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IBA Dublin 2012 Legislation and regulation related to the operation of public and private ports 3 October 2012 contribution by Marieke G. van den Dool 2
General Contractual arrangements for development and operation of large and medium sized ports in the Netherlands • retreatment of government from port operations • enterprise-based ports services → more flexibility and efficiency → better response to consumer’s demands • landlord port model is dominant 3
Landlord port model • landlord port authority is a separate legal entity with capacity to conclude contracts, enforce standards and make rules and regulations • Rotterdam: landlord port authority is a public limited company • port operations → carried out by private companies on the basis of granted concessions 4
Realization of public works and transport infrastructure projects such as ports in the Netherlands • Design Build Finance Maintain- contract (“DBFM”-contract”) used by Dutch government • Integrated contract → design, realization and maintenance commissioned to contractor • Commissioning party is usually the Dutch government • Financing shifted to contractor in exchange for financial compensation (regular payments) • Long running period • Contractor is usually a consortium of companies (in order to spread risks, join forces) 5
Realization of public works and transport infrastructure projects such as ports in the Netherlands • Commissioning party → output specifications • Contractor → freedom in execution of the contract → financial compensation is incentive for good performance • Contrary to Build Operate Transfer-contract (“BOT-contract”) no transfer of legal title to the object to contractor 6
Realization of public works and transport infrastructure projects such as ports in the Netherlands • Special Purpose Vehicle (“SPV”) as incorporation of the consortium • SPV concludes contract with commissioning party • Usually a private company with limited liability • Financing by banks, equity capital and by loans from the government 7
Realization of public works and transport infrastructure projects such as ports in the Netherlands • Transfer of legal title no prerequisite to attract financing in the Netherlands • Banks → requirement security rights, “step-in rights” (for which a three-party contract has to be concluded) 8
Realization of public works and transport infrastructure projects such as ports in the Netherlands • DBFM- contract → many risks are identified prior to conclusion of the contract • Dealt with in the contract (allocation of risks) 9
Realization of public works and transport infrastructure projects such as ports in the Netherlands • Disadvantages of allocation of risks: → SPV has limited funds and needs to pass risks to contractor → contractor requires compensation (more costs) → potential conflict of interests (contractor = shareholder in SPV) → more expensive for government since some risks may never materialize 10
Concession of T erminals • Concession on port services to private parties is common practice • Grant by government or port authority to private parties for specific port services • Control on organization and structure of supply side • Optimization of scarce resources as land 11
Concession • Concession contract concluded between private terminal operator and landlord port authority ( for example) • Long term lease for defined period of time • Legal title rests with landlord port authority → Receipt of concession fees charged on a costs-covering basis. Future upgrading and expansion. 12
The Second Maasvlakte or Maasvlakte II (expansion of Rotterdam dockland area through land reclamation) • Start in 1997 • Shortage of space in port of Rotterdam as “gateway to Europe” • Respect for nature and environment and quality of living in Rhine Estuary • Expansion of port combined with expansion of recreational areas and nature • Project was only agreed with by the two Houses of Parliament in October/November 2006 after several administrative appeals 13
The Second Maasvlakte or Maasvlakte II • T endency: involvement of more market forces in development of public works • Port of Rotterdam authority → major risk taker • Revenues from concession contracts and port dues • Design, Build, Maintain contract used for realization • Finance entirely arranged for by Port of Rotterdam authority 14
Some facts about the Second Maasvlakte or Maasvlakte II • T otal construction costs around EUR 2.9 billion • Financed by EUR 2 billion loans from banks and EUR 700 million loans from the Dutch government and equity • Loan from Dutch government also bears interest and is meant to be refunded from the revenues • Comprises 1730 acres (700 ha) of port areas and about 7 miles (11 km) of total length of hard and soft defenses plus more than 1300 acres of harbor basin, quay walls and infrastructure 15
The Second Maasvlakte or Maasvlakte II – January 2009 • Klik om de modelstijlen te bewerken / T weede niveau / Derde niveau • Vierde niveau 16
The Second Maasvlakte or Maasvlakte II – July 2012 • Klik om de modelstijlen te bewerken / T weede niveau / Derde niveau • Vierde niveau 17
The Second Maasvlakte or Maasvlakte II • Output specifications → contains a design based on a system-oriented approach • Shifting of more responsibility to contractor in early stage of project and involvement of market sector in design, construction and maintenance • Transparency → no wasting of public funds, avoidance of corruption 18
The Second Maasvlakte or Maasvlakte II • Roles and tasks of parties involved identified at beginning of the project • enders for construction and maintenance → T before permits were issued, time efficient • enders for concession → before starting T construction, test of financial feasibility 19
The Second Maasvlakte or Maasvlakte II • Programme of Requirement → contains problem statements and requirements set by Port of Rotterdam authority • Optimization of activities of contractors within this scope • Contractor → joint venture between Boskalis and Van Oord (two major Dutch dredging companies) • Incentive for contractor to investigate and execute cost-saving scenarios 20
The Second Maasvlakte or Maasvlakte II • Large extent of flexibility in the contract • Flexible design → can easily be adapted to market circumstances (example: terminals are currently meant for containers, but can be transformed to receive other cargo) 21
The Second Maasvlakte or Maasvlakte II • Concession process → innovative for Dutch market • Open interaction between private parties interested and Port of Rotterdam authority , simultaneous negotiations, high transparency • Contractual details were specified in advance • Sustainability → important criterion 22
The Second Maasvlakte or Maasvlakte II • Volume criterion for pre-qualification of candidates at least 2 mio TEU/year measured over past year → to attract only main players in terminal and shipping industry • First: expression of interest- document • Next phase → Non-disclosure agreements → disclosure of more detailed information and award criteria by Port of Rotterdam authority • Pre-bid sessions 23
The Second Maasvlakte or Maasvlakte II • Environmental management system for terminals → important weighing factor • Aim to reduce road transport in favour of transport by rail and inland waterways • Other factors of interest: − financial feasibility − competitiveness and positioning in market − technical solutions 24
The Second Maasvlakte or Maasvlakte II • Concession is important port development tool → once granted control reduces • Port of Rotterdam authority designed its own its own process • Beneficial competitive pressure, both for conclusion of DBM-contract as well as concession contracts 25
Pros and cons of privatization • More competition, flexibility, compliance with consumer’s demands • Downsides: − Risk of monopoly of private parties (for instance for linesman-and pilotage services in Port of Rotterdam) leading to higher rates failing any competitive pressure − Problem for the government how to supervise that rules and regulations are being complied with by private parties (example: environmental and safety-rules) 26
Supervision – example of failure: Odfjell tank storage terminal • August 2012: temporarily closing down of this terminal • Immediate cause: failure of reporting a butane leak to environmental supervisory body (DCMR) by the terminal • However, several violations of fire safety of the terminal were already reported in the past, but no appropriate action was taken 27
Supervision – example of failure: Odfjell tank storage terminal • DCMR → governmental Supervisor (for chemical industry) • Inspections of premises brought to light many violations of safety regulations • Odfjell was not penalized, but was granted “grace periods” by DCMR • DCMR → reluctant to take action because of negative economic effects of closing down a terminal and reaction of provincial and municipal governments 28
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