Contributions to the Study of PPPs in the Portuguese Port Sector: the Alcântara Container Terminal

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Contributions to the Study of PPPs in the Portuguese Port Sector: the Alcântara Container Terminal

  1. 1. 1 Contributions to the Study of PPPs in the Portuguese Port Sector: the Alcântara Container Terminal Álvaro Fonseca (fernandesfonseca@gmail.com) 1. INTRODUCTION Seaports and particularly the container handling industry suffered great changes in the last decade due to the increasing demand for shipping services worldwide. The need to carry larger cargo volumes led to an increase in ship’s size (scale effect) and to a demand for efficiency gains in the loading/unloading activities in container terminals (reduction of handling and duel times). This request for innovation and modernization changed container terminals into capital intensive industries, where frequent and heavy investment is the only way to ensure competitiveness in the market. The private sector participation in the container industry through the establishment of public-private partnerships has proven to be an extremely popular and effective formula for boosting port development, by introducing new financial resources and greater market orientation, in line with the philosophy of a more supervisory role for the port authorities, the traditional "less state, better state ". However the adequacy and flexibility of these partnerships has been put to the test by the changes occurred in the container industry, where the emergence of additional investment needs requires answers from the private partners. One possible solution, often presented, has been the extension of the existing concession contracts, although this may raise important questions about the market competition in the container handling industry and the risk of monopolistic behaviour at local or regional level. In Portugal, the Alcântara Container Terminal (ACT) reflects the impact of the recent developments in the container industry. The terminal is demanding for new investments in infrastructures and equipment in order to ensure its competitiveness in the deep sea market. This paper intends to identify the alternatives to perform such modernization in light with the existent concession agreement (dated from 1984) and the Portuguese and European legislation in force. 2. THE EVOLUTION OF THE CONTAINER HANDLING BUSINESS The transport of containerised cargo has been “the fastest growing sector of the maritime industries during the last two decades” (ESPO, 2007). This growth can be justified by several reasons: first, the process of containerisation is increasingly replacing the old forms of transporting general cargo (substitution effect) thanks to its greater effectiveness in meeting the requirements of reliability, speed and intermodality. Second, as mentioned by Drewry Shipping Consultants (2006), economic factors such as the increase in economic activity, trade liberalization, tariff reduction, the globalisation of world economy and the use of outsourcing generated an increased demand for transport services. Following the same line of reasoning, it is expected that the volumes of containerised cargo will keep growing in the future. According to data presented by the ESPO (2007), the volume of containers handled worldwide in 2006 was approximately 129 million TEUs. A forecast ending in 2015 indicated that container throughput is expected to reach 178 million TEUs (excluding transhipment). It assumes
  2. 2. 2 that it is not likely to consider that vertical specialization will face a reversion, especially when the rate of world merchandise trade growth has been running well ahead the world output growth for many years, a trend expected to keep itself in the future. Additionally, the increasing use of transhipment for operational gains generates extra moves for the same container, promoting induced growth at the level of container traffic. Also, the existent trade imbalance between geographic regions is leading to the movement of empty containers, especially in the Asia/Europe route. These factors have a direct impact on ports throughput but also in the number and size of the ships deployed in the liner services. During the last 20 years, “the world fleet’s total TEU carrying capacity has increased almost sevenfold, growing at an average annual rate of 10.8 per cent (…)” (UNCTAD, 2007). With the improvements brought by the containerisation service to the loading/unloading operations, time spent at sea gained additional importance and its there that gains obtained by ships additional capacity can be felt. In fact, the operation of larger vessels does not need a bigger crew and the investment costs and fuel consumption raise proportionally less than the transport capacity of the ships (Penfold et al., 2001). Although Panamax ships still represent the biggest portion of the world container ship fleet, the Post-Panamax ship’s account for 42% of the total seagoing capacity. In this context the responsiveness of ports is of crucial importance for the success of shipping lines because shippers will only succeed in running a profitable business “if the economies of density achieved at sea are not negated by diseconomies of scale in ports.” (Haralambides et al., 2002). Ports, in order to respond to the demand for increasing productivity and efficiency, have modified themselves gradually from labour-intensive to capital-intensive industries, aiming at securing the necessary funding for the adaptation and modernization of the handling equipment. Also the increasingly larger tonnage of vessels deployed in the container market has significant implications in ports. The major requirements that ports face in order to operate with large U.L.C.S. vessels are related to the adaptation of the physical characteristics of the terminals and with the improvement of the handling times. The physical availability of deepwater container terminal and access channels, the existence of the appropriate structures (berth size, cranes) to handle such vessels and the stockyard capacity are considered crucial elements for the port competitiveness. As stated by Peters (2001), “massive investments and substantial productivity improvements are generally required to enable ports to meet rigorous service requirements of their costumers efficiently.” 3. PUBLIC-PRIVATE PARTNERSHIPS IN SEAPORTS The paradigm of port management has changed over the last two decades, in part thanks to the growing involvement of private companies in the promotion, management and operation of seaport activities. Ports, which have traditionally been run by public entities, are becoming a normal industry, pursuing the belief that “an enterprise based economy would allow for greater flexibility and efficiency in the market and a better response to consumer demands” (Notteboom and Winkelmans, 2001). There is the generalized idea that for ports to achieve commercial success it is crucial to emphasize private participation and the separation of the landlord authorities from the political and economic influence of central governments. Simultaneously, governments started to see the private initiative as a way to reduce public sector budget demands and port labour costs. This does not necessarily mean
  3. 3. 3 that the state withdraws entirely from investing in this field. The nature of port investment (e.g. long term payback, high capital cost and limited potential for full cost recovery, public goods and the wider social and economic benefits generated by port activity) makes state intervention justifiable. However, the need to reduce public investment in ports because of constraints in governmental budgets has resulted in the creation of partnerships between the public and the private sector in an effort to share the burden of capital costs. Clearly, it is in the context of the Landlord Port model that private participation, through a Public-Private Partnership (PPP), gains it reason of existence. It is this ability of sharing risks among public and private partners that distinguishes leasing and concession contracts from other forms of private participation (e. g. service providers and management contracts). The notion of concession deals with the transmission of a right of the Public Administration to a private entity. According to the Portuguese law, there are several economic activities which are closed to private participation (for instance, the right to operate a port area) because of their nature and may only be performed by private companies through the grant of a concession, during a well-defined period of time and subject to the contractual terms set. In this context, it is important to distinguish between the concepts of PPP and Concession Agreement, as the same meaning to these terms is often wrongly given. In the Decree-Law nº 86/2003 a PPP is defined as “the contract (…) by which private entities, known as private partners, are committed in the long term, with a public partner, to ensure the development of a business of public interest where the investment and the responsibility for the operations is, in whole or in part, of the private partner”. The concession contract, in turn, is the instrument of legal regulation that legitimises that PPP and enables the private entity to carry out an activity or manage an asset that should be reserved to the public sector. Based on the definition given it is legitimate to say that not all the concessions awarded represent a PPP (example of concessions of private use of properties in the public domain), being the opposite also true, since the establishment of management and service contracts are also considered as being valid legal instruments for the creation of a PPP (Article 4 of the Decree Law no. 86/2003) without needing, however, the existence of a Concession Agreement. The Decree-Law no. 298/93 establishes the legal regime of the Port Operations, describing the business of cargo handling operations as of public interest (Article 3). According to this act the business of cargo handling should be preformed by private companies, under a public tender (Article 26), referring that “the duration of a cargo-handling concession contract, on a public service basis, may not exceed 30 years and shall be established taking into account the investments in equipment and infrastructure” (Article 29). In addition to this legal framework the Decree-Law no. 324/94 established the general foundations of public service concessions in cargo handling. It sets the general framework of the concession and the contractual obligations of the landlord and the port operator and it is the reference document for the celebration of all concession contracts in container handling. Table 1 summarises the main guidelines of this Decree-Law. At the European level "there is currently in secondary Community law on service concessions in the field of ports or other terminal facilities” (COM 616-2007). Within the European Community there is a wide variety of models for providing cargo handling services, as it is recognized by the Commission: “In most cases access to port land is a precondition for providing cargo-handling services. Such services
  4. 4. 4 may be based on different legal arrangements. They may be directly provided by port authorities or by third parties, such as concessionaires” (COM 616-2007). As stated by TCJE in the Telaustria sentence (Proc. No C-324/98), is the Commission’s understanding that, although Service Concessions are not explicitly under the impact of European public procurement directives, they should respect the general principles of the Treaty of the European Union and among them the principle of equality of treatment and non-discrimination by reason of nationality, the principle of proportionality and the principle of transparency. These principles were intended “to facilitate the attainment within the Community of freedom of establishment and freedom to provide services” forbidding “not only overt discrimination by reason of nationality [. . .] but all covert forms of discrimination” and to assure to every possible tender candidate that the “procedure for comparing (…) comply at every stage with both the principle of the equal treatment of tenderers and the principle of transparency, so as to afford equality of opportunity”. The principle of proportionality implies that “competition and financial stability (must) be reconciled (COM 2000/C 121/02)”. Therefore “the duration of the concession must be set so that it does not limit open competition beyond what is required to ensure that the investment is paid off and there is a reasonable return on invested capital (56), whilst maintaining a risk inherent in exploitation by the concessionaire ” (COM 2000/C 121/02). Also in this sense the Commission states that in order not to close indefinitely the access to service providing “when a concession expires, renewal is considered equivalent to granting a new concession, and is therefore covered by the communication” (COM 2000/C 121/02). Table 1: Summary of the main clauses presented in Decree-Law no. 324/94 Main Clauses I. General Disposals • The tender proposal must include a detailed terminal layout, an exploration and operational plan and a financial model for the concession. II. Concession Area •It is responsibility of the concessionaire the preservation, renovation and repair of equipment and facilities (except special works such as dredging, which will be covered under each contract). • The concessionaire must only use modern (current) equipment, according to the best operational practices (principle of the best technology). III. Exploration • Terminal management must be preformed according to public utility rules. • The terminal area must only be used for the cargo handling purpose. • The rates charged must be pre-approved by the Port Authority and must take into account the interest of the port. IV. Term, modification and revocation of the contract. • The duration of the contract can not exceed 30 years and is determined on the basis of the investment made. • In the term of the contract all the terminal equipment returns to the Port Authority, and the concessionaire does not have the right to claim any compensation as result of ownership transference. • An exception is made for the equipment purchased in the last 10 years of the concession, for which compensation is allowed. • Redemption of the concession is only allowed after half the period of the contract has passed, having the concessionaire the right to compensation equal to the net present value accounting for depreciation, considering all investments made. V. General obligations • The concessionaire is obliged to pay a fee for the use of the port land. 4. INVESTMENT NEEDS OF THE ALCÂNTARA CONTAINER TERMINAL The Port of Lisbon has kept, along the years, its market share among the Portuguese ports in the containerised cargo business, being responsible for 49% (512.501TEUs) of the total throughput of the Portuguese continental ports in 2006, followed by the Port of Leixões (36%) and the Port of Sines (14%). Considering the Iberian Peninsula, the Port of Lisbon has the fourth higher throughput, behind
  5. 5. 5 the Spanish ports of Algeciras, Valencia and Barcelona (3.244.640 TEU, 2.612.139 TEU e 2.317.368 TEU), having a market share of 7 to 8%. According to a study presented in its Strategic Plan 1 , the hinterland of this Portuguese port “follows from the Portuguese regions of Lisbon and the Tagus Valley to Alentejo and Algarve and to the Spanish regions of Estremadura and Andalucía”. Currently, the Port of Lisbon is, excluding the Port of Algeciras, which has a clear orientation for transhipment, the closest port to the Spanish city of Badajoz and to a considerable area of the province of Andalusia. Additionally, among the Portuguese ports, only Lisbon and Sines are suitable for the deep sea lines, which require water depths of at least 14.5 meters in access channels and berths, the minimum to accommodate a large fully-laden Post-Panamax ship. This explains the position stated in the Strategic Plan of the Port that considers that “the Port of Lisbon has exceptionally unique natural conditions in the set of the Iberian Peninsula that present an opportunity for hinterland expansion and increase of throughput”. The Alcântara Container Terminal (ACT) is located on the north shore of the Tagus Estuary, occupying a significant portion of the front marginal dock of Alcântara in the Port of Lisbon. The terminal is concessioned with impositions of public service to Liscont – Operadores de Contentores Ltd., for a period of 30 years, ending in 2015. The terminal has a 630 m berth (with -16.00 ZH depth), equipped with two Panamax gantry cranes (39.5 m range) , one Post-Panamax gantry crane (51.0 m range) and a Gottwald mobile crane of 100 ton capacity and 46.0 m range. The available yard space is approximately 120,000 m2, representing a storage capacity of 8592 TEUs. Currently most of the cargo handled in the ACT is carried on feeder vessel from/to Northern Europe (Rotterdam, Antwerp) or Mediterranean (Gioia Tauro, Marsaxlokk) ports. With the expected increase in the cargo volumes it will be increasingly interesting for the shipping companies to create a system of secondary direct routes, alternative to the main lines. The creation of these secondary networks will reduce the use of feeder services, which are relatively expensive, and will increase the transit time of products, allowing also to create a more flexible global network, where it is easier to adapt to changes in demand. The development of these secondary networks presents an opportunity for the Port of Lisbon, which could have an important role in the attraction of these new direct calls. A precondition for the development of such traffic is the creation of a "critical mass" of containerised cargo that allows the use of medium-sized vessels in (approximately) a weekly service. In this context it is critical for the Port of Lisbon to increase its containerised cargo handling capacity. There is no doubt about the importance of the ACT in a scenario like this, especially when more than 80% of the estimated increase in movements comes from Deep-Sea lines. None of the other two existing terminals at the port is capable of receiving ships with draft of more than 11m and the construction of a fourth terminal seems inappropriate given the short timeframe, the associated costs and the availability of appropriate locations. Therefore, it is inevitable to assume that the increase in containerised handling capacity in the Port of Lisbon must include the physical expansion of the facilities of the ACT. 1 Plano Estratégico do Porto de Lisboa, coordinated by the Port Authority (preapproved version).
  6. 6. 6 Already reflecting this reality the TCA suffered a considerable increase in the demand for handling services, mostly since the year 2000, which is leading to congestion levels that prevent the normal efficiency of the operations. According to information provided by Liscont, if a yard expansion does not take place in a near future and assuming the current growth levels in container movements, the ACT will see its capacity totally exhausted by 2010. However, the new challenges the ACT is facing are not only caused by the growth of the cargo volumes but also by the growing size of vessels – Panamax, Post Panamax, U.L.C.S. – which demand new generations of gantry cranes, with greater lifting capacity and wider reach. These requests have obvious repercussions in the ACT. The existent equipment, which was the best available in the market in 1997 when the first contract extension happened, is presently unsuitable for the market requirements, existing a widespread awareness that the lack of investment levels will create congestion problems and reduce operational capacity with obvious adverse effects in the competitiveness of the port facilities. The biggest risk stands in the increase of ships waiting times with subsequent risk of loosing shipping lines to Spanish and Moroccan ports. For example, in the current situation of the terminal (2008), the 3 major liner services that use the ACT (Maersk Line, Amerigo Service e Delmas) account for 43% of the containers handled in the terminal. Losing one of these lines would be dramatic for the terminal. 5. THE POSSIBILITY OF CONTRACT EXTENSION At the contractual level, the necessity to make new investments in the modernization of the TCA is part of the technological risk of the project: ships growth and the increasing demand for handling services created the need to restructure the terminal area and the handling equipment, in order to avoid market loss and cost overrun. The concession contract does not consider this situation under any form. The concessionaire proposed to carry out the modernization works, demanding in return the extension of the contract for a period long enough to make possible the proper amortisation of the invested capital. The projected investments were divided between investment in infrastructure, to be completed between 2009 and 2011 and investment in mobile equipment, with values of respectively 107.591.000 € and 97.320.000 € at prices of 2007. Among the investments expected one can highlight the extension of the quay wall in almost 500 meter, the extension of the yard area, the construction of a platform for manoeuvring and loading trains and the acquisition of gantry cranes and park equipment (RTG, reachstakers and frontloaders). Given the high investment costs and the risk assumed in the business plan concerning the forecasted demand (average annual growths of 3%) the concessionaire considered that “an estimated project IRR of around 9% is the least acceptable return for the risk assumed by investors. This level of income can be reached with 30 years of concession. " Indeed, on the assumption that the investment should be fully recovered by operational profits the investment will only be possible if the payoff period allows the generation of the necessary cash flow. This means that, in order to allow the appropriate amortisation period, a concession should be extended whenever the payoff period of an investment is greater than the period of concession. As mentioned earlier, this is the rule for determining the period of depreciation and return on investment in the port economy, being clear than contract duration is deeply linked to invested amounts. Even the European Commission considers that “concerning the length of the concessions, (…) duration must be set so that
  7. 7. 7 it does not limit open competition beyond what is required to ensure that the investment is paid off and there is a reasonable return on invested capital, whilst maintaining a risk inherent in exploitation by the concessionaire” COM(2007) 616. The Concessionaire argues that this principle cannot merely be considered when celebrating a new contract but also, by virtue of market dynamics, for the entire duration of the concession period whenever the market requires significant investments in order to achieve the objectives set for the operation of that terminal. The power to extend a concession contract is part of the broader power of unilaterally change administrative contracts (iusus variandi): "dictated by the principle of adaptation of the public service it reflects in the possibility given to the Administration of introducing, during the life of the contract, changes to what was initially set" (Torgal, 2007). This power of the Administration is legally justified by the need for ensuring the continuity of public service or in other words “the need to update the terms of the existing public service concession contracts to the specific features of the market of port services and thereby ensure its competitiveness, while seeking to ensure the full and balanced execution of that contract by the concessionaire” (Torgal, 2007). This possibility of change in administrative contracts is limited (among other principles) by the need to safeguard the terms of the economic and financial balance of the contract. Additionally, any amendment to the concession agreement will be acceptable only when justified by reasons of public interest and not when it simply provides some unjustifiable advantage to the concessionaire. It should be noted that these changes lead to contracts that differ from the ones presented to public tender, therefore being imperative that the adopted change be fully justified according to public interest. Otherwise it might represent a deviation from the principle of equality that imposes a relation between the celebrated contracts and the ones tendered. The extension of the Concession Agreement of TCA, although justified based on the volume of investment proposed, finds two major obstacles: not to comply with a public procurement procedure and the absence of accordance with paragraph 1 of Article 29 of Decree-Law no. 298/93, which states that the period of public service concessions in cargo-handling cannot exceed 30 years of duration. Concerning the legality of the contract extension against the rules of procurement the common opinion among consulted lawyers is that “the aforementioned rules of procedural law (subjecting to public tender) do not apply to formal agreements merely amending the content of an existing contract, as long as these changes remain under legally specified limits - that is, provided they do not affect the nature, the subjects and the object of the original contract”. In other words there is no need to open a new tender because what is being made is a change to the old contract, within the legal limits imposed on that change and not the celebration of a new one. However, it must be pointed out that in a public- private partnership the tender process represents “the pre-contractual procedure with better ability to ensure the principles of equality, publicity and competition” (Torgal, 2007). The excessive expansion of the concession period constitutes a disadvantage, because it prevents other players from accessing the concessioned service. Regarding the possibility of extending the contract against the provisions of Decree-Law no. 298/93, which imposes a maximum of 30 years for the duration of the contract, the legal perspective is not so
  8. 8. 8 clear, leading us to question the legality of the extension in the form of a simple contract between the Port Authority and the concessionaire. Some lawyers argue that "the 30 years established in the Decree-Law only cover the initial duration of the concession, which does not exclude the possibility of renewal under certain circumstances unexpectedly found in the implementation of contracts" (Torgal, 2007). Others, like Gonçalves (1999), assume a clear position, noting that the "under the rules of advertising and competition of the tender process, granting an extension should only be accepted when this procedure is part of the rules set in the contract. The mere contractual forecast is insufficient when – as it is obvious, the law establishes a maximum period for the duration of the concession of the service and the result of the initial duration plus the extension exceeds this maximum permitted level”. 6. ALTERNATIVES TO CONTRACT EXTENSION The extension of the existent contract is not the only way that the Port Authority has to make the investments needed in the ACT. In fact three other alternatives appear and deserve consideration: to perform the investment only when this contract is finished; to end the actual contract (redemption) and launch a new tender or finally to keep the current contract (until 2015) and negotiate the modernization of the terminal directly with Liscont defining a compensation for the non-amortised investment. The first alternative – to postpone the investment to the end of this concession, not investing until May 5 th 2015, represents a loss of cargo movements of having a terminal with a capacity of 350.000 TEU instead of 900.000 TEU for seven years more. This logic is somewhat simplistic because it assumes that the time required for the completion of the works is as planned by Liscont (which is a fully acceptable hypothesis) but also and above all, that the growth rates in cargo handling are independent from the time they happen. Thus, a decision of not making the investments immediately will make Port Administration lose a throughput of 3.378.784 TEUs, corresponding to the difference between the number of TEUs planned to move in 7 years of the base model, while having a 900.000 TEU terminal, subtracted from the estimated business progression if there was no investment. This represents a loss of revenue to the Port of Lisbon and indirect losses to the national economy much more difficult to quantify. Additionally, its unquestionable that delaying these needed investments will end up in a serious damage to the commercial image and business strategy of the terminal. Delaying necessary investments will generate increased pressure on the operations, creating serious problems in the transport and logistic chain and consequently weakening the position of the terminal in the dynamic and competitive port business. However, there is the clear advantage of submitting the project to a public tender, with possible gains due to the creation of conditions for effective competition when compared with a process negotiated exclusively with one concessionaire. In the ACT contract it is stated that: "lasts until five of May 2005, the period during which the APL may not, under paragraph 1 of Article 14 of the Concession Agreement, perform the redemption the concession". Therefore, now, after the warranty period, the redemption is contractually possible. Regarding the conditions under which such redemption may occur, the contract stipulates that "in case of redemption, the concessionaire must receive a reimbursement equal to the value of the investments made less a twentieth for each year that passed since the beginning of the concession". This provision
  9. 9. 9 clearly refers to the originally planned investment in the agreement of 1984, which is already fully amortised, since more than 20 years have passed. So to identify the amount payable on the redemption one should consider the item referring to the depreciation of investments not specified in the original contract: "the concessionaire must be compensated for the cost of works, installations and equipment to build and assemble during the period of concession, minus the depreciation meanwhile made, provided that such works, facilities or equipment are intended to improve terminal’s functioning”. However, this interpretation may be legally questionable, as in the extension celebrated in 1997 there is no reference to the formula for calculating the redemption value and the old formula found in the original contract clearly refers to the initial duration of the contract, without extensions. The major drawback of calling for redemption is the need of having available funds for payment, which can be a problem considering the budgetary constraints that port authorities usually face. According to this has additional importance the possibility of including the redemption value in the new public tender as a payment from the new concessionaire to LISCONT. This has the advantage of allowing a public tender without the existence of additional charges for the port authority. However, including an additional cost in the cash flow of the project would make it less appealing to the new competitors and could also be seen as a way of competition distortion, since the current concessionaire would be in an advantageous position due to the inclusion in the tender of a compensation that is intended to it. The last alternative is to start a negotiation with the current concessionaire, trying to agree on an investment plan that allows upgrading the terminal, assuming that in 2015, when the current contract finishes, the concessionaire will receive a compensation relating to the non-amortised value of the investments made. There is a risk that the current concessionaire refuses to perform the works, given the limited time that it will benefit from them (about 4 years) and the associated risk, particularly in construction works. The only way to make this solution appealing would be to adopt an exceptionally high IRR for the project in order to reduce the risk of investment. 7. GENERAL CONCLUSIONS AND FURTHER DEVELOPMENTS The movement of containerised cargo had a considerable progress in recent years, thanks to the high demand generated by the growth of world trade, changing the port business into an industry of large and constant investments. It has been shown that this constant evolution in the container industry leads to technological risks that were impossible to predict when the contract was awarded and that impose a revision of the concession terms. Following this line of reasoning, in order to adapt the concession contracts to the market changes it is necessary to have a more market-oriented approach to contract designing, making it possible to spread technological risk among parties and providing the legal framework for private port investment. The ACT, assuming its orientation for Deep Sea traffic, needs urgent upgrading works that were unexpected at the time of the contract celebration but which are essential to ensure its competitiveness. The existent concession contract, as others recently awarded in Portugal, does not provide a clear allocation of the technological risk associated with increasing the size of ships. One believes that the
  10. 10. 10 Portuguese and European legal framework should clearly legitimise these situations when properly justified at a technical level, clearly assigning the responsibilities of each of the parties of the contract and indicating the amount of investment that, for technical and technological reasons, would justify the implementation of effective actions to maintain the competitiveness of the container terminals. In fact, in the absence of a legal framework that legitimises the investment there are three alternatives for carrying out the modernization works in the terminal: delaying the investment until the end of the concession, performing the concession redemption and launching a new tender process or, finally, extending the contract for a period long enough to earn back the investment made. There is no Jurisprudence (Portuguese or European) related to the extension of the concession period. However, by analysing the existing law one believes that, although the extension is legally justifiable given the need for a financial rebalance the investment, it still lacks some legal basis at national and European level, especially when facing Decree-Law no. 298/93. The option to postpone the investment has very serious consequences for the terminal, because it implies very limited capacity for seven years and a serious damage in the commercial image of the terminal. The redemption alternative has the disadvantage of adding an additional cost to the upgrading investments, which could hardly be supported by APL. Here the possibility of including the redemption value in the new tender as reimbursement to the current concessionaire gains additional importance. The above findings emphasize the need to adopt a more appropriate legal framework for the commercial reality of the port sector. One believes that the analysis of alternative models of PPP based on the practices of other European countries would constitute an important contribution to an appropriate contract design. REFERENCES ESPO, (2007). Annual Report 2006-2007, European Seaports Organization. EUROPEAN COMMISSION (2000). Commission Interpretative Communication on Concessions under Community Law, Official Journal of the European Union, European Commission. EUROPEAN COMMISSION (2007). Communication on a European Ports Policy, Official Journal of the European Union, European Commission. GONÇALVES, P.(1999). A Concessão de Serviços Públicos, Almedina. HARALAMBIDES, H.; VERBEKE, A.; MUSSO, E. (2001). Port financing and pricing in the European Union: theory, politics and reality, International Journal of Maritime Economics, vol.3, nº. 4, pp. 368-386. NOTTEBOOM, T. WINKELMANS, W. (2001). Reassessing public sector involvement in European Seaports, International Journal of Maritime Economics, vol.3, nº. 2, pp. 242-259. TORGAL, L. ; FONSECA, M. (2007). Parecer acerca da legitimidade de prorrogação do contrato de concessão do Terminal de Contentores de Alcântara. UNCTAD (2007). Review of maritime transport 2007, United Nations Conference on Trade and Development.

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