Case Study 2Case Study 2

The Concession of a New The Concession of a New Container Terminal in the Container Terminal in the

C ll P t i PC ll P t i PCallao Port in PeruCallao Port in Peru

1Patricio MansillaPatricio Mansilla

Cairo Cairo -- May 25, 2008May 25, 2008

AgendaAgendagg1. Peruvian Port sector and Institutional 1. Peruvian Port sector and Institutional R fR fReformReform

2 Callao’s Port Organizational Structure2 Callao’s Port Organizational Structure2. Callao s Port Organizational Structure2. Callao s Port Organizational Structure

3. New Container Terminal (NCT) Business 3. New Container Terminal (NCT) Business ( )( )Design and Bidding ResultsDesign and Bidding Results

2

4. Key elements for the successful NCT 4. Key elements for the successful NCT concession and Multiplier Effectsconcession and Multiplier Effects

1. Peruvian Port Sector and1. Peruvian Port Sector and1. Peruvian Port Sector and 1. Peruvian Port Sector and Institutional ReformInstitutional Reform

3

Peruvian Strategic Location in the South

Pacific Coast

Callao Port

South and Central America moves 20 million TEUs

Brazil

moves 20 million TEUs annually

Country Annual TEUs

B il 6 illiBrazil 6 million

Panama 4 million

Argentina 2 million

Chil 1 9 illi

4

Chile 1.9 million

Peru 1.3 millionSource: AAPA

Latinamerican Port RankingLatinamerican Port RankingRanking 2006 Port Country Million TEU`s

1 Santos Brazil 2.9

2 Kingston Jamaica 2.2

3 Colon Panama 2.0

4 Buenos Aires Argentine 1.7

5 Freeport Bahamas 1.4

6 Balboa Panama 1.0

77 CallaoCallao PeruPeru 0.90.98 Manzanillo Mexico 0.9

9 Puerto Cabello Venezuela 0.85

10 Puerto Limón Costa Rica 0.8

11 Rio Grande Brazil 0.7

12 Cartagena Colombia 0.7

13 San Antonio Chile 0.7

14 Itajai Brazil 0.65

15 Veracruz Mexico 0.65

16 Valparaíso Chile 0.6

5

17 Paranagua Brazil 0.6

18 Guayaquil Ecuador 0.6

19 Montevideo Uruguay 0.5

20 Puerto Cortés Honduras 0.5

Cranes in the South Pacific LAC

0

1

22

0

1

Paita (Per)

Guayaquil (Ecu)

Buenaventura (Col)

Grúas móvilesGrúaspórtico

Mobile Crane

0

0

0

0

2

1

0

0Arica (Chi)

Matarani (Per)

Callao (Per)

( ) Grúas pórticoGantry Crane

2

0

1

3

1

00

0

Valparaíso, Terminal PacíficoSur (Chi)

Antofagasta (Chi)

Iquique, Puerto Público (Chi)

Iquique, Terminal Internacional (Chi)

0

4

1

2

2

3

1

4

San Antonio, Puerto Público (Chi)

San Antonio, Terminal Internacional (Chi)

Valparaíso, Puerto Público (Chi)

Valparaíso, Terminal Pacífico Sur (Chi)

6

0 2

0 0.5 1 1.5 2 2.5 3 3.5 4 4.5

San Vicente (Chi)

Callao PortCallao Port

a) Increase in Demand (Port movesmore than 1 million TEU per yearand serves 80% of Peruvian foreigntrade)

b) Cost Inefficiencies, low Productivity and Technological

7

changec) Negative externalitiesd) Investments required in peruvian

ports US$800 million

The Cost of Callao Port InefficienciesThe Cost of Callao Port InefficienciesInventory

CostsUS$150Million

Slow rhythm to load d l d W iti ti

ENAPU C t O

Total Annual OverchargeUS$220Million

and unload. Waiting timeTo dock

US$45 million

Costs OverrunsUS$25 million

8

Institutional Reform1.1. Before 2003 Ministry of Transport was responsible for the Before 2003 Ministry of Transport was responsible for the

peruvian port infrastructure policy and ENAPU (Ports National peruvian port infrastructure policy and ENAPU (Ports National Company) was responsible for the port operation. Company) was responsible for the port operation.

2.2. New National Port System Law, March 2003. New institutional New National Port System Law, March 2003. New institutional framework to let the private sector to invest in ports.framework to let the private sector to invest in ports.

3.3. The new Law creates the National Port Authority, which is the The new Law creates the National Port Authority, which is the institution planning port development and publicinstitution planning port development and public--private private investmentsinvestments

4.4. National Port Development Plan identify dinamically the National Port Development Plan identify dinamically the investment requirements of each port and allocate resources in investment requirements of each port and allocate resources in ports in a rational way. ports in a rational way.

9

Project Cycle and InstitutionsProject Cycle and InstitutionsPlanning Bidding Investment

and Operation Regulation

TRANSPORT MINISTRY AND

NATIONAL PORT AUTHORITY

OSITRANPROINVERSION•ENAPU

•PRIVATE COMPANIES•CONCESSIONAIRIE

10

2. Callao2. Callao´́s Port Organizationals Port Organizational2. Callao2. Callao s Port Organizational s Port Organizational StructureStructure

11

Joint Production is cheaper thanJoint Production is cheaper thanJoint Production is cheaper than Joint Production is cheaper than by separateby separate MonopolyMonopoly

Economies of ScaleEconomies of ScaleDiminishing Average CostDiminishing Average Cost ¿Regulation?¿Regulation?

Scope EconomiesScope Economies

12

Normal Competition in Pier 5Normal Competition in Pier 5

Low Competition between portsLow Competition between ports

EncouragingEncouragingCompetitionCompetition

L I t d l C titiL I t d l C titi

Low Competition between portsLow Competition between ports CompetitionCompetition

Low Intermodal CompetitionLow Intermodal CompetitionTotal Revenues US$100 million

annually

Competition between ENAPU andCompetition between ENAPU andconcessionairieconcessionairie

13

Services in Competition Service Competition Tariff

RegulationCompetitors

Pilotage Yes- Private No Pilot station 46%Pilotage Yes Private No Pilot station 46%Tramarsa 26%

Triton 21%T Y P bli N ENAPU 20%Towage Yes-Public-

PrivateNo ENAPU 20%

Sertemar, Tramarsa, Transoceanica and

I 80%Inmarsa 80%Stevedoring Yes-Private No 38 companies

St Y P bli N ENAPU T d

14

Storage Yes-Public-Private

No ENAPU, Tramarsa and Neptunia

Regulated Services

Service Competition Tariff Regulation

Competitors

Use of Moor No-Public Yes ENAPU

Use of Pier No-Public yes ENAPUUse of Pier No-Public yes ENAPU

15

3.3. New Container Terminal New Container Terminal (NCT) Business Design(NCT) Business Design and and

Bidding ResultsBidding ResultsBidding ResultsBidding Results

16

Feasibility StudiesFeasibility Studies

ConcessionBusinessBusinessDesign

Project Costs and Industrial Org.Project Costs andMinimum Technical

Requirements

and EconomicRegulation

Risk Analysis andContract Design

17

Investment Requirements •New Southern Container Terminal •600 meters•Container Yard 14 5 Has•Container Yard 14,5 Has•6 Gantry Cranes•Annual capacity 600,000 TEUsTEUs•Sea depth 14 meters•2 Berths•Investment US$ 220 MM$•30 years concession period

18

South Breakwater

Option of second

Lima-Peruvian Capital

Container docks -

Option of second phase

ENAPU

To be demolishedTo be demolished

197 ha

PrePre-- qualificacion Requirementsqualificacion Requirements

Operate ports with Technical Be the

exclusiveFinancial net

th f t

Be the exclusive

operator of Financialp p2.500.000 TEUs anually

exclusive operator of a container terminal handling 500K TEU/year

worth of at least $200 million

a container terminal

with at least 600 m of

pier length

Financial

y

20

PrePre--qualification of Worldqualification of World--Class Port Class Port OperatorsOperators

• Pre-qualified bidders:

– P&O / Dubai Ports Internacional/ Uniport S A– P&O / Dubai Ports Internacional/ Uniport S.A.– Consortium Dragados- Ransa (from Spain and Peru,

respectively)HC Limited (Hutchinson from Hong Kong )– HC Limited (Hutchinson from Hong Kong )

– International Container Terminal Services (ICTS from the Philippines)

21

Competition in the Callao PortCompetition in the Callao Port

• National Port Authority and Ministry of Transport guarantee, inthe first 10 years of the concession, an annual minimumdemand of 300.000 TEUs of exports and imports and 100.000TEU i bTEUs in cabotage.

• OSITRAN the transport investment regulator has the authority tocontrol the economic conditions of the port infrastructure market.

22

Selection ProcessSelection ProcessSelection ProcessSelection Process• Criteria 1: The lowest tariff index consisting of the following rates:

– Standard Ship Services: US$ 0.70 per meter of the Ship L th/hLength/hour

– Standard Cargo Services. 20’ container: US$90; 40’ container: US$135

• Criteria 2: Additional Complementary Investments (ACI) in Callao• Criteria 2: Additional Complementary Investments (ACI) in Callao Port common areas

• Winning Bidder: P&O Dover / Dubai Ports International and Uniport S.A.S.A.

• In addition, the concessionarie will pay 3% of the annual gross revenues to the National Port Authority and 1% to the Transport Investments Regulator (OSITRAN).

23

Additional ComplementaryAdditional ComplementaryAdditional Complementary Additional Complementary InvestmentsInvestments First Priority

InvestmentsSecond Priority

Investments • P & O Ports committed

to invest US$ 144million in the following

C

Enlargement of the access channel entrance.

System of Protection and safety

Aditional ComplementaryInvestments.

• Trust Fund with BBVAB k

y

Navigation System in common port areas

System of community informationBank areas information

Deepen the access channel and road

Development of Logistics activity

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access to the port zones

Payment Schedule for Additional Payment Schedule for Additional Complementary InvestmentsComplementary Investments

Million of US$ DateMillion of US$ Date

10 90 días after the contract subscription (October/20/06)subscription (October/20/06)

10 US$5 million 6 months after the operation period started and US$5 million 1 year after the samemillion 1 year after the same milestone

15,5 8 semi-annual payments since the second operation year

25

second operation year

Summary for Investment PlanSummary for Investment Planyy

US$ millionUS$ million

Civil Works 218

255Equipment

Additional Investments

255

144

Total 617

26

Port ServicesType of Tariff/PriceType ofservice

Tariff/Price

S.Standard Services to the ship

• Mooring use, includesmooring and unmooring

Tariff per ship’s length (in meters) per hour.to the ship mooring and unmooring

services(in meters) per hour. (US$0.70)

• Loading/Unloading, includes the use of the

Tariff per container(empty or full)

gantry crane loaded/unloaded fromthe ship

Services • Use of the Terminal. It i l d t f i

Tariff per containerh d t th ’to the

cargoincludes transferring, handling, weighing and cargo storage for 48 hours.

charged to the cargo’sconsigneeUS$90 x 20”TEUUS$135.18 x 40””TEU

27

$

S.Special ship/cargo • Services per user’s request

Price (not regulated)

Services Levels and ProductivityServices Levels and Productivity

Mooring time with no

Services d

operation

Time loading/unloading the cargoand

productivity levels

cargo

Time spent with users removing their cargo

Dock’s occupation ratio

28

Construction PlanConstruction Plan• NTC Construction started on April 29th 2008 once the Peruvian

Government and Dubai Ports completed contractual requirements:

1. Concession area was transferred by the government to theconcessionairie (October/22/06)

2 N ti l P t A th it d t h i l t di (J /11/08)2. National Port Authority approved technical studies (Jan/11/08)3. Transport Ministry approved environmental studies (March/06/08)4. Ministry of Finance approved dredging cost-benefit analysis

(April/02/08)

• NTC Construction will finish before than April 29th 2011.

29

p

Construction PhasesConstruction PhasesConstruction PhasesConstruction Phases

First Phase Second PhaseFirst Phase

Capacity

Second Phase

0.8 M TEU0.8 M TEU

650650

1.2 M TEU1.2 M TEU

960960Dock Length

Total Surface

650m650m

21.5ha21.5ha

960m960m

28ha28ha

Gantry cranes 66 99

30

Container Demand EstimationContainer Demand Estimation

2 500 2th Phase

Nueva Terminal de Contenedores

2.000

2.500

s ENAPU DPWC1th Phase

2th Phase

1.000

1.500

'000

TE

Us

0

500

31Fuente: volúmenes 2003 al 2006 ENAPU. 2007 en adelante DPWC

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

4. Key Elements for the Successful4. Key Elements for the Successful4. Key Elements for the Successful 4. Key Elements for the Successful NCT ConcessionNCT Concession and Multiplier and Multiplier

Eff tEff tEffectsEffects

32

Key Elements1. USAID Technical Support: through the transaction life cycle2. Credibility and Transparency: in the bidding process3. Public Private Competition: bidders said “it is so attractive”p4. Risk Analysis: Mitigation of unfair public competition (annual

minimum demand guarantee).5. Adequate Risk-Profitability mix: changes in rule of law affecting

the investment, revenues or costs associated to the standardservices or the contract with exception of tariffs. If the impactcalculated as a percentage over the net profits before taxes ishigher than 10% the government will compensate to thehigher than 10% the government will compensate to theconcessionairie or viceversa. (Financial Equilibrium)

6. High Bidding Competition: lagged Investments in the Port, hugepotential growth on demand and net revenues generated strong

33

p g g gcompetition in the bidding.

Multiplier Effects

1. ENAPU Investments: Enapu purchased (through a biddingmechanism) two gantry cranes to operate in pier 5 before Januarymechanism) two gantry cranes to operate in pier 5, before January19th of 2009. Bidding was adjudicated to the chinese consortiumZPMC-Energotec.

2. New Regional Port Concessions: PROINVERSION is preparingbidding documents to attract private investment and operation for5 regional ports this year5 regional ports this year

3. New PPP Law: Released on May 13th (last week)

34

Port Concession Plan: I t t f US$400 illiInvestments for US$400 million

35

New PPP Law New PPP Law –– May 13th May 13th yy

• Classification of PPP projects between “self-financing” and“co-funding” requiring the government financial support

• It includes concepts like value for money, risk allocation andcompetition

• Descentralization of promotion functions through theministries, local and regional government andPROINVERSION

36

• Present value of contigent and non contingent liabilities inPPP projects can not exceed 7% of the GDP.

Thank You Thank You

37