Development Economic Policy Reform Analysis Project Final Report EGYPT: OPTIONS FOR INCREASING MARKET COMPETITION IN MARITIME PORT SERVICES Prepared For The Government of Egypt Submitted To USAID Economic Analysis/Policy Office Cairo, Egypt Submitted By Nathan Associates Inc. Under Contract # 263-0233-C-00-6001-00 June 1996 CONTENTS page 1.0 INTRODUCTION 1 2.0 EXECUTIVE SUMMARY 3 3.0 WORLD TREND PRIVATIZING PORT SERVICES 16 3.1 Panama 16 3.2 Mexico 18 3.3 Argentina 20 3.4 Chile and Other Latin American Countries 21 3.5 United Kingdom and Other European Countries 23 3.6 India, Pakistan, Malaysia, and other Countries 24 3.7 African Countries 25 4.0 BENEFITS/COSTS OF PORT SERVICE REFORM 27 4.2 Foreign Trade Expansion 27 4.2 Estimated Benefits and Costs to the Economy 29 4.2.1 Trade Effects 30 4.2.2 Port Capacity 32 4.2.3 Employment Effects 34 4.2.4 Revenue Effects 35 5.0 INSTITUTIONS AND LAWS GOVERNING PORT OPERATIONS 37 6.0 EGYPT’S PORT OPERATIONS 41 6.1 Introduction 41 6.2 Current Operating Conditions 42 7.0 BURDEN OF EGYPT’S PORT SERVICES FOR EXPORTERS AND IMPORTERS 46 7.1 Introduction 46 7.2 General Cargo and Containerized Cargo 46 7.3 Bulk Cargo 48 7.4 General Port Services 49 7.5 Superstructure and Equipment 50 7.6 Services to Ships 50 7.7 Services to Cargo 51 8.0 ALTERNATIVE PROPOSALS FOR PORT REFORM 52 8.1 Variables for Alternative Port Scenarios 52 iii 8.1.1 Port Administration 53 8.1.2 Operation of Terminals and Other Port Infrastructure 54 8.1.3 Operation of Port Services 55 8.1.4 Documentation and Procedures 56 8.1.5 Single Commodity Terminals 56 8.1.6 Transshipment Terminals 56 8.1.7 Legal and Regulatory Reform 57 8.2 Alternative Feasible Port Reforms 58 8.2.1 Alternative A – Private Share Participation 60 8. 2.2 Alternative B -- Private Port Services 63 8.2.3 Alternative C -- One Private Port Operation 65 8.2.4 Alternative D -- Several Private Operators of Port Services 66 8.2.5 Alternative E – Phased, Comprehensive Privatization 67 8.2.6 Overlapping Reforms 68 Implementation of Recommended Action Plan - Time Chart 69 9.0 A PREFERRED ACTION PLAN 70 Government Commitment to Port Reforms 71 Port Improvements and Clean-Up Operations 72 Training Programs and Visits to Other Ports 73 Port Promotion 74 Legal and Regulatory Reform 74 Privatization of Container Handling and Stevedoring Companies 75 Demonopolization of Port Services 76 Contracting Private Port Operators 76 Private Management Contract 77 Private Investments in Terminals 77 Transshipment Operations 78 APPENDIX A Table 5.1 Organization - Egyptian Port Authority 5.2 Presidential Decree Law 12 - 1964 5.3 Organizational Structure of the Port Sector 5.4 Laws Governing Individual Ports 5.5 Laws and Regulations Affecting Ports and Port Services Table 6.1 - 6.4 Egypt Port Services 6.5 Disbursement Account for a Container Ship iv 6.6 Vessel Entry Flow Chart - Alexandria 6.7 Bulk Carrier Discharge Time Sheet 6.8 Port Infrastructure Matrix 6.9 Port Equipment Matrix 6.10 Quick Hits for Early Improvement in Port Operations Table 7.1 Egyptian Ports - Handling Charges and Freight Rates APPENDIX B - DEPRA Port Study - Terms of Reference APPENDIX C - Background of the Authors of Report APPENDIX D - List of Contacts APPENDIX E - Bibliography v 1.0 INTRODUCTION This study was commissioned as a service of the USAID/Egypt-financed Development Economics Policy Reform Analysis (DEPRA) Project. The DEPRA Project provides technical assistance and services to the Government of the Arab Republic of Egypt’s Ministry of Economy and International Cooperation (MOEIC) to enhance the capability of the MOEIC to advocate more effectively for macro-economic reforms through the provision of more credible, cogent decision support economic and statistical analyses and recommendations. The DEPRA Project provides assistance to the MOEIC in three modes: specialized expertise for economic studies and analyses; training in statistical and economic analysis; and provision of physical infrastructure to support statistical gathering and analytical functions. This reports on a study carried out by six consultants, Siegfried Marks (Team Leader), Bengt Bostrom, Daniel Reiss, Farouk El-Saigh, Mahmoud Hosny, and Mustafa Abu-Safi, provided by Nathan Associates Inc. at the request of the Economic Analysis and Policy Office of USAID in Cairo as part of the USAID Development Economic Policy Reform (DEPRA) Project. Mr. Maurice Thorne acted as project coordinator. The purpose of the DEPRA Project is “to support the Government of Egypt’s economic reform program by helping to improve the ability to collect and analyze information and to develop recommendations for policy reforms and other measures that will alleviate regulatory and other constraints on trade, investment, private sector development, and economic growth.” The objective of this Study is to recommend an action plan that will “assist the Government of Egypt in determining the actions necessary to ensure greater competition in maritime transportation services for the purpose of increasing Egyptian exports.“ In executing this Study, the consultants collected and reviewed extensive information about diverse approaches taken to privatizing port services in different countries in Latin America, Europe, Asia, and Africa. The experience in other countries was used to demonstrate a worldwide trend toward privatizing the operations of port services and to analyze alternative ways for Egypt to introduce private participation and competition in port services. Visits to the ports of Alexandria, Dekheila, Damietta, Port Said, Suez, and Adabyia were undertaken to inspect the port installations, to obtain relevant data and information, and to discuss the port operations and port costs with officials at the Ministry of Transport, the Port Authorities, and with executives from public and private companies 1 which provide and use port services. Analyses of port service charges and other port costs as well as port service conditions and port traffic trends are presented in this Report. The consulting team reviewed the Government’s Economic Development Plan, export policies and prospects, historical economic growth performance, laws and regulations that govern the institutional structure and operation of port services, the setting of port charges, revenue generation from port operations, ownership rights, investments and other aspects relevant for this study of port services. Expert opinion was obtained to determine how state monopolies of port services can be modified and other obstacles removed to permit private sector participation and competition along alternative paths outlined in this Report. Data and other information about the level and composition of port costs was used to show comparisons with ports in other countries and to estimate the burden of port costs for exporters and importers. Conclusions from these calculations were used to assess the impact on the Egyptian economy, and specifically on exports, imports, Government revenue, and employment. The availability and accessibility of relevant data proved to be too limited to develop a reliable cost-benefit analysis of the likely impact of adopting the recommended action plan on the Egyptian economy. Feasible alternative ways to reform Egypt’s port services and a preferred action plan have been outlined in this Report. These proposals were derived from the experience with such reforms in other countries and from the data and other information the team was able to collect in Egypt during meetings with representatives from the public and the private sector and from available published information. The country’s unique geographical advantage provided by the Suez Canal and the legal and regulatory changes that would accompany these reforms were taken into consideration in formulating alternative scenarios as well as the preferred action plan. Close attention was paid to the announced economic priorities of the Government of Egypt relating to economic growth targets, privatization, stimulation of exports and investments, and maintenance of employment and government revenue. The recommended action plan is designed to help Egypt achieve its economic development targets, competitive, lower port costs, more efficient port services, and substantial new private investments in modernizing and expanding port facilities in order to position Egypt for dynamic export growth and as a world class transshipment center. 2 2.0 EXECUTIVE SUMMARY Last year, Egypt’s seaports at the Mediterranean and Red Sea handled 36 million tons of dry cargo (including containerized transshipment, but excluding about 9 million tons of petroleum). Trade volume (except for transshipment) moving through the ports increased only modestly in 1982 through 1994, enabling the state monopolies in the ports to handle the cargo with the existing organization and investments in capacity expansion. This situation is expected to change radically in the future. According to the Government’s Economic Development Plan, the rate of GDP growth is to be accelerated significantly from 3% recently to 6.5% by year 2000 and eventually to an annual rate of 8%. This will require substantially faster growing and larger volumes of exports and imports moving through the ports. The annual trade volume will be at least one third, that is about 11 to 13 million tons, larger in year 2000 than in 1995, if the Government’s economic growth target is reached. To ensure that the ports will not become a major obstacle to the attainment of the Government’s economic development targets, it is necessary to undertake reforms at the ports, aimed at making them more efficient, more competitive, with lower costs for exporters and importers, and receptive to private national and foreign investment. To attain faster economic growth, the Government has shifted the emphasis of its trade policy from import substitution to export promotion and the orientation of its economic policy from expanding state controls and state ownership to encouraging private investment and privatization.