IMPLEMENTING PORTREFORM

M O D U L E 8

PORT REFORMTOOLKITSECOND EDITION

THE WORLD BANK

© 2007 The International Bank for Reconstruction and Development / The World Bank

All rights reserved.

The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of Public-Private Infrastructure Advisory Facility (PPIAF) or the Board of Executive Directors of the World Bank or the governments they represent.

Neither PPIAF nor the World Bank guarantees the accuracy of the data included in this work. The boundaries, colors,denominations, and other information shown on any map in this work do not imply any judgment on the part of PPIAF or theWorld Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.

The material in this work is copyrighted. Copyright is held by the World Bank on behalf of both the World Bank and PPIAF.No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including copying,recording, or inclusion in any information storage and retrieval system, without the prior written permission of the World Bank.The World Bank encourages dissemination of its work and will normally grant permission promptly.

For all other queries on rights and licenses, including subsidiary rights, please contact the Office of the Publisher, World Bank,1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail pubrights@worldbank.org.

ISBN-10: 0-8213-6607-6ISBN-13: 978-0-8213-6607-3eISBN: 0-8213-6608-4eISBN-13: 978-0-8213-6608-0DOI: 10.1596/978-0-8213-6607-3

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MODULE EIGHT CONTENTS1. Strategic Preparation: The Interministerial Working Group 353

1.1. IWG Mandate and Composition 3541.2. Hiring Advisers 3541.3. Time Frame 3551.4. IWG Workplan 356

2. Redefinition of Authorities and Powers 3562.1. Regulatory Principles 3562.2. Port Authorities and Consultations 3562.3. Public Infrastructure Pricing 3562.4. Labor Redeployment 3592.5. Contract Management Principles and Procedures 359

3. Legal Adaptation 3594. Transaction Preparation 359

4.1. Financial Model 3604.2. Due Diligence 3604.3. Contractual Document Preparation 3604.4. Bidding Documents’ Preparation 360

References 363

BOXESBox 1: Hiring and Managing Advisers 355Box 2: Port Reform Process 361Box 2a: Port Reform Process 362

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Acknowledgments

This Second Edition of the Port Reform Toolkit has been produced with the financial assistance of a grant fromTRISP, a partnership between the U.K. Department for International Development and the World Bank, for learningand sharing of knowledge in the fields of transport and rural infrastructure services.

Financial assistance was also provided through a grant from The Netherlands Transport and Infrastructure TrustFund (Netherlands Ministry of Transport, Public Works, and Water Management) for the enhancement of theToolkit’s content, for which consultants of the Rotterdam Maritime Group (RMG) were contracted.

We wish to give special thanks to Christiaan van Krimpen, John Koppies, and Simme Veldman of the RotterdamMaritime Group, Kees Marges formerly of ITF, and Marios Meletiou of the ILO for their contributions to this work.

The First Edition of the Port Reform Toolkit was prepared and elaborated thanks to the financing and technicalcontributions of the following organizations.

The Public-Private Infrastructure Advisory Facility (PPIAF)PPIAF is a multi-donor technical assistance facility aimed at helping developing countries improve the qualityof their infrastructure through private sector involvement. For more information on the facility see the Web site: www.ppiaf.org.

The Netherlands Consultant Trust Fund

The French Ministry of Foreign Affairs

The World Bank

International Maritime Associates (USA)

Mainport Holding Rotterdam Consultancy (formerly known as TEMPO), Rotterdam Municipal PortManagement (The Netherlands)

The Rotterdam Maritime Group (The Netherlands)

Holland and Knight LLP (USA)

ISTED (France)

Nathan Associates (USA)

United Nations Economic Commission for Latin America and the Caribbean (Chile)

PA Consulting (USA)

The preparation and publishing of the Port Reform Toolkit was performed under the management of Marc Juhel,Ronald Kopicki, Cornelis “Bert” Kruk, and Bradley Julian of the World Bank Transport Division.

Comments are welcome.Please send them to the World Bank Transport Help Desk.Fax: 1.202.522.3223. Internet: Transport@worldbank.org

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1. STRATEGIC PREPARATION:THE INTERMINISTERIALWORKING GROUP Because of the wide-ranging implications ofport reform for the national economy, decidingto embark on the path to reform must be aninitiative fully supported at the highest levels of

government. Once the principle is agreed uponby the council of ministers or cabinet, an effec-tive way to overcome the traditional difficultiesinherent with working across several ministerialdepartments is to set up an interministerial work-ing group (IWG) under the chairmanship of ahigh level public official, and give it an explicitmandate. Drafting and getting this mandate

8Implementing Port ReformSECOND EDITION

Shifting the boundary between the public and private sectors entailsfour kinds of preparations: (1) Strategic preparation, including theconsideration of a particular institutional model and service ensemble

that best matches a port’s competitive environment and its growthprospects. (2) Redefinition of authorities and their powers and mandates,resulting in regulations, rules, tariffs, and procedures that will ensure thatthe provision of all port services are fully coordinated and that the properincentives to spur efficiency are in place. (3) Legal adaptation, which estab-lishes the sectoral legal framework based on the principles agreed upon as aresult of the strategic analysis and the redefinition of institutional rules. (4) Transaction preparation, which results in the development of tenderingprocesses that are transparent, open, and competitive.

This module describes how to undertake this series of tasks in a practicaland effective way.

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approved will be the first step to set the reformprocess in motion.

Due to its interministerial nature, and to the factthat most of its proposed decisions will have afar-reaching impact across a number of ministeri-al departments, a logical proposition would befor the IWG to report directly to the head of gov-ernment, prime minister, or council of ministers.

1.1. IWG Mandate and CompositionThe IWG will have to define the objectives ofport reform and draft a new or revised institu-tional framework for the sector based on theseobjectives. Its proposals should be included in aport sector policy paper that should be endorsedby the council of ministers. This policy paperthen should be distributed for comments fromall of the stakeholders within the port and mari-time sectors, such as port cities, port authorities,chambers of commerce, port labor unions,shipping and liner agents, and the like. Based onthe sector comments, the policy paper should beadapted and submitted to parliament or the con-cerned parliamentary commission for approval.In particular, this policy paper will propose apreferred choice for the new port managementmodel to be implemented.

The skills of the people appointed to the IWGwill be critical. First, IWG members must repre-sent the various ministerial departments directlyinterested in port sector activities, includingtransport, external trade, finance, labor, envi-ronment, and possibly agriculture, industry, andmore. Second, they must collectively hold therequired competence in terms of economic,financial, technical, and social aspects of theport industry both domestically and regionally.Third, they must be seen as independent fromany interest group, and the key staff must havea recognized reputation in their field of compe-tence. While the IWG may, and should, consultwith all interested stakeholders and representa-tives of the professional port and maritime com-munity, it must be able to view the reformprocess from a broader economic perspective,focusing on the overall public interest of thecountry.

1.2. Hiring Advisers Designing and implementing a port sectorreform program involving increased private sec-tor participation in port services requires sub-stantial economic, financial, technical, and legalexpertise, and the coordination of this expertise.The process requires detailed work, first refiningthe institutional option to be implemented, thenpreparing the legal and regulatory measuresrequired to support it, and finally drafting com-plex documents, such as the necessary enablinglaws (port law, competition law, and more),reform policies and procedures, and model con-cession agreements. Preparing these documentsoften involves several iterations, as preliminaryversions are distributed to the national profes-sional community and to prospective privatepartners for comment, and then amended inaccordance with those comments and with thegovernment’s policy concerns.

Governments often lack the full range of expert-ise within the civil service to carry out thesetasks. Some countries may have few of the nec-essary skills available locally and will needinternational advisers. All governments willneed to contract out at least some of these tasksto external advisers. Managing these advisersthen becomes a primary task of the IWG.

Various kinds of advisers may be helpful.Economic and regulatory consultants can adviseon how the market for port services can be struc-tured and how competition can be promoted,depending on domestic and regional contexts;they can also help devise adequate regulatoryand monitoring mechanisms when needed.Legal consultants can help prepare draft legisla-tion and regulations as well as model conces-sion agreements if required. In the event thatthe government develops a national ports mas-ter plan, technical consultants can assess portfacilities and help prepare technical specifica-tions and requirements for both general regula-tory purposes and specific concession contracts.Environmental consultants can prepare environ-mental studies, baseline surveys of existing con-ditions at the outset of the reform process, andenvironmental impact assessments of specific

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development options. Finally, investmentbankers and financial consultants can help pre-pare financial projections and cost benefitanalyses for the sector as a whole. In the eventof specific port development projects, theymight also assist in determining the bankabilityfrom a private investor’s perspective. For moreinformation on how best to select and hireadvisers, see Box 1 on the separate World Banktoolkit for hiring and managing advisors forprivate participation in infrastructure (PPI).

1.3. Time Frame For the sake of efficiency, it is advisable to giveexplicit deadlines to the IWG. The time framefor conceptualizing and implementing reform,however, must be realistic. Time requirements

obviously will vary country by country,depending on the local economic context andon the physical magnitude of the sector; how-ever, a six-month period is likely to be the min-imum time required to establish a sector reformstrategy and secure agreement on it from vari-ous stakeholders. This phase may extend up to12 months in more complex institutional andoperational environments. Implementing thereform itself—including transforming publicport authorities, setting up regulatory bodies asneeded, preparing transactions with privatepartners, and closing contracts—may requirebetween one to two years, assuming no politi-cal disruptions occur. Altogether, a two- tothree-year time frame from the inception ofthe reform process to when the new sector

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The Public Private Infrastructure AdvisoryFacility (PPIAF http://www.ppiaf.org/) hasfunded the Toolkit: A Guide for Hiring

and Managing Advisors for PrivateParticipation in Infrastructure. This Toolkit willassist governments in hiring and managingeconomic consultants, financial advisors, andlegal experts as well as other specialistsrequired to increase the role of the private sec-tor in all infrastructure services. The main com-ponents of the Toolkit are an overview, anexecutive summary, and three volumes of pub-lications that contain nine modules as follows:

• Volume 1 introduces PPI reforms and therole of advisors in those reforms:

~ Module 1: Highlights how advisors can helpimprove the chances of success of public-private infrastructure reforms, but warns thatthey are costly and must be well managed.

~ Module 2: Describes the types of infra-structure reforms and breaks down theinfrastructure reform process in four keystages: formulating policy, establishing thelegal and regulatory framework, tenderingthe contract, and managing the contract.

~ Module 3: Outlines the types of advisorsthat may be required (economic, financial,legal, technical, human resources, and com-munication) and their roles at each stage.

~ Module 4: Discusses ways ofpackaging advisory services and

defining terms of reference, budget, andtimetable.

~ Module 5: Provides concrete recommen-dations for tailoring advisory packages tosmall projects.

• Volume 2 is made up of a single module,Module 6, which provides a practical guideto sources of funding for transaction supportfrom multilateral and bilateral agencies,either through technical assistance or lend-ing. It discusses their eligibility criteria andfunding interests. Some information is out ofdate, but most contact details and Web linksremain current.

• Volume 3 goes into more details about themechanics of hiring advisors:

~ Module 7: Discusses methods of selectingadvisors.

~ Module 8: Recommends alternative waysof paying advisors for their advice.

~ Module 9: Provides guidance on how gov-ernments should be organized internallyto manage the reforms and superviseadvisors.

The Annexes (PDF, 117B) contain sample eval-uation forms, sample proposal formats, andsample terms of reference. Information forordering the PPI Advisory Toolkit as well as aself-guided tour of the Toolkit’s main themes isavailable on PPIAF’s homepage:www.ppiaf.org.

Box 1: Hiring and Managing Advisers

organization is up and running would seem areasonable estimate.

1.4. IWG Workplan The first element of the IWG workplan shouldbe to consider the strategic situation of the portsector, and to review the operational and eco-nomic strengths and weaknesses of the domesticport and maritime industry. Organizing effectivecommunications with the national port and mar-itime community, as well as with important stake-holders (for example, the importers/exportersassociation, chambers of commerce, and inlandtransport carriers), and maintaining thisinteraction throughout the reform design andimplementation process, will be a major respon-sibility of the IWG. The IWG review shouldinclude:

• Market conditions, competition condi-tions (both domestic and regional), anddemand forecasts.

• Domestic legal and regulatory conditions.

• Domestic institutional arrangements.

• National strategic objectives for the portsector in support of overall national eco-nomic development goals.

The IWG must then decide on the port sectorinstitutional and management model that wouldbest suit the national conditions and strategiceconomic objectives. Information included inModules 2 and 3 on evaluating and selectingthe appropriate model may be helpful in thisprocess. Once the main organizational princi-ples of the sector are agreed upon within theIWG, the government must firmly endorse andadopt them so that all parties can be assuredthat the reform program will be seen through tocompletion.

2. REDEFINITION OFAUTHORITIES AND POWERS For the next step in the strategic preparationprocess, the IWG should define the regulatoryprinciples applicable to the sector and the meth-ods to be employed in implementing reform. Thiswork is complementary to the organizational

arrangements, and usually has a bearing on thelegal provisions to be developed as part of thenew sectoral legislative framework. On thebasis on the institutional and managementframework decided upon as part of the strategicpreparation phase, the IWG can then turn itsattention to the establishment of the public enti-ties that will be in charge of regulating andmonitoring the sector, and the definition of theirmandates.

2.1. Regulatory Principles Following the assessment of the competitive sit-uation in the sector (from both a national andregional perspective), the IWG should assess theneed for an economic regulatory mechanism. Ifsuch a mechanism is determined to be neces-sary, the mandate, operating rules, and compo-sition of the regulatory body should be estab-lished (see Module 6 for guidance in thisregard). In all cases, regulatory principles willhave to be drafted or updated to take intoaccount the consequences of the new opera-tional framework and of technological changes.

2.2. Port Authorities andConsultations As part of the reform process, the status andmandates of the public port authorities will beredefined, along with their missions and respon-sibilities. Reporting and monitoring relationshipswith line ministries and private operators,respectively, should be defined precisely, togetherwith the appropriate implementation guidelines.In doing so, particular attention should be paidto the establishment of official consultation pro-cedures between the private port and maritimecommunity and the local public monitoring bod-ies (for example, the public port authorities).These consultation procedures will be importantin ensuring that customers’ concerns and sugges-tions regarding the functioning of the ports canbe efficiently channeled to the ports’ manage-ment boards or to the sector regulatory body.

2.3. Public Infrastructure Pricing The principles for port public infrastructurepricing will also have to be agreed upon at this

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stage. Recently, a great deal of attention hasbeen devoted to this very issue within theEuropean Union (EU), resulting in the publica-tion of two papers of significant interest: aGreen Paper on “Sea Ports and MaritimeInfrastructure,” and a White Paper on “FairPayment for Infrastructure Use: A PhasedApproach to a Common TransportInfrastructure Charging Framework in the EU.”Those papers, following the conclusions of anearlier study, European Sea Port Policy, 1993,basically endorse the view that there is no fun-damental difference between investments in portinfrastructure and other capital-intensive invest-ments in industrial complexes. Therefore, thereshould be no reason for adopting a completelydifferent approach to port investments, andconsequently no reason why direct users shouldnot bear the costs of such investments. Thestudy went on to suggest that the introductionof market principles in infrastructure pricingwould be the most effective remedy to avoid therisk of creating wasteful overcapacity and possi-ble distortions of trade flows (except in the caseof pricing maritime access and protection infra-structure).

This distinction made between port access andprotection infrastructure (which can take theform of basic infrastructure and operationalinfrastructure) and other forms of port-relatedinvestments relates well to the new sharing ofresponsibilities between public authorities (asowners and developers of basic infrastructure)and private service providers (as operators orconcessionaires and licensees or investors inoperational infrastructure).

The result is that operational infrastructure (forexample, berths) increasingly is being priced oncommercial terms. The commercial transactionmay be structured as a build-operate-transfer(BOT) or a build-own-operate-transfer (BOOT)concession agreement, where the operator orinvestor will include its capital cost in the cargohandling charges to be levied on its customers.Or, the transaction may be structured as anoperating concession (where the operationalinfrastructure already exists), where the port

authority includes in the concession fee theamount required to cover the full depreciationof its previous investment, a cost that the con-cessionaire will again transfer to its own cus-tomers through its charges for services. The keyto getting a fair tariff for the customer hingeson the competitive conditions prevailing forawarding the contact, and, sometimes, on theaward criteria themselves. Generally, award cri-teria should rely predominantly on maximizingtotal discounted revenues to the port authorityin cases where strong competition exists for theservices to be concessioned, as well as on mini-mizing the cost for the customer in cases wherecompetition is deemed weak or nonexistent.

Pricing of basic port infrastructure (mostlyaccess and protection assets such as channels,breakwaters, and navigation aids) presents adifferent challenge. Most of these assets haveunusually lengthy depreciation periods. It iscommon in official depreciation schedules forfinancially autonomous port authorities to findbreakwaters being depreciated on a 80-year,sometimes even a 100-year, basis. This featureof basic port infrastructure raises two issues.First, these depreciation periods are, in the bestof cases, about five to six times longer than anyavailable commercial financing in the market(when there is a market for financing long-terminfrastructure). And second, technical obsoles-cence (for example, insufficient access draft)may occur well before the end of these depreci-ation periods, effectively rendering worthlessthe original investment.

The EU papers referenced above list three well-known pricing options for basic infrastructure:

• Average cost pricing, which would guar-antee full recovery, including past infra-structure investments.

• Charging for operating costs only, whichwould leave capital costs out, particularlyfor new investments.

• Marginal cost pricing, which is deemedto best meet economic efficiencyrequirements.

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The research recommends an infrastructurecharging policy based on long-term marginalcosts, which would cover the cost of newcapital and operating and external costs ofinfrastructure use. In other words, port basicinfrastructure charges should be set in line withmarginal costs, which would also take intoaccount the continuing need for new invest-ments and the existence of externalities relatingto environment, congestion, and accidents.

Public landlord port authorities increasingly areorganized as autonomous financial entitiesrequired to recover their full costs to the largestpossible extent. As a consequence, these authori-ties have been confronted with the question ofwhether full cost recovery of basic infrastructureinvestments through user charges would weakentheir competitiveness in the market to the point ofseriously undermining their attainment of publicpolicy objectives. Government authorities, fromtheir perspective, while eager to curtail budgetcontributions to port infrastructure investments,sometimes worry that increased port user chargesmay divert traffic flows to other routes, whichmight prove economically disadvantageous forthe country as a whole. Competitiveness issues inrelation to port infrastructure charges are certainlyworthy of attention, but must also be seen inperspective—on average, they amount to only 10percent of the costs incurred during a port transit.This may be critical for ports facing strong com-petition (particularly when competing for trans-shipment traffic), but relatively minor in other cir-cumstances. Of course, because of specific geo-graphic settings, some ports may face higher thanaverage access and protection infrastructure costs(for example, periodic maintenance of a longentrance channel).

The level of cost recovery required for basic infra-structure is contingent not only on the amountinvested, but also on the terms under which it isfinanced. Because balanced budgets are now amust for port authorities, financing schemes willheavily drive the depreciation schedule built intoinfrastructure charges (that is, amortization sched-ules will supersede technical or economic lifedepreciation formulas). Commercial financing of

infrastructure, when available, offers much shortermaturities than the economic life of the portassets to be financed, therefore this would tendto drive up port charges significantly. To mitigatethis phenomenon, governments sometimes agreeto finance part of the access and protection costsof ports as part of the national budget, whicheffectively splits basic infrastructure costsbetween the user and the taxpayer. An exampleof one approach is in the United States, wheredredging of access to ports from the high seas iscarried out by the U.S. Corps of Engineers and isfunded through the federal budget (while dredg-ing of port basins is left to the port authorities).Another example is an approach taken in France,where the 1965 Law on Autonomous PortAuthorities split port infrastructure costs betweenthe port authority and the state budget, the latterbearing 100 percent of access dredging costs and80 percent of protection costs (breakwaters).From an accounting standpoint, French portauthorities register the government’s contributionin their balance sheets as a subsidy, which isrenewable, and, consequently, not depreciated.However, scarcity of budget resources in manycountries is making these arrangements increas-ingly difficult to sustain, and while infrastructuresubsidies of this kind may still exist, more oftenthan not there is no guarantee that such subsidieswill continue. Consequently, port authoritiesmust fully depreciate the investment, subsidiesincluded. These port authorities still benefit fromthe subsidy scheme, though, since their tariffs canreflect the depreciation of assets over their fulleconomic lives.

Finally, there is the question of allocating theseinfrastructure charges between the ship and thecargo. In the past 50 years, a number of portauthorities and governments have attempted torationalize this allocation through analyticalmethods (for example, the Freas Formula in theUnited States), and later through cost account-ing techniques. Historically, when infrastructurecharges were actually split between ship duesand cargo dues, cargo ended up paying a muchhigher proportion of the total cost than theship. Notwithstanding any formula-embeddedrationale, this situation may also have had to

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do with the respective bargaining power of theshipowners on one side (usually well organized)compared to the shippers on the other (typicallynot well organized and often much less able tonegotiate effectively with port authorities).

This debate tends to become somewhat academictoday, since in well-functioning shipping marketsinfrastructure charges assessed against vessels ulti-mately transfer back to shippers through thefreight rates. Indeed, there is some rationale forthe port to assess charges only against vessels, thephysical characteristics of which largely determinethe size and cost of the basic infrastructurerequired to accommodate them. There is, there-fore, some logic in establishing a schedule of infra-structure dues based on those physical characteris-tics rather than on the characteristics of the cargo.

2.4. Labor Redeployment Usually, port sector reform will entail a significantadjustment in the number and qualifications ofport workers, both dockworkers and clerical staff.Module 7 provides a detailed overview of how toaddress this issue effectively. Authorities shouldorganize interactions with the unions early on inthe reform process to give reform the best chancefor success. Areas that need to be discussed withunions include staff redeployment, retraining, andprocedures and compensation principles in caseredundancies prove unavoidable.

2.5. Contract ManagementPrinciples and ProceduresOnce the mandates of all public entities areclearly defined, explicit procedures and regula-tions governing the award, management, andmonitoring of contracts with private sectorpartners will have to be drafted. These proce-dures should be widely publicized throughworkshops organized with all domestic stake-holders and be open to interested foreigninvestors and operators so that the rules of thegame are clear to all potential players.

3. LEGAL ADAPTATION If the organizational changes contemplatedshould require changes in legislation, any neces-

sary legal work should get underway very earlyin the reform process. Often, port-related enti-ties enter into commercial arrangements aheadof the legislative changes that are necessary tofully reform and liberalize the sector. Subsequentlegal changes may complicate the contractualrelationships for these initial deals. Or, theseearly investors may try to slow down the broad-er reform process so that they can enjoy as longas possible a competitive edge stemming in partfrom an advantageous legal situation.

Once the strategic choices for the reformprocess have been made, the main priority ofthe IWG will be to translate them into nationallegislation. This will generally include, withoutbeing limited to, the following elements:

• Conduct legal due diligence, identifyingthe pieces of legislation to be updated,changed, or scrapped altogether, and themissing pieces to be added.

• Conduct legal review of all aspects associ-ated with port labor reform that can havesignificant consequences when it comes tofunding the required transition measures.

• Draft new port sector legislative frame-work.

• Draft bylaws of reorganized or restruc-tured public entities, port authorities, andregulatory authorities.

• Draft legislation governing contractualarrangements between public authoritiesand private commercial partners (forexample, licenses, leases, and concessions).

• Draft standard bidding documents andstandard contractual documents.

• Prepare all necessary briefing documenta-tion to present the new legislative pack-age for government and parliamentaryapproval.

4. TRANSACTION PREPARATION There are myriad details that must be attendedto as port reform initiatives move into theirfinal stages. Dozens of documents and analysesmust be prepared and made available to the

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public, prospective investors, and port opera-tors. The key documents are described below.

4.1. Financial Model Establishing the viability of any given reformpackage will involve testing its overall financialsustainability, as well as its sensitivity to a fewcritical variables. Financial modeling shouldhelp the public authorities identify the transac-tions that will prove attractive to private sectorpartners, while providing them with the revenuestreams they need to meet their own financialobligations. The project financial model includ-ed in Module 5, with a number of adjustableparameters, should help those responsible forport reform develop a financial picture reflect-ing the particular conditions of the transactionsunder consideration, thereby further helpingdecision makers select feasible packages to offerfor bidding by private investors and developers.

The project financial model will be fed withdata resulting from the following tasks:

• Preparation of project cost estimates(capital, operations, and maintenance).

• Establishment of tariff principles, struc-ture and levels.

• Estimation of market demand and of cor-responding revenues.

• Determination of the prospective capitalstructure (debt-equity ratio).

• Identification of the level of governmentsupport (guarantees, investmentcontribution).

• Assessment of tax, dividend, and foreignexchange requirements and their cashflow implications.

Assessment of staff restructuring costs from thereview of labor practices and requirements mustbe built into the overall cost estimate of thereform program at this stage. Any redeploymentof labor necessitated by port reform shouldpreferably be carried out under the auspices ofpublic authorities. Similarly, the attendant costassociated with any such redeployment should

be borne by public authorities as well, beforethe formal launch of the reform process.However, if all or part of these staff restructur-ing costs are left to the private sector, theyshould be factored into the financial model usedto assess the feasibility of the reforms.

4.2. Due Diligence Public authorities, possibly with help from spe-cialized financial advisors, will have to preparethe required due diligence reports to certify thefinancial status of the assets and activities to betendered.

4.3. Contractual DocumentPreparation Public authorities should draft the contractualdocuments defining the operational and financialrelationships between and among the contractingauthority, the regulatory authority, and the pri-vate operators. These should especially includeall required operational and financial covenantsthat may be deemed necessary. The details ofconcession contracts are provided in Module 4.

4.4. Bidding Documents’Preparation In addition to the proposed draft contract, thetendering documentation should include all docu-ments pertaining to the organization and rulesgoverning the bidding process, with enough infor-mation provided to guarantee its transparencyand fairness, thereby ensuring the widest partici-pation by potential interested investors or opera-tors possible. All documents and information rele-vant to the proposed transaction will then have tobe displayed for review by potential bidders in adedicated data room. For more detailed advice onhow to structure and manage the bidding process(for more information, see Kerf et al. 1998).

Boxes 2 and 2a depict in detail a typical sequenceof actions associated with port reform, with roughtime frames associated with each action. Thisinformation should be useful in guiding reformdecision makers through the entire process—fromconceptualization through implementation.

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Box 2: Port Reform Process

Source: Author.

Strategic Preparation

Set up the interministerial workinggroup (IWG) and define its mandate

Organize interaction with the port andmaritime community

Port and maritime industry analysis (Module 2)

Review market conditions, competitionconditions, and demand forecasts

Legal and regulatory review of current status

Institutional review of current arrangements

Draft port sector policy paper with principalreform objectives

Choice of port sector institutional andmanagement model

Validation by government

Redefinition of Authorities and Powers

Determine technical and economicregulatory needs

Establish regulatory authority

Establish consultation principles with port andmaritime community

Draft technical regulations

Adopt economic regulation principles asneeded

Establish principles for public infrastructurepricing

Draft port authority statutes and mandates

Organize interactions with unions on port staffredeployment

Agree on procedures and compensationprinciples to handle staff redundancies

Draft procedures for managing and monitoringnew public-private partnerships for commercialoperations

The Critical Path Preparation Phase Implementation Phase

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Box 2a: Port Reform Process

Source: Author.

Legal Adaptation

Prepare legal due diligence report

Review legal aspects of labor issues

Draft new sector legislation

Draft port authorities by laws

Draft legislation on contractual arrangements withthe private sector (licenses, leases, concessions) asneeded

Draft standard bidding documents

Draft standard contractual documents

Enact necessary enabling laws

Transactions Preparation

Develop financial modeling

Estimate costs (capital, operations, maintenance)

Establish tariff principles

Estimate market demand and revenues

Propose capital structure (debt/-equity ratio)

Determine government support (guarantees,investment contribution)

Assess tax, dividend, and foreign exchangerequirements, implications

Review staff restructuring costs (as needed)

Prepare preliminary financial statements

Prepare financial due diligence report

Define contractual operational and financial covenants

Prepare bidding documents

Prepare data room

Transaction Implementation

Launch prequalification process

Prequalify bidders

Launch bidding process

Assess technical offers

Evaluate bids

Negotiate final terms with preferred bidder

Issue award letter

Reach financial closing

The Critical Path Preparation Phase Implementation Phase

Prepare briefing papers on new legislative package

REFERENCESBrodie, Peter. 1997. Dictionary of Shipping Terms,

Third Edition.

European Union. 1997. “Sea Ports and MaritimeInfrastructure.” Green Paper COM (97) 678final, 10 December.

European Union. 1998. “Fair Payment forInfrastructure Use: A Phased Approach to aCommon Transport Infrastructure Charging

Framework in the EU.” White Paper, 22.07.1998COM 466 Final, Brussels.

Kerf, M., R. David Gray, T. Irwin, C. Levesque, andR. Taylor. 1998. “Concessions forInfrastructure—A Guide to Their Design andAward.” Technical Paper No. 399, World Bank,Washington, DC. (This publication can beordered from the World Bank.)

Sullivan, Eric. 1996. The Main EncyclopedicDictionary, Fifth Edition.

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