreform are met. In creating such amechanism, it is important to keep pub-lic statutory and regulatory oversightresponsibilities separate from commer-cial activities.

Government oversight typically takesseveral forms: strategic planning, tech-

nical regulation, and economic regula-tion. Planning the future developmentof ports, and sharing those plans withprivate developers who can help imple-ment them, is a continuing responsibili-ty of governments. As discussed above,every port’s vision of its future needs tobe realistically set in the context of itscommercial environment and its com-petitive position versus other ports. Itmust also take into account the likelyeffects of proposed increases in capacityon regional markets, since one country’sefforts to increase its share of regionaltrade typically evoke competitiveresponses.

Thus, regardless of which port reformmodel is selected, strategic transportplanning will remain a critical responsi-bility of governments. Enhancing inter-national competitiveness requires,among other things, implementing andmaintaining a cost-effective transportsystem, with the port interface being acritical link to international markets. Anational ministerial body, therefore,should be in charge of developing thelong-term strategic vision for nationalwaterfront development plans. The portreform vision should also encompassother land transport reforms to ensurethe complementary development ofinterconnected links in the transportinfrastructure. Many examples existaround the world of the inefficienciesand bottlenecks created when road andrail links are not developed at a paceadequate to handle increased port activi-ty. Further, this planning effort willhave to take into account various stake-holders’ interests in the long-term devel-opment of coastal areas within the

15

framework of a national IntegratedCoastal Zone Management (ICZM)policy.

Regulatory oversight typically involvesboth economic and technical issues.

Technical regulation of operations isrequired to ensure compliance with safe-ty, labor, and environmental protectionstandards, as well as to set and monitorappropriate minimum performancerequirements (especially when competi-tion is weak). Safety is a major concernwith ship movements in and aroundport mooring and berthing areas andwith cargo handling operations ashore.Requirements for handling and storageof hazardous cargoes must be clearlyspelled out in port regulations, andshould be based on international con-ventions with due allowance for specificlocal conditions. The need for andforms of technical regulation does notchange significantly with port reform;consequently, technical regulation is notdealt with in detail in the Toolkit.

A complex set of mutual obligations typ-ically bind private operators and usersto act in concert and in compliance withrules in the provision and use of portservices. The development and enforce-ment of operating rules and regulationsrepresents another oversight responsibil-ity that most public authorities assumeor retain as part of their essential func-tions. Module 4 elaborates on the kindsof mutual obligations among privateservice providers and between them andpublic service integrators that are need-ed to ensure the safe and efficient deliv-ery of services. These technical regula-tions are typically articulated in a set of

Port Rules and Regulations. Module 4will discuss the content of a model set ofrules and corresponding enforcementmechanisms that have been used effec-tively in various port reform efforts.Finally, this module describes the legalsources such as decrees, laws, contracts,licensing agreements, and sectoral poli-cies used to define and enforce obliga-tions on private operators and portusers.

Economic regulation, which usuallyaims at monitoring market entry andpricing, is necessary when competitionis weak or non-existent. Conversely,when significant competition develops,either internally or externally, the needfor strong economic regulation decreas-es. Indeed, when competitive pressureis well-established, there may be littlereason to maintain any price regulationother than a requirement to publish tar-iffs, a continuing prohibition againstundue discrimination against similarlysituated port users, and retention of amechanism by which the governmentcan monitor the competitiveness of themarket and investigate alleged anti-competitive activity.

The level of competition faced by anindividual port, therefore, has importantimplications for the nature and degreeof regulatory oversight of port opera-tors. Ports with abundant intra- andinter-terminal competition require mini-mal economic regulation.

In general, the difference in public sectorresponsibilities before and after institu-tional reform is the difference between"rowing" the boat and "steering" theboat, respectively. Post-reform oversight

16

powers are typically indirect anddesigned to induce socially beneficialactions on the part of the private sector.Oversight may involve the creation ofincentives for private sector investment,the tendering of investment opportuni-ties, compatibility of all private invest-ments with a master plan and co-invest-ment under certain circumstances.Module 6 discusses various aspects ofeconomic public interest oversight indepth.

Once the areas for continuing govern-ment oversight have been defined, it isnecessary to determine an institutionalframework for administering the over-sight.

Port administration may be centralizedor decentralized. Each approach has itsstrengths and weaknesses. Centralizedadministration permits a broader nation-al economic and multi-modal perspec-tive for directing port development poli-cy. Decentralized administration per-mits a more narrow local perspectivethat aligns port development with theeconomic interests and priorities ofmunicipal or regional economies.

In addition to discrete national and localapproaches to port oversight responsi-bility, a two-tiered option also exists.For example, a national port council canbe formed, to which local port authori-ties report. Under the best of circum-stances, this two-tiered arrangementallows for the balancing of national andlocal interests and the reconciliation ofboth though deliberative processes. Inthe worst of circumstances, the two-tiered bureaucracy may lead to exces-sive interference in port operations and

management or contradictory policiesthat interfere with planning and invest-ment decisions.

The degree of decentralization in policymaking and regulation should:

• Reflect the objectives of the portreform program;

• Consider the institutional capacityand authority of the relevant levelsof government; and

• Provide a balance between nationaleconomic goals (such as seamlesstransport flows and export promo-tion) and local concerns (such aslabor activity, environmental degra-dation and industrial development).

In addition, whether port regulatoryresponsibilities should be concentratedat the central level or decentralized tothe local level should be looked at withtwo concerns in mind: 1) consistency ofthe approach with that generally fol-lowed throughout the country; and 2)the need for a transparent and efficient,user-friendly regulatory system. Theformer would call for some sort ofnationwide unit, likely at the ministeriallevel, although at arm’s length from theMinistry of Transport to guarantee inde-pendence; the latter could lead govern-ments to consider local (state/province)regulatory units closer to the field and,therefore, better able to tailor decisionsto meet local conditions.

To provide for a clear separation of poli-cy and regulatory responsibilities atboth the national and local levels, athree-tier institutional framework hasalso been employed effectively. For

17

example, under the assumption thatreforms will result in a landlord portarrangement with commercial activitiesfully carried out by private operators,the new public oversight frameworkcould be devised along the followinglines:

• A central body comprising seniorrepresentatives from relevant min-istries, municipalities of port cities,and from Port Authorities wouldwork out national port policy andstrategic planning objectives, andwould establish the main sector reg-ulations to be enforced by the PortAuthorities;

• The Port Authorities, autonomouspublic institutions or public joint-stock companies, would be grantedthe right to use state-owned land,administer, maintain and developport infrastructure assets, manageand enforce navigation safety meas-ures, enforce environmental protec-tion regulations, monitor the conces-sions and leases governing privatesector activities in the port area, andmarket the port to attract newinvestors; and

• The private operating companieswould carry out commercial activi-ties related to cargo traffic manage-ment and handling and market theirservices to attract new port users.

In such a setting, the national bodyserves three key roles: 1) it establishesthe basic rules of participation to beapplied by all entities, public and pri-vate; 2) it regulates the public PortAuthorities, in particular with respect to

their infrastructure pricing policies; and3) it provides an appeal level for disputeresolution in case private commercialoperators believe they are unfairly treat-ed by their local Port Authority and reg-ulator.

Financial Implications of Port Reform:Risk Allocation and Funding

The two key issues involving financialrisk are:

• Which categories of port assetsshould private investors be at risk forproviding, maintaining and repairingversus those for which the public sec-tor should be responsible; and

• On what basis should user fees orsubsidies be used to cover the cost oflong-lived port assets?

Module 5 describes the many types ofrisks involved in port projects andassesses the risks associated with thereform models developed in Module 3.Module 5 also identifies the financialtools that decision makers can use toassess systematically the financial risksand potential rewards associated withspecific investment programs. (A finan-cial simulation model to assess the via-bility of specific investment operationswill also be added to the module at alater stage.)

Port reformers should explicitly considerwhat risks the public sector can afford tobear and on what basis specific risksshould be transferred to the private sec-tor. Port planners have available to thema number of risk mediation tactics,which are described in Module 5.

18

Port operations require several cate-gories of long-lived assets, some ofwhich are inherently more amenable toprivate investment and user fee recap-ture than others.

As noted above, port assets includelong-lived, high cost infrastructure likebreakwaters, channels and turningbasins for which charges for incrementaluse can only be assigned arbitrarily toindividual users, since the marginal ben-efit derived from using this commoninfrastructure significantly outweighsthe marginal cost of replacing it.Consequently, a charge schedule devel-oped by a private developer and basedon user benefits could result in monop-oly profits and less use than was eco-nomically desirable.

Port assets also include long-lived, highcost infrastructure like quays and termi-nals, whose incremental use can bemeaningfully assigned to users andwhose marginal cost and marginal bene-fit can be balanced through a number ofprice regulation regimes or intra-portcompetition.

Finally, port assets include long-livedsuperstructure and equipment whoseuse is closely associated with specificusers and specific service delivery sys-tems. Equipment is a mobile asset andcan be competitively provided or easilyredeployed. On-dock storage and trans-shipment facilities can be awardedthrough competition and assigned totheir most productive use through opentender.

All three categories of assets can be pro-vided or maintained by the private sec-

tor. However, from the perspective ofprivate investors, the first categoryinvolves the greatest risk, has thelongest payback and involves the high-est risk tradeoff between their ability toset prices independently without regula-tory constraint and the level of invest-ment they are prepared to make. Ingeneral, private investors are preparedto make larger investments when theyare unconstrained by regulators or whenprice schedules (including escalationmechanisms) they propose in advance ofawards are accepted and locked in for along term. In other situations, the fund-ing of long-lived, high cost infrastruc-ture remains in the public sector and ischarged back to users though a numberof different regimes. Modules 3 and 6,respectively, deal with the operationaland institutional aspects and the regula-tory aspects of charging for port infra-structure.

Most port charges involve some combi-nation of public components for supportof publicly financed common use infra-structure and private components forthe provision of terminal infrastructure.The combination of these two pricingfactors determine the competitiveness ofports compared to other competingports. In general, the greater the degreeof competition the less the need for reg-ulatory intervention. Module 6 discuss-es the limited set of circumstances underwhich regulatory intervention into pric-ing decisions made by private serviceproviders may be appropriate.

Box 9 illustrates how the four port man-agement and operation models arraythemselves on scales measuring private

19

sector risk and the need for independentgovernment oversight.

Adapting the Legal Framework

To effect wide-ranging reform, the legalframework that underpins the institu-tional arrangements of the sector mayrequire significant amendment.

To ensure credibility, openness andtransparency in the reform process andto attract international participation andlong-term financial commitments frompotential investors, a sound and preciselegal framework for definingprivate/public partnerships is essential.In particular, prior to any reformsinvolving Build-Operate-Transfer (BOT)arrangements, governments shouldenact a concession law spelling out theprinciples of the process and establish-ing rules and responsibilities for eachparty. Further, governments shouldconsider putting in place a complemen-tary set of regulations describing howthe concession law will be applied inpractice.

Since there are ways other than conces-sions for securing private participationin port activities, the national legalframework for private/public partner-ships must also incorporate these ele-ments, or at least establish which entitywill be responsible for monitoring them.The basis of any licensing process, forexample, must be made clear in the law,which can specify that Port Authorityregulations will articulate more preciselythe implementation criteria.

The following legal documentationshould be reviewed to assess the poten-tial need for modification or the devel-opment of complementary statutes:

• Sector Laws: legislation establishingthe national institutional frameworkgoverning ports and describingclearly the mandate of all public enti-ties involved;

• Concession Law/ConcessionsContracts: since a widely usedoption for private sector participa-tion in port activities is the use ofconcessions, the basic legal frame-work enabling public authorities toenter into such contractual arrange-ments must be in place, including aclear and transparent process forawarding contracts and standardcontractual language providing forappropriate monitoring arrange-ments;

• Port Regulations: the set of provi-sions governing the daily operationsin the port; some may apply univer-sally within the country (e.g., envi-ronmental protection and laborrules) and some may apply only to

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Box 9

Importance of Regulation

Pri

vate

Sec

tor

Ris

k

Low

Low

High

High

Public Service

Port

Private Service

Port

ToolPort

Landlord Port

The Public-Private Balance of Riskand Regulation

specific localities (e.g., ship move-ments, access, traffic safety, tariffstructure).

Since amending a law most oftenrequires going through a legislativeprocess, the earlier in the reform processthis can be initiated the better. Sectorlaws and laws governing contract awardand management between public andprivate entities are the most critical ele-ments to be enacted. Port regulationscan usually be put in place by a ministe-rial decree. Module 4 offers guidanceand examples in the drafting of sectorlaws reflecting the sector model to beimplemented as well as guidance on thecontents of concession contracts andport regulations.

Labor Adjustment

The process of port labor reform oftenrequires governments to eliminate pro-visions from existing labor regimes thatunduly constrain flexibility and produc-tivity. Overstaffing, in particular, hasbeen a pervasive feature of most portorganizations in both the developingand developed world. As a result, toachieve more cost-efficient operationswill generally require significant reduc-tions in the workforce. To achieve thisresult in a socially acceptable way mustbe a prominent concern of publicauthorities and an integral part of thereform process.

Addressing the overstaffing issue as oneof the first steps in the reform process,before involving the private sector inoperations, will usually facilitate theoverall reform process. Since over-staffing in ports is often the result of

government policies that view portorganizations as instruments of socialpolicy and natural shelters for theunemployed, governments should takethe lead responsibility in helping ration-alize the system. Often, this means cre-ating programs to ease the transition ofport labor into other sectors. Doing this,in turn, requires the application of sig-nificant financial and managementresources early in the reform process.

If port services and infrastructure aretendered to the private sector before thisissue is resolved, for the process to standa fair chance to succeed, care should betaken that: 1) the private operators areallowed to adjust their workforce overtime to actual operational requirements;and 2) existing social protection pro-grams ensure the labor adjustmentprocess will be smooth and not provokeundue labor unrest. This may some-times require the establishment of spe-cial government-funded programs toaccompany staff retrenchment, possiblyby complementing general social pro-grams with sector-specific assistancemade available over a defined and limit-ed period of time.

In all cases, this means that organiza-tional and budgetary resources must bemobilized early in the reform process toensure appropriate and socially accept-able treatment of potential labor disloca-tions. In particular, worldwide experi-ence strongly suggests that port laborshould be involved in the port reformprocess from its earliest conceptualphase. Again, experience indicates thatthe best way to build confidence in thereform process by all affected parties isto broaden the sphere of participation

21

and responsibility to include port users,port labor and port and maritimeemployers. Such broad participationwill allow all stakeholders to share com-mon concerns about competitiveness ofport services and gain a better under-standing of how any weakening of thiscompetitiveness would be detrimentalto all. This would be particularly truefor the workforce, which would be thefirst to bear the consequences of reducedeconomic activity, both inside and out-side the port. Significantly, theInternational Transport WorkersFederations (ITF), while cautious aboutthe social consequences of port reforms,appreciates the need to improve portefficiency, possibly through increasedprivate sector participation. It insists,however, on the critical need to involvelabor unions from the start so thatmutually acceptable labor rationaliza-tion strategies can be worked out tomake the whole process both economi-cally and socially sustainable.

Two key issues arise when consideringreductions in the workforce as part ofport reform:

• Who will be responsible for "buyingout" surplus labor and when in theprocess will labor separation negotia-tions be completed; and

• On what basis will post reform labor-management relationships be con-ducted?

Institutions for allocating available workamong members of a qualified laborpool based on seniority or some otherrank ordering principle have grown upwithin most traditional ports. Unions

typically control entry into these poolsof qualified labor, the result being toclose the port labor market to competi-tion and to new entrants.

Opening labor markets to competition isone of the objectives sometimes soughtby port reformers. In this context, oneof the key issues to be addressed is therole of these dock labor boards or unionlabor pools and how they affect manage-ment discretion over the recruitment,qualification and use of specific employ-ees.

Theoretically, labor contract issues canbe resolved either before or after portservices and infrastructure have beentransferred from the public to the pri-vate sector. Either the public sector orthe new private sector operator canmanage negotiations and can absorb theliability associated with separating sur-plus employees.

Typically, however, resolving labor sepa-ration issues before transactions arecompleted relieves investors of uncer-tainty and enhances the perceived valueof the investment. In general, it is agood idea to make a clean break in laborcontract coverage and the basis foremployee selection and work assign-ments at the same time that the rights tocontrol port assets are conveyed. Thismay involve not only "buying out" indi-vidual laborers under the terms of exist-ing contracts, but also "buying out" thecontract itself, thereby giving privateoperators a clean slate to negotiate newagreements. Module 7 reviews in depththe issues relating to labor adjustmentpolicies in port reform and proposesways to handle them in a manner that

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meets the joint objectives of institutionalreform and social sustainability.

Responsibility for Implementing Port Reform

The key issues arising in connection withthe responsibility for implementingreform are:

• Where within government shouldresponsibility reside for port sectorreform; and

• What skills and competencies arerequired to implement a port sectorreform program successfully?

The delegation of responsibility for man-aging port sector reform typically comesin the form of a special decree, law orother explicit delegation of authority. Towhat organization of government shouldthis authority be delegated? It is rarelypossible for a Port Authority to reformitself, since the inherent conflicts are toogreat for even a well meaning PortAuthority to adopt and implement sig-nificant change. Moreover, the work ofimplementing port reform is diverse andrequires special skills. Some of it, forexample, involves developing regulatoryframeworks; some of it involves labornegotiations; and some of it involvespreparing individual transactions.

In deciding which agency of governmentshould manage port reform, many ques-tions arise. Should reform be carried outby a temporary agency of governmentwhose sole purpose is port reform orshould it be delegated to a standingagency of government? Should the min-istry responsible for ports also be

responsible for the process of reform orshould this fall to an agency dealingwith privatization generally, and overwhich the ministry responsible for portshas only indirect control? Should theprocess be managed at a national,regional or local level? Should differentreform units be organized for "green-field" port developments and for the pri-vatization of existing facilities? Whatpowers should the reform unit have?How should the unit be funded? Towhom will it answer? How will it obtaininformation from other organizations?Can part of its responsibilities be subcon-tracted? And importantly, what accesswill the unit have to key political deci-sion-makers?

Often, for the reform process to beimplemented successfully, the mandategiven to the "Reform Unit" must comefrom the highest levels of government,and the reporting must follow the sameroute. This avoids frequent inter-minis-terial conflicts over competence andjurisdiction. The agencies and individu-als comprising membership of the"Reform Unit" also must be definedunequivocally by the political leader-ship.

Several organizational options are avail-able for implementing port sectorreforms. One agency can manage theentire process with individual transac-tion managers within that agencyassigned responsibility for completingdiscrete transactions. Or, multiple agen-cies can be assigned responsibility forsector reform and task forces createdfrom these several agencies to accom-plish component tasks and to completeindividual transactions.

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In managing the politics of reform, it isimportant that there be a means to takeaccount of stakeholder interests andconcerns. Stakeholders in ports includelabor, existing public agencies, environ-mental groups, shippers, shipping com-panies and other users of port services(e.g., fishermen or the navy). Module 8will examine workable processes foractively including stakeholder interestsin policy decisions or for otherwise fac-toring their interests into key decisions.

The “Reform Unit” will typically requireconsultant services to assist in the priva-tization process. Issues relating to theuse of consultants include determiningwhat skills are needed, the criteria bywhich consultants will be chosen, thedegree to which consultant servicesshould be bundled together, and howconsultants should be compensated(e.g., flat fee, success fee).

Module 8 will provide some insights onthese various aspects of implementingthe reform process.

Transaction Preparation

At implementation, port reform requiresthe completion of a number of complextransactions in connection with the ten-dering of service franchises and assetownership or use rights. Transactionscan be completed only after an elaboratepreparation and due diligence process.

Two key issues associated with transac-tion preparation are whether transactionpreparation should be "outsourced" orcompleted by "in-house" governmentstaff, and what kind of technical assis-tance the group responsible for transac-

tion preparation within government willrequire.

In general, three approaches to transac-tion preparation are possible:

• Engage a separate financial advisorfor each transaction;

• Engage one advisor for the entire setof transactions; or

• Engage no outside advisor; instead,learn about transaction preparationby preparing them "in-house."

Financial advisors add credibility to theclaims and representations made in mar-keting a transaction. They are also help-ful in assessing the market for portassets without compromising transac-tion integrity and in "packaging" trans-actions to be marketable. However,some financial advisors are better thanothers. Engaging one is itself a signifi-cant transaction involving risks.Consequently, financial advisors shouldbe selected with care, using a competi-tive process as with other transactions.

Sequencing of Transactions

In addition to preparing the variety oftransactions associated with port reformfor tendering or other actions, thosecharged with reform also have to con-sider the order in which the transactionswill be undertaken.

When port operations are privatized, thepublic sector retains only an indirectrelationship with the service provisionof service. The new relationship entailsnew tasks to be performed in the publicsector. New skills are required to per-

24

form these tasks, requiring a period oftraining and possible assistance fromconsultants or advisers from other ports.A range of measures can be adopted tohelp to build the public sector’s capacityto perform its new role as contract mon-itor and regulator. Preparing for thisnew role should be one of the first stepsin the reform transaction process.

From the commercial perspective, sever-al possible strategies should be consid-ered when scheduling and program-ming port reform programs that includeseveral components and multiple trans-actions. For example, the most valuableassets might be tendered first to attractinvestors and to increase their confi-dence in and familiarity with proceduresin which they would be involved in anysubsequent transactions. Another strate-gy is to offer all components at the sametime – a "big bang" approach. This hasthe merit of allowing some transactionpreparation costs to be shared amongseveral transactions and allowing a newset of competitive conditions to becomeeffective more or less simultaneously.

IMPLEMENTING PORT REFORM:PULLING IT ALL TOGETHER

Port reform that shifts the boundarybetween the roles of the public and pri-vate sectors entails four broad categoriesof preparations:

• Preparation of a Port ReformStrategy. Strategic preparationinvolves careful analysis of the port’scompetitive position, strengths,weaknesses, role in the nationaleconomy, prospects for growth, etc.

It results in the selection of a particu-lar institutional model and the iden-tification of a set of assets and servic-es that are the specific target forreform.

• Preparation of Redefined Authoritiesand Powers. Redefinition of authori-ties and powers results in regula-tions, rules, tariffs and procedures toensure that all port activities are ade-quately coordinated and operate in amanner consistent with the publicinterest.

• Preparation of a Legal Framework.The legal framework for the port sec-tor must reflect the principles set outin the strategic analysis and the redefinition of institutional rules.

• Preparation of Transactions.Transaction preparation results in thedevelopment of tendering processesthat are transparent, open and com-petitive.

Module 8 will elaborate on these fourstages.

Box 11 illustrates these four sets ofpreparations and how they interrelate.

25

26

Strategic PreparationService Designs

Institutional Model

Transaction Preparation

Service DesignsInstitutional Model

Legal AdaptationSector Laws

Contracting Laws

Redefinition of Authoritiesand Powers

Rules, Regulations, Tariffs, Procedures

Box 11

Shifting the Boundaryof a Public-Private Partnership