Price- -cap cap regulation regulation in port in port pricing - - PowerPoint PPT Presentation

Price Price-

• cap

cap regulation regulation in port in port pricing pricing: : a DEA a DEA approach approach

IX IX Riunione Riunione Scientifica Scientifica della Società Italiana degli Economisti dei della Società Italiana degli Economisti dei Trasporti Trasporti Napoli Napoli 3 3-

• 5 Ottobre 2007

5 Ottobre 2007

• M. Basta
• M. Basta –

– C. Ferrari

• C. Ferrari

University of University of Genoa Genoa DiEM DiEM – – Transport Division Transport Division

• Agenda

Agenda

• Aims

Aims

• Concessions in Italy

Concessions in Italy

• The price

The price-

• cap regulation

cap regulation

• Case study on Genoa container terminals (VTE

Case study on Genoa container terminals (VTE and SECH): application of DEA and SECH): application of DEA

• Conclusions

Conclusions

• Aims

Aims

• growth of port authority’s income, assuring a higher level

growth of port authority’s income, assuring a higher level

• f financial independence through:
• f financial independence through:
• growth of concession revenue;

growth of concession revenue;

• rise in fiscal income consequent on incremental traffic;

rise in fiscal income consequent on incremental traffic;

• define efficient and incentive concession tariffs;

define efficient and incentive concession tariffs;

• pen port market to the “competition for the market”;
• pen port market to the “competition for the market”;
• drive to efficient management of port terminal;

drive to efficient management of port terminal;

• ppose the loss in competitiveness of Italian ports thanks
• ppose the loss in competitiveness of Italian ports thanks

to an increase in port throughput; to an increase in port throughput;

• increase the economic value of port areas (scarce

increase the economic value of port areas (scarce resource). resource).

• Economic

Economic scenario scenario

• globalization and computerization of port

globalization and computerization of port

• perations, and consequent overlapping of
• perations, and consequent overlapping of

market areas; market areas;

• decreasing trend of cost of maritime transport and

decreasing trend of cost of maritime transport and contextual increase in importance of the non contextual increase in importance of the non-

• monetary components of transport cost;

monetary components of transport cost;

• rise in global production, which influences the

rise in global production, which influences the maritime transport; maritime transport;

• re

re-

• organization of the logistic system of the
• rganization of the logistic system of the

industrial company; industrial company;

• intensification of external force of competition.

intensification of external force of competition.

• Port

Port models models

private private private Private port private private public Landlord port private public public Tool port public public public Public port Service Sovrastructure Infrastructure Clear-cut division between infrastructure’s owner and operator: difficulty in determining the criteria of efficient pricing; absence of problems linked to antitrust policies (in theory).

• Landlord port authority’s objectives

Landlord port authority’s objectives

Generally (De Generally (De Monie Monie, 2005) , 2005)

• fully recover all port

fully recover all port-

• related costs made to provide the users with services at the

related costs made to provide the users with services at the level of quality required; level of quality required;

• attract external investments;

attract external investments;

• boost innovation;

boost innovation;

• generate internal cash flows to replace and expand existing faci

generate internal cash flows to replace and expand existing facilities that have lities that have to be provided by the Port Authority; to be provided by the Port Authority;

• increase market share by competing according to market rules;

increase market share by competing according to market rules;

• avoid dissipation of the port authority’s asset base;

avoid dissipation of the port authority’s asset base;

• maintain and increase the port’s total value.

maintain and increase the port’s total value. In Italy (L. 84/1994): In Italy (L. 84/1994):

• policy, coordination, promotion, planning and control of port op

policy, coordination, promotion, planning and control of port operations and erations and

• ther commercial port activities, with power also on
• ther commercial port activities, with power also on labour

labour safety and hygiene; safety and hygiene;

• supplying, for a valuable consideration, of some activities, not

supplying, for a valuable consideration, of some activities, not linked to port linked to port

• perations, of common good of port’s users.
• perations, of common good of port’s users.

• it’s a “state good” granted – through a contract – by the port

authorities to the terminal operators;

quays and storage areas are “scarce resources” and they would must

give rise to a positive revenue higher than zero

Port Port infrastructure infrastructure and and concessions concessions in in Italy Italy

• different methods to define the concession’s starting value, for

instance:

Genoa: area component +/- 5% Investments; Venice: two-part tariff, one fixed and one variable depending on

good’s typology;

Naples: % of the turnover;

generally tariff is updated on the basis of Istat’s CPI;

• The

The price price-

• cap

cap regulation regulation ( (Littlechild Littlechild, 1984) , 1984)

• it

it limits the limits the average average rate rate

• f
• f growth

growth of

• f regulated

regulated prices prices to to the rate of the rate of growth growth of CPI

• f CPI less

less X% X%; ;

• regulatory

regulatory leg leg is is fixed fixed; ;

• it

it can be applied to: can be applied to:

• all services;

all services;

• a set of

a set of services services; ;

• nly
• nly one service.
• ne service.

pt+1 = pt + pt(CPI - X)

any cost reductions exceeding the agreed target are earned by the company; it provides incentives to efficiency and innovation; a too low cap can cause operator’s bankruptcy, whereas a too high one allows extraprofits; terminal operators can adopt strategic behaviours to avoid penalization during the following period; CPI isn’t necessarily a good aproximation

• f inflation in port terminals;

product changes are not considered

• The

The price price-

• cap

cap regulation regulation in in Italy Italy

! !" "!# !$%&'() (#!(*! !# !$%&'() (#!(*! (((%') & #+!),(%( (((%') & #+!),(%('& '& #!(,#'#!($$((%#! #!(,#'#!($$((%#!--.

• -.

/'* /'* (% Independent Authorities for the regulation of energy and gas sector and telecommunication

• ne

012'( ! general guidelines for the regulation of public services

Motorways Motorways Railways Railways Telecommunication Telecommunication

• A new concession model

A new concession model

• $%

$% 3#!($ 3#!($ #+45 #+45

• '(!

'(!" "! ! &'(%'(& &'(%'(& $$ $$ '!%(&! '!%(&!

• Price

Price-

• cap

cap in port in port pricing pricing

The tariff (C) varies every The tariff (C) varies every four years four years according to according to the the price price-

• cap

cap regulation regulation CPI CPI – – X, where: X, where:

• CPI = variation of consumer price index during the

CPI = variation of consumer price index during the previous four years previous four years

• X = variation of terminal operator’s efficiency during

X = variation of terminal operator’s efficiency during the previous four years the previous four years Ct = Ct-1 + Ct-1(CPI-X) HOW TO MESURE HOW TO MESURE X? X?

• Efficiency evaluation

Efficiency evaluation

Given Given C Ct

t = C

= Ct

t-

• 1

1 +

+ C Ct

t-

• 1

1(CPI

(CPI-

• X)

X)

the port authority, after identifying a set of similar terminals the port authority, after identifying a set of similar terminals, , can adopt DEA in order to quantify the X factor for each can adopt DEA in order to quantify the X factor for each terminal during the previous four years: terminal during the previous four years:

• if operator is inefficient, DEA returns a negative variation

if operator is inefficient, DEA returns a negative variation and the tariff results by the algebraic sum of CPI index and and the tariff results by the algebraic sum of CPI index and this deviation; this deviation;

• if terminal operator is efficient X factor is null, therefore th

if terminal operator is efficient X factor is null, therefore the e tariff will equal CPI (it’s possible to knock an “efficiency tariff will equal CPI (it’s possible to knock an “efficiency bonus” off the tariff). bonus” off the tariff).

• Case

Case study study

• DEA, variable returns of scale, output orientated

DEA, variable returns of scale, output orientated; ;

• time period: 2003

time period: 2003-

• 2006;

2006;

• utput: container throughput (Teu);
• utput: container throughput (Teu);
• input: total surface (

input: total surface (mq mq), quay length (m), depth (m) ), quay length (m), depth (m) Terminal set Terminal set

TCR (Ravenna) CICT (Cagliari) SCT (Salerno) Savona TDT (Livorno) LSCT (La Spezia) SECH (Genova) VTE (Genova)

• Main results

Main results (1/2) (1/2)

0.912 0.964 0.879 2006 1.124 1.045 1.174 2005 1.055 1.065 1.124 2004 ∆SE ∆TEVRS ∆TECRS 2006

0,0% SCT 0,0% SAVONA

• 0,7%

SECH

• 2,8%

VTE

• 41,8%

CICT

• 0,4%

TCR

• 45,3%

TDT

• 0,4%

LSCT Average (in)efficiency Terminal

2003-2006

• Main results

Main results (2/2) (2/2)

During During the the period period 2003 2003-

• 2006:

2006:

• X is equal at

X is equal at -

• 2,8%

2,8% for for VTE and VTE and -

• 0,7%

0,7% for for SECH ( SECH (they they results results from from DEA): DEA): -

• 1,75%

1,75% on

• n avarage

avarage; ;

• CPI

CPI is is +2,4% +2,4% ( (source source: : Istat Istat); ); In 2006, In 2006, concession concession revenue revenue of

• f Genoa’

Genoa’s s port port amount amount to to € 22.609.159 € 22.609.159 ( (source source: : Genoa Genoa port port authority authority, , Balance Balance 2006) 2006) "6 +390.000 euro +390.000 euro

• To

To conclude… conclude… (1/2) (1/2)

• higher financial independence is a more and more relevant featur

higher financial independence is a more and more relevant feature for e for port authorities, without forgetting main public aspects; port authorities, without forgetting main public aspects;

• current situation supports the competition for the market (

current situation supports the competition for the market (Maersk Maersk, VI , VI Modulo Modulo di di Voltri Voltri, Costa , Costa Crociere Crociere, etc.); , etc.);

• port authorities must increase the economic value of state areas

port authorities must increase the economic value of state areas and and goods; goods;

• price

price-

• cap regulation stimulates terminal operators to be efficient in

cap regulation stimulates terminal operators to be efficient in terms of increase in throughput and rise in port competitiveness terms of increase in throughput and rise in port competitiveness; ;

• a new concession model could:

a new concession model could:

• pen the port sector to competition for the market;
• pen the port sector to competition for the market;
• avoid the risk of regulator’s capture;

avoid the risk of regulator’s capture;

• reduce implementation’s efforts;

reduce implementation’s efforts;

• To

To conclude… conclude… (2/2) (2/2)

• DEA represents a useful and efficient tool to solve difficulties

DEA represents a useful and efficient tool to solve difficulties in X in X factor’s quantification; factor’s quantification;

• Increase in traffic, due to efficiency incentives, allows a grow

Increase in traffic, due to efficiency incentives, allows a growth of th of fiscal income too; fiscal income too;

• the analysis could be extended in terms of:

the analysis could be extended in terms of:

• comparison with foreign ports;

comparison with foreign ports;

• connection with current studies commissioned by port authorities

connection with current studies commissioned by port authorities

• n fiscal income produced by port throughput.
• n fiscal income produced by port throughput.