RAYMOND BURKE CONSULTING

FARRELL GRANT SPARKS CORPORATE FINANCE

POSFORD HASKONING

HIGH LEVEL REVIEW OF THE STATE COMMERCIAL OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

TABLE OF CONTENTS

1. INTRODUCTION 1

1.1 TERMS OF REFERENCE 1

1.2 CONTEXT 1

1.3 THE TIMING IS APPROPRIATE 3

1.4 CHANGING NEEDS 4

1.5 THE FOCUS OF THE REVIEW 5

1.6 APPROACH 5

1.7 PRINCIPAL OBSERVATIONS AND FINDINGS 6

1.8 VISION 8 1.9 KEY RECOMMENDATIONS 9

1.10 ACKNOWLEDGEMENTS 12

1.11 CONFIDENTIALITY 12 2. REGULATORY GOVERNANCE 13

2.1 WHAT DO WE MEAN BY REGULATORY GOVERNANCE? 13

2.2 THE HARBOURS’ ACTS 1946 - 2000 15

2.3 CORPORATE GOVERNANCE REQUIREMENTS 17

2.4 OTHER REGULATORY LEGISLATION 17

2.5 DEVELOPMENT OF THE BROADER REGULATORY PROCESS IN 17

2.6 OECD REVIEW OF REGULATORY REFORM 24

2.7 THE EU SERVICES DIRECTIVE 26 3. PORT STRUCTURES 29

3.1 INTRODUCTION 29

3.2 ANALYSIS OF PORT GOVERNANCE MODELS 30

3.3 CRITIQUE OF PORT GOVERNANCE MODELS 33 3.4 PORTS OWNERSHIP MODELS – INTERNATIONAL PRACTICE 34

3.5 LESSONS FOR IRELAND 46 4. OVERVIEW OF IRISH PORTS 49

4.1 INTRODUCTION 49

4.2 PORT OF COMPANY 50

4.3 DROGHEDA PORT COMPANY 55

4.4 PORT COMPANY 58

4.5 DUNDALK PORT COMPANY 61

4.6 DUN LAOGHAIRE HARBOUR COMPANY 64

TABLE OF CONTENTS HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

4.7 PORT OF 65

4.8 PORT OF 68

4.9 SHANNON PORT COMPANY 71

4.10 PORT OF 74

4.11 PORT OF 78 5. FINANCIAL APPRAISAL 81

5.1 INTRODUCTION 81

5.2 SUMMARY FINANCIAL OVERVIEW 81

5.3 REVIEW OF THE INDIVIDUAL PORTS 90 6. OPTIONS ANALYSIS 109

6.1 INTRODUCTION 109

6.2 THE CURRENT SITUATION 111

6.3 ANALYSIS OF THE OPTIONS 113

6.4 MAINTAINING THE STATUS QUO 116

6.5 DO MINIMUM 117 6.6 OUTSOURCING 119

6.7 CONCESSION ARRANGEMENTS 121

6.8 LICENSING 130

6.9 PRIVATISATION 131 7. KEY ISSUES 141

7.1 SHAREHOLDER RESPONSIBILITY 141

7.2 THE IMPORTANCE OF PORTS 143

7.3 FUNDING 145

7.4 INFRASTRUCTURE REQUIREMENTS 146

7.5 ROSSLARE – EUROPORT 147

7.6 PORT CHARGES 150

7.7 PORT COMPANY CARGO SHARES 154 7.8 THE CASE FOR A REGULATOR AT PRESENT 159

7.9 COMPETITION WITHIN PORTS 161

7.10 DEVELOPMENT OF PORT ESTATES 163

7.11 OTHER MATTERS RAISED 166 8. RECOMMENDATIONS 169

8.1 THE FUTURE ENVIRONMENT 169

8.2 SHAREHOLDER AND PORT COMPANY RELATIONSHIP 174

8.3 STRUCTURAL DEVELOPMENT 175

TABLE OF CONTENTS HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

8.4 STRUCTURAL CHANGE 177

8.5 ACHIEVING COST REDUCTION 183

8.6 CUSTOMER CHARTER AND COMPLAINTS PROCEDURES 183

8.7 BOARD APPOINTMENTS 183

8.8 PORT USERS’ FORUM 183

8.9 LANDLORD AND TENANT ACT 183

8.10 TRANSPARENCY OF RATES 184

8.11 185 8.12 REGULATION 185

8.13 COMPETITION ISSUES 186

8.14 CORPORATE GOVERNANCE REPORTING REQUIREMENTS 187

8.15 BYE-LAWS 187

8.16 ESTUARY MANAGEMENT PLAN 187

8.17 FURTHER STUDIES 188

8.18 PUBLIC DEBATE AND DIALOGUE 188

8.19 IMPLEMENTATION 189 9. CONCLUSION 191

APPENDICES

APPENDIX A. CALL FOR SUBMISSIONS APPENDIX B. INPUTS AND SUBMISSIONS

APPENDIX C. MAIN RECOMMENDATIONS OF OECD REVIEW OF REGULATORY REFORM IN IRELAND APPENDIX D. THE APPOINTMENT OF NEW BOARD MEMBERS FOR THE VANCOUVER PORT AUTHORITY APPENDIX E. REPORTS CONSULTED

APPENDIX F. SUMMARY HISTORICAL FINANCIAL ACCOUNTS

TABLE OF CONTENTS

HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

1. INTRODUCTION

1.1 Terms of Reference

Raymond Burke Consulting, Posford Haskoning Consulting Engineers, and Farrell Grant Sparks Corporate Finance were jointly commissioned by the Department of Communications, Marine and Natural Resources to carry out a

High Level Review of the State Commercial Ports operating under the Harbours’ Acts, 1996 – 2000

Specifically, the Consultants were required:

1. To conduct a detailed evaluation of the adequacy of the current model for the governance of the State port companies (including the advisability of appointing a regulator) having regard to the need to have in place structures and approaches which ensure:

that the ports are incentivised to deliver high quality port products to stakeholders, particularly users;

that the ports have access to appropriate funding to provide for capacity requirements in the medium to long term;

that appropriate competitive conditions exist within and between ports, which exert downward pressure on costs and charges for port, shipping and other port related services;

the avoidance of inefficient monopoly situations developing, with potential upward pressure on costs and charges; and

that the shareholder/management relationship is conducive to the development of a port sector which is fully supportive of the needs of our rapidly developing open economy.

2. To advise on the future role of ports in contributing to the optimum development of the transport sector in Ireland and appraise / recommend management / ownership options including enhanced private sector involvement.

3. To consult, at a high level, all relevant stakeholders and report by Summer 2002.

Although the scope of the Review was limited to the ten port companies operating under the relevant Acts, we believe that it would be inappropriate to exclude the Port of Rosslare from our considerations.

1.2 Context

Other than the ports of Rosslare and Greenore , Irish commercial ports are regulated primarily through the Harbours Acts 1996 – 2000. The State, through the Department of Communications, Marine and Natural Resources, is the single and only shareholder. The Minister determines national policy in respect of the management, operation and regulation of commercial ports, appoints the Board and sets

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corporate governance responsibilities. Otherwise, the ports are free to operate within generally accepted commercial principles.

While all port companies provide the basic infrastructure, only some commercial ports take responsibility for operating the cargo terminals; others leave it to the private sector to operate them and provide the superstructure.

Ports form a critical element of the supplier chain and particularly so in Ireland where the strength of the Irish economy is very much dependent on international trade, and its competitiveness is central to our overall economic performance. The efficiency and management of our ports is core to sustaining that competitiveness as 99% of overseas trade passes through our ports.

The table below shows that international trade, represented by Imports and Exports, is of the order of 155% of GDP. The second table shows that the UK is still our largest trading partner.

Table 1.1: International Trade – Ireland; 1998 - 2001

Port Total/GDP Year Imports €m Exports €m Total €m Surplus €m GDP €m Tonnage % (‘000)

1998 39,715 57,322 97,037 17,607 67,728 143 39,954

1999 44,327 66,956 111,283 22,629 75,811 147 42,930

2000 55,909 83,889 139,798 27,980 87,121 160 45,274

2001 57,177 92,523 149,700 35,346 96,662 155 45,795

Sources: CSO & Central Bank Table 1.2: Sources of Imports and Exports

Main Trading Partners 2001

Country Imports Exports Total %

€m

Great Britain 19,026 20,345 39,371 26

Northern Ireland 1,240 1,816 3,056 2

Other EU Countries 13,539 35,042 48,581 33

USA 8,712 15,696 24,408 16

Rest of World 14,660 19,625 34,285 23

Total 57,178 92,523 149,701 100

Sources: CSO and Central Bank

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The throughput of Irish ports is relatively small. When the scale of the total Irish port sector is compared with individual ports in mainland Europe, it can be seen that traffic through the total Irish commercial state port sector at almost 46 million tonnes, is less than that for some European ports.

Table 1.3: Traffic through Selected Mainland European Ports (2001)

2001 ‘000 tonnes Rotterdam 315,455 Antwerp 130,050 Marseilles 92,370 Hamburg 92,361 Le Havre 69,001 Amsterdam 68,383 Genoa 49,507 Trieste 49,324 Bremen 46,134 44,450 Zeebruges 32,080

Source: Port of Rotterdam and other Annual Reports

In relative terms, the scale of the Irish ports in relation to those in the UK is also small. The and Immingham for example handles the highest amount of trade in the UK which, in 2001, was almost 55 million tonnes.

The total turnover of the ten commercial ports is of the order of 95 million Euro with a combined profit of some 3,500,000 Euro.

1.3 The Timing is Appropriate

The carrying out of this Review is timely. Over the last number of years, the Irish ports sector had experienced major growth and structural change. Now, as we enter a less buoyant economic climate, the profitability of ports is being challenged and they face into a future where they are required to make significant capital investment decisions without Exchequer or EU support. It is therefore a fundamental strategic imperative that our ports increase their levels of efficiency and competitiveness, while providing a seamless integration into the national supply chain infrastructure.

1.3.1 International Developments

The world’s port industry is currently subject to a number of different processes. These include globalisation, private sector involvement and also modernisation.

In relation to the port industry, Globalisation applies to the container sector only, and indicates the move towards the ownership of key container ports or terminals worldwide by companies such as Hutchison, Maersk, and P&O Ports.

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It also involves the continuing amalgamation and merging of the major international container shipping lines and also their preferred policies of controlling their own terminals and port facilities. This arises from the cutthroat competition in the industry and the effects of tariff cutting, and affects all ports – major hub ports and the smallest regional feeder sub-port, alike.

Private Sector Involvement implies the transfer of certain port activities from mainly publicly owned to privately owned undertakings. It ranges from the supply of stevedoring services, warehousing, towage and pilotage services to ownership of the port infrastructure, institutions and authorities.

Modernisation means the introduction of new equipment and technology, EDI, quality management systems, improved safety and environmental management systems, but mainly refers to the application of modern management, industrial relations and work practices on the docks.

These issues and developments are all having a major impact on port workers – reducing numbers by introducing new equipment to minimise manual handling, and shifting the means of hiring from labour pools and halls to more structured contract conditions. It also should lead to a better and safer work place for those continuing to work in the ports, and for the ships and seafarers that service them.

The industry faces rising expectations, not only from users, but also from local communities and the wider public. People are looking for a more open and accountable approach from those entrusted with the legal duties and powers to run our ports. They demand ever-higher safety and environmental standards. As workplaces, some of our ports have changed unrecognisably. Others have yet to move forward from a work culture rooted in the practices of the 1950’s, often for valid reasons. With tonnage rising year by year, with far fewer dockers handling it, undertaking different jobs and using new technology, these ports must be helped to change.

1.4 Changing Needs

The Kyoto Protocol will affect some of the types of cargo imported, with heavy fuel and other oils substituted by natural gas and petroleum products; which notably can only be imported into facilities which have vapour recovery units. Furthermore certain types of coal may be banned. BSE, Foot & Mouth Disease, and CAP restrictions have and will continue to impact animal feed and fertiliser imports.

As our employment base tends towards internationally traded services and away from the traditional manufacturing sectors, the profile of industrial raw materials will also change. Over the last couple of years, there has been a major shift towards unitisation resulting in larger containers, and in the range, size and type of ships that serve our ports. They have become increasingly sophisticated and specialised, requiring corresponding improvements in shore side facilities, cargo handling equipment and systems. The crews that man these ships have also changed, they are also far fewer in number and subject to the same structural changes as are the dockers.

Both seafarers and dockers are subject to regulatory regimes imposing ever increasing standards of safety and environmental protection on the way they work. Many of these regulations impose restrictions and cost on port users, and cannot be ignored in any debate on port operations and developments.

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1.5 The Focus of the Review

Ten Port Companies were corporatised under the Harbours Acts, 1996 - 2000 and are statutorily responsible for the management, direction, control and development of the ports as fully-fledged commercial State companies. The purpose of establishing the port companies was to improve, modernise and provide better port services in a commercial ethos.

The former Minister for the Marine and Natural Resources, Minister Fahey, had indicated that he was anxious to establish whether the conditions, or the need, exist in Ireland to warrant change from the current operational/management model for port companies. He also wished the Review to be based on an assessment of best practice models abroad and their relevance in an Irish context. In carrying out the assignment, he wanted the process to be inclusive with all stakeholders consulted and involved.

Any proposed changes to the current Irish port governance model, as well as the organisational structure of, and relationship between, the various ports in Ireland will need to be carefully considered in the light of the thrust of the Green Paper on Sea Ports and Maritime Infrastructure.

Worldwide, port governance is being reformed dramatically. This report assesses these reforms in detail, and identifies current best practice and approaches to port governance that are relevant to the Irish ports industry.

1.6 Approach

A key element of our Approach was the consultation process. At the beginning of the assignment, the (then) Department of the Marine and Natural Resources placed an advertisement (see Appendix A) in the national press announcing the Review and its Terms of Reference, and inviting submissions from interested parties to be sent to the Consultants.

In parallel, the Department wrote to each of the corporatised ports advising them of the Review and seeking their active co-operation with the Consultants.

In accordance with the Terms of Reference of this Review, we were requested to consult, at a high level, all relevant stakeholders. In recognition of the importance of this matter we afforded every opportunity to management, staff and their representatives to make a submission and/or consult with us on the issues arising in this review and to raise their concern. . We, therefore, wrote to all interested parties as well as customers of the ports seeking their views and comments on the matters of the Review. In many cases, we followed these up with a meeting or phone conversation. However, all stakeholders did not avail of this opportunity. Appendix B lists those who responded to the Briefing Note, supplied us with a submission or with whom we met.

In addition we also visited each of the ports other than the Port of Wicklow, and had useful discussions with their Boards, Management and port users. Many of these port companies also provided us with helpful submissions.

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We carried out a major literature review including the Performance Audit Reports of each of the corporatised ports, other than that for Foynes Port, which were prepared by Jonathan Packer and Associates. Our visits to the various ports also provided us with more up-to-date information on ports’ corporate plans, accounts and investment needs.

In early October 2002, we contacted each of the ports again for final observations and any more up-to- date data available.

Prior to the finalisation of the Review, we afforded each port company an opportunity to comment on the operational and financial profiles we wrote of them.

During the course of the Review, we kept in contact with the Steering Group who oversaw the conduct of the assignment.

1.7 Principal Observations and Findings

To place our Recommendations in context, we set out below a number of key observations and findings:

Importance of the Port Sector to the Irish Economy The commercial ports and their transport linkages are key nodes in the supply chains of both export and import goods and are, therefore, critical to the competitiveness of the Irish economy; 84% of Irish exports1 are contributed by multi-nationals. The market decides where cargoes are imported and exported; the key driver is proximity to centres of population, industry and distribution centres. Other factors include the total cost of the door-to-door transportation chain and urgency of delivery;

Recommendations for any new port structures should recognise that ports play a pivotal role in the Irish economy;

Role of the Stakeholder In the opinion of many of the stakeholders, there is little apparent recognition by the shareholder of the importance of ports;

The shareholder is also perceived by many stakeholders to be slow in decision-making, bureaucratic in approach and limited in resources;

Corporate Governance Appointments to port boards generally do not provide the crucial level of expertise expected from a modern commercial enterprise;

The corporate governance requirements established by the shareholder, particularly of an operational Performance Indicator reporting nature, are seen as too onerous for the ‘smaller’ port companies;

The 2000 Harbours’ Act requires review in relation to addressing post-amalgamation issues;

1 John Whelan, Chief Exporters’ Association, Irish Exporters Association, in a presentation to the Short Sea Shipping Group, IMDO, Marine Institute, 24 September 2002

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Financial Matters While a number of port companies are making strong operating profits, many port companies have major interest, pensions, tax and other costs resulting in low profits after tax; this affects their ability to carry out significant investment and to deal with commitments arising from corporatisation;

The requirement to pay local authority rates will further erode profitability and deplete cash reserves;

There are arguments for and against the funding of capital dredging by the state. Those in favour of aid feel that dredging could be considered as ensuring that the ‘sea motorway’ is available to all users without discrimination. On the other hand, state funding could also be seen as distorting the market or forcing the shareholder to make decisions on priorities;

There are, therefore, serious decisions to be made by the shareholder in relation to the future funding of ports while having regard to state aid considerations and the available public finances;

Costs Inefficiencies exist in some ports arising from outdated and poor work practices;

Costs savings could also be achieved from the reduction in the number and size of Boards of port companies;

Port charges comprise a range of elements including port company costs, stevedoring and freight forwarder costs to mention just a few; the port company can only influence its own costs, generally just cargo dues and tonnage rates;

Ports are increasingly having difficulty in obtaining public liability insurance cover;

The public sector culture and mentality within certain of the wholly-owned port companies does not sufficiently encourage or incentivise innovation, initiative or change;

Traffic Development The Kyoto Protocol and the shift towards greater intensive farming will affect Irish port traffic and thus revenues;

Irish cargo traffic could be affected by the new US Container Security Initiative which requires ships bound for the US to present cargo manifests 24 hours before the container is loaded in a foreign port to enable US Customs to evaluate the risk of smuggling. Failure to provide the required information in time may result in huge delays to ships entering the US, rejecting cargo and sending it back to the port of loading and finally monetary penalties;

The changing size of cargo vessels, and their requirement for more sophisticated handling equipment and automation will exert even greater demands on existing infrastructure and water depths; vessels will go to those ports which have the required depths and can provide easy access and quick turnaround;

2 John Whelan, Chief Exporters’ Association, Irish Exporters Association, in a presentation to the Short Sea Shipping Group, IMDO, Marine Institute, 24 September 2002

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The Future of Port Companies There are too many commercial port companies, many of them operating in close proximity to each other, in competition with each other chasing a finite level of business;

If port companies do not or cannot address their cost base and infrastructure needs, then consolidation or rationalisation will be forced on them on economic and commercial grounds or by the market. Business will gravitate towards the viable ports in the absence of state or EU aid;

There are a number of structural arrangements that could be considered including the establishment of a new port company comprising Irish small ports;

There is interest by the private sector in taking equity in a number of state commercial ports including by a number of key industry players; amalgamated ports could offer a greater attraction for them to invest in;

Competition The pending introduction of the EU Directive on Market Access to Port Services will open up the market to real competition for the provision of a range of services. There will also be challenges in terms of its implementation, particularly in relation to the Landlord & Tenant Act. The conditions of this need review;

There is no evidence that ports collude on pricing rather they target particular businesses and quote rates appropriately;

Remedies to address any possible market dominance abuse should, in the ordinary course of business, be attempted in the first instance through the Competition Authority.

Competition within ports may need to be monitored;

International Review The international review found that the Landlord Model is the predominant structural model in place in Europe with port management being responsible for the port estate and local regulatory affairs, and the private sector taking responsibility for terminal operations;

The international review also found that, generally, the local state, province or a regional authority funds conservancy and dredging requirements;

Rosslare Europort A Review Group, established by the former Minister for Public Enterprise, recommended in July 2001 that Rosslare Port, owned by Iarnród Éireann, should be sold off and the considerable proceeds reinvested in the core business; and

1.8 Vision

The 21st century will see radical changes in the business base underlying port operations. Innovative systems and new technology will radically change requirements for port infrastructure and increase the degree of specialisation, raising the financial stakes of port investments and the need for a highly specialised workforce. Containerisation, for instance, has dramatically reduced personnel requirements for cargo handling, raised berth productivity and increased the capital intensity of port operations.

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IT systems will electronically link port administration, terminal operators, truckers, customs, freight forwarders, shipping agents and other members of the port community. The technology provides port users with real time data on the status of cargo, paperwork and availability of port facilities, and enables ships and terminals to be part of an integrated office infrastructure.

There will be a rationalisation in the number of commercial port companies and port ownership will begin to diversify. The location of core ports will reflect national spatial strategy. The private sector will predominate in port operations and port management will concentrate on estate management and conservancy.

1.9 Key Recommendations

We recommend that:

Role of the Shareholder The Shareholder declares without delay its position on the future funding of ports;

The Shareholder should clearly communicate the commercial role of and the objectives for the commercial port sector; this requires an agreed definition of the function of a port;

The Shareholder should place on the record that it is prepared to liquidate or put into examinership any port company that finds itself in financial difficulty;

Any future guarantees for port bank loans and any Letters of Comfort in any form should be withdrawn; the Department should advise all banks that the State as shareholder will not guarantee any prospective loans;

The practice of appointing port users and councillors to port boards should be discontinued on grounds of potential conflicts of interest;

Port users, local authority councillors and other interested parties should be members of a Port Users’ Forum which should have a formal consultation role and be consulted on a regular basis by port management;

Formal liaison arrangements between Departments should be established to ensure an integrated policy on transport, and if necessary the transfer to the Department of Transport responsibility for the full integration of all of the transportation functions including ports;

To facilitate the future development of the ports, ownership in the Foreshore within the port’s jurisdiction should be transferred to the ports on negotiated and realistic terms provided a detailed assessment and adequate provision has been given to alternative economic and social developments of these foreshore transfers. The transfer will require a change in legislation and assurances that any future sale of the foreshore, other than by public acquisition, must reflect its true intrinsic and monetary value;

Rosslare Port should be treated on the same basis as a commercial port operating under the Harbours’ Acts and be subject to the general recommendations of this Report;

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Role of the Port Company Port management should not be distracted by non-core, non commercial activities or matters of a social or cultural nature; non-core social and leisure facilities, particularly jetties and berths, should be transferred to local authority ownership, provided it does not interfere with primary functions;

Clear commercial and operating targets should be set by the Boards;

Ports themselves will have to adopt radical and innovative thinking in relation to addressing the funding of their infrastructure needs;

Every effort should be made to modernise local work practices without delay through the partnership model;

Port Company Mergers Ports companies should be consolidated on a regional basis to reduce overheads, to focus on the strategic trade needs of the region and to rationalise investment plans;

The Port of Galway should take over responsibility for Rossaveal because of their commercial activities;

The should take over responsibility for Bantry given their close operating relationships;

Involvement of the Private Sector We suggest that the concept of opening up port company ownership to the private sector, while not ruled out, is not pursued at present. This option could however be considered by the Department in the future in the light of the finances of the relevant ports, the effect on the public interest, the extensive legislation, and oversight framework required and the likely necessity to appoint a regulator;

Nevertheless, we do recommend that a “do minimum” approach be implemented in conjunction with the introduction of private sector operational skills and investment under Public Private Partnerships, where these approaches can deliver efficient and cost effective port products;

We would also recommend that the Port Companies explore a range of different forms of concession including the build, operate and transfer model and the design, build, finance and operate model to deliver port infrastructure where these forms can deliver value for money. This will require the identification of pilot projects which would be then subject to further feasibility study;

EU Directive on Market Access to Port Services The principles of the EU Regulation on Market Access, when the Directive has been adopted, should be accelerated and extended to all commercial ports;

The Commission for Aviation Regulation should be the Competent Authority for the EU Directive on Port Services to avoid any unnecessary expense and to make use of available experience and expertise;

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Corporate Governance The extent of the corporate governance requirements established by the shareholder, particularly of a reporting nature, should be reviewed;

Each port should review its bye-laws regularly to ensure that they reflect current requirements;

Regulation Market dynamics should be encouraged through structural reform rather than through the introduction of a Regulator at this time:

by requiring ports to be more transparent in the way port charges are determined and charged; by encouragement towards the landlord model to improve efficiencies, reduce costs and provide competition; by the use of competition legislation, and through the establishment of competing terminals where practicable.

A Ports’ Ombudsperson should be appointed to provide an independent conciliation and appeals, including binding arbitration, service which would hear and decide on cases where a port user believes that the costs of either a port service or a port charge is unfair or discriminatory. The Ombudsperson will be reimbursed by the parties to the dispute;

Dun Laoghaire Harbour Company There is a mandate conflict between the commercial and heritage obligations of Dun Laoghaire Harbour Company; the responsibility for the cultural and heritage aspects should be transferred to Dun Laoghaire Rathdown County Council and consideration given, on commercial and economic grounds, to merging Dun Laoghaire Port Company and Company to become the Dublin Bay Port Company focusing on fast craft business;

Addressing Environmental Matters In addition to the normal procedures, there should be regular meetings of interested parties, e.g., port management, Departmental Commercial Port staff and Coastal Zone staff, relevant state and non-governmental agencies to discuss how environmental matters should be addressed and progressed;

Follow-Up Studies The Department should commission further studies:

1. In the interests of ensuring the future viability of the commercial ports sector consistent with the recently published National Spatial Strategy, it may be necessary to initiate a study into the identification of which port companies should be merged, the steps to be taken to effect the mergers, the financial and other implications of such mergers and the timetable within which the mergers would be expected to take place;

2. There should be a benchmarking study of the financial and operating performance of Irish ports vis-à-vis relevant counterparts in the UK and mainland Europe,

3. There should be a ports’ costs study.

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The first study builds on the recommendation to consolidate port companies on a regional basis; the second study will identify areas for improvement while the third will clarify the ownership and level of each of the elements of port charges;

Promotion of the Review’s Findings and Recommendations This Review should be published widely to allow for broad public debate and dialogue on the findings and recommendations.

1.10 Acknowledgements

The team would like to thank the Steering Group comprising Mr Michael Guilfoyle, Mr David Glynn and Ms Roisin Garland of the Department of Communications, Marine and Natural Resources, Mr Enda Connellan, Chief Executive/Managing Director, Dublin Port Company and Mr Pat Keenan, Secretary, Irish Ports’ Association for their valuable inputs during the course of the Review.

The team would also like to thank the Boards and Staff of the various commercial ports for their co- operation and help.

Finally, we wish to express our appreciation to the many organisations and individuals whom we met or who provided us with detailed submissions. As indicated above, Appendix B contains a list of those.

1.11 Confidentiality

For commercial and competitive reasons, certain price and cost information has not been reported.

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2. REGULATORY GOVERNANCE

2.1 What do we mean by Regulatory Governance?

The process by which ports are regulated is known as Regulatory Governance. In a paper3 written by Mr Tom Ferris, Senior Economist and Head of Planning Unit in the former Department of Public Enterprise, he provides the following definition of Regulatory Governance:

‘Governance can be loosely described as the processes of decision-making and the structures and consultation systems that accompany such decision-making. The European Commission define it as ‘rules, processes and behaviour that affect the way in which powers are exercised … particularly as regards openness, accountability, effectiveness and coherence.’

The Organisation for Economic Co-operation and Development describes regulation as the diverse set of instruments by which governments set requirements on enterprises and citizens. Specifically, regulations includes laws, formal and informal orders and subordinate rules issued by all levels of government, and rules issued by non-governmental or self-regulatory bodies to which governments have delegated regulatory powers’.

It is within that definition that we will review the present regulatory framework or model used to regulate Irish ports.

In the Address by An Taoiseach, Mr. Bertie Ahern, T.D. at the launch of the OECD’s Report on “Regulatory Reform in Ireland”, he noted that:

….. commitment (by Government) to Better Regulation stems from the recognition that if State regulation is excessive in quantity, or is of poor quality, it will be an unnecessary burden on economic and social activity.

For example, economic regulations affect pricing, competition, the protection of consumer interests and the freedom to enter and exit economic markets.

Social regulations protect the public interest, covering such crucial areas as health, safety, food, the environment and social inclusion.

Administrative regulations are those imposed by government in relation to gathering information or administering schemes - the infamous red tape which is commonly associated with the worst aspects of bureaucracies.

We are facing a different set of challenges to those which we faced in the recovery years. The new economic challenges are related to capacity, infrastructure and ongoing competitiveness.

3 Regulatory Governance: An Evolving Process for Public Utilities, Tom Ferris, Administration, Vol 49, No 4 (Winter 2001 – 02)

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A key challenge is to ensure that the economy is managed in a way which minimises our exposure to shocks and which maximises our ability to recover from them. Regulatory reform is a policy tool which can help us to meet these challenges; and

By freeing up markets, we can unleash potential in the economy which is not being realised at present;

By minimising regulatory barriers, we can make it easier for entrepreneurs to avail of business opportunities;

By promoting greater competition, we can achieve greater efficiency and more choice for consumers; and

By making Ireland an easier place to do business we can boost trade and foreign investment”.

As the Competition Authority has also noted, regulation of economic activity can deliver benefits when it is proportionate and is specifically designed to address market power or some other recognised failures of the market system to produce optimal outcomes for society. Inappropriate regulation can, however, be inimical to the interests of consumers, producers and society at large. In particular, this can occur where competition is restricted in a manner that is disproportionate to the desired objective or where there is no clear public policy objective in the first instance. Other costs associated with inappropriate regulation include the costs to society of distorting incentives and disproportionate administrative burdens.

Consumer, in the broadest sense, welfare is linked intrinsically to competition, which is the lifeblood of a dynamic economy. Competition forces firms to search for efficiency and gives an incentive to innovate and to be more responsive to consumer needs. Increased competition delivers both once-off and ongoing gains. The once-off gains can be seen in lower prices and increases in value, quality, service and output. The ongoing gains arise because firms’ need to continually respond to increased competitive pressure ensures that they drive innovation through their work processes and final outputs. In a competitive market, firms that fail to innovate are not likely to prosper in the long run.

Inappropriate regulation can lead to substantial costs and inefficiencies. The OECD, in its “Report on Regulatory Reform – Thematic Studies” (1997) provides an analysis of these costs and inefficiencies at a sectoral level. It identifies five ways in which regulation can negatively affect a sector through restrictions to entry, pricing guidelines, restrictions on advertising, minimum or maximum level of service. These include the following:

Firms can have less incentive to economise on resources;

A lack of competition can result in excess ‘rents’ (i.e. income in excess of what would accrue in a competitive market, implying that prices in the sector are too high);

Regulations on service and product type can prevent firms from taking advantage of economies of scale, and especially scope in networking; and

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There may in some cases be little incentive for firms enjoying significant market power to pursue technological innovations in production or to create or adapt goods and services in response to changing customer needs.

Regulations can impose high administrative costs on governments, firms and consumers. This is particularly so when regulation is disproportionate or is not directly linked to some public policy objective. These administrative costs of regulation are made up of:

Direct costs to government – the cost of administering the regulatory system, including development and adjudication; and

Compliance costs – e.g. administrative and paperwork costs for business and citizens, and capital and recurrent production costs, which according to the OECD (1997, p.199) fall disproportionately on small and medium sized enterprises.

“Red tape” can reduce competition, innovation and investment and hence slow structural adjustment and productivity growth, and diminish consumer surplus. The administrative burden of regulation goes back to core issues of proportionality and the discipline of Regulatory Impact Assessment. Where it can be shown that the costs of regulation are disproportionate, consideration should be given to sun-setting or to move to a less burdensome regulatory alternative.

2.2 The Harbours’ Acts 1946 - 2000

The main instrument by which commercial ports are regulated is the Harbours’ Acts 1996 – 2000.

The commercial Port Companies, of which there are now ten, were corporatised under these Acts at various times over the last five years with most of the ports corporatised in early 1997. The Port of Waterford was corporatised in January 1999, Shannon Foynes Port Company came into being in 2000 (which required the Harbours’ Act 1996 to be updated to become the Harbours Act 2000) while Wicklow and Dundalk were corporatised early this year (2002). Bantry Bay Port is expected to be corporatised in the not so distant future.

The corporatised ports are statutorily responsible for the management, direction, control and development of the ports as fully-fledged commercial State companies. The main purpose of establishing the port companies as commercial companies was to improve, modernise and provide better port services in a commercial ethos.

Previously, state ports were controlled under the 1946 Harbours’ Act. This was bureaucratic and restrictive in nature, did not address the commercial needs of ports and specified large board structures. The 1946 Act is still in force for the state’s regional harbours and ports.

Under the Harbours Act 1996 the Boards of Directors are responsible to the Minister for the conduct and operation of their companies. Within the framework of the objectives set out in the Act, the Minister defines policy and sets out the broad objectives for the companies. It is for the Port Companies to develop and set out effective strategies which will achieve the National objectives for ports. The Boards are responsible to the Minister for the conduct and operation of their companies under the Harbours Acts, 1996 - 2000.

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Specifically, the Harbours Act, 1996 requires the port companies to discharge the following functions:

management, control, operation and development of their harbours;

provision of services, etc. for goods, ships and passengers;

the promotion of investment;

utilisation and management of available resources; and

promotion of leisure activities as appropriate.

The Act also provides that each company:

break even taking one year with another, to meet all charges to its revenue account;

generate a reasonable proportion of capital requirements;

pay interest on and repay its borrowings;

have fully funded Pension funds;

regulate harbour operations;

provides pilotage;

be effective and efficient, including the management of human resources and industrial relations; and

take account of environment, heritage and amenities in its activities.

The companies were also granted powers to acquire or dispose of land at market values and to enter into leasing arrangements subject to policy on state-owned companies. The Act also contained provisions in relation to compulsory purchase by the port companies of land for the purpose of ensuring the implementation of any scheme of development in the harbour that, in the opinion of the company, would be impracticable without the land.

Specifically, a port company shall not establish or acquire a subsidiary without the approval of the Minister given with the consent of the Minister of Finance. Further, a port company cannot borrow without the consent of the Minister; borrowings are limited to 50 per cent of the value of the company’s assets and are treated as fixed assets for the purposes of the accounts. The 50 per cent limit may be varied by order of the Minister.

Section 29 of the Harbours Act, 1996 provides for the conduct of an examination as to the efficiency and cost effectiveness of the performance by companies of their functions after the first three years of trading. This audit was completed in September 2001 and the findings will be presented to Government in advance of publication.

The Harbours (Amendment) Act, 2000 was specifically introduced to allow for the establishment of new or amalgamated port companies and, specifically, the Shannon Foynes Port Company which was created from the merger of Ports Company and Foynes Port Company.

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2.3 Corporate Governance Requirements

The ports are also required to comply with the guidelines set out for port companies in the Corporate Governance Framework issued by the Department of the Marine and Natural Resources in February 1997. The main areas covered by this framework are as follows:

Directors’ Code of Conduct;

Internal Controls and Audit;

Procurement Procedures;

Investment Appraisal Procedures;

Procedure for the Disposal of Fixed Assets; and

Reporting Arrangements to the Shareholder and other government departments.

2.4 Other Regulatory Legislation

Ports, of course, also have to comply with other regulatory legislation, some specific to ports and other of a more general nature. This legislation includes:

Companies Acts;

the Health and Safety at Work Act 1989;

Labour Law;

Planning and Development Act 2000;

Port Waste Services Directive;

Hours of Work Directive; and

Environmental Protection.

2.5 Development of the Broader Regulatory Process in Ireland

In a recent Paper4 presented by the former Secretary General of the Department of Public Enterprise and now Secretary General of the Department of Communications, Marine and Natural Resources, he described the evolution of the Regulator in Ireland and more particularly, in those sectors for which he had a special responsibility, namely, transport, energy and communications.

The Secretary General noted that up until quite recently, Government Ministers have exercised three functions in relation to State-controlled companies – policy developer, shareholder and regulator. While such a situation is tenable as long as the only players are State-controlled monopolies, he noted that it can no longer be the case once private sector companies come to compete in the market place. As

4 Evolving Towards An Excellent Regulatory Framework Through Review, Reassessment And Reform, Brendan Tuohy, Department of Public Enterprise, paper to a Conference Session on ‘Managing Performance for Excellence, Department of Government, University College Cork, 29th September, 2000

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markets open-up, the three functions ought not continue to be discharged by one Minister. While policy development will obviously remain the responsibility of Ministers, separate arrangements need to be made in relation to the shareholder role and/or the regulatory role. One option is to change the ownership of the State-controlled companies; a second option is to establish independent bodies to undertake the regulatory functions. In the main the second option is the one most favoured.

In the case of the public enterprise sectors noted above, the trend is towards the statutory transfer of responsibility for regulatory functions from the (then) Minister for Public Enterprise to newly-established independent bodies, specifically charged with their regulation. This trend arises not only from changes in national policy but also from the influence of the process of liberalisation of economic services at EU level, and from EU Competition Policy. Competition is not always effective in every area and may need to be complemented in such circumstances by regulatory arrangements. He noted that experience to date in liberalising public enterprise markets has demonstrated that the introduction of competition has helped to stimulate price reductions and service improvements for the customer and to improve Ireland’s economic competitiveness generally.

The table overleaf provides an overview of sectoral regulatory reforms in Ireland. Thereafter, we present brief profiles of some of these regulatory agencies setting out their specific roles and responsibilities commencing with an overview of the Competition Authority.

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Table 2.1: Sectoral Regulatory Reforms in Ireland

June 1997, Telecommunications Regulator established. Full liberalisation 1 December 1998. Remaining Government stake (51%) in largest service provider, Telecommunications: Eircom, sold June 1999. Now replaced by the Commission for Communications Regulation. July 1999, Electricity Regulation Act established independent regulator. From February 2000, competition is permitted for 30% of market. Full liberalisation by Electricity 2005. Further legislation to complete implementation of the EU directive was brought into force in December 2000. Largest incumbent remains state-owned, vertically-integrated, and dominant. Third party access for large industrial consumers since 1995. Network code of Gas operations and pricing regime in place. Electricity regulator has responsibility also for gas. The Commission for Aviation Regulation regulates certain aspects of the aviation Airports and travel trade sectors in Ireland. It was established in February 2001, under the Aviation Regulation Act 2001 Proposals for new institutional and regulatory framework published August 2000. Public Transport These dealt with bus and rail only A High Court decision in October 2000 led to the introduction of a new regulatory regime on 21 November 2000 which liberalised entry to the sector. The new Taxis regulations were the subject of High Court judicial review proceedings and a judgment is awaited. Taxi licenses continue to be issued under the new regulations until the Court decides otherwise. Some changes in licensing regulations in 2000 with the creation of a nationwide Pubs licensing area. The Commission on Liquor Licensing was established in November 2000. Distribution Ban on below cost selling still in force. A new structure for financial services regulation was announced by the government Financial Sector on 20 February 2001. (IFSRA) The Health Insurance Authority was established under Part IV of the Health Health Sector Insurance Act, 1994 in March 2001. Under the Broadcasting Act 2001, the name and role of the Independent Radio & Broadcasting Television Commission (IRTC) was changed in September 2001, to the Broadcasting Commission of Ireland. The primary mandate of the Director and his staff is to improve the compliance Corporate Enforcement environment for corporate activity in the Irish economy as outlined in the Company Law Enforcement Act 2001 Established in 1991. From 1996, it has investigative powers and can bring civil and Competition Authority criminal court actions

Sources: Regulatory Reform in Ireland (OECD) and Consultants

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2.5.1 The Competition Authority

The Competition Authority is a statutory body with a specific role to enforce Irish competition law. Competition law is designed, primarily, to protect and benefit the consumer. The Competition Authority was set up in 1991 and currently employs a total staff of 33. It has five members.

The Competition Act sets out the basic competition rules, gives the Competition Authority the power to investigate breaches of the law and where necessary to bring civil and criminal prosecutions.

2.5.2 Office of the Director of Corporate Enforcement (ODCE)

The functions of the Director are outlined in detail in the Company Law Enforcement Act 2001.

The primary mandate of the Director and his staff is to improve the compliance environment for corporate activity in the Irish economy by:

encouraging adherence to the requirements of the Companies Acts; and

bringing to account those who disregard the law.

One of the important functions of the Director of Corporate Enforcement is to encourage compliance with the requirements of the Companies Acts. The Director and his staff discharge this role by communicating publicly the benefits of compliance with the law and the consequences of non- compliance.

The investigative and enforcement role of the Director is quite extensive. His main legal powers arise in the following areas:

the initiation of fact-finding company investigations;

the prosecution of persons for suspected breaches of the Companies Acts;

the supervision of companies in official and voluntary liquidation and of unliquidated insolvent companies;

the restriction and disqualification of directors and other company officers;

the supervision of liquidators and receivers; and

the regulation of undischarged bankrupts acting as company officers.

2.5.3 Office of the Director of Telecommunications Regulation

The first sectoral regulator in Ireland was the ODTR (Office of the Director of Telecommunications Regulation) which was set up in June 1997 under legislation passed in 1996 (Telecommunications Miscellaneous Provisions 1996).

The ODTR is responsible for implementing the laws on liberalising the telecoms market mainly adopted at EU level by way of Directives and transposed into Irish Law by Regulations of the Minister for Public Enterprise. It is also responsible for regulating broadcasting distribution and the radio spectrum under national legislation.

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The ODTR's remit covers all kinds of transmission networks including traditional telephone wire, traditional television and radio, cable, radio communications including fixed, wireless MMDS and deflector operators providing TV services, mobile operators providing voice and data services, satellite and postal delivery network.

The Commission for Communications Regulation was established pursuant to the provisions of the Communications Regulation Act, 2002 to replace the existing Office of the Director of Telecommunications Regulation. The Commission consists of a body of three Commissioners, one of whom will be the existing Director of Telecommunications Regulation. The enlarged three person Commission has been established to reflect the new challenges in the telecommunications and postal environment and is in line with the European models for regulation in these sectors.

2.5.4 Commission for Energy Regulation

The Commission for Energy Regulation (CER) is the independent body responsible for overseeing the liberalisation of Ireland's energy sector. The CER was initially established and granted regulatory powers over the electricity market under the Electricity Regulation Act, 1999. The enactment of the Gas (Interim) (Regulation) Act, 2002 expanded the CER's jurisdiction to include regulation of the natural gas market.

The CER’s powers are specified in the Electricity Regulation Act, 1999 and the Gas (Interim) (Regulation) Act, 2002. The CER is obliged to exercise them in a manner which:

In relation to electricity, does not discriminate unfairly between holders of licences, authorisations and the Electricity Supply Board (“ESB” – the State-owned electricity operator in Ireland) or between applicants for authorisations or licences;

In relation to gas, does not discriminate unfairly between holders of licences, consents and Bord Gáis Éireann (BGÉ – the State-owned gas operator in Ireland) or between applicants for consents or licences; and

Protects the interests of final customers of electricity or gas or both, as the case may be.

In the electricity market, the CER facilitates competition by authorising the construction of new generating plant and licensing companies to generate and supply electricity. The CER also has the key responsibility of regulating prices charged to customers by ESB, in its capacity as Public Electricity Supplier (PES). Similarly in the gas sector, the CER issues consents for the construction of pipelines, licenses suppliers and has powers to regulate prices charged to certain gas customers. The CER takes an active regulatory stance in relation to the operation, maintenance and development of the electricity and gas transmission and distribution networks, as well as approving tariffs for third party access to these systems.

2.5.5 Commission for Aviation Regulation

The Commission for Aviation Regulation regulates certain aspects of the aviation and travel trade sectors in Ireland. The Commission was established in February 2001, under the Aviation Regulation

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Act 2001. The Act transfers a number of functions, which were previously exercised by the Minister for Public Enterprise, as well as establishing new principles to be applied in the area of economic regulation. The Commission is required, subject to the Act, to be independent in exercising its functions.

The Commission for Aviation Regulation sets maximum levels of airport and aviation terminal services charges at any airport in the State open to commercial traffic and having an annual passenger throughput of in excess of one million passengers in the previous calendar year, namely Dublin, Shannon and Cork airports. Under Sections 33 and 36 of the Aviation Regulation Act, 2001, the Commission must take into account certain factors in arriving at its decision in respect of maximum charges. The aim of the Commission is to decide on an economic framework, which meets its statutory obligation to facilitate the development and operation of cost effective airports which meet the requirements of users.

The Commission is also responsible for authorising ground handling operations. Core ground handling services include: marshalling aircraft, loading/unloading, refuelling and baggage handling. Related services include; passenger handling, aircraft maintenance and servicing, surface transport between terminals, catering, and general administration services at an airport. An airline may choose to provide services for itself (self-handling), or contract with another company (third party handling), be it an airline or a dedicated ground handling company.

In addition, the Commission is responsible for licensing the travel trade in Ireland and airlines. Finally, the Commission is also responsible, under EU legislation, for assessing capacity at the airports and for deciding the manner in which take-off and landing slots are administered.

The Commission has a total staff of 15 of which six are engaged on airport charges.

Under Section 23 of the Aviation Regulation Act, 2001, the Commission for Aviation Regulation is empowered to make regulations providing for the imposition of a levy. The purpose of the levy is to meet the costs and expenses of the Commission. The most recent levy was €2,245,818.

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Its allocation was as follows:

Table 2.2: Allocation of Aviation Regulation Levies

Appropriate Matters to which the Levy Classes of Undertaking Proportion € relates

Airport Charges and Slot An airport authority 2,094,974 Coordination

A provider of aviation terminal Aviation Terminal Services 127,215 services at the state airports Charges

Holders of an approval to supply 6,991 Ground Handling Services ground handling services

Air Carriers who hold an 6,156 Operating Licences Operating Licence

Irish registered airlines 10,482 Slot Co-ordination

23 HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

2.5.6 The Irish Financial Services Regulatory Authority (IFSRA)

The Irish Financial Services Regulatory Authority is to be established to supervise all financial institutions in Ireland including the banks, building societies, credit unions and insurance companies. The Authority will act in the public interest creating a sound financial market place, setting strong standards of business conduct and promoting the interests of consumers. The Authority will also ensure that Ireland continues as an attractive and soundly regulated location for the financial services industry.

IFSRA will take over the Central Bank's prudential role, supervising the solvency of the financial institutions and the roles of the Department of Enterprise, Trade and Employment, the Registrar of Friendly Societies and the Office of the Director of Consumer Affairs in relation, respectively, to the regulation of insurance companies, credit unions and consumer credit agreements.

IFSRA will operate within a restructured Central Bank, which will be re-named the Central Bank and Financial Services Authority of Ireland (CBFSAI). The restructured Central Bank will continue to be headed by the Governor. While generally IFSRA will have operational independence, IFSRA will be accountable to him where their supervision of financial services is relevant to his responsibility to protect financial stability or to implement the monetary policies of the ECB. The Board of the CBFSAI will also provide staffing, I.T., accommodation and other services to IFSRA, which will be paid for mainly be levies to be imposed by IFSRA on the financial services industry.

The legislation to establish IFSRA is currently going through the . Meanwhile an interim Authority is planning for the formal takeover of regulatory functions.

2.6 OECD Review of Regulatory Reform

The Organisation for Economic Cooperation and Development (OECD) recently undertook a Review of Regulatory Reform in Ireland5. Because of its relevance to the Ports’ Review, we provide below some extracts of it.

This appraisal found that regulatory reform is helping Ireland to manage the consequences of fast growth, and to build new capacities to sustain growth into the future. For example, regulatory reform is seen as a way to open up important infrastructure and policy bottlenecks to further growth and to attain efficiency improvements that can help manage inflationary pressures.

The Review found that the main bottlenecks where regulatory reform is useful are in physical infrastructure, labour supply, and inefficient administration of business policies. The Irish government is also using reform to establish a more competitive and flexible economy that can innovate, adapt and prosper even as the sources of its current prosperity change. The challenge is to move from growth based on using more resources (mostly more labour) to growth based on using resources better, that is, on productivity improvements. This shift in sources of growth requires a more nimble and dynamic economy rooted in a modern regulatory environment that is consistent with market forces, rewards productivity and innovation, and responds to consumer needs and changing market opportunities, domestic and international.

5 Regulatory Reform in Ireland, OECD, 2001

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The Review indicated that while current Irish regulatory environment is making progress, it does not yet meet that need. Large-scale change to domestic competition is still necessary.

The Review noted that by the end of 1997, Ireland was one of the less regulated OECD countries in terms of barriers to entry and entrepreneurship, market openness, and labour markets. However policy biases of producer over consumer interests, and of control over competition, still linger in some areas. Assessing the impacts of recent regulatory reforms in Ireland is not easy, but a few reforms seem to have contributed to the country's economic success.

The Review went on to say that reform in telecommunications came late compared to other OECD countries, but has proceeded quickly and is now reducing prices. Transport costs are important for Irish competitiveness, and much progress has been made in road freight, airlines, and airports. It noted though, that little progress has been made in improving the competitiveness of Irish ports. It stated that, ‘because of greater efficiency in ports in Northern Ireland, by the early 1990s much of Ireland’s freight exports went through them. Over the course of 1990s, there were significant developments in introducing competition into the supply of port services, bringing about a noticeable improvement in service. However, even in 1997, the proportion of freight units using the Northern Ireland ports was still surprisingly large at 47% of the total’ (by 2000, the figure was 40%)6.

The Review noted that the reform agenda is still long. Bottlenecks in physical infrastructure such as housing, transport, and environmental services are fuelling inflation and constraining future growth. Labour shortages, too, are emerging and are likely to worsen as the supply drops. Capacities in the public sector are not sufficient to deliver the volume of decisions and services needed to address the infrastructure deficit. Weak competition in key sectors is another risk to future performance. Completion of the privatisation agenda, within appropriate regulatory frameworks, is a high priority.

Competition policy has been a key weakness that undermined Ireland's move to sustainable market- based growth. Through the 1990s, competition policy had a difficult time taking root in the domestic economy. Today, competition principles are integrated to some extent into the general regulatory reform programme, but market reforms of utilities and infrastructure services still do not consistently apply competition principles. Anti-competitive licensing schemes survive, but some prominent ones, in taxis and pubs, were recently relaxed. The Competition Authority has a continuing role in curbing abuses in traditional utility and infrastructure industries. Ireland's basic tool kit in its competition law is comparable to those of other OECD countries, and is increasingly focussed on horizontal cartels. The possibility of contradiction and confusion in merger reviews has made that process clearly unsatisfactory, and moves to reform are welcome. There are no explicit exemptions from the Competition Act, but many other laws and programmes restrict entry to protect incumbent firms. Enforcement capacities are still being tested, and private litigation has sometimes been the only recourse.

Ireland has gained substantial benefits by pursuing trade liberalisation, welcoming foreign-owned firms and integrating in the world economy. Irish growth was fuelled by openness in Irish labour markets,

6 Consultants’ calculations based on CSO statistics

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which allowed substantial immigration of valuable labour. Today, Ireland relies more on trade than almost any other OECD country. Ireland has also been successful in attracting foreign investment, though its investment incentives have prompted some complaints. Nevertheless, global and regional economic markets will pose many surprises ahead, and further reform to Ireland's domestic regulatory framework can help it better prepare for shocks. Ireland has integrated many of the OECD's efficient regulation principles into its domestic regulations.

Transparency in market rules has improved, the Review notes, but is still vulnerable to insider interests, increasing uncertainty for foreign actors. By contrast, elaboration of technical regulations and standards under EU and WTO procedures is sufficiently transparent, and Ireland has an excellent record in the use of internationally harmonised measures and open government procurement. Continued attention is warranted to ensuring respect to market openness principles by local governments.

2.7 The EU Port Services Directive

A key development supporting the extension of competition within ports is the EU Port Services Directive.

In a Communication7 from the European Commission, Reinforcing Quality Service in Sea Ports: A Key for European Transport, the Commission noted that competition between ports within the same Member State and between ports in neighbouring Member States has substantially increased since the completion of the internal market. Although, of course, all ports have to follow rules set by the competent national authorities, the diversity and complexity of these rules as well as a considerable degree of uncertainty in procedural matters continue to be of key interest to port users and port service providers. Price and quality of port services have become one of the key elements where port users choose a port; a set of basic rules applicable in all Community ports would ensure that the competition between and within ports would take place on a level playing field.

Recent years have seen a continuing, even increasing trend to shift the provision of port services from the public to the private sector in order to increase efficiency, make use of the know-how of the private sector and introduce, and increase, competition between service providers. Although this trend is far from uniform and, indeed, tends to vary considerably between the different port service sectors, the Communication states that all Member States have opted for the principle of opening up this sector to competition.

Historically, port services have been provided within frameworks characterised by exclusive rights and/or legal or de facto monopolies of a public or a private nature. In the area of cargo handling, the traditional structures have often been successfully challenged, with the result that restrictions have been gradually removed from many markets that have become more commercially oriented with increasing participation of the private sector and, as is generally recognised, increased efficiency accompanied by more market-oriented pricing.

7 Proposal for a Directive on Market Access to Port Services, COM (2001) 35 final, 13 February 2001

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Whilst in the past, ports and port facilities were expected to be paid for by the taxpayer, a discernible trend has developed towards greater private participation in their financing. As a result, financing of many port facilities is increasingly becoming the responsibility of the private sector, while the port authorities tend to restrict themselves more and more to their “landlord” role and the financing and operation of those facilities which are essential to the safe and efficient operation of the port as a whole. At the same time, more and more ports are seeking to develop a more active commercial role, in cooperation with private partners inside and outside the port. Indeed, some ports are operating entirely on a commercial basis.

A further characteristic of a substantial number of ports is the dual role of the managing body of the port, both as a body (public but also sometimes private) responsible for the management of the port and its development, for which in many cases public funds are given, and as a provider of port services where other service suppliers are admitted. The Commission argues that port authorities cannot maintain their privileged position. The Commission does not wish to see the management function of the port authorities reduced but where the port authority is commercially active, it is only fair to other service providers that the port authority is not privileged, that it is given equal rights but not more rights, than its commercial competitors. Where it wishes to compete with other service providers, it must not any more choose whom to compete with.

As a consequence, the Commission has proposed a Directive for a more systematic application of Treaty rules (four freedoms and competition rules) in the port sector. The Directive introduces procedural rules guaranteeing that all service providers, actual and potential, private or public, has a fair and equal chance to take part in the growth industry of port services and that fairness is, and is seen to be, exercised through clear rules and clear procedures. This will, the Commission argues, in turn lead to improved port services and encourage better use of shipping as an alternative transport mode and of combined transport, both reducing the strain on the Community's transport network. The Directive also proposes a system of equal rights and opportunities between private and public service providers.

The Directive specifically proposes that:

Procedural rules be transparent, non-discriminatory, objective and proportional;

The financial relations between public authorities and public undertakings are transparent so as to help ensure fair competition between public undertakings and between public and private undertakings;

Member States shall take the necessary measures to ensure that providers of port services have access to the market for the provision of port services;

Member States shall take the necessary measures to allow self-handling. This principle acknowledges that there are in fact no reasons why self-handling should not, in principle, be allowed in ports if operators believe that such action provides better use of their resources and gains in efficiency of their own services. It acknowledges furthermore that conditions and criteria for self-handlers must not be stricter than those set for providers of port services for the same or a comparable kind of service;

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Where the managing body of the port provides, or wishes to provide, port services in competition with other service providers, it must be treated like any other competitor. This requires that the managing body must not be involved in the selection procedure of service providers, must not discriminate, in its function as managing body of the port, between service providers in which it holds an interest and other service providers and must, in particular, separate its port services accounts from the accounts of its other activities. This principle reflects general competition principles and standards of transparency;

Service providers should have the right to employ personnel of their own choice;

Member States will have to ensure full transparency of all procedures in relation to the provision of port services, as well as the availability of appeal procedures, including a judicial review. This is the principle of good governance;

While Pilotage is contained within the Directive, a lot of discretion is left to member states;

Other port services covered by the Directive are towage, mooring and passenger services, including embarkation and disembarkation; and

Non-specific services such as warehousing and storage are excluded from the scope of the Directive.

To ensure that decisions and procedural measures under this Directive are taken, and are seen to be taken, on the basis of transparency and non-discrimination, Article 5 of the Directive states that member states shall ensure that there is/are competent authority or authorities responsible for implementing these decisions and measures.

The Directive will apply to seaports on the territory of a Member State that are open to commercial traffic with a minimal annual volume of activity of 1.5 million tonnes of freight or 200,000 passengers.

It is expected that the Directive will be passed by the Commission before the end of 2003 and be implemented within two years thereafter.

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3. PORT STRUCTURES

3.1 Introduction

Every port is unique in the mix of infrastructure owned by the port and the services provided by the port or by private companies.

Ports are governed in different ways in various developed countries. Most ports are ultimately governed by a government department, usually with Transport, Ports or Marine in their title. Many ports in developed countries are owned by local or regional government and are governed by means of the particular government department appointing members to the Board. Most ports with such types of governance are set up as non-profit making bodies although this is beginning to change.

The type of governance in developed countries depends on a number of factors. For example, a country that has a publicly owned economy will usually have publicly owned ports. In countries where a mixed market economy exists then ports have more private participation. The port governance situation in each country is usually related to the historical development of government in those countries. Ports that are located on rivers within cities generally have ownerships that are either related to that local government of the city or are in public ownership by the region or state. However these ports often have quite large private involvement in the operation of terminals and in stevedoring. The type of cargo also affects the type of governance of the port. For example, an oil company may set up its own private refinery and its own private port facilities to serve that refinery, irrespective of the port governance arrangements in place in that country.

The factors that influence the way ports are organised, structured, and managed can be summarised as:

The socio-economic structure of a country (e.g., market economy, open borders); Historical developments (e.g., pre independence structure); Location of the port (e.g., within an urban area, in isolated regions); and Types of cargoes handled (e.g., liquid and dry bulk, containers).

In this Report a distinction is made between four different kinds of port governance models. These models reflect the different degrees of public involvement in the organisational and managerial structures in the ports sector. The different models are described by the mix of ownership defined as follows:

Ownership

Ownership can range from exclusive public ownership (by federal, regional, municipal or other public bodies) to forms of mixed ownership (e.g. with basic infrastructure in public ownership with private ownership for the operational equipment, or shared ownership through a port holding company) to full private ownership.

Table 3.1 sets out the four different ownership models.

29 HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

Table 3.1 Basic Port Governance Models

Type 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 private

Ports have a number of conflicting responsibilities. They are primarily a facility for handling cargo from sea to land. However they often have the duty to provide unimpeded and safe access for ships. This requires them to take responsibility for channel dredging; navigation aids (channel markers and buoys); marine traffic management (Port Control, radar and VTMS); control of pollution; monitoring of dangerous goods (hazardous cargoes); and possibly towage. Pilotage is often provided by a separate Authority, but this is usually closely linked to the Port Authority itself. Many ports have responsibility for conservancy within the harbour, involving monitoring of environmental impacts and effects and control of development. A number of ports have a community role involving management of the harbour or estuary to support leisure and recreational use of the harbour and local amenity access.

Depending on the type of port, there is a responsibility for providing and maintaining infrastructure, including quay walls and hardstandings, fendering, roads and utility services. Superstructure and equipment are usually provided by the terminal operator, which can be the port in service or tool ports but is usually a private company in landlord and private service ports.

3.1.1 Definitions:

Port

A sheltered natural or artificial waterway where a ship can enter to load or unload its cargo. A place where cargo is transferred from land to water.

Conservancy

The monitoring, management and maintenance of the natural or artificial waterway to ensure safe navigation by ships. This includes the navigation or access channels, navigation lights and marks and marking and raising of wrecks. It also encompasses the regulating of activities carried out by others in connection with the waterway or harbour. It can include matters such as vessel traffic management, the management of incidents and emergencies (maintenance of anti-pollution equipment), environmental and pollution protection and the protection of the general public from any danger arising from marine activities within the harbour area.

3.2 Analysis of Port Governance Models

Public Service and tool ports mainly focus on the realisation of public interests. Landlord ports have a mixed character and aim to strike a balance between public (Port Authority) and private (port industry) interests. Fully privatised ports focus on private (shareholder) interests.

30 HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

Public Service Ports

Public service ports mainly exist in command economies. Many developing country ports are of this type. These types of port lack internal competition and this leads to inefficiency and lack of customer orientation.

Public Service ports have a predominantly public character. Many ports in developing countries are still managed according to this model. The port owns, maintains and operates every available asset (fixed and mobile) and cargo-handling activities are executed by labour employed directly by the Port Authority. Public Service ports are usually controlled by (or even part of) the Ministry of Transport (and/or Communications) and the Chairman (or Director General) is a civil servant appointed by, and/or directly reporting to, the Minister concerned.

Among the main functions of a public service port are cargo handling activities. In some ports in developing countries the cargo handling activities are executed by a separate public entity, often referred to as the "Cargo Handling Company." Such public companies usually report to the same Ministry as the Port Authority. To have public entities with different and sometimes conflicting interests reporting to the same Ministry, and forced to co-operate in the same operational environment, constitutes a serious management challenge. For this reason the Port Authorities and Cargo Handling Companies of Mombassa, Kenya, and Tema and Takoradi, Ghana, were merged into one single entity.

Tool Port

A number of countries in Europe generally have ports that are classified as tool ports, although this is more common in developing countries. In a tool port the port company owns, develops and maintains the infrastructure and superstructure, including cargo handling equipment such as quay cranes, forklift trucks, etc. Port Authority staff usually operate all Port Authority owned equipment.. Other cargo handling on board vessels as well as on the quay apron and within the terminal is usually carried out by private cargo-handling firms contracted by the shipping agents or other principals licensed by the Port Authority. This arrangement can lead to conflicts between the and terminal operators and the port, which can result in reduced efficiency. The stevedoring companies tend to be small and have few capital assets. This leads to under-utilisation of port facilities and lack of investment.

"Ports Autonomes" in is an example of a container terminal managed and operated as a tool port. This arrangement has generated conflicts between Port Authority staff and terminal operators, which has impeded operational efficiency. For more recent terminals the private terminal operator has made the investment in gantry cranes.

The division of tasks within the tool port clearly identifies the essential problem with this type of port management model, namely split operational responsibilities. Whereas the Port Authority owns and operates the cargo handling equipment, the private cargo-handling firm usually signs the cargo handling contract with the ship owner or cargo owner. The cargo-handling firm however, is not able to fully control the cargo handling operations itself. In order to prevent conflicts between cargo handling firms, some Port Authorities allow operators to use their own equipment (at which point it is no longer a true

31 HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

tool port). The tool port has a number of similarities to the public service port, both in terms of its public orientation and the way the port is financed.

Under a tool port model, the Port Authority makes land and superstructure available to cargo handling companies. In the past, these companies tended to be small, with few capital assets. Their costs were almost entirely variable. The cost of under-utilisation of port facilities was usually absorbed by the Port Authority, which minimised risk for the cargo handling companies. Often, the provision of cargo handling services was fragmented and cargo handling companies were small with activity divided amongst many participants. The lack of capitalisation of the cargo handling companies constituted a significant obstacle to the development of strong companies that could function efficiently in the port and be able to compete internationally.

Landlord Port

Landlord ports provide a mix of public and private ownership and operation. The port provides the infrastructure including navigation channels, reclamation areas and quay walls or jetties but these port land areas are leased to private operating companies who provide the superstructure and equipment. Most landlord ports have stevedores provided by private terminal operators.

Examples of landlord ports are Rotterdam, Antwerp, New York and, since 1997, Singapore. Today the landlord port is the dominant port model in larger and medium sized ports.

In the landlord port model, infrastructure is leased to private operating companies and/or to industries such as refineries, tank storage terminals and chemical plants. The lease to be paid to the Port Authority is usually a fixed sum per square metre per year, typically indexed to some measure of inflation. The level of the lease amount is related to the initial preparation and construction costs (e.g., and quay wall construction). The private port operators provide and maintain their own superstructure including buildings (e.g., offices, sheds, warehouses, Container Freight Stations, workshops). They also purchase and install their own equipment on the terminal area (e.g., quay cranes, transtainers, conveyor belts) as required by their business. In landlord ports dock labour is employed by private terminal operators, although in some ports part of the labour may be provided through a port-wide labour pool system.

Private Service Port

There are few fully privatised ports and the majority of these are found in the . In a private service port the land is privately owned and all the services are provided privately. In order to proceed from a public to a private ownership, the land needs to be transferred. In many situations the regulatory functions are also transferred to the private company. For example in the absence of a port regulator in the UK, privatised ports are essentially self-regulating. There is then a risk that port land can be sold for non-port activities. This results in the Government losing its control over strategic policy for ports as it is then impossible to recover the land at some future date for its original maritime use. However, despite initial concerns about the estate management of private ports in the UK they have generally proved to operate satisfactorily.

32 HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

3.3 Critique of Port Governance Models

Public Service Port

Strength: Superstructure development and cargo handling operations are the responsibility of the same organisation (unity of command).

Weakness: There is only a limited role for the private sector in cargo handling operations. There is less problem-solving capability and flexibility in the event of labour problems, since the port administration is also the major employer of port labour. There is a lack of internal competition, leading to inefficiency. There is wasteful use of resources and under-investment as a result of government interference and dependence on government budgets. Operations are not user- orientated or market-orientated. There is lack of innovation.

Tool Port

Strength: Investments in port infrastructure and equipment (in particular ship/shore equipment) are decided and provided by the public sector, thus avoiding duplication of facilities.

Weakness: The Port Administration and private enterprise jointly share the cargo handling services (split operation), and this can lead to conflict. Because the private operators do not own major equipment, they tend to function as labour pools and do not develop into firms with strong balance sheets. This causes instability and limits future expansion of these companies. There is a risk of under-investment and lack of innovation.

Landlord Port

Strength: A single entity (the private sector) executes cargo-handling operations and owns and operates cargo-handling equipment. The terminal operators are more loyal to the port and more likely to make needed investments as a consequence of their long-term contracts. Private terminal operating companies are generally better able to cope with changes in market requirements.

Weakness: Risk of over-capacity as a result of pressure from various private operators. Risk of misjudging the proper timing of additional capacity.

33 HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

Private Service Port

Strength: Maximum flexibility with respect to investments and port operations. No direct government interference. Ownership of port land enables market orientated port development and tariff policies. In the event of redevelopment, a private operator probably realises a high price for the sale of port land. The strategic location of much port land may enable the private operator to broaden its scope of activities.

Weakness: Government may need to create a Port Regulator to control monopolistic behaviour. The Government (be it national, regional or local) loses its ability to execute a long-term economic development policy with respect to the port sector. In the event that the necessity arises to redevelop the port area for other public use, Government has to spend considerable amounts of money to buy back the port land. There is a serious risk of speculation with port land by private owners.

3.4 Ports Ownership Models – International Practice

3.4.1 Introduction

We have reviewed the port governance and ownership models in a number of countries. There were many developed countries that we could have looked at but we restricted our review to the following. Outside the European Union we reviewed the situation in Canada and New Zealand. Within the EU we have looked in detail at the port governance situation in Denmark, Germany, the Netherlands, and the United Kingdom. We have also looked more generally at the situation in the EU member states of France, Greece and .

The decision on which countries to review depended partly on the developed countries having commenced some port reform, and also on the availability of references in English.

Our review has shown that most developed countries have ports that follow the landlord model or they are private ports. In the last twenty years there has been a steady trend towards separating ports from direct control by government departments or local authorities. Generally, such ports have been corporatised with the shareholding held by the Government or Local Authority. In some countries the shareholding is partly private or wholly private, particularly in the UK.

In most of the countries reviewed the superstructure, equipment and buildings and the provision of port services such as stevedoring were usually in private hands. However, many countries have separated conservancy responsibilities and have them retained by public bodies of some sort, usually a Port Authority.

All countries have concerns over the public ownership of non-core land and its possible selling off by private companies following privatisation of the port. A few countries have considered creating separate public organisations to own the land.

The majority of countries specifically will not provide public funding for infrastructure or other port developments and expect these port facilities to be funded by others. This funding is either through the

34 HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

port’s own revenues or through private participation in joint ventures or ownership. A number of countries do provide public funding for conservancy and particularly in mainland Europe dredging is funded by the Government.

3.4.2 Non European Union

Canada

Prior to 1995, 549 ports in Canada were owned and operated by the federal government (known as Transport Canada). In addition, there were some 34 provincial ports, 18 municipal ports, 35 private ports and about 1,680 harbours, administered by the Federal Department of Fisheries and Oceans.

In December 1995, the ports system in Canada was restructured under the National Marine Policy. A key part of this policy was the Canada Marine Act (CMA), which became law in June 1998. The CMA modified the structure and regulation of the marine industry in several ways. Notably, the Canada Marine Act created a national ports system made up of independently managed port authorities, allowed the transfer of the management of certain port and harbours from the federal government to local interests, commercialised the St. Lawrence Seaway and amended the Pilotage Act. Among other things, the objective of the Canada Marine Act is to:

Implement a National Marine Policy that will promote and safeguard Canada's competitiveness and trade objectives.

Ensure that marine transportation services are organized to satisfy the needs of users and are available at a reasonable cost to users

Provide a high degree of autonomy for local or regional management of components of the system of services and facilities and be responsive to local needs and priorities

Manage the marine infrastructure and services in a commercial manner that encourages, and take into account, input from users and the community in which a port or harbour is located.

Ports in Canada now fall into one of three main categories, as follows:

National Ports System (NPS) Ports. These are ports that are considered vital to domestic and international trade and are financially self sufficient. There are 18 ports in this category. The ports are owned by Transport Canada, but are managed by Canada Port Authorities (CPA), a body made up of representatives of user groups and various levels of government. Government funding is not available for NPS Ports. They do, however, have the freedom to borrow money on commercial markets, set tariffs and fees and make contracts and leases. The Boards are predominantly appointed by the Minister of Transport with a few nominations made by local interests. However the Minister has the power to reject such candidates. The lack of independence of these Boards is seen as reducing their effectiveness in providing devolved governance.

35 HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

Remote Ports. These are ports in remote areas, which serve the basic transportation needs of isolated communities and which rely on the presence of an existing Transport Canada wharf structure. All ports designated as Remote Ports, 34 in total, are owned, operated and maintained by Transport Canada.

Regional or Local Ports. These are ports that do not meet the CPA criteria set out in the CMA and which are not designated as Remote Ports. These ports are gradually being transferred to other interests, including provincial governments, municipal authorities, community organisations and private individuals/companies or are being closed. The ports are managed by local interests in a manner more responsive to local needs, with lower costs and better service.

The Canadians accepted that there was not a “one size fits all”. The Canada Marine Act creates “not for profit” ports but mandated to operate with full commercial discipline. There is no government funding or guaranteed loans available to the ports and they are free to pursue private sector capital to finance port projects. There are limits on the borrowing capacity of the ports. The Canada Ports Authorities pay a form of tax on the gross income to the state to provide a return on historic investments made by the state.

The port accesses and in particular the St Lawrence Seaway are owned by the government and managed by a separate corporation through an agreement with the government. The Government of Canada retains jurisdiction over the navigation of the waterways.

Canada’s NPS system is very similar to the Harbours Act in Ireland.

New Zealand

New Zealand was one of the countries to introduce port reform earlier than others. Until the mid 1980's, all the major commercial ports in New Zealand were publicly owned facilities, managed and operated by regional Harbour Boards reporting to the Ministry of Transport. Harbour Boards members were elected during the three yearly local government elections.

In 1984, the New Zealand government instigated a consultation programme on how to improve the efficiency of the national ports. The review was undertaken by the Ports Industry Review Committee. The Ports Reform Bill was introduced in 1987 and resulted in a number of Acts including the Ports Companies Act 1988 which provided for the corporatisation of ports and for partial privatisation. The Act required each Harbour Board to establish a Port Company to acquire the commercial undertakings of each Board and to operate them commercially. The result was that centralised control over port planning and prices was removed. Alongside the Port Companies Act, there was the Employment Contracts Act which changed the arrangement for stevedoring in the ports.

The ports review also resulted in the passing of the Waterfront Industry Reform Act 1989. This Act abolished the Waterfront Industry Commission, which historically employed all waterside workers nationally. This removed centralised control over employment and allowed the introduction of casual labour.

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The Port Companies Amendment Act in 1990 allowed full private ownership of the port companies and the ports were corporatised with ownership passing from Harbour Boards to regional councils. However the Act allowed regional councils to sell their ownership up to 50% and more if agreed by the Government. Five ports in New Zealand are currently partly privately owned under this arrangement. However, the largest port of Auckland is only 20% privately owned with the remaining 80% held in a Trust and Tuaranga Port is currently 45% privately owned. It is likely that private ownership will increase in the future.

At present, the 14 major commercial ports in New Zealand are owned by 13 Port Companies (the Port of Auckland owning two ports) and six ports are partly listed on the New Zealand Stock Exchange. The reported results of these changes in ownership structure have been to dramatically improve the ports' operating and financial performance. In addition, inter port competition has intensified significantly.

The port companies do not just solely provide infrastructure and are vertically integrated into the provision of operational services, often in competition with private service providers, and port superstructure. Port company provision of stevedoring services and wharf operations is commonplace, particularly in relation to containerised cargoes. Other port services such as towage and pilotage are generally provided solely by the port itself.

The small scale of operations in many New Zealand ports implies that the benefits of labour specialisation may be outweighed by the costs of under-utilisation. At these small ports, it pays to improve utilisation by sharing labour across port activities. Vertical integration by port companies avoids regular and expensive inter-firm market exchanges of labour.

3.4.3 European Union

In mainland Europe, ports are predominantly state owned. However, the manner in which the state exercises its power varies. Ports can be owned directly by the central government, by state companies (operated by appointed boards) or through municipal authorities and city councils.

Denmark

The larger ports in Denmark have been allowed to organise themselves either as limited liability companies, self-governing municipal ports, municipal ports or state-owned ports since January 2000. Only Copenhagen has become a self-governing institution with most other ports being publicly owned either by the Government or by the Municipality. There are some private ports in Denmark operating alongside the publicly owned ports.

Ports in Denmark are the responsibility of the Ministry of Transport which deals with the public interest and the ownership of the marine environment. The Port of Copenhagen is a large port and operates as a commercial port, but in addition is involved in the development of the inner harbour area for residential and office development. The Port of Copenhagen is also involved in Copenhagen Malmö Port which is a Swedish limited liability company with 50% owned by the Port of Copenhagen and 50% by the Port of Malmö. Both these ports are publicly owned.

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Interestingly the consent for development in marine areas is administered by the Danish Coastal Authority, through the Coastal Protection Act and separated from the Ministry of Transport, although acting as its technical advisor.

The Port of Copenhagen has more than 700 leaseholds and properties extending over an area of 4 million square metres. The Port of Copenhagen is managed by a board whose members are selected by the State, the Municipality of Copenhagen, the Danish Chamber of Commerce and the Port’s employees. The quays in Copenhagen and Malmö are operated by a common Danish-Swedish port company Copenhagen Malmö Port AB. The two ports have joined all their port operations in this company. The merger became a fact on 1 January 2001, following a run-in period which started in 1997.

Germany

The majority of German trading ports were historically owned by the Municipality in which they were located. Germany has only recently started the process of corporatisation of its ports. The ports are ultimately responsible to the Federal Administration for Water and Navigation (WSV) within the Federal Ministry for Transport, Building and Housing. The ports themselves are divided up into regions which do not correspond directly with the Landes. (Regional governments)

The main ports of Bremen and Hamburg are Landlord Ports. The public sector’s job is to maintain and develop the port’s infrastructure. The private sector handles the port’s superstructure, its buildings and equipment.

The Port of Bremen was corporatised on 1st January 2002 and the company is fully owned by the Municipality as a management company. The Bremenports Management + Services GmbH & Co. KG is responsible for both Bremen and Bremerhaven and is allowed to invest in other ports outside Bremen such as Wilhelmshaven. The port is responsible for developing the infrastructure of the port and marketing. Private companies operate the terminals and provide any superstructure. Interestingly the functions of Harbour Master remain with a government department acting as the Port Authority within the Ministry for Economy and Ports.

The Netherlands

Most of the relatively small number of ports in the Netherlands are owned by the municipality and operate as landlord ports. The ports come under the Ministry of Transport and Water Management for governance purposes.

38 HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

In the Netherlands there are 18 seaports which are grouped into 4 distinct regions:

Northern Seaports 1 Delfzijl 2 Eemshaven 3 Harlingen 4 Den Helder

Amsterdam/North Sea Canal 5 Amsterdam 6 Zaanstad 7 Beverwijk 8 Velsen 9 IJmuiden

Rhine and Meuse Ports 10 Scheveningen 11 Rotterdam 12 Schiedam 13 Vlaardingen 14 Maassluis 15 Dordrecht 16 Moerdijk

Scheldt Estuary Ports 17 Vlissingen (Flushing) 18 Terneuzen.

These ports are under the administrative control of the Municipal Government or the Provincial Government. For example, the ports of Terneuzen and Flushing are managed by Zeeland Ports, which is a joint venture of the Province of Zeeland and the Municipalities of Terneuzen, Sas van Gent, Borssele and Flushing. The ports of Rotterdam and Amsterdam are municipal ports and are accountable to their respective Municipal Councils.

All seaports in the Netherlands are structured according to the landlord principle, where ownership of the port land and main infrastructure rests with the port authority. The authority is responsible for management and development of the port land and main infrastructure as well as the regulation and enforcement of nautical safety and environmental protection. The investment in superstructure, such as buildings, and equipment is the responsibility of private operators.

The port authorities are, in principle, non-profit organisations, whose operational and investment budgets are allocated from the appropriate Governmental budget. The main business objectives of the port authority is not to be profitable but to secure and stimulate the socio-economic wealth of the port region.

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In order to meet their stated objectives in the increasingly competitive port environment, port authorities have gradually moved away from their traditional landlord role. Initially, the authority seemed to be primarily involved with management, administrative and regulatory tasks. It was left to the private sector to initiate new investments and introduce new businesses in the port. However, nowadays the port authorities have adopted the role of business integrator and facilitator, no longer reactive but proactive in their role as business developer. For example, the recently formed authority “Zeeland Seaports” positions itself…“ as a potential partner for new investors, willing and able to help them succeed in their chosen enterprise. Customers can rely on Zeeland Seaports for free advice and feasibility services in order to demonstrate the potential benefits of moving their business and cargo flows to Zeeland Ports”. Groningen Seaports sees itself as a “…full-service provider as well as an initiator, entrepreneur and facilitator. Groningen Seaports will support its business partners in every possible way.”

Clearly the role of the port authorities has been changed under influence of the sector’s scale enlargement, globalisation and formation of alliances. Because of its size and global market leader position, these changes have been most visible in the Port of Rotterdam. Whereas the 1992-1996 business plan was still based on a sectoral strategy, with clear market choices for the growth sectors (such as containers, distribution, food and chemicals), the 1997-2000 business plan already placed the port and port industrial complex in a global context, with an increasing impact beyond the port itself. The new 2001-2005 business plan takes this even further with a focus on the topics of space, networks and positioning.

The Port of Rotterdam has recently been divided into a number of companies. The Main Port Holding Rotterdam is a joint limited company with joint shareholdings from a number of terminals, shipping agents, etc. Other divisions, such as Commercial Affairs, deal with marketing and leases, port dues. Infrastructure and Environment is responsible for the development of the infrastructure. A separate operation, the Rotterdam Ports Authority, acts as Harbour Master and is responsible for the navigation. There are a number of other departments dealing with other matters within Rotterdam Municipal Port Management. The main shareholder of Rotterdam Municipal Port Management is the municipality with government support.

The Dutch Government wants to establish similar arrangements in other ports and there have been some attempts to carry out similar division in Amsterdam Port Authority which is owned by the City of Amsterdam. Similarly Zeeland Seaports have been set up as a non-profit making public authority for the management and control of the Ports of Terneuzen and Vlissingen. Zeeland Seaports is a joint venture between several municipalities.

The Rotterdam Municipal Port Management strives to become a pro-active, facilitating and managerial player. This new strategy is introduced by the motto "from port landlord to mainport manager". The Rotterdam example is of particular interest, as the present debate on the implications of the implementation of the Port’s new strategy is illustrative and probably predictive for the ports in the Netherlands and in Europe in the years to come. Therefore, the Rotterdam case is described in more detail in the following paragraphs.

40 HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

The Rotterdam Case

The Rotterdam Municipal Port Management (RMPM) manages the Rotterdam port and industrial complex on behalf of Rotterdam municipal authority. The RMPM has traditionally had two core tasks:

Development, construction, management and operation of the port and industrial zone, and

Effective, safe and efficient handling of shipping traffic in the port.

RMPM is accountable to Rotterdam Municipal Council. Since 1932 the port’s governance structure has been the 'landlord model', which makes it one of the first ports in the world that implemented this model.

In recent years, RMPM’s strategic move towards commercialisation (under the motto "from port landlord to mainport manager"), has resulted in a more effective port management, broadening its policies on land issues, tariffs and employment conditions. RMPM also decided, in contrast with the traditional landlord principle, to take equity in a number of strategic participations and entered into several joint ventures.

In order to facilitate these participations, RMPM decided in 1999 to create the limited liability company "NV Mainport Holding Rotterdam", which holds both existing and new participations and joint ventures. The NV Mainport Holding Rotterdam accommodates collaborations, joint ventures and alliances. For example RMPM is a joint shareholder in:

Stevedoring activities in the Rotterdam Port: container stevedoring company ECT

Inland terminals: the CSKD-Intrans railroad terminals in the Czech Republic and the Slovak Republic

Shipping agency: Royal Dirkzwager

Training: RISC Fire and Safety Training BV

Other Dutch seaports: joint venture ESM with Zeeland Seaports

Other non-Dutch ports: strategic partnership between Rotterdam and the port of Constantza in Romania. This could ultimately lead to Rotterdam’s participation in the management of the port of Constantza. The strategic alliance will set mutual goals for the ports at each end of the Rhine- Main-Danube trans-European corridor.

With the creation of N.V. Mainport Holding Rotterdam, the future governance model for Dutch Seaports seems to have arrived; a port authority in the form of an independent limited liability company in which the government is the shareholder (a semi-state company). Both the national government and industry have indicated that they are in favour of a restructuring programme towards further independence from the regional and municipal governments. However, the proposed reforms are not undisputed, as many fear that it is an irreversible step towards full privatisation of the Port of Rotterdam. It is generally accepted that full privatisation of the Rotterdam Port Management (and that of other seaports) is undesirable because of the absence of the fundamental driver for successful privatisation, namely competition.

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The Dutch Government has yet to decide the next generation of governance structure for the Dutch seaports. However, the Transport Minister has clearly indicated the national Government’s preference for establishing the Government NVs (Limited liability companies) and this obviously finds strong support within RMPM.

It is also worth noting that four other major commercial ports in North-West Europe (Antwerp, Bremen, Bremerhaven and Hamburg) also operate with a mixture of public and private ownership in the same manner as the Port of Rotterdam. Because of their Hanseatic traditions, these ports are Defined as operating according to the 'Hanseatic' port governance model.

Sweden

Sweden has two separate organisations dealing with ports. The Swedish Maritime Administration is responsible for conservancy matters while the individual ports are generally limited liability companies owned by the municipality or with partial private ownership. The terminals are usually privately owned. The ownership by the local municipality has caused problems where ports have merged with more than one municipality represented in the ownership of the merged entity. For example the Port of Stockholm has taken over the neighbouring ports at Nynashamn and Kapellskar.

In order to reduce costs a number of ports have integrated their port authority and stevedoring functions into one organisation. This has resulted in the partial privatisation of many Swedish ports. These types of port are now responsible for more than 80% of total earnings and volume of cargo. There has been a recent trend towards greater regional co-operation.

Sweden has nearly 50 public seaports, ranging from small specialised ports through ports to large, full service ports. Most of Sweden’s ports are still municipally owned. In most cases the municipality also owns the port infrastructure, which it leases to the port on commercial terms. Most of them are organised as integrated companies as the result of mergers between the former port authority and the local stevedoring company. The aim of these mergers has been to increase efficiency and to reduce costs.

Another organisational trend in the ports of Sweden is regional co-operation both between stevedoring companies and between the integrated port companies. During the 1980s and 1990s many Swedish ports ended the old divisions between the port authority (owned by the municipality) and the usually privately owned by merging the two activities into one limited liability company. This left most Swedish ports and their cargo handling operations as either owned or partly owned by the local municipality.

In the Stockholm region and around Lake Vänern, ports have begun to co-operate as a single organisation under a common administration. Seven ports on Lake Vänern have grouped together under a single administration known as Vänernhamn. Another example is the ports of Köping and Västerås, on Lake Mälaren, which together have created Mälarhamnar AB.

42 HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

Several other ports have formed promotional groupings including the West Sweden Ports, a joint marketing initiative by Göteborg, Uddevalla and Varberg and Bråviken Hamnar, a combined promotional drive between Norrköping and Oxelösund. Clearly, these loose agreements to co-operate set aside the question of ownership and allow greater flexibility than a full-blown merger.

As a result of various mergers and co-operations, the number of port administrations in Sweden has slowly but steadily fallen. There are now some 30 port authorities and port companies which have organised into larger units.

United Kingdom

The United Kingdom has the longest history of port reform. The nationalised port and railway ports industries were privatised in the 1980s. These formed ABP and various ports owned by , Sea Containers and Wight Link . In 1991 the Ports Act allowed privatisation of the larger ports which were generally Trust ports. These ports were fully privatised and there have been some mergers and buy-outs since their privatisation.

The majority of cargo in the UK is handled by private company ports although there are still a number of Trust and municipal ports such as Dover, Ramsgate and Portsmouth remaining.

The decision to move to full privatisation in the UK was made for three main reasons:

To modernise institutions and installations, both of which often dated back to the early years of the industrial revolution, making them more responsive to the needs and wishes of the users

To achieve financial stability and financial targets, with an increasing proportion of the financing coming from private sources

To achieve labour stability and a degree of rationalisation followed by a greater degree of labour participation in the new port enterprises.

The problem of conservancy in the UK was dealt with in various ways. For the Milford Haven, Harwich Haven and the waterways separate conservancy authorities were set up. Individual private ports operate within these conservancy areas. There was concern about the sale of non-core port land by private companies. Although this has happened to a certain extent, the companies have reinvested in infrastructure and in general this has improved the efficiency and customer orientation of these ports.

There are approximately 650 ports in the United Kingdom (UK), ranging from major harbour installations and terminals through private jetties and fishing ports to recreational harbours and marinas; a diversity mirrored by the many different ports in Ireland. The UK ports are owned and operated by a variety of different organisations, such as multi-port companies, small private operators, trusts, local authorities and government bodies (such as British Waterways). There is no central ports authority in the UK. Notwithstanding the above, ports in the UK generally fall into three categories, each of which is described below:

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Private Ports. Approximately 75% of the UK's port capacity is controlled by private companies. As would be expected, however, the origins of these private companies vary considerably. For example, one of the largest companies, Associated British Ports, arose through the privatisation of the state owned British Transport Docks Board in the 1980's (including Southampton, Hull, Immingham, , Kings Lynn, Garston (on the Mersey), Ayr and Troon, Lowestoft, Newport and Swansea). Several companies were created through the privatisation of former Trust Ports (notably, Clyde, , Forth, Ipswich, Sheerness (on the Medway), Tees and Hartlepool and Tilbury (on the Thames)) between 1992 and 1997 under the Ports Act 1991. Notwithstanding the above, some port companies in the UK have always been in private hands, Felixstowe and Manchester being the primary examples. Some ports owned by local authorities (municipal ports) have also been privatised, with Boston and Bristol being examples.

Acquisitions and mergers by some of the larger ports have now resulted in a reorganised and more consolidated UK private ports industry. For example, Mersey Docks & Harbour Company now controls Medway Ports, which itself owns the Port of Sheerness. PLC now owns the ports of Tilbury and Dundee and Associated British Ports has taken over Ipswich. At present, the main private port operators in the UK are Hutchinson Wampoa (Felixstowe Dock and Railway Company, Port of Harwich and Thamesport), Associated British Ports, Forth Ports PLC, Mersey Docks & Harbour Company, Sea Containers Ports Ltd, Stena Line Ports Limited, Tees & Hartlepool Port Authority Ltd, Bristol Port Company, Manchester Ship Canal Company and Clydeport Ltd.

The ownership structure of the private ports also varies. Some are subsidiaries of larger companies (for example Felixstowe, which is owned by Hutchinson Wampoa), some are limited companies (Associated British Ports and Forth Ports) and some are owned by their own management and employees (Clydeport). Irrespective of their ownership structures, it should be remembered that all private ports are operated to maximise profits for their shareholders, with little or no emphasis on contributing to local economies.

Trust Ports. These are independent statutory bodies established under local Acts of Parliament. The trusts are governed by an independent Board of Trustees who reinvest all profits for the benefit of all port users and wider regional and local interests. These Trustees include representatives of port users, local authorities and Government and are similar to the present Harbours Act ports in Ireland. In the UK, about 90 ports currently hold trust status. Although the majority of these are small fishing or recreational harbours, some are major port undertakings, notably Dover Harbour Board, Port of Tyne Authority, Milford Haven Port Authority and Harbour Board. In addition, some Trust Ports, such as the Port of London Authority and Harwich Haven Authority, act as conservancy and pilotage authorities. Although the Board of Trustees is appointed by the Secretary of State, Trust Ports are autonomous in their operation and management. Importantly, Trust Ports are required to be self-financing. There is, however, no obligation on the trust to maximise profits, although surpluses must be generated for re- investment purposes. They do not receive subsidies from local or national government, but

44 HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

derive the income they need to operate and manage the port from harbour dues levied on private companies and vessels that use their facilities.

Municipal Ports. In general, municipally owned ports in the UK comprise small-scale cargo handling ports, fishing ports and recreational harbours and marinas. However, there are several commercially significant ports that are municipally owned, including Portsmouth, Ramsgate, Sunderland and Sullom Voe. The overall number of municipally owned ports is steadily declining in the UK, as successive governments have attempted to move these ports into the private sector. The local government administration is not set up to manage large ports and problems of cross-subsidisation and slow decision making have hampered development. A number of local authorities have set up separate trading companies to operate their ports.

In the UK, some private companies also undertake conservancy and pilotage duties and in the process, often facilitate access to competing private port facilities. For example, Mersey Docks & Harbour Company are the conservancy and pilotage authority for the Medway, which provides access to Thamesport (which is owned by Hutchinson Wampoa), whilst owning and operating their own facilities at Sheerness. In addition, they are also responsible for the Mersey, which provides access to the Manchester Ship Canal. Similarly, Associated British Ports has conservancy and pilotage responsibilities for the River Humber, along which are a number of private facilities, such as Simon Storage's Humber Sea Terminal. Whilst at first glance, these arrangements would not appear to be ideal in terms of ensuring safety and a level playing field for competition, UK experience is that private companies can be trusted to undertake these important duties fairly and without conflict of interest.

Furthermore the government has made the rating of ports fairer. Rateable values of ports, as with those of other statutory undertakings have been prescribed using a formula which the government reviews every five years. All ports are obliged to provide reports and accounts to the Secretary of State, or Scottish Ministers, however compliance is patchy. Public company port undertakings publish accounts but many trust ports have not taken this basic step. Some appear not even to keep proper accounts.

Other European Countries

In France, ports are split into three categories, as follows:

The Autonomous Sea Ports. These ports are self-governing public undertakings, owned by the state. They account for approximately 80% of France's maritime trade and compete directly with other international ports in Europe. There are eight Autonomous Sea Ports. Six are on France's coast (including Dunkirk, Le Havre, Bordeaux and Marseilles) and two are inland ( and Strasbourg). There are two overseas (French West Indies and French Polynesia).

Ports of National Interest. These ports are administered by local Chambers of Commerce and Industry, to whom the state delegates their management and administration. These ports handle the cross-channel and cross-Mediterranean services, as well as a significant proportion of the country's general cargo and fishing activities.

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De-centralised Ports. In general, these ports include commercial and fishing ports (which depend on the Departments and are managed by Chambers of Commerce and Industry) and yachting harbours (which depend on the local government authorities).

In Greece, ports are managed by two entities called ‘Port Authority S.A.’ for the ports of Piraeus and Thessaloniki and ‘Port Funds’ for the other ports. These public entities currently follow the model of operating ports, performing practically all port development and operational activities. Most of these entities are organised at a prefectural level. Port users participate in the Board of Directors of these entities.

Modernisation and development of Greek Ports is focused upon the objective of restructuring the port system by:

Private sector participation in the ports of Piraeus and Thessaloniki. Ultimately 49% of the shares of these enterprises are intended to be sold in the stock exchange;

Transferring the responsibility for the small ports to municipalities and prefectures;

Reorganising the remaining managing entities and widening the scope for awarding concessions to private enterprises inside the port. Major port funds will be transferred to ‘Port Authority S.A’.

In Spain, ports have a close relationship with the state in that port activities are governed by the Spanish Constitution. Approximately 200 ports belong to the Regional Government; these are generally the non-commercial ports that provide only recreational services and act as shelters. Some 45 ports, however, are classified as being of 'general interest' to the state and as such, are owned directly by the central government. These ports are managed by 27 Port Authorities, which are independent Public Entities with their own legal status and capital. The ports are operated according to the 'landlord model', whereby the Port Authorities are responsible for the development and maintenance of infrastructure and private companies provide port services (cargo handling etc).

3.5 Lessons for Ireland

3.5.1 Variety of port governance models

There are a wide variety of port governance models available; the difference between them being primarily defined by the relationship between the public and private sectors. The nature and extent of this public-private relationship depends on various factors, including where the port is located, the socio- economic structure of the country in question, the history of the country and the type(s) of cargo being handled.

Port governance models vary from full public control to full private control, with many variations and hybrid models in between. Typically, in most 'developed' countries, the traditional methods of port ownership, management and operation have been abandoned, with ports increasingly operated as commercial entities in the global market place. In the less 'developed' countries, ports are considered more as strategic national assets and are owned, managed and operated as such, by the public sector, for the wider public good. Notwithstanding the above, government involvement in port management is on the decline worldwide.

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In addition to the influence of market forces, the increasing involvement of international financial institutions in port development has facilitated the introduction of more efficient port governance models and ownership models. The total absence of government involvement in ports, however, is rare.

3.5.2 Port financing

The main problem in having ports with different ownership and operating structures competing against each other in the global market place is that it is very difficult to create a level playing field for fair competition. For example, the commercial ports of northern Europe have very low rates for port dues and cargo handling, making the ports very competitive and attractive to customers. The primary reason for these low rates is often stated to be 'economy of scale' related. However, these ports have received and continue to receive significant public funding in the form of state aid. This funding is typically used by the port for infrastructure development and capital or maintenance dredging; costs which otherwise would have to be borne directly by the port and reflected in port dues and cargo handling charges. Clearly, because these ports are not required to cover their full costs, there is a perception that they have an unfair commercial advantage over the ports that are required to cover their full costs, such as the private ports in the UK.

The greatest challenge facing ports is the funding of both unimpeded access for ships and suitable ship loading facilities in the face of the steady trend towards larger ships. Many countries currently deal with the former challenge by direct state or regional government funding of dredging and navigation aids. The latter challenge should probably be left to the market with infrastructure paid for by the port company and recovered through port dues, tonnage rates and capital contributions by users of the facility.

Ireland has previously funded infrastructure development and both capital and maintenance dredging through European grants and through the Department of the Marine budgets (particularly prior to 1996). It is understood that little or no European or government funding will be available to the Harbours Act ports in the future. Therefore the implications of the ports’ own funding of these items on increases in port charges needs to be considered.

In an attempt to prevent the market from being distorted by public funding and to create a level playing field for all competing ports in the European Union, the EU has published the ‘Green Paper on Sea Ports and Maritime Infrastructure’. The Green Paper’s main thrust is to argue for a more transparent system of pricing and port financing and to link that pricing to long margin costs, including the full costs of new investments. In short, the paper argues for demand driven investment, fair competition and discourages state aid.

3.5.3 Operational Matters

The Landlord port model is becoming the most common type of port in Europe. The majority of the Harbours Act ports in Ireland already substantially follow this model. Some ports would need to withdraw from terminal operation, stevedoring services, towage and the provision of cargo handling equipment to comply strictly with this model. In most European publicly owned ports the port company is responsible for the management of the port estate, strategic planning, marketing, emergency planning

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and harbour safety. Ports usually retain responsibility for matters of conservancy such as freedom of navigation (including channel lights and buoys), vessel traffic management systems and harbour regulations.

In many European countries there is a trend towards separating pilotage from the Port Company functions. In some countries the responsibility for harbour dredging and environmental protection is placed in a state owned and managed body, usually a Harbour Authority, separated from the public, private or mixed ownership of the port management or landlord company. Most mainland Europe ports are provided with public funds for maintenance dredging and conservancy matters. In some countries capital dredging is also state funded. However the implementation of the proposals in the ‘Green Paper on Sea Ports and Maritime Infrastructure’ should see these functions transparently funded with the ‘user’ paying for the facilities provided. If such funding is to be provided solely by the Port Company and its customers, then responsibility for dredging and conservancy should probably remain with the port. However the funding of dredging and conservancy by the port has implications for port charges, which will need to increase.

This calls into question the attainment of a ‘level playing field’ for ports. The success of individual ports is largely due to their geographical location, situation and character, provided that port charges and cargo handling costs are similar. Therefore ports with natural protection and deep water that are close to their market and/or provide the shortest sea route will always be more successful than depth limited, shallow ports located upstream in river estuaries or river systems, or those that are exposed to long fetch or ocean swell waves. Hence the trend towards the development of river ports downstream in deeper water and with closer access to the open sea. Although natural harbours with their own natural wave protection are the ideal, proximity to a sea route or inland market can make highly expensive artificial protection viable.

Most commercial ports in Ireland are river ports, with the exceptions of Rosslare and Dun Laoghaire, and therefore have channel depth, width or geometrical (bends) restrictions that limit ship size and hence growth of trade and physical development. Therefore in the Irish context particular attention needs to be paid to the methods of supporting improvements to access in order to ensure fair competition. In addition the method by which the national interest in the development of ports can be both transmitted and implemented needs consideration.

Most other European countries separate the port conservancy responsibilities of the harbours from their commercial activities of landlord, developer and terminal operator. However there is no single European model for the extent to which ‘purity’ of the landlord port functions should be retained. Some European countries have ‘pure’ landlord ports and others allow their essentially landlord ports to participate in joint ventures or sole ownership of new or existing terminals (including their management and operation) or in stevedoring. In some countries ports have set up separate limited liability companies to carry out these non-landlord roles in order to maintain separation of interests and an equal relationship between the landlord, these new companies and other private terminal operators.

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4. OVERVIEW OF IRISH PORTS

4.1 Introduction

In this section, we present a brief profile of the corporatised commercial ports setting out the key features of each. They are presented in alphabetic order. In section 5, we provide a detailed financial analysis based on the supplied accounts.

The Table below provides comparative details of the general cargo performance of the major ports on the island of Ireland based on nett tonnage returns published by the CSO. The traffic levels for the Port of Foynes in 2000 and 2001 include those for Shannon Estuary Ports that merged with the Port of Foynes to become Shannon Foynes Port Company.

Table 4.1: Freight Traffic Trends through the Main Ports of Ireland

PORT (‘000 Tonnes) 1990 1995 1997 1999 2000 2001 % 2001 Dublin 6,384 8,899 12,134 15,243 15,892 15,782 23.6% Shannon Estuary Ports 5,933 8,061 8,332 8,721 N/a N/a N/a Foynes 1,084 1,362 1,199 1,344 10,282 10,708 16.0% Cork 5,857 7,104 8,216 8,509 9,732 9,446 14.1% Waterford 1,328 1,776 1,181 1,904 1,943 1,958 2.9% New Ross 1,021 1,056 1,108 1,111 1,121 1,013 1.5% Drogheda 1,004 673 791 891 1,015 1,252 1.9% Galway 429 456 535 657 727 798 1.2% Dundalk 321 232 218 269 285 304 0.5% Dun Laoghaire 261 n/a 161 225 225 184 0.3% Wicklow 205 154 171 182 151 171 0.3% Sub-Total 23,827 29,773 34,046 39,056 41,373 41,616 62.1% Rosslare 807 1,130 1,227 1,786 1,913 1,990 3.0% Bantry N/a 455 344 1,131 1,198 1,488 2.2% Greenore 491 300 346 540 444 310 0.5% Other 948 722 367 417 346 391 0.6% TOTAL REPUBLIC 26,073 32,380 36,330 42,930 45,274 45,795 68.4% 7,757 10,144 12,344 12,862 12,484 13,402 20.0% Larne 4,001 4,673 3,153 4,032 4,508 3,520 5.3% Warrenpoint 1,413 1,683 1,344 1,715 1,676 1,480 2.2% Londonderry 730 1,044 1,138 1,216 1,133 1,060 1.6% Other Northern Ireland 2,485 2,491 1,613 1,459 1,634 1,705 2.5% TOTAL – NORTHERN 16,386 20,035 19,592 21,284 21,435 21,167 31.6% IRELAND TOTAL - ISLAND 42,459 52,415 55,922 64,214 66,709 66,962 100.0%

Sources: CSO/DETI

49 HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

4.2 Port of Cork Company

4.2.1 Overview

The Port of Cork is the principal port on the south coast of Ireland offering natural, sheltered, deepwater facilities situated close to the main shipping lanes to Northern Europe, the Mediterranean and North America.

The Port of Cork is one of two Irish ports which handle all five shipping modes, i.e., lift-on lift-off, roll-on roll-off, dry bulk, liquid bulk and break bulk. Services are available throughout the harbour area with public docking facilities provided at the City Quays, Ringaskiddy, Tivoli, and Cobh.

The Port of Cork employs 104 and there are twelve pilots who are self employed. Many other companies are involved in operating ships and handling cargoes employing truck drivers, crane drivers, dock and warehouse workers, and tugboat crews.

There are three tugs in the port one of which is owned by the Port.

There are two main stevedore groups in the Port which handle cargoes at Tivoli, the City Quays and at the Ringaskiddy Deep Water Berth. The dock labour force is casual and are represented by SIPTU in any negotiations on pay and conditions with the Cork Cargo Regulatory Company composed of the port company, port users and the stevedores.

The Port of Cork has a subsidiary company, Ringaskiddy Stevedoring Ltd, whose permanent employees carry out the stevedoring at the Ferry Terminal.

4.2.2 Services

Ireland’s only oil refinery is situated at Whitegate. Other private marine facilities are located at Ringaskiddy, Rushbrooke, Marino Point and Passage West.

For centuries, the city quays have handled most of the Port’s traffic including dry bulk cargoes but in recent years, large volumes of animal feedstuffs are also being handled at the Ringaskiddy Deepwater Terminal which can handle fully laden Panamax size vessels. The City quays continue to handle about 800,000 tonnes per annum however.

The port’s container services are handled at the Tivoli Container Terminal, situated two miles down river from Cork city while Tivoli also handles short-sea car carriers, bulk liquids and livestock.

Most of the port’s car ferry and roll-on roll-off freight services are operated from the Ringaskiddy Ferry Terminal although the port’s deep-sea Ro/Ro services are operated from the adjoining deepwater terminal.

Cruise liners are handled primarily at the Cobh Cruise Terminal but also at Cork city and Ringaskiddy.

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The table below summarises the public berth locations of the various Port of Cork main cargoes.

Table 4.5: Berth Locations of Main Cargoes

Berth Main Cargoes

Tivoli

- Ore Berth Dry Bulk

- Car Ferry Berth Trade Cars

- Livestock / Oil Berth Liquid Bulk, Cattle

- Container Terminal Containers

Ringaskiddy

- Deepwater Terminal Dry and Liquid Bulk, Trade Cars, Containers, Ro/Ro

- Ferry Terminal Passengers, Tourist and Trade Cars, Commercial Ro/Ro

City Quays Break Bulk, Dry Bulk and Liquid Bulk

4.2.3 Trade

Today the Port of Cork is Ireland's third largest port. Its trade comes from a wide area of the country, as far north as County Mayo, from the East Coast and from Northern Ireland. The table below provides a Summary of Trade through the Port for 1999, 2000 and 2001. The Tonnage figures are inclusive of the weights of the containers, livestock, accompanied passenger cars and passengers.

Table 4.6: Summary of Trade: 1999 - 2001

Trade Unit 1999 2000 2001

Total Lo/Lo TEUs 116,000 120,775 117,700

Total Ro/Ro Units 5,600 3,544 3,777

Total Passengers Units 210,000 193,800 183,421

Total Trade Cars Units 68,000 113,000 82,644

Total Cargo Tonnes 8,940,000 10,136,000 9,827,847

Source: Port of Cork In addition to offering the shortest ferry crossing to mainland Europe, the Port of Cork is one of two Irish ports which offer direct, scheduled lift-on lift-off and roll-on roll-off services to the continent. At both the Tivoli Container Terminal and the Ringaskiddy Ro/Ro Terminal, modern port facilities and cargo handling equipment, high productivity levels, competitive pricing and twenty four hour working, seven days per week have contributed greatly to increased unitised throughput in recent years. The Port has the potential to provide capacity and facilities to cater for additional and new local and national trades.

In recent times, subventions from the European Union Structural and Cohesion Funds have contributed to a wide range of upgrades and extensions to the facilities offered by the Port of Cork. In 1990s, the

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Port of Cork spent Ir£50 million on capital investment of which over Ir£29 million was contributed in the form of European support.

In 1996, a change in corporate structure saw the Port of Cork become a semi-state company.

4.2.4 Exchequer Support under the NDP

The principal projects for which Exchequer Aid was requested were:

New Tivoli/Dunkettle Project

This project consists of three phases.

Phase A:

Description: (1) Procurement of two additional Straddle Carriers (obtained on 1 March 2001). (2) Road Upgrading within existing Tivoli Estate (Phase 1). (complete) (3) Container Management Information System Expansion. (in place) (4) Ancillary Supporting Works. Phase B:

Description: (1) Expansion of Container Compound. (2) Relocation and provision of additional reefer points to address capacity, safety and operational considerations. (3) Road upgrading within existing Tivoli Estate (carried out). (4) Provision of New Maintenance Base. (5) Repairs to embankment of Dunkettle Impounded Area. (6) Upgrading of facilities at Cattle Lairage and Livestock/Oil Jetty. Phase C:

Description: (1) Provision of additional mechanical secondary handling plant, i.e. two straddle carriers, to allow for growth. (2) Infill of Dunkettle Impounded Area (34 acres). (3) Site development and provision of services – Dunkettle. (4) Construction of new bridge to link Dunkettle & Tivoli over Glashaboy River. (5) Road upgrading and development within existing Tivoli Estate (Phase 3) together with new road network in Dunkettle.

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Purchase of Land at Ringaskiddy

It was proposed that two areas of land be purchased:

Land adjacent to existing Deepwater Berth, Ringaskiddy, and Land adjacent to existing facilities at Ferry Terminal, Ringaskiddy.

New Buildings – Ringaskiddy

Extension and refurbishment of existing building to house Freight Offices, Customs Authorities, Department of Agriculture Office and Port Offices for the Terminal Manager.

Additional Mooring – Cobh Cruise Terminal

The existing Terminal has three floating mooring and anchor systems to cater for cruise vessels. The increasing length of some cruise vessels requires a fourth mooring system if these vessels are to be catered for at the Cruise Terminal. The longest Cruise Vessel that can be accommodated on the Cruise Berth in Cobh currently is 265m.

In early January, the Department of Communications, Marine and Natural Resources announced NDP funding of €3.136 million for Tivoli A and B Projects.

4.2.5 Strategic Development Plan

A Strategic Development Plan has recently been prepared for the Port of Cork to assist it in developing and operating to suit the future needs of its customers, to the benefit of the customers and the local and regional businesses dependent on trade that passes through the port.

The Strategic Study has identified a number of alternative options to meet future demands. In the short term, no major developments are foreseen, however in the medium to long term the Study should be used to identify how the port’s infrastructure should develop to suit the demands of the market.

Under the prevailing conditions, the estimated income is insufficient to finance major new developments, and therefore either subsidies or dramatically improved trading conditions will be necessary to finance new opportunities.

The following recommendations were made:

Containers

1. A new container terminal with deeper water will be required as Tivoli reaches capacity, forecast to be between 2008 and 2011. The terminal may be required earlier if feeder ship sizes increase, otherwise the Port will lose its market share and could lose all its container traffic. 2. It is essential to continue to market the terminal and keep in contact with existing and prospective users. This should also include marketing the terminal to prospective investors. 3. It is recommended that Oyster Bank should be the preferred location. This will cater for the anticipated vessel sizes. However Curlane Bank should still be retained as an option to provide the flexibility to cater for future changes in the market.

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City Quays and Passage West Traffic

1. The manner in which the existing users would relocate needs to be clarified in order to establish the requirements for landside facilities. 2. The Port should attempt to accommodate this traffic on the existing Deepwater Berths, using the available back up land and possibly the site owned by the Port on the south side of the road. It is important that short term storage is provided to achieve efficient unloading of the ships. 3. Assuming the container terminal proceeds and Tivoli has spare capacity, break bulk plus possibly clean dry bulks should be transferred to Tivoli as far as possible, provided this is acceptable or attractive to the shippers and operators.

Short Term Actions

1. The Port should continue to ensure that the local, regional and national plans zone the identified sites for future port use, in order to provide the maximum flexibility for future development. 2. A further study on the effect of the closure of the City Quays is required to identify the detailed requirements and hence the cost implications for the Port. This needs to be done in conjunction with the users and the planning authorities. The major part of such a study would be to identify what the existing users would do, in particular those with existing facilities. It is therefore essential that the existing users are seriously committed to any redevelopment, which will require that the means of funding the closure and redevelopment of the City Quays have been identified in principle. 3. The Port should continue to market a new container terminal to possible interested parties, including prospective investors. It should also monitor the plans and future requirements of existing and prospective users. This is to assist in identifying when a new container terminal would be required, and the opportunities for private involvement. 4. The Port should continue to actively address how it could improve the income from the container business. 5. While the Study has not addressed stevedoring issues, it is essential that the stevedoring rationalisation is resolved to ensure that the Port is efficiently run and makes maximum use of its facilities.

4.2.6 IFI Closure Implications

The closure of the IFI operation at Marino Point may provide the Port with an opportunity to develop a new terminal at this location.

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4.3 Drogheda Port Company

4.3.1 Overview

Drogheda Port Company is located on the River Boyne some 7.5 kilometres from the sea. It handles both general cargo and, increasingly, Lo/Lo containers from its facilities at the town quays and at Tom Roe’s Point Terminal. While traffic increased to over 1.3 million tonnes in 2001 and is expected to continue to grow, the current tidal access to the Port, 6.5 metres, may again become a limiting factor to the Port’s ability to accommodate the ever-increasing size of vessel that Drogheda will wish to attract. In order to address this and stay ahead of its customer requirements, the Port Company has commissioned a major hydraulic study of the port access with a view to creating a non-tidal access to the port for larger vessels.

The Port Development Review, currently being carried out by Baxter Eadie, has identified that the Port will increasingly require new storage and operational facilities to maintain its growth. The Port Company plans to relocate its Town Quays operations because of an inability to extend there and also because of the increasing encroachment of residential activity. With this in mind, it is currently seeking a new large landbank out of town to enable it to develop further.

The Port handles much of the trade between Ireland and Scandinavia with paper being a major cargo carried. Other niche products handled include LPG, oil products, magnesite and fertiliser. The Company employs 14 direct staff, while there are over 200 people involved in stevedoring activities in the port. The three port pilots are self-employed.

Tugs, when required, are privately provided.

The Port believes that the increasingly strategic location of the port and its ability to expand further are the key drivers which are helping the rapid growth of the port, and its attractiveness to importers and exporters.

4.3.2 Tom Roe’s Point

The Company has carried out significant investment to alleviate warehousing and standage capacity constraints that the Port had been suffering for some time. Deficiencies in terms of storage, quay space and deep water have been addressed with the construction of a new purpose-built 160 metre deepwater quay at Tom Roe’s Point Terminal some two miles down-river of the town centre. The total expenditure to date on the new facility has been over €20 million, €6 million of which was from private investments in warehousing, craneage and additional handling facilities. The project was also EU supported.

Additionally, two new Liebherr container capable cranes are operating on the terminal: one by the port company and one by an independent stevedore.

Associated with the terminal construction was a major capital dredging programme that allows ships of a greater draft now to enter the Port. Tom Roe’s Point Terminal facilitates ships 120 metres long, with a cargo range of 4,500 – 7,000 tonnes and a draft of up to 6.5 metres.

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Tom Roe’s Point became operational in January 2000.

This investment has resulted in an increase in both container, bulk and break bulk cargo trade, both organically and as a result of aggressive marketing by Port management as well as its two stevedores, Monahans and Butterlys which operate at the Tom Roes Point Terminal. The improved infrastructure now in place means that there is no longer the necessity for Lysline to off-load paper first elsewhere and then to proceed to Drogheda; all paper destined for the Republic of Ireland can be discharged at Drogheda Port.

4.3.3 Other Developments

Dock Labour In 2001, as part of its future development strategy, EU and customer requirements, the Port Company completed the total dismantling of the traditional dock labour system in Drogheda. It is one of a number of Irish ports now operating without a dock labour pool and each operator is free to utilise their own staff, giving them total control of their operation.

Container Service In October 2000, the joint partnership of Geest North Sea Line and Norfolkline commenced a regular weekly container service between Drogheda and Rotterdam. The service quickly moved to twice weekly and in the following October, a third weekly service was introduced.

Both lines felt that that they needed to provide their customers with an alternative container facility in Ireland, and Drogheda’s strategic location and new facilities were seen as advantageous.

As part of its commitment to the new service, the Port Company agreed to create a dedicated container facility at a section of Tom Roes Point Terminal and to purchase a major capacity crane, a Liebherr LHM 250, which was delivered during the last week of January 2001.

Road Infrastructure The completion in 2003 of the new Drogheda motorway bypass and the expected two new direct port access roads by 2006 will consolidate the port’s strategic location and will offer a speedy and congestion free access to both Dublin and Belfast.

4.3.4 Traffic

The table overleaf provides a detailed analysis of the traffic through the Port for the years 1999 to 2001. The Port expects that by 2005 the traffic will exceed two million tonnes.

56 HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

Table 4.3: Drogheda Port Cargo: 1999 – 2001

CARGO (Tonnes) 1999 2000 2001

Imports

Fertiliser 134,474 135,492 137,878

Petroleum 195,815 185,181 180,267

Paper 68,089 80,232 102,323

Steel 97,724 112,320 123,306

Timber 106,691 125,029 113,713

Solid Fuel 14,793 3,063 8,134

Grains 69,440 55,806 42,505

LPG 33,307 36,990 35,969

Other Goods 34,073 21,995 23,308

Containers * 18,847 46,814 257,720

TOTAL IMPORTS 773,253 802,922 1,025,123

Containers TEU 1,564 3,885 21,880

Exports

Magnesite 40,165 68,207 66,086

Grains 73,365 55,179 2,090

Timber 16,830 19,301 20,401

Other Goods 6,736 12,275 9,093

Containers * 29,820 56,587 206,977

TOTAL EXPORTS 166,916 211,549 304,647

Containers TEU 2,278 4,696 22,873

TOTAL CARGO THROUGHPUT 940,169 1,014,471 1,329,770

Number of Vessels 602 598 668

Source: Port of Drogheda 4.3.5 NDP Application

Drogheda Port Company sought Exchequer Aid for:

Tom Roe’s Initial Paving and hardstanding;

the completion of the surfacing at Tom Roe’s Point Terminal;

Liebherr Crane;

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Extension of River Walls;

Warehousing;

New 120 metre Berth and 3ha Storage Compound;

an extended dredging programme to the Murflo Jetty; and

Port Northern Access Route – Phase 1.

4.3.6 Development Plan

The Port Company has recently commissioned a team of consultants to provide integrated technical consultancy services in relation to the preparation of a feasibility study on the provision of additional port facilities at Drogheda Port. This report will have a key role in the strategy adopted for the immediate and long-term development of the port.

4.4 Dublin Port Company

4.4.1 Overview

Dublin Port is the premier port on the island of Ireland in terms of cargo handled, economic impact, and passenger and freight services offered. Handling almost 22 million tonnes gross in total in 2001, this level of trade is, by far, the largest volume of cargo carried through any of the Irish ports and is about 25% of all seaborne trade and over 1/3rd of trade through the Republic’s ports.

Dublin Port handles all modes of transporting goods by sea, but unitised trade, that is Lift-On Lift-Off (Lo/Lo) and Roll-On Roll-Off (Ro/Ro), is, by far, the dominant mode and accounts for 75% of its imports and exports. Ro/Ro accounts for 56% of the Port’s total trade throughput.

Dublin Port employs 368 including 12 pilots. As well as these employees, many other companies are involved in operating ships and handling cargoes. These companies include truck drivers, crane drivers, railroad employees, dock and warehouse workers, and tugboat crews. It is estimated that there are almost 4,000 people employed in the broader port area.

Situated on the east coast of Ireland and serving a significant economic hinterland, the Port is at the focus of the busy Central Sea Corridor where a range of passenger and freight services operate between Ireland and the United Kingdom. During 2001, three of the companies operating on the Central Corridor introduced three larger vessels: introduced the Ulysses, the world’s biggest cruise vessel on to the route; P & O brought in the European Ambassador onto the route and Stena introduced the Stena Forwarder increasing their capacity on the Holyhead route. Stena has recently announced that a new and larger vessel will be brought in on the Central Corridor in 2003.

There is also a wide range of direct services further afield to mainland Europe, Africa and Asia, as well as worldwide trans-shipment services.

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Over the last fifty years, to accommodate the rapidly increasing size of vessels, the Board oversaw the construction of the North Wall Extension, Ocean Pier, Alexandra Quay and Basin, as well as the oil jetties and Number 2 Graving Dock. The Dry Bulk Jetty in Alexandra Basin received its first ship in 1968 as did the Car Ferry Terminal (Ro Ro Terminal Number 1).

With the move towards containerisation in the 1960s, land was reclaimed and berths provided for three new terminals: the Bristol Seaway Terminal (now incorporated in the MTL Terminal), the Terminal (the former Coastal Terminal) and the B&I Terminal (now the DFT Terminal).

Ro Ro facilities were built to cater for this fast developing mode with a new deep water Ro Ro berth being constructed at Ferryport. The North Wall Extension was refurbished in 1994 as a dedicated Ro Ro terminal for P & O European Ferries and a new Ro Ro terminal was built at Alexandra Road Extension for Merchant Ferries who commenced operations in 1995.

Dublin Port is also a major destination for the cruise sector, and is the first entry point for many of Ireland’s tourists. The most recent statistics show that almost 1.5 million passengers passed through Dublin Port last year.

Over the last decade, some €125 million was invested in the Port in the creation of state of the art facilities. They included:

new passenger facilities and passenger terminal at the Ferryport Terminal as well as the construction of a two tier loading ramp (€20 million);

a redevelopment of the Dublin Ferryport Terminals (DFT) including the construction of 80 metres of new quay frontage and the deepening of the entire 300 metre frontage, and the supply of additional container handling equipment;

berth deepening at South Bank Quay;

reallocation of space for a paper terminal to handle newsprint and other paper products;

reclamation and paving of a 5 acre site adjacent to North Quay Extension;

a transit shed to accommodate break bulk cargo at Ocean Pier;

fire fighting facilities at the Oil Jetties consisting of the supply, installation and testing/commissioning of a comprehensive fire fighting system for the Eastern and Western Oil Jetty;

state of the art Vessel Tracking Management Information System for the safe navigation of vessels arriving and departing the Port;

enhancements to the road infrastructure including new directional signage both outside and inside the Port estate;

renovation of the Great South Wall;

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along with Holyhead Port, the development of a system of electronic transfer of manifest information between shipping companies and the port managers; and a number of environmental and safety upgrading projects.

The ever-increasing growth in freight traffic at the Port is exerting pressure on available land. Key to meeting this challenge is the proposal for extension of berthage through the 21-hectare reclamation project which will address Dublin Port’s urgent need for increased waterside land.

Over the next five years, the Port has plans for capital investment projects such as land reclamation, additional Lo Lo and Ro Ro berths, new and realigned roads, breakwater refurbishment, and cargo tracking and community systems.

4.4.2 Traffic Trends

The table below provides a Summary of Trade through the Port for 1999, 2000 and 2001. The Tonnage figures are inclusive of the weights of the containers and accompanied passenger cars.

Table 4.7: Summary of Trade: 1999 – 2001

Trade Unit 1999 2000 2001

Total Lo/Lo TEUs 442,000 444,000 435,000

Total Ro/Ro Units 451,000 490,000 531,000

Total Passengers Millions 1.35 1.44 1.41

Total Trade Cars Units 125,000 157,000 113,500

Ship Arrivals Units 7,424 7,955 7,749

Total Cargo Million Tonnes 20 21 22

Source: Dublin Port Company

4.4.3 Exchequer Support under the NDP

Three projects were submitted for Exchequer Aid:

1. Berth 26 – New Two Tier Ro/Ro Ramp 2. Berth 51 Refurbishment 3. Landscaping Northern Perimeter

Berth 26 – New Two Tier Ro/Ro Ramp

This project involves the replacement of the existing single deck ro/ro ramp by a new two-tier ramp. The works were designed and tendered in 2000 taking into consideration the requirements of EU Directive 93/37/EEC. The ramp became operational in Spring 2002.

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Berth 51 Refurbishment

Berth 51 was constructed in 1967 to accommodate the car ferry service to Liverpool, introduced in that year by B & I. While the narrow ro/ro ramp is still serviceable, it is limited in terms of ships that it can serve, and the infrastructure needs substantial upgrading. The proposal is to replace the existing ramp with a new two tier ro/ro ramp, and this redevelopment work will also include new sheet piled quay walls and berth deepening.

Landscaping the Northern Perimeter

The purpose was to create a mounded and planted belt to a section of the north perimeter boundary in order to regularise the shoreline, as seen from the Clontarf Road. In the first instance, a length of 1 kilometre is planned and then will be extended as circumstances allow. A combination of mounding together with planting is deemed a far more effective method of screening then planting alone. The proposed mounding will create immediate impact in screening lower sections of port buildings and installations, while in time, as the planting matures, the degree of screening will be increased.

4.4.4 Lo/Lo Landlord Port

At this stage, Dublin Port in the case of its container operations can be considered as a typical Landlord Port. It has encouraged and facilitated independent third party access to port service providers in Dublin Port for some time. As a result, there are now eight independent stevedores operating in the Port - Lo/Lo operations, for instance, are handled by three stevedores, two of which, MTL and DFT, operate from their own dedicated facilities – cranes and bonded warehousing have been liberalised and over half arrivals and departures are not required to take a pilot.

However, as far as Ro/Ro is concerned, the relevant shipping companies carry out their own stevedoring from facilities owned by the Port.

Dublin Port has limited itself to the provision of marine-related and maintenance services, and all but towage and pilotage is provided by the private sector. The major infrastructure is in public ownership.

4.5 Dundalk Port Company

4.5.1 Overview

Dundalk Port was corporatised on 9th May 2002. The Port is situated equidistant from Dublin and Belfast some 84 km from each city. It has immediate access to all of the main traffic routes and, in particular, the Inner Relief Route. The Port is some 8 km from the open sea.

Total staff is seven, and there are two self-employed pilots. A tug is available from Newcastle if required.

The Port can cater for ships up to 3,200 tonnes deadweight and up to a length of 116 metres in five berths, with five 30 tonne crawler cranes available. There are also extensive warehousing facilities available as well as three silos of approximately 2,000 tonnes capacity.

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Some years ago, the Harbour Commissioners acquired the business of Lockingtons which provide stevedoring, warehousing and agency services. In addition, two private companies provide stevedoring services.

Total tonnage handled by the Port in recent years has increased from 233,000 tonnes in 1998 to 304,000 tonnes in 2001. The principal cargo is grain, with derv and coal being the other two principal products handled.

The Harbour Company has a number of landholdings around the port. This includes 300 acres to the north of the river, 44 acres at Soldiers Point, 11 acres on the Point Road, Lockingtons Yard, quay space from Georges Quay down to and including Campus Oil, the navvy Bank, and the Old Boat House at Soldiers Point. Part of its property is prime building land which could well be used as collateral for port needs.

4.5.2 Priorities

The major challenge for the Port is the urgent need to carry out a Capital Dredging contract to restore the design water depth to –0.5 CD or preferably to –1.0 CD, and to lengthen the swinging basin to accommodate longer ships. This would allow the port to handle vessels of up to 5,000 tonnes and 125 metres in length. The current restrictions mean that the Port is losing business to its competitors. The Port has lodged an application with the Department of Communications, Marine and Natural Resources for a dumping licence at sea for the disposal of the dredged material.

The Port suffers from a lack of storage space. Although the Port has covered warehousing of 17,000 square metres at Quay Street, and over 10 acres of uncovered storage, there is considered to be inadequate warehousing to accommodate an increase in tonnage being handled by the Port.

4.5.3 Traffic

Dundalk is primarily a commercial port and the table below shows the variety of cargo handled there.

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Table 4.12: Traffic in Dundalk Port

1998 1999 2000 2001

Imports

Grain 157,599 193,289 188,909 216,786

Derv 29,153 29,359 38,376 35,177

Coal 26,708 34,132 33,541 31,344

Poles 3,647 2,605 0 0

Fertiliser 8,501 2,800 4,200 1,450

Stone 1220 2,500 2,000 3,404

Logs 0 0 2,707 4,693

Sub-Total 227,028 264,685 269,733 292,854

Exports

Grain 3,631 0 0 0

Logs 0 0 8,439 5,420

Peat 1,420 2,664 10,286 5,108

Rigs 0 6 200 200

Soil 0 0 0 440

Steel Scrap 1,200 880 0 0

Sub-Total 6,251 3,544 18,925 11,168

TOTAL 233,279 268,229 288,658 304,022

Ships 157 177 173 193

Source: Dundalk Port Company

4.5.4 Exchequer Support under the NDP

Dundalk Port has sought Exchequer and INTERREG Aid for a number of projects as follows:

Capital dredging of Channel;

Maintenance dredging;

North Marsh Land Reclamation;

Development of the Lockington Yard and Quay;

Replacement of Existing Plant and Machinery;

Construction of Gridiron Facility;

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Reconstruction of Oakes Williamsons and Jenning Quays; and

Stores and Fuel Tanks.

In early January 2003, the Department of Communications, Marine and Natural Resources announced an initial grant of €58,000 to assist the Port Company towards meeting the costs incurred by it up to end 2002 of some €145,000 for advance planning, environmental and technical service costs needed for a planned major development at the Port.

4.6 Dun Laoghaire Harbour Company

4.6.1 Overview

Dun Laoghaire Harbour Company was incorporated in March 1997 and became the successor entity to the Department of the Marine and Natural Resources and to the Dun Laoghaire Harbour (Finance) Board, the statutory bodies previously responsible for Dun Laoghaire harbour. Total staff at the port is 50.

The Port prides itself as a gateway for tourists to Ireland by offering state of the art berthing and terminal facilities. It also aims ‘to maintain and enhance the recreational and amenity value of the Harbour in the interest of all of the stakeholders’. The Terminal is owned by the Harbour Company.

The Harbour not only caters for commercial traffic but also to the leisure and recreational needs of the area through the recently developed marina but also through the various yachting clubs located in the port area.

The Harbour Company is responsible for the policing, cleaning and maintenance of all areas of the harbour.

Stena Line is the sole commercial operator providing a regular high-speed service between Dun Laoghaire and Holyhead. There is an Operating Agreement in place, which terminates in 2006, between Stena Line and the Port Company which sets out the contractual and commercial arrangements between the two parties.

Construction started in 2000 of a 680 berth marina with Marina Management & Marketing as the marina developer and operator partner. Associated with the marina, was the construction of a £8.3 million (nett of grant) breakwater which also acts as a promenade.

The new maintenance building, which commenced construction in 2001, is now completed.

The Company is planning the commercial, residential and retail development of the Harbour Yard site. The intention is to enter into a long lease with the preferred bidder in return for a share of the revenue from letting the future development.

Discussions in relation to the Carlisle Pier site are ongoing and no decision is expected in the immediate future.

No submission for Exchequer Aid was made under the current National Development Plan.

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4.6.2 Long Term Harbour Maintenance Commitments

The Harbour Company has identified maintenance commitments of over €13,000,000 as follows:

Berth Number 1 €500,000

Berth No 4 €41,200,000

East Pier Resurfacing €3,000,000

East and West Pier Maintenance €7,000,000

Refurbishment of the Terminal Building €1,500,000

4.6.3 Traffic Trends Table 4.4: Traffic Trends

2000 Actual 2001 Actual 2002 Budget % Change 01 - 02

Passengers (m) 1.188 1.064 1.081 1.6

Cars (‘000) 229 207 206 (0.3)

Commercial (‘000) 39 36 39 9.0

Coaches 5,409 5,172 5,580 7.9

Motor Cycles 4,876 5,154 5,154 0.0

Other 3,354 2,750 2,750 0.0

Entries – HSS 1,179 1,109 1,100 (0.8)

Source: Dun Laoghaire Harbour Board

4.6.4 Other Matters

The port is unique amongst Irish commercial harbours in that the harbour is an integral part of the town of Dun Laoghaire. Its domain of responsibility incorporates significant areas of leisure and heritage structures to which the public has access, and which do not provide any commercial return although the Harbour Company has a duty of maintenance and care.

4.7 Port of Galway

4.7.1 Overview

The Port of Galway is the principal general cargo port on the west coast of Ireland. Employing some 15 staff directly, including two pilots, throughput in 2001 was some 798,000 tonnes, an increase of almost 10% on the previous year. For the first eight months of 2002, cargo traffic was ahead by 34,000 tonnes or almost 16 per cent on the equivalent period for 2001. Projections for the full year of 2002 suggest that throughput will exceed 850,000 tonnes. Over 320 vessels operated through the port last year.

Last year (2001), imports comprised 776 tonnes and exports were 22,000 tonnes. Imports were primarily: petroleum products, coal, bitumen and chemicals. Exports were scrap metal.

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In addition to its port activities, the Company has interests in port-related matters such as the 35 acre Galway Harbour Enterprise Park. Property and industrial estate management has become a valuable part of the Company’s activities. The Port Company, in a joint venture bid, has lodged a planning application for additional warehousing and office development. The Company also generates significant income from car-parking charges. This is now 11% of its total income.

Very recently, a docker rationalisation programme has been finalised and significantly part-funded by the Harbour Company. A levy of 80 Cent per Tonne has been introduced to fund the programme together with increased parking revenue. Notwithstanding the levy, overall port costs will now be at a lower level which should attract new bulk cargo business, such as steel, to the port. Importers and exporters can now decide to employ their own labour force, licensed by the Galway Harbour Company or depend on Galway Harbour Company staff to work their vessels. A new marketing drive to attract new business or to get old business back to the port has been initiated.

A new 28 berth marina is scheduled for the harbour area and this expected to be available to local and foreign yachts and sailboats by summer 2003.

4.7.2 Trade Statistics

The table overleaf provides a Summary of Trade through the Port for the four years 1998 to 2001.

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Table 4.11: Summary of Trade: 1998 - 2001

Trade 1998 1999 2000 2001

Number of Vessels 267 291 341 323

Imports:

Coal 19,803 19,413 9,337 14,877

Fertilisers 30,819 0 0 0

Animal Feed/Grain 3,567 `0 `0 0

Chemicals 5,593 1,893 3,636 4,313

Bitumen 0 27,335 47,630 53,123

Timber 870 0 0 0

Lignite 0 0 2,635 2,455

Steel 0 772 0 8,566

Fish 1,281 741 904 308

Petroleum Products 529,541 604,501 644,667 692,007

Total Imports 591,474 654,605 709,040 775,947

Exports:

Scrap Steel 7,692 1,821 16,146 21,646

Aggregate 0 0 2,802 0

Bitumen 0 0 0 1,043

Total Exports 7,692 1,821 18,948 22,689

Total Cargo 599,166 656,426 727,988 798,636

% Growth 12 10 11 10

Source: Port of Galway

As can be seen, oil products are an important and major trade that the port enjoys, while chemicals, bitumen, scrap steel and coal are other products that the Port deals in.

4.7.3 Petroleum Products

Petroleum imports are the principal trade through the port. Galway is the gateway to the west and northwest located strategically for the oil companies to allow them to distribute their products north to Donegal, east as far as Athlone and south as far as .

Throughput for 2001 was over 692,000 tonnes and is anticipated to grow to one million tonnes by 2005/6.

Most of the fuel requirements for the Region are imported through Galway and, consequently, has a major influence on the regional economy. Any interruption or change to the supply arrangements, for

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instance, would have serious impact on the local cost of fuel and thus be inflationary. The cessation of oil imports would have a catastrophic effect on the Harbour’s finances and would naturally lead to its closure with consequent employment and other losses.

4.7.4 Application for Exchequer Aid

Galway Port Company applied for aid for three projects:

Joint venture for a 40,000 tonne oil terminal;

Deep water non-tidal berth; and

Crane.

The Department of Communications, Marine and Natural Resources recently announced NDP funding of €142,000 for the reclamation of 34.38 acres of additional foreshore at Galway to accommodate shallow draft ships of up to 3.2 metres.

4.7.5 Landlord Port

The Company is essentially a Landlord Port in that private interests provide stevedoring, storage and facilities, although the Port Company’s own staff are available to load and unload. The responsibility for stevedoring may change in 2003.

4.8 Port of New Ross

4.8.1 Background

Situated some 32 km from the sea on the River Barrow, the Port of New Ross is located on both sides of the river. The Port specialises in handling both dry and liquid bulk. Total trade through the port in 2001 was some 1.013 million tonnes of which almost 871,000 tonnes were imports. Total ship calls in the same year were 435, a decrease over the previous year’s numbers.

Total staff numbers are 16 of which five are part-time, including four pilots who are employees. Their status was changed in 2001 when they were self-employed.

If tugs are required they are generally hired from a private contractor in Waterford. Occasionally, the port’s own workboat might be utilised.

Principal commodities handled are petroleum products, fertilisers, animal feedstuffs, coal and cement. Exports of zinc ore concentrate commenced in April 1997 and exceeded 100,000 tonnes per annum for the first time in April 1999.

The Port comprises six berths. The privately owned berths mainly on the County Kilkenny side which are operated by the Port’s two stevedores, Stokestown Port Company and Stafford Shipping. The public facilities comprise the Town Jetty and Marshmeadows Jetty, which is primarily used for the importation of petroleum products. Both Campus and Esso/Texaco have modern facilities there and are the only such facilities between Dublin and Cork. The port, therefore, is unusual in that it is one of the principal and few oil importing harbours in the country.

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Exports of ore concentrate from the Galmoy Mine commenced in 1997. A dedicated storage and ship loading facility was constructed at Raheen to handle this product with financial assistance from EU Structural Funds.

A major dredging and river training scheme was recently completed to give better access for vessels to New Ross Port. Under the present National Development Programme, the Port of New Ross sought Exchequer Aid for the construction of a new 75 metre jetty and the construction of 4,000 square metres of warehousing, both at Marshmeadows.

The Baxter Eadie Seaport Capacity Study noted that the Port is operating at 64 per cent of the total capacity available.

4.8.2 New Ross Traffic

Table 4.2 provides an analysis of the traffic through the Port for the years 1997 to 2001. Petroleum, fertiliser, animal feed/by products and mineral ores, are the key trades as far as the Port is concerned.

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Table 4.2: Freight Traffic Trends through New Ross Port

CARGO 1997 1998 1999 2000 2001

Imports:

Petroleum 385,786 370,875 350,632 378,636 380,684

Fertiliser 225,428 219,561 293,963 284,472 189,630

Animal Feed 111,531 131,911 113,977 107,962 125,460

Coal 109,147 77,447 75,130 66,398 78,558

Potash 68,460 27,091 46,727 44,763 35,155

Cement 47,910 33,155 25,746 22,293 43,672

Sulphuric Acid 4,641 4,544 6,984 12,185 11,215

Steel 1,507 2,634 6,155 11,026 5,127

Magnesium 675 0 0 0 0 Chloride

Grain 4,665 11,309 578 0 0

Timber 0 0 0 0 0

Other 0 750 4,032 0 1,495

Sub-Total Imports 959,750 879,277 923,924 927,762 870,996

Exports:

Ores 60,226 81,333 113,762 108,656 98,569

Animal Feed 19,462 12,344 0 6,651 789

Animal By Products 28,053 41,814 54,008 50,316 0

Grain 24,320 0 5,826 16,996 27,183

Malt 8,967 0 0 0 3,502

Fertiliser 0 0 0 7,683 10,279

Other 6,986 5,120 13,774 2,488 1,761

Sub-Total Exports 148,014 140,611 187,370 192,790 142,083

TOTAL TONNAGE 1,107,764 1,019,888 1,111,294 1,120,552 1,013,079

No of Ships 535 471 475 478 435

Source: Port of New Ross 4.8.3 Imports

As noted, the Port’s key strength is its strategic niche in hosting a number of oil companies which have tankage there. New Ross hosts Campus, Esso, Texaco and Emo. Campus has made a submission for Exchequer aid under the National Development Plan to enable it to invest in Volatile Organic Compound (VOC) Emissions control equipment. The importance of this cargo to New Ross is underlined by the fact that one-third of the trade by volume and 50% of the Port’s revenues derive from this business.

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The two major importers of fertiliser are Albatros and Gouldings, who blend and bag it for their customers. The Port is projecting imports of some 220,000 tonnes in 2002 based on discussions with the importers.

Demand for fertiliser is very much agriculture-related and has been affected in the past by the outbreaks of Foot & Mouth disease. Increasing environmental concerns of the effects of fertilisers on watercourses may also dampen demand.

4.8.4 Exports

Given the current weak economic climate and the general uncertainty surrounding the UK agriculture sector, the level of exports through New Ross is unlikely to change.

4.9 Shannon Foynes Port Company

4.9.1 Overview

Shannon Foynes Port Company arose from the amalgamation of the ports of Shannon Estuary Ports and the Port of Foynes following a Review of Operations and Structures of the Seaports in the Shannon Estuary carried out by independent consultants in early 2000. The Harbours’ Act 2000 is the formal legal instrument which effected the amalgamation. Recently, the company received a €4.3 million cash injection from the Government to help it meet identified merger costs.

The Port Company controls, manages and operates all of the port facilities in the Shannon Estuary at Foynes, Aughinish, Moneypoint, Tarbert and Dernish Island, as well as in Limerick City itself at the Ted Russell Docks.

The Estuary covers 200 square miles and a length of 60 miles with shores in counties Kerry, Clare and Limerick. Amongst other things, this makes the company the second largest lighthouse authority in Ireland, second only to the Commissioners for Irish Lights. The Shannon Estuary is Ireland’s greatest maritime national asset due to its naturally occurring depth and sheltered waters which mean that ships of up to 180,000 deadweight tonnes, the largest vessels entering Irish waters, are regularly entering the Estuary with cargoes of coal for the ESB power station at Moneypoint, Co Clare. Other major cargoes are handled for the Alumina plant at Aughinish Island, where ships of 74,000 dwt are regular traders, and tankers of 80,000 deadweight tonnes carry heavy fuel oil to the ESB oil burning station at Tarbert. Small coasters of 5,000 tonnes can access the Ted Russell Docks in Limerick City where its customers include Grassland Fertilisers, Irish Shell/Texaco, McMahons, Coillte, Hegarty Metal Recycling, the Munster Metal Company and Irish Cement.

The Foynes facility is the only deep-water port on the south west and west coasts of Ireland and is involved in a wide range of imports and exports. It also benefits from the availability of significant land for development both of its own and that of the IDA which is adjacent.

Cargo traffic through the port in 2001 was over 10.7 million tonnes with imports accounting for some 8.67 million tonnes including animal feed, coal, fertiliser and oil products. Over 820 vessels operated through the port last year.

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Both Foynes and Limerick are subject to dredging. Limerick needs annual dredging at the approaches to the Ted Russell Dock. The amount depends on the annual rainfall, and release of water by the ESB from Ardnacrusha. In addition, the Ted Russell Dock basin itself needs biennial dredging. Dredging at Limerick is done with the Port’s in-house staff and equipment.

Foynes was dredged in late 2001, and depths are constantly monitored as the siltation pattern has not yet been established. Further dredging took place in late 2002. For technical reasons, this was done on contract.

The Shannon Foynes Port Company is a major employer in its own right employing some 59 staff, including four part-time office staff and eight part-time lamp attendants along the estuary. A Voluntary Redundancy Scheme was recently presented to staff.

Limerick Cargo Handling is a wholly owned subsidiary of Shannon Foynes Port Company. It is the sole stevedoring operation in Limerick. It has eight employees, including one administrative and a working supervisor.

There are six regular stevedoring companies in Foynes and another which operates occasionally. Collectively, they operate the Foynes Pay Office for the hiring of labour. There are 24 regular dockers in Foynes, with a further 40 who can be called on for periods of high activity.

There are eight pilots who are all self-employed, and there are three tugs operating in the Shannon, all privately owned.

Major Port Users at Foynes include R & H Hall, Bord na Mona, Irish Cement, Galtee Fuels, Albatros, BP Chemicals, Goulding Fertilisers, Inver Resources Ltd and Estuary Fuel Limited. Excluding external hauliers, the numbers employed in the above activities would total approximately 200.

The Foynes Port Company had constructed an additional Deep Water facility known as the West Jetty Extension and Ancillary Works at a cost of £12 million co-financed with EU aid under the former Operational Programme for Transport. The project incorporates a 164 metre extension to the existing West Jetty and construction of a new Jetty structure over the existing 106 metre Jetty giving a total Deepwater Berthing facility of some 271 metres. More recently, the Port purchased a Crane and two hoppers.

Details of main plant owned by the Port Company are as follows:

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Table 4.8: Summary of Port Company Plant

Location Equipment Cost Grant Aid Foynes Liebherr Crane (1) €1.15m 0% Foynes Gottwald Crane (1) €1.78m 100% Foynes Mobile Hoppers (2) €0.86m 100% Limerick Sumitomo Crawler Crane (1) €0.59m 100% Limerick Mobile Hoppers (2) €0.44m 100%

Source: Shannon Foynes Port Company

Constraining the development of the facility at Foynes itself is the condition of the N69 which is seen as inadequate and unsuitable for the carrying of significant freight traffic to and from that facility. Further, the rail head and line that connects the facility to the national network have been poorly exploited for the growth of trade; this was a contributory factor in the Port failing to secure the Lisheen ore business.

4.9.2 Traffic Details

An analysis of the traffic through the new port company for 2000 and 200 is as follows:

Table 4.9: Summary of Trade: 2000 – 2001

‘000 Tonnes 2000 2001 Aughinish Alumina 5,379 5,533 ESB 2,937 3,270 Foynes: Oil Products 181 172 Fertiliser 183 167 Feeds etc 421 445 Coal etc 252 301 Sugar 13 23 Other 177 177 Sub-Total Foynes 1,228 1,203 Dernish – Aviation Fuel 220 214 Ted Russell Docks: Oil Products 246 265 Fertiliser 118 70 Timber & Wood 36 41 Cement Products 51 19 Steel & Scrap 46 85 Other 17 15 Sub Total Ted Russell Docks 513 494 Overall Totals 10,277 10,714 Number of Vessels 859 821

Source: Shannon Foynes Port Company

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4.9.3 Limerick Docklands Initiative

A joint proposal has been prepared by Shannon Foynes Port Company, Limerick City Council and Shannon Development, to develop a 238 hectare zone in and around Limerick City’s Docklands as having singular potential to contribute to economic development.

The zone is bounded by the Shannon Bridge on the east, the river on the north, the southern ring road and the new fourth Shannon river crossing. The area is characterised by a wide range of commercial, industrial and residential uses, with planning permissions actively being pursued for mixed commercial and residential developments on more than 55 hectares. The focus of the area is the working harbour of Limerick, some 17 hectares in extent, which consists of open quayside and some warehousing.

The process has now reached a second phase where a total of six short-listed consortia have been invited to submit a detailed strategic approach plan for the renewal of the area in line with best international standards in urban and architectural design and with strong emphasis on the economic sustainability of the strategy in the context of the Government spatial planning objectives.

Following an interview process under phase 2, the process moves to the final stage where the selected consortium will be invited to prepare an overall Economic and Strategic (physical) plan. It is expected that the successful consultant will be appointed in late February with a projected completion date for the draft final report by end of June 2003.

The project is being proposed within the following context:

To adopt its remit as a commercially-minded business;

To optimise the landbank for port-related and other activities; and

To be a good municipal neighbour and corporate citizen.

4.9.4 Exchequer Support under the NDP

No projects were submitted for funding under the present National Development Plan, as the Company had made a separate approach for funding. This was to meet the costs arising from the merger process of the two constituent companies.

4.10 Port of Waterford

4.10.1 Overview

The Port of Waterford is the major commercial port on the South Eastern coast, and is the nearest major Irish Port to mainland Europe. Operating on a 24 hour, 7 day a week, all year round basis, Waterford Port handles Lo/Lo, bulk liquid, bulk solid and breakbulk/general cargoes at its various facilities.

The Port has identified a number of strategic advantages that could result in major strategic development and growth in market share:

74 HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

The port is 7 miles from Waterford City with imminent planning approval awaited from An Bord Pleanala for future developments. This planning and the location of the port in a designated industrial zone will increasingly shield the port from environmental pressures.

Availability of lands adjacent to port for port related development.

Connection to rail network – although latest suggestions are that freight infrastructure will be scaled back by Iarnrod Eireann

Opportunity for the port to leverage planning approvals and available land etc to enter new sectors such as car importation, roll on roll off etc.

The Port Company continues to develop industrial sites at Belview for lease or sale; this has been successful in attracting industry to the area contributing to the overall development of the Port. The company acquired an additional 76 acres during 2001 and negotiations continue for the acquisition of a further 40 acres from the IDA.

In 2001, 769 trading vessels called at the Port carrying a total of almost 2 million tonnes of cargo; there were almost 140,600 twenty foot equivalent units (TEU) of laden containers handled and 25 cruise liners called to the port.

Currently, eight stevedores operate in Waterford Port. They are listed in the Table below.

Table 4.8: Stevedores in Waterford Port

Name Category

Dreelan Shipping Ltd. Gen Cargoes

ESB Bulk Heavy Fuel Oil

Waterford Container Terminal Ltd Containers

Belview Breakbulk Ltd. Breakbulk and Dry Bulk Cargoes

S J Murphy (Waterford) Ltd. General Cargoes

South East Port Services Ltd. Breakbulk and Dry Bulk Cargoes

Suir Shipping Ltd. Dry Bulk - Agri Products & Cement

Waterford Shipping Services Ltd. Dry & Liquid Bulk & General Cargoes

The facilities at the Port of Waterford had been affected by the loss of its second gantry crane in a storm in 1996. A second crane was recently commissioned which received grant aid of 30 per cent.

The Port has been awarded planning approval for substantial development works at Belview which includes a 1,050 metre downstream extension to handle Lo/Lo, Ro/Ro, dry bulk, break bulk and bulk liquid cargoes and ancillary facilities.

The company employs 47 people excluding licensed pilots, of which there are six.

75 HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

4.10.2 Traffic Trends

The Table below shows traffic trends for the period 1998 – 2001.

Table 4.9: Traffic Trends in Waterford Port

Traffic Mode 1998 1999 2000 2001

Lo/Lo 765 896 1,014 1,121

Liquid Bulk 201 275 245 203

Dry Bulk 466 519 498 464

Break Bulk 160 214 115 157

Total (‘000 Tonnes) 1,592 1,904 1,872 1,945

Lo/Lo (TEUs) 85,967 105,896 131,518 140,579

Source: CSO

4.10.3 Facilities

There are three main freight terminals in Waterford Port:

The original port, the inner port, where there are 700m of wharfage handling break-bulk and frozen meat. Live cattle trades would be handled there also.

Belview Port, the downstream facility, is now the focus of future port development. At present Belview has a fully serviced container terminal, a bulk handling facility, and a dedicated cement importation facility. Further quay facilities including a 1,050 metre downstream extension to handle Lo/Lo, Ro/Ro, dry bulk, break bulk and bulk liquid cargoes and ancillary facilities are planned for Belview.

Great Island generating station, which has an oil berth capable of handling vessels up to 40,000 tonnes dwt part laden.

There is also a marina which is located on the West Bank of the Suir, immediately in front of the city centre. It stretches from Rice Bridge to Waterford's most famous landmark – Reginald's Tower, at its downstream end. It is central to all amenities in the city and is presently undergoing a renaissance.

4.10.4 Belview

As noted earlier, most of the activity of Waterford Port takes place at the Belview Port Terminal which is primarily a Lo/Lo facility. In 2001, the Port of Terminal established a subsidiary company, Waterford Container Terminal Ltd, to operate the Lo/Lo Terminal at Belview under licence.

Overleaf is a list of Scheduled Container Services operating to and from Belview:

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Table 4.10: Scheduled Container Services To and From Belview

Carrier To/From Services Per Week Ship Capacity

Norfolk Line Rotterdam 3 400 TEU

C2C Shipping Le Havre 2 300 TEU

C2C Shipping Zeebrugge 2 300 TEU

C2C Shipping Warrenpoint 2 300 TEU

Seawheel Bristol 3 180 TEU

A new Liebherr container crane was commissioned in February 2002 and increased capacity of the terminal from about 60,000 units to about 100,000 units.

Belview benefits from having a rail link, and Norfolk operates a rail service twice weekly to Dublin via Limerick Junction only during the daytime. The future of the service is questionable given the unlikely continuation by Irish Rail of a rail freight service.

There are also two general cargo berths at Belview which deal with cement, bulk and break bulk cargoes.

The size of ship capable of accessing Belview is constrained by the water depth at the Bars (Cheekpoint and Duncannon) which presently is -6.0 metres OD. Ideally, it should be at least 7.5 metres OD to handle the new vessels being proposed by Norfolk Line without a tidal window. One of the projects submitted for NDP funding, Port Access Improvements, relates to dredging the access channel to a depth of –8 metres OD and providing a Training Wall and associated Landfill at Snowhill. Thereafter, bi-annual dredging will be required to maintain this depth.

4.10.5 Exchequer Support under the NDP

The Port has sought Exchequer Aid for four projects at a total cost of £37.6m as follows:

Enhancement of the Lo/Lo Facility at Belview (including second Gantry Crane, Secondary Handling Equipment and realignment of the rail line);

Provision of additional bulk facilities at Belview;

Provision of Bulk Liquids Terminal; and

Port Access Improvements.

4.10.6 Other Developments

The Port has also indicated its intention to provide out of its own funds:

The construction of a transit shed adjacent to the bulk berth at Belview; and

The development of a Ro/Ro facility to service freight traffic and the importation of cars and trucks.

77 HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

4.10.7 Regeneration of the North Quays

A steering committee was set up four years ago to assess the quays' potential for development, given their prominent waterfront site. The historic South Quays have undergone massive development in recent years, but the North Quays have remained largely untouched and consist mainly of warehouses, mill buildings and silos.

The Office of Public Works invited submissions to a single stage International Competition to design a dockland regeneration scheme for the North Quays. This Competition was to prepare a master plan to rejuvenate the 70,000 sq m waterfront as well as a design for a multifunctional venue for cultural, trade and sports activities. The plan is for a mix of development, with residential and office buildings and light industrial units, but the focal point is the venue building. The site encompasses about 1½ miles of land between Rice Bridge and Abbey Church.

Some 99 firms from 23 countries competed to design the winning plan, including firms in the US, Australia, Japan and Argentina. Submissions were received from 24 Irish firms. Eventually IDOM UK, a London architectural firm, won the €250,000 first prize for its plan to develop the quays.

The Port of Waterford will realise significant capital funds when the project commences through the sale of lands.

4.11 Port of Wicklow

4.11.1 Overview

Wicklow Port is situated at a distance of approximately 50 km from Dublin adjoining the main road from Dublin to the south east. Its primary role is as a commercial port, although it also caters for fishing and leisure interests.

Employing three, it is estimated that the Port sustains direct employment of some 75 persons.

Pilotage is recommended and is provided privately as required; towage is also private.

4.11.2 Activity

The recent trading history of Wicklow Port is summarised overleaf.

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Table 4.13: Traffic through Wicklow Port

1997 1998 1999 2000 2001

Timber 90,451 89,435 107,818 101,631 103,373

Coal 32,528 21,797 26,431 16,573 19,293

Paper 14,596 7,659 6,373 4,274 4,235

Steel 11,523 18,019 22,619 13,471 14,818

Lead 18,236 17,543 13,533 9,163 12,316

Sand 3,072 3,100 3,052 0 0

Plasterboard 0 0 0 0 14,220

Other 931 754 2,575 4,560 3,135

Imports 171,337 158,307 182,401 149,672 171,390

General - 880 58

Exports 0 0 0 880 58

TOTAL 171,337 158,307 182,401 150,552 171,448

No. of Ships 131 122 137 119 140

4.11.3 Port Infrastructure

Navigation

The harbour is in the mouth of the River Leitrim. There is no channel to the mouth of the harbour and the water depth at the entrance is 4 m at low water. The entrance to the Harbour is formed by two piers. Within the harbour, water depth is limited to 2.5 m below Chart Datum. The harbour is not affected by littoral drift, has no bar and no shifting sands, consequently maintenance dredging is infrequent and limited to removing river siltation.

79 HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

Berths

The harbour has four commercial berths with a total length of 422 metres as follows:

Table 4.14: Commercial Berths at Wicklow Port

Quay Length (m) Operating Depth (m) Storage

Packet Pier 100 5.4 1,800 square metres open storage

North Quay 130 4.8 30,000 sq ft warehouse

South Quay 106 5.0 10,000 sq ft warehouse

East Pier 95 5.5 No storage

The Packet Quay was reconstructed in 1997, while the North and South Quays were constructed in the 1960's. The East Pier is used by fishing boats and as a lay-by berth. The pier was constructed in 1895.

The Harbour Port Company owns 70 quay-side moorings with a further 25 buoy moorings owned by Wicklow Sailing Club.

Capacity

The recent Assessment of Irish Commercial Seaport Capacity estimated that the capacity of the port is about 753,000 tonnes per annum.

Facilities

While the port company provides the infrastructure required to handle the trade, it does not get involved in cargo handling operations. The port’s major users provide the necessary cranage, handling equipment, warehousing and off-site storage. All warehousing within the port area is leased, operated and maintained by the port users (R F Conway and C B Packaging). All dock labour is managed by the port users who have successfully carried out successive phases of dock labour rationalisation without disruption.

4.11.4 Application for NDP Aid

The Port applied for Exchequer Aid for three projects:

The reclamation of approximately 0.20 hectares so as to extend the storage area of the Packet Quay;

The extension of the South Quay by some 55 metres to what is known locally as the ‘Sarah Rock’ to provide additional quay accommodation for commercial usage; and

The reconstruction of the South Quay Wall, which is in a poor state of repair. The total length of this section is approximately 42 metres.

The total estimated cost for the three projects is €1.53 million at 1998 costings.

80 HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

5. FINANCIAL APPRAISAL

5.1 Introduction

The previous chapters of this report have provided a summary overview of the ten state commercial ports as well as analysis of their structures and regulatory governance. They have additionally included an overview of international practices and approaches to the management of port operations and corporate governance.

In this chapter we provide a general financial overview of the ten commercial ports. The purposes of this Chapter are as follows:

To provide the reader with a contextual, financial framework within which to consider the relevant financial information;

To provide a summary overview of the financial outputs and ratios of each of the commercialised ports under review, together with a brief financial commentary in respect of each port; and

To review corporate plans and projections, where available, of each port from a financial perspective, with particular reference to operational profitability, capital expenditure programmes and funding sources and mechanisms.

The reader’s attention is drawn to the remit of this report which is a high level review of corporate governance. The information provided herewith is intended to contextualise the financial scale of the ports. It should not be considered as being a detailed financial appraisal of individual ports, nor as an analysis or evaluation of the relative merits of individual ports. This information has been extracted from the audited financial statements for the year ended 31 December 2001.

5.2 Summary Financial Overview

5.2.1 Introduction

In this section we review the historic performance of the ten corporatised port companies. We commence by considering some key financial indicators and ratios based on the most recent audited accounts available to us (year end 31 December 2001), which illustrate from a financial and commercial perspective, the significant differences between the corporatised port companies. Thereafter we review the historic performance of each port in 2001 as against 2000 and conclude by reviewing the projections and plans for each port where possible.

5.2.2 Ports Sector

While there are ten corporatised port companies in Ireland, in international terms the relative scale of the Irish import and export market is quiet small. In absolute terms the total volume of throughout at the combined Irish ports in 2001 was 45.795m tonnes, with Dublin Port accounting for almost half of the Irish market. However the combined throughput for all Irish ports amounted to less than the throughput of Genoa (50.8m tonnes) and was almost three times less than that at Antwerp (130m tonnes).

81 HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

Rotterdam in 2001 meanwhile accounted for almost seven times the throughput of Ireland with 315m tonnes.

While the size of our domestic market and manufacturing industry does severely limit the growth potential of the Irish port sector it is welcome to note that in an all island context, there has been a notable increase in the Republics ports share of the overall market with a rise in market share of total cargo from 60.1% of the market in 1988 to 67.9% of the market in 2000.

5.2.3 The Port Companies Compared

The ten port companies vary considerably in terms of their historic financial performance and the strength of their balance sheets. This section seeks to present some key absolute and relative financial indicators to set in context the variance of financial performance throughout the ports as well as their relative size and commercial viability. While the relative performance indicators may be of use to monitor trade and to comment on the commerciality and financial strength of ports, we recognise that it is difficult to measure performance between ports due to their inherent differences and the necessity to look both behind and beyond statistics.

It is also hoped that our analysis of the ports will assist in enhancing an understanding of the relative merits and applicability of the various corporate governance options, which we examine later in the next chapter.

The charts below consider four key financial variables for the financial year ended 31 December 2001:

Turnover by port Total assets by port Profit before tax by port Capital employed by port

82 HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

Table 5.1 – Turnover by Port 2001 (€) 8

60,000,000

50,000,000

40,000,000

30,000,000

20,000,000

10,000,000

0 Dublin Cork Dun Waterford Shannon Drogheda Galway New Ross Dundalk Wicklow Laoghaire Ports

Table 5.2 – Total Assets 2001(€)9

250,000,000

200,000,000

150,000,000

100,000,000

50,000,000

0 Dublin Cork Dun Waterford Shannon Drogheda Galway New Ross Dundalk Wicklow Laoghaire

8 Audited accounts 9 Audited accounts

83 HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

Table 5.3 – Profit before Tax by Port 2001(€)10

6,000,000

5,000,000

4,000,000

3,000,000

2,000,000

1,000,000

0

(1,000,000)

(2,000,000)

(3,000,000)

(4,000,000) Dublin Cork Dun Waterford Shannon Drogheda Galway New Ross Dundalk Wicklow Laoghaire Ports

Table 5.4 – Capital Employed by Port 2001(€)11

70,000,000

60,000,000

50,000,000

40,000,000

30,000,000

20,000,000

10,000,000

0 Dublin Cork Dun Waterford Shannon Drogheda Galway New Ross Dundalk Wicklow Laoghaire Ports

10 Audited accounts 11 Audited Accounts

84 HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

These charts illustrate the varying size and scale of the ten port companies examined. As can be discerned from Table 5.1, turnover in the commercial ports ranges from a high of €51.5m at Dublin Port to €0.2m at Wicklow. Indeed, turnover at Dublin Port almost equates to total turnover for each of the other nine commercial ports combined. There is also huge variance in terms of total assets as outlined in Table 5.2, with amounts varying from €213m, again at Dublin to €0.6m at Dundalk.

Table 5.3 outlines the profit of each port. While healthy profits have been recorded for 2001 at Dublin, Cork and Dun Laoghaire, some ports did make a loss in this year. Shannon Foynes for example registered a loss of €3m, although this was after net exceptional expenses of €2.3m. The final table illustrates capital employed by each port. Again these figures vary considerable and range from €61m at Dublin Port to €0.8m at Dundalk.

It is important to note that these figures provide a brief snapshot of the ports according to four key variables. These figures are examined in greater detail below.

5.2.4 Financial Performance of the Ports Sector

Overview As we have previously stated, it is useful in setting the context for the port sector finances to summarise the key financial indicators across the ports in order to ascertain the main financial variables for the sector as a whole. This information can then be considered in the context of overall investment in the port sector and future requirements for investment. As a measure of the scale of investment needed, the ports have identified approximately €331m12 in investment required over the life of the current National Development Plan 2000-2006.

12 Aide memoir prepared by the Office of the Minister for the Marine and Natural Resources.

85 HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

Turnover and Profitability Table 5.5 below indicates the level of turnover and profitability in each of the commercial ports.

Table 5.5 - Turnover and Profits of the Corporatised Ports in 2001

Turnover Operating Profit Operating Profit Retained

(€000’s) (€000’s) Margin (€000’s) Cork 17,074 3,028 17.7% 2,412 Drogheda 2,536 1,062 41.9% 27 Dublin 51,509 13,411 26.0% 4,433 Dundalk13 597 63 10.5% 58 Dun Laoghaire 8,748 3,773 43.1% 889 Galway 1,967 (135) (6.8%) (120) New Ross 1,283 6 0.5% (287) Shannon Foynes 7,158 (1,106) (15.4%) (2,945) Waterford 5,148 1,089 21.2% (1,631) Wicklow14 249 20 8.1% 1 Sector 96,268 21,212 22.0% 2,836

The majority of the port companies are profitable at an operating level; however the ratios have varied considerably between years. For example while Dublin returned an operating margin of 26% in 2001 based on a turnover of €51.5m, in 2000 the operating margin was 36% based on a turnover of €53m.

In addition, two of the port companies showed a loss at the operating level. However these losses can be attributed in part to “exceptional” operating costs. Shannon Foynes incurred exceptional operational administration expenses of €2.3m as a result of the integration of the legacy Shannon Estuary Port Company and legacy Foynes Port Company, whilst Galway had increased dredging costs in 2001 of €0.3m compared to the prior year.

If Dublin and Cork are excluded from our analysis, all other ports together make an operating profit of €4.7m based on a turnover of €27.7m. It is clear that these levels of profit alone, without incremental business and exchequer aid, would not result in a sufficient free cash flow to service the funding requirements on the additional investment identified by the ports.

Profit and Loss Ratios Table 5.6 overleaf presents in more detail the key performance indicators that can be derived from the profit and loss results. Care should be exercised in the interpretation of this table due to variations in the businesses of each port, for example the product service mix at each port will impact on the average revenue per tonne calculation.

13 Dundalk Harbour Commissioners Accounts for the year ended 2001 14 Wicklow Harbour Commissioners Financial Statement 2001

86 HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

Table 5.6 - Profit and Loss Ratios 2001

Operating15 Average Profit Turnover/ Gross Cost per Revenue/ Interest ** Before Employee Profit % Employee Net Tonne Cover Tax % (€) (€) (€) Cork 54.3 14.6 159,567 58,294 1.74 8.71 Drogheda 58.5 1.1 158,504 26,311 1.91 2.41 Dublin 45.4 9.8 130,403 25,210 2.35 7.99 Dundalk16, 56.6 10.5 85,240 39,269 1.96 2.78 Dun Laoghaire 94.9 14.5 182,245 94,394 6.6917 4.13 Galway 21.2 (5.4) 131,115 36,713 2.46 (22.41) New Ross 56.9 (21.6) 85,553 48,264 1.27 0.03 Shannon Foynes 35.7 (42.2) 130,140 66,572 0.67 (1.73) Waterford 38.9 (31.7) 135,482 54,124 2.45 1.12 Wicklow, 8.5 8.1 82,909 329 1.45 1.05 Sector 50.36 4.05 137,722 40,652 1.95 4.04

Gross Profit Percentage The gross profit ratio for each of the ports varies considerably from a high of 94.9% at Dun Laoghaire, which is almost twice the port average, to a low of 21.2% at Galway.

Profit before Tax Percentage The profit before tax percentage ranges dramatically amongst ports with four ports recording negative figures. While the average figure for the sector is 4.05% for 2001, there is high variability amongst figures with a high of 14.6% at Cork and negative values arising at four of the other ports.

The varying profitability and efficiency utilisation measures further illustrate the state of the different business models operating within the sector. The profit and loss ratios in many instances reflect the reality of weak balance sheets, high gearing and very low returns on assets.

Turnover per Employee Overall there are approximately 689 individuals directly employed in the ports sector according to the 2001 annual reports. The port companies are largely in line with each other as regards turnover by employee apart from Dun Laoghaire which has almost twice that of New Ross. However, great care should be given in considering these variations given the different natures and levels of business being conducted at each port.

** Gross profit was derived from audited accounts or calculated using the information on costs in the accounts where not explicitly presented (turnover less operation, maintenance, dredging and related costs) 15 Operating cost was derived as the difference between gross and operating profit and typically includes admin and general expenditure 16 Dundalk Harbour Commissioners Accounts for the year ended 2001 17 Net tonnage figures at Dun Laoghaire are based on passenger figures

87 HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

Operating Cost per Employee The average operating cost per employee for the ports is €39,017. As with turnover per employee, Dun Laoghaire again provides the highest figure with operating costs of €94,394 per employee. Of those evaluated, Wicklow has the lowest operating costs per employee. But again care should be exercised in considering this issue given the small scale of Wicklow in relation to the other ports.

Interest Cover A sectoral interest cover of 4.04 marks a decline on the previous year’s level of 6. This demonstrates that the sector is in a weakening position as regards borrowing to finance investment. As can be discerned from the figures above, interest cover ranges dramatically from port to port from a high of 8.7 in Cork to a situation at Galway where interest is not covered by losses incurred.

Financial Balances Table 5.7 below highlights the key financial balances for each of the commercial ports.

Table 5.7 - Financial Balances in Commercial Ports 2001

Total Assets* Shareholders Borrowings Borrowings/ Total

(€000’s) funds (€000’s) (€000’s) Assets % Cork 90,832 38,810 4,785 11.0 Drogheda 26,154 19,726 9,468 36.2 Dublin 213,397 61,085 68,903 32.3 Dundalk18 1,081 747 293 27.1 Dun Laoghaire 55,806 24,757 14,641 26.2 Galway 9,991 9,283 0 0.0 New Ross 13,363 5,178 3,933 29.4 Shannon Foynes 52,716 19,726 12,866 24.4 Waterford 48,186 4,862 15,614 32.4 Wicklow19 2,423 2,205 214 8.8 Sector 513,949 186,377 130,716 25.4

*In considering the financial statements of all the state commercial ports it is crucial to recognise that fixed assets were valued upon corporatisation, using a basis proposed by PriceWaterhouseCoopers in their report “Fixed Asset Valuation Guidelines”. The view has been expressed to us that this may have resulted in an under-value of assets. If this is the case this would have implications for the ratio analysis. Each of the ratios discussed should be considered in light of this valuation issue.

Total Assets As can be derived from the table, total assets in the corporatised ports amount to €514m. Total Assets less current liabilities meanwhile were estimated at €456m. These balances reflect largely the high

18 Dundalk Harbour Commissioners Accounts for the year ended 2001 19 Wicklow Harbour Commissioners Financial Statement 2001

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level of land and buildings vested in the sector. However it must also be stressed that these valuations are largely historic, which if appropriately valued would illustrate even poorer return on asset ratios.

Shareholders Funds & Borrowings Total borrowings for the sector amount to €130m. While this amounts to only 25% of total assets, it is equivalent to approximately 70% of shareholders funds. It is important to note that there are large differences between the individual ports, both in terms of level of indebtness and utilisation of assets. Dublin Port for example has borrowings of €68.9m while Wicklow has borrowings of only €0.2m. However this is indicative of the different size and nature of the ports.

Balance Sheet Ratios Table 5.8 below presents key balance sheet ratios for 2001.

Table 5.8 - Balance Sheet Ratios for 200120

Return on Return on Return on Capital Grants Return on Total Assets Net Total Investment Funding of Net Gearing % Equity % % Assets % % Assets % Cork 2.7 3.0 6.4 2.9 49.0 11.0 Drogheda 0.1 0.1 0.2 0.1 18.0 44.8 Dublin 2.4 2.7 8.3 2.4 11.3 53.0 Dundalk1 5.8 6.0 8.4 5.6 0.0 28.2 Dun Laoghaire 2.3 2.6 5.1 1.8 23.4 37.2 Galway (1.1) (1.1) (1.2) (1.2) 3.7 0.0 New Ross (2.1) (2.1) (5.3) (2.2) 31.9 43.2 Shannon (5.7) (6.9) (15.3) (6.8) 19.4 39.5 Foynes Waterford (3.4) (4.0) (33.5) (4.0) 46.4 76.2 Wicklow2 0.8 0.8 0.9 0.0 0.04 8.8 Sector 0.76 0.85 2.09 0.62 24.18 41.22

Return on Total Assets & Return on Total Assets less Current Liabilities (Net Total Assets) The return on total assets measures the net profit before tax generated by the assets. In the majority of cases this is significantly below commercially acceptable levels with only Dundalk Port recording a return above 5% and no other port returning above 3%. An indicator of what might be considered a commercially acceptable level is that recorded for example at Associated British Ports PLC which had a

20 Definitions 1. Return on Total Assets = Net Profit before Tax / Total Assets 2. Return on Net Assets = Net Profit before Tax / Net Total Assets 3. Return on Equity = Net Profit before Tax / Shareholders Funds 4. Return on Investment = Retained Profit for the Year / Net Total Assets 5. Capital Grant Funding of Net Assets = Capital Grants / Net Total Assets 6. Gearing = Total Debt / Total Debt + Shareholders Funds

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return on total assets of circa 8% according to its most recent Annual Report. Moreover four of the ports record a negative return on both total and net total assets.

Return on Equity The return on equity calculation provides a similar conclusion with only the three larger ports and Dundalk Port exceeding a return on equity above 5%. Again, four of the ports have a negative return on equity.

Return on Investment As with return on equity, the return on investment paints a similar picture with four ports recording negative figures. Dundalk offers the highest return on investment with 5.6%. This is 9 times the sectoral average of 0.62%. However none of the other ports manage to exceed 3%.

Capital Grants Funding of Net Total Assets The sectoral average capital grant funding of net total assets is over 24%. The highest percentage is at Cork which is over twice the sectoral average. Of those evaluated, Galway has the lowest figure, with a ratio of 3.7%.

Gearing The level of gearing backs the conclusions above. Waterford, Dublin and Drogheda are all relatively highly geared compared to the sector average with ratios of 76.2%, 53% and 44.8% respectively. There is some scope to increase debt for other ports as per these ratios; however, it is questionable whether there is sufficient cash flow from current operating activities to fund new debt without incremental new business and exchequer aid.

5.3 Review of the Individual Ports

In this section we consider the historic performance of each individual port by comparing some key financial outputs from 2000 to 2001. The statutory performance audit of the States port companies considered in detail the performance of the ports in all areas up until 1999. It is not proposed to repeat that level of analysis in this report, but rather to consider the financial performance of each port individually to further contextualise the sector.

5.3.1 The Individual Port Companies – Overview & Financial Performance

Here we briefly analyse each of the ten commercial ports under the following headings;

Introduction;

Financial Performance;

Income and Expenditure; and

Financial Balances and Performance.

Note this analysis focuses on commercial activities. Each of the ports has local and social issues to be considered which are outside the scope of this report

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Cork

Introduction

The Port of Cork Company has the nation’s second largest port in terms of turnover and is the principal port on the South Coast. Due to its size and strategic location the port is one of the only two Irish ports that handles all five shipping models. The port has generated many revenue streams and is home to Ireland’s only oil refinery.

Throughput at the port for 2001 reached 9.83m tonnes. Some key facts relating to this are includes as follows:

Oil traffic accounts for 59.2% of total traffic at the port;

The fall in overall traffic compared with 2000 was blamed on economic slowdown. The closure of Irish Ispat in 2001 had a major affect on the port in terms of its exports and imports of steel; and

Vehicle imports fell dramatically, however it is accepted that 2000 was an exceptional year for new car registrations.

Financial Performance

Table 9 – Financial Performance Port of Cork

2001 2000 €’000 €’000 Turnover 17,074 16,659 Profit before tax 2,497 5,732 Total assets 90,832 89,662 Shareholders funds 38,810 36,433

Income and Expenditure

Despite a reduction in total throughput of 308,000 tonnes from 2000, revenues increased slightly by 2.5%. However profits declined substantially in 2001 due primarily to an accrual for rates of €1.6m (period 1999-2001), a provision for redundancy of €0.6m and increased depreciation of €0.3m.

Operating costs per employee continue to remain high and further dock labour rationalisation negotiations are planned. Despite the above, the company maintained reasonable profit margins compared to the other port companies.

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Financial Balances and Performance

There were no major changes in the balance sheet with additions to land and dock structures during the year totalling circa €6m. This was financed largely through operating activities. Liquidity and gearing ratios are healthy with gearing of 9%.

Drogheda

Introduction

Drogheda Port, in financial terms, is a medium sized port in the Irish context. The port company has increased throughput at the port by 60% since corporatisation and focuses primarily on dry bulk, break bulk, hydrocarbons and containers. In 2001 cargo imports amounted to 1.03m tonnes with fertiliser and containers featuring prominently. Cargo exports for the same year amounted to 304,647 tonnes. The port company has sought to remove the limitations on its growth through the development of Tom Roe’s Point. Congestion of the town’s quay and the limited river channel size had been cited as restricting development in the past.

Financial Performance

Table 5.10 – Financial Performance Drogheda Port

2001 2000 €’000 €’000 Turnover 2,536 1,653 Profit before tax 27 (254) Total assets 26,154 23,849 Shareholders funds 11,665 11,639

Income and Expenditure

Turnover at Drogheda increased significantly in 2001 by almost 53% to €2.5m. Throughput increased to 1.4m tonnes, an increase of 31% on the previous year and the highest increase for any Irish port in 2001. This was due to increased container traffic on the Drogheda-Rotterdam service and the benefits of a full year’s operations at Tom Roes Point.

The resulting operating profits were healthy at 42%, an increase of €0.64m on the previous year. However, the exceptional legal costs associated with the Tom Roes Point terminal of circa €0.5m and continued high interest costs reduced the profit to almost break even level.

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Financial Balances

Fixed assets increased by €2m during 2001 mainly due to the addition of a new crane at Tom Roe’s Point. The majority of the €23m shown as company assets are land and buildings. The company’s liquidity remains weak with a current ratio of 0.46. In addition gearing has increased as new loans were sourced to fund the purchase of the crane. Return on assets and investments are extremely low in the current year at approximately 0.1%.

Dublin

Introduction

Dublin is, by far, the largest port in the country, handling over 70% of the country’s unitised traffic. By most measures, it is as large as all the other ports added together. The port’s main source of income is port dues accounting for €44m of total turnover of €52m for the calendar year 2001. The single biggest other source of turnover in that year was rent of €5.7m.

In respect of the calendar year 2001:

Total cargo was c21m tonnes - 14m tonnes were imports with 7m tonnes of exports.

The port has significant dry bulk, liquid bulk, LoLo and RoRo activities.

Approximately 100,000 vehicles are imported through the port by the motor trade.

The port has a significant tourist trade with approximately 1.5m passengers and 350,000 vehicles.

Financial Performance

Table 5.11 – Financial Performance Dublin Port

2001 2000 €’000 €’000 Turnover 51,509 53,900 Profit before tax 5,054 16,443 Total assets 213,397 164,531 Shareholders funds 61,085 56,652

Income and Expenditure

Revenue declined by 3.9% during 2001 despite an increase in throughput from 21m to 21.88m tonnes. The fall in revenue reflects reductions in charges made to port users, the change in traffic mix with a greater emphasis on Ro-Ro, and the exit from warehousing and crane driving.

Profits have decreased significantly since 2000. In the financial year ended 31 December 2000, there was a €2m exceptional profit on land. In the financial year ended 31 December 2001 there was a circa

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€2m exceptional loss providing for rates and the buy-back of a lease at the former Coastal Terminal. In addition in 2001, administration expenditure increased by circa €3m and cost of sales by circa €1m. This indicates that the level of cost base remains very high despite the drop in revenue.

Financial Balances

During the year, the company embarked on a major capital expenditure programme with the net book value of fixed assets increasing to €188m from €144m. This was largely invested in new terminal facilities and land and buildings. Funding was provided by bank loans which increased from €20.1m to €68.9m with a corresponding increase in gearing from 26% to 53%. Dublin port inherited a pension fund liability on corporatisation of €79.4 M. The pension fund liability has been reduced to €52.5m at the end of 2001. This amount is included within provision for liabilities and charges on the balance sheet. Increased financing costs are charged to the Profit and Loss Account each year of approximately €4.5m in respect of this pension liability.

Dundalk

Introduction

Dundalk Port is one of the smallest state commercial ports in financial terms and was only corporatised in 2002. The primary cargo at the port is grain, which accounts for 70% of imported cargos. Other key cargos at the port include derv and coal. Total Tonnage handled by the port in 2001 was 304,000 tonnes.

Financial Performance21/22

Table 5.12 – Financial Performance Dundalk Port

2001 2000 €’000 €’000 Turnover 597 688 Profit before tax 63 159 Total assets 1,081 1,077 Shareholders funds 747 689

1 21 extracted from financial statements of Lockington Shipping and Dundalk Harbour Commissioner for year ended 31/12/01 2 22 Figures converted to Euro at 1.27

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Income and Expenditure

Turnover at the port in 2001 fell by 13% to €0.6m. This was largely due to a drop in warehousing income which carried through to the bottom line. Overall the company is profitable, albeit at a low absolute level.

Financial Balances

There were no significant changes in the company balance sheet. The port has fixed assets of €0.6m which are primarily property.

Dun Laoghaire

Introduction

Dun Laoghaire Harbour Company is, by most financial measures, the third largest port in the country. However, it is unique amongst the ports in that it has a strong recreational focus and amenity value. Its primary commercial focus lies with its passenger terminal for the Stena Line ferry service.

The port is involved in a number of ancillary activities which include the following:

Car parking

Marina operations

Financial Performance

Table 5.13 – Financial Performance Dun Laoghaire Port

2001 2000 €’000 €’000 Turnover 8,748 8,182 Profit before tax 1,270 2,839 Total assets 55,806 49,849 Shareholders funds 24,757 23, 869

Income and Expenditure

Turnover for the most recent financial year increased by 6.9%. Nonetheless there was a marked decline in passenger numbers. This has been attributed to the impact of foot and mouth and increased competition. Approximately 1.06 million passengers passed through the port in 2001 as well as 206,770 cars.

The overall increase in turnover can be ascribed to a 1.5% increase in shipping turnover and, a 58% increase in non ferry income resulting from income generating operations at the marina. The marina became operational in April 2001. There was also healthy parking income. Income through ferry operations was worth €7.5m and accounted for 86% of turnover.

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Profits declined in 2001 due to increased administration and exceptional costs. As with other ports, the provision for local authority rates for the period 1999 to 2001 resulted in additional costs of €1m being provided in respect of rates.

Financial Balances

The completion of the marina and the purchase of four cottages on the harbour site added approximately €3m and €1m to the balance sheet respectively, which was largely debt financed via an increase in borrowings from €11.4m to €14.6m. The pension fund shows a deficit of €0.25m.

Galway

Introduction

As noted earlier, Galway is one of the smaller ports. However it has increased throughput by 50% since 1997 and now handles approximately 0.8m tonnes. This has been due primarily to the importation of oil products that are now the principal cargo. Dry bulk cargo had declined significantly due to uncompetitive rates; however, the company has now completed a redundancy exercise and intends to set new rates in this area.

Total turnover of €1.97m was recorded at the port for the calendar year 2001. Income through port dues accounted for 67% of turnover and rental income accounted for 28%. Throughput comprised of 798,636 tonnes. The principal commodities were Oil and Bitumen.

Financial Performance

Table 5.14 - Financial Performance Galway Port

2001 2000 €’000 €’000 Turnover 1,967 1,799 Profit before tax (107) 331 Total assets 9,991 10,212 Shareholders funds 9,283 9,403

Income and Expenditure

Income at the port increased in 2001 by 9%. This was due to a small increase in overall tonnage throughput of 2.5% and a continued increase in rental income (including €190,000 car park income) which now stands at €549,168 in 2001, or 28% of income.

Profits at the port have declined however. The gross profit margin is the lowest of any of the ports and this continues to be eroded by a high cost base. During the year dredging costs increased by circa €0.3m and pensions by €0.1m which largely explains the movement in profit.

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Financial Balances

There were no significant changes in the financial balances during the year to December 2001. The company’s main assets are its land and buildings. The returns on assets is negative, however, the liquidity ratios remain reasonable despite reducing profitability. The pension fund has a surplus of €88,000 which is included in accruals and deferred income.

New Ross

Introduction

New Ross is a unique port in that it is lies inland, some 32 km. from the sea. It is also essentially a landlord port providing a channel to privately owned facilities and has limited jetty or quay facilities of its own.

Throughput at the port in 2001 reached approximately 1.0m tonnes. The principal commodities were oil, fertilisers, animal foodstuffs, coal and cement.

Financial Performance

Table 5.15 – Financial Performance New Ross Port

2001 2000 €’000 €’000 Turnover 1,283 1,338 Profit before tax (277) 90 Total assets 13,363 13,158 Shareholders funds 5,178 5,465

Income and Expenditure

Turnover at New Ross was €1.3m in 2001, which marked a slight fall of 4% due primarily to decreasing business in its principal cargo of agriculture produce. This coupled with increasing interest costs of circa €70,000 compared to the previous year and the lack of any property sales (€181,000 from one off sales in 2000) result in a loss before tax this year. Income through port dues accounted for 77% of turnover at the port.

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Financial Balances

There were no major changes in the company’s balance sheet in 2001. The company remains highly geared with borrowings of circa €4m and shareholders funds of circa €5m.

Shannon Foynes

Introduction

By most financial measures Shannon Foynes is one of the largest port companies with facilities at Foynes and at the Ted Russell Docks in Limerick. It also generates income from shipping movements in the Shannon Estuary to Aughinish, Moneypoint, Tarbert and Dernish Island. Cargoes range from coal, heavy fuel oil and alumina and aviation fuel to general coastal trade.

Foynes Port is primarily a bulk port. Throughput in 2001 comprised of 10.7m tonnes. The principal commodities are animal feed, coal, fertiliser and oil products.

Financial Performance

Table 5.16 – Financial Performance Shannon Foynes Port Company23/24/25

2001 2000* €’000 €’000 Turnover 7,157 1,956 Profit before tax (3,023) (81) Total assets 52,716 37,127 Shareholders funds 19,726 18,860

* It is important to note that 2000 relates only to the period 18/9/2000 to 31 December 2000 due to the incorporation of the newly merged Shannon Foynes on that date.

Income and Expenditure

Total turnover of €7.16m was recorded at the port for the calendar year 2001. Income through port dues accounted for 68% of turnover.

The turnover is derived mainly from ship and cargo dues of €4.9m, stevedoring at €1.26m and other operating income of €1.03m. The company made a gross profit of €2.6m (36%), however due to a provision for underfunded pension obligations of approximately €2.2m (including a one off €1.89M in respect of pilots pensions) and other exceptional administration costs of €1.1m (due to integration costs of the legacy Shannon Estuary Port Company and the legacy Foynes Port Company), the company

23 Information extracted from draft accounts year ended 21/12/01 24 Figures converted to Euro at 1.27 25 Comparative figures are period 18/09/00 – 31/12/00

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reported a significant loss. This was offset in part by the profit on sale of a fixed asset (€0.75m). Excluding these exceptional costs the port would have made an operating profit of €0.94m.

Financial Balances

The company has fixed assets with a net book value of approximately €47m, the bulk of which is listed as docks and quays (€36m). The company’s liquidity ratios are low at 0.62. In addition the company has long term financing by way of capital injections of €22.8m and borrowings of €12.9m. The company has fully provided for its pension fund liability of €5.9m in the balance sheet.

Waterford

Introduction

The port of Waterford was corporatised in January 1999 and its financial results reflect liabilities transferred from the predecessor entity – Waterford Harbour Commissioners. The ports main activities are in bulk cargo and container boxes, however, during 2001 it expanded into container stevedoring with the formation of two 100% owned subsidiaries.

Throughput at the port in 2001 comprised of 2.1m tonnes. The principal commodities were Liquid Bulk and Bulk solid. LoLo activity at the port was also significant. Stevedoring is important at the port and accounted for 25% of port turnover in 2001.

Financial Performance

Table 5.17 – Financial Performance Waterford Port

2001 2000 €’000 €’000 Turnover 5,148 3,997 Profit before tax (1,631) 650 Total assets 48,186 44,685 Shareholders funds 4,862 4,818

Income and Expenditure

Total turnover of €5.15m was recorded at the port for the calendar year 2001. This marked an increase of 28.8% in 2001 despite a slight decline in overall tonnage to 2.1 million from 2.2 million tonnes in 2000. Income through port dues and other related port activities (excluding Stevedoring) accounted for 64% of turnover.

The increase in turnover was largely due to the expansion of activity into container stevedoring. Operating profits of €1.09m was offset by interest costs of approximately €1m and additional pension costs of €1.76m, the latter resulting from underfunding of the scheme pre corporatisation.

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Financial Balances

Fixed asset investment increased by €5.3m to €42.8m largely due to the acquisition of a second crane. Based on the financial statements the capital expenditure has been mainly financed by bank overdraft with the current ratios moving from 1.5 in 2000 to 0.71 in 2001. The gearing ratio moved to 76%, the highest in the sector and reflects net debt of €15.6m (including a bank overdraft of €4.2m) versus shareholders funds of €4.4m. In addition the company financed additional development land of 76 acres in 2001 for a value of €2.5m. The company has indicated that it has a port related business interested in these lands. The return on assets and equity is negative. The pension has a liability of some €6.7m. This amount is included within provisions for liabilities and charges in the balance sheet. The port is currently paying a state guaranteed EIB loan. This expires in 2007. The state in 2002 offered the port share capital to help pay the loan. This will be subject to further review beyond 2002.

Wicklow Port

Introduction

Wicklow is the smallest commercial port in financial terms with turnover of just over €200,000 and shareholders funds of €2.2m.

Financial Performance

Table 5.18 – Financial Performance Wicklow Port

2001 2000 €’000 €’000 Turnover 248 211 Profit before tax 20 29 Total assets 2,422 2,227 Shareholders funds 2,204 1,293 Converted to Euro at 1.27

Income and Expenditure

Wicklow turnover is exclusively import trade and comprises liner trades carrying forest products as well as spot trades for commodities such as coal and steel.

Financial Balances

Wicklow has fixed assets of €2m comprised largely of land, quays and piers. The company has low gearing.

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5.3.2 The Individual Port Companies – Projections and Investment Requirements

This section summarises the key investment requirements as highlighted by each port either in their submission for exchequer aid or corporate plans. Where available, reference is made to projections which underpin the investment.

Cork

Cork applied for Exchequer Aid at 35% under the Seaports Measure for the following short-term developments in June 2001. The application for Aid also included additional longer term developments which are not considered in this report due to the uncertainty attached to these future proposals.

€m

New Tivoli/Dunkettle Project 26.35 Purchase of land at Ringaskiddy 5.71 New buildings – Ringaskiddy 0.32 Additional mooring – Cobh Cruise Terminal 0.13 Total 32.51

Cork has prepared traffic projections for the terminal from 2000-2005.

The base-case scenario shows operating surpluses of circa €3-4m over the period to help fund the capital expenditure of €32.5m which is included in the projections net of exchequer/EU grants at 35%. Therefore it is evident that there is a funding shortfall that would not be covered by operating expenditure.

The optimistic scenario shows similar results with tonnage increasing to 11.7m in 2005. No additional capital spend is shown.

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Drogheda

Drogheda submitted financial projections which showed operating projections from 2002 to 2006. The key variables are summarised below:

2002 2003 2004 2005 2006 €000 €000 €000 €000 €000 Income 2,926 3,044 3,374 3,541 3,610 Expenditure (2,304) (2,363) (2,447) (2,557) (2,653) Depreciation (338) (338) (338) (338) (338) Profit before tax 284 343 589 647 620

It is unclear from the projections what capital expenditure is included, if any. The port company applied for Exchequer Aid under the National Development Plan for the following projects:

Infrastructure Element Cost €m Year Tom Roes Initial Paving1 1.65 2000 Crane1 1.65 2001 Completion of Paving 1.4 2002 Extension of River Walls 6.99 2002 Port Northern Access Route 0.63 2002 Warehousing 1.91 2003 New 120 meter berth and 3ha storage compound 5.72 2003 Dredging 1.02 2003 Total 20.97m 1 already completed Given the current gearing, interest cover ratios and the fact that the company has in both financial years 2000 and 2001 had a negative cash inflow from operating activities of €653k and €509k respectively (these figures include exceptional costs of €500k and €315k respectively ), it is not clear how all of the future infrastructure requirements highlighted above can be funded without incremental business and exchequer aid The company is currently conducting a technical feasibility study for the provision of additional port facilities at the port.

Dublin

Dublin Port provides cashflows to the Department as requested. However, they did not provide us with details of future cash-flow projections on a company wide basis incorporating all intended future projects though they did provide us with details of their submission for exchequer aid which contained project specific projections and an application for assistance at a rate of 35% for the following undertakings:

Value €m Berth 26 – new two tier Ro-Ro ramp 13.0

Berth 51 refurbishment 10.5

Landscaping the northern perimeter 3.8

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In addition to the above, the 2001 audited accounts by Dublin Port Company have identified additional developments including;

New two tier ramp at Terminal 2; and New Engineering Workshop.

The three projects submitted for NDP approval will have been completed by the end of the calendar year 2002.

In early January 2003, the Taoiseach announced NDP funding of €4.64 million for the two berth projects.

Dundalk

Dundalk submitted its corporate plan for the period 2001-2006 which includes detailed projects incorporating income and expenditure cash flow and balance sheets.

The financial projections include the following capital expenditure requirements, which were also included in the company’s submission for exchequer aid:

€’000 Capital dredging 1,905 Fixing and construction of bund balls 699 Lockingtons yard and quay 106m berth 825 Plant & machinery (carne, pilot boat etc) 787 Grid iron facility 950 Reconstruction of Oakes, Williamson and Jennings Quay 2,500 Total 7,666

The projections assume the above will be grant funded at 50%. They also assume that the balance will be debt funded and show income rising from €0.74m in 2002 to €1,37m in 2006 with operating profits increasing from €48,000 to €246,000. Cash balances in 2006 are projected to be €102,000. It therefore appears clear that if there is not a growth in business with a comparable increase in turnover of 84% and grant funding of 50%, the proposed expenditure cannot be achieved.

Dun Laoghaire

Dun Laoghaire did not provide us with an up to date corporate plan. A corporate plan prepared in 1998 contained projections to 2003, however for the purposes of the review these were not considered due to the lapses of time. No submission for Exchequer aid was made under the current National Development Plan.

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The company presented its long term expenditure requirements at our consultation meeting as:

Berth no. 1, this is used by the Navy and the Commissioner of Irish Lights;

Berth no. 4, this is commercial and is used by the Stena ferry;

East pier resurfacing, there have been a number of claims in recent years relating to the poor surface of the pier. To combat claims, stem the dramatic rise in insurance costs and to ensure that the pier can remain open to the public the company needs to resurface the pier; and

East and West pier maintenance, no money has been spent on the maintenance of these piers over the past 40 years.

Galway

Galway Port Company submitted projections for the current year only which showed an increase in turnover to €2.2m and a return to surplus at the operating costs level. Capital expenditure within this is shown as €0.2m. This includes expenditure on a number of minor projects relating to CCTV, Berth pumps and roads.

The company did not provide its submission for exchequer aid. However at our meeting with the Board of the port company it was noted that the following projects are proposed:

A joint venture company for a 40,000 tonne oil terminal; Deep water non-tidal berth (€35m); and A crane at €500,000.

The company has historically a small positive cash inflow (€19,000 in 2001) from operating activities. It is unclear how these investments could be supported on the current finances.

In addition the company is proposing a joint venture to undertake new warehousing and office development and has submitted a planning application.

New Ross

New Ross did not submit projections for the period to 2005. Port management currently estimate that traffic in 2002 will be approximately 960,000 tonnes. However there will be a further loss this year. The company has applied for exchequer funding for two projects as follows:

€M New wharf 3.36 Warehousing 2.98 6.34

In the submission the company indicates that the 65% balance will be funded by cash reserves and additional bank borrowing of €3.5m. It is questionable whether this borrowing could be serviced based on the historic financial performance.

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Shannon Foynes

No projects were submitted for funding under the present National Development Plan. In addition no projections were provided. The company has recently invested heavily in capital expenditure (€22.2m from 2000 to 2002). The port company is also currently appraising a significant project with an international promoter.

Waterford

The Port has sought Exchequer Aid at 35% for four projects at a total cost of €47.75m as follows:

€M Enhancement of the Lo-Lo Facility at Belview 12.70 (Including second Gantry Crane, Secondary Handling Equipment and realignment of the rail line) Provision of additional bulk facilities at Belview 16.00 Provision of Bulk Liquids Terminal 5.08 Port Access Improvements 13.97 47.75 As with other ports, the projections contained in the aid application were based on the individual projects above and were not projections in respect of the whole company.

Wicklow

Wicklow submitted projections contained within its plan for corporatisation dated February 2000. These included profit and loss, balance sheets and cash flows.

The following capital expenditure plans were included (based on 1998 costings) which were also included in the company’s submission for Exchequer aid under the National Development Plan:

€’000 Packet pier storage to 2000m2 635 External south quay #1 by 55m 571 Reconstruct 42m of south quay #2 317 1,523

The projections assumed grant funding of 50% and have been prepared to 2005. They show revenue increasing from €229,000 in 2000 to €313,000 in 2005 and a positive cash balance of €75,000 at the end of 2005.

It is appears therefore that any variations downward in either business achieved or grant funding received would result in significant losses if the projects were pursued.

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5.3.3 Current Issues

Current economic difficulties will have a multiple of effects on the individual ports over the next number of years. Economic slowdown and a fall in international trade, both in terms of exports and imports , will inevitably lead to a fall in throughput at Irish ports and may lead to a fall in revenue. Furthermore the drop in Government revenues and the very limited availability of funds to be made available to the commercial ports will seriously curtail their ability to fund capital developments.

There is no doubt but that in the immediate future, there will be increased pressure on ports. Not only will ports have to deal with enhanced competition, but will also face increased costs through payments of commercial rates from 2003, increased insurance premiums and, for certain ports, the ongoing need to address under-funded pension schemes.

5.3.4 Conclusion

We did not receive projections and budgets from all of the ports. This may be the result of the fact that projections appear to have been prepared to support aid applications as appropriate and not primarily as a management tool to aid control and decision making. The absence of complete projections limits our ability to assess the funding requirement of the sector as a whole and indeed the capacity of the sector as a whole to fund the new investment identified.

Nevertheless from the sample projections and investment requirements identified, it is clear that most ports could not fund the required investments identified out of operating cash flow alone. Some are presently highly geared while others have negative operating cash-flow. Those that have positive cash- flow could in theory support additional investment without relying on incremental business and exchequer aid, but the timing of these investments would need to be carefully planned.

The financial analysis demonstrates that the port companies overall are not generating sufficient returns on assets or investments. The utilisation of resources is not efficient resulting in higher costs that might be difficult to sustain in the long run. Many ports have extensive investment aspirations in infrastructure which they believe will generate new business and badly needed cash flow. On a case by case basis the business models used to assess investment proposals needs to address both the commercial and financial feasibility.

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Findings

There are significant variations in financial scale across the ten corporatised ports. Dublin Port is by most financial measures as large as the other ports combined.

The majority of ports are profitable at the operational level. Overall operating profit is €21.2m

The profitability and efficiency utilisation measures vary widely amongst the ports, which reflect the different businesses.

The total value of assets (net fixed and current carrying value) vested in the corporatised port sector amounts to €514m. This reflects the high level of land and buildings in the sector.

Overall the sector as a whole is highly geared with total borrowings equivalent to 70% of shareholders funds. Interest cover has declined from 6 to 4 in 2001, which indicates that the sector is in a weakening position to fund new investment.

The financial return figures generated by the sector are below commercially acceptable levels with only three ports generating a return on equity above 5%.

Not all of the commercial port companies prepared projections incorporating operational and cap-ex assumptions.

Budgets and projections appear to be prepared for specific functions e.g. to accompany aid applications rather than management controls.

Most ports other than Dublin could not afford significant new investment without aid based on their operating cash-flow.

There are a number of current economic and financial factors that are likely to further undermine the financial position of the port companies. These include (but are not limited to) - current economic conditions - continued competition from Northern Ireland Ports - increased costs through commercial rates - impact of taxation - pension liabilities

Resulting from the above findings, in our opinion it is imperative that each of the Port Companies considers all available options open to it in order to continue to secure their future.

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6. OPTIONS ANALYSIS

6.1 Introduction

This chapter considers the management/ownership options including enhanced private sector involvement available to the state port companies. The purpose of this chapter is thus:

To highlight alternative ownership and governance models with particular emphasis on providing the necessary funding, and to cross reference these to international examples where applicable.

To highlight possible ownership and funding options which could be applicable in an Irish context, either on a national, group or individual port level.

To consider significant other issues arising as a result of the suggested options.

It commences with a brief review of current issues affecting port management structures and ownership models. It also provides a summary of the current model employed in Ireland and proceeds to define a framework of options that could be considered as part of further port reform. The options are each considered against the key overriding objectives, as set out in the terms of reference, which are included below;

that the ports are incentivised to deliver high quality port products to stakeholders, particularly users;

that the ports have access to appropriate funding to provide for capacity requirements in the medium to long term;

that appropriate competitive conditions exist within and between ports, which exert downward pressure on costs and charges for port, shipping and other port related services;

the avoidance of inefficient monopoly situations developing, with potential upward pressure on costs and charges; and

that the shareholder/management relationship is conducive to the development of a port sector which is fully supportive of the needs of our rapidly developing open economy.

6.1.1 Drivers for Port Reform

Internationally the major drivers for port reform have historically been restrictive labour practices, poor centralised government control, bottlenecks in supply/distribution and inability of governments to invest in expensive port infrastructure. In addition the port companies are to a greater extent seeking to adapt to the challenges of today’s global market as well as changing shipping requirements including bigger ships and the need to reinvest and re-equip.

Port finance therefore is becoming increasingly important and is undoubtedly one of the key drivers for port reform. The role of governments in financing port development is decreasing due to budgetary constraints and the private sector has assumed more responsibility, not only in port finance but also in respect of port operations. Globally, in relation to port financing, the private sector is playing an

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enhanced role in providing funds not only for superstructure, equipment and systems but also for infrastructure. This has an impact not only on management and ownership but also on long term public participation in port development.

In reviewing the options available we have considered how the state, with increasing restraints on exchequer funds, can harness private funding or consider wider share ownership where appropriate. As necessary, the operation of a port involves the public and private sectors working together. The spectrum of port administration models has evolved depending on where the boundary line has been drawn between the public and private sectors. This leads to a spectrum ranging from full public control to fully privatised ports as discussed in Chapter 3

Any changes in these structures could alter the institutional structure of the port business and may result in greater involvement of the private sector. Privatisation is one of a number of approaches which could offer the potential to reform ports and therefore is included along with the other options in the review that follows.

While port finance considerations are a key driver for port reform, it is not the sole reason. Table 6.1 below summarises a number of other reasons cited for encouraging port reform.

Table 6.1 – Reasons for pursuing port reform General reasons:

Improve port efficiency Decrease costs and prices Improve service quality Increase competitive power Change the attitude with respect to port clients (become more client friendly)

Administrative/Managerial reasons:

De-politicise the public port administration Reduce bureaucracy Introduce performance-based management Avoid government and private monopolies

Financial reasons:

Reduce public expenditure Attract foreign investment Reduce commercial risks (investments) for the public sector Increase private sector participation in the regional or national economy

Employment reasons for change:

Reduce the size of the public administrations Restructure and retain the port labour force Eliminate restrictive labour practices Increase private sector employment Source – World Bank Port Reform Toolkit

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6.2 The Current Situation

The commercial port companies, of which there are now ten, were corporatised under the terms of the Harbours Act 1996 and 2000 at various times over the last five years. Most ports were corporatised in early 1997 which converted the state ports into legally and financially independent bodies with their own Board of Directors. The aim was to apply market principles to lead to enhanced efficiency and increased responsiveness to market forces.

The aims and objectives were primarily:

To create autonomous ports;

To deliver financial independence and responsibility for performance; and

To enable some continued measure of public control.

The port companies each interpreted their remit in differing ways and also perhaps due to location, history, natural resources etc were able to adapt their approach to the commercialisation that ensued in different ways.

The table overleaf summarises the differing models now employed.

This table shows that in many areas of port operation, there is already significant involvement of the private sector.

For instance, in relation to Infrastructure, the revenue of some ports includes the port charges derived from the presence of a number of private companies on land owned by these companies. For example, Shannon Foynes Port Company receives port charges in respect of coal being transported to ESB’s facilities at Moneypoint.

In relation to Superstructure, some facilities are provided by the port company itself and some facilities are provided by the terminal operator. For instance, at Dublin Port, the passenger terminal facilities are provided by the Port Company but, in the case of Lift-On Lift Off, both DFT and MTL, two of the three Lo-Lo terminal operators, provide their own facilities.

Stevedoring is, more and more, being provided by the private sector. Two significant exceptions are at Belview and Limerick Docks, where Waterford Port Company and Shannon Foynes Port Company have established subsidiaries to provide stevedoring services.

The experience of private sector involvement in Pilotage is mixed. In some cases, the pilots are self- employed, in other cases, they are employed by the port company.

Generally, towage is provided by the private sector. However, presently, Dublin Port Company provides towage services and in Cork, the both the Port and the private sector offers this service.

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Port Management Models in Ireland

Port Infrastructure Superstructure Stevedoring Pilotage Towage Capital Dredging

Cork Port/private26 Port/Private Private Self Private/port Not an issue employed

Drogheda Port/private27 Port/Private Private Self private NDP29 (2)/port28 employed (3)

Dublin Port/private30 Port/Private Private Port Co Port Company Internal as (12) reqd

Dundalk Port Port/Private Private (2)31 Self Ex Newcastle if Funding & employed required sought under Lockingtons (2) NDP (Port)

Dun Port Port (Terminal) Private Dublin Ex Dublin if Not required Laoghaire Port is required Pilotage Authority

Galway Port Port Port/private Port Co (3) Ex Foynes internal as reqd

New Ross Port/private32 Private Private Port Co (4) Hired in EU33

Shannon Port/private34 Port/private Foynes: Self private internal as Foynes Private employed reqd; will be Limerick: (8) contracted out Port

Waterford Port/private35 Port/Private Port for LoLo Port Co Port company EU36 Private (Waterford otherwise Pilotage Authority) (7)

Wicklow Port Private Private Self Not generally Not required employed required

26 Including ADM, Marino Point, Whitegate, Passage West, ESB 27 Flogas, CRH, Maxol 28 suspended joint venture with FAST 29 dredging to Murflo jetty to be funded under NDP 30 ESB 31 Austin Matthew Shipping Services Ltd and Agri Shipping 32 Stafford Shipping, Stokestown Port Services 33 River Barrow Improvement Scheme (OPT and INTERREG) 34 Moneypoint, Aughinish Alumina, Tarbert Island, 35 including ESB, Bilberry, Fiddown; there is also a private berth at Belview 36 Waterford Port Dredging (Cohesion Funds), dredging at Belview and Cheekpoint (OPT); further submission under NDP

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The above analysis illustrates that the predominant model employed in Ireland is the landlord model. However some ports are operating only in part as Landlord ports. Therefore in considering the analysis of options presented below, it should be noted that some ports are already utilising some of the management and operational options discussed.

6.3 Analysis of the Options

6.3.1 Introduction

There are a wide spectrum of options for the future governance and development of the state commercial ports. These range from maintaining the status quo, to outsourcing, to concessions, and privatisation. It must be emphasised that these options are not necessarily mutually exclusive and a solution incorporating elements of various options may be suitable for a particular port.

The analysis defines the options and considers the impact and potential effects of each model. It must be highlighted however that there are significant other issues to be considered that would impact on the choice of model which cannot be adequately quantified or satisfactorily addressed by this report. These include issues of public policy be they, economic, strategic and wider social issues. These are discussed briefly at the end of this chapter

6.3.2 Framework to Consider Privatisation versus Public Private Partnership

The terms of reference for this review explicitly refer to “enhanced private sector involvement”. It is essential to establish and define a framework to consider this. This requirement was also demonstrated by the fact that several of the submissions received and consultations held, referred to public private partnerships and privatisation as a way forward without completely defining what these routes would actually entail or indeed how they could be undertaken.

The United Nations Conference on Trade and Development define privatisation as:

“privatisation is the transfer of ownership of assets from the public to the private sector or the application of private capital to fund investments in port facilities, equipment and systems”.

It is important to note that privatisation can be full or partial.

Full privatisation: a scheme in which a successor company becomes the owner of all land and water areas as well as of all the assets within the port’s domain. This is equivalent to a change in ownership via a sale of an entire port company to a private company. Also under this heading there is the sub option of opening up an element of the ownership of a port company to the private sector;

Partial privatisation: a scheme where by only part of the assets and activities/ services of a public port body are transferred to the private sector. This could entail the sale for example, of existing berths, the transfer of pilotage or towage functions (already privatised in some Irish Ports) or a concession by a state port company to a private company to build and/or operate a terminal or a specialised port facility.

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Partial privatisation can take the form of a Public Private Partnership and is usually combined with the introduction of the Landlord Port Model.

The common term for when the private sector and public sector come together to work on delivering a service or constructing infrastructure, is a Public Private Partnership. The precise roles and responsibilities of the public and private sectors in any Public Private Partnership will depend on the contractual terms agreed and will vary project to project. However, in most Public Private Partnership arrangements, private sector contractors become long-term service providers rather than simple upfront asset builders. Accordingly, the port companies can become more involved as regulators and focus their skills, competencies and resources upon planning and port management rather than on the direct service delivery.

We can therefore define Public Private Partnerships as arrangements between the public and private sectors (consistent with a broad range of possible partnership structures) based on shared objectives for the provision of public infrastructure and/or public services by the private sector that would otherwise have been offered through traditional public sector delivery.

There are some activities in which the public sector has a core competency and other’s where the private sector may have more to offer. It can be argued that only by allowing each sector to focus upon what it does best can government provide the quality services and outcomes that the users want and expect in an economically efficient manner.

The interest in Public Private Partnerships can be attributed generally to three main drivers:

Investment in infrastructure – economic growth is highly dependent on the development and enhancement of port infrastructure and transport systems.

Greater efficiency in the use of resources - the experience of privatisation has shown that many activities, even those traditionally undertaken by the public sector, can be undertaken more cost effectively with the application of private sector management disciplines and competencies.

Generating commercial value from public sector assets - significant amounts of public resources are invested in the development of port assets including land. Engaging private sector expertise to exploit these assets within an agreed strategic framework can result in a wider range of applications that can lead to the realisation of substantial incremental value for the public sector.

International experience of full privatisation has been mixed. The freedom to invest combined with private sector management skills can be key drivers behind improved efficiency, either in terms of reduced cost or improved service quality, while at the same time in certain cases it has led to super short term profits through asset disposals, a perceived lack of public accountability and the development of monopolies.

On the other hand, Public Private Partnerships offer a long term, sustainable approach to improving infrastructure, enhancing the value derived from government assets and making better use of public money, while at the same time retaining control of core areas of responsibility in the public sector.

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It is important to note therefore that the forms of public private partnership we will consider are very different from privatisation.

Full privatisation transfers the activities of a public sector monopoly to one or more private sector companies in perpetuity. Under a Public Private Partnership, the public sector retains control of underlying port infrastructure and the monitoring of performance. Private sector companies are invited to deliver services to the required standards for a defined contract period, after which the services delivered may be re-tendered or transferred back to be performed by the public sector.

6.3.3 The Options Identified and Evaluated

The option analysis that follows commences with the “maintaining the status quo” scenario and reviews options between the current status quo and full privatisation utilising the framework set out above.

The diagram below highlights the range of options for:

Ownership Management/Operations:

The Framework for the Options Review Ownership Increasing 100% Public 100% Private Ownership Ownership Private Sector Ownership

Management/ Operations Increasing Private Sector Port Operations

Outsourcing Concession License

Increasing

Operational Risk transferred to Private Sector

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We have not considered options that could be viewed as a “backward” step in port reform e.g. a centralised port company.

6.4 Maintaining the Status Quo

6.4.1 Introduction

In considering the options available one must also consider the current model, we have termed this option “maintaining the status quo”.

6.4.2 Definition

Under this option, as with the “do minimum option”, the Port Companies would continue as state commercial companies. We would consider that this option is not a viable option due to the issues identified and key findings set out later in Chapter 7. In particular the varying size and financial structure of the state companies, the amount of funding required and the varying degrees of management exhibited would suggest that some reform is required. We set out below some of the key issues which need to be addressed under the terms of this review. The comments below are outlined in the context of issuing recommendations which entail a “maintaining the status quo approach”.

Objective Comment Delivery of Port There is a question as to whether the status quo can adequately deliver Product the increased infrastructure investment required by, Changing ship size, Impact of globalisation. The existing high cost base and requirement for labour rationalisation would still be existing issues and without redress would result in a high cost port product. Access to Funding Capacity requirements indicate increased funding is required. This cannot be sufficiently addressed under this model without public funding. Competition There is no evidence that ports collude as regards price fixing. However they do target particular business sectors/ customers to suit their particular strengths. It is difficult to determine how this would alter with a shift away from a "maintaining the status quo” scenario. Competition within the ports is generally limited as usually there are not many competing terminals. Therefore although the existing model does not prohibit competing terminals within ports thus far it has not resulted in significant intra port competition due to size issues. Shareholder/Manager The consultation process highlighted a number of views in relation to Relationship this issue as regards the existing structure. These include the following The shareholder is perceived to be slow in decision making and limited in resource. Appointments to Boards do not necessarily provide the level of commercial expertise required. There is a perception by the ports themselves of unequal funding amongst ports There is an apparent lack of national ports policy and no clear guidance of what the port should do

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It can be concluded that considering the apparent need to reform the ports and to provide for their future infrastructural needs, the “maintaining the status quo” approach is not a viable option. Change is required. The following option analysis looks initially at defining what each option is in theoretical terms and then proceeds to comment on how we believe it would address the overriding objectives set in an Irish context

6.5 Do Minimum

6.5.1 Introduction

Through our analysis of the options we have also considered a do minimum alternative for reform of the governance model. This would entail addressing some of the key issues and deficiencies identified through our report, without major alteration in the ownership, management or operational structures. This option could be considered as a base for future more radical and substantial reform which could for example entail enhanced involvement of the private sector and the exposure of the ports to pure market forces.

6.5.2 Definition

The do minimum option includes the following changes, each of which could be implemented independently of each other;

Establish a clearer framework for the role and objectives of the ports. The framework could outline that the future role of the port companies should move to that of landlord and that ports should concentrate on maintaining and expanding the port estate (where appropriate), on policy making and planning, on regulatory functions and on port promotion etc. This would enable the shareholder to review the impact of the following changes whilst dealing with the policy and political issues raised by the more extreme reform options. This framework would thus encourage the state commercial companies to focus more on private sector provision of superstructure as well as services via one of the options reviewed later in this chapter

There are a number of common costs faced by all ports to a varying degree. These are primarily capital dredging and maintaining the sea channel leave out as each port is responsible for its own infrastructure. One option for meeting these costs would be to charge the port industry collectively for these costs. This could be done through the establishment of a financial fund through a percentage of port charges, which could be used to pay for these expenses. However, there would potentially be a number of problems with adapting this approach: not all ports face the same level of dredging costs thus some ports would be subsidising the dredging costs of others, and the proposal could be seen as being anti competitive and introducing market distortion. It could also be argued that this approach could lead to increased customer costs at certain ports which would not be in the public interest.

Instigate formal merger and amalgamations of certain groups of port companies. This could be conducted within the context of the National Spatial Strategy or simply on a geographical, trade or size basis. As can be discerned from the financial analysis above, several of the smaller ports

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are too small to finance infrastructure and remain competitive. Therefore if the ports companies were merged in certain instances they could ultimately;

Reduce costs through synergy and the maximum utility of resources

Enable ports to focus on services suited to each port

Scale – realise other economies of scale through access to funds

The potential port company amalgamation groupings that could be constructed are set out in Section 8.4.

Discontinuing the practice of appointing port users and councillors to port boards on grounds of potential conflicts of interest

Sculpt the reporting and governance arrangements to suit the relative size of the port companies in question.

It is important to note that as regards the Do Minimum option, what we have defined does not include wider share ownership but mainly lists a number of sub-options, each of which would be implemented separately or indeed collectively. Furthermore, in respect of some of the other options subsequently considered, including concessions and enhanced private sector ownership, we believe it remains appropriate to seek to implement many of the sub options we have identified which will remain valid in the context of continued public sector involvement.

Below we consider briefly the implications of pursuing a “do minimum” approach to port restructuring. Objective Comment Delivery of Port Product Merged ports should have increased financial capacity to secure additional and sufficient infrastructure funding sought. Some cost reductions could flow to users as a result of improved efficiencies. Labour rationalisation would still be required at some ports. This approach affords the opportunity to rationalise profitability and financing issues at some port companies. Through amalgamation port companies could focus on the delivery of an array of services more suited to the individual ports involved Access to Funding The merged companies may have increased access to funds. The meeting of common costs through a central financial funding pool for e.g. dredging and maintenance of sea channels. We have dismissed this as it could be viewed as being anti competitive and introducing market distortion. Competition At present it could be argued that there are too many commercial port companies, however there is healthy competition between them. This approach would not stifle competition. Limited mergers should not decrease competition as the remaining port companies will still compete with a continual pressure on costs and charges for port services. The Do Minimum option does not address intra port competition (within ports) Shareholder/Manager Enables shareholder to retain the decision on location of ports in the short term Relationship rather than have the decision made by market forces whereby consolidation/rationalisation would be determined by the market. This could result in the closure of some strategically important ports that have a poor financial history. Clearer port definition by the shareholder could assist in improving the relationship between shareholder and manager.

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6.6 Outsourcing

6.6.1 Introduction

One tool available to governments to improve port efficiency and performance is to outsource certain functions, previously executed by the public port management, out to the private sector. The aim of outsourcing is to enable a company to improve its focus on key activities, to seek to streamline processes and to lower costs.

6.6.2 Definition

We have considered two types of outsourcing in our option review and these are defined and discussed below:

Contracting out – where a state commercial port may decide to contract out certain aspects of its operations which have traditionally been undertaken solely by the port, to the private sector, e.g. stevedoring in some ports. This could be undertaken through a competitive tender-bid procedure. Another approach would be to approach this via a joint venture agreement. For example – Drogheda Port Company considered a 50/50 joint venture to provide stevedoring services.

Management Contract where a separate contract for the management of each of the public state commercial ports could be awarded. This may be appropriate for example where a state commercial port has experienced poor management for an extended period of time. Under this approach the state would negotiate a management contract with a private sector operator. The operator agrees to employ the existing port staff and to provide adequate and efficient service to all customers. The contract is usually entered into for a specified period, generally between three and five years. Upon expiration of the contract period, it may either be renewed or awarded to another party. A management contract may also be used as a stepping stone towards the granting of a more extensive concession, see Section 6.8. It is important when entering into a management contract, that the state has the right to impose financial penalties and/or terminate the contract in the event of the private operator not meeting specified minimum levels of efficiency, financial performance or throughput.

As with the previous models examined we have included below a brief commentary on issues relating to this approach if adopted.

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Objective Comment Delivery of Port Product The management and board of the directors of the commercial port could focus to a greater extent on the management of the port while the private sector exercised greater control over the delivery of various port services

This option should only be considered if the functions can be performed at a price that is lower than that entailed with them being undertaking in the public sector;

The retention of existing staff under a management contract would mean that the management company would continue to be burdened with any existing inefficiencies. Access to Funding This issue would not be addressed in the short term. However with private sector involvement in supporting the delivery of certain services, there may be a reduction in requirements for working capital. Competition This option would require ample scope for competitive bidding.

There are inherent dangers • that bidders could collude and form a cartel on prices; • bidders could cherry-pick; or • there may be localised bidding

Contracting out in all ports may create a monopoly for a service (if all contracts won by the same bidder) which would be contrary to the public interest unless there is a proper regulatory oversight framework

Shareholder/Manager Could be more formalized and commercially focused in Relationship certain ports with formal contracts to measure efficiency/ performance or throughput

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6.7 Concession Arrangements

6.7.1 Introduction

Our review of the international context has demonstrated that governments through the port companies that they have established are still widely involved in port management. In the main, the state is involved as landlord. In this instance the state will retain the ultimate ownership of assets, but will transfer a major part of the financial and operational risks to the private sector.

Relations between the State Port Companies and the private sector in this model are twofold:

Commercial relations based mainly on lease agreements and concession agreements;

Relations based on public oversight functions of the Port Authority, such as enforcement of port by-laws, dangerous goods regulations, vessel management, etc.

Therefore in the landlord model the state will act mainly as port managers and land developers, while private firms will assume the responsibility for port operations. The main legal instrument used to achieve this realignment of public and private sector roles and responsibilities is a "concession". A port concession is a contract in which a port company transfers operating rights of defined services to private enterprise, which then engages in an activity contingent on port company approval and subject to the terms of the contract. The contract may include the refurbishment or construction of infrastructure by the concessionaire. These characteristics distinguish concessions from management contracts on one end of the reform spectrum with comprehensive port privatisation on the other. Concessions, by permitting the state to retain ultimate ownership of the port land and the port company to maintain responsibility for licensing port operations and construction activities, further allows the state to therefore safeguard public interests. At the same time, they relieve the state or port companies of substantial operational risks and financial burdens.

The key characteristics of concession arrangements are as follows:

The state effectively conveys specific rights to a private company; They have a defined term They are geographically delimited; They directly or implicitly allocate financial and operational risks.

6.7.2 Definition

There are two main forms of concession arrangement we will consider in reviewing the management and ownership issues namely Leasehold Agreements and Concession Contracts:

Leasehold agreements, where an operator enters into a long-term lease on the port land and usually is responsible for superstructure and equipment. Port companies, operating as landlord ports derive a large part of their income from leases. Typically, only land or warehouse facilities are leased. Berths may be included or excluded from the lease rent. If excluded, the Port Company should collect and retain all revenue derived from any berthing fees and berth occupancy fees in place

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There are differing forms of lease in use which can be utilised. These range from fixed rate to more innovative variable lease payments, dependent on throughput and leases which incorporate a minimum or maximum payment.

Potential lease partners for a Port Company could include:

Terminal operators;

Cargo-handling companies;

Shipping lines;

Forwarding agents; and/or

Inland transport operators.

The choice of lease should be governed by the ports company’s objectives. If those objectives are to:

maximise throughput and provide maximum benefits to the local economy through increased employment, a fixed lease may be preferable.

maximise throughput and employment, with an initial need to subsidise the terminal lessee, the lease with minimum and maximum payments may be preferable.

to maximise revenues, with an initial need to subsidise the terminal lessee, the shared revenue lease may be preferable.

Concession contracts, where the operator covers investment costs and assumes all commercial risks. Such contracts are often combined with specific financing schemes such as Build, Operate and Transfer (BOT), or Design Build Operate and Finance (DBOF)

One of the objectives of concession contracts can be to transfer investment costs from the state to the private sector. Concessionaires can be obliged to construct and refurbish infrastructure and operate a facility or service for a fixed number of years.

Concession contracts are often developed as a part of a BOT scheme and represent specific agreements between a Port Authority and the Special Purpose Vehicle (SPV) established by the concessionaire to carry out construction and operation of a port development project. Under concessions, the ultimate ownership of the affected assets is retained by the national or local government, or by the Port Authority. At the same time, part of the commercial risks of providing and/or operating the assets is transferred to a private concessionaire. There are a number of commercial issues raised due to the structure necessary to contract with a SPV and on which the state port company should seek appropriate advice. These include:

The SPV provides adequate service throughout the term of the concession;

The SPV observes relevant safety and environmental protection standards;

The charges levied on port users are reasonable and do not endanger the competitive position of the port; and

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The SPV performs proper maintenance and repair of all assets to ensure that, on their return at the end of the concession, the State commercial port receives an operational project and facilities in good working order.

BOT Arrangements

BOT schemes are a specialised form of concession designed to increase private financial participation in the creation of port infrastructure/superstructure without changing the landlord structure of the concerned port.

The core of a BOT arrangement is a concession for a specified period of time involving the transfer or re-transfer of all or some of the project assets. An illustrative definition of a BOT arrangement is:

A project based on the granting of a concession by a principal, usually a government, to a promoter, sometimes known as the concessionaire, who is responsible for the construction, financing, operation and maintenance of a facility over the term of the concession, before finally transferring to the principal, at no cost or at a pre-determined price to the principal, a fully operational facility. During the concession period, the promoter owns and operates the facility and collects revenues in order to repay the financing and investment costs, maintains and operates the facility and makes a margin of profit." Source Denton Hall Projects Group; A Guide to Project Finance; 1998 Edition, p.47

BOT is a frequently used form of concession model that in many respects has the character of a temporary privatisation. BOT schemes have some features of a contract (e.g., clauses that cannot be changed such as duration and payments) as well as those of a license (e.g., permitting changes in activities or performance by the concessionaire within the broad framework of the license agreement).

Under the BOT approach, the government grants an exclusive concession to the private sector to build and operate a port project. In return, the private sector (sometimes a consortium of banks, contractors and operators, or alternatively a global operator) undertakes the risk of completing the project and operating it profitably. The concession runs for a number of years, after which the project assets are transferred back to the government. After termination, the government/Port Authority can lease out the facilities, or grant another concession, enter into management contract, which may or may not have a new construction component.

BOT Schemes and Port Development

In recent years governments have recognized the benefits of developing their ports either through privatization or, more recently, through joint ventures or so-called build-operate-transfer or ‘BOT’ schemes in this article we consider the application of BOT schemes to port development and some particular issues that arise.

Prime examples of the use of BOT schemes are the development of new greenfield terminals in Gujarat province, India, the new container terminal at Nhava Sheva, Mumbai, India, and the proposed terminals at Chittagong, Bangladesh, Colombo, Sri Lanka, East Port Said, Egypt, and Tangiers,Morocco. This follows the growing trend as international port operators such as P&O Ports, Hutchison, PSA and International Container Terminal Services, Inc. seek to develop global networks of terminals leveraging off their experience.

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The benefit for the sponsors of a BOT scheme is that since this is a well recognized project finance structure they can limit their exposure to a relatively small equity injection and a management involvement with the bulk of the financing coming from limited recourse bank lending. The benefit for the government is that they will be able to obtain an expensive infrastructure development which, given the risks involved, a developer would be unlikely to be prepared to risk on a full recourse basis.

If the concession agreement is between the SPC (special purpose company set up by the sponsors to undertake the project) and a port authority (rather than the government) then in order for the project to be bankable, there may need to be an agreement (an implementation agreement) under which the government guarantees the port authority’s obligations and certain undertakings are provided by the government to the SPC or directly to the sponsors which cannot be given by a port authority (such as the provision of a favorable tax treatment). The commitments from the government are likely to cover issues such as compulsory acquisition of land, free access for staff and machinery and sometimes protection for the staff in the host country. Source Marc Lloyd Williams, Bill Jamieson and Norton Rose, World Ports Development, 1999, p. 20

Exceptionally, the scheme may be arranged in such a way that the private company collects all port dues, including wharfage and berth dues. The Port Authority is then paid a base fixed fee plus a variable fee based on either revenue or cargo (tons or units) handled. In this way the Port Authority shares in the increased value of the facility due to improved productivity and efficiency.

The BOT scheme ends with the return of the project/terminal to the relevant authority, usually the Port Authority, at a specified date. The value of such transfer to the Port Authority depends on whether the transfer occurs before the facility becomes economically or technically obsolete.

When designing BOT schemes, it is important to consider carefully which parts of the port can be concessioned and which parts should remain with the Port Authority. Generally, BOT schemes can be applied to all assets that can be exploited as a separate business. Examples of these include:

Fairways/Channels: This part of the port infrastructure can be concessioned under a BOT scheme to require the concessionaire to dredge and maintain the fairway (and, optionally, to operate aids to navigation) for a specified period during which they derive an income from vessels using the fairways under an agreed fare system

Terminals: BOT schemes are usually applied to specific terminals.

There are many variants of BOT-like schemes including:

Build–Own-Operate (BOO): meaning full privatisation of the terminal, since the port land and the facilities built on it are not returned to the government/Port Authority;

Equip-Operate-Transfer (EOT): where port infrastructure already exists, but superstructure is supplied by the SPV;

Build-Transfer-Operate (BTO): where the new port facilities are directly transferred to the competent authority (government or Port Authority) immediately after construction. Under BTO schemes, the ownership of the assets being financed has been an issue for lenders who require asset-based collateral to secure bank loans. With BTO schemes, the only collateral is the

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concession contract itself, which may be insufficient. BTO schemes are necessary in countries where legal strictures do not permit private ownership of main port infrastructure

Build-Own-Operate-Transfer (BOOT): where ownership of land and facilities conveys to the concessionaire, but is transferred back at an agreed price at the end of the concession period;

A special case is the Wraparound BOT (WBOT). This scheme is used in the case of expansion of a government owned port facility by the private sector, which would hold title to the expansion only. Under such a scheme, the SPC would:

Operate the entire port facility under a Project Development Agreement (PDA); Manage the government-owned section under a management contract; and Expand the facility under a BOT contract.

In many cases, the government effectively becomes a partner in a BOT arrangement by investing in certain portions of the infrastructure. Private parties appear to be reluctant to invest in basic port infrastructure, not only because it makes it more difficult to price use of infrastructure in a manner that permits the concessionaire to realise a reasonable return on the investment, but also because these assets are largely immobile and have no comparable alternative use.

In an Irish context due to the size of the ports and their stage of development it is unlikely that an overall master concession or wrap around would be necessary. In addition there may be a concern over the potential conflict of interest between the public service function of the master concessionaire and its commercial activities. In addition the schemes are most suitable to the construction of entire terminals whereby the operator will take usage risk. We would recommend that this approach be market tested for viability for major expenditure requirements. However before this approach could be considered, we would recommend that a feasibility study be undertaken to consider the commercial and likely contractual issues that would require to be considered in an Irish context. This would need to consider carefully the issue of any project financial viability and its debt repayment capacity to ensure that any project would be bankable.

For other expenditure requirements there are further forms of Public Private Partnership that can be utilised to procure new infrastructure and superstructure. These forms are similar to a concession, except that the port companies would be required to make the payments due over the concession, thus removing the commercial risk for the operator. This approach could be market tested for the Ports in an Irish context where facilities are required, demand risk is significant and crucially also where it is likely to deliver a value for money solution to the state.

These forms are summarised below:

Design, Build and Operate Design, Build and Operate contracts are contractual relationships between public sector bodies and private sector contractors for the design, construction and operation of public facilities or infrastructure. The private sector contractor designs and builds the facility to meet public sector performance

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requirements (as in a design and build contract) and is also responsible for operating and maintaining the facility for a predefined period, at the end of which it is transferred back to the public sector. The construction of the facility is financed by the public sector and it remains in public ownership over the duration of the contract. This type of Public Private Partnership arrangement is already well established in Ireland.

Example DBO Contract: Dublin Bay Project

Dublin City Council recently awarded a 20-year design, build and operate contract for the construction and operation of a new wastewater treatment plant at Ringsend. The total value of the contract is in excess of £200 million and it is estimated to have generated savings equivalent to 20% of the pre-tender estimate. The main sources of the cost savings are considered to be design innovation and the whole life costing approach adopted by the preferred tenderer. Payment for the capital works will be made on the achievement of specific milestones while payment for operating the new plant is based on a fixed payment for plant availability and a variable payment relating to the volume of effluent.

Design, Build, Operate and Finance Design, Build, Operate and Finance (DBOF) contracts are contractual relationships between the public sector and private sector contractors for the design, construction, operation and financing of public facilities or infrastructure. The private sector contractor is responsible for designing, building, operating and financing the facility and recovers its costs largely out of payments from the contracting authority. At the end of the term of the contract, ownership of the facility commonly transfers to the state. This type of Public Private Partnership arrangement is common in Portugal, South Africa, Spain and the United Kingdom.

This type of concession can also be awarded excluding the concession or services element. These types of contract are known as Design Build and Finance.

There are a number of commercial issues that are common to all types of DBOF in terms of contractual structure and the precise allocation of risk. The major issues are driven by the involvement of private finance to procure infrastructure, and in common with most Public Private Partnership contracts the structure is usually on a project finance basis with little or no security other than the contract itself. Therefore the financing institutions will be anxious to review the covenant of the party who is obliged to make the payments for the facility created and also that they have the authority to enter into the contract.

Therefore in the ports sector in Ireland given the scale of the ports, this may impact, either on the ability of some of the ports to enter into these arrangements, or on the scale of the project which could be undertaken. Accordingly these issues would need to be considered in the selection of any pilot projects.

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Example DBOF Contract:

The Government of Cyprus has recently sought tenders for the redevelopment of Larnaca Port under a long term design build and operate contract.

The intention is to redevelop the existing port into a major cruise destination and will include the reconfiguration of the existing port infrastructure to include a larger turning circle and realignment of quays and the development of extensive land that is within the ports perimeter.

The contractor will be expected to undertake the port and real estate development, to manage it and to undertake the passenger and commercial port operations.

The first bids were received in November 2002

Example DBOF Contract: Irish Schools

In November 2001 the Department of Education and Science awarded a €100 million Public Private Partnership contract for 25 years. The objective of the project was to build 5 new post primary schools at various locations around the country At the end of the contract term the facilities will transfer to the state.

The main sources of value for money are the economies of scale achieved by bundling the five schools into one concession, spend to save strategy in higher quality build initially would lead to lower maintenance costs, innovation in financing and tax structuring, and strong competition between leading construction companies.

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Objective Comment Delivery of Port Product Better and more efficient port management (especially port operations) performed by private operators should result also in better more competitive port products;

The transfer of risks for construction, finance and operation of the facility to the private sector will focus the operator on product as if the product fails, users will go elsewhere and revenues will suffer

The attraction and use of foreign investment and advanced port technology in operating concessions could result in unproved delivery of port product.

There is a danger that a concessionaire will not properly maintain the facilities under concession, returning them to the government in bad condition; or the danger that the concessionaire and the Port Authority disagree on the operational need for and financial feasibility of critical investments.

The removal of restrictive working practices should result in a lower cost port product. Access to Funding The application of private capital to socially and economically desirable projects, freeing up government funds for other priority projects;

Under certain circumstances, the creation of new revenue streams for the state;

Competition Avoidance of the drawbacks associated with monopolies through the inclusion of detailed concession conditions;

There can be a need for continuing close state management and oversight

Shareholder/Manager Better and more efficient port management (especially port operations) performed by Relationship private operators could result also in more competitive port products;

The relationship between the new shareholder(s) and the management would be formalised and managed by way of performance targets and incentive plans.

Designed appropriately, the concessions reviewed above e.g. BOT, DBOF can generate substantial benefits. The scope of potential benefit will, however, depend on the type of project being undertaken and the exact terms of the contract governing the Public Private Partnership. The contractual and commercial structure of concession PPP’s can result in the following benefits:

Acceleration of infrastructure provision - Public Private Partnerships provide an opportunity for certain infrastructure to be procured with no financial burden on the state e.g. BOT, or for the state to translate upfront capital expenditure into a flow of ongoing service payments as with a DBOF. This enables the state to proceed with more projects at times when the exchequer funding may be constrained, thus bringing forward much needed investment.

Faster implementation - the allocation of design and construction risk to the private sector, combined with payments linked to the availability of a service i.e. when it is built, can provide significant incentives for the private sector to deliver infrastructure quicker

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Reduced total life costs - Public Private Partnership projects often require the private sector to be responsible not only for constructing the infrastructure, but also for maintaining and operating it over time. This can provide the private sector with a strong incentive to ensure that it minimises cost over the whole life of a project, Thus where the state commercial ports are paying for the infrastructure this could help achieve Value for Money.

Better allocation of risk - a core principle of any Public Private Partnership is the allocation of risk to the party best able to manage it at least cost. The aim is to optimise rather than maximise risk transfer, to ensure that best value for money is secured.

Better incentives to perform - the allocation of project risk should incentivise a private sector contractor to improve its management and performance on any given project. Under most Public Private Partnership projects, full payment to the private sector contractor will only occur if the required service standards are being met on an ongoing basis, and in BOT schemes if the private sector does not perform users will go elsewhere.

Quality of service - the introduction of innovation in service delivery, or the performance incentives and penalties typically included within a Public Private Partnership contract should result in a quality service.

Enhanced state management - by transferring responsibility for providing public services to the private sector, the port owners and managers can act as regulators and will focus upon service planning and performance monitoring instead of the management of the day to day delivery of public services. .

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6.8 Licensing

6.8.1 Introduction

Licensing is a method often used to deregulate markets and ensure deep competition. This approach would provide a framework for private companies to undertake port activities previously assumed by the State Port companies. It could be viewed as a more extreme method of outsourcing.

6.8.2 Definition/Rationale

For the purposes of this review we have defined licensing as, the authorisation of the private sector to provide selected port services to users in a competitive environment with the intention of increasing efficiency in the delivery of high quality port products. Licensing would be accompanied by an elimination or liberalisation of port rules and regulations in order to liberalise the market and promote efficiency. This can be contrasted with concessions where contracts are awarded by the port companies to the private sector to engage in port related activity subject to the terms of that contract and the port companies would still retain ultimate responsibility for managing the port operations and any port construction activity.

This can be considered on two levels;

To permit the private sector to provide facilities and services on a port by port basis To permit the private sector to provide facilities and service within a port

In both of these scenarios the state commercial ports could also be bidding for the license

Objective Comment Delivery of Port Product The most efficient and cost effective operator should secure the license with a resulting positive impact on port services Access to Funding The licensee would need to secure finance. If certain ports were providing low returns, there are questions as to whether this could be achieved by either the public or private sectors Competition Bidders have the ability to cross subsidise from other more profitable services to distort the market Shareholder/Manager This would require a clear separation of the regulatory and Relationship commercial roles and could result in all commercial activities being transferred to the private sector for a period

Licensing would be appropriate where it is felt that a form of liberalisation of rules and regulation that where originally introduced by the State but which were now perceived to be unduly restrictive or burdensome is required. However in the ports sector there is required to be a minimum of regulations in place, for example to ensure that the management and operation of ports respects international codes etc,

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Licensing would also be appropriate where there is a need to lift rules restricting entry into a business or transport route/mode, the need to grant freedom of pricing etc. We would contend that these issues are adequately dealt with under the current model.

6.9 Privatisation

6.9.1 Introduction

The international review has shown that many states are moving towards enhanced private sector involvement in port management and operations. However absolute privatisation remains the exception, and has only been developed in the UK and New Zealand. Earlier we outlined a framework for our consideration of private sector involvement. This was to help clarify what we meant by private sector involvement.

6.9.2 Definition / Rationale

We have defined privatisation previously in this chapter; essentially we mean either the sale of an entire port (trade sale/ flotation) or the introduction of an element of private sector ownership, i.e. not a complete sale of the ports assets. It is important to note that if the port companies were to be sold to management and employees that would also amount to complete privatisation.

The rationale for privatisation is often cited as;

Private sector expertise and experience – in best practice systems cargo handling techniques and market orientation can adapt to today’s changing and increasingly global market.

Reduction of political interference.

Reduction of state expenditure of ports.

Generation of one off capital revenue for the state.

The ability of privatised port companies to diversify their business.

6.9.3 The Options

Under the privatisation option we have identified two major options. These are examined below and are;

Introduce private sector ownership of up to 50% stake in the state commercial ports. Full privatisation

Limited Private Ownership

Under the first option the ownership of the state commercial ports would be opened up to the private sector with a ceiling put on the level of ownership conferred in order that the State would retain control of the commercial ports. A subset of this first option could be a scheme where the same facility or service provider is jointly owned by the state commercial ports and the private sector with both parties executing a Joint Venture agreement. Joint ventures are usually established where the public sector and private sector wish to share in the risks and rewards associated with a particular commercial

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enterprise, in this case a commercial port, with each party undertaking the specific roles for which it has particular expertise and skill. The parties share in the risks and rewards of the enterprise either in accordance with their respective shareholdings or through other contractual arrangements. It is important to note that currently the state commercial companies can enter into joint venture agreements via a special purpose vehicle or agreement to undertake a specific activity or development without any change in the ownership of port itself. In addition the port companies could enter into a joint venture to provide outsourced services to the port sector as set out in the following example;

Example Joint Venture:

Serco Group plc (“Serco”) has formed a joint venture facilities management company with the Jebel Ali Free Zone Authority (“JAFZA”) in Dubai in the United Arab Emirates. The joint venture, which will be known as Serco Gulf, will deliver a range of engineering and other support services to JAFZA, the Dubai Port Authority (“DPA”) and Dubai Customs, which together constitute the Dubai Ports Customs and Free Zone Corporation (“PCFC”). DPA operates two ports in Dubai, with the container port at Jebel Ali being one of busiest and most important transshipment hubs in the Middle East. DPA also manages and operates the container ports at Jeddah in Saudi Arabia and in Djibouti.

The PCFC believes that the formation of Serco Gulf represents a significant initiative to improve the quality and efficiency of its support services and to open up new commercial opportunities Serco Gulf will deliver the engineering and other support services to PCFC at Jebel Ali, Port Rashid and other locations in Dubai under a 10-year contract term, with the total sales revenue to Serco expected to be over £40 million. It will be one of the first significant ‘multi activity’ outsourcing contracts to have been awarded in the Middle East.

Serco owns 49% and JAFZA 51% of Serco Gulf.

.

There are a number of issues from a financial, operational and commercial perspective which would affect this choice of option. Furthermore this option would probably only be attractive to certain port users who may have a strategic interest in a particular port.

Why Invest

From a commercial perspective we need to consider why the private sector would invest for a minority stake in a port when it would not give them a controlling interest. Certain control measures would be needed in this scenario to protect the public interest in the long term including;

The share subscription would need to be carefully drafted to provide for all eventualities that could arise in managing and operating the company, for example on calls for additional financial support, for policies on returns/ profits as to whether they are reinvested or not?

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The state could retain a golden share to retain control in partial privatisation. However it is important to note that the more restrictions that are placed the less value could be achieved from this option. Any proposed ‘golden handcuffs’ arrangements would have to be structured such that they did not contravene EU law

There may be a need to limit profits to ensure that market dominance is not abused Restrictions on sale of port land

The private sector will seek a return on its investment. Under part privatisation it is unclear how the private sector could realise it return without ultimately eventual privatisation.

Example Part Privatisation Greece:

Thessalonki Port Authority is now listed on the Athens Stock Exchange following the partial privatisation of Greece’s two largest Ports (Pirasus and Thessalonki). The partial privatisation followed the development and implementation of a strategic and investment plan that focused on the modernisation, expansion and continuous development of the port.

Originally the privatisation was to be completed in two phases, with 51% to be ultimately owned by the public. It is important to note that the privatisation process took place with the consent of the Port's personnel, who secured a stake of 1.2% in the newly privatised company

The first stage of the privatisation involved a public offering of 2,520,000 shares in August 2001 (25% of the company). 120,000 went to the employee’s at a discount of 20% over the offer price. The remainder was floated at a price of €6.74 per share. The market capitalization was thus €67.9M

.

It is important to note however that returns on investment and profitability ratios currently generated by the majority of commercial ports would not be sufficient to attract private investment. The table below highlights the differences between the financial results of the sector as a whole and Associated British Ports PLC for 2001.

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Irish Port Financial Criteria Sector ABP €000 €000

Turnover €96,268 € 445,600 Operating profit €21,212 € 170,100 Operating Margin 22.0% 38% Gross profit % 50.36% 46.79% Turnover/employees 137,722 173,877 Operating cost per employee 40,652 14,984 Average Revenue/Net tonne 1.95 4.71 Total Assets €513,949 € 1,687,100 Shareholders Funds €186,377 € 1,012,900 Net Debt €130,716 € 508,900 Return on Total Assets 0.76% 7.73% Return on Net Assets 0.85% 8.38% Return on Equity 2.09% 12.87% Return on Investment 0.62% 6.30% Gearing 41% 33.44%

Private Ownership

This second option has, until now, been fully developed only in the UK and in New Zealand. Outright sale of port land combined with a transfer of traditional public port tasks such as safety and environmental oversight (e.g., harbormaster’s tasks) remains an exception. Other countries have introduced significant privatisation schemes, but mostly with respect to port and terminal operations. Full port privatisation often requires the enactment of new laws, both to regulate the transfer of ownership and functions from the public to the private sector and to define the borderline between re- drawn public and private responsibilities and tasks. Such legislation should establish vires, succession, transfer of “public tasks” and process issues. It will also include commercial mechanisms to protect the public interest including;

A levy on the proceeds of the disposal of shares of the successor company. In the UK this levy was set at 50% of the net proceeds of the sale;

A levy on profits accruing to the successor company as a result of the disposal of port land transferred under the privatization scheme. In the UK this levy was set at 25% of the profit during the first five years, 20% during the next two years and 10% during the last three years of the levy period;

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Example Privatisation – Trade Sale Australia:

Following a detailed scoping study, an in-principle decision was made in March 1999 by the South Australian government to divest Ports Corp by way of a trade-sale. Ports Corp was a public corporation established under the provision of the Public Corporation Act, 1993 (South Australia) and South Australian Ports Corporation Act, 1994 to own and manage the 10 public commercial ports in South Australia. After consultation with various community groups, the sale was limited to seven out of the 10 ports operated by Ports Corp - Port Adelaide and the six regional ports of Port Lincoln, Port Giles, Thevenard, Wallaroo, Port Pirie and Klein Point.

The broad objectives for the sale were to:

• Maximise the return to South Australian taxpayers; • Remove risks associated with the continued state ownership and lost opportunities; • Encourage economic development; • Encourage improved service delivery

Legislation facilitating the divestment received Royal Assent in December 2000 including:

• South Australia Ports (Disposal of Maritime Assets) Act 2000 (‘Disposal Act’) • Maritime Services (Access) Act 2000 (‘Access Act’) and • Harbours and Navigations (Control of Harbours) Amendment Act 2000.

The sale process provided for a disposal by way of a combination of a Business and Asset Sale Agreement, together with 99-year leases over the land owned by Ports Corp and a 99-year Port Operating Agreement for each of the ports. The Disposal Act however provided a statutory vesting of assets and liabilities thus providing bidder’s greater certainty regarding the assets and liabilities in which they were acquiring. The Access Act provides, among other things, the regulatory regime for the ports in terms of required access and the future pricing arrangements.

In November 2001, the Flinders Ports consortium led by Adsteam Marine Limited (‘Adsteam’) and Egis Project Asia Pacific Pty Limited (‘Egis’) successfully completed the acquisition of the South Australian Ports Corporation (‘Ports Corp’) for a total consideration of approximately A$190m. The acquisition represents a significant milestone in the privatisation of port assets in Australia being the: • First capital city port operation (Port Adelaide) to be successfully privatised; and • Largest number of ports privatised at one time

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A vast majority of maritime nations consider comprehensive privatisation to be incompatible with national and regional interests. Specific reasons why states and Port Authorities have refrained from pursuing full privatisation are diverse, but often include one or more of the following:

A public monopoly can easily become a permanent private monopoly;

The macro-economic benefits of large port complexes to the regional and national economy are perceived to be threatened by comprehensive privatisation;

The danger of discriminatory treatment of customers;

The risk that, in practice, privatisation may undermine competition;

Fear of over-investment in and duplication of dedicated terminals for major clients, which could unbalance demand for additional public transport infrastructure;

Neglect by the private owners of the port’s public service function;

Reluctance of labour unions to abandon state protection and their fear of losing jobs;

Reluctance of public authorities to lose political control,;

Reluctance of public authorities to lose income generated by the port business.

Again we briefly examine this option under a number of headings below.

Objective Comment Delivery of Port Product More commercial and entrepreneurial management should result in better port products.

The removal of restrictive working practices should result in a lower cost port product. Regulation may be needed to ensure that there are no superprofits achieved and that the public interest is protected. Access to Funding Creates revenue for the exchequer which could be reinvested elsewhere.

Need to ensure port assets are not sold at an undervalue and that the future strategic direction is not adversely affected.

Port companies have no restriction on investment and borrowing as the current legislation restricts borrowing. Competition If ports are privatised to differing owners initially competition will increase. Over time as market forces focus resource on returns and profitable ports in good locations consolidation may reduce competition and create a private monopoly.

The transfer of port regulatory functions to the private sector raises public interest issues. The new privatized ports are essentially self-regulating and have little incentive to safeguard and enhance inter-port competition. The driving force behind the new port owners is corporate interest rather than public interest. The question, then, is who protects the public interest?

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Shareholder/Manager Relationship The state would be co joined with the private sector in partial privatisation and would be removed as the shareholder in full privatisation. The relationship between the new shareholder(s) and the management in partial privatisation would be formalised and managed by way of performance targets and incentive plans.

6.9.4 Other Issues to Consider

It is difficult to reach an absolute conclusion as to the appropriate management and ownership options to recommend without giving due consideration to an array of other factors, usually non quantifiable and political in nature, which could impact to the ultimate decision. While it may not be appropriate to analyse these issues in depth at this point, it is important to at least make reference to a number of these issues before we highlight our findings.

To many, the commercial ports, even if not all commercially viable, do have at least a strategic importance that is often difficult to quantify. Before issuing recommendations on corporate restructuring, it is vital to determine the state perspective regarding the importance of potential indirect economic and social benefits of the ports, whether they are commercially viable or not. It is further important to determine the extent as to which the state is willing to support commercially non viable ports and governance options, due to these economic and social factors. Our analysis demonstrates that some of the ports are struggling for economic viability and it is possible that some of these would be forced to cease operations without future state intervention and assistance or some other support.

There are a number of intrinsic costs faced by the individual ports which have been funded by the European Union in the past. Some of these costs, including capital dredging vary from port to port regarding the degree of their severity and extent. These costs have divided port operators and sector commentators as to what constitutes costs which are the responsibility of the state or the individuals ports involved. It is important that a policy is developed for dealing with these costs for the entire sector, as current policy leads to ambiguity, confusion and makes commercial planning for the ports difficult.

Traditionally the ports have been state assets and have been viewed as a means by which international trade could be facilitated. There is a sentiment that the port is an important strategic tool in the development of trade ad should remain within the control of the state and that any level of private ownership could undermine public interest. It is important that there is clarity as to the view of the state on the potential distribution of its shares in the commercial ports before some of the options can be discussed.

The issue of appointing a regulator does depend on which option the state decides to adopt. With a “do minimum” approach the appointment of a regulator is probably unnecessary. However with privatisation and the potential amalgamation of ports the need for a regulator becomes more apparent as potential monopolistic situations could develop and damage consumer and competitive options.

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The analysis in this chapter has focused on either the status quo, or relinquishing some level of state control over the ports. However it may be felt that there is a need to consider whether a trust model or company limited by guarantee should also be reviewed. To many this may be seen as a backward step and it is questionable if it would provide adequately for the ports needs in the future.

Findings

• Globally in port finances the private sector is playing an enhanced role in providing funds not only for superstructure, equipment and systems but also for infrastructure.

• Public Private Partnerships are not the same as full privatisation. Full privatisation involves opening ownership of the commercial port companies themselves to the private sector.

• The status quo does not adequately address the high level term of reference of delivering a high quality port product and ensuring access to funding. In addition the existing structure is not perceived as conductive to the shareholder/manager relationship.

• A do- minimum approach is available. This would involve a series of recommendations to improve the current model without necessarily changing the ownership or management/operations.

• Outsourcing involves the contracting out of the management and/or operations of the state port management or facilities, without any significant investment or transfer of assets. Forms of contracting out operations are already in use in the ports sector.

• Concessions can be utilised to enable the state to retain ownership of port land whilst reducing operational risks and financial burdens.

• Build Operate Transfer arrangements have been utilised worldwide to provide port infrastructure whereby the private sector constructs, finances and operates a facility for a fixed term before transferring the facility back to the state. The private sector recovers its costs through charges to the users.

• Design Build Operate and Finance schemes are also utilised to procure port facilities. Under these schemes the port company pays for infrastructure over a contract term (normally 20 years plus) and the private sector is responsible for constructing, financing, and operating the port infrastructure.

• Used in appropriate circumstance and developed in an effective manner, Public Private Partnerships have the potential to deliver important benefits.

• Public Private Partnerships come in a variety of different forms. One size does not fit all and different forms will be appropriate in different circumstances.

• Given the scale of the investment deficit facing the ports, it is likely that contractual and structural forms of partnership will be most relevant to deliver that investment.

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• Licensing is an option utilised to introduce competitiveness and to lift rules restricting entry into a business or transport route and is not an appropriate option for the ports sector.

• Privatisation involves opening up the ownership of state commercial ports to the private sector.

• Subject to the terms of sale/investment, there could be interest in the private sector in securing ownership or partial ownership of some of several of the ports.

• The returns on investment and profitability ratios currently generated by the majority of commercial ports would not be sufficient to attract private investment, in our opinion.

• Other than Dublin (and possibly Cork and Rosslare) the private sector is unlikely to be interested based on purely the financial returns generated

• Privatisation of Dublin or Cork will still require improved performance that, in all likelihood, may affect the performance of other ports.

Recommendations • We recommend that a “do minimum” approach (excluding the establishment of the financial reservoir) be implemented in conjunction with the introduction of private sector operational skills and investment under Public Private Partnerships where these approaches can deliver efficient and cost effective port products.

• We therefore recommend that the landlord model be more fully implemented across the state commercial ports and that, at the operational level we recommend that full private sector involvement is encouraged subject to market interest and value for money for services provided.

• We would also recommend that the Port Companies explore a range of different forms of concession including the build, operate and transfer model and the design, build, finance and operate model to deliver port infrastructure were these forms can deliver value for money This will require the identification of pilot projects which would be then subject to further feasibility studies.

• That the appointment of a regulator is not necessary if the above recommendations are implemented without any opening up of ownership to the private sector

• That the concept of opening up port company ownership to the private sector, while not ruled out, is not pursued at present due to the current financial standing of the Port Companies. This option could however be considered by the Department in the future in the light of the finances of the relevant ports, the effect on the public interest, the extensive legislation, and oversight framework required and the likely necessity to appoint a regulator

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7. KEY ISSUES

Arising from our analysis of the Regulatory situation, overview of Irish port operations and finances, as well as the regulatory arrangements elsewhere, there are a number of key matters that we wish to address. They cover the areas of:

Shareholder Responsibility

The Role of Ports

Funding

Infrastructure Requirements

Rosslare Harbour

Port Charges

Port Company Cargo Shares

The Case for a regulator at Present

Competition within Ports

Development of Port Estates

Other Matters Raised

7.1 Shareholder Responsibility

While the Harbours Acts have served commercial ports well in the interim, our analysis and feedback would suggest that the present regulatory governance model is inappropriate for the needs of 21st century Irish ports. The failure exists at two levels:

the shareholder, and

the port company.

7.1.1 The Shareholder

Our consultation and discussion process has highlighted a major concern that the state, being the single shareholder, is not providing the guidance, speedy decision-making and funding that would be expected from a commercially focused owner. The Department is seen to be inadequately resourced and does not have the full range of competencies expected for the responsibilities required. It is argued that ports are unevenly treated, from a financial perspective, which leads to complaints of distortion in the marketplace. To-date, the shareholder has provided little development funding for any of the commercial ports relying completely on the EU for the financing of necessary port infrastructure.

Decision-making has been particularly slow; for instance, formal decisions on funding for ports under the National Development Plan have been delayed and are still awaited as this Report is being prepared.

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It is argued that there are gaps in the Harbours Act in that it does not embrace all commercial ports; for instance, pilotage is not compulsory in Rosslare.

It has been expressed that present and past Governments do not appear to appreciate that ports are a critical element of the logistics supply chain where an integrated approach to the transportation chain is required. The exclusion of ports from the newly formed Department of Transport is an example of this.

7.1.2 Board Appointments

However, the greatest volume of complaints we heard related to Board membership and structures. The appointment as directors of individuals without the necessary experience and backgrounds in Port Management has been detrimental to ports, based on our meetings with users. Further, the appointment of port users and local authority councillors to Boards is seen as giving rise to conflicts of interest.

7.1.3 The Ports

Port customers argue that the determination of port charges is not transparent. This can result in the concern that some customers can be favoured over others. Others would argue that ports are setting charges at inflated or uncompetitive rates where there is no competition or to take account of unsuccessful investments or investments in areas not core to the activities of a port.

The public sector culture inherent in many of the port companies can be detrimental to the successful commercial development of ports. Inefficient work practices are allowed to continue; staff numbers remain unnecessarily high and the will to innovate is stifled. There is a still a belief that the state will bail out a port if it gets in difficulty or that that all funds for development will be provided through grants and aid. The security of the public sector can be a safety net.

7.1.4 Other Matters

Port companies, submissions and interested parties also noted that:

The Department of Communications, Marine and Natural Resources favours fishery ports over commercial ports; to support their argument, they instanced the level of grant aid committed to Killybegs of €50 million;

The requirement to pay local authority rates is going to affect ports’ profitability significantly. It is vital that the determination of rateable valuation is accurately carried out;

The process by which the initial asset valuation of ports was established was inappropriate; the low levels obtained affect the level of funding that ports can raise;

There would be a need for a change in legislation to allow for any private sector involvement in port ownership;

The Harbours Act also requires revision to address the provisions of the Landlord and Tenant Act;

There is too much emphasis on pilotage in the Act;

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Ports should be relieved of their licensing responsibilities under the Dangerous Substances Act 1972;

Ports are increasingly having difficulty in obtaining public liability insurance cover;

There is not enough guidance by the Department in relation to asset disposals;

The lack of co-ordination and discussion on environmental matters between different government agencies and sections within the Department of Communications, Marine and Natural Resources is affecting the development of ports;

The level of bureaucracy involved in dealing with the Department’s information and other requests; it is argued that the Corporate Governance and Performance Monitoring reporting requirements are over-elaborate particularly for the ‘smaller’ ports; and

The level of fees paid to Chairpersons is too low for the inputs that they provide.

7.2 The Importance of Ports

7.2.1 The Role of the Port in the Transport Chain

Buyers of transport services are generally only interested in ensuring that their goods get from Point A to Point B at the cheapest and/or quickest way. For Ireland, ports handle 99 per cent, by volume, of all goods entering or leaving the country. The specific ports used are becoming less important that the overall routing. The competition now is between supply chains, which is particularly critical for Ireland where multi-nationals account for 84 per cent of all Irish exports.

Each element of the chain has a critical role to play, not least the ports. The competitiveness of the supply chain is only as good as the weakest element within it. If a port is inefficient or expensive, the supply chain suffers.

Transport costs have increased their relative importance as a barrier to trade. Distance, containerisation, volume exported, and, most important, the level of seaport efficiency, are important determinants of transport costs. Recent literature has emphasised the importance of transport costs and infrastructure in expanding trade, access to markets, and increases in per capita income. For most Latin American countries transport costs are a greater barrier to U.S. markets than import tariffs. Clark, Dollar, and Micco of the World Bank, for instance, investigated the determinants of the costs of shipping to the United States using a large database (more than 300,000 observations a year) on shipments of products at the six-digit level of the Harmonized System of classification from different ports around the world. They found that distance and containerisation matter.

This paper37 - a product of Macroeconomics and Growth, Development Research Group – is part of a larger effort in the group to understand the link between competitiveness and transport costs.

37 Maritime Transport Costs and Port Efficiency, Alejandro Micco, Ximena Clark, and David Dollar, World Bank, 7 February 2002

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Recent events suggest that the importance of ports as elements of the supply chain is not recognised. Separating the responsibility for ports and port-related matters from the responsibility for other elements of the chain at policy level means that there is not the integrated development and implementation of policy for all transport modes. Three separate government departments charged with transport policies is undesirable as it leads to inefficiencies, fragmentation and, ultimately, a loss of competitiveness. Ports, roads, rail and airports should be developed as part of a coherent and integrated framework.

This was a major concern voiced by most of those with whom we consulted.

7.2.2 Task Force on Transport Logistics in Connection with Ports

The final Report38 of the Task Force noted that ports, and their transport linkages, are key nodes in the supply chains of both export and import goods and consequently play a pivotal role in ‘lubricating’ the economy. The Report indicated that ports and maritime freight transport have been treated in the past as a poor relation within the governance structures for the country’s transport system. This situation risks causing a fall in confidence in the strategy and in the systems that are in place to find solutions. It argues that a longer time horizon is required for planning and investment, and Ireland needs to be able to move from a transport system that simply tries to cope with the demands that are placed on it to one that makes the transport industry a source of wealth creation in its own right.

The Report contends that the transport system must be developed so that it underpins Ireland’s competitiveness. Research consistently indicates that transport is singularly exceptional as a part of the productive economy in which Ireland remains far behind other developed and emerging countries. An IMI Report39 survey shows consistently that while MNCs rate efficient air and sea transport as an important determinant of competitiveness, they also rate Ireland’s performance in this respect as poor.

The Task Force made 47 recommendations including:

A new Department of Transport with full cabinet representation should be created with full responsibility for the development and implementation of policy across all transport modes and with particular emphasis on the development of integrated transport systems in line with EU policy.

The role of ports in developing the efficiency of the whole supply chain and in stimulating balanced regional development needs to be highlighted and prioritised.

Port projects should be given priority in planning processes where it can be shown that there will be positive net benefits to the economy.

The current model for port governance may result in excess competition between ports when an alternative model could provide benefits.

38 Task Force on Transport Logistics in Connection with Ports, February 2002, Chairman: Dr John Mangan, IMI 39 Survey of MNCs in Ireland: Results of 4th Annual Survey of Competitiveness, Irish Management Institute (2001)

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An examination of the adequacy of the existing regulatory environment for ports and its enforcement should precede any consideration of regional amalgamation.

This review should also examine the potential role of a statutory office holder to adjudicate in cases of disputes in ports.

Initiatives should be promoted to overcome the perception that the interests of local communities and of port users are inadequately represented in decision making by Port Boards.

The new Department of Transport should put in place the necessary structures to mediate the conflicting objectives of port stakeholders and to facilitate the expression of views by port users.

A long-term strategic approach is required that sets objectives for the development of the port sector over the next 20 to 50 years.

Irish transport policy needs to set a long-term objective that Ireland will have a transport system and international linkages that are a basis for the development of transport related industries, with Ireland acting as a gateway to Europe.

As a key stakeholder, a representative of Dublin Port should be appointed to the DTO Steering Committee.

Investment in port services in non-congested areas should be examined to identify overall benefits to the economy.

Performance indicators should be developed to monitor the efficiency of transport in the vicinity and hinterland of the ports.

Ways to promote the development and adoption of information technology, such as real-time information systems and integrated systems to link ships, drivers, ports and customs, should be examined.

Freight transport should be identified as a sector of primary national interest.

7.2.3 Port Sector Image

One of the reasons, we believe, why ports have never received the political or financial attention that they deserve is that ports, individually and collectively, have failed to make the case for their support. The proposed publicity campaign by the Irish Short Sea Shipping Group, under the auspices of the Irish Maritime Development Office, is, therefore, to be welcomed. This is an initiative that the Irish Ports Association should continue.

7.3 Funding

7.3.1 Funding 1994 - 1999

The EU provided aid of almost €145 million (£113.21 million) to Irish ports between 1994 and 1999. The funding came from:

The Operational Programme for Transport (£27.64m/€35.1m);

Cohesion Fund (£31.7/€40.3m); and

Ireland/ INTERREG Programme (£53.87m/€68.4m).

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7.3.2 National Development Plan 2000 - 2006

Under the NDP, Exchequer funding of some €58 million (£46 million) has been allocated for investment in the commercial seaports sector. A sum of €46million (£36 million) has been provided under the Southern and Eastern Regional Operational Programme, and €12 million (£10 million) under the Border, Midland and Western Regional Operational Programme.

The NDP seeks to address both existing and potential constraints and bottlenecks to growth of the sector’s productive potential.

In broad terms, the funding is targeted on investment in new infrastructure or upgrading of existing infrastructure; improvement of capacity utilisation; developing and strengthening intermodal connections; and assistance to those regional ports and harbours disengaging from commercial cargo/transport activity.

7.3.3 Progress To-Date under the National Development Plan 2000 - 2006

Applications by the ports for Exchequer Aid are a significant multiple of the Aid available. At the time of writing this Report, almost €5.86 million had been disbursed to some of the commercial ports40. The recently published 2003 Capital Estimates for the Department of Communications, Marine and Natural Resources show a 39% reduction in respect of Harbour Improvements on the 2002 estimate to €3,000,000. This would suggest that Commercial Ports will receive little, if any, Exchequer funding in 2003. (It is interesting to note that the figure for Fishery Harbours is €30,000,000, a reduction of 3%).

7.4 Infrastructure Requirements

There is no doubt that the biggest challenge facing Irish ports is their ability to finance their infrastructure needs. Some of these projects are more urgent than others. The profiles of the ports presented in an earlier chapter summarise the principal infrastructure projects submitted for Exchequer Aid. Many of them incorporate major capital dredging and reclamation campaigns at a large financial cost.

As shown elsewhere, many of the ports do not have the financial resources to fund them.

Two reports in particular informed the ports’ needs. They were:

Baxter Eadie Capacity Report41, and

Arup Assessment of Intermodal and Port Access Requirements42

40 On January 10, 2003, the Minister for Communications, Marine and Natural Resources announced that NDP funding of some €5.86 million was being allocated to the ports of Dublin, Cork, Galway and Dundalk 41 Assessment of Irish Commercial Seaport Capacity (2000 Update), Baxter Eadie Ltd and ORM Consulting 42 Assessment of Intermodal and Port Requirements, Arup Consulting Engineers and ORM Consulting, October 2000

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7.4.1 Baxter Eadie Capacity Report

Baxter Eadie Ltd, in association with ORM Consulting, was commissioned in 1998 and again in 2000 to prepare an inventory of port capacity and to prepare projections of need in 2007.

The Report found that, while there were likely to be surpluses of capacity in certain ports, there were also going to be significant shortfalls, particularly in relation to unitised trade. A summary of the findings in respect of capacity shortfalls is presented below:

Table 7.1: Projected Shortfalls in Capacity in 2007 (‘000 tonnes)

Port Bulk Solids Bulk Liquid General Unitised

Cork 1,000 3,900 200 800

Drogheda 100

Dublin 1,000 5,600

New Ross 200

Waterford 100 200 500

TOTAL 1,100 5,200 400 6,900

Source: Baxter Eadie/ORM Consulting

7.4.2 Assessment of Intermodal and Port Access Requirements

The objective of this Study was to identify access and intermodal bottlenecks and deficiencies in the country’s major seaports, and to produce a prioritised investment programme for ports, access and intermodal improvements. The study also incorporated a strategic review of rail freight.

The Study identified 27 projects for 12 ports at a total cost of over €170 million (£135 million).

7.5 Rosslare – Europort

7.5.1 Rosslare Port

Rosslare Port was set up under the & Rosslare Harbour & Railway Act of 1899 and 1900. Its original purpose was to form part of the rail and shipping service from London to Cobh; a service that began in 1906. Roll on-Roll off (Ro/Ro) operations began in 1965, linking Rosslare to the United Kingdom and services to Mainland Europe began in 1973.

Today, is a busy commercial ferryport. After Dublin, Rosslare is the largest Ro/Ro port in the Republic of Ireland, accounting for some:

35% of Private Car/Coach traffic, 20% of vehicle imports, and 16% of Ro/Ro traffic (8% of the island of Ireland).

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In 2001, the port handled some 106,000 freight units (equating to approximately 1.9 million tonnes of freight), 320,000 passenger cars, 4,900 coaches, approximately 1.4 million passengers and imported 49,000 trade cars.

The key financial statistics for Rosslare are:

Table 7.2: Key Financial Statistics for Rosslare Europort

2000 2001

Revenue (‘000€) 10,032 9,719

Expenditure 6,132 6,957

Operating Surplus 3,900 2,762

Net Surplus after Interest 3,839 2,682

Net Book Amount (Docks, harbours and wharves) 34,667 33,766

Source: Annual Accounts Iarnród Éireann (IE) applied for funding for a range of projects which relate to the Rosslare Europort Strategic Infrastructure Plan. They included:

Upgrading of Berths 1 & 2;

Pier 1/2 Ship-to-Shore Walkway; and

Repairs to the Outer Breakwater.

Since 1992, approximately €36 million (IR£28.50 million) has been invested in Rosslare Europort to provide new berths, terminals and other important facilities. This investment has allowed Rosslare to develop into a major ferryport and provide its customers with a first class service.

The table overleaf summarises the various services currently operated at Rosslare Europort:

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Table 7.3: Services Operated at Rosslare Europort

Service Provider Ports Serviced Services Offered

Irish Ferries Pembroke Ro/Ro, Pax & Cars

Irish Ferries /Cherbourg Ro/Ro, Pax & Cars

Stena Line Fishguard Ro/Ro, Pax & Cars

P & O European Ferries Cherbourg Ro/Ro, Pax & Cars

UECC Le Havre Trade Cars

7.5.2 Iarnród Éireann : The Way Forward

A Review Group43, established by the former Minister for Public Enterprise, produced a Report entitled IARNROD EIREANN: THE WAY FORWARD, in July 2001 “to make recommendations regarding the improvement, in an accelerated manner, in the organisation and management of the company to deliver a higher quality of focused service and value for money for the taxpayer”.

Amongst its many findings, it found that a major policy issue is whether or not Iarnród Éireann (IE) continues in the freight business. The future of the freight business will have a crucial impact on infrastructure renewal and development and on the core passenger business. There are a number of significant arguments in favour of staying in or getting out of the business. The Review Group therefore recommends that a special and thorough study of this issue be commissioned as a matter of urgency, taking full account of commercial, environmental and other issues which impact on the matter.

In relation to Rosslare Port, it noted that its business is a stand-alone operation, currently profitable but without strategic or synergistic links to IE’s core business. As such, it is a valuable asset which should be sold off and the considerable proceeds reinvested in the core business.

7.5.3 Modernising and Reform of Legislation relating to Rosslare Port

A & L Goodbody Solicitors recently prepared a Report for the Department of Public Enterprise on how the long-established and somewhat complex legislation relating to Rosslare Port can be modernised. The ports of Rosslare and Fishguard are owned by the “Fishguard and Rosslare Railways and Harbours Company” and operated by CIE and Stena Line Ports respectively. CIE operates the Port of Rosslare through Iarnród Éireann while Stena operated the Port of Fishguard through Stena Line Ports Ltd.

A & L Goodbody found that it is not only legally desirable but also legally possible to modernise the legislation relating to Rosslare and that there were a number of options available. From a legal perspective, Goodbody recommended that the Company should be dissolved and that the Irish operations should be transferred to a new or existing entity (e.g. CIE / Iarnród Éireann or a new company) and transfer the Welsh operations to a new or existing entity.

43 The Review Group consisted of Messrs Bill Attley, Kevin Bonnar and John Dunne

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At this time no decision has been made either by the Board of CIE or the Government in respect to its future. It is clear, though, that Government believes that Rosslare is not a strategic fit with CIE’s core business and that it should be disposed of. The two options available are (i) its conversion to a state commercial port where it would be subject to the Harbours’ Acts or (ii) a sale to the private sector. From CIE’s perspective, the latter would be more desirable as the funds generated from its sale could be used for the purchase of new rolling stock.

7.6 Port Charges

A key issue in any review of the port sector is the competitiveness of port charges. However, there can be a misunderstanding on what is meant by port charges particularly in so far as this exercise is concerned.

When one speaks generally of port charges, the totality of charges is assumed, i.e., those of the port authority as well as the charges of stevedores, agents, forwarders etc. However, port companies generally are not involved in the determination of stevedoring and other related costs except in Waterford where the port company has established a subsidiary company to carry out the stevedoring at Belview. Therefore, taking non-port company charges into account, in the first instance, is inappropriate and can be misleading.

We have examined port charges broadly and found that, in general, changes have not been material when compared with changes in the CPI.

7.6.1 Non-Port Company Charges

The ratio of port company charges to total port charges varies depending on the mode and what the port company actually provides. For instance, in the case of dry bulk, we estimate that port charges can be approximately 1/5th of total charges. For Lo/Lo, the ratio is between a quarter and a third.

Non-port company costs vary significantly and are much influenced by the efficiency, gang size and work practices of dockers. Two ports still operate a dock labour scheme where the dockers are casual employees. This out-of-date practice results in non-competitive costs that endanger a port’s viability. Attempts to resolve these practices have been unsuccessful and are a source of major concern to the relevant port users.

In Dublin Port, two of the three Lo/Lo stevedores are parts of a group which operate shipping services out of their own facilities.

7.6.2 Port Company Charges

Ports were asked to supply their key charges at this time and five years ago. These showed that, in most cases, port charges now are less that they were five years ago in current values. When inflation (CPI) is taken into account, 20 per cent over the last five years, the reduction is more significant.

Some ports offer volume rebates. However Dublin does not arguing that ‘volume discounts are, at best, recognition of bad pricing and, at worst, distortions of trade favouring the bigger player’. The tables

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overleaf provide details of the current published tonnage dues and cargo rates of the main ports. They have been extracted from public material provided by the ports.

It should be pointed out that the actual rates are likely to be lower than the published rates and are a matter of commercial negotiation between the port and the shipping company or stevedore. Care should also be taken when comparing rates as, in some cases special conditions are applied to the rates in question or have particular handling costs included. In other instances, cargo rates are set at a level to deter special categories of business. Furthermore we have not taken into account pilotage costs as, in some cases, they are provided by third parties.

Only a detailed analysis of the individual charges, what they cover and how they fit together can provide a reasonable estimate of port company costs to enable comparisons to be made. Notably Irish Rail (Rosslare) pointed out that their rates were ‘all-in’ charges and are not suitable for comparison purposes.

A matter which we did not address is whether port charges are set at the right levels. Analysis of port company profitability could suggest, at first glance, that charges are not adequate; however, we would argue, and the management of most ports would agree that there is also scope for improved efficiencies which would reduce operating costs.

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Table 7.4: Published Port Charges 2002 (Euro) per Tonne

Laden 40' Feedstuff Coal Fertiliser Steel Timber Grain Paper Cement Tonnage† Ro/Ro Container

Belfast 0.64 0.64 0.80 0.80 0.85-1.18 0.64 0.68 0.47 0.98/tonne

“will be agreed between Warrenpoint 0.49 0.79 0.54^ 0.35 0.29 port and operator”

Cork Imports 0.97 0.90 0.97 0.97 0.97 0.97 0.97 0.44 - 0.57‡ 31.55 31.55

Cork Exports 0.60 0.60 0.60 0.60 0.57 0.60 0.60 0.44 - 0.57‡ 31.55 31.55

Drogheda 0.66 0.45 0.70 0.66 0.60-1.08 0.66 1.15 0.59 0.90 16.24

Dublin 1.33 1.21 1.28 1.76 2.01 1.33 1.33 0.48 - 0.91 28.25 28.25

Dundalk 0.68 0.48 0.72 0.68 0.68 0.68 0.96

Galway^^^ 0.78 0.53 0.74 - 0.76 0.87 0.63 0.87

New Ross 0.44 0.44 0.44 0.80** 0.86 0.44 0.47 0.77

Shannon Foynes 0.83 0.53 0.70 0.71 0.71 0.83 0.63 20.57

Limerick 0.89 0.71 - 0.76 0.83 1.02 0.83 0.76

Waterford 0.76 0.76 0.76 0.95 0.95 0.76 0.76 0.72^^ 32.00

Wicklow 0.45 0.52 0.81 0.81 0.46 0.81 0.63 10.46

^^^ some port customers pay a ** Manufactured; ^ cereals in ^^ UK; 93c cargo levy of bulk for Europe 80c/tonne to cover steel raw = 61c rationalisation costs

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†Tonnage is usually charged on every Tonne of the Net Registered Tonnage or half the Gross Registered Tonnage whichever is the greater. The exceptions being Belfast and Foynes which charge on GRT only, and Wicklow which charges on NRT only.

‡The Port of Cork has reduced Tonnage rates to 15.5c for EU Ro/Ro freight and car carriers, and petroleum and oil products being shipped to the Whitegate Oil Refinery.

Table 7.5: Published Port Liquid Bulk Charges 2002 (Euro)

Petroleum Fuel Oils Lubricating Petroleum Other Fuel Oil Products incl (gas, diesel, light, Gas incl LPG Oils Bitumen (HFO etc) Motor Spirit medium)

Belfast 1.45 0.86 0.65 0.86 1.55

Warrenpoint

Cork Imports 3.14 1.69 1.69 1.69 3.54

Cork Exports 0.57 0.52 0.52 0.52 1.87

Drogheda 0.91 0.63 0.91

Dublin 2.53 2.53 2.01 1.43 1.87 2.53

Dundalk 0.92 0.92 0.92

Galway 1.13 1.03 3.03

New Ross 0.76 1.22

Shannon Foynes 1.09 1.09 1.09

Limerick 1.40 1.40 1.40

Waterford 1.27 1.27 1.27 1.27 1.27

Wicklow 2.28

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7.7 Port Company Cargo Shares

The following tables show the percentage shares of the Republic import/export trade over the last couple of years by port.

7.7.1 General Tonnage

As far as general traffic is concerned, Dublin Port has a little over a third of the nation’s trade in terms of tonnage. Changes in share generally over the years for each of the ports fluctuates only to a small degree.

In respect of unitised trade, i.e., Ro/Ro and Lo/Lo, Dublin Port has the major share. This is understandable in that there are only a relatively small number of ports that also provide unitised facilities. Only the Port of Cork of all the other ports offers both Ro/Ro and Lo/Lo facilities.

Table 7.6: Percentage Share of Overall Trade: 1997 - 2001

PORT 1997 1998 1999 2000 2001

Dublin 33.4% 33.1% 35.5% 35.1% 34.5%

Shannon/Foynes 26.2% 24.7% 23.4% 22.7% 23.4%

Cork 22.6% 22.3% 19.8% 21.5% 20.6%

Waterford 3.3% 4.0% 4.4% 4.3% 4.3%

New Ross 3.0% 2.6% 2.6% 2.5% 2.2%

Drogheda 2.2% 2.4% 2.1% 2.2% 2.7%

Galway 1.5% 1.5% 1.5% 1.6% 1.7%

Dundalk 0.6% 0.6% 0.6% 0.6% 0.7%

Dun Laoghaire 0.4% 0.6% 0.5% 0.5% 0.4%

Wicklow 0.5% 0.4% 0.4% 0.3% 0.4%

Sub-Total 93.7% 92.1% 91.0% 91.4% 90.9%

Rosslare 3.4% 4.2% 4.2% 4.2% 4.3%

Other Republic of Ireland 2.9% 3.6% 4.9% 4.4% 4.8%

100.0% 100.0% 100.0% 100.0% 100.0%

Source: derived from CSO Tonnage Statistics

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7.7.2 Ro/Ro

As far as Ro/Ro is concerned, each of the ports, other than Dublin and Dun Laoghaire, are in different geographical regions. Dun Laoghaire’s Ro/Ro business is confined to a fast ferry service to Holyhead.

Table 7.7: Percentage Share of Ro/Ro Traffic: 1997 - 2001

Freight Units 1997 1998 1999 2000 2001

Cork 1.1% 1.2% 1.0% 0.6% 0.6%

Dublin 77.1% 74.0% 75.4% 77.3% 78.4%

Dun Laoghaire 6.5% 7.8% 6.8% 6.2% 5.3%

Rosslare 15.3% 17.1% 16.8% 15.9% 15.7%

Republic 100.0% 100.0% 100.0% 100.0% 100.0%

Source: derived from CSO Port Statistics

7.7.3 Lo/Lo

In relation to Lo/Lo, what is interesting to note is the significant increase in share that Drogheda gained in Lo/Lo traffic in 2001 arising from the introduction of Geest/Norfolk services there, as well as the transfer of some of Norfolk’s business from Waterford. Dublin also lost a share of its Lo/Lo business as the new services captured some of Dublin’s trade. Dublin Port is also losing business to Waterford and Drogheda Ports.

Table 7.8: Percentage Share of Lo/Lo Traffic: 1997 - 2001

Lo/Lo Units 1997 1998 1999 2000 2001

Cork 16.9% 16.9% 18.1% 17.6% 16.8%

Drogheda 0.7% 0.6% 0.6% 1.2% 5.6%

Dublin 71.8% 70.0% 67.3% 64.8% 61.7%

Waterford 10.6% 12.5% 14.0% 16.4% 15.9%

Republic 100.0% 100.0% 100.0% 100.0% 100.0%

Source: derived from CSO Port Statistics

7.7.4 Liquid Bulk

In the case of Liquid Bulk, which is primarily fuel and LPG, the Port of Cork is the prime importer, followed by Dublin. The third most significant port is that of Shannon Foynes. The volumes of imports and their market shares are likely to change significantly over the next couple of years as deeper water will be required as tankers get larger and oils get substituted by natural gas and, to a lesser degree, by electricity.

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Table 7.9: Percentage Share of Liquid Bulk Traffic: 1997 - 2001

Liquid Bulk (Tonnes) 1997 1998 1999 2000 2001

Bantry 0.0% 1.8% 3.5% 4.4% 4.9%

Cork 49.2% 47.9% 40.8% 45.4% 44.6%

Drogheda 1.7% 2.0% 1.8% 1.7% 1.6%

Dublin 23.0% 23.1% 26.3% 23.9% 24.4%

Galway 4.0% 4.4% 4.9% 5.0% 5.2%

New Ross 3.5% 3.1% 3.3% 3.3% 2.8%

Shannon Foynes 16.3% 15.0% 16.2% 13.6% 14.6%

Waterford 1.4% 1.7% 2.1% 1.7% 1.4%

Other 0.9% 1.0% 1.1% 1.0% 0.5%

Republic 100.0% 100.0% 100.0% 100.0% 100.0% Source: derived from CSO Port Statistics 7.7.5 Dry Bulk

Dry Bulk incorporates for example fertiliser, animal feed, cereals, coal and ore. Shannon Foynes handles over half of Irish Dry Bulk trade. In 2001 both Bantry and Dublin increased their trade while Drogheda and Greenore had declines of over 1% each. Interestingly, both Waterford and New Ross also experienced minor reductions.

It will be interesting to see the effect of the purchase of Greenore by Dublin Port and IAWS will have on the Dry Bulk traffic through the Louth port over the next two years.

Table 7.10: Percentage Share of Dry Bulk Traffic: 1997 - 2001

Dry Bulk (Tonnes) 1997 1998 1999 2000 2001

Arklow 1.3% 1.5% 0.6% 0.5% 0.4%

Bantry 2.7% 1.8% 4.7% 4.0% 5.4%

Cork 10.3% 11.1% 10.7% 10.8% 11.1%

Drogheda 2.1% 3.4% 2.8% 3.0% 1.8%

Dublin 9.7% 9.9% 11.3% 11.0% 12.5%

Dundalk 1.5% 1.5% 1.6% 1.6% 1.7%

Greenore 2.1% 2.6% 3.0% 2.5% 1.1%

New Ross 5.6% 4.7% 4.7% 4.3% 4.1%

Shannon Foynes 59.5% 57.7% 54.5% 56.9% 57.0%

Waterford 2.4% 3.4% 3.6% 3.4% 3.1%

Other 2.7% 2.3% 2.3% 1.9% 1.8%

Republic 100.0% 100.0% 100.0% 100.0% 100.0%

Source: derived from CSO Port Statistics

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7.7.6 Break Bulk

An analysis of Break Bulk shows the greatest volatility. As documented below there are a number of significant swings in market share with Cork experiencing a large decline in 2001 brought about by the loss of the ISPAT business.

Other than Dublin Port, other major players are Drogheda, Shannon Foynes and Waterford.

Table 7.11: Percentage Share of Break Bulk Traffic: 1997 - 2001

Break Bulk (Tonnes) 1997 1998 1999 2000 2001

Arklow 3.0% 0.8% 0.3% 0.7% 1.3%

Cork 33.2% 37.2% 38.4% 40.9% 22.0%

Drogheda 20.1% 15.4% 16.0% 15.1% 21.5%

Dublin 14.3% 18.2% 14.0% 15.7% 12.5%

Greenore 1.4% 2.0% 1.8% 0.1% 7.0%

Killybegs 3.7% 3.0% 0.4% 0.0% 0.0%

New Ross 0.0% 0.0% 0.0% 2.0% 0.7%

Shannon 8.2% 5.2% 6.5% 9.4% 10.3%

Sligo 0.5% 0.5% 0.7% 0.5% 0.4%

Waterford 7.6% 10.0% 13.5% 7.2% 9.0%

Wicklow 6.8% 6.1% 7.4% 7.0% 8.8%

Other 1.2% 1.4% 1.1% 1.4% 6.5%

Republic 100.0% 100.0% 100.0% 100.0% 100.0%

Source: derived from CSO Port Statistics

7.7.7 Modal Change

The table below shows the change in modal share between 1994 and 2001 for ports in the Republic on the basis of tonnage carried.

Table 7.12: Percentage Change in Modal Shift: 1994 - 2001

Mode % 1994 1997 2000 2001

Ro/Ro 10.3 17.5 19.8 20.2

Lo/Lo 12.6 12.2 13.8 12.5

Liquid Bulk 30.4 30.6 30.9 31.1

Dry Bulk 42.1 35.1 31.9 32.4

Break Bulk and all other goods 4.6 4.6 3.6 3.8

Source: derived from CSO Port Statistics

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It can be seen that while the Lo/Lo share has remained reasonably constant at 12 per cent, and that by 2001, the share for Ro/Ro had just about doubled to over 20 per cent at the expense of Dry Bulk and Break Bulk.

7.7.8 Change within the Island

Finally, we look at how traffic has changed on the Island of Ireland.

In Northern Ireland, the ports of Warrenpoint, Belfast and Larne are the three main ports which are in competition with the Republic east coast ports. Warrenpoint and Belfast Ports are trust ports while Larne is a private port owned by P & O. While Warrenpoint and Belfast Ports offer multi-modal services, only Ro/Ro and passenger services are provided out of Larne.

The table below shows the growing increase in the Republic’s share of all modes of traffic between 1988 and 2001. Some of it is driven by the opportunity to pick up backloads and the lower cost of fuel in the Republic.

Table 7.13: Republic’s Share of Island Cargo: 1988 – 2001

1988 1992 1997 1998 1999 2000 2001

Ro/Ro (Freight Units) 29.1% 30.3% 43.8% 44.2% 46.2% 46.7% 48.0%

Lo/Lo (Units) 60.8% 56.6% 72.2% 73.0% 74.5% 75.3% 77.3%

Cargo (Tonnes) 60.1% 61.0% 65.0% 66.6% 66.9% 67.9% 68.4%

Source: derived from CSO/DETI Port Statistics

7.7.9 Conclusions

The analysis shows that there is volatility in market share in many of the general cargo modes between ports. This reflects the competition between the ports and importers/exporters seeking the best price, service and easy access.

The increasing share of the island traffic that is going through the Republic’s ports also underlines the increasing competition and capacity being provided by the Republic vis a vis Northern Ireland in terms of facilities, services and competitiveness.

What is significant is the growth in unitised trade to almost a third of all traffic carried and, it should be noted that, in addition to competition between shipping lines, there is now significant competition between Ro/Ro and Lo/Lo. Importers and exporters have opportunities to choose ports which offer the best price consistent with their time, risk and cost objectives.

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7.8 The Case for a Regulator at Present

A number of Submissions made to us argued the case for a Regulator. It was indicated that the need for a Regulator was to ensure:

Competition between ports;

A ‘level playing field’ between ports;

Ports did not get involved in activities not central to their core business;

Investment only occurred in necessary infrastructure; and

Transparency of rates.

Of these, control over port charges and over investment decisions were the most cited reasons.

We examine each of these points in turn.

7.8.1 Competition

There is no evidence of collusion between port companies on port charges; in fact, we believe that there is strong competition between neighbouring port companies. These findings are borne out by the findings of the Performance Audit carried out by Jonathan Packer and Associates which notes that ‘healthy competition now exists between the ports and there is pressure from customers and the Department. This will ensure efficiency gains will continue to be made and any excessive charges will be reduced, without need for a Regulator.’

The Submission made by the Competition Authority, echoed by IBEC, suggested that a Competition Audit be carried out to establish the extent of competition between ports. IBEC specifically noted ‘(it) has therefore concluded that the option of appointing a regulator be only considered in the light of a competition audit which would include a rigorous benchmarking of the productivity and performance of each of the ports. It would be important that an appropriate forum be established where the results of this exercise would be made available to all interested parties and particularly to the port users.

The Competition Authority added “a number of points however, are worth keeping in mind. A one-size- fits-all approach toward port reform is unlikely to be successful. In particular, competitive conditions in the provision of port facilities and services are likely to be dependent on the size and location of the ports concerned and on the kind of activity carried on there, i.e. passenger or freight. Given that the industry is characterised by high barriers to entry, particular attention should be paid to the ability of small ports to expand in order to compete more actively.

In this context, the extent of competition in the provision of any particular port facility or service will impact on the kind of regulation that is appropriate. If a competition assessment reveals that competition, in the provision of passenger services for instance, is strong, then little or no regulatory intervention may be called for. As a general rule, regulation is only necessary where competition is weak. Even then, however, it may not be appropriate.”

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7.8.2 Level Playing Field

It is idealistic to expect a level playing field between ports. Certain ports will always have an advantage over their neighbours by virtue of, for instance, their size, location relative to the ports with which they trade, proximity to customers, water depth, facilities and niche customers. These factors give rise to different port rates to fund developments, different funding needs etc; there is no logical reason why scarce public funds should be provided, particularly on ongoing basis, to reduce natural or artificial disparities.

7.8.3 Involvement in Non-Core Activities

Many Irish ports get involved in a range of non-core commercial activities, including and particularly property development. Three recent examples are the Limerick Docks Initiative by Shannon Foynes Port Company, Waterford’s North Quays Regeneration and Dublin Port’s joint venture with Eastpoint. The rationale for these is to provide funds to ensure port charges are as competitive as possible. It is imperative, though, that a formal cost and economic analysis is carried out in advance, a business case is prepared and that all relevant professional advice is sought.

7.8.4 Investment in Required Infrastructure

There is always the danger that port management, with the agreement of the Board, may embark on an infrastructure programme which is not grounded on a good business case. These dangers are more real where one has a Board which does not have the required commercial and business skills to question infrastructure proposals, a shareholder that does not question and challenge adequately ports’ plans and a commercial bank which is prepared to fund new investment knowing or believing that the State acts as guarantor.

Elsewhere, we argue that Board composition at present is inappropriate, the shareholder is failing in its monitoring duties, and is providing implicit loan guarantees.

7.8.5 Transparency in Port Rates

It can be unclear as to how particular rates are arrived at. The EU Directive on Transparency should address this matter in due course but action to make the determination of rates more transparent is required sooner.

7.8.6 Other Reasons

There are other matters that need to be considered for the establishment of a Regulator at this time:

Whether Regulator costs would be disproportionate to the likely benefits to be acquired, particularly if they have to be carried by only a small number of commercial ports;

The introduction of sectoral Regulators has seen a significant increase in legal actions between aggrieved parties and the Regulator with resultant significant outlays. Recent reports in the

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press44 indicate that the legal fees for the Commission for Aviation Regulation in responding to a court action by Aer Rianta will be of the order of €1.75 million.

Ports’ poor profitability is such that these costs, which would have to be carried by ports in the first place, would require an increase in port charges;

The introduction of the EU Directive on Port Services will address a number of the issues raised;

Those affected can always raise the issue with the Competition Authority;

There is little precedence for the establishment of a Ports’ Regulator; and

Whether structural reform in the short-term would be preferable to the introduction of a Regulator.

7.9 Competition within Ports

Notwithstanding the introduction of the EU Directive on Market Access, competition within ports on price and slot times, particularly if there is a small number of suppliers, could be more virtual than real. In the short term, complainants should seek recourse from the Competition Authority.

The Competition Authority, in its submission, noted that it is important to take into consideration the fact that port operators with a monopoly or a dominant position may engage in anti-competitive practices, driving out potential competitors and increasing prices to port users. Practically, this means that in addition to charging excessive prices one operator can, for instance, be in the position to:

raise entry barriers – an operator may be able to erect hurdles and inhibit the entry of potential competitors;

tie services – an operator can extend its monopoly power from port operations to other areas of activity where competition might develop;

organise exclusive dealing – an operator may require the supplier of one service to sell only to them, preventing a potential competitor to access the service; or

price discriminate among clients on non-objective grounds – an operator may lower prices for one or several clients on non-objective grounds to maintain its commercial advantage against its main competitors.

Such situations are more likely to arise when operators are vertically integrated. Such abuses of dominant positions can be dealt with within the framework of competition law, both EU and National. In the case of ports however, this may not be the optimal way to address such transgressions. Competition proceedings tend to be time consuming, costly and can be uncertain. Therefore, for sectors in which the structure is unusually monopolistic, ex ante regulation may be preferable to ex post regulation via the application of competition law.

The EU case law illustrating the potential of anti-competitive behaviour in relation to access to port facilities can be illustrated with the following two examples: Sealink/B&I – Holyhead and Porto di Genova.

44 Irish Times, 11 November 2002

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In Sealink/B&I – Holyhead: Interim Measures45, the Commission was prepared to grant interim measures to prevent Sealink, which controlled the , from organising its ferry schedules in a way which favoured its own ships and placed B&I, the other ferry company using the port of Holyhead, at a competitive disadvantage. In its decision the Commission referred explicitly to the ‘essential facilities’ nature of the port. The essential facilities doctrine refers to a situation where a dominant undertaking which both owns and controls a facility or infrastructure to which competitors need access in order to provide services to customers, cannot refuse access to such competitors or grant them access only on less favourable terms than for their own operators.46

In the Porto di Genova (pilotage tariffs) case47, the Commission decided that a tariff scheme, introduced by the Italian Ministry of Transport and Shipping in September 1996, whereby certain users were granted reduced piloting tariffs, was an abuse of dominance. Depending on service frequency, the system could afford certain users reductions of up to 65%. The Commission was of the opinion that the difference in customer treatment was not justified on objective grounds. The Commission felt that Port of Genoa had abused its natural monopoly position for a large part of its traffic which it was afforded because of its geographic position and the communications network surrounding the port. The system of reduction was considered to place a burden on the transport prices of carriers unable to benefit from the system.

This suggests that, the need for regulation is determined by the industry structure, i.e., the ability of some port operators to exercise market power as well as reducing access to the market. Therefore, the need for regulation, at that level, will depend on the extent and the nature of the potential structural reforms of the sector.

Port sector reformers have two, not mutually exclusive, general strategies to choose from in order to enhance port sector competition including structural remedies and regulatory remedies. Clearly, the preferred strategy is the one that results in more competitors. Therefore, port sector reformers should strive towards structural enhancements that increase the number of competitors before resorting to regulatory enhancements. Regulatory enhancements (particularly economic regulation) are intended to enhance efficiency by correcting various market imperfections; essentially, they are aimed at forcing ports to behave as if they were competing in a perfect market.

Structural remedies include:

introduction of new berths/terminals;

division of the existing port into terminals;

division of port operations within the terminal by:

assigning areas within the terminal to each stevedoring company; or

45 Sealink/B and I – Holyhead: Interim Measures [1992] 5 CMLR 255. 46 It is interesting to note that the same point was noted in Sea Containers v. Stena Sealink – Interim Measures in relation to facilities in the same port. 47 Commission Decision of 21 October 1997 relating to a proceeding pursuant to Article 90 (3) of the EC Treaty regarding the tariffs for piloting in the Port of Genoa

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allowing stevedoring companies to control both the vessel stevedoring and yard/storage operation without any assigned areas; and

entering into short-term operating agreement/lease/management contract.

Thus, in order to minimise regulatory burden, other options, the Competition Authority suggests, such as the structural reforms mentioned above, should be explored. In general, the greater the extent of competition that can be injected into the provision port facilities and services through structural reforms, the less need there will be for heavy handed regulation – particularly in the longer term. Recent experience in the electricity sector, where no significant structural reforms were undertaken prior to liberalisation, is prescient in this regard.

7.10 Development of Port Estates48

The former Department of the Marine and Natural Resources established a Task Force to identify the opportunities for ports to develop new revenue streams from their property holdings and to provide the Minister with policy recommendations to facilitate and encourage the realisation of these opportunities.

A survey commissioned by the Task Force of 18 state-owned ports established a ports estate of just over 2,200 acres, most of which is located in proximity to city and town centres. Of the total estate, the ports themselves estimated that 1,055 acres are used in the core trading activities of the ports. Of the balance, the Task Force estimates that some 540 acres of the port estate is available for development.

48 Report of Task Force on the Development of Port Estates in Commercial Harbours (unpublished), Chairman: Mr Paul Tansey of Tansey Webster Stewart

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Details relating to the area available are included below:

Table 7.14: Area Available for Development (Acres)

Port Area Available for Development

Bantry Does not own any land

Cork 2.3

Drogheda 63.0

Dublin 13.0

Dundalk 153.0

Dun Laoghaire 9.3

Foynes 40.0

Galway 10.6

Limerick 60.0

New Ross 27.0

Waterford 97.9

Wicklow 1.0

Source: Task Force Report, page 19 As we have noted earlier, some of these ports are or have already begun the process of developing these areas.

There were two particular findings that the Task Force Report noted which also arose during our consultation phase particularly with port management; they were:

There are legal and planning obstacles, with particular problems relating to long leases, and

There are uncertainties deriving from the existing state ownership of foreshore.

7.10.1 Legal and Planning Obstacles

Leases given by the port company to private interests can be an obstacle to development. Not only do the leases, in many cases, provide a poor financial return, but they cannot be revoked due to the rights provided under the Landlord and Tenant Act. The Task Force Report recommended that consideration should be given to enabling the extension to the ports of the right for both port authorities and leaseholders to renounce their Landlord & Tenant Act property rights. This option is available in relation to office developments but has not been extended to include other categories of commercial property.

The restrictions of the Act are also likely to affect agreements afforded under the proposed EU Directive on Access to Services where these agreements will be in place for a considerable number of years.

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7.10.2 Foreshore Ownership

All foreshore is considered to be under the ownership of the state unless private title can be shown, and its use is controlled under the Foreshore Acts 1933 to 1998. A charge or rent based on the advice of the Valuation Office is payable for the use or occupation of foreshore. There is no arbitration procedure to appeal the charge or rent set.

The table below summarises ownership arrangements.

Table 7.15: Ownership of Foreshore

Port Ownership of Foreshore

Bantry Privately owned by Bantry Estate

Cork Port owns 205 acres, mostly reclaimed or used

Drogheda Port leases 50 acres from Department

Dublin Port owns 1,400 acres

Dundalk Port owns foreshore

Dun Laoghaire Port does not own foreshore

Foynes Port does not own foreshore; leased from Dept

Galway Port does not own foreshore

Limerick Port does not own foreshore; leased from Dept

New Ross Foreshore is leased only

Waterford Port does not own foreshore

Wicklow Harbour Port does not own foreshore

Source: Task Force Report, page 33

The second issue identified by the ports concerns the planning process as it related to the foreshore and the way that it may impact on the development potential of port estates. Permission must be sought from the Department of Communications, Marine and Natural Resources in order to carry out any works on a foreshore area. A number of the ports have particular concerns regarding the relationship between the permission that is required from the Department and the permission that is the responsibility of the local authority and the fact that the time frame for the process in relation to the foreshore is poorly specified.

Under the existing system, all structures above the High Water Mark require planning permission from the local authority and, while developments that are entirely on state-owned foreshore are the responsibility of the Minister for Communications, Marine and Natural Resources, the local authority and other statutory consultees are normally consulted for their views and observations. In the case of a development that straddles the High Water Mark, planning permission must be in place before a foreshore licence application will be processed by the Department. All local authority applications in

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respect of major projects that involve the occupation or use of foreshore will be submitted to An Bórd Pleanála. The Department’s role will be a statutory consultee only and its observations or objections will be required within two years.

7.10.3 Dun Laoghaire Harbour

The Task Force Report noted that Dun Laoghaire Harbour is an important heritage site with many protected structures and conservation sites. There have been ongoing tensions regarding the future of the facilities and many issues remain unresolved. Dun Laoghaire Rathdown County Council are strongly of the opinion that the most appropriate form of development within the port is marine-related recreation and tourism, and that residential development within the harbour area would not be appropriate. However, the integrated development of the overall harbour area is constrained by the absence of an agreed and integrated plan for the area.

At this time, Dun Laoghaire Harbour is funding the upkeep of the heritage assets out of its own financial resources, with surpluses to–date funding taxes and rates. This leaves little, if any, funds available for the upkeep and development of port assets. The Task Force notes that protecting heritage structures and providing amenity facilities produce no commercial returns. As a result, resources of value to society, often if developed as leisure facilities, are left undeveloped or place a strain on a port’s resources. Therefore, in such a situation, there is a conflict between the various objectives that a port must follow leading to sub-optimal development on all fronts.

The Task Force Report concludes that there is a need for the correct allocation of costs and benefits for each activity such that a Port must be subsidised in a manner that facilitates the optimal development for amenity use of the non-commercial properties, or responsibility for these properties must be transferred to another body. It is also important that the correct incentives are in place in such situations.

7.11 Other Matters Raised

We summarise here other matters that were raised in submissions, during meetings with port companies, users and interested parties.

7.11.1 Marine Emergencies

Certain oil companies contend that certain ports are responding generally too slowly to the threat of marine emergencies.

7.11.2 Safe Loading and Unloading of Cargo

A Submission to us noted that, apart from national regulations, there is a very extensive range of international regulations and codes of practice applicable to the handling of all forms of cargo – bulk liquids and chemicals, containers, hazardous goods, bulk cargoes, coal, grain and other cargoes. These impose onerous responsibilities and liabilities on everyone involved in the handling of such cargo. Many of these regulations specify the roles and responsibilities of both ship and dock employers and personnel in the handling of cargo at the ship/shore interface.

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In relation to shipboard operations, the introduction of STCS and the ISM Code and the ongoing monitoring of their implementation internationally by PSC, has resulted in certain improvements in the standards of training and work practises of ships’ crew in recent years. It is most important that shore personnel with corresponding responsibilities are similarly trained and qualified – as applicable, to the relevant level.

For example, the Bulk Loading Unloading Code (BLU Code) forms part of an EU Directive issued in 2001, laying specific obligations on virtually all terminals handling bulk cargoes in relation to the management of the ship/shore interface. Failure to comply is to be treated as a criminal offence.

An S.I. is currently being drafted to put the EU Directive 2001/96/EC into effect. The Regulations are to be cited as “the European Communities (Safe Loading and Unloading of Bulk Carriers) Regulations 2002. The requirements include the obligation to develop, implement and maintain a Quality Management System, in accordance with ISO 9001:2000 standards or equivalent, and it shall be audited etc etc.

A transitional period of three years from the entry onto force of the directive shall be granted to set up the QMS and one additional year to obtain certification.

7.11.3 Qualifications for Dock Workers

International Regulations and Codes of Practice lay down specific roles and responsibilities for people involved in key areas in cargo handling operations.

In the event of any serious accident, which could be attributed in any way to a failure by a port to ensure they had provided trained and competent persons, the consequences in relation to cost and even to corporate negligence could be severe.

7.11.4 Communications

Certain but not all port users complain that communications between port authorities and them are poor. Ports do not keep customers advised of events.

Other submissions that we received indicate a need for enhanced communications between ports and relevant local authorities on issues such as planning, infrastructure etc.

7.11.5 Rail Freight

Norfolkline, the shipping operator, moves some of their container freight by rail from Belview. They and others are anxious to develop rail freight operations either in conjunction with Irish Rail or alone using their own wagons. Recent press reports note that Irish Rail wishes to cease all non-profitable rail freight services forthwith.

As rail freight offers economic, commercial and environmental benefits, this is a matter that should be addressed urgently.

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7.11.6 Port Byelaws

We received complaints that certain byelaws are out of date and thus are either inappropriate or overly restrictive for to-day’s maritime businesses.

7.11.7 Employment Legislation

There is a belief within many port companies that they are over manned. They are consequentially anxious to address this issue to help reduce costs and additionally their rates. Under current Irish employment legislation, staff cuts cannot be easily and quickly implemented due to protection afforded to employees.

There is a view however that Section 69 of the Harbours’ Act, which deals with the provisions applicable to transferred staff, requires review. The provisions of this note that “a person transferred to a company under Section 38 shall not , while in the service of the company, be brought to less beneficial condition of service or of remuneration than the conditions of service or of remuneration to which he or she was subject immediately before the relevant vesting day”. Any future restructuring of existing port organisation or mergers within the ports industry should require a re-examination of this Section without diluting the general rights of employees under national or European legislation.

7.11.8 Estuary Management

We believe that there is a lack of clarity in respect of the responsibility for Estuary Management. We define Estuary Management as the planning of rational development and sustainable use of the estuary and foreshore in an integrated manner compatible with the protection and enhancement of natural and man-made resources. Management involves all stakeholders including national, regional and local authorities, business and industry representatives, residents, voluntary organisations, and recreational and environmental interest groups. Estuary management aims to maintain the integrity of the estuary system, including its physical, chemical and biological properties and its economic, recreational and aesthetic values.

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8. RECOMMENDATIONS

In this section, we set out our recommendations. We commence, though, with a perspective on the operating environment and spatial strategy in which Irish ports will be required to operate.

8.1 The Future Environment

8.1.1 Changes in Operation

The World Bank49 notes that ports no longer operate in an insulated environment. They face the same competitive forces that companies in other industries experience. There is rivalry among existing competitors, continuing threat of new entrants, potential for global substitutes, presence of powerful customers and powerful suppliers.

Dealing with these forces is a continuing challenge for the port manager. It requires that the port manager be keenly aware of port user requirements, know their constraints in the global market and have a strategy for making the port a partner in business development.

The 21st century will see radical changes in the business base underlying port operations. Increasingly, intense global competition will force changes in the way all players in the international logistics chain, including ports, do business in the future. Innovative systems and new technology will radically change requirements for port infrastructure and increase the degree of specialisation, raising the financial stakes of port investments and the need for a highly specialized workforce. Realignments and consolidations among port users and port service providers will continue, creating a fluid base of players with whom ports do business.

Containerisation, for instance, has dramatically reduced personnel requirements for cargo handling, raised berth productivity and increased the capital intensity of port operations. Prior to containerisation, about 200 men, working simultaneously in four gangs, were typically required to load and unload a large general cargo ship, a process that could take a week to ten days in port. Containerships require only 50 to 60 men to load and unload cargo. Assuming a four gantry crane operation, a container ship requires some 30 workers directly allocated to the vessel.

IT systems will electronically link port administration, terminal operators, truckers, customs, freight forwarders, ship agents and other members of the port community. The technology provides port users with real time data on the status of cargo, paperwork and availability of port facilities, and enables ships and terminals to be part of an integrated office infrastructure. IT reduces time for delivering cargo, provides more accurate transfer and recording of information, reduces manpower to prepare paperwork involving port use and operation, offers advance information on ship, barge, truck, wagon, container and cargo movements, improves planning and coordination of berths, handling equipment, storage facilities, etc. Ports unable or unwilling to keep pace with information technology will be left behind in the competitive maritime transport market.

49 World Bank Port Reform Toolkit, Module 2, The Evolution of Ports in a Competitive World

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8.1.2 Container Security Initiative

Following the September 11 attack on the World Trade Centre in New York, U.S. Customs in Jan. 2002 launched the Container Security Initiative (CSI) to prevent global containerised cargo from being exploited by terrorists. The initiative is designed to enhance security of the sea cargo container – a vital link in global trade. Some 200 million sea cargo containers move annually among the world’s top seaports, and nearly 50 percent of the value of all U.S. imports arrive via sea containers.

One of the core elements of CSI involves placing U.S. Customs inspectors at major foreign seaports to pre-screen cargo containers before they are shipped to America. U.S. Customs officials, working with their foreign counterparts, will be in a position to detect potential WMD in U.S.-bound containers at these foreign ports. Since nearly 70 percent of all U.S.-bound sea containers pass through 20 major seaports around the globe, US Customs is initially focusing on these 20 ports.

The new national regulation requires ships bound for the US to present cargo manifests to US Customs authorities 24 hours before the container is loaded in a foreign port. The information required would enable Customs to evaluate the risk of smuggling before goods are loaded on vessels for importation to the States and to facilitate the prompt release of legitimate cargo following its arrival in the US. Failure to provide the required information in time may result in huge delays to ships entering the US, rejecting cargo and sending it back to the port of loading and finally monetary penalties.

Hamburg, Bremerhaven, Antwerp, Le Havre and Rotterdam are just some of the European ports which have agreed to participate in the Initiative.

8.1.3 The Increasing Role of the Private Sector in Ports

Discussion on the impact and benefits of privatisation is nothing new. In the Wealth of Nations, Adam Smith in 1776 asserts that private ownership improves productivity and efficiency, hence enhancing economic performance.

Studies by Nagorski, Heggie50 and Eyre51 argue that ports operated directly by governments or public agencies and owned by the public sector are more expensive and less efficient, thus leading to less satisfactory results. Also, it has been suggested that, in general, public ports appear to set rates on a basis which fails to cover full costs, thus subsidies are common (Wilder and Pender52).

50 Charging for Port Facilities, Journal of Transport Economics and Policy, I Heggie 51 Maritime Privatisation, Maritime and Policy Management, J Eyre 52 Economic behaviour of Public Ports in the United States, Journal of Transport Economics and Policy, R Wilder, D Pender

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In a paper53 based on a survey undertaken by the International Association of Ports and Harbours (IAPH), Baird found:

Private companies are increasing their role in providing cargo handling equipment;

The port authority, or some other form of public body, will generally hold title to virtually all port land/terminals and access channels, with very few exceptions;

Provision and maintenance of navigation aids, channels (dredging) and harbour master responsibilities are still largely port authority/public body activities. However, private companies appear to be increasing their role, particularly in pilotage and towage;

The port authority/public body is largely responsible for provision of warehousing and port information services, whilst the private sector provide most other port-added value services;

Lower port costs and improved efficiencies, expanding trade and reducing the dependence on public sector investment, appear to be the main aims of port privatisation; and

Terminal concessions or lease is the most common method of privatisation, followed by BOT (Build, Operate, Transfer), joint venture, and terminal rental.

The World Bank suggests that port authorities worldwide are under increasing pressure to turn over operations in the port to the private sector. They are being forced by competitive pressures to step into a landlord and regulatory role, focusing on administrative activities that public entities do best.

Traditional ways of doing business in ports are being challenged worldwide by demands for gains in port efficiency, increased customer responsiveness and lower costs to move cargo through the port. It has been widely demonstrated that use of private sector companies throughout the range of port operations provides an opportunity to eliminate traditional, bureaucratic operating procedures and controls, and modernise facilities and equipment through new financing channels. It is also widely accepted that service providers with operating and administrative experience in other ports have the opportunity to transfer this experience and bring to a port best practices and appropriate modern technologies employed elsewhere. But even more important, by passing the reins of port operations from the public to the private sector, the involvement of the private sector offers the ability to shift the financial burden of port expansion and development to the beneficiaries of the expenditures.

8.1.4 Surviving Ports

Ports that will survive, therefore, will:

Be customer-focused and market-driven;

Operate 24 hours a day, seven days a week;

Provide full flexibility in working arrangements;

Be competitive from price, facilities and services perspectives;

53 Privatisation Trends at the World’s Top 100 Container Ports, Maritime Policy & Management, Vol 29, No 3, Alfred J Baird

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Add value for its customers;

Outsource as many of its services as possible;

Need to have approved warehousing with enhanced traceability;

Recognise their critical role as part of the supply chain;

Appreciate the growing role of information technology to support port user requirements;

Respond to increases in ship size by appropriate channel deepening and widening;

Be located close to the main arteries and centres of population and industry;

Reflect the national spatial strategy policies and objectives;

Be radical and innovative in their approach to how they are going to fund their infrastructure needs in the future; and

Look to collaboration, joint working and synergy with neighbouring ports to improve efficiencies, to reduce costs and to provide Value for Money.

8.1.5 Future Cargoes

There will be a change in cargoes affecting port revenues:

The Kyoto Protocol will affect those ports relying significantly on fuel, whether oil or coal, imports;

Trends in agriculture towards greater intensive farming, modern farming methods, more stringent controls on animal healthcare, and CAP reform will see a reduction in the imports of fertiliser, grain and animal feeds (though the closure of IFI may affect, in the medium term, fertiliser imports);

The level of ores exported could be impacted by world commodity prices;

Unitised trade will become even more significant as the preferred mode of goods imports and exports, and changes in container size will impact on the infrastructure needs of ports;

The return to significant live animal exports is questionable;

The Irish employment base will, more and more, be of an internationally traded services nature rather than the traditional labour-intensive manufacturing form; this will affect the nature of imported and exported goods;

Within EU future legislation, higher fuel taxes and environmental constraints will lead to a substantial reduction in trade through landbridge ports; and

Vessels will become larger and deeper, and become more sophisticated from a handling perspective. Economies of scale will force them to visit less ports than heretofore, and only to those ports which can offer fast turnaround, efficient loading and discharge, flexible working arrangements, and safe and easy access at all times of the day or night

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8.1.6 National Spatial Strategy

The National Spatial Strategy was launched on the 28th November 2002. The main objective of the National Spatial Strategy is to achieve more balanced development of the country along with a vibrant urban and rural areas and a better environment.

It defines nine economic "gateways" and a similar number of smaller economic "hubs".

The gateways are existing urban centres which have a critical mass of population which could sustain third level educational centres, public transport, housing and leisure facilities, the criteria necessary for further economic expansion.

The State's five main cities – Dublin, Cork, Waterford, Galway and Limerick/Shannon – have already been identified as gateways to which have been added the towns of Dundalk, Sligo, and Letterkenny were added. These new Gateways were selected on the basis of their strategic location, their potential to grow and to lift development in wider areas. They are all in the Border, Midland and West region.

The towns of Athlone, Mullingar and Tullamore will act as a "linked" gateway.

The nine "hubs" are strategically located medium-sized towns whose population can be drawn on to support the economic activity of the gateways. In this way, economic development would spread through the gateways to the hubs. The gateway/hub arrangement is required to offer possibilities for employment, training and quality of life.

The strategy proposes that some hubs be made up of two towns which would be linked together to promote development in their areas. The hubs identified include Cavan, Ennis, Kilkenny, Mallow, Monaghan, Tuam and . The linked hubs are Ballina/Castlebar; and Tralee/Killarney.

8.1.7 The Need to be Competitive - FORFAS Annual Competitiveness Report 2002

In its fifth Annual Competitiveness Report and Competitiveness Challenge, the National Competitiveness Council, which was established by the Government to report to and advise the Taoiseach on key competitiveness issues for the Irish economy, believes that both the domestic Irish economy and the global economy face difficult times ahead. The extent or exact timing of any upturn in economic growth cannot be predicted with a strong degree of confidence, with the result that policy- makers here must contend with a number of potential domestic and international threats to the economy and to Irish competitiveness. Given that Ireland is one of the most open economies in the world, it is important that steps are taken to position the economy to maximise the benefits and growth potential from any upturn in the global economy.

The most significant threats to Irish competitiveness identified by the Council include rising costs, increasing wages, a higher than acceptable inflation rate and lower investment in infrastructure than is required.

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The Council also warns that any decrease in international competitiveness could have adverse effects on employment and income levels in Ireland and would undermine the future health of public finances, all of which would put at risk the benefits of the last ten years of unparalleled growth.

The Council warns that infrastructure bottlenecks are also worsening and adding to business costs. Problems are particularly acute in the transport sector and the implementation of the National Development Plan should remain a priority notwithstanding the tighter budgetary position. Growing congestion that is driving up costs and curtailing sustainable economic development must also be addressed by regional policies. The Council continues to believe that the National Spatial Strategy has a central role to play in achieving balanced regional development.

The Council’s Annual Competitiveness Report found that:

Ireland is ranked top out of ten countries for the proportion of goods transported by road;

Ireland is ranked thirteenth out of 16 countries concerning length of motorway per 1,000 square kilometres; and

Dublin has the longest delivery time of eight capital cities surveyed.

The Council believes that urgent policy action is required if Ireland is to maintain its competitive position over the coming years. The Council highlights in its report is the infrastructural deficit. Improvements in infrastructure have not kept pace with our recent rapid economic growth. However, now as the economy slows down, it is crucial that we bring our national infrastructure up to standard in order to eliminate emerging constraints to further growth.

8.2 Shareholder and Port Company Relationship

8.2.1 The Need for Clear Policies

It is vital that the Shareholder declares publicly without delay its position on future funding for the commercial ports. This will put an end to speculation, and ports can plan and act accordingly.

The Shareholder should also clearly communicate the commercial role of and policies it sets for the commercial port sector; this requires an agreed definition of the function of a port. It is the role of the port Board to set commercial and operating targets to be achieved by the Executive.

We recommend that port management should not be distracted by non-core non commercial activities or matters of a social or cultural nature. Their focus should be very clearly on the commercial development and operation of their port. Piers and other facilities used for leisure and social purposes should be transferred to the ownership of the local authority. This will require a change in the legislation.

Later, we make recommendations in respect of Estuary Management to deal with the cases of when there are various aspects of an estuary which are or should be within the jurisdiction of a number of public bodies.

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8.2.2 Withdrawing Future Financial Guarantees and Letters of Comfort

Port boards, management and staff can be under the illusion that, in the case of the port finding itself in financial difficulty, the state will provide remedial funding. As long as that belief is accepted, no change is possible.

We recommend, therefore, that the shareholder explicitly states that should a port find itself in financial difficulty, it will be the responsibility of the port’s Board and Management to find a solution for its difficulty.

We also recommend that the State will not provide any future financial guarantees or Letters of Comfort for port borrowings.

8.3 Structural Development

8.3.1 Responsibility for the Ports’ Sector at National Level

Ports are a critical element of the transport chain. It does not make sense to exclude them when developing policy in relation to other transport-related and infrastructure issues such as road development, rail, and road and rail haulage.

To ensure an integrated policy on transport, we recommend that, until the responsibility for the Ports’ Sector is transferred to the Department of Transportation where it should be appropriately resourced in terms of staff numbers and skill base, there should be effective liaison arrangements between the two departments in place.

8.3.2 Landlord Model

Our international review has shown that the Landlord Model is becoming the common approach in Europe with port management responsible for port estate and local regulatory affairs, and the private sector providing terminal operations and related services.

We recommend that the principles of the Landlord Model should be incorporated at all Irish commercial ports at the earliest possible time.

Port management should sub-contract, where possible, all non-core activities and services.

The principal elements of the Landlord Model are reproduced in the diagram overleaf. In subsequent sub-sections, we describe the individual roles.

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National Policies and Administration on Role of Transport Department: Transportation, including Ports Port Company Port Operators • Strategic Planning • Terminal Operations • Landlord Responsibilities • Stevedoring Services • Estate Management • Port Services • Marketing & Promotion • Provider of Superstructure • Emergency Services • Pilotage • Estate Security • Warehousing • Harbour Master Role • Tugs/Towage • Conservancy including • Mooring Services • Local Regulatory Matters • Terminal Security • Dredging • Waste Disposal • Vessel Navigation and Safety

We define Conservancy as the monitoring, management and maintenance of the natural or artificial waterway to ensure safe navigation by ships. This includes the navigation or access channels, navigation lights and marks and marking and raising of wrecks. It also encompasses the regulating of activities carried out by others in connection with the waterway or harbour. It can include matters such as vessel traffic management, the management of incidents and emergencies (maintenance of anti- pollution equipment), environmental and pollution protection and the protection of the general public from any danger arising from marine activities within the harbour area.

8.3.3 Port Company

The Port Company should be responsible for estate management and all associated activities. The Company should also be responsible for harbour safety, dredging, navigation, channel lights and buoys, VMS etc.

A port’s board should be responsible for defining and monitoring the company’s business and commercial objectives.

8.3.4 Terminal Operations and Port Services

In line with the Landlord Model, we recommend that terminal operations and port services should become primarily the responsibility of the private sector.

8.3.5 EU Directive on Market Access

To accelerate and encourage competitive terminal operations, we recommend that the principles of the EU Directive be implemented in all of the Irish state commercial ports and should be introduced as quickly as possible.

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8.3.6 Competent Authority for the EU Directive on Market Access

We recommend that the Commission for Aviation Regulation should be the Competent Authority for the implementation of the EU Directive on Access to Market Services. The Commission can apply its own resources without the need to establish another regulatory authority.

8.4 Structural Change

8.4.1 Future Investment Funding

Under the present National Development Plan, €46 million was earmarked from the Exchequer for ports to address the many projects submitted by both the commercial and regional ports. As mentioned earlier, only a small proportion has been committed and paid. Release of the balance is a matter for the Department of Finance. As written earlier, the European Commission provided funding for infrastructure development including capital dredging from Structural and other Funds on the basis of applications made by the ports themselves.

We have also noted that the ports have serious capital funding requirements particularly of a dredging nature. Notwithstanding that policy in many European countries is that the state or local government funds dredging and other conservancy costs, Irish national policy has been not to fund such costs. This policy could be seen to run counter to government commitments as contained in the agreed Programme for Government 2002 which states ‘we will ensure that our ports are equipped for the demands of our growing economy through investment and the development of seamless transport systems between road, rail and ports and best utilisation of property assets’.

It could be argued that port access channels are ‘sea motorways’ infrastructure available to all users without discrimination and so should be funded by the state; however, the worsening public finances would suggest that it is unlikely that this policy will change and thus our recommendations must be based on a continuation of the existing policy.

As a consequence and because EU funding will no longer be available, ports in future will be required to be responsible for the funding and provision of both capital and maintenance dredging. Other investment requirements will also have to be addressed by the ports.

It is very clear to us, that most ports do not have the financial resources to fund either their dredging or their capital requirements. The Shareholder and the ports themselves, therefore, will have to adopt radical and innovative thinking in relation to addressing the funding of their infrastructure needs, or the market will force ports to make decisions not of their choosing.

There are a number of ways that the required funding requirement could be addressed. They include:

Opening port ownership to the private sector

Merging port companies

Exploiting the value of port foreshores

Non-core property development

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8.4.2 Opening Port Ownership to the Private Sector

Under the present National Development Plan, €46 million was earmarked for ports to address the many projects submitted by both the commercial and regional ports. Applications for aid were a significant multiple of what was proposed. At this time, only a small proportion of grant aid has been committed and paid. Release of the balance is unlikely. Future funding is therefore a matter for the ports themselves that must be creative and innovative in identifying sources of funds.

We have examined the case for opening port ownership to the private sector. We note that there is no ideological or philosophical reason why the state should not allow the private sector to take a shareholding in ports. In fact, the agreed Programme for Government notes:

‘we will seek to secure a viable long-term future for state companies without ideological preconceptions’

‘we will approach the issue of the most appropriate form of ownership or structure for state companies on a case by case basis’.

However, as we have noted, the ports have been state assets and have been viewed as a means by which international trade could be facilitated. The port is an important strategic tool in the development of trade and should remain within the control of the state and that any level of private ownership could undermine public interest. The returns on investment and profitability ratios currently generated by the majority of commercial ports would not be sufficient to attract private investment, in our opinion. Other than Dublin (and possibly Cork and Rosslare) the private sector is unlikely to be interested on purely financial returns generated

Privatisation of Dublin or Cork will still require improved performance that, in all likelihood, may affect the performance of other ports.

We therefore suggest that the concept of opening up port company ownership to the private sector, while not ruled out, should not be pursued at present due to the current financial standing of the Port Companies. This option could however be considered by the Department in the future in the light of the finances of the relevant ports, the effect on the public interest, the extensive legislation, and oversight framework required and the likely necessity to appoint a regulator.

8.4.3 Merging Port Companies

The commercial viability of port companies could also be enhanced through the merger of neighbouring port companies that can be effected without any change in legislation. The Harbours’ Act 2000 specifically allows for this option.

Also, it would be our view that the private sector could be more attracted to merged port companies as they could be seen to have greater commercial potential.

The key benefits of merged ports include:

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Reduction in Capital Expenditure: Significant savings are achievable through the avoidance of duplicated capital expenditure particularly in relation to unitised infrastructure.

Better Utilisation of Assets: As a result of planned infrastructure development, as well as common operational management, a better and a more rationale approach to the best use of existing terminals and assets would take place. In addition, there are opportunities for the transfer or exchange of cargo handling equipment and other plant between ports.

Improved Return On Capital Employed: The combined entity should generate a better return on shareholder funds and capital employed by virtue of increased efficiency in capital expenditure, shared overheads and harmonisation of charging schedules.

Increased Fund Raising Capacity: The combined entity is more likely to attract financing from third parties for the following reasons: -

Greater scale of activity rather than by growing organically; Better utilisation of combined facilities; More efficient deployment of investment; Stronger financial position and capital base; Greater potential to deliver the required profitability; and Less dependence on individual customers.

Enhanced fund-raising capacity is particularly required with the discontinuation of Exchequer Aid.

Enhanced Customer Benefits: The combined entity would have the potential to offer improved facilities at each of the ports, a flexible customer-focused operation, greater carrier choice, and with overhead savings (engineering, insurance etc.) resulting in streamlined administrative costs and improved pricing structure. Port users and agents would only have to deal with a single port company.

Ensuring Regional Economic Growth: A new single port company would have a regional identity which would enhance local economic development.

Ability to Deal with Threats: A new single port company would be better able to deal with threats than each port individually.

Growing the Revenue: The combined entity should be able to maximise the development of the combined facilities to create a strong and cohesive ports’ group to compete better for additional business.

Sharing Computerised Management and Information Systems: The combined entity would benefit from the additional utilisation of state-of-the-art systems, both financial and technical, that would be available to all members of the consortium.

Single Board: A single board would be a reduction in costs and would focus on the needs of the constituent ports as an entity.

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Streamlined Organisational Structure: The combined entity should benefit from: -

Transfer of best Business Practice Single and tight management structure Elimination of unnecessary posts Best management expertise Unified and focused marketing efforts Management working together in a cohesive manner rather than wasting time competing with each other Single pilot authority

Improved Efficiencies: The cumulative impact of the various benefits listed above would result in improved efficiencies, increased throughput and greater profits

8.4.4 Dun Laoghaire Harbour Company

There is a mandate conflict between the commercial and heritage obligations of Dun Laoghaire Harbour Company. We recommend that the responsibility for the cultural and heritage aspects should be transferred to Dun Laoghaire Rathdown County Council and consideration given, on commercial and economic grounds, to merging Dun Laoghaire Harbour Company and Dublin Port Company to become Dublin Bay Company particularly given that the current contract between Dun Laoghaire Harbour Company and Stena Line comes to an end in 2006 when there will be great pressure on the Harbour Company to bring its rates in line with those of Dublin Port. Dublin Port is also the Pilotage Authority for Dun Laoghaire Harbour.

8.4.5 Specific Mergers

We recommend that the ports of Cork and Bantry should be merged on management, environmental and safety grounds. This is consistent with the recommendation that was made in the recent Review of Regional Harbours and Ports carried out by KPMG. At this time, Bantry employs two staff and the Harbour Master of the Port of Cork provides regulatory and other management support on a contract basis. Our understanding is that Bantry Port’s two customers are happy with the present arrangements. Combining the two ports would provide Bantry with the breadth of expertise available within the Port of Cork.

We also recommend that Galway and Rossaveal should be merged because of their proximity and to ensure a common commercial management approach to regional needs and customers.

The Harbours Act 2000 allows for mergers to occur between existing commercial ports. The legislation will have to be amended to allow for the merger of Galway and Rossaveal.

8.4.6 Possible Merged Groupings

In our opinion, the future investment required, the ongoing financial viability and duplication of overhead costs more than justify the strategic merging of certain port companies. It is in the interest of the port companies themselves to propose and develop their own strategic alliances that suit their own particular circumstances and needs in terms of mergers.

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However in the absence of the development of strategic alliances, we recommend that there should be a follow-up study that identifies the key port companies that should be merged, the steps to be taken to effect the mergers, the financial and other implications of such mergers and the timetable within which the mergers would be expected to take place.

There are many grouping options possible. Examples of possible merged groupings include:

Galway/Rossaveal*/New Ross/Dundalk/Wicklow/Bantry (Associated Irish Ports Ltd)

Drogheda/Greenore*/Dublin (North East Ports Ltd)

Dundalk/Drogheda/Greenore*/Dublin (North Eastern Ports Ltd)

Greenore*/Dundalk/Drogheda (Louth Ports Ltd)

Dublin/Dun Laoghaire/Wicklow (Dublin Bay Ports Ltd)

Greenore*/Dundalk//Dublin/Dun Laoghaire/Wicklow (East Ports Ltd)

Greenore*/Dundalk/Drogheda/Dublin/Dun Laoghaire/Wicklow (Associated East Ports Ltd)

Greenore*/Drogheda/Dublin/Dun Laoghaire/Wicklow (Eastern Ports Ltd)

Waterford/New Ross (Belross Ltd)

Waterford/New Ross/Rosslare* (South East Ports Ltd)

Waterford/New Ross/Rosslare*/ Cork/Bantry (South Ports Ltd)

Cork/Shannon Foynes/Bantry (South West Ports Ltd)

* ports not subject to the Harbours’ Acts.

8.4.7 National Spatial Strategy

If the thrust of the National Spatial Strategy were followed, the following arrangements would suggest themselves:

North east (Drogheda, Greenore* and Dundalk)

East (Dublin, Dun Laoghaire and Wicklow)

South-east (Rosslare*, New Ross and Waterford)

South (Cork and Bantry)

South west (Shannon Foynes)

West (Galway and Rossaveal*)

8.4.8 An Alternative Ownership Model

For debate and discussion, we would like to present an alternative ownership model.

There should be two tiers of ports: strategic and non-strategic ports.

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The strategic ports shall be the key ports located in the core growth centres identified under the National Spatial Strategy. These ports are:

Drogheda

Dublin

Waterford

Cork

Shannon Foynes

Galway

The ownership model options for the strategic ports would be as described earlier.

The future strategic development and ownership of the other ports would be transferred out of State hands and transferred to local interests.. This would provide them with an incentive to ensure the ongoing viability of these ports. These port companies would be still subject to the regulatory and conservancy requirements demanded of the strategic ports.

8.4.9 Foreshore Ownership

Consideration should be given to foreshore ownership and whether this should be transferred by the state to the port companies. If this occurs, then it should occur on negotiated and realistic terms.

In the event that the ownership of the foreshore is subsequently sold to the private sector, a clawback clause should allow for any profit to be returned to the state.

8.4.10 Addressing Environmental Issues

We suggest that port management, Departmental Commercial Port staff and Coastal Zone staff, relevant state agencies, e.g., Dúchas, and non-governmental organisations, e.g., Birdwatch, Coastwatch and An Taisce, should meet regularly, under the auspices of the relevant department, to discuss how environmental matters in so far as they affect port development should be addressed and progressed.

8.4.11 Non-Core Property Development

The Task Force on Port Estates estimates that some 540 acres of port estates are available for development. Many of the ports have begun to exploit non-core areas of their port estates to generate funds for their infrastructure development. We recommend that this process continues.

8.4.12 Insurance Cover

The Government needs to consider how to address the difficulties that ports have in obtaining public liability insurance cover.

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8.5 Achieving Cost Reduction

The major cost element of any port company is its labour. Within the safeguards of national employment legislation, over-manning and inflexible work practices have to be addressed. Appropriate means have to be identified and agreed under the partnership approach, to break linkages to uneconomical existing conditions and terms of employment.

Consideration should be given to linking management bonuses to the agreed achievement of operational targets.

There is an urgent need to address, with all relevant parties, local working practices and manning levels where these affect stevedoring charges.

8.6 Customer Charter and Complaints Procedures

We recommend that each port should prepare a Customer Charter and set out a formal Complaints Procedure.

8.7 Board Appointments

We recommend that the practice of appointing port users, local councillors and those without relevant experience should cease immediately.

For the ‘smaller’ ports, there is a strong argument for reducing the size of the Board. It does not make sense that the size of the Board is a multiple of the size of the Executive.

Appendix D provides details of the process of how Directors are appointed to the Board of the Port of Vancouver, their desired experience and knowledge, and details of those who cannot be appointed.

8.8 Port Users’ Forum

To accommodate the views and complaints of port users and other relevant bodies, we recommend that each port should have a formally constituted Port Users’ Forum. The Forum should meet with Management on a regular basis for the exchange of views, communicating concerns and developments, and being consulted in terms of proposed infrastructure development.

The Irish Exporters’ Association proposed a model for this Forum; the general philosophy suggested is worthy of re-examination.

8.9 Landlord and Tenant Act

We recommend that consideration should be given to enabling the extension to the ports of the right for both port authorities and leaseholders to renounce their Landlord and Tenant Act rights and replace it by some form of concessionaire rights with timed agreements. It would introduce flexibility while preserving the existing security that is offered by the Act.

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The issue of the Landlord and Tenant Act in relation to Aer Rianta is dealt with in Article 56 of the Air Navigation & Transport Amendment Act 1998 which states ‘The provision of the Landlord and Tenant Acts, 1967 to 1994, or of any Acts amending or extending those Acts, shall not apply to lettings effected by the company’. The Harbours’ Act could incorporate similar wording.

8.10 Transparency of Rates

Changes in the port legal environment set the basis for competition between facilities within ports, among ports, and between alternative transport means through the application of two sets of guidelines: full cost recovery and financial transparency to identify potential state aid. In addition, other developments at EU level will increase the need to ensure that tariffs are cost-reflective, non- discriminatory and transparent.

The implementation of the cost recovery of new investment, operation and external costs (environmental, accidents and congestion costs) guarantees that maritime transport will be treated on a equal footing with alternative transport means such as aviation for instance. According to the European Commission:

“ … port infrastructure should be priced in such a way that users should bear the real costs of the port services and facilities they consume54”.

This point has been highlighted in numerous Commission documents including the White Paper on Fair Payment of Infrastructure Use55 and also by the High Level Group on Transport Infrastructure Charging (organised by the European Commission56).

Full cost recovery is conditional upon the identification of the costs associated with infrastructure use, service or supplies rendered, and also upon the choice of the accounting measures. This is a major issue, as port services require significant investment, for instance, on jetties, embarkation, stevedoring and warehousing. Moreover, these kinds of investments tend to be sunk and of a long-term nature.

We recommend, therefore, that all ports with a throughput in excess of one million tonnes should be required to carry out an independent review to establish the true costs of services on a modal basis. This could be carried out through some form of an Activity Based Costing exercise. This should form the basis for the establishment of port charges after taking into account agreed investment proposals, regulatory responsibilities, overheads and a profit margin.

All commercial ports should publish Port charges.

54 Commission of the European Communities (1997) Green Paper on Sea Ports and Maritime Infrastructure. COM (1997) 678 final. 55 Commission of the European Communities (1998) Fair Payment for Infrastructure Use: A Phased Approach to a Common Transport Infrastructure Charging Framework in the EU. COM (1998) 488 final). 56 High Level Group on Transport Infrastructure Charging (9 September, 1999) Final Report on Option for Charging Users Directly for Transport Infrastructure Operating Cost

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8.11 Rosslare Harbour

We recommend that Rosslare Harbour should become a state commercial port and be subject to the same conditions and recommendations pertaining to the other commercial ports.

8.12 Regulation

In a previous section, we commenced our analysis for the need for a Ports’ Regulator. In considering the need for Regulation, we have identified a number of questions to be addressed. They include:

Where does the demand for Regulation come from?

How extensive is the demand?

Who benefits?

Should there be a new Regulator or should the responsibilities of an existing Regulator be extended? When should (s)he be introduced?

What aspects of regulation would he be responsible for? Port charges? Investment decisions? Licensing of stevedores? Licensing of shipping companies?

Will there be an overlap with the responsibilities of the Regulator under the EU Directive for Services?

If so, how should it be dealt with?

Should all ports be subject to regulation or should there be a gradual process depending on port turnover or port throughput?

Should it be confined to certain modes, e.g., unitised trades?

Who funds the Regulator?

Can the ports afford the cost of a Regulator?

How would the costs be apportioned?

We believe that the demand for a Regulator at this time is exaggerated. Independent regulation is far from being the primary concern of those we spoke to or provided us with submissions. Those who seek a Regulator are primarily driven by a concern over port charges which is an area of great confusion. Port companies are not making commercial returns that would reflect necessarily excessive port charges. However, this does not automatically mean that ports are as efficient as they could be. Nevertheless, as ports more and more transfer to private companies the responsibility for terminal and other operations, their cost base should reduce and thus allow for port companies to reduce their port charges.

The other regulatory concerns, and the licensing of stevedores and the licensing of shipping companies if so required, can be addressed by the Commission for Aviation Regulation which we have noted above should be the Competent Authority as far as the EU Directive on Access to Market Services.

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In reality, there are only two ports making a profit: Dublin and Cork. In the latter case, the concern of port users relates to the stevedoring charges that are not the responsibility of the port company though it could be argued that the port company has a management responsibility to ensure its resolution. In relation to Dublin Port, only one company has raised the need for a Regulator with us.

Using the evolution of the Commission for Aviation Regulation as an example, the cost of the establishment of a Ports’ Regulator for the ten corporatised ports could well be of the order of two million Euro in year one. The Regulator would be required to carry out various studies to enable him establish the level of appropriate port charges for each port, e.g., benchmarking ports’ performance, reviewing each port’s cost base, identifying potential operational improvements, developing national and port traffic requirements, reviewing required infrastructure etc. If these costs were spread equally over the ten corporatised ports, each would be subject to a charge of the order of €200,000; some ports would obviously be charged more, others lower depending on port throughput etc. If there were legal challenges to any of his decisions, the port companies would be liable for those. To be able to pay these costs would require an increase in port charges which would likely outweigh any potential reduction in rates!

Obviously, if only some ports were regulated initially, i.e., the ‘larger’ ports or those who operated certain modes, then it would be expected that the overall costs would come down. However, the individual costs for the regulated ports would more than likely increase.

It seems to us that, at this time, the pressure for a formal Regulator to control port charges relates to one port only, namely Dublin Port, and for a particular mode. This is not a sufficient argument to establish a Ports’ Regulator at this time. The financial and other costs far outweigh the benefits likely to be achieved.

The other corporate governance responsibilities, which includes monitoring corporate plans and investment decisions, should be retained by the shareholder.

However, we do recommend that a Ports’ Ombudsperson should be appointed to provide an independent conciliation and appeals, including binding arbitration, service that would hear and decide on cases where a port user believes that the costs of either a port service or a port charge are unfair or discriminatory. The Ombudsperson’s costs should be borne by the parties concerned.

It will be necessary to revisit the need for a Regulator when a number of commercial port company mergers have taken place. It will also be necessary to consider the requirement for a Regulator when the extent of private sector interest in ports has been established. At such a time, the Commission for Aviation Regulation should become the body responsible for regulation.

8.13 Competition Issues

Remedies to address any market dominance abuse should be attempted in the first instance through the Competition Authority.

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8.14 Corporate Governance Reporting Requirements

Corporate Governance reporting requirements, particularly in relation to operational Performance Indicators and Performance Monitoring, should be reviewed and be simplified where possible to reflect the size and nature of the various port companies. Further training might be required to assist port management to address the corporate governance requirements.

8.15 Bye-Laws

It is easy for bye-laws to become out of date. Therefore, each port should review its bye-laws regularly to ensure that they reflect current requirements.

8.16 Estuary Management Plan

We recommend that an Estuary Management Plan (EMP) be devised and produced to promote the sustainable use of an estuary by ensuring that the development of its economic and recreational potential is undertaken in a manner compatible with the protection, management and enhancement of the natural and human-made resources of the estuary.

A typical EMP will cover aspects such as: estuary resources, economic development, recreation, and implementation and include issues such as estuary dynamics, water quality and pollution control, biodiversity, land use, navigation, urban regeneration, tourism, water sports and a method of monitoring its implementation.

The formulation and development of an EMP will be based upon a number of key objectives and policies which are fundamental to the whole process. Policies are normally derived from the statutory responsibilities of competent and relevant authorities, while objectives are often developed through consultation and agreement with interest groups involved in the management of the estuary system. An EMP will therefore bring together a wide range of interests, such as local authorities, port authorities, statutory agencies, local business and voluntary organisations, together to manage an estuary by providing an integrated package of policies, objectives and management measures for making informed decisions rather than a set of hard and fast rules. Furthermore, an EMP will set out a framework which will help diverse decision-makers across jurisdictions evaluate their actions against the wider backdrop of the estuary as a whole.

In Ireland the management of the various aspects of an estuary is within the jurisdiction of a number of public bodies, including County Councils (planning matters and coastal protection), City Councils (where relevant), Department of Communications, Marine and Natural Resources (foreshore leases, licences and consents, dumping at sea and some coastal protection), Marine Institute (environmental management), Bord Fáilte (tourism), An Taisce (archaeology and heritage) and Port Companies (conservancy). There are also many other interested parties including residents associations, Birdwatch Ireland, waters-edge businesses and industries, and voluntary recreational user groups.

A public body needs to be set up to co-ordinate the management of the estuary with participation from all these organisations. The Port Company may need to shed its social, environmental and recreational

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responsibilities to this new body. This body could also take on some conservancy responsibilities, leaving the Port Company free to operate like any other commercial company in the provision of port

infrastructure and navigation with the usual statutory constraints.

8.17 Further Studies

8.17.1 Merger Proposals

As noted above, we suggest that there might be the need for a follow-up Study that identifies the key port companies that should be merged, the steps to be taken to effect the mergers, the financial and other implications of such mergers and the timetable within which the mergers would be expected to take place.

8.17.2 Benchmarking

The Performance Audit Report prepared by Jonathan Packer and Associates recommended that ports should benchmark their operational and financial performance. We agree. We, therefore, recommend that the Department of Communications, Marine and Natural Resources should institute a programme of benchmarking the performance of Irish ports against comparative UK or other European ports and facilities. A Scoping Study may well be required to identify the appropriate ports.

Such a Benchmarking Study should identify the target Business Ratios that Irish ports should aspire to. It would also provide an indication of the levels of efficiency/inefficiency that exist.

8.17.3 Port Charges

Given the apparent lack of clarity that exists about the true makeup and responsibility of each port’s costs, we recommend that the Department should also commission a Study of Port Charges to allow a proper comparison to be made.

8.18 Public Debate and Dialogue

We recommend that this Report should receive the widest publicity and coverage to enable a public debate to be had on its findings and recommendations.

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8.19 Implementation

We summarise in the tables below and overleaf the key stages of implementation.

Task Responsibility Timescale

• The Minister for Communications, Marine and Natural DCMNR • Within a Resources (DCMNR) to publish the Review reasonable acknowledging the findings and recommendations of the timeframe Review

• DCMNR reaffirms the commercial role of ports and DCMNR • Within a makes a statement on reasonable o Future port funding timeframe o Ports being responsible for their commercial destiny

• Public debate and dialogue initiated with the intention of DCMNR • Within a progressing the main proposals within three months reasonable timeframe

• DCMNR to commission follow-up studies DCMNR • reports to be completed within six months of commissioning

• Dept of Transport (DOT) to progress with the disposal of Board of Irish • ASAP Rosslare Harbour Rail/DOT

• DCMNR to drive establishment of formal liaison DCMNR • Within a arrangements between DCMNR, DOT and DOELG on reasonable transport policy pending integration of all transport timeframe functions within DOT

• DCMNR to review Harbours Act including DCMNR • Within a o Post-amalgamation issues reasonable timeframe for o Landlord & Tenant issues conclusion within o Exclusion of leisure and social responsibilities six months o Inclusion of Rossaveal thereafter o Inclusion of Rosslare o Board structures and size o Port Users’ Forum o Foreshore Ownership Transfer

• DCMNR to review Corporate Governance reporting DCMNR • Requirements to requirements be completed within three months

• Ministerial Directive for the amalgamation of Cork and DCMNR in • Three months Bantry conjunction with Cork and Bantry

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Task Responsibility Timescale

• Multiparty talks in relation to Dun Laoghaire Port participants • Three months Company: DCMNR, Dublin Port, DLRCC and DLPC

• Each port company to prepare a Customer Charter and Port companies • Three months Complaints Procedure, and to set out basis of port charges

• Establishment of Port User Forum at each commercial Port companies • Three months port

• Each port to review its Bye-Laws Port companies • within three months if not reviewed within last 24 months

Some of the proposed changes may affect existing work practices and/or terms of employment. In accordance with good industrial relations practice, it would be expected that staff, management and their representatives would be fully consulted prior to implementation.

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9. CONCLUSION

The State’s commercial ports have now reached a critical stage in their business life cycle. They all face significant investment needs which most cannot afford to carry out. While many of them record a gross profit, interest charges on historical investments turn them into loss-making companies.

At the same time, customers are demanding an ever-increasing level of efficiency and service, competitive rates and integrated operations.

The shareholder has never provided the necessary development capital; to-date, ports have been funded through EU grants. Apart from whatever funds will be given under the National Development Plan, it is unlikely that significant public funds of any nature will ever be available again for the commercial port sector in the future.

Change is necessary. New, innovative and radical funding solutions are now required; an increased involvement by the private sector in the form of public private partnerships could well be the means of providing the necessary capital and investment. It will also allow for the introduction of new management thinking and skills.

While not ruled out, we are hesitant in recommending the opening up of port ownership to the private sector at present due to the current financial standing of the Port Companies. This option could however be considered by the Department in the future in the light of the finances of the relevant ports, the effect on the public interest, the extensive legislation and oversight framework required and the likely necessity to appoint a Regulator. There has been much discussion on whether Ireland has too many commercial port companies operating independently and in competition with each other. Many of the corporatised ports are geographically close to each other, and each can require significant investment and maintenance. The nettle of port company mergers and consolidations has to be grasped sooner rather than later. The likely absence of public funding may well be the catalyst that drives the merger agenda forward.

Efficiency is also generated from the quality, performance and competitiveness of terminal operations. Work practices and gang sizes need to be reviewed. We believe that the Landlord Model, where the port company concentrates on port estate issues and conservancy, and the private sector operates the terminals, is the most appropriate route to follow. The EU Directive on Market Access will be a spur to ensuring terminal competitiveness.

There has been an apparent failure by the state to recognise the key role that ports play in the economic life of Ireland. Ports are a key element of the integrated transport chain. The failure to include the ports sector in the remit of the new Department of Transport is to be regretted. There is no reason why this could not be addressed.

We believe that it is premature to propose a ports’ Regulator; instead, we suggest that a Ports’ Ombudsperson should be appointed to provide an independent conciliation and appeals, including binding arbitration, service which would hear and decide on cases where a port user believes that the costs of either a port service or a port charge is unfair or discriminatory.

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APPENDIX A. CALL FOR SUBMISSIONS

High Level Review of the State Commercial Ports Operating under the Harbours Acts, 1996 – 2000

The Department of the Marine and Natural Resources has commissioned Raymond Burke Consulting in association with Farrell Grant Sparks and Posford Haskoning to carry out a High Level Review of the State Commercial Ports operating under the Harbours Acts, 1996 – 2000.

In summary, the Review/Study will involve a detailed evaluation of the adequacy of the current model for the governance of the State port companies, including the advisability of appointing a regulator, to ensure:

that the ports are incentivised to deliver high quality port products to stakeholders, particularly users and have access to appropriate funding to provide for capacity requirements in the medium to long term;

that appropriate competitive conditions exist within and between ports;

the avoidance of inefficient monopoly situations developing;

that the shareholder/management relationship is conducive to the development of a port sector, which is fully supportive of the needs of our rapidly developing open economy and

to advise on the future role of the State port companies in contributing to the optimum development of the transport sector in Ireland and appraise / recommend management/ ownership options including enhanced private sector involvement.

Interested persons or organisations are invited to make a written submission, or submit written comments or observations in relation to the Review, no later than the 12 July, 2002, by e-mail to [email protected] or by post to:

Raymond Burke Consulting, 9 Ballinclea Road, Killiney, Co Dublin.

Full details of the requirements of the Review can be found on the following websites: www.raymondburkeconsulting.net and www.fgs.ie.

The Port Companies operating under the Harbours Acts, 1996 – 2000 and which are subject to the Review are: Dublin Port Company Port of Cork Company Shannon Foynes Port Company Port of Waterford Port Company Dun Laoghaire Harbour Company Drogheda Port Company New Ross Port Company Galway Harbour Company Dundalk Port Company Wicklow Port Company

Appendices HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

Appendices HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

APPENDIX B. INPUTS AND SUBMISSIONS

Inputs and Submissions

During the course of the Review, we met with or received Submissions from the following individuals and organisations:

The Irish Exporters Association The Competition Authority Members of the Cork Port Users Group IAWS R & H Hall Forfas Enterprise Ireland IDA Ireland Chartered Institute of Logistics and Stena Line Irish Continental Group plc Martin Butterly Ltd Lys Line Ltd Monahans Ltd Galway Metal Co Ltd Irish National Sailing School Clontarf Residents’ Association Irish Diving Contractors Ltd Irish Ship Agents’ Association Foynes Harbour Users Ltd Mr Conor Connolly, former Chairman Galway Harbour Company The Irish Short Sea Shipping Group (within the Irish Maritime Development Office) Campus Ireland Stokestown Port Company Stafford Shipping Esso Texaco Maxol Statoil Coal Harbour Users’ Group (Dun Laoghaire) Irish Institute of Master Mariners

Appendices HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

European Commission Irish Management Institute (Dr John Mangan) IBEC Transport & Logistics Council Commission for Aviation Regulation Irish Maritime Development Office (Mr Glenn Murphy)

Appendices HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

APPENDIX C. MAIN RECOMMENDATIONS OF OECD REVIEW OF REGULATORY REFORM IN IRELAND

Main Recommendations of OECD Review of Regulatory Reform in Ireland

Remove licensing constraints on free entry, particularly those with quantitative limits.

The challenge is to identify and eliminate regulatory programmes and licensing schemes that have the effect of preventing entry and permitting non-competitive behaviour.

Eliminate special-interest rules that inhibit efficient competition, such as the Groceries Order.

The potentially anti-competitive effects of the Groceries Order are well recognised.

Strengthen implementation of the regulatory reform policy by creating stronger disciplines and performance assessment of regulatory quality within the departments and agencies, and by enforcing the disciplines through a high level committee.

Current mechanisms to implement the regulatory reform policy are too weak to change long-established habits and culture, to protect the regulatory system from pressures from special interests, to offset perverse incentives within the ministries and agencies, and to co-ordinate the difficult agenda of regulatory reform.

Strengthen the accountability of sectoral regulators by building capacities for appropriate overview by Parliamentary committees, and clarify the roles of sectoral regulators and the Competition Authority to ensure a uniform competition policy in the regulated sectors.

Market-oriented institutions have developed along with liberalisation of several sectors. However, the powers, nature, and accountability mechanisms of sectoral regulators are challenging the general public governance and institutional balance. Ireland was one of the first countries to start addressing the complex issues of accountability raised by this situation, and this progress should be maintained.

Strengthen disciplines on regulatory quality in the departments by

I) reinforcing the central review unit;

ii) refining tools for regulatory impact analysis,

iii) adopting an explicit benefit-cost principle,

iv) increasing the assessment of alternatives to regulation,

v) integrating these tools into public consultation processes and vi) training public servants in how to use them.

Appendices HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

The Regulatory Quality Checklist that accompanies memoranda for a proposed law is a crucial step forward. However, important weaknesses and gaps exist in the Irish process for regulatory quality controls.

Increase transparency by standardising public consultation and more use of the Internet.

Consideration should be given to establishing a 'notice and comment' mandatory requirement for all regulatory proposals, and to establishing minimum criteria and disciplines for the public consultation required by the Reduce Red Tape action plan.

Enhance the current programme of restating and consolidating existing laws and regulations with a target review programme based on pro-competition and regulatory high-quality criteria.

The 1995 OECD regulatory quality checklist could be used to verify the continued necessity and appropriateness of the existing stock of regulations.

Expand competition in the provision of public services at local authority levels. An effective means would be competitive tendering of public services, within the framework of quality standards and monitoring.

The large role of Irish local governments in providing public services has a significant impact on the economy because the level of efficiency in public services helps determine overall price levels. Improving the quality and cost of services will require more contracting out and more intense competition.

Strengthen the application of competition policy economy-wide through a series of reforms.

Vigorous enforcement of competition policy in the self-regulated professions is a priority, and advocacy by the competition authority throughout the public administration would strengthen attention to market principles.

The merger process should be streamlined and responsibility for competition policy reviews for all mergers clearly assigned to the Authority. A leniency programme should be implemented to help attack cartels. Judicial expertise needs attention. The Authority should be more independent on budget and staffing.

Encourage better regulatory practices at regional and local levels of government.

Safeguarding the gains made at the national level through regulatory reform will require intensive efforts to promote regulatory quality at sub-national levels.

Continue to encourage the use of international standards in national standardisation activities and to promote international harmonisation in European and international fora.

Strong commitment to an efficient and reliable standardisation system not only enhances market opportunities for Irish firms but also contributes to world-wide consolidation of efficient and transparent markets for industry and consumers. Continue to work to develop regional and island-wide regulatory solutions where those improve efficiency.

Appendices HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

Optimal regulatory frameworks for Ireland might in some cases extend beyond Irish borders into Northern Ireland and Britain.

In the pharmacy sector, eliminate the restriction on economic freedom of pharmacists educated in other EU countries, and location restrictions on pharmacies.

In legal services, move the control of education and entry of legal professionals from the self-governing bodies, but maintain close ties as regards quality of entrants and content of education and training, and maintain the freedom of solicitors to advertise their fees and areas of specialisation.

Complete the process of introducing competition, and the application of general competition policy, in traditional monopoly sectors, including electricity.

A series of steps would boost market performance in the energy sector. While retaining regulatory responsibility for electricity tariffs, specific license conditions and transmission access, the Commission for Electricity Regulation should also take responsibility for regulating transmission access for gas.

Enforcement of the competition law in these sectors should remain with the Competition Authority. Tariff structures should be modified to improve efficiency in the energy sector by making regulated tariffs cost- reflective.

Barriers to entry for gas importers and sellers should be reduced by ownership separation of transmission from potentially competitive activities. Efficiency should be increased by eliminating the subsidies for peat.

In the telecommunications sector, take a number of steps to complete the regulatory framework.

These include streamlining the licensing regime using general authorisations, rather than individual licensing, establishing concrete procedures with standard time frame for handling consumer complaints, accelerating the introduction of appropriate rights of way legislation to facilitate the construction of new networks on public highways, eliminating the "in platform exclusivity" granted to cable operators after the five-year period has expired in April 2004, using an agreed method to determine the costs of providing universal service, and developing explicit and concrete provisions governing forbearance and withdrawal from sector specific regulation.

Appendices HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

Appendices HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

APPENDIX D. THE APPOINTMENT OF NEW BOARD MEMBERS FOR THE VANCOUVER PORT AUTHORITY

The Canada Marine Act Assented to on June 11th, 1998 during the First Session of the Thirty-sixth Parliament, the Canada Marine Act is "an Act for making the system of Canadian ports competitive, efficient and commercially oriented". Under this legislation, the Vancouver Port Corporation became the Vancouver Port Authority (VPA). Among other things, the Act establishes the governance model for the Board of Directors, setting criteria for the qualifications, terms of appointment, eligibility, and other matters related to the Board of Directors.

Role of the Port Advisory Committee The Port Advisory Committee (PAC) consists of appointments representative of port users. PAC receives nominations under the Canada Marine Act (Section14 (1) (d)) for members of the Board of Directors of the VPA. After reviewing the nominations, the PAC provides recommendations to the Minister of Transport and is available to be consulted by the Minister with respect to the Minister's nomination of Section 14 (1) (d) directors.

Governance model The Board of Directors for the Vancouver Port Authority is composed of nine (9) members. For the term commencing February 28, 2002, the Governor in Council will appoint one (1) director without consultation and will appoint another two (2) directors after consultation with the Port "user" community.

Board of Directors - Vancouver Port Authority It will be the responsibility of Vancouver Port Authority Board Directors to exercise oversight of the activities of the Vancouver Port Authority, acting honestly and in good faith with a view to the best interests of the port authority.

Definition of "User" As outlined in the Canada Marine Act and the Letters Patent of the Vancouver Port Authority, a "user" is defined as a person (i.e. corporation or individual) who makes commercial use of, or provides services at, the Port.

Experience and knowledge requirements for Directors Directors appointed - with the Minister consulting users - shall have generally acknowledged and accepted stature within the transportation industry or the business community and relevant knowledge and extensive experience related to the management of a business, to the operation of a port or to maritime trade.

Appendices HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

Who is not eligible?

The following persons are not eligible to be directors of a port authority (Section 16 (a-h)):

1. "An individual who is a mayor, councillor, officer or employee of a municipality mentioned in the letters patent" (Vancouver, the City of North Vancouver, the District of North Vancouver, Burnaby, Port Moody, Belcarra, the City of West Vancouver and the Corporation of Delta); 2. "An individual who is a member of the legislature of a province, or an officer or employee of the public service or of a Crown corporation of a province..."; 3. "A Senator or a member of Parliament or an officer or employee of the federal public service or of a federal Crown corporation"; 4. "An individual who is not a resident Canadian, as defined in subsection 2(1) of the Canada Business Corporations Act"; 5. "An individual who is a director, officer or employee of a person who is a user of the port"; 6. "An individual who is under eighteen years of age"; 7. "An individual who has been declared mentally incompetent by a court in Canada or elsewhere..."; or 8. An individual who is "an undischarged bankrupt".

Term of appointments Directors are "appointed to hold office for such term of not more than three years as will ensure as far as possible the expiration in any one of the terms of office of not more than half of the directors, the terms being renewable once only (Section 14 (2))". An ex-Director may be re-appointed after being off the Board for at least one year. Also Directors "are appointed to serve part-time" (Section 14 (4)).

Process to nominate someone The nominator must forward (mail, fax or email) a letter of nomination, the nominee's qualifications and confirmation the nominee meets the eligibility criteria to the Port Advisory Committee at the address included at the end of this document.

Deadline for nominations The deadline for nominations is Friday, November 2, 2001 at 5:00 p.m. (Vancouver time).

Selection Process After the deadline, the Port Advisory Committee will meet to review all "user" sector nominations. They will short- list the candidates and complete any necessary additional research into the qualifications and backgrounds of nominees. Once completed, they will forward a list of recommended candidates to the Minister of Transport for consideration in the "user" category. Subsequently, the Minister will nominate individuals to the Governor in Council to serve on the Board of the Vancouver Port Authority.

Appendices HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

APPENDIX E. REPORTS CONSULTED

General Marine Reports

Baxter Eadie Limited, Department of the Marine and Natural Resources, Assessment Shipping Costs to and from Irish Ports

Department of Finance, Code of Practice for the Governance of State Bodies

Department of Finance, Performance Monitoring, Reporting and Business Planning for State Port Companies

Department of the Marine and Natural Resources, Aide-Memoir for the Government on Ports Policy in Ireland

Department of the Marine and Natural Resources, Results of the Statutory Performance Audit of the Irish State Port Companies

Department of the Marine and Natural Resources, Task Force on Transport Logistics in Connection with Ports

Department of the Marine and Natural Resources, Task force on the Development of Port Estates in Commercial Harbours

European Commission, Communication from the Commission to the European Parliament and the Council, 2001 Proposal for a Directive on Market Access to Port Companies

European Commission, Amended proposal for a Directive to the European Parliament and of the Council on Market Access to Port Companies

Government Publications, Harbours Act 1996

IBEC – CBI, Supply chain logistics and transportation on the island of Ireland – An integrated study.

KPMG Consulting, Department of the Marine and Natural Resources, Review of the Regional Ports and Harbours

Price Waterhouse, Fixed Asset Valuations Guidelines

Proposals for a Harbour Bill, A Consultation Paper

Appendices HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

Financial and Port Specific Reports

Cork Port of Cork Company, Budget Estimates 2002

Port of Cork, Corporate Plan, 1997-2001

Port of Cork, Position Paper on the Future of Irish Commercial Ports

Port of Cork Company, Reports and Financial Statements, 31 December 2000

Port of Cork Company, Reports and financial statements 2001

Port of Cork Company, Strategic Development Plan, Non technical summery

Port of Cork, Yearbook.

Drogheda Drogheda, Application for Exchequer Aid

Drogheda Port Company, Financial Statements 2001

Jonathan Packer & Associates/Moore Stephens, Performance Audit of the Irish State’s Port Companies – Drogheda Port Company

Dundalk Corporate Plan for Dundalk Port Company

Financial Statements of Lockington Shipping and Dundalk Harbour Commissioners

Lawrence Report on Valuation in relation to various properties and items in the ownership of Dundalk’s Harbour Board.

Dublin Dublin Port Company, report and Financial Statements, 2001

Dublin Port Company, report and Financial Statements, 2000

Dublin Port Yearbook 2002

Jonathan Packer & Associates/Moore Stephens, Performance Audit of the Irish State’s Port Companies – Dublin Port Company

Appendices HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

Dun Laoghaire Dun Laoghaire Harbour Company, Annual Report for the year ended 31 December 2000

Dun Laoghaire Harbour Company, Annual Report for the year ended 31 December 2001

Dun Laoghaire Harbour Company, Corporate Plan, October 1998

Jonathan Packer & Associates/Moore Stephens, Performance Audit of the Irish State’s Port Companies – Dun Laoghaire Harbour Company

Galway Galway Harbour Company, Corporate Plan 1998-2002

Galway Harbour Company, Directors report and financial statements 2000

Galway Harbour Company, Directors report and financial statements 2001

Jonathan Packer & Associates/Moore Stephens, Performance Audit of the Irish State’s Port Companies – Galway Port Company

New Ross New Ross Port Company Corporate Plan 1998-2002

New Ross Port Company, Directors report and financial statements 2001

New Ross Port Company, Submission for Co-funding from the Sea Ports Development Programme – National Development Plan 2000-2006, June 2001

Jonathan Packer & Associates/Moore Stephens, Performance Audit of the Irish State’s Port Companies – New Ross Port Company

Rosslare A & L Goodbody Solicitors, Modernisation and Reform of Legislation relating to Rosslare Port, Report to the Department of Public Enterprise

Shannon Foynes Port Company Shannon Foynes Port Company, Annual Report 2001

Jonathan Packer & Associates/Moore Stephens, Performance Audit of the Irish State’s Port Companies –

Appendices HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

Shannon Estuary Port Company Shannon Estuary Port Company

Waterford Port of Waterford, Annual Report 2001

Port of Waterford, Review of Corporate Plan, September 2001

Port of Waterford, Updated Review of Corporate Plan, June 2002

Port of Waterford, Application for Grant Aid under the National Development Plan 2000 - 2006

Wicklow Port of Wicklow, Annual Report

Port of Wicklow Submission for Exchequer Aid

Corporate Plan

Appendices HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

Department of the Marine and Natural Resources Strategy Statement 2001 – 2003

OVERALL GOAL To support and facilitate the availability of efficient and competitive maritime transport and port services.

KEY OBJECTIVES To facilitate the availability of commercial port services which are effective, competitive and cost efficient. To ensure adequate infrastructure at ports to cope with growing throughput and facilitate competitive shipping services. To facilitate the co-ordination and integration of maritime transport within the total transport chain. To develop and implement a general strategic development framework for State regional ports and harbours.

MAIN STRATEGIES Setting, through a challenging corporate governance process, rigorous performance and efficiency targets for ports. Monitoring infrastructural needs and proposals and provision of financial support under NDP programmes for strategic and other seaport infrastructural investment needs. Ensuring close co-operation between the State ports on common issues. Working closely with the Departments of the Environment and Local Government and Public Enterprise, port companies, harbour authorities, local authorities and sectoral interests to promote the integrated development of the total transport chain.

MAIN OUTPUTS Updated corporate governance regime, incorporating findings of performance audit process, to deliver commercial port services which are effective, competitive and cost efficient. Ensuring, through corporate governance mechanisms, delivery of quality customer service at ports, and putting in place liaison structures to allow port users’ views to feed into policy/corporate governance. Ongoing systematic reviews of: – costs and ports charges; – seaport capacity; – portal throughput; – quality (adequacy, reliability and regularity) of portal and shipping services.

Appendices HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

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Appendices HIGH LEVEL REVIEW OF THE STATE COMMERCIAL PORTS OPERATING UNDER THE HARBOURS ACTS 1996 AND 2000.

APPENDIX F. SUMMARY HISTORICAL FINANCIAL ACCOUNTS57

57 Provided by the Department of Communications, Marine and Natural Resources

Appendices