Forms of Privatization and the Related Objectives

A. Forms of Privatization and the Related Objectives

There are six basic contractual relationships that can be used to increase private sector participation (PSP) in the port sector.

• The sale of part or all of an existing public port to the private sector. The land is transferred on a freehold basis but with the requirement that it be used only to provide port services. The objective of the sale is to remove from the public sector the responsibility for the provision of port services. There are very few examples of direct sale of a port, which is often through Management Employee Buyouts, although there are increasing examples of share flotation. In contrast, there are many number of examples of the sale of private land or leasing of public land for the development of private ports. The latter are intended to transfer special cargos or provide special cargo-handling capability.

A concession agreement which includes both a long-term lease of port land and facilities and the requirement that the concessionaire undertake specified capital investments to establish, expand, or renew the cargo-handling facilities, equipment, and infrastructure. The primary objective of this form of agreement is to mobilize private sector financing for port development without giving up ownership of the port’s facilities.

A capital lease together with an operating agreement. This is typically a long-term arrangement that is similar to a concession except that the private sector is not explicitly required to invest in the facilities and equipment other than for normal maintenance and replacement over the life of the agreement. The objective of this agreement is to transfer responsibility for the provision of port services to the private sector without transferring ownership of the basic assets used to provide these services. The port improves the quality of services provided to the port users without giving up ownership of its assets.

A management contract under which the private sector assumes responsibility for the allocation of port labor and equipment and provides services to the port users in the name of the port. This arrangement differs from a capital lease in that the port retains control over all the resources and continues to function as an operating port. The principal objective is to improve the quality of supervision of labor and the allocation of equipment for specific port services.

A service contract which assigns to the private sector responsibility for performing specific port activities. The arrangement differs from a management contract in that the private sector provides the management, labor, and equipment required to accomplish these activities. The activities are inputs to the port services. The objective is to allow the port to outsource activities that can be accomplished more efficiently by the private sector while continuing to provide port services.

• An equipment lease which can be in various forms involving leaseback arrangements or supplier credits. These agreements are used to amortize the costs to the port for new equipment and to ensure a reliable supply of spare parts and, often, a guaranteed level of service/reliability from this equipment.