EX POST EVALUATION OF INVESTMENT PROJECTS CO-FINANCED BY THE

EUROPEAN REGIONAL DEVELOPMENT FUND (ERDF) OR COHESION FUND

(CF) IN THE PERIOD 1994-1999

THE PORT OF GIOIA TAURO

PREPARED BY: CSIL, CENTRE FOR INDUSTRIAL STUDIES, MILAN

PREPARED FOR: European Commission

DIRECTORATE-GENERAL REGIONAL POLICY POLICY DEVELOPMENT

EVALUATION

MILAN, SEPTEMBER 5, 2012

This study is carried out by a team selected by the Evaluation Unit, DG Regional Policy, European

Commission, through a call for tenders by open procedure no 2010.CE.16.B.AT.036.

The consortium selected comprises CSIL – Centre for Industrial Studies (lead partner – Milan) and DKM

Economic Consultants (Dublin).

The Core Team comprises:

- Scientific Director: Massimo Florio, CSIL and University of Milan;

- Project Coordinators: Silvia Vignetti and Julie Pellegrin, CSIL;

- External experts: Ginés de Rus (University of Las Palmas, Spain), Per-Olov Johansson (Stockholm School

of Economics, Sweden) and Eduardo Ley (World Bank, Washington, D.C.);

- Senior experts: Ugo Finzi, Mario Genco, Annette Hughes and Marcello Martinez;

- Task managers: John Lawlor, Julie Pellegrin and Davide Sartori;

- Project analysts: Emanuela Sirtori, Gelsomina Catalano and Rory Mc Monagle.

A network of country experts provides the geographical coverage for the field analysis: Roland Blomeyer,

Fernando Santos (Blomeyer and Sanz – Guadalajara), Andrea Moroni (CSIL – Milano), Antonis Moussios,

Panos Liveris (Eurotec - Thessaloniki), Marta Sánchez-Borràs, Mateu Turró (CENIT – Barcelona), Ernestine

Woelger (DKM – Dublin).

The authors of this report are Mario Genco, Emanuela Sirtori and Silvia Vignetti of CSIL.

The authors are grateful for the very helpful comments from the EC staff and particularly to Veronica

Gaffey, Anna Burylo and Kai Stryczynski. They also express their gratitude to all stakeholders who agreed

to respond to the team’s questions and contributed to the realisation of the case study. The authors are

responsible for any remaining errors or omissions.

Quotation is authorised as long as the source is acknowledged.

Cover: The Port of Gioia Tauro. Source: MCT

TABLE OF CONTENTS

EXECUTIVE SUMMARY ....................................................................................................................... 1

1 PROJECT DESCRIPTION ............................................................................................................... 7

1.1 CONTEXT ........................................................................................................................................ 7 1.2 STRUCTURAL FEATURES AND SERVICE DELIVERED .................................................................................... 9 1.3 CURRENT PERFORMANCE ................................................................................................................. 11

2 ORIGIN AND HISTORY ............................................................................................................... 13

2.1 BACKGROUND ............................................................................................................................... 13 2.2 FINANCING DECISION ...................................................................................................................... 14 2.3 START UP AND CONSOLIDATION OF THE TRANSHIPMENT HUB .................................................................. 17 2.4 SOCIO-ECONOMIC DEVELOPMENT OF THE BROAD GIOIA TAURO AREA ...................................................... 25

3 LONG-TERM DEVELOPMENT EFFECTS ........................................................................................ 31

3.1 KEY FINDINGS ................................................................................................................................ 31 3.2 DIRECT ECONOMIC GROWTH ............................................................................................................ 33 3.3 ENDOGENOUS DYNAMICS ................................................................................................................ 34 3.4 TERRITORIAL COHESION ................................................................................................................... 36 3.5 SOCIAL HAPPINESS .......................................................................................................................... 37 3.6 SOCIAL COHESION .......................................................................................................................... 37 3.7 ENVIRONMENTAL EFFECTS ............................................................................................................... 37 3.8 INSTITUTIONAL QUALITY .................................................................................................................. 38

4 DETERMINANTS OF PROJECT OUTCOMES .................................................................................. 39

4.1 KEY FINDINGS ................................................................................................................................ 39 4.2 APPROPRIATENESS TO THE CONTEXT .................................................................................................. 40 4.3 MANAGERIAL RESPONSE .................................................................................................................. 41 4.4 PROJECT GOVERNANCE .................................................................................................................... 43

5 CONCLUSIONS ........................................................................................................................... 53

ANNEX I. METHODOLOGY OF EVALUATION .................................................................................. 55

ANNEX II. COST-BENEFIT ANALYSIS ............................................................................................... 61

ANNEX III. MAP OF STAKEHOLDERS ............................................................................................... 97

ANNEX IV. LIST OF ENTERPRISES OPERATIONAL IN THE PORT AREA .............................................. 101

ANNEX V. LIST OF INTERVIEWEES ................................................................................................ 105

ANNEX VI. REFERENCES ............................................................................................................... 107

LIST OF ABBREVIATIONS

ASI-REG Consortium for the Industrial Promotion of the Province of Reggio Calabria

CBA Cost-Benefit Analysis

DG Regio Directorate General for Regional Policies

EC European Commission

ECU European Current Unit

ERDF European Regional Development Fund

ESF European Social Fund

EU European Union

FPA Framework Programme Agreement (Accordo di Programma Quadro)

GDP Gross Domestic Product

ICO-BLG Automobile Logistics Italia (port operator for car carrier)

MCT Medcenter Container Terminal (port operator for transhipment)

MSC Mediterranean Shipping Company (shipping line)

NUTS Nomenclature of Territorial Statistical Units

RFI Rete Ferrovie Italiane (Italian railway operator)

SME Small and Medium Enterprise

TEU Twenty-foot Equivalent Unit

1

EXECUTIVE SUMMARY

This case study illustrates the story of the Port of Gioia Tauro, a major infrastructure

investment co-financed by the European Regional Development Fund (ERDF) in the period

1994-1998. More specifically, this is an ex-post evaluation assessing the long term effects

produced by the project and interpreting the key determinants of the observed performance.

It is an innovative evaluation exercise given the long-run perspective (30 years), which extends

into both the past and the future, and requires a mix of retrospective and prospective analysis.

The analysis draws from an ex-post Cost-Benefit Analysis - CBA1 and from an extensive set of

qualitative evidence, both secondary (technical reports, official reports, press articles, books

and research papers) and primary (17 interviews with key stakeholders and experts have been

carried out in the period May-July 20112). The overall approach and methodology followed in

the project is briefly recalled in the box below.

OVERALL APPROACH AND METHODOLOGY

The Conceptual Framework delivered in the First Intermediate Report has been developed from the evaluation questions included in the ToR3, and further specified and organised in accordance with the study team’s understanding. In particular, the Team identified three relevant dimensions of analysis:

a. The object of the evaluation (the ‘WHAT’): this relates to the typologies of long-term contributions that can be observed. Starting from the typologies identified in the ToR (socio-economic development and quality of life) the Team developed the following classification of long-term effects: ‘Economic development’ (including effects on GDP growth and endogenous dynamics) and ‘Quality of life’, taken here to be synonymous with additional social wellbeing, i.e. including effects that are not captured by the economic variables. ‘Quality of life’, in turn, has been divided into: social cohesion, territorial cohesion, institutional learning, environmental effects and social happiness.

b. The timing of the long-term effects (the ‘WHEN’): this dimension relates to the point in the project’s lifetime at which the effects materialise for the first time (short-term dimension) and stabilise (long-term dimension). The proper timing of an evaluation and the role it can have in relation to the project’s implementation is also discussed here.

c. The determinants of the project’s performance (the ‘HOW’): the assumption here is that five aspects of project’s implementation and their interplay are crucial for the project’s final performance. These aspects are: project design, forecasting capacity, governance, context and managerial response. Five Working Hypotheses are related to these dimensions and explain how each of them can influence the generation of the project’s short or long-term effects.

On the basis of this conceptualisation, a set of detailed evaluation questions are developed, which aim to guide the entire study and to support the provision of conclusions and recommendations.

The methodology developed to answer the evaluation questions consists of a combination of quantitative (Cost Benefit Analysis) and qualitative (interviews, surveys, searches of government and newspaper archives, etc.) techniques, integrated in such a way as to produce ten project histories. CBA

1 Data, hypotheses and results are discussed in Annex II.

2 See Annex V for a detailed list of interviewees.

3 They are the following: What kind of long-term contributions can be identified for different types of investment in the field of

environment and transport infrastructure? How are these long-term contributions generated for different types of investment in the field of environment and transport infrastructure, i.e., what is the causal chain between certain short-term socio-economic returns and long-term returns from investment? What is the minimum and average time needed for a given long-term contribution to materialise and stabilise? What are these time spans for different types of investment in the field of environment and transport infrastructure? What are the existing evaluation methods to capture a given long-term contribution for different types of investment in the field of environment and transport infrastructure?

2

is an appropriate analytical approach for the ex-post evaluation because it can provide quantification of or indications of some of the long-term effects produced by the project. However, the most important contribution of the CBA exercise is to provide a framework of analysis to identify the most crucial aspects of the projects’ ex-post performance and final outcome. Qualitative analysis on the other had is more focussed on understanding the underlying causes and courses of action of the delivery process. On the basis of the findings of the ten case studies, the Final Report will draw lessons along the key dimensions identified of ‘what’, ‘when’ and ‘how’.

Source: Authors

Defined as ‘the metaphor of a modernisation process without development’ or the ‘largest

industrial development project ever promoted in the Mezzogiorno’4, the Port of Gioia Tauro is

an emblematic story of great business success and unexploited potential for local

development: the project has generated very different long-term effects with regard to the

various stakeholders. It was initiated in 1994 thanks to the visionary intuition of a private

entrepreneur, who asked the Italian Government for a concession to use the existing, unused,

port infrastructure in Gioia Tauro as a transhipment terminal hub (a container terminal

dedicated to transloading containers from mother vessels to small feeder vessels directed to

regional ports).

The existing port had been built twenty years earlier to serve a major steelworks project which

never came to fruition. The equivalent of more than EUR two billion5 was spent by the Italian

government to build this infrastructure, which remained unused for two decades while many

different (sometimes bizarre) potential uses were the subject of seemingly never-ending

discussions. When a private entrepreneur came with a very promising business plan and the

commitment to invest some EUR 150 million in the operation, the Italian government saw a

unique opportunity to finally provide a use for the port with a high developmental potential. In

addition to national public funds for infrastructure works (some adaptations were needed to

the existing port), and private funds for equipment and machinery, the European Commission

co-funded the private operation (which was considered a productive investment) through an

ERDF grant of EUR 40 million in current terms.

The construction of the port was concluded in 1994, while the operational phase started the

following year. The total past investment amounted to EUR 418 million, 85% of which was

privately sustained by MCT and 13% was co-financed through the ERDF. Some resources from

the European Social Fund and national public authorities (about EUR 8.4 million) were

allocated to provide MCT employees with training courses. The following Table summarizes

the total investments costs occurred since the initial financing year until today.

4 Italian Parliament, 2008.

5 In real terms at 2011 prices.

3

OVERVIEW OF INVESTMENT COSTS AND SOURCES OF FINANCING

Financing period 1994-2009

First year of operation 1995

Total investment costs (2011 prices) EUR 418 million 100%

Sources of financing and co-funding rates over the total investment costs

Cohesion Fund EUR 0 0%

European Regional Development Fund EUR 55.6 million 13%

European Social Fund EUR 6.3 million 2%

European Investment Bank EUR 0 0%

National-regional-local public contribution EUR 2.1 million 1%

Private capital (MCT) EUR 345 million 85%

After fifteen years the assessment of the economic impact of the project is mixed, and stresses

the multi-faceted dimensions of development plans. On one hand the transhipment hub

proved to be quite a successful business operation, especially in the short and medium run.

Thanks to the effects of globalisation which shrank commercial transport costs, a boom in

freight transportation in the Mediterranean Sea from the Far East, and the strong location of

the port, Gioia Tauro became in a few years the premier transhipment hub in the

Mediterranean, handling one-and-a-half million containers annually and with the four largest

shipping lines calling to the port. It was (and remains), however, a risky business operation

because of the socio-economic context and dependency on highly volatile global demand.

On the other hand, although the terminal operator provided one thousand two hundred direct

jobs and a further eight hundred jobs were generated in related activities, the expected long

term development effects, in particular in terms of industrial development in the surrounding

area, did not materialise despite much effort (and money) being spent to that end. Wider

effects of efficiency on the Italian and Mediterranean port system are additional benefits of

the project, but they did not materialise at the local level and did not affect the living

conditions of the local population.

The current situation at the port is a vast and well-equipped port terminal with a huge but

practically empty industrial zone behind it. The port business is currently carried out by two

port operators, one being by far the most relevant, but which is currently strongly challenged

by market fluctuations and the global economic crisis. According to the EU Commission

criterion, up to now the project has proven to be not financially sustainable, as its cumulated

net cash flows have not been positive each year since the start of the operational phase.

In terms of long-term development effects the current analysis shows that:

In the early 1990s, the beginning of transhipment activities brought significant

efficiency improvements (cost reductions) to the global logistic supply chain,

benefitting transport operators and internationalised business. The Gioia Tauro

transhipment hub came at the right moment to participate in this reorganisation of

the global logistics systems.

4

In terms of socio-economic development the port produced fairly positive results, as

confirmed also by the results of the cost-benefit analysis. The main driver of the net

benefit is the employment created6, with likely effects on local unemployment.

Additional positive impacts flow from the efficiency gains the entire Italian and

Mediterranean port system achieved, thanks to the expansion of transhipment activity

in Gioia Tauro.

Further positive impacts flow from the learning effects, for both private and public

actors, in terms of how to deal with transhipment activity. It has been reported that

employees, trade unions, and business associations benefitted from being involved in

such high-tech activities.

Negative impacts are recorded in terms of a sense of frustration the local people

experienced, due to the lost promise of widespread development that the port

operation was expected to bring to the entire area. Social distrust and disillusionment

are tangible effects and are likely to influence future actions regarding the port.

It should be borne in mind that these considerations strongly rely on the assumptions made

regarding the future of the port in the prospective analysis, which, according to the evaluators,

in the most probable scenario is going to experience slightly increased traffic over time7.

Scenario analysis shows that the above results are subject to a high degree of uncertainty, the

possible scenarios ranging from a catastrophic situation with the discontinuation of the port

activities, to the recommencement of significant traffic growth in the near future with the

implementation of new investment plans.

The current situation in fact is one of deep crisis for competitiveness reasons, and the port is at

a turning point. Since 2007 the container terminal has suffered from increased competition

from North African ports (Port Said and Tangier in particular), which have heavily invested in

transhipment activities. The 2008 financial crisis made competition even fiercer and the lack of

a prompt response led to the loss of the port’s main clients, Maersk (the largest shipping line,

providing 40% of the total traffic) being the most recent departure in June 20118. At the same

time, a Framework Programme Agreement (FPA) signed in September 2010 by the main public

parties under the auspices of the European Commission, which supported it and provided

indications and suggestions as to how to strengthen some of its key aspects (governance and

strategic vision), is going to provide EUR 450 million for additional investments in the next

three years, with the aim of improving the efficiency and overall performance of the port, in

particular by strengthening the railway connections, building a rail gateway within the port

area and supporting logistics activities. However, the implementation of the plan has been

severely delayed.

The results of the current analysis of the project’s long term development effects are based on

the expectation that the port will slowly regain its past traffic flow and market share, although

6 Which has been captured in the Cost-Benefit Analysis by a low shadow wage.

7 A 2% annual rate of growth is assumed from 2012 onwards.

8 The transhipment hub has currently only one major client, Mediterranean Shipping Company-MSC.

5

it will not return to the strong growth rates experience previously, as the strategic objectives

of the FPA would claim. This is based on the lessons learned regarding the key determinants of

the performance of the project.

The analysis in fact shows that a key determinant of the past, present and even future

performance of the port is the governance structure of the port and the broader area of Gioia

Tauro (including in particular two industrial zones located close to the port area), which has

been always characterised by fragmented actions and lack of coordination and clear political

will. The number of actors, poor strategic direction, perhaps some vested interests at national,

regional and local level and, finally, conflicts between local authorities are responsible for the

current state of play and are the main difficulty to be resolved going forward. In addition, the

weakness of the overall transport (and more specifically port) strategy at national level has

exacerbated the existing governance problems. On top of that, the strong presence of

organised crime in the territory, favoured by the weakness of the governance structure, has

certainly played a negative role by discouraging business creation and imposing extra security

costs.

In this picture, the European Commission has played a relevant role over the course of the

years. On one hand it provided financial support through the Structural Funds in different

phases9, enabling the implementation of accompanying actions addressed at supporting

broader socio-economic development and, on the other, it supported and steered the

planning efforts aiming specifically at overcoming the well-known governance constraints (for

example it was on request of the Commission that a Master Plan was prepared in 1997 and

again it is thanks to the Commission that the latest FPA has developed using an integrated

approach). Notwithstanding this commitment, it could not influence in a determinative way

the key limitations of the governance structures, which do not impact the programming phase

but paralyse the implementation process, during which the Commission has little or no role.

The only instrument the Commission had to hand were conditionalities on the timing and

destination of funds. This was however not enough to make the difference.

At a broader level, from a purely developmental perspective, the limited appropriateness to

the context (in terms of institutional, cultural and socio-economic characteristics) of the key

rationale of the initial financing decision should be acknowledged: triggering a growth

enhancing path through the support of a container terminal hub was too ambitious and highly

risky in the socio-economic context of the Calabria region. In fact, transhipment by design does

not lead to immediate territorial development and, on the contrary, is subject to inherent

demand volatility resulting from global competition between a few multi-national companies.

Therefore, broader development effects could be achieved only by an integrated and

coordinated plan fostering business creation, transport connections and high level services for

port-related activities, combined with the long-term commitment of highly experienced and

dedicated professional resources. In a context characterised by weak entrepreneurial capacity,

9 in addition to the initial ERDF grant the Structural Funds co-financed staff training on transhipment activities – European Social

Fund -, the construction of the platform for modal shift – ERDF - and a global grant for new business to locate in the industrial zones – ERDF - and, finally, the latest FPA.

6

especially regarding maritime-related activities, structural poverty in transport infrastructural

endowment, societal security instability and scarce administrative capacity, the lack of strong,

skilled and coordinated action pursuant to the port interests prevented a brilliant private

operation from being turned into a unique development initiative.

7

1 PROJECT DESCRIPTION

This section provides a brief sketch of the Gioia Tauro Port and its socio-economic context. The

key structural features of the infrastructures and the service delivered, the context in which it

takes place, the target population and the current performance of the project are outlined, in

order to give a general description of the project that is the subject of this pilot case study.

1.1 CONTEXT

Gioia Tauro is a municipality in the province of Reggio Calabria, in the Italian Mezzogiorno

region of Calabria, on the Tyrrhenian coast. The region is a long and narrow peninsula which

stretches 248 km from north to south. Some 42% of Calabria's area, corresponding to 15,080

km2, is mountainous, 49% is hilly, while plains occupy only 9% of the region's territory. As of

2011 the Calabria population is 2 million.

In the 1990s, Calabria was the least developed region in Italy and still is today. Its performance

has not improved significantly over the years and it is still a Convergence region.

Figure 1.1 THE GEOGRAPHICAL POSITION OF THE GIOIA TAURO PORT

Source: Authors

In 1995, regional per capita GDP was more than 40% lower than the Italian average, 7% lower

than the average in the South and around a half of the average in the Italian Northern regions.

It was 40% lower than the average per capita GDP in the EU. Among the five provinces of

Calabria (corresponding to the European NUTS 3 level), Reggio Calabria’s per capita GDP had

for some years been higher than the regional average, albeit still below the Mezzogiorno

average; since 2005, however, the province’s per capita GDP has been below the regional per

capita GDP average (see Figure 1.2).

8

Figure 1.2 PER CAPITA GDP IN PERCENTAGE OF THE ITALIAN AVERAGE (ITALY=100)

Source: Authors’ elaboration based on Eurostat data

Moreover, the population continues to suffer from persistent high unemployment: Calabria

had and still has one of the highest unemployment rates in Italy and in Europe. In 1999, the

regional unemployment rate10 was 28.3%, much higher than the Italian and Northern regions

average, respectively 11.4% and 5.3%. The female unemployment rate was even more

dramatic, reaching 40.5%. In particular, the province of Reggio Calabria ranked at the bottom

of the other regional provinces, with a total rate of unemployed corresponding to 32.3%.

Poor socio-economic conditions led to a massive movement of Calabrian people to the

industrial centres of Northern Italy, the rest of Europe, Australia and America, starting in the

early 1920s. Since the 1970s however, economic conditions have improved, thanks to a more

modern agriculture sector, growth in tourism and a growing commercial base. In recent years

the unemployment rate has substantially decreased and in 2009 it was 11.3% for both Calabria

and Reggio Calabria. Major improvements were experienced also in the female labour market,

where unemployment dropped to 13.9%.

Today industrial activity remains very limited in the Calabria region, whereas the service sector

is oversized, with a share of employees higher than the overall Italian average and also that of

the other Southern regions. Between 1999 and 2008, the industry sector employed about 30%

of the workforce at national level, 25% in the South and only 18.5% in Calabria. In the

manufacturing sector the main activities are food processing, beverage and tobacco.

Conversely, the service sector has a major relevance, with an average share of 71% in Calabria,

against 67% in the South and 64% at national level. The tourism sector is a significant source of

income, with a number of nature parks and a beautiful seaside. More than 10% of Calabrian

10

For inhabitants older than 15 years.

57

59

61

63

65

67

69

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

South Region of Calabria Province of Reggio di Calabria

9

employment is in the agriculture sector, double the national share, which reflects the

difficulties in promoting economic development in the area.

Finally, a wide gap persists between Calabria and the national average in the level of

infrastructure endowment. Both the density of motorway and of railway and the quality of

such infrastructures is significantly below the national average. This gap is long-standing and

has not been reduced since the 1990s, notwithstanding the large public investments that have

occurred.

The Calabrian population possesses a highly fragmented cultural identity. A long and colourful

history has left a linguistic imprint on the region, which is tangible in the number of dialects

still in use, some of them directly descended from other languages such as Greek, Albanian

and French.

A key feature of the cultural and socio-economic context of Calabria is the ancient and deep-

rooted presence of organised crime. The so-called ‘ndrangheta11, a criminal organization

similar to the mafia, strictly organised in ‘families’, has always tried to profit from business

activities in the area, especially those related to the use of public funds12. According to

Eurispes (European Institute of Political, Economic and Social Studies) the business volume of

the 'ndrangheta was estimated at almost EUR 44 billion in 2007, approximately 2.9% of Italy's

GDP13. The main activities are drug trafficking (62%) and commercial enterprise and public

contracts (13%).

The presence of organised crime has always called for large additional public resources to be

invested as accompanying measures for development initiatives, in order to overcome the

problem of a poorly enabling context14.

1.2 STRUCTURAL FEATURES AND SERVICE DELIVERED

The Port of Gioia Tauro, which is classified as a commercial and industrial port15, is a

transhipment port16. The main infrastructure consists of an artificial channel running parallel to

the coastline, with an entrance and an evolution basin, two long quays and a large land area

behind the channel, designated for industrial usage. The total port area corresponds to about

11

The name 'Ndrangheta (pronounced "an-drang-ay-ta") derives from the Greek ἀνδραγαθία andragathía for "heroism" and

"virtue" or ἀνδράγαϑος andragathos, a blend of andròs "man" and agathòs "good", meaning a courageous man. Source: Wikipedia. 12

Evidence in police reports of the presence of this organization in Calabria dates back to the 1880s. They were organized hierarchically with a code of conduct that included omertà – the code of silence - and ritual initiations for members. During the 1970s1970s they were primarily involved in kidnapping, extortion and blackmail. During the 1990s1990s, following the fundamental shift in the drug market from heroine to cocaine after the spread of AIDS, the organization started investing in the international drug trade, mainly importing cocaine from Colombia. It is today one of the world's biggest cocaine traffickers, with business interests in Northern Italy and abroad (Germany, Canada, Australia). At present, it is considered more powerful than the Sicilian Mafia and one of the most powerful criminal organizations in the world. 13

Eurispes, 2008. Report available at: http://www.eurispes.it/index.php?option=com_content&view=article&id=365:ndrangheta-holding-dossier-2008&catid=56:criminalitaesicurezza&Itemid=323 14

The recent FPA for Gioia Tauro includes security measures, and a dedicated FPA for security in the Calabria region was signed in 2008. In the past, the global grant co-financed by the EU was accompanied by security measures benefitting the intermediate body in charge of the grant scheme management. 15

It is classified as category II class I of International relevance (Law 84/1994). 16

Transhipment ports are those where transhipment represents 95% or more of their total traffic.

10

3.5 million square metres, with a channel 220 m wide and 3 km long. The industrial site behind

the port covers an area of 3.6 million square metres.

Box 1.1 WHAT IS TRANSHIPMENT?

Transhipment is a scheme of transport, consisting of disembarking cargo from a large ship (or mother vessel) in an intermediate destination port and then embarking it onto smaller ships (feeder vessels) for onward transport to its final destination. The transhipment hub receives mother vessels from transoceanic routes and distributes their loading to small feeders going to regional ports. This is an apparently simple activity, which however becomes quite complex due to the number of operations and the width of the mother vessels to be disembarked. In 2007 the terminal handled more than three million TEUs and three thousands ships, including some of the world largest vessels. Gigantic cranes, sophisticated equipment and high tech solutions (which translate into high investments) are needed to carry out this kind of activity.

In most cases, the goods in the containers are not cleared through customs in the transhipment hub, but rather in their destination ports.

The objective of the transhipment ports (also called “hub” ports) is to optimise the connections between major and minor ports and gain economies of scale in the maritime transport of goods. As reported by the empirical literature, maritime transport is the most competitive mode of transport at international scale, both in financial and capacity terms. Hsu and Hsieh (2005 and 2007) identify carrying capacity as the main advantage deriving from the use of big ships, as long as it enables the minimisation of the cost of shipping and warehousing. At interregional level, however, more factors play a role in determining the logistic strategies of enterprises, such as the existence of alternative modes of transport (road and rail) and the volume of containers/goods to be delivered (Russo, 2005 and 2010).

Transhipment activity boomed during the 1990s as a result of the increase in international trade following globalisation dynamics, freight containerisation and the need to cut global freight transport costs.

Source: Authors

The project under assessment relates to the concession to a private investor of an existing

dock basin for a container terminal, to be used primarily for transhipment purposes. It does

not directly include all the additional operations (infrastructural investment as well as

industrial development measures) financed in the following years and addressed to trigger

socio-economic development in the broader area of the Province of Reggio Calabria. While

those actions are necessarily part of the story, they are however outside the scope of the

quantitative assessment (Cost-Benefit Analysis). From the point of view of the economic

analysis, however, additional public service activities related to the transhipment hub

operations are considered and are part of the quantitative assessment.

The transhipment activity is carried out on an area of 1.5 million square metres17, on the main

quay (numbered 3 in the picture below) by Medcenter Container Terminal (MCT), part of the

Contship Italia Group, the terminal operator which actually started the operations and

benefitted from the ERDF co-funding.

There is also a car carrier terminal which in 2007 handled 75,000 cars. The terminal is operated

by ICO-BLG Automobile Logistics Italia, a joint-venture between the German BLG logistic group

and the Japanese ICO shipping company, a subsidiary of Nippon Yusen Kaisha. It handles

17

The area on which MCT started its operations in 1994 covered 1.2 million square metres but underwent some enlargements over time.

11

various brands, mostly Asian ones18, and its main traffic flows are with Japan, India, Thailand,

Algeria, Morocco, Libya and Turkey.

Figure 1.3 THE PORT OF GIOIA TAURO AREA

Source: Calabria Region

Some maritime companies are working as suppliers for the terminal operator, providing

additional maritime services such as custom operations, assistance for the loading and

discharging of cargoes, warehousing and distribution. They have a contractual relationship

only with the terminal operator, who maintains the direct relationship with the client and

includes the cost of these additional services in the handling fees.

Although several attempts to develop additional services and economic opportunities have

been made in the past by the Italian public authorities (see the next chapter for further

details), especially addressed towards the industrial sites behind the terminal, at present there

is no industrial development in the area.

1.3 CURRENT PERFORMANCE

In 2007, before the world economic crisis, Gioia Tauro was the premier transhipment hub in

the Mediterranean. It offered 22 intercontinental services, 6 services for North Europe and 28

services for the Mediterranean, among which were 18 feeder services. It was doing business

18

I.e. Mitsubishi, Toyota, Daewoo, Daihatsu, but also General Motors and Fiat.

Harbourmaster and Port Authority

Railway Terminal

MCT container terminal

ICO-BLG car terminal

West quay

Duty free zone

Area for logistic activities

1st

ASI-REG industrial area

2nd

ASI-REG industrial area

12

with 18 different maritime companies and was linked with 49 Mediterranean ports and 174

extra-Mediterranean ports19. The top four shipping companies in the world were clients of the

Port and it had achieved an unsurpassed market position since the beginning of its operations.

At present the port is going through a period of economic difficulties. Its growth rates have

been lower than the Mediterranean average and even lower than the general European

average for the period 2003-2009. Pre-crisis forecasts for transhipment demand indicated

strong growth up to 2015. Other Mediterranean ports (especially Algeciras in Spain, Tangier in

Morocco and Port Said in Egypt) undertook important investments and built or strengthened

transhipment hubs with the help of significant public investments20. On foot of this

competition, made even fiercer by the financial crisis which shrank global maritime trade,

Gioia Tauro lost market share, and in 2010 Port Said and Algeciras ranked first and second as

Mediterranean transhipment hubs. Reasons for this are manifold, mainly related to

competitiveness problems21, which led a number of clients to choose other ports.

As a response to this situation, and with a pivotal role played by the European Commission, an

FPA was signed in September 2010 between the national government, regional and local

authorities with an ambitious strategic objective of re-launching the port and the broader

Gioia Tauro area. The vision of the strategy relies on the idea of developing a Logistics District

and Intermodal platform in order to increase the developmental spill-over effects of the port

and to move the port from a pure transhipment hub to a multi-purpose port. To date the

implementation of the plan has been severely delayed.

While in the first quarter of 2011 the port enjoyed a positive traffic trend, with an increase of

16% compared to the previous year (thanks especially to political instability in the North

African economies), the situation worsened again with the recent decision of Maersk Line (the

world’s leading shipping company and formerly the main client of the Port) to leave the port

starting July 2011, with an expected drop in traffic flows of about 40%. The port has today only

one major client (MSC-Mediterranean Shipping Company) which has also several times

threatened to leave the port. At the moment, the catastrophic outcome of the discontinuation

of port activity altogether is one of the possible future scenarios.

19

Region Calabria (2009). 20

As highlighted by the interviewed experts, Spanish ports, in particular Valencia, Algeciras and Barcelona, grew thanks to their new quays directly linked to the railway system and to the attention paid to the quality of the service supply. On the other hand, the Egyptian Port Said established with success a free trade area that helped it achieve exceptional growth rates (63% in 2005-2007 and almost 32% in 2007-2009). 21

Among the most cited problems: strikes in the port that deteriorated the service reliability, high anchorage fees, complex governance and cumbersome bureaucracy, lack of additional services such as veterinary and plant pathology services (totally lacking now) or Custom House (working hours not adjusted to port activity), and onerous inspection processes.

13

2 ORIGIN AND HISTORY

2.1 BACKGROUND

The story of the port of Gioia Tauro dates back to the beginning of the 1970s, when following

an outbreak of violence in Reggio Calabria in 1970, the ‘Reggio riots’22, as a compensation

measure, it was decided to build a large steel plant, intended to become the fifth Italian steel-

industry centre and meant to bring income and jobs to Calabria (7,500 new jobs were

expected). In order to support the plant operations it was decided to build an artificial port in

the Gioia Tauro Plain, where 700,000 lemon, orange and olive trees were growing and six

hundred farmers were working. The village of Eranova had to be destroyed and 200 families

re-settled.

Huge investments funded by the Cassa del Mezzogiorno23 were undertaken to dig the seabed

and build the artificial channel. The preliminary port comprised a north-south basin parallel to

the coast and approximately 3 km long, with water depths of 12.5-15.0 m. The quay walls were

completed as part of the original project and the land behind them levelled and paved.

The steel plant project was first downsized due to a sectoral crisis (new employment figures

were now of the order of 4,500 new jobs), but when the crisis in the steel industry could be no

longer ignored, the project was abandoned (in 1979) and the port, already constructed,

remained unused.

In the following years several plans for the port’s conversion were scrutinized (including oyster

cultivation and the idea of going back to the original use of olive oil and orange production).

The most promising plan was however the construction of a coal-fired power generation plant

by Enel, the national public power operator, agreed in 1983. It took some time from the

decision to implementation, but finally works for the plant construction were tendered in 1987

and were planned to start in 1990. However they were stopped by the Antimafia High

Commissariat due to suspicions of organised crime involvement in the contracted works.

Although clear evidence of criminal involvement was not found, and the construction yard was

released from seizure, Enel decided not to go ahead with the project.

The infrastructure was inaugurated in 1992 after 18 years of discontinuous interventions and

about 770 billion Italian Lire spent on the works (about EUR 400 million). In the end, the large

coal power plant was never built and Gioia Tauro became a major example of planning failure.

22

The riots exploded after the decision of the central government to locate the regional capital in Catanzaro instead of Reggio Calabria as expected by the Reggio people. 23

A public development agency funded in 1950 to promote industrial development in Southern Italy. It was discontinued in 1992.

14

2.2 FINANCING DECISION

On 3 September 1993 the Italian Government received a request from Contship Italia S.p.A. for

a concession to convert the dock basin into a container terminal for transhipment traffic.

Contship was a Swiss company operating as a global container carrier on the Asian, Indian,

Australian and South American trade routes mainly to and from Europe. It had been founded

by Angelo Ravano in 1968 and in 1970 an agency arm was set up in Milan to take care of

maritime terminal investments and container-related activities in Italy.

Box 2.1 WHO WAS ANGELO RAVANO?

Angelo Ravano was born in 1919 in Liguria, one of the Italian regions with the longest tradition in the shipping trade24. He took over the family shipping business and moved to London in the 1950s to manage the company (‘UK is the shipping homeland’) which was based in Ipswich. At the age of only 35, Ravano was operating in the USA, Canada, South America, Mediterranean, Australia and South Africa, where he traded raw materials, such as coal, wheat, salt and wood. Some years later, thanks to the support of a British banker, his friend, he moved to Lugano and in 1957 he established the Overland Trust Bank. He operated the shipping company and the Bank in parallel for some years.

Less than ten years later, Ravano was among the first entrepreneurs to understand the opportunities of containerization. In 1969 he funded Contship SA, a shipping company for container trade. Contship started to transport containers door-to-door first in the Mediterranean, linking the Port of Marseilles to Casablanca (Morocco)25, but it rapidly grew worldwide. Over the years the group focused on two, interrelated business areas: maritime shipping with Contship Containerlines Ltd and terminal operations with Contship Italia S.p.a. In 1971 Ravano obtained the concession of a small area (a dock 120 m. long) in the port of La Spezia, in Italy, where he started terminal operations. Its service portfolio expanded also into intermodal activities: in 1990 it took control of Sogemar Spa, the most important Italian intermodal transport company. In fact, Ravano had always considered shipping transport to be closely integrated to land intermodal operations, in order to achieve the objective of, according to Contship’s motto, “bringing the ship to the factory”.

In 1993, while flying over the Calabria region, Ravano saw the abandoned port of Gioia Tauro and immediately understood its potential for becoming a transhipment terminal in the Mediterranean, where no one would have taken a gamble before. He therefore asked and obtained from the Italian government the concession to use the port area. His main argument was the vision of the development potential of the port beyond the mere private return: he was convinced Gioia Tauro had the potential to become the ‘Mediterranean gateway to Europe’. He started this new business venture but would never see the Gioia Tauro Port completed and operating. He died of a stroke on 10th March 1994 at the age of 75 shortly after signing the draft agreement with the Italian Government (Protocollo d’Intesa).

Source: Authors processing press articles and interview reports

Under the agreement between Contship Italia and the Government (“Protocollo d’Intesa”)

Contship obtained the concession of 2,450 m of quay26 for transhipment purposes for 50 years,

after which the assets reverted to the Italian Government who leased the infrastructure in

exchange for a fee. On 29 July 1994, a Programme Agreement ("Accordo di Programma") was

signed by the Ministry for the Budget and Economic Planning, the Ministry of Transport, the

Calabria Region and Contship Italia. Contship Italia (or more precisely its subsidiary Medcenter

Container Terminal, MCT henceforth, created specifically for the project) committed itself to

24

The port of Genova, one of the major ports in Europe, is located in this region. 25

One of his first customers was the Italian automotive company FIAT. 26

Out of a total of 4,830 m of quay.

15

invest EUR 110 million27 by 1997 and an additional EUR 38 million by 2001 to be spent on

equipment. In addition it committed to provide by 2001 one million TEU (Twenty-Foot

Equivalent Units)28 of container traffic and 450 new jobs. The national and regional authorities

committed to investing EUR 43 million29 for civil works to adapt the existing infrastructure to

the needs of the transhipment activity. The works financed by public investment included

paving the container yard, plus associated facilities such as crane rails, rendering, lighting

masts, drainage, power and water supplies, fuel tanks, vehicle parking and

telecommunications. The private investor provided mechanical equipment, which comprised

yard cranes, straddle carriers, tractors, reach stackers, forklift trucks, trailers and

communications equipment (computers, etc.).

Furthermore, an application for funding was submitted to the European Commission, And an

ERDF grant amounting to EUR 40 million30 was approved for the project.

Strong arguments supporting the port project were mainly related to the promise of

development for the Calabria region (which was in extreme need in this respect) and the

reliability and reputation of the private investor (as well as its financial commitment), which

was in the position to commit to a traffic target thanks its capacity to dialogue with the key

market players31. At the same time, the port project also raised some concerns, at a national as

well as EU level. At a national level the historical ports (mainly Genoa but also Naples and

Livorno) were worried about possible displacement effects of traffic flows and raised concerns

about the competition distortion effects of public support for an operation that other ports

were trying to implement with private funds only. National and EU public authorities and

shipping companies operating the ports lobbied for equal opportunities. Competition

distortion was also the main concern raised by DG Transport32 during an Inter service

consultation, formally asking DG Regio to further explore the implications of the financing

decision33. In particular, an independent expert opinion34 was required to assess some aspects

of the Cost-Benefit Analysis and the possible repercussions of the financing decision on the EU

maritime transport policy objectives. The conclusions of the independent appraisal35 were that

the financial assistance did not represent unfair competition. In addition, the expertise pointed

that: “The concession fee appears fairly low in relation to the land area involved, local land

prices, and the potential profitability of the concession. It has been designed to recover most of

the State's current investment in civil works over the 50 year concession period, but does not

27

In nominal terms at 1993 prices. 28

The standard measure for containers. 29

In nominal terms at 1993 prices. 30

In nominal terms at 1993 prices. 31

According to a document prepared by MCT to follow up on the state of implementation of the Agreement, in the period 1993-1995, 70 meetings with high level managerial staff of top ranking world shipping companies were held by Contship for commercial purposes (Source: MCT, 1995). 32

DG VII at that time. 33

The official DG Transport request addressed the following questions: Why did the project consider that future competition would be limited to Malta? Why is there a lack of information about critical distances and sailing times for feeder traffic from the two other principal Mediterranean transhipment hubs at Algeciras and Damietta? Why was the risk of competition distortion between Italian ports not considered? Was Contship the only operator approached by the Italian Government? (source: European Commission, 1995). 34

While at the beginning DG Transport suggested asking the EIB to provide the technical expertise, the final decision was to select the experts through a public call for tender, which selected Coopers & Lybrand Ltd. 35

Source: European Commission, 1996.

16

include any rate of return on capital employed. At the same time, it must be recognised that

Medcenter is taking a very large commercial risk, and that a high rate of return on equity

would be quite normal for the level of risk incurred”.

The financing decision of the Commission could not however disregard the concerns on the

possible distortion effects on port competition. The grant had to be notified as State aid and a

condition on the use of funds was also added. Notably, the co-funded investment had to be

exclusively related to the expenditure of the first phase of development and for ten years the

infrastructure had to be solely used for transhipment purposes36 . Otherwise, Italy would have

to pay back, totally or partially, the amount of aid.

According to the project document prepared by Contship (1994a), the economic return on

investment was estimated to be equal to 11.68% and the financial return to 19.60%37. The

marketing objectives stated by Contship were to “attract containers presently transhipped in

ports less competitive than Gioia Tauro and to attract an increase of transhipment market

share in the East Mediterranean (short-term) and in the West Mediterranean (medium-long

term)”. Less clear were the objectives on the public side. Interestingly, among the key contents

of the Programme Agreement there were the following aspects:

The objective was to “implement significant interventions aimed at solving some of

the serious economic and employment problems in the province of Reggio Calabria

and in particular in the Gioia Tauro area” (Art.1). Specific objectives were not only to

implement the transhipment terminal but also the planned power plant and additional

port-related activities to be localized in the industrial area.

The port was from the start characterized as a multi-purpose port, where the

container terminal was one among a set of broader possible interventions aimed at

promoting economic development in the area. In particular, there was the

requirement on Contship to leave part of the quay for uncontainerized freight and for

Ro-Ro38 haulage.

In order to manage the port services it was planned to set up a private agency with a

promotional mandate.

At the start-up of the terminal operations Contship benefitted from additional public support

in the form of:

An ESF grant of EUR 11 million to train 560 people, among which 462 were

employed39,

36

There were no other significant transhipment port in the Mediterranean sea at that time, except Malta which was not part of the EU at the time. 37

However, the methodology used for the ex-ante cost-benefit analysis is not fully in line with the methodological requirements of the EC Guide (European Commission, 2008). 38

Roll-on/roll-off: ship designed to carry rolling-stock cargo which does not require cranes to be loaded or off-loaded but is driven on and off the ship's decks. These include for example car carriers like the ones operating in the ICO-BLG terminal in Gioia Tauro. 39

10,084 applications (of which 10,044 were from Calabria) for the training course were received. An initial screening was made with electronic tools on a number of eligibility criteria (age, typology of diploma, etc.) out of which 2,100 applicants were

17

A special agreement (“contratto d’area”) between the State, the Trade Unions and

MCT under which the national government financed a share (20%) of the employment

costs in order to guarantee an additional financial incentive to the terminal operator in

the initial phases.

Figure 2.1 GIOIA TAURO PORT: BEFORE AND AFTER THE PROJECT

Source: MCT

For the purpose of complying with the initial plan of one hundred weeks to complete the

works (the main incentive to keep in line with the timeplan was competition from the Maltese

port which was also investing in transhipment, and time and reliability was a critical factor to

attract clients) it is reported40, but not confirmed, that Contship started the development of

the “hub port” largely at its own expense, also anticipating a large share of the public funds

(both national and EU) which experienced delays due to administrative issues. This left the

company financially exposed to high risks and had some effects on later company strategy (see

Section 4).

Although the works would only be completed in 1998, in September 1995 the first ship

entered the port. It was the Concorde of Contship Containerlines41. Infrastructure works were

finished on time thanks to additional private resources, and the Harbourmaster’s Office, the

Custom House and the Port Authority were established.

2.3 START UP AND CONSOLIDATION OF THE TRANSHIPMENT HUB

The Contship plans proved to be realistic and underpinned by a thorough understanding of the

shipping market context and development scenarios. In the 1990s maritime freight traffic was

undergoing a structural change at the international level brought about by freight

containerisation. At the same time globalisation dynamics emphasised the importance of

maritime traffic in the Mediterranean for manufactured goods coming from the Far East to

European markets: since 1988 the Mediterranean container market has had an average annual

interviewed. 763 were deemed suitable to take part in the professional training but 200 of them gave up. The full independence and autonomy of Contship against local influences in the employment procedures raised local protests and led even to parliamentary questions for clarifications (Source: Munari, 1997). 40

In different press articles, however this information is not completely in line with the reported amount of private funds in the Final Report of the major project, dated 1998, which reports only 84.4 million Euro of investment made. 41

In 1997 Contship Containerlines was acquired by CP ship, a large Canadian container shipping company, prior to being taken over by Hapag Lloyd in late 2005. The implication of this is discussed in the following sections.

18

growth rate of 10.5%42 and Mediterranean traffic share of total European traffic rose from

25.8% in 1993 to 31.4% in 199543.

Figure 2.2 WORLD CONTAINER PORT THROUGHPUT 1972 - 2007

Source: International Bank for Reconstruction and Development, 2009

Gioia Tauro is located in the middle of the Mediterranean, with only a minor deviation from

the route connecting the Suez Canal to Gibraltar, one of the busiest maritime corridors in the

world connecting East Asia to Northern Europe and America. Moreover, the very deep seabed

and the availability of a wide dock to be used for handling operations made it suitable for very

large container ships and transhipment activities. In Italy, container traffic increased from 2.31

million containers in 1993 to 4.82 million containers in 1997 (+108%) and Gioia Tauro reached

a market share of 29%, quickly overtaking Genoa which remained at 24% over that period44.

After only ten months after opening, the level of traffic at Gioia Tauro rose above even the ex-

ante forecasts and traffic and employment targets were achieved earlier than foreseen (1997

rather than 2001). It soon became the premier transhipment hub in the Mediterranean.

Figure 2.3 GIOIA TAURO AS MEDITERRANEAN HUB

Source: MCT

42

Source: European Commission (1996). 43

Bruno Dardani (1996). Mediterraneo alla riscossa, in Il Sole-24 Ore, 23 May 1996. 44

Committee for the Coordination and Development of the Gioia Tauro Area, 1997, p. 8.

19

In the meantime, the newspapers began to spread this positive news story, and the

expectations of the people of the Calabria region were extremely high. The port of Gioia Tauro

was of interest to the main shipping companies for four key reasons. To start with its central

position in the Mediterranean and proximity to the main Suez-Gibraltar sea-route made it an

ideal transhipment location for companies wishing to make only one call in the Mediterranean.

Secondly, it had the depth of water, land-side infrastructure and mechanical equipment

required to support large scale transhipment operations. Thirdly, it was able to offer

competitive prices because it took advantage of the previously-built facility whose costs had

already been written off. Last but not least, it was being operated by an experienced and

highly skilled management team committed to providing a quality service45.

Box 2.2 PORT TYPOLOGIES

The hub-and-spoke system changed the port hierarchy and inter-port relationships. It distinguishes between different typologies of ports:

- Transhipment hubs: they are located closed to the main maritime routes and specialise in transhipment activities. They are usually ‘pure transhipment’ ports and differ from the other ports in terms of infrastructure (depth of seabed, length of quays) and structural characteristics (big cranes, large docks, no warehouses needed). Pure transhipment ports in the Mediterranean are: Gioia Tauro (Italy), Cagliari (Italy), Taranto (Italy), Algeciras (Spain), Marsaxlokk (Malta), Port Said (Egypt) and Tangier (Morocco)46.

- Gateway ports: They are close to final destination (customers) and have excellent connections with the hinterland. Usually they are served by direct calls. They are typically the Northern European Ports (Rotterdam, Hamburg, Felixstowe, etc.).

- Regional ports: Similar to gateway ports but on a regional scale, they are served either by direct calls or by feeder. Examples are Genova, Barcelona and Marseille.

Source: Authors

In the original plans it was recognised that Gioia Tauro also had the opportunity to become an

intermodal centre where containers could have been loaded (and unloaded) not only on ships,

but also on trains and trucks, to reach their destination markets in Italy and Europe. This

opportunity, which other transhipment ports (such as Malta) do not have, was clearly in

Ravano’s mind and that of the Italian authorities when the Programme Agreement was signed

and contributed to raising expectations for the port. While road transport is the most

affordable way to connect Gioia Tauro to the neighbouring Southern regions, railways are

more appropriate for longer distances in terms of cost47. In the early years of port activity, the

45

In the 1999 EC Final Implementation Report for the period 17.8.1994-31.12-1998 stated that “the results and the international actors in the sector confirm the positive assessment and the confidence about the terminal, which is more and more considered as a strategic port at the global level. The constant growth of traffic volumes and number of ships requires, almost continuously, the purchase of additional equipment and the recruitment of additional employees. […] The co-financed investment by the European Commission succeeded in promoting the take-off of an auto-propulsive development that produced, as an additional effect, acceleration of the growth rate of the port” (European Commission, 1999a). 46

According to Eurispes in 2008 market shares were as follows: Gioia Tauro 24.2%, Algesiras 23.2%, Port Said 22.3%, Marsaxlokk 16.3%, Tangeri 6.4%, Taranto 5.5%, Cagliari 2.1%.

(Available at: http://www.eurispes.it/index.php?option=com_content&view=article&id=1503:cagliari-gioia-tauro-e-taranto-60-milioni-di-euro-in-5-anni-per-salvare-piu-di-9000-posti-di-lavoro-a-rischio&catid=40:comunicati-stampa&Itemid=135). 47

Transporting one container to Milan costs approximately 680 Euro by train and 1,250 Euro by truck. By contrast, railway transport costs to Naples are slightly higher than for truck, amounting respectively to 530 Euro and 450 Euro (C-Log, 2008).

20

volume of containers handled by land grew, and from 4% in 2003 it reached 5.5% in 200648;

currently it remains at 4%.

Figure 2.4 TRAFFIC FLOWS (TEU’S/Y) IN THE MAIN MEDITERRANEAN TRANSHIPMENT

PORTS

Source: Authors processing Containerisation International

Despite the excellent start, Gioia Tauro failed to maintain and reinforce its leading position

over the years, perhaps relying too much on its outstanding geo-physical characteristics (depth

of the seabed, length of the quay, strategic central position). Transhipment demand is

however extremely volatile and the shipping market, although fragmented, is dominated by a

few major companies49 who change their strategies quite quickly to react to context and

market developments50. One observed trend in company strategies is to directly invest in

container terminals which then they operate themselves (often in a monopoly position), as for

example the Korean Hanjin in Turkey.

48

Data provided by Calabria Region. 49

The continuous need for high and risky investments (for example for the purchase of ever larger ships) facilitates market concentration dynamics. For example, Maersk recently acquired some of the historic maritime operators such as Sea Land, CMBT, Safmarine, P&O Nedloyd (Source: MCT). 50

It was reported for example by some interviewees that, after the financial crisis in 2009, shipping companies decided to no longer cross the Mediterranean Sea but to circumnavigate Africa, as in the past, in order to save the cost of navigating the Suez Canal.

1000

1500

2000

2500

3000

3500

4000

2001 2002 2003 2004 2005 2006 2007 2008 2009

Port Said Algeciras Gioia Tauro Marsaxlokk

21

Box 2.3 COMPETITIVENESS FACTORS FOR TRANSHIPMENT PORTS

A vast number of factors may influence the shipping lines’ and the cargo owners’ decision regarding which port to call to. They can be referred to under three broad typologies: port’s physical characteristics, geographical location and management of the terminal and services offered. A list of them, based on findings derived from the literature, is provided below.

Physical characteristics:

- Length of quays;

- Draft;

- Terminal area and yard capacity;

- Number of cranes;

- Yard equipment (number of straddle carriers and reach stackers);

- Monitoring and tracking systems.

Geographical location:

- Closeness to the main shipping routes;

- Connection to the motorway and railway networks;

- Closeness to the destination market.

Organisation and management of the terminal and services offered:

- Information systems sea/land;

- Safety of the cargo: possibility that the cargo gets lost or is damaged in the course of the port operations;

- Security of the cargo: quality of control of containers.

- Personnel costs;

- Anchorage fees and other taxes;

- Productivity of the terminal operators and other agencies, administration and companies operating in the port;

- Opening time of the port administration and services;

- Cut-off time: average and maximum time between the discharge of the last containers and the ship’s departure;

- Average waiting time to transfer the container from one mode of transport to another;

- Average waiting time for the incoming ship before starting the unloading/loading operations;

- Slotting availability: possibility of reserving a slot of time to carry out the unloading/loading operations;

- Existence of industrial activity nearby the port;

- Existence of a duty free zone;

- Effective promotional activity and focus on customers;

- Flexibility: possibility of changing reservations because of delays or other problems and of influencing the departure time of trains.

Source: Authors processing research literature and interview reports

As confirmed by sector experts interviewed, in this context a key competitive advantage, more

than the geo-physical characteristics of the infrastructure, is the quality and reliability of the

service provided, not only by the private operators but also by the additional public actors

providing ancillary services. A vital success factor is thus the capacity to maintain high

productivity levels in order to cope with competition from other emerging ports and develop

proactive commercial strategies aimed at medium-term agreements with shipping companies,

in order to stabilize traffic flows in the medium run. This is also helpful in undertaking

necessary investments (larger cranes, expensive maintenance of equipment, information

22

technology and automation tools) without being too exposed to a high risk of future demand

downturn.

The competitiveness problems of Gioia Tauro should be placed in the wider context of the

Italian port system, characterized by a lack of a unique development strategy at national level.

As a recent report by the Bank of Italy51 underlines, the entire Italian logistics sector has

competitiveness problems due to a fragmented and poorly integrated system of small

operators, which limits the scope for economies of scale and translates into high operational

costs (see section 4.4.2 for further details).

In 2009 the four top international operators held almost 40% of the global market: APM-

Maersk (14.4%), MSC (12.3%), CMA-CGM (8.2%), Evergreen (4.2%)52. Initially they were all

clients of Gioia Tauro but over the years they tried to develop their own terminals. For

example, Evergreen decided to move to Taranto53 (Southern Italy, Apulia region) and now

holds a 40% share of the terminal container traffic there54, CMA-CGM moved to Malta55 and

Maersk is investing in Port Said and recently decided to move all its ships there for

transhipment purposes. As of today MSC is the only major client of Gioia Tauro56.

At the same time terminal operators have also a role to play in the global shipping market and

Contship has widespread strategic interests all over in the Mediterranean, not only in Gioia

Tauro. Moreover, as was also pointed out by some of the interviewees, in 2008 Contship itself

decided to move the traffic of Grand Alliance57 from Gioia Tauro to Cagliari (a transhipment

port in the Sardinia region also operated by Contship) 58.

51

Banca d’Italia (2011) 52

Source: MCT. 53

Interviews reported that, before moving to Taranto, Evergreen actually asked for a concession of a port quay portion in Gioia Tauro, but MCT raised some concerns about possible problems of canal congestion. MCT however did not confirm this. 54

According to recent news however Evergreen is now moving from Taranto to Pireus port (Source: http://www.trasportoeuropa.it/index.php?option=com_content&view=article&id=5775:evergreen-lascia-taranto-per-il-pireo&catid=14:marittimo&Itemid=71). 55

After having asked for a concession in Gioia Tauro also. 56

The Italian authorities recently entered into negotiations with MSC in order to obtain an agreement for an increase in its traffic flow in Gioia Tauro in the future (Source: press conference Mr. Scopelliti, President of the Region Calabria, 07/07/2011). 57

A shipping company consortium made up of Hapag Lloyd, Misc, OOCL and NYK. 58

It was reported by some interviewees that political pressures from the President of the Sardinia Region to boost the Cagliari port were a determinant in influencing this strategic choice.

23

Figure 2.5 MARKET SHARES IN THE MEDITERRANEAN PORTS

Source: Booz Allen Hamilton (2008)

In addition, intermodal transport did not take off. In 2007-2008 rail traffic volumes fell:

although the existing infrastructure allows up to 10 couples of trains per day, currently less

than 5 couples of trains enter or exit the terminal each day. According to technical studies59

and interview reports, this is mainly due to infrastructural limits in the Italian (especially

Southern) railway system60, managed by Rete Ferrovie Italiane (RFI) and in the railway

connection between the MCT terminal and the national railway network, which prevent the

infrastructure from being fully exploited61. Besides infrastructural constraints, the reduction in

port business also contributed to decreasing the demand for intermodal transport62.

In 2008 Gioia Tauro definitively lost its leading position in Mediterranean transhipment, but as

early as 2004 it was already growing at a slower pace than its competitors. Competitiveness

problems in the Gioia Tauro port have to do with labour costs63, productivity64, public services

and taxes65, and reliability of service.

59

C-Log (2008). 60

Too small tunnels, lack of electrified rails or double tracks, especially in the Southern regions, are not suitable for long freight trains carrying almost 3 m. high containers (the modern ‘High Cube’ containers). 61

The radius of curvature of half of the existing of tracks is too small and not suitable for long freight trains. Hence, only half of the existing rail lines are operational. 62

It has been pointed out by interviewees that Grand Alliance was the shipping line that mostly used the railway gateway. 63

According to Eurispes (2010), the average hourly cost of a transhipment worker in 2009 is EUR 22.1 in Italy, EUR 3.1 in Morocco and EUR 1.9 in Egypt. Similar differences are experienced in case of white-collars costing EUR 22.9 in Italy, EUR 10.1 in Egypt and EUR 7.9 in Morocco. 64

As a matter of example, productivity level of cranes (in terms of crane moves per hour) is 23 in Gioia Tauro as compared to an average of 30 in Mediterranean ports and a range between 27 and 32 in international container ports (Source: C-Log, 2008; IBRD, 2009; and UNCTAD,2010). 65

In Gioia Tauro the total cost of calling on the port (including anchorage tax, piloting, towing and mooring) is 25% higher than in Port Said and 500% higher than in Malta (Source: Eurispes, 2010).

24

Due to the severe traffic fall in the period 2008-2009 shipping companies focussed increasingly

on cost saving strategies. North African ports are more competitive in terms of labour costs

and taxes. Some actions were undertaken to cope with this source of disadvantage. MCT

applied to benefit from a cut in labour social security costs, as already applies to coastal

shipping. Also, anchorage tax was temporarily suspended by the Port Authority (although

other Mediterranean ports did the same).

However, even more important than cost is the level of productivity and reliability of the

services (frequent strikes have been recorded in the recent past with industrial relations

deteriorating as a result of traffic loss).

The Columbine Maersk, a large container ship, was due to call at Gioia Tauro in Calabria on February 9th on its way from Tanjung Pelepas in Malaysia to Algeciras in southern Spain. But the Italian port was paralysed by a three-day strike, so the ship called instead at Valencia. Container vessels on which much of the world’s trade depends have tight schedules fixed months in advance, and such disruptions are costly to the businesses affected. In the short term the Calabrian port lost around €150,000 ($195,000) of revenue from the diversion of the Columbine Maersk. But the ultimate damage may be far greater. “Shipping lines require reliable ports and will sail their ships elsewhere if a port is not reliable”, says Cecilia Eckelmann Battistello, managing director of Contship Italia, Gioia Tauro’s operator.

Source: The Economist, Febr. 22, 2007

Moreover, the efficiency of additional port services other than the pure transshipment

terminal is also a key factor influencing port competitiveness. For example, despite the fact

that the transshipment terminal is working 24 hours per day seven days per week, other port

services are not aligned with this and operate to standard working hours. This means that, if a

ship arrives on Friday evening, it may need to wait until Monday morning for some key

procedures such as customs checks. This is a serious constraint in a business where time lost

translates immediately into higher costs. Another example relates to the lack of a number of

important services, such as a sanitary laboratory, which is needed for specific categories of

goods (such as fish). Productivity is also influenced by the ICT facilities available in the port (in

Gioia Tauro for example there are no broadband facilities).

On a global level, between 2005 and 2015 UNCTAD (2010) forecast an annual growth rate for

global container trade volumes of 7.6%, compared to 9.5% per annum between 1987 and

2006. Even more positive were the forecasts for Mediterranean transhipment demand, which

was expected to grow from 34 million containers in 2006 to 60 million in 2015 according to

Ocean Shipping (2006).

As a consequence of these expectations a huge amount of money was planned for investments

in the period 2005-2008. On one hand, ports either committed to expand and consolidate their

capacity and service supply by developing inland connections (as for example in Algeciras), or

offered competitive prices (as for example the establishment of a free trade area in Port Said).

25

On the other hand, shipping companies boosted their order books by increasing their fleet

capacity with larger and larger ships66.

The recent financial crisis saw a dramatic contraction in global traffic flows67 and this has

exacerbated port competition and the need for high productivity levels (which translates into

cost savings for shipping companies) in the Mediterranean ports. Moreover, according to

sector experts, the financial crisis totally changed the modus operandi and vision of the

shipping companies on transhipment, so that it is difficult at this moment to forecast future

development in the global market (for more details see the CBA technical note, in Annex II).

To sum up, competitiveness problems in the port of Gioia Tauro as compared to other

Mediterranean ports can be attributed to a mix of different causes, namely:

a global negative trend which exacerbates volatility of transhipment demand and

competition between Mediterranean ports;

a systemic weakness in the Italian port system characterised by fragmented regulation

and a lack of integrated planning;

regional infrastructural gaps, especially as concerns the railway network and ICT

facilities;

productivity and efficiency difficulties in administrative and management processes.

The current situation of the transhipment terminal in Gioia Tauro is critical. A potential

response is the FPA signed in 2010, which is discussed in the next section.

2.4 SOCIO-ECONOMIC DEVELOPMENT OF THE BROAD GIOIA TAURO

AREA

Since the beginning of the project it was clear to national and EU public decision-makers that

the transhipment terminal would not generate, per se, a positive impact on the area in terms

of economic development, unless a number of conditions were in place. These conditions were

related in particular to the strengthening of infrastructures (railway and development of an

intermodal terminal) and other softer interventions (in particular grant schemes for private

companies) in order to capture a larger share of goods going through the port, by offering

other services (inland transport) or attaching segments of the supply chain (primary processing

of raw materials and/or semi-finished products, assembly), which could generate value added

within the territory. The awareness that the development potential could be fully exploited

only by making the port part of an integrated strategy intended to amplify the spillover effects

on the territory is reflected both in the European Commission Expertise sur le grand project

66

The trend is confirmed by the recent orders by the shipping companies, some of which have also “unlocked” orders for large mother ships previously suspended due to the economic crisis. In 2015 new ships of 18,000 TEUs are expected to enter the market (Source: experts interviewed). 67

Using UNCTAD (2010) words: “The year 2009 witnessed [...] the sharpest decline in the volume of global merchandise trade. In tandem with the collapse in economic growth and trade, international seaborne trade volumes contracted by 4.5% in 2009. While no shipping segment was spared, minor dry bulks and containerized trade suffered the most severe contractions”.

26

(1996)68, and by the opinions of local actors reported in the press69, as well as internal

documents of the Italian Government70.

In this vein, since the beginning of the project, works closely connected to the port have added

a number of other publicly funded interventions aimed at creating conditions for the

development of ‘the broad area of Gioia Tauro’. Many respondents pointed to, among all the

studies and proposals made before the current FPA, the actions of the Prodi government

starting in 1997 as the most serious attempt at wider development, even if it failed (see

below). Interventions were aimed at diversifying the port of Gioia Tauro and, above all, the

industrial zone behind it, by making it a driving force for local development.

In 1997, following a request by the EU a Master Plan was prepared. Its implementation was

assigned to the "Committee for the Coordination and the Development of the area of Gioia

Tauro71".

As reported in the 1997 dossier filed as a policy memo for President Romano Prodi, the local

development strategy outlined in the Master Plan included the following interventions: a

railway link between the port and the Rosarno rail station; the improvement and upgrading of

the road network; the creation of an intermodal transport system; a maritime link between

Gioia Tauro and Milazzo in Sicily (Ro-Ro traffic); the implementation of a plan for industrial

development (to be supported according to the law 488/92); additional infrastructure

investments and the establishment of a free trade zone. An important point taken up by the

Master Plan was the use of a promotion company for the establishment of businesses in the

area72. This role had already been foreseen in the 1993 Agreement for a promotion company

aimed at implementing or facilitating industrial development in the area73. The Coordinating

Committee, however, failed to implement the Master Plan because of, according to analysts,

weakness of the governance structure74.

Under this framework, an application for a Global Grant was submitted by the local authorities

to the European Commission. In 1998, the EC approved the application, aimed at supporting

the creation and development of Small and Medium Enterprises (SMEs) in the crisis-area

around Gioia Tauro75 mainly through a system of financial aids accompanied by guidance

68

“Although it carries some risks, the Gioia Tauro container terminal appears a sound, well managed project with some spin-off potential. However, positive action will be required to ensure that the regional benefits identified in this report materialise. We believe that the ERDF has an important long-term role to play in the Gioia Tauro area in ensuring that the necessary actions are taken”. European Commission, 1996. 69

Source: Press release from DG REGIO archive. 70

“By 2003, making all the necessary investments (1,119 billion Italian Lire for the period 1998-2003), it will be possible to reach an employment level of about 2,800-4,000 employees through direct effects and a level of about 6,250-9,500 employees through induced effects” from Committee for the Coordination and the Development of the area of Gioia Tauro, 1997. 71

Established by D.C.M. 14.12.1997 72

To perform these tasks, the company had coordinating powers over both the ASI-REG Consortium for the Industrial Promotion of the Province of Reggio Calabria, and the Port Authority that was being established. 73

This company was actually established in 1996 with capital of one billion Lire, shareholders being the Province of Reggio Calabria, ASI-REG, business association of Reggio Calabria, Fincalabra SPA, SPA Itainvest. The governance to implement and promote development was to have been entrusted to this company, however no evidence of its active role is available. 74

At the local level provincial and local municipalities complained of not having been sufficiently involved in its preparation, however the reality of conflicting, sometimes vested, interest is much more complex (see Section 4). 75

The grant (about 20 million ECU) covered the period 1997-1999 and it was part of the priority axis concerning "Industry, crafts and services" outlined in the National Operational Programme for the regional economic development of the Mezzogiorno.

27

measures. The plan also included support for project management and monitoring, promotion,

information and territorial marketing activities. The anticipated impact on employment was

the creation or safeguarding of at least 450 permanent jobs through the launching of 35 new

initiatives and the equipping of some 25 hectares with facilities for SMEs.

In addition to the Global Grant, national instruments for industrial promotion (in particular

Law 488/92) were also used to facilitate the location of new enterprises linked to the port

activity. The executing agency was the Consortium for the Industrial Promotion of the Province

of Reggio Calabria (ASI-REG), which had competence over the industrial zones areas and

responsibility for deciding the allocation of lots.

At the beginning of the port operations there was strong enthusiasm on the ground and

willingness on the part of the business community to take advantage of this opportunity. The

presence of financial incentives to locate firms in the area behind the port encouraged much

entrepreneurial activity, however often lacking a precise strategy and expertise (the list of

enterprises operating in the Gioia Tauro areas is included in Annex IV). In fact, unlike the

historical ports, the Calabria entrepreneurial class with few exceptions76 lacked the necessary

know-how for maritime-related activities.

Notwithstanding several attempts over the years to facilitate the promotion of new businesses

(one of these involving attracting specialised firms from Northern Italy), most of these failed77.

One success story of the Global Grant is ICO-BLG Logistics, the other terminal operator at the

port, which obtained a grant in 2001 and applied for a concession for the ro-ro quay for car

carrier activity78. C-Log (2008) reported that the surviving businesses have no or only a weak

link to the port activity: “out of the 36 companies located in the Gioia Tauro area, less than 10

carry out logistic activities […] and only 4 are located inside the port area”.

It has been indicated that a constraint on business creation is that, as Gioia Tauro is an artificial

port, unlike the historical ports (such as Naples or Genova), the territory totally lacked the

entrepreneurial capacity and know-how to develop business opportunities linked to maritime

traffic. Therefore the strategy was in particular aimed at attracting entrepreneurs from the

North in order to bring in know-how from outside the territory.

Judiciary evidence and press articles pointed to some complaints from local entrepreneurs of

poor transparency and excessive bureaucracy in the allocation of locations in the industrial

area. At the same time ASI-REG believes that industrial promotion tools were not suited for

the purpose since they did not address the actual constraints on the development of the

industrial areas, such as:

76

These companies are currently suppliers and contractors of Medcenter. 77

Interviewees point out that most businesses left the area as soon as the public funds were discontinued. No precise data and official sources are available on this issue. 78

ICO-BLG was a joint venture by the Contship Group with a Japanese operator and some of the interviewees pointed that this was actually a smart move by Contship to, on the one hand obtain public funds to start a new operation and, on the other, to artificially create another terminal operator to ease concerns about its monopolistic position. The current Managing Director of ICO-BLG is a former manager of MCT, the two companies share the same office building, and the relationship between the two companies seems quite good.

28

the monopoly position of MCT, which does not allow other operators to expand port

activity;

the focus on transhipment which, by nature, is not suited to trigger positive spillover in

the territory; and

the lack of a strategic and integrated approach to the development of the whole area.

While the first two aspects undoubtedly played a relevant role, the interpretation suggested

by the current analysis points in particular to the third aspect as the key determinant of the

lack of significant and relevant industrial development (see Section 4 for more details).

Organised crime also played a role in limiting the economic development of the Gioia Tauro

area. Evidence from interview reports, press articles and judiciary reports confirms that

organised crime has a strong interest in and influence on the port and port-related activities

and that its pressure hampered the implementation of the business initiatives. Forms of

influence on and interests in the Gioia Tauro port are manifold, from the request of a ‘fee’ to

MCT, to the control of and interference in manpower selection and service firms selection.

More details on this issue are presented in Box 2.4.

Box 2.4 THE ROLE OF ORGANISED CRIME

Since the internationalization of ‘ndrangheta activity in the 1990s went in parallel with the construction of Gioia Tauro, it is likely that organised crime enjoyed a bonanza as a result of the port operations.

As regards the relationship of MCT with organised crime, press articles indicate that from the beginning, the Piromalli family, the most influential in the Gioia Tauro area, asked MCT to pay a kickback of US$1.50 for each transhipped container as a sort of ‘security tax’. MCT declares that this was actually reported to the authorities and thanks to MCT legal actions have been taken against the Piromalli family. Again, a 2008 report of the Parliamentary Investigative Commission on Organised Crime, Mafia and Similar Organizations records an alleged agreement between Ravano and organised crime79. MCT strongly denies these allegations, which it considers libellous, and in an official note80 responded to the statements made in this report by recalling the numerous notifications and support provided by MCT to the judiciary powers to obstruct organised crime. As a matter of fact, no judiciary evidence exists pointing to the alleged agreements between MCT and organised crime.

It is also worth remembering that Ravano died before project implementation, and the management team involved in the start-up phase managed the initial recruitment process in a transparent and professional way81, without yielding to pressures from local politicians and trade union representatives82.

A different means of influence has materialized in terms of direct control over the container traffic. The 2008 report of the Antimafia Commission concluded that “the ‘ndrangheta uses the facility as a base for illegal trafficking”. In particular, the Commission maintains that the port is involved in the trafficking of

79

“The subordination of Contship Italia and of its founder Angelo Ravano to the ’ndrangheta has already been clear since the initial phase of the project, because Ravano wanted to realize his business project without obstacles and interference. Thus, he showed that he was considering the mafia organization not as an enemy of free economic initiative, that must be stopped and denounced, but as a reliable actor necessary to protect and ensure the implementation of his business project. The process about the issue, which ended in 2000, showed that the realization of the most important political/industrial investment ever conceived for the South of Italy had been preceded by a preliminary agreement between Contship and the mafia families of the Piromalli and the Molè from Gioia Tauro and Bellocco – Pesce di Rosarno, that were, but still are, dominant in the area around Gioia Tauro and were associated in a cartel led by the boss Piromalli” Italian Parliament, 2008. 80

Contship Italia Group and Medcenter Container Terminal, Official Note, 3 March 2008. 81

Involving two large consultancies from Northern Italy specialising in recruitment activities. 82

Reported in Munari T., 1997.

29

arms and it is a strategic entry point for international drug trafficking to the point where, according to media reports83, investigators estimate that most of the cocaine coming from Colombia reaches Europe through Gioia Tauro84. The illegal trafficking is confirmed by the huge amounts of drugs confiscated in the port during various law enforcement operations, as quoted by the press in recent years85.

The report goes further, claiming that “the entire gamut of internal or sub-contracted activities is mafia-influenced, from the management of distribution and forwarding to customs control and container storage”. Consequently, “it actually eliminated legitimate competition from companies not influenced or controlled by the mafia in providing goods and services, performing construction work and hiring personnel.”

Legal actions were undertaken by the judicial powers, the most important ones being the ‘Porto’ and ‘One hundred years of history’ (Cent’Anni di storia) trials, which actually focused on the ‘ndrangheta influence over the port activities. During the trials criminal families gave evidence of having made a strategic choice to participate with “controlled” enterprises to the development of the wide area, obviously with the additional aim of enjoying public facilitation of their activities. Among the enterprises located in the industrial zones aided by public grants, 13 (35%) were traced back to people directly linked with mafia organizations and in 8 (20%) there were members somehow associated with people linked with criminal organizations86. It is worth noting that, the final sentence of the ‘Porto’ trial obliged the ‘ndrangheta families to pay compensation to indemnify the municipality of Rosarno for economic, moral and reputational damages. The sentence somehow recognizes that organised crime has been detrimental for the economic development of the area.

Source: Authors

Additional initiatives to boost economic development in the area included the establishment

of a free trade zone, a modal shift platform and a cooling platform for food, but none of these

was actually implemented. As a matter of fact, logistics activities and intermodal services did

not materialize (only 5% of the total containers use modes other than feeder to reach their

final destinations87), and this was also the case with industrial activities. The industrial areas

are currently almost empty and in most of the existing sheds no activities are being carried

out. One of the few companies undertaking logistics activities linked to the port and using the

railway is an Austrian wood company, GICOS, distributing goods from China.

A further, recent attempt was made in 200788 with the appointment of a special Commissioner

of the Government for the preparation of a multi-annual plan for the development of the port

and the broader area of Gioia Tauro. Even though the Commissioner was not able to launch

any intervention, he did outline a strategy for development, relying mainly on logistics and

intermodal transport89. A key point of the strategy is once again addressed at the governance

mechanisms, for which it indicated that a strong structure, entrusted with promotional

activities and able to go beyond local interests, and also supported by high level international

sectoral expertise, would be necessary to implement the strategic priorities.

83

See for example The Guardian, December 19, 2006. 84

However, according to a report by Europol, the European gateway for cocaine is Spain (Source: EMCDDA/ Europol, Lisbon, April 2010). 85

For example see http://www.corriere.it/cronache/11_marzo_19/gioia-tauro-sequestro-cocaina_b8d92c98-5215-11e0-a034-1db210fa1eaf.shtml; http://www.levanteonline.net/cronaca/italia/2886-sequestro-record-di-cocaina-purissima-nel-porto-di-gioia-tauro-.html; http://www.mediterraneonline.it/2010/02/23/maxi-sequestro-di-cocaina-a-gioia-tauro/. 86

Source: Parliamentary annual report on ‘ndrangheta (Italian Parliament, 2008). 87

Because the current characteristics of infrastructure (not suited for ‘high-cube’ containers, shape of the galleries, radius of curvature in some rail sections) and of the service offered (in particular high tariffs) still make the use of feeders less expensive. 88

Prime Minister Romano Prodi. 89

The strategic priorities have been identified in the "Strategic Development Plan" prepared by Booz Allen Hamilton (2007), on behalf of the Commissioner.

30

The Strategic Plan was a key input to the draft of the Framework Programme Agreement which

entered into force in September 2010, after some delays. Priorities of the FPA are the

following:

Maintain leadership in transhipment.

Implement an excellent intermodal system.

Create conditions for the establishment of large national and international logistics

operators through the implementation of the Integrated Logistics Centre.

The FPA includes actions (infrastructural and non-infrastructural) with committed or planned

funds. Financing for the operations total EUR 459.9 million.

Table 2.1 COMPOSITION OF INVESTMENTS ENVISAGED IN THE FRAMEWORK

PROGRAMME AGREEMENT

Stakeholder Euro Share

Port Authority 80,950,000 17.60%

Calabria Region 73,450,000 16.00%

Ministry for Economic Development 25,000,000 5.40%

RFI (national railways operator) 280,500,000 61.00%

Total 459,900,000 100.00%

Source: Ministry of Economic Development et al. (2010)

As shown, most of the resources are allocated to co-finance RFI investments, which are aimed

at solving the infrastructural problems of the railway network that limit the intermodal

potential of Gioia Tauro. These investments are expected to lead to an increase in traffic

volumes carried by train in future years. Public stakeholders are placing great hopes on the

implementation of the FPA with regard to the development of the Gioia Tauro area and this is

particularly true for the Calabria regional Administration. As of today, only a few minor actions

of the FPA have been implemented90.

90

For sake of completeness, it has to be noted that many interviewees are skeptical and believe that RFI is unlikely to implement all the foreseen activities by 2015 (year of decommitment of EC funds).

31

3 LONG-TERM DEVELOPMENT

EFFECTS

In what follows a discussion about the main long-term effects produced by the project are

presented and discussed. First, a summary of the effects produced along the seven

categories91 identified in the First Interim Report are briefly reported. Then, the most

significant ones are discussed and further evidence provided.

3.1 KEY FINDINGS

Evidence shows that in terms of effects on socio-economic development and quality of life, the

port of Gioia Tauro produced mixed results. In fact, although overall it brought some positive

and significant results in terms of socio-economic development (both direct growth and

endogenous dynamics evidenced in particular by the positive result of the CBA), in

consideration of the current particular situation and the high expectations of the initial phase,

influenced also by previous development plans which did not produce the expected results

and frustrated by a subsequent series of unsuccessful initiatives trying to generate a broader

development process, quality of life did not improve, particularly under the heading of what

has been defined as ‘social happiness’. This is strongly supported by the qualitative analysis

carried out, especially the interviews.

However, even some 13 years after the financing decision, the situation is not yet completely

stabilized and further positive or negative developments may still occur.

Table 3.1 SUMMARY OF NATURE AND STRENGTH OF IMPACTS

Strength* Level

1. Direct economic growth +3 Local - regional

2. Endogenous dynamics +2 National - global

3. Social cohesion 0 -

4. Environmental effects +1 Global

5. Territorial cohesion 0

6. Institutional quality 0 -

7. Social happiness -5 Local - regional

*-5 = very strong negative effect; 0 = no effect; 5 = very strong positive effect (the criteria considered to assign the scores are presented in Annex I).

In terms of impact on the stakeholders involved in this operation, it is worth recalling that they

range from local citizens to global players in the shipping business, and therefore the map of

the impact on different stakeholders is multifaceted. Details of the magnitude, the supporting

evidence and the causal chains of impacts are discussed in the following sections.

91

Direct economic growth, endogenous dynamics, social cohesion, environmental effects, territorial cohesion, institutional quality, social happiness.

32

Table 3.2 IMPACTS* ON DIFFERENT STAKEHOLDERS

EFFECTS Terminal operator

Users: shipping lines, freight owners, feeder vessels operators

Mediterranean ports

Terminal operator’s contractors and suppliers

Government and citizens

Local Regional National EU

1. Direct ec. growth

+5 +2 +2 •

2. End. dyn. +2 +2

3. Social cohesion

•

4. Env. Sust. +1 +1

5. Terr. cohesion • •

6. Inst. quality • •

7. Social happiness

-5 -5 -2

*-5 = very strong negative effect; 0 = no effect; 5 = very strong positive effect, •= expected effects which did not materialised (the criteria considered to assign the scores are presented in Annex I).

Table 3.3 TEMPORAL DYNAMICS OF THE EFFECTS*

Effect Short run (years 1-5)

Long run (years 6- 10)

Future years

Comments

1. Direct economic growth

+ ++ +/- Growing until 2007 with the traffic volumes in the transhipment hub. The positive effect is threatened by the problems of competitiveness in the Gioia Tauro port and by volatility in the maritime container transport market.

2. Endogenous dynamics

+ ++ ++ Positive effect needs to be continuously reinforced. Now stabilised, as long as the global port system continues to rely on the use of transhipment.

3. Social cohesion

No effect.

4. Environmental effects

+ + + Fuel saving in the shipping business.

5. Territorial cohesion

+/- No effect, but if the port regains competitiveness in the next years it may positively contribute to South-North cohesion.

6. Institutional quality

+/- Missed benefit and it is uncertain whether some benefits will be generated in the future.

7. Social happiness

+ - -- People of Calabria moved from initial enthusiasm to frustration over the lack of effects on local development.

*+ = slight positive, ++ = positive, +++ = strongly positive, +/- = mixed effect (the criteria considered to assign the scores are presented in Annex I).

Although there is a strict and direct link between short term socio-economic positive effects on

growth and efficiency and long term potentials, positive short term effects do not necessarily

33

stabilise in the long term. This is for example the case with the competitive advantage of the

transhipment activity which needs to be continuously reinforced with adjustments and

adaptations to the changing situation. The same applies to the effects on quality of life. In

particular, in terms of social happiness, while in the short term the enthusiasm of the

successful start-up of the terminal brought about positive feelings of a new start for the socio-

economic perspectives of the areas, in the long term the lack of a proper development path

has translated into high levels of frustration and social distrust.

3.2 DIRECT ECONOMIC GROWTH

Positive, although not as significant as expected ex-ante, effects in terms of direct economic

growth are the most significant long term effects produced by the port of Gioia Tauro. The

transhipment and related activities created additional direct and indirect employment for MCT

(reaching 1,200 people in 2007, the point of maximum expansion) and the few shipping

companies providing direct services to MCT. The 2009 list of all companies operational in the

Gioia Tauro area counts about 2,100 employees (see the list of enterprises in Annex IV) 92. It is

also acknowledged that some transport and logistics companies have been established thanks

to the port, while there is only one company processing products (coffee) imported via Gioia

Tauro93.

Additional wider effects are certainly found in the entire port and logistics system in the form

of an increase in traffic demand, however the magnitude of this effect and its attribution to

Gioia Tauro is uncertain.

Direct employment effects materialised at the local level and in a relatively short period of

time (about 500 people in the first year of operations, 1996, and reaching the current levels

after a further 4-5 years) and are now relatively stable. However, this is also the most volatile

effect and is exposed to high risks: if future traffic flows do not at least reach the level of 2007,

dramatic employment cuts will be the first effect in the short run94. This is also the reason why

the current critical situation is drawing the attention of public opinion to the future of the port.

The result of the Cost-Benefit Analysis supports this finding. The economic rate of return on

the project is positive (10.44%), and the main economic benefit is via the employment created,

captured by a low shadow wage95. It is however worth noting that:

first, this result is less positive than expected ex-ante because of project overruns

(especially for the private investor) and because additional expected employment

92

In terms of wealth, most of the interviewees and many press articles, quoting the Bank of Italy, indicated that the port is currently providing 50% of the total private income produced in the Calabria region. This cannot be confirmed by the evaluators because of the unavailability of official data. 93

A more recent and interesting initiative relates to an international agreement by ICO-BLG, the other port operator (car carrier), with Honda to distribute its cars through Gioia Tauro in Italy, Spain and France, including the implementation of some high-value processing activities, but this is still at the agreement phase. 94

Employment cuts have already been implemented since 2008 and a public support scheme for the safeguarding of employment (cassa integrazione) has been put in place more recently. 95

The shadow wage used in the CBA is of 0.33. This value is supported by empirical work by Del Bo et al (2011) and stems from the characteristics of the labour market in the Calabria region, especially in terms of high unemployment. Sensitivity analysis on the shadow wage indicates that this methodological choice is a critical one, strongly influencing the value of economic performance indicators.

34

effects besides those produced by the container terminal did not materialize (reasons

for this are discussed in the next section);

second, a social cost has been paid for the concession of the terminal hub given at a

rate 40% lower than the one required by law and which has been assumed close to the

social opportunity cost.

Moreover, the project heavily relies on the existence of the unused port infrastructure built to

serve the steelwork plant. If the port had had to be built specifically for the Contship/MCT

operation it would not have been worth doing at all. Therefore, a social benefit stems from the

consideration that a past, expensive and unsuccessful public investment was turned at least to

a fruitful business operation providing some employment effect.

Finally, this result is valid but depending on the future development of the port activities. In

fact, future scenarios may range from a catastrophic situation of port closure to a positive

development with new traffic flows generated.

In terms of stakeholders one of the main beneficiaries of direct growth is the terminal

operator, enjoying significant profit margins, especially in the early stages of operations.

Contractors and suppliers also enjoy benefits from the development of the transhipment

activities, however they have limited market power since they are mainly relying on the

terminal operator as intermediary between them and the shipping companies. Employment

effects were confined mostly to the local level, with only limited or no effect at the regional

level, although this was the main expected benefit.

3.3 ENDOGENOUS DYNAMICS

The port of Gioia Tauro produced two different significant improvements in terms of

endogenous dynamics: one is related to the efficiency gains of the port system, the other is

related to the learning and capacity building effect due to the spreading of a know-how related

to the transhipment activity in a deprived area. Both these aspects are qualitatively described

since their quantification requires resources and data beyond the scope of the current

analysis.

Although difficult to quantify, sector experts agree that the development of transhipment

activity bought efficiency gains (mainly related to huge cost savings) to the entire

Mediterranean port system and even to the global maritime traffic system96. While this

efficiency gain cannot be fully attributed to Gioia Tauro (the container shipment activity would

have developed even without Gioia Tauro) it has to be acknowledged that the port generated

significant positive spillover effects for the regional Italian ports97 and positively contributed to

transhipment development in the Mediterranean Sea98. These effects are significant and

96

See for example Russo F. (Ed.), 2010. 97

Costa and Dallari (2008) stressed that the development of transhipment relates to the need to better organise maritime traffic, in a context of growing demand, without entering into competition with the smaller regional ports. When the Port of Gioia Tauro was built, an analysis of Mediterranean traffic showed that the new port would have not substituted for any other Italian or European ports, but rather would have integrated them. 98

C-log, 2008.

35

positive, but are experienced mainly at national and global level. This is a long-term effect

which is now stabilized and will persist a long time, at least as long as the global port system

continues to rely on the use of transhipment.

Box 3.1 DEVELOPMENT IN THE GLOBAL PORT SYSTEM

Development in the global port system

In recent decades the global port system has undergone significant changes. In the last two centuries port competition was lower than at present, the key driver for port access was to gain market control over an area and port-related costs were negligible compared to ocean or inland transport costs. With globalization and development of information technology ocean transport achieved dramatic productivity gains. This led to an increase in port competition and the need to increase port productivity thanks also to the use of information technology which makes port activities highly capital-intensive (management software, quayside cranes, reach stackers, straddle carriers, automation).

Moreover, with the increase in the size and speed of ships a new shipping network emerged, mainly due to the need to reduce the number of port calls (and related port costs). The move was from a point-to-point to a hub-and-spoke network, in the same vein as air transport, due to the need to concentrate freight at long-distance destinations (hub) and then distribute it to regional ports (spoke).

Another advantage offered by the transhipment ports is the reduction of one of the highest costs for shipping lines: the shipment of empty containers. Because of the disequilibrium between importing and exporting countries, at the beginning of the 1990s it was estimated that at least 20% of transported containers were empty and the total costs of transporting them was about USD 3.5 billion per year99. The traditional end-to-end route greatly increases this cost, while careful research of lines and ports can reduce the transfer of empty containers.

From point-to-point to hub-and-spoke network

Source: Authors

Although concerns were raised when the project proposal was submitted regarding the

potential competition effect on other Mediterranean ports, this proved to be overemphasised,

since in reality it is acknowledged100 that Gioia Tauro port was beneficial to the entire

Mediterranean maritime system. As explained in the box above, the whole global logistic

supply chain underwent a significant transformation thanks to the containerisation of

maritime traffic and the development of transhipment activity. For this reason pure

transhipment ports cannot be considered direct competitors of regional ports. They instead

contribute to some extent to improving global traffic flows by generating feeder traffic. As

concerns the other pure transhipment ports in the EU system (Malta, Pireus and Algeciras),

evidence available is less straightforward but suggests that competitive pressures came to the

99

Drewry Shipping Consultants, 1993. 100

See in particular C-log (2008); Costa and Dallari (2008) and Russo (2010).

36

fore only recently, due especially to the emergence of the African ports. Although the evidence

available is not conclusive in this respect and a more in-depth assessment is beyond the scope

of the current analysis, it can be affirmed that Gioia Tauro has positive or no effects in terms of

competition on other EU ports. In the near future problems of competition in the

Mediterranean can increase, due to increasing investments in the sector and new ports

expected to be developed.

At the local level additional side-effects in terms of economic development come from the

learning and capacity building effects that the transhipment activity bought to public and

private actors in the local system. It has been reported that employees, trade unions, business

associations and decision-makers benefitted from being involved in such technologically

advanced activities, operating in a global market and dealing with multi-national companies.

Companies are said to have gained increased capacity in dealing with global transport

operators, while in terms of know-how a technological centre was created in 2005101 as a

research spin-off (in partnership with the Logistics department of the University of Calabria,

which is an international centre of excellence in the field of Transport and Logistics).

Moreover, a huge amount of research in the field of transport and logistics has been inspired

and focussed on the transhipment activity in Gioia Tauro, given also its national and

international relevance. It is worth noting that this was a wholly spontaneous process

promoted by local entrepreneurs, stakeholders and academics.

“Transhipment? Even its meaning was not entirely clear. Many people did have problems even in pronouncing it (…) but it did not matter, transhipment soon became a magic word in Calabria”

Source: Munari T., 1997

This is a long lasting effect which has now stabilised. It should be however noted that it does

not include beneficial effects on the public administration and institutions (see below on

institutional quality).

3.4 TERRITORIAL COHESION

Evidence on territorial cohesion is mixed and relies on opinions and perceptions collected

through interviews and press articles.

On one hand, it has been reported by interviewees and confirmed by evidence in the press and

public debates that the development of the Gioia Tauro port brought the attention of national

and international public opinion to one of the most neglected and poorly known Italian regions

which became the location of an internationally known, flagship project. By moving the

Calabria region from the periphery of Europe to the centre of Mediterranean Sea, the port

project had the potential to reduce the North-South divide and enhance the territorial

cohesion feeling and identity of people and citizens.

At the same time, the opposition and competition pressures from regional Italian ports,

especially Northern ones, together with the lack of a coordinated national port strategy

101

Thanks also to Structural Funds support.

37

(discussed in the next section) played a negative role in this respect by exacerbating North-

South conflicts.

3.5 SOCIAL HAPPINESS

Despite the initial positive expectations and enthusiasm at local, regional and national level,

today significant negative impacts prevail in respect of the sense of frustration local people

experienced due to the unfulfilled promise of widespread development in the broader Gioia

Tauro area. Social distrust and disillusionment are tangible effects and are likely to influence

future actions regarding the port. Those feelings can be perceived when talking to people,

especially in this current time of crisis and uncertainty about the future. As a result of past

experience, however, citizens, but also relevant decision-makers in public and private bodies,

are experiencing a strong sense of pessimism and scepticism about the chances of solving the

current problems and returning to the position of the relatively recent past when the port was

thriving.

Admittedly, this social distrust partly reflects the unrealistic level of expectations raised during

the initial phase of the port development, which in turn reflected years of unmet promises

following the plans for steel and the energy production plants. Still, it is undeniable that there

is a significant unexploited potential related to the port’s development despite many years

(and much public resources) spent trying to trigger broader effects. Confused and overlapping

responsibilities and lack of capacity and motivation of public and private managers are the

determinants of this situation (see the following section for further elaboration).

3.6 SOCIAL COHESION

Social cohesion is understood here as the capacity to reduce inequality among social groups, in

particular vulnerable ones such as women, the elderly or migrants102. In this vein, while there

is a positive social effect in reducing unemployment in a highly deprived area such as Gioia

Tauro, especially for young people103, the project does not specifically address the needs of a

particular social group, and therefore no relevant long-term effect on social cohesion are

recorded.

3.7 ENVIRONMENTAL EFFECTS

The cost decreases brought about by the transhipment activity are related to economies of

scale from using gigantic globetrotter ships and reducing the number of journeys. A relevant

saving is related to fuel costs. Moreover, some traffic from the South of Italy to Northern

regions may have diverted from trucks to shipping. Both these circumstances increased

environmental sustainability at the national and global level; however this is a negligible

benefit as compared to the previous ones.

102

See the First Intermediate Report 103

Munari T., 1997, reports that among the employees of MCT in 1995 nobody was older than 29.

38

3.8 INSTITUTIONAL QUALITY

Given the uniqueness of the opportunity offered by the port of Gioia Tauro, its international

relevance and the strategic significance for Calabrian regional development, one would have

expected the quality of public institutions to have increased significantly. This is however not

the case, as explained in the next chapter, and this is by far the main reason for the failure of

the project from a regional development perspective.

39

4 DETERMINANTS OF PROJECT

OUTCOMES

In this section the key determinants of the long-terms effects discussed in the previous chapter

are illustrated and discussed. After a brief presentation of the key messages, each significant

determinant is presented and evidence and arguments supporting the findings are discussed.

4.1 KEY FINDINGS

There is a shared view, from the literature and from interviews, about what have been the key

determinants of the port’s performance. In particular, the success experienced in the early

stages by the transhipment terminal operations are undoubtedly due to the excellence of the

initial project design and the forecasting capacity of the private investment plan together with

the skills and professional capacity of the Contship management team. At the same time, given

its key features, transhipment activity per se is not an appropriate tool for triggering larger

development effects, especially in a context characterised by weak entrepreneurial ability,

poor public security and scarce administrative capacity. Therefore, since the context was not

suitable for such a development operation to spontaneously generate positive development

effects through a bottom-up process, the role of public institutions and the capacity and

motivations of the private operator were key in determining the observed effects.

Table 4.1 IMPACT OF KEY DETERMINANTS ON PROJECT’S PERFORMANCE

Strength*

1. Appropriateness to the context -4

2. Project design +5

3. Forecasting capacity +5

4. Project governance -5

5. Managerial response ±4**

*-5 = very strong negative effect; 0 = no effect; 5 = very strong positive effect** Positive in the first phase, strongly negative in more recent years (the criteria considered to assign the scores are presented in Annex I).

For this reason, the key determinants of the long-term effects of the port of Gioia Tauro are

the appropriateness to the context (in terms of key features of the institutional, cultural and

socio-economic context which need to be changed or adjusted in order for the project to be

successful), managerial response (in terms of capacity of an effective reaction to

competitiveness loss in more recent years by the main terminal operator) and mainly the

governance structure (in terms of capacity to coordinate the fragmented and often conflicting

interests of many institutions and stakeholders relevant to the long-term general interest of

the port).

While the quality of the project design and forecasting capacity has already been elaborated

on in Section 2, this section further explores the issues of the appropriateness to the context,

managerial response and project governance.

40

4.2 APPROPRIATENESS TO THE CONTEXT

The main economic impact of the port on the territory was expected to be through direct (port

employment) and indirect job creation, where the latter included:

manufacturing jobs and employment in port-related businesses (road haulage, for

example),

jobs resulting from the increased level of investor confidence generated by a

successful large project and

employment through regional multiplier effects mainly in the service sector – i.e.

tourism, etc.104.

Other direct expected effects comprised: re-organization and improvement of the urban

system and of public services, positive cultural impact on the image of the territory and

cultural innovation thanks to the presence of international actors105.

However, because of its specific characteristics, pure transhipment tends to generate very

little or no value added and development in the area where the port is located, since income is

generated only where containers arrive at their final destination, where they are cleared

(customs duties and VAT), opened and processed. A study106 estimated that when the goods

are cleared through customs, stocked, handled and distributed through adequate and efficient

transport infrastructures, the employment, turnover, profits and State revenues significantly

increase107.

You can do transhipment on a desert island, no connection with the socio-economic local context is needed.

Source: quotation from an interview.

In other words, transhipment can create local development only if it is integrated into the

national and international logistical system. Actually, logistical activities became in the 1990s

one of the main instruments for local development policies, since they are a source of value

added, income and wealth not only at business-microeconomic level, but also at the local-

macroeconomic level108. When transhipment ports are linked to the railway and road network,

they become the junction point of much more dense and wider networks.

104

European Commission, 1996, Chapter 7.1: The Impact on the Social Economic Development of the Region. 105

Committee for the Coordination and Development of the Gioia Tauro area, 1997, p. 12. 106

Ministry of Transport (2008), quoted by Gian Antonio Stella, Corriere della Sera, 5 July 2011. 107

When moving from pure transhipment ports to multi-purpose ports “Turnover goes from 300 to 2.300 euro, profits from 20 to 200 Euro, income for the State from 110 to 1,000 Euro and for every 1,000 handlings 42 jobs can be generated, instead of 5”, from Gian Antonio Stella, Corriere della Sera, 5 July 2011, quoting the Ministry of Transport. 108

Unioncamere, 2008.

41

Figure 4.1 VALUE CREATION IN PURE TRANSHIPMENT AND MULTI-SERVICE PORTS

Source: Authors

Transhipment per se is a “closed” system. Although several attempts have been made to

promote logistics and intermodal services, they have all failed. Such operations, in fact, need a

coordinated and integrated strategy and involve many public and private actors and operators,

usually with a national or even international dimension (operators in the transport and

logistics supply chain: shipping companies, international industrial firms, commercial

distribution operators, railway operators). In order for such initiatives to be successful a strong

partnership is needed, but weak governance structures prevented such a condition being

satisfied (see section 4.4).

4.3 MANAGERIAL RESPONSE

The excellent professional reputation, exceptional leadership and visionary capacity, together

with a strong business interest of Angelo Ravano were pivotal to the decision to initiate the

Gioia Tauro port project. He was somehow an instrument of the ‘hiding hand’ at work,

committing sufficient resources and prestige to the project that his strong motivation was seen

as a good reason to rely on the success of this flagship operation despite all the risks the

initiative was exposed to. The strong commitment of Contship was confirmed also when

Ravano died in 1994 and the management team working with him carried out the project

implementation. The Gioia Tauro operation represented a pilot project aimed at entering a

totally new and promising business by bringing transhipment to the Mediterranean.

The first phase of the project start-up was full of problems and delays, mainly related to

administratively cumbersome procedures to obtain licenses and permissions, friction with

local institutions putting pressures on the recruitment process and the slowness of political

processes. Motivated by the amount of resources committed (material but also in terms of

reputation), MCT promptly responded to the impasse among the public actors by taking

actions and implementing on its own (including investing extra money up-front in anticipation

PORTSEA LAND

PORTSEA LAND

Intermodalterminal

Production centres for the manipulation

of goods

CU

STO

MS

Pure transhipment

port

Multi-serviceport

42

of funding) some of the investments expected to be carried out by the public sector109.

However, as a consequence of the considerable additional investments undertaken, the

financial exposure of the company significantly increased, raising concerns among

shareholders and, according to Munari (1997), leading to a change of the Contship and MCT

management team.

Box 4.1 ANECDOTAL EXAMPLE OF MANAGERIAL RESPONSE

When the first ship arrives at the Gioia Tauro port on September 15, 1995, it is night-time and the works are still in progress. The ship’s captain sent a message to the port that he could not enter since the port entrance was totally dark. In fact, the lighting system of the port entrance was not ready (it was the responsibility of the public side) and, although MCT had bought the lighting at its own expenses, the batteries had been stolen the day before. Roberta Falqui, the general manager of MCT, called the employees and asked those with a private car to take it and she personally guided the car queue along the port entrance. By pointing the car lights toward the sea they managed to provide the boat with enough light to enable the pilot to enter the port.

Source: Munari T., 1997

Source: Authors

Over the years a number of circumstances hampering the economic and strategic interest of

Gioia Tauro within the company group are recorded. First, in 1997 Contship Containerlines, the

shipping branch of the Contship group bringing significant traffic flows to Gioia Tauro, was

acquired by CP ship (later taken over by Hapag Lloyd). Second, in 1999 the German Eurokai

group, a shareholder of Contship Italia and a partner of Ravano, took over Ravano’s shares in

the company and became the main shareholder. The Eurokai group is a large German logistics

and transport operator, operating port terminals in Hamburg and Bremen. Thanks to this

acquisition, MCT became part of a large European integrated logistics system. Then, in 2001

Contship Italia started new operations in the Mediterranean in the Italian ports of Livorno,

Ravenna and Cagliari. At the time of writing, the company is investing in North Africa and the

Black Sea. In particular, it is a shareholder, in partnership with Eurogate (part of the Eurokai

group), MSC and CMA-CGM in the Tanger-Med transhipment terminal in Tangier, Morocco.

Under this company governance structure, Gioia Tauro is by nature less strategically important

than before. Moreover, the company has interests in transhipment activities spread all over

the Mediterranean (Cagliari, Gioia Tauro and Tangier), competing for the same broad

Mediterranean market. However, a more accurate competitive analysis of transhipment

indicates that the increase of activity in the Mediterranean led to the segmentation of the

market into three separate areas (west, centre and east) so that ports are now serving only

dedicated areas. This would suggest that the strongest competition for Gioia Tauro is with

Malta, Pireus and Port Said, serving the Central and Eastern Mediterranean as well as the Black

Sea, while Tangier, Algeciras and Valencia are competing for the Western Mediterranean

traffic.

Given the current fierce competition among the Mediterranean ports, attracting traffic flows

to Gioia Tauro requires much more demanding marketing and commercial efforts than was

109

For example, it was MCT who asked for permission to set-up the local revenue and customs offices. It also bought fire protection equipment and trained the rescue emergency teams.

43

needed at the beginning of the 1990s. However MCT has not succeeded in attracting new

clients in the recent past, putting forward the argument that the key competitive weaknesses

of the port are labour costs and the inefficiency of additional public services, and the terminal

operator is not in a position to influence the decisions of big shipping operators. The relevance

of MCT’s strategy for Gioia Tauro is magnified by the substantially monopolistic position of the

terminal operator in the port110. Some of the interviewees pointed to the lack of competition

among terminal operators as an additional problem and a result again of governance

weakness. The governance issue is discussed in the next section.

4.4 PROJECT GOVERNANCE

The key constraints to economic development of the port project were recognised from the

beginning and the necessary actions identified to overcome such constraints were relevant

and pointed in the same direction111.

Planning, in terms of definition of a strategy, was not completely absent. There has been the Master Plan, the Framework Planning Agreement and it was clear since the beginning that transhipment alone would have not created a lot in terms of growth and development. The problem is how to move from planning to implementation. Here it seems there is the problem.

Source: quotation from an interview

Why is it that, although knowing perfectly the problems affecting the port and making it uncompetitive (while recently it was the leading and most advanced Mediterranean container terminal), policies aimed at overcoming such problems were not implemented?

Source: letter of Pippo Callipo (a leading Calabria entrepreneur) writing to President Napolitano G., 25 May 2011112

All the plans conceived to make the transhipment port project a driver for local socio-

economic development failed at the implementation phase due to a lack of coordinated,

strategically oriented and focused implementation efforts. This result is the perverse effect of

the combination of two main factors:

from one side, the existence of a large number of institutions and stakeholders

involved in the decision-making process, with unclear and/or overlapping

responsibilities, which by nature may result in conflicting interests;

from the other, a general lack of motivation and coordination at different levels, which

provides incentives for short-termism and opportunistic behaviour in the managing

structures of key institutions.

110

After the initial concession MCT requested and obtained a concession of additional space on the quay. It is currently operating on 150 ha with a frontage of more than 3 km in length. 111

See strategic priorities in the Programme Agreement, Master Plan and FPA. 112

http://www.ildomani.it/dal-territorio/reggio-calabria/4651-callipo-scrive-a-napolitano-intervenga-per-il-porto-di-gioia-.html

44

The system discourages firms to come to Gioia Tauro, it seems like everybody works against the port’s interests.

Source: quotation from an interview

Although anecdotal evidence is available on this point, there is no doubt that project

governance played a determining, negative role in project performance. This view is shared by

all the interviewees and press articles, although with different nuances and specification.

Governance constraints are the result of a combination of national and local key characteristics

of port governance. For this reason, after a brief illustration of the characteristics of port

governance at the global and European level as benchmarks, and the key constraints at the

Italian level, to put the case into a broader context, the specifics of the governance structure in

Gioia Tauro are presented. Finally, the role of the European Commission over the entire period

and with different initiatives is discussed.

4.4.1 Governance structure in the global port system The globalization of maritime traffic and the recent process of decentralization of port

functions and management have resulted in a complex system of European port governance

structures. They present a multiplicity of models depending on the level of decentralization,

the role of private operators and the responsibility of management and administrative

functions.

Box 4.2 MODELS OF PORT GOVERNANCE STRUCTURES

According to a classification of the World Bank113, port governance models depend on the typology of services provided by public or private operators or those with a mixed nature, by their institutional orientation (local, regional or global), and the ownership of infrastructure, superstructure and equipment (e.g. ship-to-shore handling equipment, sheds, and warehouses), and the status of dock labour and management.

European and especially Mediterranean Ports are mainly landlord ports, with a mixed public-private governance structure, with the Port Authority being the owner of the infrastructure and having regulatory powers, while private companies operate and provide port services (in particular the cargo handling and related operations). The World Bank highlights that, while in this model terminal operators are motivated to be more loyal to the port and to invest, given their long-term contracts, potential weaknesses are the need to better coordinate the marketing and planning activities, excessive bureaucracy and limited financial resources.

Source: Authors

A more recent classification adds to landlord, regulator and operator, the innovative function

of ‘community manager’, which is a coordinating function of all the stakeholders and interests

within the port area, but relates also to the relationships of the port to the local surrounding

113

World Bank Port Reform Tool Kit (2004).

Infrastructure Superstructure Port labour Other functions

Public service port Public Public Public Majority public

Tool port Public Public Private Public/private

Landlord port Public Private Private Public/private

Private service port Private Private Private Majority public

Source: World Bank Port Reform Tool Kit, module 3, p. 85, 2004.

45

context. A recent ESPO (European Sea Ports Organization)114 survey of 116 European Port

Authorities identifies three typologies of approach for European Port Authorities. Most of

them exhibit either a ‘conservative’ governance structure, limiting their role to a rather passive

application of rules and regulations, or a ‘facilitator’ role, with a more dynamic attitude to

attracting investments and undertaking partnership agreements with other ports or local

agencies. Only in a few cases the Port Authority exhibits an ‘entrepreneurial’ attitude, aimed at

promoting and carrying out infrastructural investments, negotiating concession contracts with

private operators and acting with a global market perspective.

The nature of the global logistic chain and the way the decision-making mechanism works is

such that there is the need for highly technical capacity and expertise to act with large global

players and financial institutions. For this reason it is necessary that the appointment of the

key public managers is made according to their capacities to perform this demanding task

rather than in response to clientelism and opportunistic behaviour.

Box 4.3 DECISION-MAKERS IN THE CONTAINER GLOBAL LOGISTIC CHAIN

Decision-makers in the container global logistic chain

In the maritime container transportation sector there are numerous decision-makers:

The owner of the freight, who represents the transport demand;

The forwarding agent who receives the freight and has to decide which mode of transport to use to take it to its final destination;

The shipping line which has responsibility for the entire transport process and decides in which ports to land. The shipping lines usually land in big ports with high traffic demand, in order to optimise their route so as to serve as many markets as possible, by reducing the number of ships and in the meantime increasing transport capacity. Hence, the criteria for selecting a particular port are mostly of an organisational nature.

The feeder vessels operators, who take the cargo from the transhipment port and bring it to its port of destination.

The terminal operators have very limited influence over the choice of traffic route and their only leverage to attract shipping lines is to offer high productivity, reliability and high quality structures and equipment;

Intermodal operators in the port: ports effectively linked to the mainland railway and motorway network can attract higher demand by offering a choice of modes of transport for containers to reach their final destination;

The Port Authority can offer good quality infrastructure and discounted anchorage tariffs to shipping lines that decide to frequently land in the same port, or free duty zones;

Additional influencing factors are the geographical location and structural characteristics of the port: not all ports are deep and large enough to accept container ships carrying more than 10,000 TEUs and not all the ports are located in the middle of the main trade routes.

Source: Authors processing Costa and Dallari (2008), C-Log (2008) and Russo F. (2010)

4.4.2 Governance structure in the Italian port system Port governance is an issue not only in Gioia Tauro but in the entire Italian context. As pointed

by the ESPO (2010) survey on European Port Authorities, the Italian Port system is suffering

114

ESPO (2010)

46

from a delay in the reform process (the last port reform took place in 1994115) aimed at

addressing the current lack of integrated planning and management of the entire logistic

supply chain at the national level. Port Authorities have limited autonomy, especially at the

financial level116, and this hampers their capacity to manage the conflicting interests of port

operators and other stakeholders.

By contrast, in the Spanish context for example, a central public agency is in charge of

coordinating the efficiency of the port system and executing port policy set by the

government. Moreover, each port has a strong specific function, which enhances synergies

rather than competitive attitudes among all the national ports, and Port Authorities are

autonomous from a managerial and financial point of view. Finally, the system benefits from

high political commitment at the central level.

In this fragmented national scenario, political support for the port system is more responsive

to the pressures of local lobbies than to a transparent and consistent strategic vision. As an

example, it is quite surprising that in the recent national logistic draft plan117, under which

huge investments are planned for the ports of Trieste and Vado Ligure in Northern Italy, no

mention is made to the Port of Gioia Tauro118, although the FPA in place, signed by among

others the Ministry of Transport, is clearly aimed at developing in Gioia Tauro a logistic centre

of national relevance.

Global shipping competition is played with the institutional support of regions and countries to ports and intermodal networks. In recent times, however, public support for the port system and political attention to Gioia Tauro has decreased. The financial and political action towards some big Northern ports only (Genova and Trieste in particular) is alarming.

Source: Press article, Il Manifesto, 30.06.11, interview with Domenico Gattuso, Professor of Transport Engineering at the University of Reggio Calabria

4.4.3 Governance in the Port of Gioia Tauro As of today, many bodies have different competencies regarding management and

development of the port and the broader Gioia Tauro area. Their specific mandates and

objectives are not always aligned and consistent and often the ultimate effects have been a

situation of difficult and unconstructive interactions. For example, a long-running dispute119

exists between ASI-REG and the Port Authority, regarding the ownership of a vast area of the

industrial zone and, consequently, the allocation of competencies over the area120. There is a

shared opinion among the interviewees that this situation paralysed on many occasions the

decision-making process, delaying and jeopardizing the successful implementation of public

actions.

115

Law 84/1994 shifted competence from the public to the private operators and introduced a new classification of ports and port labour activities. 116

This means for example that they cannot autonomously decide to decrease or cancel the anchorage tax; this requires a decree from the central Ministry. In the same vein, tariffs paid for port services are not directly included in the port authority budget but are firstly channelled to the central ministry which then redistributes them to ports on the basis of administrative rules. 117

Only three lines in the whole plan are devoted to Gioia Tauro (Ministry of Transport and Infrastructure, 2010). 118

Many interviewees highlight that the Northern regions are better able to advocate for institutional support than the Southern ones, thanks to their strong industrial, financial and political lobbies. 119

Since the founding of the Port Authority in 1998. 120

The case is still pending at the Civil Court of Reggio Calabria.

47

Figure 4.2 GOVERNANCE STRUCTURE OF THE PORT OF GIOIA TAURO

Note: Dashed lines are used to indicate past/temporary responsibilities or tasks. Source: Authors

Because of the extremely large number of parties involved, transaction costs are high and the

incidence of fragmented actions is high. Strategic planning of the port development was

independent and not integrated with the strategic planning of industrial development for the

port-related activities. As an example, the location and structural design of the rail gateway,

implemented by ASI-Reg during the port start-up phase, is such that is more useful for inland

freight traffic supposedly related to the industrial zone development (the area where ASI-Reg

had the main competence) rather than the container terminal hub121. In order to cope with

this infrastructural bottleneck, a new gateway is currently under development (among the

priority interventions included in the FPA), which is located closer to the container terminal (in

the area under the Port Authority responsibility, which is actually the implementing agency)

and with structural features (length and shape of the line) which are consistent with the

current requirement for transhipment containers. This will give the opportunity to increase the

intermodal potential of the container terminal.

121

For example, it is located close to the industrial zone and is not well connected to the terminal quay, which makes the use of the rail connection difficult for maritime traffic.

National Government

Prime Minister

CalabriaRegion

ContshipItalia- MTC

Extraordinary Commissioner

ASI-REG

Ministry of Transport

Wide area of the Gioia Tauro Port

Industrial area

CoordinatingCommittes

European Commission

Port

Other Port operators

Municipality and Provinces

Harbourmaster, Custom office, Fire Brigade,

etc.

Ministry of Industry

Port Authority

48

A fragmented sharing of responsibilities did not help with the attraction of new firms to the

port. It was reported that the level of administrative and legal steps a firm is expected to take

if it decides to locate in the industrial area and the number of bodies and institutions expected

to be dealt with is so high that anecdotal evidence is available of several firms becoming

frustrated with the effort required and giving up on the idea of establishing close to the

Port122.

If a business operator is interested investing in GT it has to deal with so many different entities and bureaucratic burdens that it gets frustrated and soon decides to go elsewhere.

Source: quotation from an interview

Coping with such fragmented and complex distribution of responsibilities is made difficult by

poor political will and possibly vested interests among the decision-making actors. Although

the high visibility of the project and the attention of public opinion would be expected to play

a positive role in enhancing political commitment to results-oriented behaviours, there are

shared opinions among the interviewees that the political turnover at national and regional

level led to ongoing stop-go development and discontinuity of strategic direction123, which

slowed down the process and created institutional impasse124.

Industrial and logistical development requires quite a long timeline to plan, implement and

operationalize the related infrastructures and services, since they involve railway connections,

firm localizations, territorial marketing and transfer of know-how and technical skills. The

nature of these initiatives is such that in order to generate some tangible results, a medium to

long-term perspective is needed, while politicians tend to have much shorter vision. Using

Hirschman’s notion (1967) the ‘fare bella figura’ generates incentives for political leaders to

foster a commitment more on short-term results, which become visible sooner, rather than on

the implementation and materialization of socio-economic achievements.

The pressures of organized crime may also have influenced political decision-making at

different levels, by hampering the implementation of initiatives detrimental for their own

122

Munari (1997) also reports the same kind of problems experienced by Contship in the initial phase, problems which caused several delays and required extra unexpected managerial effort. For example, for the formal authorization of the availability of the area following the concession agreement they had to obtain authorization from the Harbour office, which had to request authorization from the Ministry for Maritime Commerce, which could not provide the authorization since the competence for the area was still with the development agency (Agensud), which in the meantime had been discontinued, so the request for formal transmission of responsibility had to be made to the commissioner nominated by the Ministry of Public Works. The formal steps for a single authorization were: Commissioner of Ministry of Public Works, Ministry for Maritime Commerce, Harbour office, Contship. In addition to that, the start of the entire operation required additional authorizations from: the Civil Engineering Corps, the local custom office, the Fire Brigade, the Revenue Office, the local technical fiscal office. (Source: Munari (1997), pp. 50-51) 123

In the period 1993-2010 ten different national governmental coalitions were in power, the longest-lived being the Berlusconi government in the period 11-06-2001/23-4-2005. Over the same period 5 different coalitions followed one another at the regional level. 124

A recent example is provided by the delays experienced in the preparation and agreement of the FPA. The preparation of the Master Plan likewise did not go smoothly: identified, after pressures from the EU, for governmental action (during the first Prodi government in 1996-98), it received less attention from the subsequent coalition. Again, the Special Commissioner for the port was nominated directly by the Prime Minister (during the second Prodi government, in 2006-80) whose mandate ended before the end of the Commissioner’s mandate. Thereafter the Commissioner received less high-level political commitment than was the case during the first phase of its activity.

49

business and facilitating the selection of managers they could better control. However no

conclusive evidence related to the Port of Gioia Tauro is available on this point125.

Lacking robust national political coordination, there are stronger incentives in terms of

prestige and political visibility for public managers to promote infrastructural works126, rather

than planning and regulating the service related to the operation of the infrastructure, the

result being that much more effort and resources are spent on investing in infrastructure (also

on improving skills) rather than on service provision in competitive markets (which is normally

outside the control of public managers). This has led to a myopic logic in past (and also

present) actions, of first building the infrastructure and then attracting the traffic (or, even

worse, the belief that the traffic will automatically come). The need would be instead to

reverse this logic, with the key transport operators expressing their needs and the conditions

to be satisfied for the service to be competitive, and a strong partnership of transport and

industrial operators, together with financing institutions and under strong political

coordination, for the infrastructures to be realized.

4.4.4 The role of the European Commission Over the years the European Commission has been involved several times as co-financer of the

Gioia Tauro development plans. In addition to the initial grant for the productive investment

by Medcenter, the Structural Funds also co-financed:

staff training for transhipment related operations;

construction of the platform for modal shift, and

the global grant to attract new businesses in the industrial areas.

On several occasions the EU Commission showed a high level of interest and commitment to

promoting a sustainable and long-lasting local development in the Gioia Tauro Area, and

provided stimulus and funds under different headings. From a more strategic perspective, it

also exercised pressures to stimulate and accelerate some of the measures deemed necessary

to complete the development plan. For example, it was following a Commission request that

the Master Plan was prepared. Again, it was in the framework of Structural Funds

programming that the new FPA has been discussed and drafted.

125

Past trials mentioned criminal pressures on some political decision-making processes, for example an ‘influence’ was said to be clear in the draft of the port Master Plan advocated during the Prodi government, however no politicians or public managers directly involved in the port activities were ever convicted in this regard. 126

Responsibility in contracting public works entails a strong power and influence over local economic interests.

50

Box 4.4 KEY CHARACTERISTICS OF A SUCCESSFUL GOVERNANCE STRUCTURE

IN GIOIA TAURO

Strong institutional coordination at national, regional and local levels to maximize synergies in the development of the role of Gioia Tauro as a logistics integrated hub for Southern Italy and Intra-Mediterranean traffic;

Ensure alignment between the Strategic Plan and other infrastructure, industrial, urban development plans for the area;

Ensure smooth implementation of the operational plan of action through effective monitoring and project management on single actions and implementing agencies involved;

Promote and implement high-level territorial marketing initiatives to attract key players and national/international investors;

Simplify and effectively manage the approaches for interaction, coordination and consultation with the Territory.

Source: Abstract from Booz Allen Hamilton, 2007

The current FPA is aimed at overcoming the lack of integration, and the fact that all the main

parties have signed the agreement has been reported as a key achievement in overcoming

some of the limitations of past strategies127. The Strategic Plan128 also puts strong emphasis on

the need for an independent agency, committed to the long term development of the broader

Port area, to overcome governance weaknesses. The idea is however not new, since this need

has been clear since the Programme Agreement between Ravano and the Italian government,

and was subsequently reiterated several times, for example in the Master Plan prepared in the

late 1990s.

The key mandate of this agency would be to coordinate a marketing effort at the global level

to attract potentially interested operators to invest in the Gioia Tauro port, being able to

dialogue with them and understand their expectations and business needs and guide

investment plans in order to provide the required business conditions to attract traffic (in fact

the role played by Ravano for the transhipment hub). It has been reported for example that

preliminary exploratory activities with some large logistics operators have been carried out in

the framework of the Strategic Plan informing the FPA; however no follow-up has been

undertaken, especially in the form of high-level meetings, pre-agreements or similar.

The EU Commission played a pivotal role in this last FPA as well as in other instances to

facilitate the promotion of an integrated development approach, fostering the role of the

promotion agency as a key condition to overcome the governance limitations. However, past

efforts were not (or only partly) successful, and no significant steps have been taken yet in the

framework of the current FPA. This is due to the fact that problems arise during the

implementation phase, while the EU Commission has a key responsibility during the

programming phase and until the co-financing decision is taken. After that, it has only limited

or no capacity to influence the downstream phase, which is in the hands of national and

regional actors. The only tool to influence the process is by putting conditions on the use of the

funds in terms of timing and destination (this was for example the case with the grant to

127

However the impression of the evaluators is that this aspect is more formal than substantial, with a shared pessimism about the actual potential of the FPA to actually be implemented in all its aspects. 128

Prepared by Booz Allen Hamilton on behalf of the former Special Commissionary of the Government (2007).

51

Medcenter when the funds were conditional on the use of the infrastructure for transhipment

purposes only), providing disincentives to delaying the process and deviating from the planned

objectives. However this proved to have limited scope in substantially influencing the project

performance.

52

53

5 CONCLUSIONS

The Lord gave Gioia Tauro a seabed deep like Poseidon’s abyss. One day, he thought, this seabed, unique in Italy, will receive the gigantic container ships of the third millennium, and will finally make Calabria rich and flourishing. But then he saw that the people did not deserve it, and he made them blind.

Source: Sergio Rizzo and Gian Antonio Stella, Corriere della Sera, 30/10/2010

The Gioia Tauro project was initiated in an entrepreneurial spirit. The project design and its

implementation involved a new business activity in the changing global market for maritime

services. The underpinning rationale for public funding was related to the ambition to trigger

growth at the regional level. The challenge from this perspective was how to take advantage of

a smart but self-contained business operation, betting on the generation of positive side

effects.

The project was unable, however, to reconcile the tensions between the ambitions of both the

private business and the policy makers, and the difficult local context.

The transhipment activity is fundamentally trait-taking, according to Hirschman’s definition.

Transhipment does not require features specific to its location, apart from geography and

some infrastructural endowments. However, the broader development initiative linked to the

logistic hub was intended to be trait-making. In fact the development strategy required a

number of institutional, socio-economic and political context specific ‘traits’. Given the starting

point, many local features would have had to be adapted. The project would have needed to

cope with the poor local entrepreneurial capacity, administrative cumbersome procedures,

lack of maritime specific know-how and tradition, weak administrative capacity and fragile

political leadership at the local level.

Developing a logistic pole and an industrial zone related to a transhipment activity of

international significance, in the difficult context of Gioia Tauro, proved to be a too ambitious

plan for the weak governance of the port system.

In terms of planning capacity, especially at the national and EC level, the key weaknesses to be

addressed were duly acknowledged, but the implementation of the accompanying

development measures was inadequate.

Radical and multi-faceted improvements in the contextual situation are still needed. It is

perhaps not too late and the task is not impossible, but it will take much longer than what was

expected at the project’s start-up, along with continued policy commitment.

54

55

ANNEX I. METHODOLOGY OF

EVALUATION

The present Annex summarises the methodological approach undertaken for carrying out the

project case studies and presented in the First Intermediate Report of this evaluation study.

Moreover, the Annex further elaborates on and specifies the definition of long-term effects

considered throughout the case study and the typology of determinant mechanisms analysed

in interpreting the project outcomes. The main objective is to provide the reader with a set of

information describing how the project evaluation was conducted and to enable him/her to

replicate this methodology.129

The Annex is divided into three parts: in the first one, the overall conceptual framework of the

evaluation study is recalled and the definition of long-terms effects and project determinants

are laid out; in the second one, the methodology of analysis followed to implement the ex-post

evaluation is discussed; finally, the structure of the case study reports and the tools used to

standardise them is described in the third part.

CONCEPTUAL BASIS

The Conceptual Framework of this evaluation study is based on three dimensions of analysis:

the object of the evaluation (the ‘What’), the timing of the long-term effects (the ‘When) and

the determinants of the project’s outcomes (the ‘How’).

The ‘What’ dimension

The Team developed a classification of long-term effects, with the aim of identifying all the

possible impacts of public investments on social welfare. A broad distinction of project effects

is among effects on ‘Economic development’ or ‘Quality of life’. Investment projects can foster

economic development, which is generally quantifiable by aggregate indicators, such as the

Gross Domestic Product; although economic development is not disconnected from the

wellbeing of society, it is acknowledged that there are a number of other factors that may

affect public welfare, that are not captured by the traditional economic indicators130. For the

purpose of this study, the notion of quality of life131 refer to the factors that affect social

development, the level of social satisfaction, the perception of social reality and other

dimensions which are outside the conventional economic dimension. Under these two broad

categories, a taxonomy of more specific long-term development effects of investment projects

has been developed. The definition of each type of effect is provided in Table I.1.

129

Specific recommendations which may enable application of the same evaluation methodology to future projects are discussed in the Final Report of this evaluation study. 130

Dasgupta, 2011 and Stiglitz et al., 2009. 131

Used also as synonymous with wellbeing, as mentioned in the ToR.

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Table I.1 TAXONOMY OF LONG-TERM DEVELOPMENT EFFECTS Effects Definition Checklist Economic development Direct economic growth

Following the traditional growth theory132, both public and private investment contribute to increasing the stock of capital and thus economic growth. The direct contribution of a project to economic growth, in terms not only of real growth of GDP, but also, more generally, on economic welfare is discussed within this category of effect.

Did the project have effects on the endowment of labour or capital production factors? Did it contribute to employment creation? Did it attract new investments? Did it create new business opportunities? Did it produce time savings for business trips? Did it produce decreases in travel costs?

Endogenous dynamics

Endogenous dynamics comprise all the factors that have an indirect effect on economic growth, by improving the productivity of inputs: the increase of the stock of competences and knowledge of human capital133, the introduction of a more advanced technology134 and changes in the organisational model of economic actors, making them more efficient135, are analysed insofar they contribute to increasing the production function.

Did the project contribute to the improvement of the productivity of the economic system? Have social behaviours changed as a result of the project? Did the project provide new/improved skills, R&D investment, organisational changes that translated into an increase in labour productivity?

Quality of life Social cohesion Public investment can affect social cohesion, by

minimising disparities, avoiding social marginalisation and reducing income inequalities across different socio-economic, gender or ethnic groups.

Did the project promote social inclusion? Did it improve the conditions of specific segments of the population (e.g. elderly, migrants)? Did it improve the affordability of services?

Environmental effects

Polluting emissions, biodiversity loss and depletion of natural resources caused by large infrastructural projects can affect social wellbeing of both the present and future generations.

Did the project improve the quality of the natural environment? Did it alter wildlife habitats? Did it affect the ecosystem? Were there any environmental issues related to project implementation?

Territorial cohesion

The project can contribute to reducing welfare disparities caused by unequal distribution of resources and opportunities among regions and their population. The focus, in particular, is on core-periphery and urban/rural differences.

Did the project improve the territorial cohesion of the region/country? Did it play any role in urban-rural or core/periphery or cross-border dynamics? Did it expand the territorial coverage of the delivery of a basic service?

Institutional learning

Investment projects can bring wide spill-over effects to the quality of Public Administration and other institutions at national, regional or local level. Institutional quality is strongly related to economic growth136, but it can also affect the quality of life of people, because of the intrinsic value that individuals can attribute to a well-ordered society137.

Did the project induce any institutional learning at regional administrative level? Did it raise political awareness regarding a specific theme? Did it have effects on the level of corruption?

Social happiness This category encompasses all those variables which may affect the subjective perception of people’s wellbeing, and have to do with their psychology, family context, religion and cultural traits.

Are the project beneficiaries overall satisfied with the project’s implementation and outcomes? Did the project have any effect on the perception of quality of life? Did it affect the sense of security of the target population?

In researching all the possible long-term effects of project investments, it is acknowledged that

there is a risk of duplication and double-counting: for example, a project for water treatment

clearly has effects on environment, which may contribute to the development of new

economic activities that foster economic growth.

132

Solow, 1956. 133

Becker, 1962. 134

Griliches, 1992 and Griffith, 2000. 135

Tomer, 1982 and Martinez, 2009. 136

See, for instance, Easterly et al., 2006. 137

Sen, 1987.

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The ‘When’ dimension

The temporal dimension of analysis relates to the point in the project’s lifetime at which the

effects materialise for the first time, how they develop over time and whether they have

already stabilised or are still evolving. A clear distinction emerges between short-term and

long-term effects, with the former being the first contributions made by the project and

enjoyed by society after a relatively short time following project completion (about 1-5 years);

the latter, on the other hand, become visible after a longer period of time and tend to stabilise

over many years. It is acknowledged that, given the varying timeframe for different effects to

appear and stabilise, the choice of the time horizon and the timeframe at which the ex-post

evaluation is carried out can significantly affect the results of the evaluation.

The ‘How’ dimension

Project outcomes, i.e. the way projects affect the generation of certain effects and the varying

timeframe for effects to appear and stabilise, are not certain, but result from a non-

deterministic combination of different and interrelated factors. Five stylised determinants of

project outcomes have been identified: appropriateness to the context, project design,

forecasting capacity, project governance and managerial response. Five Working Hypotheses

are related to these dimensions and explain how each of them can influence the generation of

the project’s short or long-term effects (see Table I.2).

The three dimension of analysis are logically interconnected and by combining the ‘What’,

‘When’ and ‘How’ dimensions the evaluator can disentangle the causal chain between the

project’s inputs and the outputs.

METHODOLOGY OF ANALYSIS

The methodology developed to answer the evaluation questions consists of a combination of

quantitative (Cost Benefit Analysis) and qualitative (personal interviews, surveys, searches of

government and newspaper archives, etc.) techniques. Qualitative techniques are probably

better at determining why certain effects are generated, along what dimensions, and

underlying causes and courses of action of the delivery process. The media (including websites

or blogs), in particular, have proved to be an excellent source of evidence identifying or

revealing both objective information and perceptions about the project, thus concurring to

assess the project’s impact on social happiness. At the same time, quantitative data can

provide an important support to test and validate certain findings derived from interviews and

other sources. The most important contribution of the CBA exercise is to provide a framework

of analysis to identify the most crucial aspects of the projects’ ex-post performance and final

outcome138.

138

More details on the approach adopted to carry out the ex-post CBA exercise and, in particular, indications on project identification, time horizon, conversion factors and other features are extensively described in the First Intermediate Report of this evaluation study.

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Table I.2 KEY DETERMINANTS OF PROJECT OUTCOMES CONSIDERED Determinant Definition Working Hypothesis Questions to be answered Appropriateness to the context

Includes the consideration of institutional, cultural, social and economic environment into which the project is inserted.

Context traits can be more or less favourable for project performance and deserve early and careful consideration about which to take or to make. The terminology of context traits that can be either ‘taken’ (that is, accepted, as they are considered unchangeable) or ‘made’ (by changing existing or creating new traits) is drawn from Hirschman (1967).

Has the (political, cultural, socio-economic, institutional, regulatory) context played a role in influencing the attainment of long-term effects? Were there any political, social, cultural, economic, regulatory, or institutional constraints to project implementation and performance? Was the project ‘trait taking’ or ‘trait making’ in its nature? If it was intended to be trait making, did it succeed?

Project design Refers to the technical capacity to design the infrastructure project and to select the best project option.

The technical and engineering capacity to design an infrastructure and to provide the appropriate mechanism for its financial sustainability should be sufficiently disciplined to reduce future risks; at the same time it should leave some degrees of ‘latitude’ to enable adjustments for unforeseen circumstances. Following Hirschman, latitude is the characteristic of a project that permits the project planner and operator to mould it, or to let it ‘slip’, in one direction or another. Some projects are so structured that latitude is severely restricted or completely absent: in these cases, the project is considered highly ‘disciplined’.

To what extent and in what way did the technical, structural and financial features of the project influence its performance? Did the option selection process lead to the implementation of the most promising project idea? Was project design capacity a relevant factor in determining the observed ex-post performance of the project? Was the project design flexible enough to be adjusted, if needed, to external and unexpected constraints?

Forecasting capacity

Relates to the feasibility and capacity to predict future variables, such as the demand level.

A good initial investment in building the forecasting capacity does not eliminate risks, but it increases the knowledge of the context, improves the project design and optimises the distribution of responsibilities without lowering the commitment to performance.

Were the ex-ante forecasts based on a sound methodology and a comprehensive set of information? Were some important factors not sufficiently considered ex-ante? Was the forecasting capacity a relevant factor in determining the observed ex-post performance of the project?

Project governance

Concerns the number and type of stakeholders involved throughout the project cycle and how responsibilities are attributed and shared.

High stakeholder involvement, well-defined roles and responsibilities and incentive mechanisms require commitment of resources and increase the complexity of the decision-making process, which may be subject to particular pressures, but they can favour the project performance and its sustainability over time.

What are the interests and motives of different actors and incentives for decision-making? How did they change over the time-span considered? Was the ownership of the project clearly identified? Did contractual arrangements improve the co-ordination of different stakeholders towards achievement-oriented results? Was project visibility a relevant political incentive to foster proper project implementation? Was the project subject to political or other forms of pressure?

Managerial response

Defined as the managerial and professional ability to react to unforeseen events.

Unpredicted events that occur and undermine the sustainability of the project and its capacity to lead to expected benefits can be overcome by prompt and adequate response from the decision-makers and project managers, driven either by professionalism and experience or by creativity and imagination.

How did the project react to exogenous, unpredictable, events? What remedial actions were put in place? What mechanisms were used to incentivise proactive responses? Why were these events unexpected? Was it due to their purely exogenous and ex-ante unpredictable nature? Or, was it due to poor planning capacity?

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STRUCTURE OF CASE STUDIES AND STANDARD TABLES OF RESULTS

Qualitative and quantitative findings are integrated in a narrative way, in order to develop ten

project ‘histories’ and to isolate and depict the main aspects behind their long-term

performance. All case study reports share the same outline, presented in the following Table:

Table I.3 OUTLINE OF THE CASE STUDY REPORT

SECTION CONTENT

Projects description

The first section provides a brief sketch of the unit of analysis. It describes the key structural features of the infrastructure and the service delivered, the context in which it takes place, the target population and the current performance of the project.

Origin and history This section describes the background in which the decision to initiate the project was taken, the need and objectives expected be met and the key stakeholders involved and their role. The section should present a brief chronicle of the main developments after the construction phase and the most recent facts.

Description of long-term development effects

This section should describe the main long-term development effects provided by the project. The seven categories of effects should be considered and for each of them an assessment of the contribution of the project to that specific effect, and the timing of their materialisation and evolution, should be given.

Determinants of project outcomes

The main drivers influencing the performance observed are described and elaborated here. The evaluators should provide their own assessment for each of the five key determinants of project outcomes identified in the conceptual framework.

Conclusions The key messages in terms of lessons learnt are developed here.

Annexes Ex-post cost-benefit analysis report, list of interviewees, other ad hoc analysis if relevant (such as stakeholder mapping).

In order to maintain the structure of all the case study reports as similar as possible, and

facilitate the cross-project analysis of findings, a set of standard tables is used to summarise

the main evaluation results related to three dimensions of analysis (‘What’, ‘When’ and ‘How’).

Section 3 and 4 of each case study include standardised tables in which scores are assigned to

each type of long-term effect and each determinant. Scores ranging from -5 to +5 are given in

order to intuitively highlight which are the most important effects generated for each case

study and which are the most relevant determinants explaining the project outcomes. In other

words, scores are used to rank the effects and determinants, showing which ones are the most

relevant. Moreover, the plus or minus signs indicate the nature of the effects produced by the

project (was the impact positive or negative?) and of the determinant of project performance

(did the determinant positively or negatively contribute to the project outcome?).

The same scores are used to disentangle the project’s impacts on different stakeholders. This

table allows one to better interpret the aggregated score given to each effect, by

understanding on which actor the project impacted the most: for example, a +3 score to

“Direct economic growth” may be reflected by a very high positive effect on the infrastructure

operator (valued, for instance, +5) and a slightly negative effect on other actors (valued -2). As

shown by this example, the aggregate score of each effect and the scores related to different

stakeholders should be consistent with each other and should results from a sort of weighted

average of the impacts on individual stakeholders: an aggregate positive score is inconsistent

with negative impact scores on all the different stakeholders involved.

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Table I.4 SCORES ON PROJECT’S IMPACT AND DETERMINANTS OF PROJECT OUTCOMES

Score Meaning

+5 Given the existing constraints, the highest positive effects have been generated.

+4 Given the existing constraints, high positive effects have been generated, but more could have been achieved under certain conditions.

+3 Moderate positive effects have been generated, with large scope for further improvement.

+2 Some positive effects have been produced.

+1 Very little, almost negligible, positive effects have been generated.

0 No effects have been generated.

-1 Very little, almost negligible, negative effects have been generated.

-2 Minor negative effects have been produced.

-3 Moderate negative effects have been generated, but they could have been worse.

-4 Highly negative effects have been generated.

-5 The highest negative effects have been generated.

Note: The same scores have been used for assessing both the project’s impacts and determinants. In the first case, they have to be interpreted as the nature and strength of effect generated by the project; in the latter, they indicate the strength of each determinant factor in influencing the project outcomes.

The ‘When’ dimensions results are synthetically presented by means of another table: for each

kind of effect, a score is given to explain how the nature and strength of the impact evolved

over the years, by focusing in particular, on the short-run (approximately 1-5 years after the

project’s completion), the long-run (6-10 years after the project’s completion) and the future

period. The Table contains information that allows the reader to immediately understand

whether the project impacts have already stabilised or not. The meaning of the symbols used

and an example of their application is presented in the following two Tables.

Table I.5 SYMBOLS USED TO DESCRIBE THE TEMPORAL DYNAMICS OF THE EFFECTS Symbol Meaning + or - Positive or negative effect. ++ or -- Positive or negative effects reinforced (in positive or negative direction) with respect to the previous

stage. +++ or --- Positive or negative effects further reinforced (in positive or negative direction) with respect to the

previous stage. +/- Mixed effect, it is not possible to assess whether the impact was positive or negative.

Table I.6 EXAMPLES OF TEMPORAL DYNAMICS OF THE EFFECTS Short run (years 1-5)

Long run (years 6- 10)

Future years

Comments

+ + + The positive effect stabilised in the short-run. + ++ ++ The positive effect stabilised in the long-run.

+ ++ +++ The effect has grown over the years and is expected to increase also in the future.

- + ++ The effect was at first negative; after some years it turned positive and it is still not stabilised yet.

+/- + ++ Effects have been mixed in the initial stage, became positive in the long-run and are expected to further increase in the future.

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ANNEX II. COST-BENEFIT ANALYSIS

The present annex illustrates the ex-post CBA of the Port of Gioia Tauro, undertaken to

quantitatively assess the performance of the project. The methodology applied is in line with

the technical note provided in the First Interim Report and, more generally, with the EC Guide

(European Commission, 2008). This annex aims to present in more detail the assumptions,

results of the CBA and the scenario analysis for the Port of Gioia Tauro project.

METHODOLOGY, ASSUMPTIONS AND DATA GATHERING

Ex post CBA has been based on the following assumptions:

Project identification

The unit of analysis is the creation of a transhipment port in Gioia Tauro by the private

company Medcenter Container Terminal (MCT), which operates in the port. In the

economic analysis additional port services necessary for the transhipment purposes are

also included (Port Authority, Customs and Immigrations, etc.). Other activities not

directly related to the transhipment operations are not considered as part of the analysed

project. Hence, investments, operating costs and revenues deriving from the car carrier

activities, made by the other terminal operator ICO-BLG, and from other bodies operating

in the industrial area outside the terminal are excluded both from the financial and

economic analysis.

Time horizon

The time horizon has been set at 30 years for all the project case studies of this

evaluation. This means that the timeframe for the CBA of the Port of Gioia Tauro spans

from 1994 (year zero), the first year in which capital expenditure for investment occurred,

to 2024. Since the point of view is today (2011), the analysis presents a mix of historical

data and forecasts: data from 1994 to March 2011 are historical (corresponding to 17

years) and from April 2011 onwards (covering 13 years), estimates are applied.

Constant prices

The analysis is carried out at constant prices: data from 2012 onwards are estimated in

real terms (2011 prices, no inflation), while available data up to 2011 are historical and

therefore expressed in the official documents and sources of information in nominal

terms: they have been reflated so as to turn them into prices at 2011 Euro139.

Discount rates

Consistent with the choice of using constant prices for inflows and outflows, both the

financial and social discount rates used are real. Financial discount rate is 5.0% for both the

139

For inflation the average percentage variation of consumer prices provided by the International Monetary Fund (IMF) was used. For consistency, the same source will be used also for the other case studies.

62

backward and forward period of analysis, as suggested in the current EC Guide. In the

economic analysis, a specific social discount rate for Italy for the past and the future periods

has been calculated140. A real backward social discount rate of 2.9% and a real forward

social discount rate of 2.4% are used. The reason for using specific social discount rates for

Italy, which differ from the rate suggested in the EC Guide141, relies on the definition: “The

social discount rate reflects the social view on how future benefits and costs should be

valued against present ones and [...] is based on estimates of long-term growth potentials”

of a given country (EC Guide). Recognizing that economic growth is not uniform between

countries and is subject to dynamics, it is methodologically sound to use a specific rate for a

given country and, within each country, to adopt two rates, depending on whether

capitalising the past or discounting the future.

Without the project scenario

All cash flows are incremental against a without-the-project scenario, consisting in the

already existing but unused port infrastructure, producing no costs or revenues. Although a

share of the infrastructure value was utilised in the project analysis and may be relevant to

certain aspects of the financial appraisal, consistent with the EC Guide past investments are

treated as written-off (sunk costs) and not included in the financial and economic flows of

the CBA. Nevertheless, the case study takes into account, in qualitative terms, that the

large amount of past investments represented a determinant for the project’s

implementation. For the sake of completeness, the historical investments are described in

Box AII.1.

Data sources

Primary data have been gathered from balance sheets, opinions and information of the

stakeholders and experts interviewed, a literature review (including Munari 1997, Costa

and Dallari 2008, Russo 2010) and the press142.

Box II.1 HISTORICAL INVESTMENTS

Historical investments

The investments for the construction of the Port of Gioia Tauro date back to the 1970s, when the Italian State decided to locate an industrial centre for the steel industry in the Gioia Tauro area, and to provide it with a port. A large amount of expenditure occurred to carry out the feasibility and preliminary studies, to dig the channel, to move the Eranova settlement and to undertake other completions works. The total cost for building the port amounted at EUR 360 million, corresponding to more than EUR 3 billion at 2011 prices. The following table illustrates the investments carried out:

140

The methodology of calculation is presented in the First Interim Report. 141

Which for a Convergence region should be 5.5%, according to the current EC Guide. 142

See the List of interviewees and List of references in Annexes V and VI.

63

Source: Authors processing ASI-RE, 1995

FUTURE SCENARIO

This CBA is neither an ex ante nor a pure ex-post analysis, since the time horizon covers 17

years in the past, for which most historical data are available, and 13 years in the future.

Hence, some hypotheses have to be made on the future trend of variables.

In particular, the costs and revenues of the investment for future years rely on the hypotheses

made on container traffic demand. The 2009 crisis pushed many operators to revise their

transport strategy and to change the route and destination port, this affecting the traffic levels

in Gioia Tauro. Actually, the economic crisis contributed to cause a -17.6% decrease in the

container traffic in Gioia Tauro, which substantially reduced in 2010 (-0.22%). In the first three

months of 2011, the port has registered a 16% increase of throughput. However, the decision

of its major client (Maersk Line) to stop using the port had a relevant negative effect: in the

first semester of 2011 the traffic in Gioia Tauro has increased by only 0.1% as respect to the

same period in 2010 143.

The traffic demand in the Port of Gioia Tauro may be also influenced by the growth of some

North African markets, which can justify direct calls (e.g. in Tangier and Port Said) and

decrease the relative importance of transhipment. According to some experts, direct call

strategy may increase not only because of a demand growth, but also because of an excess of

the ship offer: in 2007-08 the major shipping lines have ordered the construction of new

mother vessels able to carry 12-18,000 TEUs. These giant ships are expected to be completed

in the next few years and at that moment, the lines may decide to use the smaller ships (4-

6,000 TEUs) to make direct calls to some markets, such as in Northern Africa.

Finally, the future demand can be affected, at least to a certain extent, by the new investments

foreseen in the Framework Programme Agreement for the Port of Gioia Tauro. The creation of

an intermodal platform and the provision of new services linked to the port activities may

increase the competitiveness of Gioia Tauro and stimulate the demand.

The Authors’ estimations about the future scenario keep into account all these factors and

rely, in particular, on Eurispes recent estimations144:

143

Source: Eurokai Financial Report 2011Q1. 144

Euripes, 2010. Available at: http://www.eurispes.it/index.php?option=com_content&view=article&id=1503:cagliari-gioia-tauro-e-taranto-60-milioni-di-euro-in-5-anni-per-salvare-piu-di-9000-posti-di-lavoro-a-rischio&catid=40:comunicati-stampa&Itemid=135

Port expenditure item Expenditure period LIT billion EUR 000

Port construction 1974-85 366.716 189,393 Geotechnical investigations 1973 0.041 21 Port feasibility study 1973 0.014 7 Moving the Eranova settlement 1974-87 40.603 20,970 Hydraulic works 1986 59.330 30,641 Power supply 1993 3.756 1,940 Partial activation of the container terminal 1987 - 93 85.259 44,033 Completion of port infrastructure 1988 - 93 141.120 72,882 Total 696.839 359,887

64

Container trade in the Mediterranean is expected to increase by 25% between 2010

and 2015;

Pure transhipment traffic in the Mediterranean is expected to increase by 12.7%

between 2010 and 2015;

Traffic in the ports of Cagliari, Gioia Tauro and Taranto is likely to increase by 13.5%

between 2010 and 2015, corresponding to an annual average of 2.7%;

On a longer term, the traffic in the Italian ports will still increase if a strategy to

improve the Italian competitiveness is implemented.

MCT is more optimistic in this respect. In a recent official note, MCT has forecasted a 5% traffic

growth in 2014 and 2015.

Figure II.1 TRAFFIC DEMAND IN THE PORT OF GIOIA TAURO (TEUS)– HISTORICAL

DATA (1995-2010) AND FORECASTS (2011-2024)

Source: Authors elaboration based on MCT data

For the purpose of the CBA, the growth rate of the traffic of containers has been set at 0% in

2011, as a consequence of the decreasing competitiveness of the Port. From 2012 onwards the

growth rate is cautiously assumed at 2%, below Eurispes and MCT’s valuation. For sake of

simplicity, this growth rate is assumed to be maintained also in the longer term, from 2016 to

2024, under the hypothesis that the port will manage to attract other clients and to offer new

services.

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

65

FINANCIAL ANALYSIS

MCT investments and sources of funds

The investment programme considered in the financial analysis has two main components:

Mechanical equipment for the new transhipment terminal;

Training courses for MCT employees.

Investment costs for the mechanical equipment component were covered by MCT and co-

financed by the European Commission through ERDF. According to the Programme

Agreement, MCT was supposed to invest EUR 148 million by 2001 (in nominal terms), but in

1999 it had already achieved and even exceeded this target. Other investments for the

renewal of the equipment were made in the following years. In total MCT investments

between 1994 and 2009 amounted to EUR 409 million145. The European Commission

contributed through the European Regional Development Fund about 26% of the total MCT

initial expenses, corresponding to approximately EUR 55.6 million.

Other investments that have to be added to the investments for equipment are those for MCT

staff training, financed by the Region Calabria with resources from the European Social Fund

(ESF). In total, EUR 8.4 million was invested in 1995 to train 410 workers. MCT was supposed to

contribute by paying 10% of the training cost; however, in agreement with the Trade Unions it

obtained a 20% reduction in the tax contribution on employees’ wages, aimed at covering the

training costs for MCT. The effects of this agreement were that:

MCT incurred lower personnel costs and used the released resources to co-finance the

training course;

the Italian State collected lower revenues, because of the reduction in the contribution

deriving from personnel salaries.

In practical terms, the MCT share of training costs was covered by the State. No information is

available on the ESF co-financing rate. .

Looking forward, it is assumed that no investments will be made up to 2013, given the risks

related to traffic demand. Only after traffic recovery, MCT will probably make new investments

to renovate the equipment, amounting to approximately 5 million per year. This is an

extremely prudent hypothesis, according to which in total EUR 55 million will be invested for

terminal operations in the coming years.

The residual value of the MCT investment in equipment is assumed, for sake of simplicity and

prudence, equal to zero.

As for the sources of funds, in addition to EC co-financing, MCT had a number of options:

medium-long term loans, leasing agreements, transfers from the holding company, capital

145

Unless differently stated, all costs are at 2011 prices.

66

from new shareholders and other State contributions (such as the employee redundancy

fund). However, detailed data are not available, making it particularly difficult to estimate the

different sources of financing used by MCT.

Table II.1 PROJECT INVESTMENTS FOR MECHANICAL EQUIPMENT AND STAFF TRAINING

(EUR THOUSAND, 2011 PRICES)

Project year TOT 0 1 2 3 4 5 6 7 8 9 10

-17 -16 -15 -14 -13 -12 -11 -10 -9 -8 -7

Calendar year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

MCT investment

464,899

5,000

45,478

56,222

55,150

34,093

16,781

34,806

6,362

4,755

10,693

14,215

Total staff training

8,416

0 8,416

0 0 0 0 0 0 0 0 0

Total residual values

0 0 0 0 0 0 0 0 0 0 0 0

Total investment

473,314

5,000

53,893

56,222

55,150

34,093

16,781

34,806

6,362

4,755

10,693

14,215

Project year 11 12 13 14 15 16 17 18 19 20

-6 -5 -4 -3 -2 -1 0 1 2 3

Calendar year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

MCT investment

41,357 16,142 24,444 25,864 18,537 0 0 0 0 5,000

Total staff training

0 0 0 0 0 0 0 0 0 0

Total residual values

0 0 0 0 0 0 0 0 0 0

Total investment

41,357 16,142 24,444 25,864 18,537 0 0 0 0 5,000

Project year 21 22 23 24 25 26 27 28 29 30

4 5 6 7 8 9 10 11 12 13

Calendar year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

MCT investment

5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000

Total staff training

0 0 0 0 0 0 0 0 0 0

Total residual values

0 0 0 0 0 0 0 0 0 0

Total investment

5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000

MCT operating costs

The project began its operational phase in 1995, before the completion of all the envisaged

investments. The container terminal operating costs include the following:

67

Direct container terminal personnel costs: the number of MCT employees for the years

1995-2010 is available146. The number of employees is estimated to be stable in 2011;

from 2012 onwards it is assumed to change in relation to the traffic demand forecasts,

keeping constant the productivity level (TEUs handled per employee) calculated for

the year 2010147. The personnel costs are calculated on the basis of the average unit

cost of staff of EUR 38 thousand per year148, and it is assumed it will remain constant

over future years.

Other terminal costs (including material costs, electricity, cleaning and security and

other minor operating costs): consistent with the information delivered by MCT and

the results from the analysis of MCT budgets, the other terminal costs represent about

55% of total terminal costs. On the basis of this share, the other terminal costs have

been calculated.

The concession fee paid by MCT to the Italian State. In 1994 the fee was EUR 775

thousand per year and it was agreed to keep it constant for the whole concession

period. For the first year of activity (1995), it has been assumed that MCT paid only

EUR 194 thousand (one fourth of the concession fee), since MCT started to be

operational only in the fourth quarter of the year. Yet, as a consequence of the

increase of the transhipment terminal area the concession fees were later revised and

in 2010 they amounted to EUR 1,439 thousand per year. In future it is assumed that

there will be no further terminal expansions and that the concession fee will remain at

the 2010 level.

MCT operating revenues

The port’s revenues derive from the container handling operations. Historical data on the

terminal handling revenue, available in MCT balance sheets from 1995 to 2010, are used. For

future years, forecasts are made on the basis of the expected traffic of container

transhipment, keeping constant the amount of revenues per TEU (which was on average EUR

30 in the past).

146

Source: MCT balance sheets. 147

After a pick of productivity registered in 2008, the productivity level has decreased in 2009 and 2010 and it is back to 2006-2007 values. For sake of prudence, it has been decided to keep the 2010 productivity level as constant in future years. 148

The average unit cost of labour has been estimated on the basis of MCT balance sheets.

68

Table II.2 MCT OPERATING COSTS AND REVENUES (EUR THOUSAND, 2011 PRICES) Project Year 0 1 2 3 4 5 6 7 8 9 10 -17 -16 -15 -14 -13 -12 -11 -10 -9 -8 -7 Calendar year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Operating costs MCT direct personnel cost

0 3,191 12,973 15,399 18,932 19,011 22,571 24,459 27,980 29,309 31,291

MCT other costs 0 3,900 15,856 18,821 23,139 23,236 27,587 29,894 34,198 40,319 41,255 Concession fee paid by MCT

0 194 775 775 775 775 775 775 775 974 1,139

Total container terminal operating costs

0 7,284 29,604 34,994 42,846 43,022 50,932 55,128 62,952 70,603 73,686

Revenues MCT revenues 0 541 16,554 40,402 59,103 68,104 77,106 70,852 83,158 88,857 96,191 Total container terminal revenues

0 541 16,554 40,402 59,103 68,104 77,106 70,852 83,158 88,857 96,191

Project Year 11 12 13 14 15 16 17 18 19 20

-6 -5 -4 -3 -2 -1 0 1 2 3 Calendar year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Operating costs MCT direct personnel cost

34,435 34,979 42,239 47,178 41,339 40,834 40,949 34,953 35,653 36,366

MCT other costs 41,502 41,235 50,063 54,969 39,644 37,978 50,049 42,721 43,575 44,447 Concession fee paid by MCT

1,163 1,186 1,277 1,368 1,404 1,439 1,439 1,439 1,439 1,439

Total container terminal operating costs

77,100 77,400 93,579 103,515 82,386 80,251 92,436 79,113 80,667 82,251

Revenues MCT revenues 94,227 96,468 111,033 117,586 86,546 78,311 85,538 87,249 88,994 90,773 Total container terminal revenues

94,227 96,468 111,033 117,586 86,546 78,311 85,538 87,249 88,994 90,773

69

Project Year 21 22 23 24 25 26 27 28 29 30

4 5 6 7 8 9 10 11 12 13 Calendar year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Operating costs MCT direct personnel cost

37,093 37,835 38,591 39,363 40,151 40,954 41,773 42,608 43,460 44,329

MCT other costs 45,336 46,243 47,167 48,111 49,073 50,054 51,055 52,077 53,118 54,180 Concession fee paid by MCT

1,439 1,439 1,439 1,439 1,439 1,439 1,439 1,439 1,439 1,439

Total container terminal operating costs

83,868 85,516 87,198 88,913 90,662 92,447 94,267 96,124 98,017 99,949

Revenues MCT revenues 92,589 94,441 96,329 98,256 100,221 102,226 104,270 106,356 108,483 110,652 Total container terminal revenues

92,589 94,441 96,329 98,256 100,221 102,226 104,270 106,356 108,483 110,652

70

Return on investment and on capital

For the purpose of this ex-post evaluation, there is no need to calculate the financial

profitability of the project (return on investment), as understood in the EC Guide, since neither

the funding gap nor financial sustainability have to be assessed. The financial analysis has to be

considered as a pure methodological base for the economic analysis. However, MCT financial

performance is still considered and analysed, by compiling the profitability of the transhipment

project to MCT from its balance sheets.

A selection of profitability indexes is presented in the following table: as shown, the ratios are

positive each year, with the exception of 2009, as a consequence of the world economic

crisis149.

Lack of reliable data on MCT sources of financing prevents us from adequately assessing the

return on capital, by means of the Financial Net Present Value (FNPV) and Financial Rate of

Return (FRR).

Table II.3 PROFITABILITY INDEXES OF MCT (%)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Return on capital employed150

9.22 6.1 4.76 6.77 9.27 6.40 10.90 8.69 5.39 -1.22

Return on total assets151 4.29 1.47 0.47 2.22 4.38 2.69 6.37 4.38 1.08 -2.24

Profit Margin152 11.46 3.69 0.92 3.91 6.68 3.84 9.36 5.92 2.32 -4.14

EBIT153 Margin 14.85 7.88 4.23 6.85 8.53 5.93 11.35 6.70 4.18 -3.64

Cash flow/Operating revenues

30.33 23.37 16.76 17.89 17.94 17.29 17.86 16.38 14.84 15.50

Source: Authors processing MCT balance sheets

ECONOMIC ANALYSIS

In order to assess the project’s return at the level of the economy, the perspective of analysis

needs to be enlarged to include also the Italian State’s investments in the port infrastructures

incurred from 1995 onwards and the operating costs and revenues of the Port Authority and of

other services operating in the port.

Infrastructural investment costs

In addition to investment costs covered by MCT to finance the port’s equipment and staff

training, large investments were made by the Italian State to complete the existing port

infrastructure and to make the necessary adjustments to make the transhipment terminal

149

These indexes are strongly related to traffic demand, as the drop in 2009 demonstrates. If traffic demand does not recover in the coming years, MCT is likely to cut its operating costs (primarily personnel costs) to defend its margins. 150

The return on capital employed (ROCE) compares earnings with capital invested in the company, taking into account sources of financing. 151

The return on total assets (ROTA) measures a company’s earnings before interest and taxes (EBIT) against its total net assets. 152

The profit margin is the share of net profits in revenues. 153

The EBIT (Earnings Before Interest and Taxes) margin represents the share of EBIT in revenues.

71

operational. The State allocated EUR 68 million (in nominal terms) to adapt and expand the

existing port infrastructure. In particular, EUR 16.5 million was intended for the

implementation of priority works, to be implemented between 1995 and 1997154. Another EUR

51.6 million was allocated for other works and was supposed to be spent between 1998 and

2001, but some of the works continued until 2006. All the priority works were completed and

only 2 out of the 7 remaining lots were not implemented155. Since the investment cost of each

lot is not available, it is assumed that about 80% of the envisaged investment costs were

incurred. The total initial investment by the State was approximately EUR 77 million in real

terms.

Other investments in the port infrastructure were made by the Port Authority on a yearly basis

for ordinary and extraordinary maintenance. Approximately EUR 466 million was invested

between 1998 and 2009156. In 2008 a significant investment was made to improve the

infrastructure, by enlarging the channel and the container apron, building the traffic control

tower and a new quay in the north basin, and to purchase new computer hardware and

software equipment. Data are lacking for years 2010 and 2011, but it is hypothesised that the

Port Authority will invest the same amount as in 2009. Considering that the Port Authority

committed itself to carry out some investments in the port infrastructure (per the Framework

Programme Agreement), it is envisaged that between 2012 and 2015 its investments will be

EUR 10 million per year on average; in the remaining years it has been assumed that they will

be stable at EUR 100 thousand per year. In total, the Port Authority’s investments amount at

about EUR 509 million for the whole time horizon.

Between 2012 and 2015 the European Commission is expected to co-finance the Port

Authority’s expenditure through the National Operational Programme for Mobility 2007-13. A

co-financing rate of 50% is assumed and the EC expenditure will be EUR 10 million per year

from 2012 to 2015.

The total residual value of infrastructure amounts at EUR 228 million. The following have been

considered:

The residual value of the State’s infrastructure investments for the transhipment port

(occurred between 1995 and 2006), assuming a 50-year life horizon;

The residual value of the Port Authority public investments, assuming a 50-year life

horizon and that 90% of these investments relate to port infrastructure (thus excluding

investments for the purchase and renewal of equipment, for which the residual value

is assumed to be zero).

154

Source: Programme Agreement (Ministry of Budget and Economic Planning et al., 1994). 155

They correspond to the construction of the Harbourmaster’s accommodation rooms and works for the extension of the North quay. 156

Source: Port Authority budgets.

72

Table II.4 INFRASTRUCTURAL PUBLIC INVESTMENTS (EUR THOUSAND, 2011 PRICES) Project Year 0 1 2 3 4 5 6 7 8 9 10

-17 -16 -15 -14 -13 -12 -11 -10 -9 -8 -7 Calendar Year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 State's investment 0 12,241 11,615 0 0 43,668 6,609 0 0 0 0 Port Authority's investment 0 0 0 0 37 101 37,001 1,955 18,473 22,638 281,639 Total other public investments 0 12,241 11,615 0 37 43,770 43,610 1,955 18,473 22,638 281,639 Residual value of terminal structures

Residual value of terminal infrastructure (State)

Residual value of terminal infrastructure (Port Authority)

Total residual value 0 0 0 0 0 0 0 0 0 0 0 Total public investment 5,000 66,134 67,837 55,150 34,130 60,550 78,415 8,317 23,228 33,331 295,853

Project Year 11 12 13 14 15 16 17 18 19 20

-6 -5 -4 -3 -2 -1 0 1 2 3 Calendar Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 State's investment 0 2,855 0 0 0 0 0 0 0 0 Port Authority's investment

35 61 842 102,769 827 821 808 20,238 20,238 20,238

Total other public investments

35 2,916 842 102,769 827 821 808 20,238 20,238 20,238

Residual value of terminal structures

Residual value of terminal infrastructure (State)

Residual value of terminal infrastructure (Port Authority)

Total residual value 0 0 0 0 0 0 0 0 0 0 Total public investment 41,392 19,057 25,286 128,633 19,365 821 808 20,238 20,238 45,238

73

Project Year 21 22 23 24 25 26 27 28 29 30

4 5 6 7 8 9 10 11 12 13 Calendar Year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 State's investment 0 0 0 0 0 0 0 0 0 0 Port Authority's investment 20,238 100 100 100 100 100 100 100 100 100 Total other public investments

20,238 100 100 100 100 100 100 100 100 100

Residual value of terminal structures

0

Residual value of terminal infrastructure (State)

-30,795

Residual value of terminal infrastructure (Port Authority)

-197,948

Total residual value 0 0 0 0 0 0 0 0 0 -228,743 Total public investment 45,238 100 100 100 100 100 100 100 100 -228,643

74

Other services’ operating costs

In the economic analysis the operating costs of a number of public administrations carrying out

activities in the terminal are considered: these are the Port Authority, the Harbourmaster,

Customs and Immigration, the Revenue Guard, the Health and Veterinary Services and the Fire

Brigades. The operating costs of the pilotage and towage services, which are paid by the

shipping companies, have also to be included in the analysis.

For the Port Authority, the total current cost of personnel in the years 1998157-2009 is

available158. For the future it has been assumed that the current costs will grow as much as the

traffic demand in the port, keeping constant the unit cost calculated for the year 2009159.

For the Harbourmaster, personnel costs have been estimated, based on the fact that

personnel amounted at 55 and 85 people respectively in 1997160 and 2010: on average 65

people are assumed to be working at the Harbourmaster between 1999 and 2002, 75 between

2003 and 2006 and 85 since 2007. An average unit cost has been estimated from the

accumulated personnel costs for the period 1997-2010. It is assumed that the average annual

growth of personnel costs that occurred between 1997 and 2010 will be maintained also for

future years.

For the personnel costs of other services, some hypotheses have been made on the basis of

the EC Expertise data and of expert estimates. The personnel (and other) costs of these

services have been calculated starting from 1997, since in previous years they were not

operational.

Based on the information collected, the other costs of the Port Authority and of the

Harbourmaster have been calculated by subtracting the personnel costs from the total

operating costs; they represent approximately 70% of the total costs. For sake of consistency

and simplicity, the other costs of the remaining services are also assumed to be 70% of total

costs.

The other services costs in the port are included in the project between 1995 and 1999. After

that, these costs pertained not only to MCT, but also to the other terminal operator ICO-BLG,

which received part of the quay in 2000 and is expected to further expand its area in 2012. By

assuming that the costs are proportional to the lengths of quay occupied, the factors used to

calculate the costs pertaining to the container terminal are:

100.0% from 1994 to 1999;

91.1% from 2000 to 2011, as result of the establishment of ICO-BLG in the port;

81.7% from 2012 to 2024, as result of the expected enlargement of ICO-BLG's

terminal.

157

The year the Port Authority became operational. 158

Port Authority balance sheets. 159

This value does not differ significantly from the value calculated in 2007, before the economic crisis. 160

The year the Harbourmaster became operational.

75

Other services’ operating revenues

MCT revenues are included in the economic analysis as social benefits generated by the

project. The Port Authority’s inflows are also included in the economic analysis. Its current

revenues, which are available for the period 1998 - 2009, include the concession fee paid by

the terminal operator161, and port dues and wharfage paid by shipping lines. The revenues for

the future are estimated to grow in line with traffic demand.

Custom duties are assumed to be negligible, both in the past and in the future period, since

transhipment does not generate clearance duties. This is based on the prudent hypothesis that

the railway terminal (envisaged in the recent Framework Programme Agreement) will not be

activated and that the share of inland traffic in transhipment is not going to increase

significantly.

161

Note that this item appears both in the costs and revenues, so it cancels out.

76

Table II.5 OPERATING COSTS AND REVENUES OF OTHER PORT’S SERVICES (EUR THOUSAND, 2011 PRICES) Project year 0 1 2 3 4 5 6 7 8 9 10 -17 -16 -15 -14 -13 -12 -11 -10 -9 -8 -7 Calendar year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Public services’ operating costs

Port authority personnel costs

0 0 0 0 3 147 453 553 744 676 798

Port authority other costs 0 0 0 0 883 1,152 1,478 1,542 2,831 1,920 2,246 Port authority total costs 0 0 0 0 886 1,299 1,931 2,095 3,575 2,596 3,043 Harbourmaster personnel costs

0 0 0 100 116 113 112 109 106 120 116

Harbourmaster other costs 0 0 0 237 275 269 265 258 253 284 276 Harbourmaster total costs 0 0 0 337 390 383 377 367 359 403 392 Other public services: personnel costs

0 0 0 2,250 2,250 2,250 2,375 2,500 2,625 2,750 2,875

Other public services: other costs

0 0 0 5,250 5,250 5,250 5,542 5,833 6,125 6,417 6,708

Other public services total costs

0 0 0 7,500 7,500 7,500 7,917 8,333 8,750 9,167 9,583

Public port services total costs

0 0 0 7,837 8,776 9,182 10,224 10,795 12,684 12,166 13,019

Container terminal partition factor

100% 100% 100% 100% 100% 100% 91% 91% 91% 91% 91%

Public port services costs to be assigned to the container terminal

0 0 0 7,837 8,776 9,182 9,317 9,838 11,559 11,087 11,864

Public services’ revenues Port Authority's revenues 0 0 0 0 1,220 1,894 2,671 2,945 4,333 3,340 3,200 Public services’ revenues 0 0 0 0 1,220 1,894 2,671 2,945 4,333 3,340 3,200

77

Project year 11 12 13 14 15 16 17 18 19 20 -6 -5 -4 -3 -2 -1 0 1 2 3 Calendar year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Public services’ operating costs

Port authority personnel costs

909 1,223 1,390 1,887 1,470 1,453 1,430 1,459 1,488 1,518

Port authority other costs 2,345 2,292 7,304 3,460 3,939 3,914 3,851 3,928 4,007 4,087 Port authority total costs 3,254 3,515 8,694 5,347 5,409 5,368 5,281 5,387 5,494 5,604 Harbourmaster personnel costs

114 111 123 121 117 116 119 124 129 134

Harbourmaster other costs 270 264 293 287 277 275 282 294 306 319 Harbourmaster total costs 384 375 416 408 394 391 401 418 435 454 Other public services: personnel costs

3,000 3,125 3,250 3,375 3,415 3,455 3,496 3,536 3,576 3,616

Other public services: other costs

7,000 7,292 7,583 7,875 7,969 8,063 8,156 8,250 8,344 8,438

Other public services total costs

10,000 10,417 10,833 11,250 11,384 11,518 11,652 11,786 11,920 12,054

Public port services total costs

13,638 14,307 19,943 17,005 17,187 17,277 17,334 17,590 17,849 18,111

Container terminal partition factor

91% 91% 91% 91% 91% 91% 91% 82% 82% 82%

Public port services costs to be assigned to the container terminal

12,428 13,039 18,175 15,497 15,662 15,744 15,797 14,370 14,581 14,795

Public services’ revenues Port Authority's revenues 3,422 3,625 12,286 14,252 13,243 13,143 12,931 13,189 13,453 13,722 Public services’ revenues 3,422 3,625 12,286 14,252 13,243 13,143 12,931 13,189 13,453 13,722

78

Project year 21 22 23 24 25 26 27 28 29 30 4 5 6 7 8 9 10 11 12 13 Calendar year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Public services’ operating costs

Port authority personnel costs

1,548 1,579 1,610 1,643 1,675 1,709 1,743 1,778 1,814 1,850

Port authority other costs 4,168 4,252 4,337 4,424 4,512 4,602 4,694 4,788 4,884 4,982 Port authority total costs 5,716 5,831 5,947 6,066 6,188 6,311 6,438 6,566 6,698 6,832 Harbourmaster personnel costs

140 146 152 158 165 172 179 187 195 203

Harbourmaster other costs 333 347 361 376 392 409 426 444 462 482 Harbourmaster total costs 473 492 513 535 557 580 605 630 657 684 Other public services: personnel costs

3,656 3,696 3,737 3,777 3,817 3,857 3,897 3,938 3,978 4,018

Other public services: other costs

8,531 8,625 8,719 8,813 8,906 9,000 9,094 9,188 9,281 9,375

Other public services total costs

12,188 12,321 12,455 12,589 12,723 12,857 12,991 13,125 13,259 13,393

Public services’ total costs 18,376 18,645 18,916 19,190 19,468 19,749 20,033 20,321 20,613 20,909 Container terminal partition factor

82% 82% 82% 82% 82% 82% 82% 82% 82% 82%

Public services’ costs to be assigned to the container terminal

15,012 15,231 15,453 15,677 15,904 16,133 16,366 16,601 16,839 17,080

Public services’ revenues Port Authority's revenues 13,997 14,277 14,562 14,854 15,151 15,454 15,763 16,078 16,399 16,727 Public services’ revenues 13,997 14,277 14,562 14,854 15,151 15,454 15,763 16,078 16,399 16,727

79

Other social costs and benefits

While the value of the port infrastructure built between the 1970s and the beginning of the

1990s is a sunk cost and therefore excluded from the financial and economic analysis, it has to

be considered that the area could have been used for purposes other than the construction of

a transhipment port: agriculture, fishing, shipbuilding, tourism etc. The concession fee that

would have been paid in 1994 by other companies or individuals to carry out commercial

activities can be assumed, for sake of simplicity, as a proxy of the opportunity cost of the port

infrastructure. By law n. 494 of 4 December 1993 and on the basis of the area size (1,200,000

m2), the concession fee for the Port of Gioia Tauro should have been LIT 2,400 million per year

(EUR 1.9 million)162. This is assumed to be the opportunity cost of the port infrastructure in

1994, which increases in proportion to the enlargement of MCT container terminal163. Such

increase has been estimated on the basis of the unit cost of concession for 1m2 of area and the

enlargements occurred over the years as reported by MCT balance sheets. It has to be noted

that this fee is higher than the fee actually paid by MCT in the initial years of activity (EUR 775

thousand per year). As far as the social benefits generated by the project are concerned, these

are probably not adequately represented by the revenues collected by the beneficiary and the

Port Authority. In fact, the transhipment port in Gioia Tauro produced additional positive

effects for the other Italian ports, by increasing the efficiency of the sea transport system and,

to a minor extent, by generating new traffic. However, given the difficulty in quantifying and

monetizing this effect for the purpose of the CBA, it is only qualitatively addressed in the case

study.

From market to accounting prices

In economic analysis all input data are converted from financial to shadow prices, in order to

reflect their opportunity cost. First of all, base conversion factors suggested by the Italian

Guide for Public Investments (NUVV, 2001) are considered, with the exception of the shadow

wage, for which a specific conversion factor for the Region Calabria is used164.

162

Source: MCT application form to ERDF financing (Contship Italia, 1994a). 163

In addition, every year the port concession fees envisaged by law are adjusted on the basis of inflation. 164

See the First Interim Report for details on how this conversion factor was estimated.

80

Table II.6 BASE CONVERSION FACTORS Item Source Conversion factor

Project design NUVV Guide 0.997

Expropriation NUVV Guide 0.648

Labour Del Bo et al. (2011) 0.33165

Civil works NUVV Guide 0.884

Equipment NUVV Guide 0.885

Other (energy, services, skilled labour etc.) NUVV Guide166 0.997

Table II.7 CONVERSION FACTORS USED IN THE ECONOMIC ANALYSIS

Item

Pro

ject

des

ign

Exp

rop

ria

tio

n

Lab

ou

r

Civ

il w

ork

s

Equ

ipm

ent

Oth

er

CF

Existing port 4.0% 10.0% 50.0% 26.0% 10.0% 0.59922

Terminal container structures (MCT) 3.0% 40.0% 7.0% 45.0% 5.0% 0.67189

Terminal container structures (EC) 4.0% 50.0% 36.0% 10.0% 0.62282

Port infrastructures (State) 4.0% 45.0% 33.0% 10.0% 8.0% 0.64836

Extraordinary maintenance port infrastructures

50.0% 40.0% 10.0% 0.6183

New equipment and renewal investment

100.0% 0.885

Staff training 100.0% 0.997

MCT other costs 60.0% 15.0% 25.0% 0.58

Public port services personnel costs 30.0% 70.0% 0.7969

Public port services other costs 30.0% 70.0% 0.9634

Port revenues 100% 0.997

Source: Authors

On this basis, specific conversion factors have been estimated for the inputs (see the above

table). In particular, the composition of conversion factors for different categories of

investment is a working hypothesis made according to engineering judgement and experience

on similar works. For example, the port services’ other costs are assumed to be composed by a

small share of equipment costs (30%) and by a larger one (70%) of other costs, including, as

instance, energy. The conversion factor for this item is calculated as a sum of the base

conversion factors, properly weighted, of ‘equipment’ and ‘other costs’.

165

The shadow wage measures the social value of time spent working and it is defined as the social opportunity cost of labour for renouncing leisure time. The national conversion factor proposed by the Italian guide for public investments is 0.77. However, because of the specificities of the Calabria context, characterised by very high unemployment and low per capita GDP, the Authors decided to use the regional specific conversion factor recently calculated by Del Bo et. al (2011), which specifically considers the regional context. Actually, a lower conversion factor (0.33) is considered more appropriate to estimate the opportunity cost of labour in Calabria. Since no significant changes in the labour market are expected in future, the same conversion factor is used both in the past and future periods. The sensitivity analysis will test the elasticity of results (ENPV and ERR) to the chosen conversion factor. 166

It corresponds to the Standard Conversion Factor for Italy.

81

Economic performance

The economic performance of the project – Economic Net Present Value (ENPV) and Economic

Internal Rate of Return (ERR) - has been calculated by applying a 2.9% real discount factor for

the period 1994-2011 and 2.4% for the years 2012-2024.

The ENPV is positive and equal to EUR 604.5 million and the ERR is 10.44%. The economic

analysis is presented in Table II.8.

The CBAs carried out ex-ante167 for the EC Expertise reported a particularly high internal rate of

return on investment in the case of the economic analysis: +39.8%. There are two reasons why

the results obtained “ex-post” differ so much from the ex-ante expectations:

Methodological differences and inaccuracies, such as the use of the value added by

the terminal operator and other private sector port-related activities to estimate the

port’s benefits;

Optimism bias: the hypothesis of traffic growth and of the potential development that

the terminal would generate were over-estimated, thus leading to very high

expectations of social return.

167

One prepared by the “Comitato per il Coordinamento delle Iniziative per l’Occupazone” and submitted to DG Regio in support of the application form for ERDF co-financing and the other prepared by an external consultant company for the European Commission in support of the Expertise report (European Commission, 1996).

82

Table II.8 ECONOMIC ANALYSIS (EUR THOUSAND, 2011 PRICES) Project year CF 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 -17 -16 -15 -14 -13 -12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 Calendar year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 MCT investment

0.6719 3,359 30,556 37,775 37,055 22,907 11,275 23,386 4,275 3,195 7,185 9,551 27,787 10,845 16,424 17,378 12,455

Staff training 0.9970 8,390 State's investment

0.6484 0 7,937 7,530 0 0 28,313 4,285 0 0 0 0 0 1,851 0 0 0

Port Authority's investment

0 0 0 0 24 66 23,990 1,267 11,977 14,677 182,603

23 39 546 66,631 536

Residual value of terminal structures

0.6228

Residual value of terminal infrastructures (State)

0.6484

Residual value of terminal infrastructures (Port Authority)

0.6484

Total investment

3,359 46,883 45,306 37,055 22,931 39,653 51,660 5,542 15,172 21,862 192,154

27,810 12,736 16,970 84,009 12,991

MCT direct personnel cost

0.3300 0 1,053 4,281 5,082 6,248 6,274 7,448 8,071 9,233 9,672 10,326 11,364 11,543 13,939 15,569 13,642

MCT other costs

0.5800 0 2,262 9,196 10,916 13,421 13,477 16,000 17,339 19,835 23,385 23,928 24,071 23,916 29,037 31,882 22,994

Port authority personnel costs

0.7969 3 117 361 441 593 538 636 724 975 1,107 1,504 1,171

Port authority other costs

0.9634 851 1,109 1,424 1,485 2,727 1,850 2,163 2,259 2,208 7,037 3,334 3,795

Harbourmaster personnel

0.7969 79 92 90 89 87 85 95 93 91 89 98 96 93

83

costs Harbourmaster other costs

0.9634 228 265 260 255 249 243 274 266 260 255 282 277 267

Other services: personnel costs

0.7969 1,793 1,793 1,793 1,893 1,992 2,092 2,191 2,291 2,391 2,490 2,590 2,690 2,722

Other services: other costs

0.9634 5,058 5,058 5,058 5,339 5,620 5,901 6,182 6,463 6,744 7,025 7,306 7,587 7,677

Other port services total costs

0 0 0 7,159 8,061 8,428 9,361 9,874 11,641 11,130 11,912 12,469 13,041 18,420 15,487 15,725

Container terminal partition factor

100% 100% 100% 100% 100% 100% 91% 91% 91% 91% 91% 91% 91% 91% 91% 91%

Other port services costs to be assigned to the container terminal

0 0 0 7,159 8,061 8,428 8,530 8,998 10,609 10,143 10,855 11,363 11,885 16,787 14,113 14,330

Total operating costs

0 3,315 13,478 23,156 27,729 28,178 31,979 34,408 39,677 43,200 45,109 46,798 47,344 59,762 61,564 50,966

Opportunity cost of the port infrastructure

1,913 1,935 1,909 1,871 1,872 1,867 1,883 1,879 1,884 1,989 1,979 1,977 2,210 2,206 2,237 2,178

Total economic costs

5,272 52,133 60,692 62,082 52,533 69,698 85,523 41,829 56,733 67,052 239,242

76,585 62,289 78,938 147,810

66,135

Terminal revenues

0.997 0 539 16,504 40,281 58,926 67,900 76,874 70,639 82,909 88,590 95,902 93,944 96,179 110,700

117,233

86,286

Port Authority's revenues

1.0000 1,220 1,894 2,671 2,945 4,333 3,340 3,200 3,422 3,625 12,286 14,252 13,243

84

Total benefits 0 539 16,504 40,281 60,145 69,794 79,545 73,584 87,242 91,931 99,102 97,366 99,804 122,986

131,486

99,529

Cash flow -5,272 -51,593

-44,188

-21,801

7,613 96 -5,978 31,754 30,509 24,879 -140,140

20,781 37,514 44,048 -16,325

33,394

Discounted Cash flow

-8,571 -81,516

-67,848

-32,531

11,039 136 -8,187 42,263 39,461 31,272 -171,186

24,669 43,279 49,384 -17,787

35,359

85

Project year CF 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 Calendar year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 MCT investment

0.6719 0 0 0 0 3,359 3,359 3,359 3,359 3,359 3,359 3,359 3,359 3,359 3,359 3,359

Staff training 0.9970 State's investment

0.6484 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Port Authority's investment

532 524 13,121 13,121 13,121 13,121 65 65 65 65 65 65 65 65 65

Residual value of terminal structures

0.6228 0

Residual value of terminal infrastructures (State)

0.6484 -19,966

Residual value of terminal infrastructures (Port Authority)

0.6484 -128,342

Total investment

532 524 13,121 13,121 16,481 16,481 3,424 3,424 3,424 3,424 3,424 3,424 3,424 3,424 -144,883

MCT direct personnel cost

0.3300 13,475 13,513 11,535 11,765 12,001 12,241 12,485 12,735 12,990 13,250 13,515 13,785 14,061 14,342 14,629

MCT other costs

0.5800 22,027 29,028 24,778 25,274 25,779 26,295 26,821 27,357 27,904 28,462 29,032 29,612 30,204 30,808 31,425

Port authority personnel costs

0.7969 1,158 1,140 1,162 1,186 1,209 1,234 1,258 1,283 1,309 1,335 1,362 1,389 1,417 1,445 1,474

Port authority other costs

0.9634 3,771 3,710 3,784 3,860 3,937 4,016 4,096 4,178 4,262 4,347 4,434 4,523 4,613 4,705 4,799

Harbourmaster personnel costs

0.7969 92 95 99 103 107 112 116 121 126 132 137 143 149 155 162

86

Harbourmaster other costs

0.9634 265 272 283 295 308 320 334 348 363 378 394 410 427 445 464

Other services: personnel costs

0.7969 2,754 2,786 2,818 2,850 2,882 2,914 2,946 2,978 3,010 3,042 3,074 3,106 3,138 3,170 3,202

Other services: other costs

0.9634 7,767 7,858 7,948 8,038 8,129 8,219 8,309 8,400 8,490 8,580 8,671 8,761 8,851 8,942 9,032

Other port services total costs

15,808 15,859 16,094 16,332 16,571 16,814 17,060 17,308 17,559 17,813 18,071 18,331 18,595 18,862 19,133

Container terminal partition factor

91% 91% 82% 82% 82% 82% 82% 82% 82% 82% 82% 82% 82% 82% 82%

Other port services costs to be assigned to the container terminal

14,406 14,453 13,148 13,341 13,537 13,736 13,936 14,139 14,344 14,552 14,762 14,975 15,190 15,409 15,630

Total operating costs

49,908 56,994 49,460 50,380 51,317 52,271 53,242 54,231 55,238 56,264 57,308 58,372 59,456 60,559 61,683

Opportunity cost of the port infrastructure

2,268 2,276 2,276 2,276 2,276 2,276 2,276 2,276 2,276 2,276 2,276 2,276 2,276 2,276 2,276

Total economic costs

52,709 59,793 64,857 65,777 70,073 71,027 58,942 59,931 60,938 61,964 63,008 64,072 65,155 66,259 -80,925

Terminal revenues

0.997 78,076 85,281 86,987 88,727 90,501 92,311 94,157 96,041 97,961 99,921 101,919

103,957

106,036

108,157

110,320

Port Authority's revenues

1.0000 13,143 12,931 13,189 13,453 13,722 13,997 14,277 14,562 14,854 15,151 15,454 15,763 16,078 16,399 16,727

Total benefits 91,219 98,212 100,17 102,18 104,22 106,30 108,43 110,60 112,81 115,07 117,37 119,72 122,11 124,55 127,04

87

6 0 3 8 4 3 5 1 3 0 4 7 8 Cash flow 38,510 38,419 35,319 36,403 34,150 35,281 49,492 50,672 51,877 53,107 54,364 55,648 56,959 58,298 207,97

3 Discounted Cash flow

39,627 38,419 34,492 34,716 31,805 32,088 43,958 43,951 43,941 43,929 43,915 43,899 43,880 43,858 152,794

Results of the economic analysis

Economic discount rate (backward) 2.90%

Economic discount rate (forward) 2.40%

ENPV (EUR thousand) 604,509

ERR 10.44%

88

Synthesis of the hypotheses of analysis and sources

The following table lists the different sources consulted to derive the financial flows and the

hypothesis and assumption made by the Team in carrying out the CBA.

Table II.9 SYNTHESIS OF SOURCES AND HYPOTHESIS MADE FOR THE CBA Item Source Hypothesis Traffic MCT Hypothesis for the future trend:

+0% in 2011 +2% in 2012-2024

State investments ASI-REG and MCT (Informative Note 10 Oct. 1995)

Among the programmed investments: Lira 32 bn: totally allocated Lira 100 bn: only 80% was actually allocated

ERDF investments EC Final Execution Report

MCT investments MCT and Programme Agreement

It has been assumed for the future that investments will be zero till 2013 and EUR 5 million per year between 2014 and 2024.

Staff training Agreement with the Trade Unions (August 1995) mentioned by EC Expertise, Munari (1997), press and DG Regio documents

Port Authority investments

Port Authority balance sheets, FPA

Investments between 2012 and 2015 will amount at EUR 10.12 million per year on average and then they will stabilize at EUR 100 million per year thereafter.

Direct container terminal personnel costs

MCT balance sheets In 2011 they are assumed to remain at the 2010 level. From 2012, the number of employees is expected to change in relation to the traffic demand forecast, keeping constant the 2010 productivity level.

Other terminal costs

MCT balance sheets Other terminal costs approximately represent 55% of total costs. This share is assumed to remain constant in the future.

Port authority personnel costs

Port Authority balance sheets

Assumed to grow in line with traffic demand. Only 91% of the estimated costs have been included in the CBA between 2000 and 2011; only 81% of the costs have been included from 2012 onwards.

Harbourmaster personnel costs

The Harbourmaster provided the number of employees in 2010 and the cost for personnel between 1997 and 2010

Hypothesis on the number of employees and the average unit costs made on the basis of the data provided by the Harbourmaster. Only 91% of the estimated costs have been included in the CBA between 2000 and 2011; only 81% of the costs have been included from 2012 onwards.

Other public services personnel costs

EC Expertise Estimated to be between EUR 2.3 and 3.4 million in the period 1997-2010. Hypothesis for the future is based on traffic demand. Only 91% of the estimated costs have been included in the CBA between 2000 and 2011; only 81% of the costs have been included from 2012 onwards.

Port authority other costs

Port Authority balance sheets

Assumed to represent 70% of total Port Authority costs in the future. Only 91% of the estimated costs have been included in the CBA between 2000 and 2011; only 81% of the costs have been included from 2012 onwards.

Harbourmaster other costs

The Harbourmaster provided the amount of other costs between 1997 and 2010

Assumed to represent 70% of total Harbourmaster costs in the future. Only 91% of the estimated costs have been included in the CBA between 2000 and 2011; only 81% of the costs have been included from 2012 onwards.

Other costs of the other services

Core Team hypotheses. Assumed to represent 70% of the total costs. Only 91% of the estimated costs have been included in the CBA between 2000 and 2011; only 81% of the costs have been

89

included from 2012 onwards Container terminal revenues

MCT balance sheets Future revenues are expected to growth in line with container traffic. The revenues are assumed to be constant at EUR 30 per TEU.

Port Authority revenues

Port Authority balance sheets

Future revenues are expected to growth in line with traffic demand.

Annual concession fee

MCT, Programme Agreement

In 1995 assumed to be ¼ of the concession fee normally paid, because MCT started operations only in the fourth quarter of the year.

SENSITIVITY AND SCENARIO ANALYSIS

A simplified sensitivity analysis is made on key variables, in order to observe the extent to

which certain variations of these variables affect the performance indicators. The Authors

tested the sensitivity of a number of variables, for which the future forecasts are considered

the most critical. The variables that are made vary and the ranges of variation are:

Traffic demand: in the CBA 2% growth in traffic has been assumed starting from 2012.

This variable is made vary between -1%, in a pessimistic scenario where the traffic

keeps decreasing like in 2009 and 2010 because of the port’s competitiveness

problems, and +5%, the annual growth rate recently forecasted by MCT for the years

2014-15.

Figure II.2 SCENARIOS ON TRAFFIC DEMAND IN THE PORT OF GIOIA TAURO (TEUS)

Source: Authors

MCT investments: the authors’ hypothesis is that MCT will finance some new

investments from 2014 onwards, amounting at EUR 5 million per year. The project

performance indicators are tested in the case of no further expenditures until the end

of the horizon period, and alternatively in a very optimistic case of yearly investment

0

1.000.000

2.000.000

3.000.000

4.000.000

5.000.000

6.000.000

1995 2000 2005 2010 2015 2020 2025

TE

U's

Base case Pessimistic (-1%) Optimistic (+5%)

90

amounting at EUR 30,000 (which is the average of investments between 1994 and

2001).

MCT operating costs for personnel, which has been calculated on the basis of an

average unit cost of EUR 38 thousand, is made vary from EUR 30 thousand (MCT unit

cost of labour in 2003) to EUR 45 thousand, which is even higher than the 2008 value,

when the unit cost reached its maximum (nearly EUR 41 thousand).

MCT revenues: the amount of revenues on the container traffic, which in the past

period amounted at EUR 30 per TEU and which has been assumed constant also for

the future, is made vary from EUR 25 to EUR 40 per TEU. It has to be pointed out that

in the period 1995-2010 the amount of revenues ranged from EUR 27 to 34. Hence,

the values tested in the scenario analysis can be considered as borderline cases,

relying on the hypothesis of great decline of MCT revenues because of the port’s loss

of competitiveness, in the pessimistic case, and of a large increase of revenues deriving

from new clients and from the provision of new services, in the optimistic case.

The results that are generated when each variable varies and all the others are kept constant

are summarized in the table below.

Table II.10 VARIATION OF SELECTED INDICATORS SYNTHESIS OF SOURCES AND

HYPOTHESIS MADE FOR THE CBA

Variable Base assumption in the CBA

Hypothesis ENPV

(EUR thousand):

base case 604,509 EUR th.

ERR

(%):

base case 10.44%

Demand growth from 2012 onwards

2% -1.00% 469,348 9.59%

5.0% 775,322 11.31%

MCT investments from 2014 onwards

EUR 5,000 th. EUR 0 635,163 10.63%

EUR 30,000 th. 451,241 9.38%

MCT personnel costs (unit cost)

EUR 38 th. EUR 30 th. 711,020 11.15%

EUR 45 th. 517,830 9.80%

MCT revenues (revenues per TEU)

EUR 30 th. EUR 25 th. 410,494 8.90%

EUR 40 th. 992,539 12.66%

On the basis of the sensitivity tests and on alternative assumptions on forecasts, a scenario

analysis can be implemented by constructing two paths concerning future variable trend: an

optimistic and a pessimistic scenario, where all the optimistic and pessimistic hypotheses

made in the sensitivity analysis are respectively considered.

The hypotheses of the two scenarios are presented in the following table:

91

Table II.11 HYPOTHESES FOR THE SCENARIO ANALYSIS

Optimistic scenario Pessimistic scenario

The demand will grow by 5.0% per year The traffic demand will not increase for the whole period

Thanks to the recovery of traffic, MCT will make higher investments from 2014 onwards that what assumed in the base case

MCT will not make any further investments in the terminal structures

The unit cost of personnel will decrease, this increasing the port’s competitiveness

The unit cost of personnel will increase

The share of revenues on traffic will increase The share of revenues on traffic will return to its minimum value

The results are:

i) In an optimistic scenario, the ENPV would reach EUR 1,221million, with an economic

rate of return of 13.47%.

ii) In a pessimistic scenario, the ENPV would be EUR 266million, with an economic rate of

return of 7.49%.

UNCERTAINTY ANALYSIS

In addition to the sensitivity analysis of the assumptions made to the future trend of key

variables, the authors aim to test also the elasticity of results to some parameters used in the

analysis, as a sort of test of the methodology used. These are:

The conversion factor of labour, which was assumed at 0.33, tested against the

assumption made by the Italian Guide for Public Investments suggesting 0.77;

The social discount rate was estimated at 2.9% for the backward period and 2.4% for

the forward period: however, the social opportunity cost of capital, i.e. the return that

can be generated on the marginal project in the private sector168, is equivalent to a 5%

real rate, as recommended by the EC Guide;

The estimation of the opportunity cost of the existing port infrastructures, assumed at

EUR 1,239 thousand (1995 price), but for which no certain values can be obtained.

Hypothetically, this cost could be lower and amounting at the concession fee actually

paid by MCT in 1995 (EUR 775 thousand), or higher, for example the double (EUR

2,500 thousand).

The difference with the standard sensitivity analysis stems from the consideration that

variations in the parameters are not the result of the uncertainty about the future but relates

to methodological choices and assumptions. The aim of this analysis is to test the robustness

of some methodological hypotheses and to assess the sensitivity of the final results to them.

168

In a closed economy with perfect information, no distortions and no externalities the social discount rate and the social opportunity cost of capital are equivalent.

92

Table II.12 VARIATION OF SELECTED INDICATORS SYNTHESIS OF SOURCES AND

HYPOTHESIS MADE FOR THE CBA

Value used in the CBA Value tested ENPV

(EUR thousand)

ERR

(%)

Social discount rate Backward SDR 2.9%;

forward SDR 2.4%

5% 429,082 -

Conversion factor for labour

0.33 0.77 - 402,660 -1.35%

Opportunity cost of infrastructure

EUR 1,239 thousand (in nominal term in 1995)

EUR 775 th. 631,322 10.89%

EUR 2,500 th. 531,747 9.29%

Each of chosen parameters has been made vary singularly and the results of the economic

analysis can be observed in the table above. While the sensitivity of the opportunity cost of

infrastructure is negligible, the social discount rate is more significant, although the result are

still acceptable (positive and about two third of the reference case. The sensitivity of the

conversion factor for labour is instead critical, but this is not surprising given that, as already

discussed, the main benefit of the project is actually the employment created in a regions

experiencing incredibly high level of unemployment.

RISK ASSESSMENT

The risk assessment has been conducted on the four variables on which the sensitivity analysis

was performed: traffic demand growth after 2012, MCT investments after 2014, future MCT

personnel cost and MCT revenues per TEU.

For the sake of simplicity it is assumed that the probability of an increase or decrease in these

variables has a triangular distribution with the value with the highest probability being the

reference one and the lower and upper bound being the values defined in the scenario

analysis. The risk assessment was elaborated by an experimental Monte Carlo simulation169

with 1,000 random repetitions so that an “educated guess” is made of the likely outcome. The

key variables are made to vary contemporaneously within the ranges defined in the pessimistic

and optimistic scenarios (see Table II.10).

In synthesis, the risk analysis shows that the ENPV is on average EUR 635 million, slightly

higher than the reference case, and the average ERR is 10.59% (against a reference case of

10.44%); the ERR, in particular, is never lower than 7.64%. Hence, the positive outputs of the

CBA appear to be robust to future possible variations in the key variables. These results

indicate that the residual risk of the project over the remaining years of the time horizon

coming from the selected variables is very low.

169

A proprietary software has been used.

93

Table II.13 RESULTS OF THE RISK ANALYSIS ON THE ECONOMIC NET PRESENT VALUE

(EUR THOUSAND)

Reference value of the ENPV 604,509

Mean 635,758

Median 626,268

Standard deviation 153,649

Minimum value 269,131

Central value 679,864

Maximum value 1,090,597

Probability of the ENPV being not higher than the reference value 45.1 %

Probability of the ENPV being higher than the reference value 54.9 %

Probability of the ENPV being lower than zero 0 %

Source: Authors

Figure II.3 PROBABILISTIC DISTRIBUTION OF THE ECONOMIC NET PRESENT VALUE

(EUR THOUSAND)

Source: Authors

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

260,000 460,000 660,000 860,000 1,060,000

Punctual probability

Cumulated probability

Reference value

Minimum

Central

Maximum

Mean

SD low

SD upp

Median

94

Figure II.4 PROBABILISTIC DISTRIBUTION OF THE ECONOMIC NET PRESENT VALUE

(EUR THOUSAND)

Source: Authors

Table II.14 RESULTS OF THE RISK ANALYSIS ON THE ECONOMIC INTERNAL RATE OF

RETURN

Reference value of the ERR 10.44 %

Mean 10.59 %

Median 10.64 %

Standard deviation 0.99 %

Minimum value 7.64 %

Central value 10.32 %

Maximum value 13.00 %

Probability of the ERR being not higher than the reference value 43.3 %

Probability of the ERR being higher than the reference value 56.7 %

Probability of the ERR being lower than the reference discount rate (2.4 %) 0 %

Source: Authors

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

243,

927

287,

062

330,

197

373,

332

416,

467

459,

602

502,

736

545,

871

589,

006

632,

141

675,

276

718,

411

761,

545

804,

680

847,

815

890,

950

934,

085

977,

220

1,02

0,35

4

1,06

3,48

9

ENPV

95

Figure II.5 PROBABILISTIC DISTRIBUTION OF THE ECONOMIC INTERNAL RATE OF

RETURN

Source: Authors

Figure II.6 PROBABILISTIC DISTRIBUTION OF THE ECONOMIC INTERNAL RATE OF

RETURN

Source: Authors

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

7.6% 8.6% 9.6% 10.6% 11.6% 12.6%

Punctual probability

Cumulated probability

Reference value

Minimum

Central

Maximum

Mean

SD low

SD upp

Median

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

7.1%

7.4%

7.7%

8.0%

8.3%

8.6%

8.9%

9.2%

9.5%

9.8%

10.1

%

10.4

%

10.7

%

11.0

%

11.3

%

11.6

%

11.9

%

12.2

%

12.5

%

12.8

%

ERR

96

97

ANNEX III. MAP OF STAKEHOLDERS

Stakeholder General description and responsibility

Terminal operator

• The terminal operator is a company providing the shipping lines with wharfage, dock, warehouse or other port terminal facilities. In the Port of Gioia Tauro there are two terminal operators: Medcenter Container Terminal (MCT) and BLG Automobile Logistics Italia.

• MCT, set up by Contship Italia, established in the Port at the end of 1993. Contship signed the Programme Agreement on behalf of MCT. MCT implemented huge investments in the port structures, a small share of them co-financed by the ERDF. MCT is the main terminal operator and started transhipment activity in September 1995.

• In 1994 it had to guarantee a certain level of throughput, employment and private investments; the targets were achieved much sooner than expected. It has the exclusive use of a 3,395 metre dock and a 1,600,000 square metre area. It pays a concession fee to the Italian State that is intended to recover the Italian government’s investment costs, but not the sunk investment costs associated with the port (as stressed in the EC Expertise).

• BLG is a joint venture between a German logistics company in the automotive sector (part of the Eurokai group) and a company specialising in cargo handling. It has operated in the Port of Gioia Tauro since 2000.

• BLG received by concession through the Global Grant a 110,000m2 area and a 330m dock, which later expanded to became 320,000m2 and 760m respectively. At this location, BLG carries out a car carrier activity for the automotive sector, but a technological centre is also available for processing, inspection, equipment installation, repairs and painting. Vehicles handled in Gioia Tauro mainly come from Chinese, Japanese, Korean and Indian manufacturers.

Ministry of Transport and Navigation (also called Ministry of the Merchant Marine, Ministry of Infrastructure and Transport)

• The Ministry of Transport’s mission is to organise the major railway, road, air and maritime communication lines on Italian territory. It implements the major infrastructure works in collaboration with ANAS (for the motorways) and FS Ferrovie dello Stato and Trenitalia for railways.

• The Ministry of Transport was one of the signatories of the Programme Agreement. It approved the land concession to MCT and monitored compliance with the commitments undertaken by the terminal operator. According to the Programme Agreement, the Ministry was also responsible for the implementation of the rail link between the Port and the existing Battipaglia-Reggio Calabria railway line.

• The Ministry of Transport elaborated a draft Master Plan to explain to the European Commission the potentialities of the port.

• The Ministry of Transport has the role of appointing the presidents of the port Authorities in agreement with the relevant regions. In December 2010 the Ministry approved the Framework Programme Agreement for the port area of Gioia Tauro.

Other Ministries

• Other Ministries were involved in the story of the Port of Gioia Tauro. Besides the Ministry of Transport, other Ministries that signed the Programme Agreement were the Ministry of Budget and Economic Planning and the Ministry of Public Works.

• The Ministry of the Interior was part of the Committee for the Coordination and Development of the area of Gioia Tauro, established in 1997.

Prime Minister

• Two Prime Ministers had a particularly important role in the story of the port. First, Carlo Azeglio Ciampi promoted the project for a new transhipment port by signing in 1993 the draft agreement (Protocollo d’Intesa) with Contship Italia; second, Romano Prodi nominated in 2007 the Special Commissioner to develop a new strategy for the port.

• On the other hand, the press blames Silvio Berlusconi’s government for having little interest in the port of Gioia Tauro.

Temporary committees

• A Surveillance Committee was set up and regulated in 1993 (Regulation 2082/1993) to ensure compliance with European regulations, decide upon the monitoring and control activities, and propose initiatives to expedite the implementation of the transhipment project. The Committee was composed of representatives of the Government (Ministry of Budget and Ministry of Transport), the European Commission, the Region and Contship Italia. Five meetings took place between 1996 and 1998.

• The Committee for the Coordination and Development of the area of Gioia Tauro (Committee “Bianconi") was foreseen in the Programme Agreement (Art. 7), but established only in 1997. The Committee was in charge of coordinating the activities related to the agreement and of the timing and execution of all works concerning the transhipment project. It was based in Rome and composed of the following parties: Prime Ministry, Ministry of Transport, Ministry of Public Works, Ministry of Interiors, Ministry of Finance and Region Calabria.

• Committee “Soriero” was set up to support the Coordination Committee. The Committee was guided by Mr. Soriero Giuseppe, undersecretary of Transport, appointed by Prime Minister Romano Prodi, and included the same parties as the Committee “Bianconi”. Depending on the subject of the meeting, additional participants were invited, such as Contship and ASI-REG. The

98

Committee was in charge of easing the procedures of different public administration, in order to expedite the implementation of all the infrastructural works and to guarantee collaboration between different public actors. Later, it was also tasked with discussing the draft Master Plan for the development of Gioia Tauro, prepared by the Ministry of Transport, and with sending a definitive version to the European Commission. This was sent in February 1998.

Region of Calabria

• The Calabria Region is one of twenty Italian regional administrative divisions. It has legislative, administrative, financial/fiscal and regulatory powers. Among these, it approves the General Urban Plans, which periodically defines the scope (residential, commercial or industrial) of the territorial areas.

• The management of the Port of Gioia Tauro was originally assigned to the Region of Calabria. The Programme Agreement gave the region the role of coordinating the operations related to the transhipment major project, to ensure the timely implementation of investments and to guarantee the most efficient and effective use of the ERDF resources. These tasks were carried out by the Region through a regional executive agency for local development (ASI-REG).

Association of the Industrial Development in the Province of Reggio di Calabria (ASI-REG)

• The Association of the Industrial Development in the Province of Reggio Calabria (ASI-REG), established in 1963 and controlled by the Region of Calabria, has the role of promoting the establishment of industries, handcrafts and service business in the competence area, by expropriating lands, collecting concession fees, making available infrastructure and equipment, and providing services and consultancies. It has operated since the construction phase of the transhipment port, on behalf of the Region of Calabria.

• ASI-REG implemented several infrastructure works in the Port of Gioia Tauro before 1994. During the construction of the transhipment port, ASI-REG’s roles were: i) to monitor compliance with regional, national and European law, particularly with reference to environmental issues; ii) to approve modifications to the Urban Plan of the industrial area of Gioia Tauro; iii) to implement infrastructural works within the port area, by investing Lira 32 billion (EUR 16.5 million) of its own resources between 1996 and 1996 and an additional Lira 100 billion (allocated by the Inter-ministerial Committee for Economic Planning) in the following years.

• After the creation of the Port Authority, the ASI-REG consortium’s field of responsibility was limited to industrial development in the area at the rear of the Port.

Intermediate body for the Global Grant

• A consortium was set up as an intermediate body responsible for the Global Grant: Mediterranea Sviluppo S.c.a.r.l. Its shareholders were ASI-REG (the major one), Fincalabria and Ecoter.

• Its responsibilities were the verification of the criteria to obtain the grants, monitoring the expenditure eligibility, certifying the existence of permissions and monitoring the status of infrastructure and equipment.

Port Authority

• The Port Authorities are public bodies with legal status introduced by Law n.84 of 28.01.1994. They are required for each port of national or international economic relevance. The number of Port Authorities, originally 18, is currently 24. Their presidents are appointed by the Ministry of Transport, after consultation with the interested region, from among a trio of experts designated by the Province, the municipalities and Chambers of Commerce, Industry, Handcraft and Agriculture. However the Ministry may decide, if there is a particular reason, to request a second list of three candidates.

• The Port Authority is in charge of the planning, coordination, surveillance, promotion and monitoring of the port operations and of all the other commercial and industrial activities implemented within the port areas. The Port Authority is also responsible for the preservation of the seabed and of ordinary and extraordinary maintenance of the port communal areas and infrastructure. It has territorial responsibilities over the port areas, which are not part of the Urban Plan designed by the municipalities and approved by the Region: in fact, the ports are types of territorial entities, regulated by their Port Authorities through 3-year Operational Plans, in agreement with the municipalities in the surroundings.

• When the Port of Gioia Tauro was upgraded from a regional to an international economic relevance port (Law 30.12.1997), a Port Authority was established on 16.07.1998. In 2007 the Port Authority of Gioia Tauro extended its area of competence to the port of Crotone and Corigliano Calabro and in 2008 also to the Port of Taureana di Palmi. This structure aims to maximise the benefits from scale economies, while preserving the peculiarities of each port.

• When it was created, the Port Authority of Gioia Tauro took over from the ASI-REG consortium the management of the port and was charged with managing the infrastructures within the port area financed by ASI-REG.

• Investments are carried out mainly with resources provided by the Ministry of Transport. It also implements promotional activities for the port (publications, a website), releases the authorisation to the enterprises that require to operate in the port and collects the concession fees, the anchorage taxes and other port taxes (based on the weight of merchandise disembarked and embarked).

• Until 2005 the Port Authority forwarded tax revenues to the Ministry of Transport, which then reallocated them across all the Italian ports. Since 2006, tax revenues are entirely retained by

99

the Port Authority. • In 2002 a legal dispute arose between the Port Authority and ASI-REG, concerning the

ownership of an area included in the jurisdiction of the Port Authority but which ASI-REG continued to manage as if it was still under its own jurisdiction.

Shipping agencies

• In every port a number of companies offer collateral services to the port users. They include: custom operations, assistance in loading and discharging of cargoes, warehousing and distribution.

• In Gioia Tauro, the largest shipping agencies are Serport Gioia Tauro and Saimare Gioia Tauro (Serport has been present in the port of Gioia Tauro since the first phase of the terminal operations). Other companies are Calabria Shipping Agency, Innovazione Logistica and Medmar. These actors have very limited negotiating power with the shipping lines, since they are usually direct suppliers to the terminal operator MTC.

Consortium for port promotion

• The draft agreement (Protocollo d’Intesa) between the Italian Government and Contship Italia included among its objectives the creation of a consortium, mainly composed of private companies, for the management of general port services (excluded docking, piloting and towage). Its objective was to promote the initiatives aimed at the improvement of the port and to manage the general port services, in collaboration with local entrepreneurs, namely: the executive centre, rest areas, training, maintenance, etc.

• The consortium was supposed to be established within 2 months from the ratification of the Programme Agreement, but the Programme Agreement, signed on 29 July 1994, makes no mention of it. The consortium was finally set up in December 1996, after some conflicts between the Province and the municipalities, who asked to be represented on it. The Consortium included various private and public bodies: the Chamber of Commerce, Assindustria, local banks, Fincalabria, ASI-REG, GEPI, the Province of Reggio di Calabria.

• There is no evidence that the Consortium actually operated. Some of the its functions were probably taken over by the Port Authority (maintenance of the common areas in the port and promotion).

• The new plan for the development of the Port, developed by the independent consulting company Booz Allen Hamilton, highlights the need to establish an agency (withparticipation by the region and Ministries) in charge of surveillance, coordination and promotion of the new plan, also through territorial marketing activities. The proposal for such an agency, whose roles are in part similar to the Consortium’s, highlights the need to have a body in charge of the port’s promotion.

Special commissioner

• The special commissioner in Italy is a person nominated by the Government with extraordinary powers to address particularly urgent and severe problems. Thanks to the centralisation of powers, the commissioner should be able to address specific objectives more directly and quickly than a larger number of administrations, with different interests.

• On 23 May 2007 the Prime Minister Romano Prodi nominated Rodolfo De Dominicis as special commissioner of the Government for the activities related to the development of the Port of Gioia Tauro for the period of one year. On 28.02.2008 De Dominicis’s public office was transformed into “special commissioner delegated for the management of the development plan for the Port of Gioia Tauro” and he held office until 31 December 2009.

• The special commissioner for the Port of Gioia Tauro was in charge of designing a new development plan for the port and its industrial area. Its field of responsibility overlapped with the roles of the Port Authority and of the ASI-REG consortium. During his period in office, the commissioner selected the consulting company Booz Allen Hamilton as external advisor with the task of elaborating a Strategic Development Plan for the Wide Area of Gioia Tauro. This plan is the basis of the Framework Programme Agreement signed in December 2010 by the European Commission, the Italian government and all the stakeholders involved in the Port.

Source: Authors

100

101

ANNEX IV. LIST OF ENTERPRISES

OPERATIONAL IN THE PORT AREA

Company Area Employees Financing source Situation at 29/07/09

AUTORITÀ PORTUALE (ex Oto Breda Sud)

286,365 n.a. Own Resources Constructed but not operational

MODUL SYSTEM 8,277 n.a. Own Resources Constructed but not operational

S.I.A.M 3,570 1 Own Resources Operational

CO.ME.CA 10,160 27 Global Grant Operational

S.I.A.M. (ampl.) 3,960 - Own Resources Operational

M.C.T. 25,000 1273 Own Resources Operational

WOODLINE INTERN. 11,005 9 Law 44/86 Operational

DE MASI COSTR. 14,807 45 Own Resources Operational

AUGIMERI 5,000 1 Law 488/92 Operational

PROGETTO SUD 6,980 3 Own Resources Operational

SAC 5,285 3 Law 44/86 Operational

LP EDILIZIA INDUSTRIALIZZATA 2,000 2 Own Resources Operational

TEKNO CISALL 5,412 15 Law 488/92 Operational

C.R.G.T. 37,443 5 Own Resources Operational

LEGNELITE 5,001 0 Law 44/86 Operational

P.M.C. 6,396 3 Law 488/92 Constructed but not operational

DOORS & WINDOWS 15,334 19 Law 488/92 Constructed but not operational

ATLANTE 52,798 0 Law 488/92 Bankrupt

DELIA SUD COFANI 7,121 6 Law 44/86 Constructed but not operational

DE MASI COSTR .(ampl). 324 - Own Resources Operational

ZINCAL 19,729 18 Own Resources Operational

BLG 25,977 55 Global Grant Operational

CARONTE & TOURIST (ex Travel Tickets)

10,658 101 Global Grant Operational

46,902

PREFABBRIKA 21,876 63 Law 488/92 Operational

SEA WORK 10,214 50 Global Grant Operational

BIMARE FRUTTA (ora C.G.S.) 24,109 6 Global Grant Operational

ALLERA COSTRUZIONI METALMECCANICHE

8,957 46 Law 488/92 Operational

ECOLOGIA OGGI 9,645 66 Global Grant Operational

NATURAGEL 11,154 4 Own Resources Operational

ALL SERVICES 10,273 0 Global Grant Bankrupt

TECNOCLIMA 10,724 1 Law 488/92 Constructed but not operational

ATLANTE (ampl.) 15,411 - Law 488/92 Bankrupt

102

FINCEDI CALABRIA 38,617 49 Own Resources Operational

VIBOLABELS 2,959 3 Law 44/86 Constructed but not operational

BIMARE FRUTTA 10,050 - Global Grant Constructed but not operational

ZEN MARINE 9,996 11 Global Grant Operational

EUROPEAN VISION 5,509 3 Global Grant Operational

GUINICELLI 16,501 2 Global Grant Operational

INVECO 9,988 8 Global Grant Constructed but not operational

RADIPLAST 5,499 5 Global Grant Constructed but not operational

CLM (aff. GICOS) 8,032 10 Global Grant Operational

INDUSTRIE SICMA 50,715 0 Law 488/92 Bankrupt

GA.RI. 7,800 8 Own Resources Operational

EDILMAG (ex Impredit) 13,200 29 Own Resources Operational

PAN NOVA 5,056 1 Law 488/92 Constructed but not operational

RIZZO ANTONIO 4,940 17 Law 488/92 Operational

CO.ME.CA -600 Global Grant

EFFEPIEFFE UNO 11,679 4 Own Resources Not yet constructed

SANGIORGIO 3,943 1 Own Resources Operational

GA.RI. (ampl.) 1,584 - Own Resources Operational

POLISTIROLO 5,500 8 Law 488/92 Operational

2,353

RETI ELETTROSALDATE 5,500 8 Law 488/92 Operational

2,523

MORABITO PIETRO S 10,470 16 Own Resources Operational

R.G.S. (ex Reefer & Contai- 40,948 19 Law 488/92 Operational

EUROPLAST (ex Plastic Sud) 8,030 4 Law 44/86 Operational

CON.AS.CO 5,001 8 Own Resources Operational

ALL SERVICES 4,760 - Global Grant Not yet constructed

AZZURRINA (ex Edilfin) 14,500 18 Law 488/92 Operational

MEDMETAL 1,996 5 Concession agreement

Under construction

L’ULIVO 5,007 38 Concession agreement

Under construction

ASTER CONSULT 10,906 15 National OP Operational

PREFABBIKA (ampl.) 14,260 - Law 488/92 Operational

IL CORRIERE GROUP 5,000 1 Law 488/92 Operational

5,280 Law 488/92

EKOTEM SRL 27,000 13 Own Resources Operational

MI.TI.FORM SRL 10,000 2 Own Resources Operational

2,194 Concession agreement

SORGENIA (ex Soluxia) 20,015 - Own Resources Operational

103

EUROMED SRL 19,939 0 Own Resources Not yet constructed

L.E.M. 5,670 0 Own Resources Not yet constructed

GICOS IMPORT-EXPORT S.R.L. 100,237 47 Own Resources Under construction

MORABITO PIETRO S (ampl) 4,000 - Own Resources Operational

DE MASI COSTR. 14,999 - Own Resources Operational

ECOSERVIZI 10,060 - Own Resources Operational

IAM 2,455 - Concession agreement

Not yet constructed

LOCAT (M.C.S.aff.) 5,131 4 Own Resources Operational

F.C. IMMOBILIARE (ex. Citrus Pellets)

15,188 0 Law 488/92 Constructed but not operational

DOC MARKET’S 24,335 - Funds FINECO Leasing

Under construction

PUNTO UNO INGROSS (ex tre esse)

4,793 1 Law 488/92 Operational

TEC.AL.CO 34,818 - Law 488/92 Under construction

CON.AS.CO (ampl.) 5,058 - Own Resources Not yet constructed

GIOIA SUCCHI 17,181 - Own Resources Under construction

EUROPLAST (ex Miniro) 5,080 Operational

MI.TI.FORM (ex Miniro) 4,920 Operational

CALABRIA AGRUMI SAS 4,521 n.a. Own Resources Not yet constructed

GA.RI. (ampl.) 7,265 - Own Resources Not yet constructed

Source: ASI-REG, 2010

104

105

ANNEX V. LIST OF INTERVIEWEES

Interviews and correspondence were undertaken with the following individuals. We would like

to thank them for their assistance in compiling our report.

Interviewees Position Date Place

Giovanni Laganà General Director Department of Infrastructure and Transport, Region Calabria

12.05.2011 Catanzaro

Salvatore Silvestri

General Secretary of the Authority of the Port of Gioia Tauro

12.05.2011 Gioia Tauro

Francesco Cosentino

General Director ASI-REG, Consortium for the industrial development of the province of Reggio Calabria

12.05.2011 Reggio Calabria

Carmine Crudo General Director MCT Medcenter Containers Terminal (CS Contship Italia Group)

13.05.2011 Gioia Tauro

Francesco De Bonis

Managing Director BLG Logistics (ICO-BLG) 13.05.2011 Gioia Tauro

Salvatore Olando Former General Director of the Department for National and European Programming, Region Calabria (former Managing Authority of Region Calabria)

12.05.2011 Lamezia Terme

Sergio Curi Professor at the University of Castellanza and C-Log 25.05.2011 Milano

Rodolfo De Dominics

Former Special Commissioner of the Italian Government for the Port of Gioia Tauro

26.05.2011 Milano

Francesco De Rose

DG REGIO, European Commission 16.06.2011 Brussels

Alberto Piazzi DG REGIO, European Commission 16.06.2011 Brussels

Giuseppe Biacca Former president of Serport 20.06.2011 Reggio Calabria

Teresa Munari Journalist 20.06.2011 Reggio Calabria

Domenico Gattuso

Professor of Transportation Systems, University of Reggio Calabria, Faculty of Engineering, Department of Informatics, Mathematics, Electronics and Transport

20.06.2011 Via Graziella, località Feo di Vito 89122, Reggio Calabria

Pasquale La Rosa Representative of the trade union CGIL, Reggio Calabria 20.06.2011 Reggio Calabria

Ivan Vita Representative of the industrial association Confindustria, Reggio Calabria

21.06.2011 Reggio Calabria

Santi Casciano Procurement Manager for Maersk line 20.07.11 Telephonic

Francesco Russo Professor of Transportation Systems, University of Reggio Calabria, Faculty of Engineering, Department of Informatics, Mathematics, Electronics and Transport

28.07.11 Telephonic

106

107

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