Legal Review
B. Legal Review
At the exploratory stage, various legal constraints on an expanded role for the private sector need to be identified. The first set of constraints is the existing laws and regulations governing the ports. Most countries have specific laws for their ports and harbors that define the existing limits of the port agency’s powers (Can it sell real estate? Can it enter a long-term lease?). Other constraints relate to alienation of government property (Are there prescribed methods to be followed? Are there time limits on leases/concessions, customs law, and labor laws?) Finally, there are the general laws that regulate the activities of public and private corporations as well as corporate tax laws. Since each privatization transaction is unique, the laws to be considered will vary.
A specific area of concern is the legal limitation on foreign investment in the country. If only
a small percentage of foreign ownership is permitted or the repatriation of profits is restricted, then foreign investors may not be interested in participating. Conversely, there may be incentives that the host country offers to foreign investors, for example, an exemption from customs duties for materials imported for the construction of a port concession, tax holidays for new enterprises, free ports, free trade zones, and tax exclusion zones.
Another set of laws to be assessed are those pertaining to competition including antimonopoly provisions. These are well established in North America and Western Europe. Many of the Eastern European countries looking toward membership in the EU have also adopted EUtype competition laws. These are not yet common in Asia but are evolving as the economies become more competitive. These laws can affect who is allowed to bid for the port contracts,
leases and concessions. It is now common in bidding for port concessions to find regulations that prohibit ownership of multiple port facilities by a single owner.
The analysis of laws and regulations will identify changes that need to be put into effect prior to privatization. However, amendments to the existing law can be time consuming, and are often difficult to achieve, because they require approval of the national legislature, as well as the executive branch of government. It is preferable to design contracts that work within the existing laws, rather than to push for changes.
The impact of the nation’s labor laws and policies are another area requiring scrutiny and is often a major concern. The legal advisors should determine the formal constraints imposed by labor laws, but also examine the reasons for opposition from organized labor. The legal advisors can then assist the port in reaching an understanding with the labor leaders so that the privatization will have good results for union members.
In the implementation stage, both local and foreign legal advisors should be used to assist in drafting the tender documents. These include the advertisement, pre-qualification form, tender documents with pro forma contract, and instructions governing the tendering process. The contract documents should be based on contracts that have been successful for other transactions in the country or in other countries as well as local real estate contracts. The legal advisors should also prepare draft laws and regulations to be introduced to facilitate reform of the sector and to facilitate the privatization efforts.
Once the privatization documents have been drafted, edited, and assembled, the port and the proponent will retain legal counsel to advise them during the bidding process and subsequent negotiations. Their role would vary depending on the country and the complexity of the privatization process. The role of the legal advisor can be limited to drafting terms and conditions agreed to by the parties or can be pro-active not only performing legal research during the exploratory phase but also acting as an “honest broker” during the implementation phase. This pro-active role is more important in developing the agreements when there are no legal precedents within a country. Follow-on agreements will require much less input. Unlike the power and water sector, where the critical elements are the legal documents, since they define precisely the responsibilities of each party to the agreement, the port sector agreements are less formal and provide flexibility to meet commercial requirements.