What Defines Port Privatization?
A. What Defines Port Privatization?
The criterion for privatization - that all assets, including land, must be privately owned - explains the paucity of private, common-user ports. If this criterion is relaxed to private ownership of all assets other than land, but with public control over development of port facilities and waterside access, then the number of qualifying ports increases substantially. Hong Kong, China and many European and US ports would now qualify, since they are a collection of private terminals on land leased from the public landlord.
These distinctions are more than an exercise in semantics. They identify a basic characteristic of private sector involvement in the port sector - the continuous range of options for private sector ownership of port assets and management of port assets and operations. The transfer to the private sector of a port, all of its assets and its license to provide cargo-handling services, represents a major political effort. It requires rewriting of port laws, transfer of the labor force from the public to private sector, and redefining the public responsibility for maintenance of water and landside access to the port. Given the high cost of this endeavor, most countries have hesitated. Furthermore, the marginal benefits of this approach have not been immediately demonstrated. As
a result, most countries have focused on more incremental approaches to increasing port privatization.
Best practice does not support the wholesale privatization of existing public ports. Best Practice supports a policy of promoting the development of private cargo-handling terminals and allowing them to compete for third party cargo.
Public port activities have been transferred to the private sector in order to achieve specific, but often conflicting goals. Among these are the financial goals - reducing government subsidies, raising money to reduce the national debt and mobilizing private resources to finance new port development, and the operational goals - increasing operational efficiency and improving the quality and timeliness of maintenance of port assets. There are also commercial goals - improving the quality of service, extending the range of services and promoting the businesses of the port, and policy goals - reducing the size of government and its involvement in commercially viable activities.
While increased PSP can address all of these goals, the success in achieving them ultimately depends on competition. The replacement of a public port monopoly with a private monopoly or duopoly provides short-term gains in efficiency and productivity but is unlikely to achieve long-term improvements. Fortunately, it is not difficult to introduce competition in the port industry. Competition can exist both horizontally between providers of similar and complementary services and resources and vertically among the providers of services on a logistics chain. Horizontal competition requires careful allocation of port facilities so as to guarantee at least two, and preferably three, private parties compete in the same market. Vertical competition requires that different parts of the logistic chain are able to organize and negotiate with the other parts, as shipping lines and alliances have done with the ports.
Where competition cannot be achieved, it is necessary to establish some level of contestability. This can be achieved through:
A competitive tendering process for PSP in port activities. • Agreements which reward efficiency and growth in traffic. • Provision of basic infrastructure by the public sector. • Provision of basic services for smaller users. • Allowing shipping lines to provide their own services limits on:
- the period of the agreements, - new entrants to port businesses, and - the protection for pioneer or high risk undertakings.
Thus, best practice requires that the port privatization provide a strong element of competition and, where this is not possible, significant contestability.