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Private sector participation in West Africa Container Terminals, World Bank


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13th Round Table Conference of PMAWCA Managing Directors
June 29-30, 2015 – Abidjan Cote d’Ivoire

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Private sector participation in West Africa Container Terminals, World Bank

  1. 1. Private sector participation in West Africa Container Terminals World Bank 13th Round Table Conference of PMAWCA Managing Directors June 29-30, 2015 – Abidjan Cote d’Ivoire
  2. 2. West Africa ports in the early 2000s • The containerization of the West Africa liner trades was mature, but ports had not fully adjusted: • Inadequate facilities: quay cranes were rare, imposing geared vessels • Poor hinterland connections • High level of container stripping in ports • Despite comparatively low traffic volumes, most West Africa ports were reaching saturation: • West Africa was perceived as a niche market by shipping lines • Shipping lines were heavily penalizing trade by levying congestion surcharges • Future trade growth constrained by capacity limitations • Governments and Port Authorities had insufficient resources to develop container terminals • Private sector participation was seen as the ‘silver bullet’ to transform and modernize the West Africa ports: • Global push towards the landlord port authority (including from World Bank) • Reforming and modernizing the sector was clearly needed, but reforming from within is usually difficult, and bringing in private sector was a means to an end
  3. 3. The waves of container terminal concessions in West Africa • The first wave for existing facilities between 2004 and 2010 • First concession signed in 2003 with Abidjan, with take over of operations in 2004 • By 2010, almost all terminals were under concession, leaving out Banjul, Takoradi, Bissau … • The second wave started end of 2012, for greenfield developments: • Lome LCT • Abidjan TC2 • Tema expansion • Lekki & Badagry in Nigeria 0.0 1.0 2.0 3.0 4.0 5.0 6.0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 MillionTEUs West Africa Ports Total Traffic Terminals under concession Not under concession
  4. 4. So, was PSP the ‘silver bullet’? Yes, on a number of counts • West Africa ports have been transformed: • Concessionaires have developed real container terminals out of multipurpose berths • Port capacity has increase through immediate productivity gains, creating space for physical infrastructure development • New financial space has been opened: • Private sector tapped into resources not easily accessible to governments • Governments now directly receive a portion of concession fees and revenues But with strings attached • A public monopoly was replaced by a private monopoly without adequate regulation: • Container terminal concessions are dominated by a duopoly (BAL and APMT) • Port tariffs have not seen a decline • Weak oversight capacity from the public sector • The jury is still out on the comparative advantages of public versus private sector for productivity • Most port challenges have been addressed but ports are not the only weak link in West Africa Transport networks: • At ports, dwell time still an issue • Inland, trucking services, transit regimes are still an issue
  5. 5. The gains from PSP: Container Terminal capacity and demand • Port capacity has been increased through immediate gains in port productivity by: • Investing in quay (STS) and yard (RTG) handling equipment • Training of terminal personnel, and • In some cases physical infrastructure (additional quays, more yard space) • Container traffic has been growing faster than GDP over the last decade: • Average growth rate has been 8.5% per year, reaching 5M TEUs in 2013 • Transshipment will grow, adding to the organic growth • But demand may take a few more years to build up to that level: • GDP growth forecast revised downwards for some countries • Uncertainties on transshipment strategies - 2 4 6 8 10 12 14 16 18 20 2006 2011 2017 2020 2025 MillionTEUs West Africa Ports Traffic and Forecasts Transhipment Trade related for landlocked countries Trade related for coastal countries
  6. 6. Gains from PSP: Terminal Capacity Development • Greenfield projects emerged to cater for longer term demand: • Lome LCT • TC2 in Abidjan • Tema • Lekki • Badagry • Port du Futur in Dakar
  7. 7. Gains from PSP: Transformation of the liner services • The transformation of the ports enabled shipping lines to upgrade their services with the growth of the container demand, leading to lower freight rates, and the elimination of the congestion surcharges • Example on the Asia West Africa trade: • Historically, Europe was the main trade, but it shifted to Asia in 2008 • Dominance of European service continued a few more years because of transshipment in a Mediterranean hub • Tipping point: the WAFMAX ships, when direct Asia service with larger ships became competitive versus transshipment solutions 0 1000 2000 3000 4000 5000 6000 7000 0 100000 200000 300000 400000 500000 600000 700000 2009 2010 2011 2012 2013 2014 ShipsizeinTEUs Totalcapacitydeployed Asia – West Africa lines (Source: Alphaliner) Less than 2,000 TEUs 2,000 - 3,000 TEUs 3,000 - 4,000 TEUs 4,000 - 5,000 TEUs Over 5,000 TEUs Average ship size Min ship size Max ship size
  8. 8. The gains from PSP: Financing • Terminal operators tap into several financing sources: internal, commercial banks, IFIs, etc. • Example of Dakar: DPW’s investments are financed from US$165 million in equity, and about US$ 150 million in debt sourced from commercial banks and donors and the remainder to be funded from concession revenues. • Government benefit from revenue streams: • Example of Benin: GoB received US$33 million as entry fee, and annual royalties of US$ 29/ TEU for the duration of the concession • Shareholding of terminal operators is dynamic: • Example of Lome LCT: 50% of the concession company shares were sold by TIL/ MSC to China Merchant Holding for 150 million Euros • Greenfield developments require financing of a different order of magnitude: • MoU MPS-GPHA for extension of Tema at US$1 billion • US$1.5 billion for Lekki
  9. 9. The strings attached: Rents & risks • For the container terminal concessions, half were competitive, the other were negotiated • Negotiation often builds from existing presence, in Abidjan and Lome for instance • Greenfield projects are promoted by operators directly • Two groups emerge in the awards for the first wave of concessions: Bollore Africa Logistics and APM Terminals • For the second wave, the operators are more diverse
  10. 10. The strings attached: competition and monopolies Inter-port competition • A large part of the containerized traffic is captive, with only two ‘volatile’ segments: • Transit, but less than 10% of total throughput • Transshipment, but still limited • Regulation through competition by neighboring terminal operators is therefore limited in theory, and even more in practice considering that competition among two terminals managed by the same operator does not make economic sense, from the operator perspective • No mechanism for planning at regional level Intra-port competition • Ports are natural monopolies, with significant economies of scale (mostly fixed costs and large sunk investments): • Only Lome and Lagos (and to some extent Cotonou) are hosts to several terminals • Shipping lines are the terminal customers, not the shippers: • Choice of terminal is determined by line, not the one who pays the bill • Switch of terminal operators by lines unlikely considering group logic (TIL part of MSC, APMT part of Maesrk Lines) • Weak capacity at national level for regulation and enforcement
  11. 11. The strings attached: imperfect concession process • Negotiated or competitive? • For brownfield terminals, the weight of legacy influences the process: often, private sector was present as licensed stevedore before the concessions • Privileging strategic partnership over competitive bidding seems more systematic for greenfield developments • Concerns about transparency: • Separate claims from ‘sore losers’ from the legitimate concerns • Predominance of financial over economic benefits: • The implicit (sometimes explicit) selection criteria boils down to maximizing government revenue / investment • No (or little) consideration of the economic impact • Concession contract focus on investment, more rarely on performance • Margins for tariff reduction not exploited: • After concession, tariffs increased, whereas traffic growth opens possibility of tariff reduction • The function of regulator is not clearly defined
  12. 12. Gains from PSP? Productivity • Undeniable improvements in port productivity (but we need more data to quantify) • Increased terminal efficiency under concession • But: • Qualitative jump largely linked to equipment (STS versus ship’s gear, yard planning and equipment) • Not a private sector ‘secret ingredient’: public ports in Eastern and Southern Africa also modernized and improved performances (South Africa, Kenya, Mauritius, to name a few) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0 200,000 400,000 600,000 800,000 1,000,000 Container terminal efficiency (throughput versus terminal characteristics) Under concesion Before concession Log. (Under concesion) Log. (Before concession)
  13. 13. Open for discussion The World Bank Study Team Kavita Sethi Gozde Isik Antoine Coste Jean-Christophe Maur Olivier Hartmann