The Port of Gioia Tauro

EX POST EVALUATION OF INVESTMENT PROJECTS CO-FINANCED BY THE EUROPEAN REGIONAL DEVELOPMENT FUND (ERDF) OR COHESION FUND (CF) IN THE PERIOD 1994-1999

THE PORT OF GIOIA TAURO

PREPARED BY: CSIL, CENTRE FOR INDUSTRIAL STUDIES, MILAN

PREPARED FOR: European Commission DIRECTORATE-GENERAL REGIONAL POLICY POLICY DEVELOPMENT EVALUATION

MILAN, SEPTEMBER 5, 2012

This study is carried out by a team selected by the Evaluation Unit, DG Regional Policy, European Commission, through a call for tenders by open procedure no 2010.CE.16.B.AT.036.

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

The Core Team comprises: - Scientific Director: Massimo Florio, CSIL and University of Milan; - Project Coordinators: Silvia Vignetti and Julie Pellegrin, CSIL; - External experts: Ginés de Rus (University of Las Palmas, Spain), Per-Olov Johansson (Stockholm School of Economics, Sweden) and Eduardo Ley (World Bank, Washington, D.C.); - Senior experts: Ugo Finzi, Mario Genco, Annette Hughes and Marcello Martinez; - Task managers: John Lawlor, Julie Pellegrin and Davide Sartori; - Project analysts: Emanuela Sirtori, Gelsomina Catalano and Rory Mc Monagle.

A network of country experts provides the geographical coverage for the field analysis: Roland Blomeyer, Fernando Santos (Blomeyer and Sanz – Guadalajara), Andrea Moroni (CSIL – Milano), Antonis Moussios, Panos Liveris (Eurotec - Thessaloniki), Marta Sánchez-Borràs, Mateu Turró (CENIT – Barcelona), Ernestine Woelger (DKM – Dublin).

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

The authors are grateful for the very helpful comments from the EC staff and particularly to Veronica Gaffey, Anna Burylo and Kai Stryczynski. They also express their gratitude to all stakeholders who agreed to respond to the team’s questions and contributed to the realisation of the case study. The authors are responsible for any remaining errors or omissions. Quotation is authorised as long as the source is acknowledged.

Cover: The Port of Gioia Tauro. Source: MCT

TABLE OF CONTENTS

EXECUTIVE SUMMARY ...... 1 1 PROJECT DESCRIPTION ...... 7

1.1 CONTEXT ...... 7 1.2 STRUCTURAL FEATURES AND SERVICE DELIVERED ...... 9 1.3 CURRENT PERFORMANCE ...... 11 2 ORIGIN AND HISTORY ...... 13

2.1 BACKGROUND ...... 13 2.2 FINANCING DECISION ...... 14 2.3 START UP AND CONSOLIDATION OF THE TRANSHIPMENT HUB ...... 17 2.4 SOCIO-ECONOMIC DEVELOPMENT OF THE BROAD GIOIA TAURO AREA ...... 25 3 LONG-TERM DEVELOPMENT EFFECTS ...... 31

3.1 KEY FINDINGS ...... 31 3.2 DIRECT ECONOMIC GROWTH ...... 33 3.3 ENDOGENOUS DYNAMICS ...... 34 3.4 TERRITORIAL COHESION ...... 36 3.5 SOCIAL HAPPINESS ...... 37 3.6 SOCIAL COHESION ...... 37 3.7 ENVIRONMENTAL EFFECTS ...... 37 3.8 INSTITUTIONAL QUALITY ...... 38 4 DETERMINANTS OF PROJECT OUTCOMES ...... 39

4.1 KEY FINDINGS ...... 39 4.2 APPROPRIATENESS TO THE CONTEXT ...... 40 4.3 MANAGERIAL RESPONSE ...... 41 4.4 PROJECT GOVERNANCE ...... 43 5 CONCLUSIONS ...... 53 ANNEX I. METHODOLOGY OF EVALUATION ...... 55 ANNEX II. COST-BENEFIT ANALYSIS ...... 61 ANNEX III. MAP OF STAKEHOLDERS ...... 97 ANNEX IV. LIST OF ENTERPRISES OPERATIONAL IN THE PORT AREA ...... 101 ANNEX V. LIST OF INTERVIEWEES ...... 105 ANNEX VI. REFERENCES ...... 107

LIST OF ABBREVIATIONS

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

CBA Cost-Benefit Analysis

DG Regio Directorate General for Regional Policies

EC European Commission

ECU European Current Unit

ERDF European Regional Development Fund

ESF European Social Fund

EU European Union

FPA Framework Programme Agreement (Accordo di Programma Quadro)

GDP Gross Domestic Product

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

MCT Medcenter Container Terminal (port operator for transhipment)

MSC Mediterranean Shipping Company (shipping line)

NUTS Nomenclature of Territorial Statistical Units

RFI Rete Ferrovie Italiane (Italian railway operator)

SME Small and Medium Enterprise

TEU Twenty-foot Equivalent Unit

EXECUTIVE SUMMARY

This case study illustrates the story of the Port of Gioia Tauro, a major infrastructure investment co-financed by the European Regional Development Fund (ERDF) in the period 1994-1998. More specifically, this is an ex-post evaluation assessing the long term effects produced by the project and interpreting the key determinants of the observed performance. It is an innovative evaluation exercise given the long-run perspective (30 years), which extends into both the past and the future, and requires a mix of retrospective and prospective analysis.

The analysis draws from an ex-post Cost-Benefit Analysis - CBA1 and from an extensive set of qualitative evidence, both secondary (technical reports, official reports, press articles, books and research papers) and primary (17 interviews with key stakeholders and experts have been carried out in the period May-July 20112). The overall approach and methodology followed in the project is briefly recalled in the box below.

OVERALL APPROACH AND METHODOLOGY The Conceptual Framework delivered in the First Intermediate Report has been developed from the evaluation questions included in the ToR3, and further specified and organised in accordance with the study team’s understanding. In particular, the Team identified three relevant dimensions of analysis: a. The object of the evaluation (the ‘WHAT’): this relates to the typologies of long-term contributions that can be observed. Starting from the typologies identified in the ToR (socio-economic development and quality of life) the Team developed the following classification of long-term effects: ‘Economic development’ (including effects on GDP growth and endogenous dynamics) and ‘Quality of life’, taken here to be synonymous with additional social wellbeing, i.e. including effects that are not captured by the economic variables. ‘Quality of life’, in turn, has been divided into: social cohesion, territorial cohesion, institutional learning, environmental effects and social happiness. b. The timing of the long-term effects (the ‘WHEN’): this dimension relates to the point in the project’s lifetime at which the effects materialise for the first time (short-term dimension) and stabilise (long-term dimension). The proper timing of an evaluation and the role it can have in relation to the project’s implementation is also discussed here. c. The determinants of the project’s performance (the ‘HOW’): the assumption here is that five aspects of project’s implementation and their interplay are crucial for the project’s final performance. These aspects are: project design, forecasting capacity, governance, context and managerial response. Five Working Hypotheses are related to these dimensions and explain how each of them can influence the generation of the project’s short or long-term effects. On the basis of this conceptualisation, a set of detailed evaluation questions are developed, which aim to guide the entire study and to support the provision of conclusions and recommendations. The methodology developed to answer the evaluation questions consists of a combination of quantitative (Cost Benefit Analysis) and qualitative (interviews, surveys, searches of government and newspaper archives, etc.) techniques, integrated in such a way as to produce ten project histories. CBA

1 Data, hypotheses and results are discussed in Annex II. 2 See Annex V for a detailed list of interviewees. 3 They are the following: What kind of long-term contributions can be identified for different types of investment in the field of environment and transport infrastructure? How are these long-term contributions generated for different types of investment in the field of environment and transport infrastructure, i.e., what is the causal chain between certain short-term socio-economic returns and long-term returns from investment? What is the minimum and average time needed for a given long-term contribution to materialise and stabilise? What are these time spans for different types of investment in the field of environment and transport infrastructure? What are the existing evaluation methods to capture a given long-term contribution for different types of investment in the field of environment and transport infrastructure?

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

Defined as ‘the metaphor of a modernisation process without development’ or the ‘largest industrial development project ever promoted in the Mezzogiorno’4, the Port of Gioia Tauro is an emblematic story of great business success and unexploited potential for local development: the project has generated very different long-term effects with regard to the various stakeholders. It was initiated in 1994 thanks to the visionary intuition of a private entrepreneur, who asked the Italian Government for a concession to use the existing, unused, port infrastructure in Gioia Tauro as a transhipment terminal hub (a container terminal dedicated to transloading containers from mother vessels to small feeder vessels directed to regional ports).

The existing port had been built twenty years earlier to serve a major steelworks project which never came to fruition. The equivalent of more than EUR two billion5 was spent by the Italian government to build this infrastructure, which remained unused for two decades while many different (sometimes bizarre) potential uses were the subject of seemingly never-ending discussions. When a private entrepreneur came with a very promising business plan and the commitment to invest some EUR 150 million in the operation, the Italian government saw a unique opportunity to finally provide a use for the port with a high developmental potential. In addition to national public funds for infrastructure works (some adaptations were needed to the existing port), and private funds for equipment and machinery, the European Commission co-funded the private operation (which was considered a productive investment) through an ERDF grant of EUR 40 million in current terms.

The construction of the port was concluded in 1994, while the operational phase started the following year. The total past investment amounted to EUR 418 million, 85% of which was privately sustained by MCT and 13% was co-financed through the ERDF. Some resources from the European Social Fund and national public authorities (about EUR 8.4 million) were allocated to provide MCT employees with training courses. The following Table summarizes the total investments costs occurred since the initial financing year until today.

4 Italian Parliament, 2008. 5 In real terms at 2011 prices.

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OVERVIEW OF INVESTMENT COSTS AND SOURCES OF FINANCING Financing period 1994-2009 First year of operation 1995 Total investment costs (2011 prices) EUR 418 million 100% Sources of financing and co-funding rates over the total investment costs Cohesion Fund EUR 0 0% European Regional Development Fund EUR 55.6 million 13% European Social Fund EUR 6.3 million 2% European Investment Bank EUR 0 0% National-regional-local public contribution EUR 2.1 million 1% Private capital (MCT) EUR 345 million 85%

After fifteen years the assessment of the economic impact of the project is mixed, and stresses the multi-faceted dimensions of development plans. On one hand the transhipment hub proved to be quite a successful business operation, especially in the short and medium run. Thanks to the effects of globalisation which shrank commercial transport costs, a boom in freight transportation in the Mediterranean Sea from the Far East, and the strong location of the port, Gioia Tauro became in a few years the premier transhipment hub in the Mediterranean, handling one-and-a-half million containers annually and with the four largest shipping lines calling to the port. It was (and remains), however, a risky business operation because of the socio-economic context and dependency on highly volatile global demand.

On the other hand, although the terminal operator provided one thousand two hundred direct jobs and a further eight hundred jobs were generated in related activities, the expected long term development effects, in particular in terms of industrial development in the surrounding area, did not materialise despite much effort (and money) being spent to that end. Wider effects of efficiency on the Italian and Mediterranean port system are additional benefits of the project, but they did not materialise at the local level and did not affect the living conditions of the local population.

The current situation at the port is a vast and well-equipped port terminal with a huge but practically empty industrial zone behind it. The port business is currently carried out by two port operators, one being by far the most relevant, but which is currently strongly challenged by market fluctuations and the global economic crisis. According to the EU Commission criterion, up to now the project has proven to be not financially sustainable, as its cumulated net cash flows have not been positive each year since the start of the operational phase.

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

 In the early 1990s, the beginning of transhipment activities brought significant efficiency improvements (cost reductions) to the global logistic supply chain, benefitting transport operators and internationalised business. The Gioia Tauro transhipment hub came at the right moment to participate in this reorganisation of the global logistics systems.

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 In terms of socio-economic development the port produced fairly positive results, as confirmed also by the results of the cost-benefit analysis. The main driver of the net benefit is the employment created6, with likely effects on local unemployment. Additional positive impacts flow from the efficiency gains the entire Italian and Mediterranean port system achieved, thanks to the expansion of transhipment activity in Gioia Tauro.

 Further positive impacts flow from the learning effects, for both private and public actors, in terms of how to deal with transhipment activity. It has been reported that employees, trade unions, and business associations benefitted from being involved in such high-tech activities.

 Negative impacts are recorded in terms of a sense of frustration the local people experienced, due to the lost promise of widespread development that the port operation was expected to bring to the entire area. Social distrust and disillusionment are tangible effects and are likely to influence future actions regarding the port.

It should be borne in mind that these considerations strongly rely on the assumptions made regarding the future of the port in the prospective analysis, which, according to the evaluators, in the most probable scenario is going to experience slightly increased traffic over time7. Scenario analysis shows that the above results are subject to a high degree of uncertainty, the possible scenarios ranging from a catastrophic situation with the discontinuation of the port activities, to the recommencement of significant traffic growth in the near future with the implementation of new investment plans.

The current situation in fact is one of deep crisis for competitiveness reasons, and the port is at a turning point. Since 2007 the container terminal has suffered from increased competition from North African ports (Port Said and Tangier in particular), which have heavily invested in transhipment activities. The 2008 financial crisis made competition even fiercer and the lack of a prompt response led to the loss of the port’s main clients, Maersk (the largest shipping line, providing 40% of the total traffic) being the most recent departure in June 20118. At the same time, a Framework Programme Agreement (FPA) signed in September 2010 by the main public parties under the auspices of the European Commission, which supported it and provided indications and suggestions as to how to strengthen some of its key aspects (governance and strategic vision), is going to provide EUR 450 million for additional investments in the next three years, with the aim of improving the efficiency and overall performance of the port, in particular by strengthening the railway connections, building a rail gateway within the port area and supporting logistics activities. However, the implementation of the plan has been severely delayed.

The results of the current analysis of the project’s long term development effects are based on the expectation that the port will slowly regain its past traffic flow and market share, although

6 Which has been captured in the Cost-Benefit Analysis by a low shadow wage. 7 A 2% annual rate of growth is assumed from 2012 onwards. 8 The transhipment hub has currently only one major client, Mediterranean Shipping Company-MSC.

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it will not return to the strong growth rates experience previously, as the strategic objectives of the FPA would claim. This is based on the lessons learned regarding the key determinants of the performance of the project.

The analysis in fact shows that a key determinant of the past, present and even future performance of the port is the governance structure of the port and the broader area of Gioia Tauro (including in particular two industrial zones located close to the port area), which has been always characterised by fragmented actions and lack of coordination and clear political will. The number of actors, poor strategic direction, perhaps some vested interests at national, regional and local level and, finally, conflicts between local authorities are responsible for the current state of play and are the main difficulty to be resolved going forward. In addition, the weakness of the overall transport (and more specifically port) strategy at national level has exacerbated the existing governance problems. On top of that, the strong presence of organised crime in the territory, favoured by the weakness of the governance structure, has certainly played a negative role by discouraging business creation and imposing extra security costs.

In this picture, the European Commission has played a relevant role over the course of the years. On one hand it provided financial support through the Structural Funds in different phases9, enabling the implementation of accompanying actions addressed at supporting broader socio-economic development and, on the other, it supported and steered the planning efforts aiming specifically at overcoming the well-known governance constraints (for example it was on request of the Commission that a Master Plan was prepared in 1997 and again it is thanks to the Commission that the latest FPA has developed using an integrated approach). Notwithstanding this commitment, it could not influence in a determinative way the key limitations of the governance structures, which do not impact the programming phase but paralyse the implementation process, during which the Commission has little or no role. The only instrument the Commission had to hand were conditionalities on the timing and destination of funds. This was however not enough to make the difference.

At a broader level, from a purely developmental perspective, the limited appropriateness to the context (in terms of institutional, cultural and socio-economic characteristics) of the key rationale of the initial financing decision should be acknowledged: triggering a growth enhancing path through the support of a container terminal hub was too ambitious and highly risky in the socio-economic context of the Calabria region. In fact, transhipment by design does not lead to immediate territorial development and, on the contrary, is subject to inherent demand volatility resulting from global competition between a few multi-national companies.

Therefore, broader development effects could be achieved only by an integrated and coordinated plan fostering business creation, transport connections and high level services for port-related activities, combined with the long-term commitment of highly experienced and dedicated professional resources. In a context characterised by weak entrepreneurial capacity,

9 in addition to the initial ERDF grant the Structural Funds co-financed staff training on transhipment activities – European Social Fund -, the construction of the platform for modal shift – ERDF - and a global grant for new business to locate in the industrial zones – ERDF - and, finally, the latest FPA.

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especially regarding maritime-related activities, structural poverty in transport infrastructural endowment, societal security instability and scarce administrative capacity, the lack of strong, skilled and coordinated action pursuant to the port interests prevented a brilliant private operation from being turned into a unique development initiative.

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1 PROJECT DESCRIPTION

This section provides a brief sketch of the Gioia Tauro Port and its socio-economic context. The key structural features of the infrastructures and the service delivered, the context in which it takes place, the target population and the current performance of the project are outlined, in order to give a general description of the project that is the subject of this pilot case study.

1.1 CONTEXT Gioia Tauro is a municipality in the province of Reggio Calabria, in the Italian Mezzogiorno region of Calabria, on the Tyrrhenian coast. The region is a long and narrow peninsula which stretches 248 km from north to south. Some 42% of Calabria's area, corresponding to 15,080 km2, is mountainous, 49% is hilly, while plains occupy only 9% of the region's territory. As of 2011 the Calabria population is 2 million.

In the 1990s, Calabria was the least developed region in Italy and still is today. Its performance has not improved significantly over the years and it is still a Convergence region.

Figure 1.1 THE GEOGRAPHICAL POSITION OF THE GIOIA TAURO PORT

Source: Authors

In 1995, regional per capita GDP was more than 40% lower than the Italian average, 7% lower than the average in the South and around a half of the average in the Italian Northern regions. It was 40% lower than the average per capita GDP in the EU. Among the five provinces of Calabria (corresponding to the European NUTS 3 level), Reggio Calabria’s per capita GDP had for some years been higher than the regional average, albeit still below the Mezzogiorno average; since 2005, however, the province’s per capita GDP has been below the regional per capita GDP average (see Figure 1.2).

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

69

67

65

63

61

59

57 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

South Region of Calabria Province of Reggio di Calabria

Source: Authors’ elaboration based on Eurostat data

Moreover, the population continues to suffer from persistent high unemployment: Calabria had and still has one of the highest unemployment rates in Italy and in Europe. In 1999, the regional unemployment rate10 was 28.3%, much higher than the Italian and Northern regions average, respectively 11.4% and 5.3%. The female unemployment rate was even more dramatic, reaching 40.5%. In particular, the province of Reggio Calabria ranked at the bottom of the other regional provinces, with a total rate of unemployed corresponding to 32.3%.

Poor socio-economic conditions led to a massive movement of Calabrian people to the industrial centres of Northern Italy, the rest of Europe, Australia and America, starting in the early 1920s. Since the 1970s however, economic conditions have improved, thanks to a more modern agriculture sector, growth in tourism and a growing commercial base. In recent years the unemployment rate has substantially decreased and in 2009 it was 11.3% for both Calabria and Reggio Calabria. Major improvements were experienced also in the female labour market, where unemployment dropped to 13.9%.

Today industrial activity remains very limited in the Calabria region, whereas the service sector is oversized, with a share of employees higher than the overall Italian average and also that of the other Southern regions. Between 1999 and 2008, the industry sector employed about 30% of the workforce at national level, 25% in the South and only 18.5% in Calabria. In the manufacturing sector the main activities are food processing, beverage and tobacco. Conversely, the service sector has a major relevance, with an average share of 71% in Calabria, against 67% in the South and 64% at national level. The tourism sector is a significant source of income, with a number of nature parks and a beautiful seaside. More than 10% of Calabrian

10 For inhabitants older than 15 years.

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employment is in the agriculture sector, double the national share, which reflects the difficulties in promoting economic development in the area.

Finally, a wide gap persists between Calabria and the national average in the level of infrastructure endowment. Both the density of motorway and of railway and the quality of such infrastructures is significantly below the national average. This gap is long-standing and has not been reduced since the 1990s, notwithstanding the large public investments that have occurred.

The Calabrian population possesses a highly fragmented cultural identity. A long and colourful history has left a linguistic imprint on the region, which is tangible in the number of dialects still in use, some of them directly descended from other languages such as Greek, Albanian and French.

A key feature of the cultural and socio-economic context of Calabria is the ancient and deep- rooted presence of organised crime. The so-called ‘ndrangheta11, a criminal organization similar to the mafia, strictly organised in ‘families’, has always tried to profit from business activities in the area, especially those related to the use of public funds12. According to Eurispes (European Institute of Political, Economic and Social Studies) the business volume of the 'ndrangheta was estimated at almost EUR 44 billion in 2007, approximately 2.9% of Italy's GDP13. The main activities are drug trafficking (62%) and commercial enterprise and public contracts (13%).

The presence of organised crime has always called for large additional public resources to be invested as accompanying measures for development initiatives, in order to overcome the problem of a poorly enabling context14.

1.2 STRUCTURAL FEATURES AND SERVICE DELIVERED The Port of Gioia Tauro, which is classified as a commercial and industrial port15, is a transhipment port16. The main infrastructure consists of an artificial channel running parallel to the coastline, with an entrance and an evolution basin, two long quays and a large land area behind the channel, designated for industrial usage. The total port area corresponds to about

11 The name 'Ndrangheta (pronounced "an-drang-ay-ta") derives from the Greek ἀνδραγαθία andragathía for "heroism" and "virtue" or ἀνδράγαϑος andragathos, a blend of andròs "man" and agathòs "good", meaning a courageous man. Source: Wikipedia. 12 Evidence in police reports of the presence of this organization in Calabria dates back to the 1880s. They were organized hierarchically with a code of conduct that included omertà – the code of silence - and ritual initiations for members. During the 1970s1970s they were primarily involved in kidnapping, extortion and blackmail. During the 1990s1990s, following the fundamental shift in the drug market from heroine to cocaine after the spread of AIDS, the organization started investing in the international drug trade, mainly importing cocaine from Colombia. It is today one of the world's biggest cocaine traffickers, with business interests in Northern Italy and abroad (Germany, Canada, Australia). At present, it is considered more powerful than the Sicilian Mafia and one of the most powerful criminal organizations in the world. 13 Eurispes, 2008. Report available at: http://www.eurispes.it/index.php?option=com_content&view=article&id=365:ndrangheta- holding-dossier-2008&catid=56:criminalitaesicurezza&Itemid=323 14 The recent FPA for Gioia Tauro includes security measures, and a dedicated FPA for security in the Calabria region was signed in 2008. In the past, the global grant co-financed by the EU was accompanied by security measures benefitting the intermediate body in charge of the grant scheme management. 15 It is classified as category II class I of International relevance (Law 84/1994). 16 Transhipment ports are those where transhipment represents 95% or more of their total traffic.

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3.5 million square metres, with a channel 220 m wide and 3 km long. The industrial site behind the port covers an area of 3.6 million square metres.

Box 1.1 WHAT IS TRANSHIPMENT? Transhipment is a scheme of transport, consisting of disembarking cargo from a large ship (or mother vessel) in an intermediate destination port and then embarking it onto smaller ships (feeder vessels) for onward transport to its final destination. The transhipment hub receives mother vessels from transoceanic routes and distributes their loading to small feeders going to regional ports. This is an apparently simple activity, which however becomes quite complex due to the number of operations and the width of the mother vessels to be disembarked. In 2007 the terminal handled more than three million TEUs and three thousands ships, including some of the world largest vessels. Gigantic cranes, sophisticated equipment and high tech solutions (which translate into high investments) are needed to carry out this kind of activity. In most cases, the goods in the containers are not cleared through customs in the transhipment hub, but rather in their destination ports. The objective of the transhipment ports (also called “hub” ports) is to optimise the connections between major and minor ports and gain economies of scale in the maritime transport of goods. As reported by the empirical literature, maritime transport is the most competitive mode of transport at international scale, both in financial and capacity terms. Hsu and Hsieh (2005 and 2007) identify carrying capacity as the main advantage deriving from the use of big ships, as long as it enables the minimisation of the cost of shipping and warehousing. At interregional level, however, more factors play a role in determining the logistic strategies of enterprises, such as the existence of alternative modes of transport (road and rail) and the volume of containers/goods to be delivered (Russo, 2005 and 2010). Transhipment activity boomed during the 1990s as a result of the increase in international trade following globalisation dynamics, freight containerisation and the need to cut global freight transport costs. Source: Authors

The project under assessment relates to the concession to a private investor of an existing dock basin for a container terminal, to be used primarily for transhipment purposes. It does not directly include all the additional operations (infrastructural investment as well as industrial development measures) financed in the following years and addressed to trigger socio-economic development in the broader area of the Province of Reggio Calabria. While those actions are necessarily part of the story, they are however outside the scope of the quantitative assessment (Cost-Benefit Analysis). From the point of view of the economic analysis, however, additional public service activities related to the transhipment hub operations are considered and are part of the quantitative assessment.

The transhipment activity is carried out on an area of 1.5 million square metres17, on the main quay (numbered 3 in the picture below) by Medcenter Container Terminal (MCT), part of the Contship Italia Group, the terminal operator which actually started the operations and benefitted from the ERDF co-funding.

There is also a car carrier terminal which in 2007 handled 75,000 cars. The terminal is operated by ICO-BLG Automobile Logistics Italia, a joint-venture between the German BLG logistic group and the Japanese ICO shipping company, a subsidiary of Nippon Yusen Kaisha. It handles

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

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various brands, mostly Asian ones18, and its main traffic flows are with Japan, India, Thailand, Algeria, Morocco, Libya and Turkey.

Figure 1.3 THE PORT OF GIOIA TAURO AREA

Harbourmaster and Port Authority Railway Terminal

MCT container terminal

ICO-BLG car terminal

West quay

Duty free zone

Area for logistic activities

1st ASI-REG industrial area

2nd ASI-REG industrial area

Source: Calabria Region

Some maritime companies are working as suppliers for the terminal operator, providing additional maritime services such as custom operations, assistance for the loading and discharging of cargoes, warehousing and distribution. They have a contractual relationship only with the terminal operator, who maintains the direct relationship with the client and includes the cost of these additional services in the handling fees.

Although several attempts to develop additional services and economic opportunities have been made in the past by the Italian public authorities (see the next chapter for further details), especially addressed towards the industrial sites behind the terminal, at present there is no industrial development in the area.

1.3 CURRENT PERFORMANCE In 2007, before the world economic crisis, Gioia Tauro was the premier transhipment hub in the Mediterranean. It offered 22 intercontinental services, 6 services for North Europe and 28 services for the Mediterranean, among which were 18 feeder services. It was doing business

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

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with 18 different maritime companies and was linked with 49 Mediterranean ports and 174 extra-Mediterranean ports19. The top four shipping companies in the world were clients of the Port and it had achieved an unsurpassed market position since the beginning of its operations.

At present the port is going through a period of economic difficulties. Its growth rates have been lower than the Mediterranean average and even lower than the general European average for the period 2003-2009. Pre-crisis forecasts for transhipment demand indicated strong growth up to 2015. Other Mediterranean ports (especially Algeciras in Spain, Tangier in Morocco and Port Said in Egypt) undertook important investments and built or strengthened transhipment hubs with the help of significant public investments20. On foot of this competition, made even fiercer by the financial crisis which shrank global maritime trade, Gioia Tauro lost market share, and in 2010 Port Said and Algeciras ranked first and second as Mediterranean transhipment hubs. Reasons for this are manifold, mainly related to competitiveness problems21, which led a number of clients to choose other ports.

As a response to this situation, and with a pivotal role played by the European Commission, an FPA was signed in September 2010 between the national government, regional and local authorities with an ambitious strategic objective of re-launching the port and the broader Gioia Tauro area. The vision of the strategy relies on the idea of developing a Logistics District and Intermodal platform in order to increase the developmental spill-over effects of the port and to move the port from a pure transhipment hub to a multi-purpose port. To date the implementation of the plan has been severely delayed.

While in the first quarter of 2011 the port enjoyed a positive traffic trend, with an increase of 16% compared to the previous year (thanks especially to political instability in the North African economies), the situation worsened again with the recent decision of Maersk Line (the world’s leading shipping company and formerly the main client of the Port) to leave the port starting July 2011, with an expected drop in traffic flows of about 40%. The port has today only one major client (MSC-Mediterranean Shipping Company) which has also several times threatened to leave the port. At the moment, the catastrophic outcome of the discontinuation of port activity altogether is one of the possible future scenarios.

19 Region Calabria (2009). 20 As highlighted by the interviewed experts, Spanish ports, in particular Valencia, Algeciras and Barcelona, grew thanks to their new quays directly linked to the railway system and to the attention paid to the quality of the service supply. On the other hand, the Egyptian Port Said established with success a free trade area that helped it achieve exceptional growth rates (63% in 2005- 2007 and almost 32% in 2007-2009). 21 Among the most cited problems: strikes in the port that deteriorated the service reliability, high anchorage fees, complex governance and cumbersome bureaucracy, lack of additional services such as veterinary and plant pathology services (totally lacking now) or Custom House (working hours not adjusted to port activity), and onerous inspection processes.

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2 ORIGIN AND HISTORY

2.1 BACKGROUND The story of the port of Gioia Tauro dates back to the beginning of the 1970s, when following an outbreak of violence in Reggio Calabria in 1970, the ‘Reggio riots’22, as a compensation measure, it was decided to build a large steel plant, intended to become the fifth Italian steel- industry centre and meant to bring income and jobs to Calabria (7,500 new jobs were expected). In order to support the plant operations it was decided to build an artificial port in the Gioia Tauro Plain, where 700,000 lemon, orange and olive trees were growing and six hundred farmers were working. The village of Eranova had to be destroyed and 200 families re-settled.

Huge investments funded by the Cassa del Mezzogiorno23 were undertaken to dig the seabed and build the artificial channel. The preliminary port comprised a north-south basin parallel to the coast and approximately 3 km long, with water depths of 12.5-15.0 m. The quay walls were completed as part of the original project and the land behind them levelled and paved.

The steel plant project was first downsized due to a sectoral crisis (new employment figures were now of the order of 4,500 new jobs), but when the crisis in the steel industry could be no longer ignored, the project was abandoned (in 1979) and the port, already constructed, remained unused.

In the following years several plans for the port’s conversion were scrutinized (including oyster cultivation and the idea of going back to the original use of olive oil and orange production). The most promising plan was however the construction of a coal-fired power generation plant by Enel, the national public power operator, agreed in 1983. It took some time from the decision to implementation, but finally works for the plant construction were tendered in 1987 and were planned to start in 1990. However they were stopped by the Antimafia High Commissariat due to suspicions of organised crime involvement in the contracted works. Although clear evidence of criminal involvement was not found, and the construction yard was released from seizure, Enel decided not to go ahead with the project.

The infrastructure was inaugurated in 1992 after 18 years of discontinuous interventions and about 770 billion Italian Lire spent on the works (about EUR 400 million). In the end, the large coal power plant was never built and Gioia Tauro became a major example of planning failure.

22 The riots exploded after the decision of the central government to locate the regional capital in Catanzaro instead of Reggio Calabria as expected by the Reggio people. 23 A public development agency funded in 1950 to promote industrial development in Southern Italy. It was discontinued in 1992.

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2.2 FINANCING DECISION On 3 September 1993 the Italian Government received a request from Contship Italia S.p.A. for a concession to convert the dock basin into a container terminal for transhipment traffic. Contship was a Swiss company operating as a global container carrier on the Asian, Indian, Australian and South American trade routes mainly to and from Europe. It had been founded by Angelo Ravano in 1968 and in 1970 an agency arm was set up in Milan to take care of maritime terminal investments and container-related activities in Italy.

Box 2.1 WHO WAS ANGELO RAVANO? Angelo Ravano was born in 1919 in Liguria, one of the Italian regions with the longest tradition in the shipping trade24. He took over the family shipping business and moved to London in the 1950s to manage the company (‘UK is the shipping homeland’) which was based in Ipswich. At the age of only 35, Ravano was operating in the USA, Canada, South America, Mediterranean, Australia and South Africa, where he traded raw materials, such as coal, wheat, salt and wood. Some years later, thanks to the support of a British banker, his friend, he moved to Lugano and in 1957 he established the Overland Trust Bank. He operated the shipping company and the Bank in parallel for some years. Less than ten years later, Ravano was among the first entrepreneurs to understand the opportunities of containerization. In 1969 he funded Contship SA, a shipping company for container trade. Contship started to transport containers door-to-door first in the Mediterranean, linking the Port of Marseilles to Casablanca (Morocco)25, but it rapidly grew worldwide. Over the years the group focused on two, interrelated business areas: maritime shipping with Contship Containerlines Ltd and terminal operations with Contship Italia S.p.a. In 1971 Ravano obtained the concession of a small area (a dock 120 m. long) in the port of La Spezia, in Italy, where he started terminal operations. Its service portfolio expanded also into intermodal activities: in 1990 it took control of Sogemar Spa, the most important Italian intermodal transport company. In fact, Ravano had always considered shipping transport to be closely integrated to land intermodal operations, in order to achieve the objective of, according to Contship’s motto, “bringing the ship to the factory”. In 1993, while flying over the Calabria region, Ravano saw the abandoned port of Gioia Tauro and immediately understood its potential for becoming a transhipment terminal in the Mediterranean, where no one would have taken a gamble before. He therefore asked and obtained from the Italian government the concession to use the port area. His main argument was the vision of the development potential of the port beyond the mere private return: he was convinced Gioia Tauro had the potential to become the ‘Mediterranean gateway to Europe’. He started this new business venture but would never see the Gioia Tauro Port completed and operating. He died of a stroke on 10th March 1994 at the age of 75 shortly after signing the draft agreement with the Italian Government (Protocollo d’Intesa). Source: Authors processing press articles and interview reports

Under the agreement between Contship Italia and the Government (“Protocollo d’Intesa”) Contship obtained the concession of 2,450 m of quay26 for transhipment purposes for 50 years, after which the assets reverted to the Italian Government who leased the infrastructure in exchange for a fee. On 29 July 1994, a Programme Agreement ("Accordo di Programma") was signed by the Ministry for the Budget and Economic Planning, the Ministry of Transport, the Calabria Region and Contship Italia. Contship Italia (or more precisely its subsidiary Medcenter Container Terminal, MCT henceforth, created specifically for the project) committed itself to

24 The port of Genova, one of the major ports in Europe, is located in this region. 25 One of his first customers was the Italian automotive company FIAT. 26 Out of a total of 4,830 m of quay.

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invest EUR 110 million27 by 1997 and an additional EUR 38 million by 2001 to be spent on equipment. In addition it committed to provide by 2001 one million TEU (Twenty-Foot Equivalent Units)28 of container traffic and 450 new jobs. The national and regional authorities committed to investing EUR 43 million29 for civil works to adapt the existing infrastructure to the needs of the transhipment activity. The works financed by public investment included paving the container yard, plus associated facilities such as crane rails, rendering, lighting masts, drainage, power and water supplies, fuel tanks, vehicle parking and telecommunications. The private investor provided mechanical equipment, which comprised yard cranes, straddle carriers, tractors, reach stackers, forklift trucks, trailers and communications equipment (computers, etc.).

Furthermore, an application for funding was submitted to the European Commission, And an ERDF grant amounting to EUR 40 million30 was approved for the project.

Strong arguments supporting the port project were mainly related to the promise of development for the Calabria region (which was in extreme need in this respect) and the reliability and reputation of the private investor (as well as its financial commitment), which was in the position to commit to a traffic target thanks its capacity to dialogue with the key market players31. At the same time, the port project also raised some concerns, at a national as well as EU level. At a national level the historical ports (mainly Genoa but also Naples and Livorno) were worried about possible displacement effects of traffic flows and raised concerns about the competition distortion effects of public support for an operation that other ports were trying to implement with private funds only. National and EU public authorities and shipping companies operating the ports lobbied for equal opportunities. Competition distortion was also the main concern raised by DG Transport32 during an Inter service consultation, formally asking DG Regio to further explore the implications of the financing decision33. In particular, an independent expert opinion34 was required to assess some aspects of the Cost-Benefit Analysis and the possible repercussions of the financing decision on the EU maritime transport policy objectives. The conclusions of the independent appraisal35 were that the financial assistance did not represent unfair competition. In addition, the expertise pointed that: “The concession fee appears fairly low in relation to the land area involved, local land prices, and the potential profitability of the concession. It has been designed to recover most of the State's current investment in civil works over the 50 year concession period, but does not

27 In nominal terms at 1993 prices. 28 The standard measure for containers. 29 In nominal terms at 1993 prices. 30 In nominal terms at 1993 prices. 31 According to a document prepared by MCT to follow up on the state of implementation of the Agreement, in the period 1993- 1995, 70 meetings with high level managerial staff of top ranking world shipping companies were held by Contship for commercial purposes (Source: MCT, 1995). 32 DG VII at that time. 33 The official DG Transport request addressed the following questions: Why did the project consider that future competition would be limited to Malta? Why is there a lack of information about critical distances and sailing times for feeder traffic from the two other principal Mediterranean transhipment hubs at Algeciras and Damietta? Why was the risk of competition distortion between Italian ports not considered? Was Contship the only operator approached by the Italian Government? (source: European Commission, 1995). 34 While at the beginning DG Transport suggested asking the EIB to provide the technical expertise, the final decision was to select the experts through a public call for tender, which selected Coopers & Lybrand Ltd. 35 Source: European Commission, 1996.

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include any rate of return on capital employed. At the same time, it must be recognised that Medcenter is taking a very large commercial risk, and that a high rate of return on equity would be quite normal for the level of risk incurred”.

The financing decision of the Commission could not however disregard the concerns on the possible distortion effects on port competition. The grant had to be notified as State aid and a condition on the use of funds was also added. Notably, the co-funded investment had to be exclusively related to the expenditure of the first phase of development and for ten years the infrastructure had to be solely used for transhipment purposes36 . Otherwise, Italy would have to pay back, totally or partially, the amount of aid.

According to the project document prepared by Contship (1994a), the economic return on investment was estimated to be equal to 11.68% and the financial return to 19.60%37. The marketing objectives stated by Contship were to “attract containers presently transhipped in ports less competitive than Gioia Tauro and to attract an increase of transhipment market share in the East Mediterranean (short-term) and in the West Mediterranean (medium-long term)”. Less clear were the objectives on the public side. Interestingly, among the key contents of the Programme Agreement there were the following aspects:

 The objective was to “implement significant interventions aimed at solving some of the serious economic and employment problems in the province of Reggio Calabria and in particular in the Gioia Tauro area” (Art.1). Specific objectives were not only to implement the transhipment terminal but also the planned power plant and additional port-related activities to be localized in the industrial area.

 The port was from the start characterized as a multi-purpose port, where the container terminal was one among a set of broader possible interventions aimed at promoting economic development in the area. In particular, there was the requirement on Contship to leave part of the quay for uncontainerized freight and for Ro-Ro38 haulage.

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

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

 An ESF grant of EUR 11 million to train 560 people, among which 462 were employed39,

36 There were no other significant transhipment port in the Mediterranean sea at that time, except Malta which was not part of the EU at the time. 37 However, the methodology used for the ex-ante cost-benefit analysis is not fully in line with the methodological requirements of the EC Guide (European Commission, 2008). 38 Roll-on/roll-off: ship designed to carry rolling-stock cargo which does not require cranes to be loaded or off-loaded but is driven on and off the ship's decks. These include for example car carriers like the ones operating in the ICO-BLG terminal in Gioia Tauro. 39 10,084 applications (of which 10,044 were from Calabria) for the training course were received. An initial screening was made with electronic tools on a number of eligibility criteria (age, typology of diploma, etc.) out of which 2,100 applicants were

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 A special agreement (“contratto d’area”) between the State, the Trade Unions and MCT under which the national government financed a share (20%) of the employment costs in order to guarantee an additional financial incentive to the terminal operator in the initial phases.

Figure 2.1 GIOIA TAURO PORT: BEFORE AND AFTER THE PROJECT

Source: MCT

For the purpose of complying with the initial plan of one hundred weeks to complete the works (the main incentive to keep in line with the timeplan was competition from the Maltese port which was also investing in transhipment, and time and reliability was a critical factor to attract clients) it is reported40, but not confirmed, that Contship started the development of the “hub port” largely at its own expense, also anticipating a large share of the public funds (both national and EU) which experienced delays due to administrative issues. This left the company financially exposed to high risks and had some effects on later company strategy (see Section 4).

Although the works would only be completed in 1998, in September 1995 the first ship entered the port. It was the Concorde of Contship Containerlines41. Infrastructure works were finished on time thanks to additional private resources, and the Harbourmaster’s Office, the Custom House and the Port Authority were established.

2.3 START UP AND CONSOLIDATION OF THE TRANSHIPMENT HUB The Contship plans proved to be realistic and underpinned by a thorough understanding of the shipping market context and development scenarios. In the 1990s maritime freight traffic was undergoing a structural change at the international level brought about by freight containerisation. At the same time globalisation dynamics emphasised the importance of maritime traffic in the Mediterranean for manufactured goods coming from the Far East to European markets: since 1988 the Mediterranean container market has had an average annual

interviewed. 763 were deemed suitable to take part in the professional training but 200 of them gave up. The full independence and autonomy of Contship against local influences in the employment procedures raised local protests and led even to parliamentary questions for clarifications (Source: Munari, 1997). 40 In different press articles, however this information is not completely in line with the reported amount of private funds in the Final Report of the major project, dated 1998, which reports only 84.4 million Euro of investment made. 41 In 1997 Contship Containerlines was acquired by CP ship, a large Canadian container shipping company, prior to being taken over by Hapag Lloyd in late 2005. The implication of this is discussed in the following sections.

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growth rate of 10.5%42 and Mediterranean traffic share of total European traffic rose from 25.8% in 1993 to 31.4% in 199543.

Figure 2.2 WORLD CONTAINER PORT THROUGHPUT 1972 - 2007

Source: International Bank for Reconstruction and Development, 2009

Gioia Tauro is located in the middle of the Mediterranean, with only a minor deviation from the route connecting the Suez Canal to Gibraltar, one of the busiest maritime corridors in the world connecting East Asia to Northern Europe and America. Moreover, the very deep seabed and the availability of a wide dock to be used for handling operations made it suitable for very large container ships and transhipment activities. In Italy, container traffic increased from 2.31 million containers in 1993 to 4.82 million containers in 1997 (+108%) and Gioia Tauro reached a market share of 29%, quickly overtaking Genoa which remained at 24% over that period44. After only ten months after opening, the level of traffic at Gioia Tauro rose above even the ex- ante forecasts and traffic and employment targets were achieved earlier than foreseen (1997 rather than 2001). It soon became the premier transhipment hub in the Mediterranean.

Figure 2.3 GIOIA TAURO AS MEDITERRANEAN HUB

Source: MCT

42 Source: European Commission (1996). 43 Bruno Dardani (1996). Mediterraneo alla riscossa, in Il Sole-24 Ore, 23 May 1996. 44 Committee for the Coordination and Development of the Gioia Tauro Area, 1997, p. 8.

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In the meantime, the newspapers began to spread this positive news story, and the expectations of the people of the Calabria region were extremely high. The port of Gioia Tauro was of interest to the main shipping companies for four key reasons. To start with its central position in the Mediterranean and proximity to the main Suez-Gibraltar sea-route made it an ideal transhipment location for companies wishing to make only one call in the Mediterranean. Secondly, it had the depth of water, land-side infrastructure and mechanical equipment required to support large scale transhipment operations. Thirdly, it was able to offer competitive prices because it took advantage of the previously-built facility whose costs had already been written off. Last but not least, it was being operated by an experienced and highly skilled management team committed to providing a quality service45.

Box 2.2 PORT TYPOLOGIES The hub-and-spoke system changed the port hierarchy and inter-port relationships. It distinguishes between different typologies of ports: - Transhipment hubs: they are located closed to the main maritime routes and specialise in transhipment activities. They are usually ‘pure transhipment’ ports and differ from the other ports in terms of infrastructure (depth of seabed, length of quays) and structural characteristics (big cranes, large docks, no warehouses needed). Pure transhipment ports in the Mediterranean are: Gioia Tauro (Italy), Cagliari (Italy), Taranto (Italy), Algeciras (Spain), Marsaxlokk (Malta), Port Said (Egypt) and Tangier (Morocco)46. - Gateway ports: They are close to final destination (customers) and have excellent connections with the hinterland. Usually they are served by direct calls. They are typically the Northern European Ports (Rotterdam, Hamburg, Felixstowe, etc.). - Regional ports: Similar to gateway ports but on a regional scale, they are served either by direct calls or by feeder. Examples are Genova, Barcelona and Marseille. Source: Authors

In the original plans it was recognised that Gioia Tauro also had the opportunity to become an intermodal centre where containers could have been loaded (and unloaded) not only on ships, but also on trains and trucks, to reach their destination markets in Italy and Europe. This opportunity, which other transhipment ports (such as Malta) do not have, was clearly in Ravano’s mind and that of the Italian authorities when the Programme Agreement was signed and contributed to raising expectations for the port. While road transport is the most affordable way to connect Gioia Tauro to the neighbouring Southern regions, railways are more appropriate for longer distances in terms of cost47. In the early years of port activity, the

45 In the 1999 EC Final Implementation Report for the period 17.8.1994-31.12-1998 stated that “the results and the international actors in the sector confirm the positive assessment and the confidence about the terminal, which is more and more considered as a strategic port at the global level. The constant growth of traffic volumes and number of ships requires, almost continuously, the purchase of additional equipment and the recruitment of additional employees. […] The co-financed investment by the European Commission succeeded in promoting the take-off of an auto-propulsive development that produced, as an additional effect, acceleration of the growth rate of the port” (European Commission, 1999a). 46 According to Eurispes in 2008 market shares were as follows: Gioia Tauro 24.2%, Algesiras 23.2%, Port Said 22.3%, Marsaxlokk 16.3%, Tangeri 6.4%, Taranto 5.5%, Cagliari 2.1%. (Available at: http://www.eurispes.it/index.php?option=com_content&view=article&id=1503:cagliari-gioia-tauro-e-taranto-60- milioni-di-euro-in-5-anni-per-salvare-piu-di-9000-posti-di-lavoro-a-rischio&catid=40:comunicati-stampa&Itemid=135). 47 Transporting one container to Milan costs approximately 680 Euro by train and 1,250 Euro by truck. By contrast, railway transport costs to Naples are slightly higher than for truck, amounting respectively to 530 Euro and 450 Euro (C-Log, 2008).

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

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

Port Said Algeciras Gioia Tauro Marsaxlokk

4000

3500

3000

2500

2000

1500

1000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: Authors processing Containerisation International

Despite the excellent start, Gioia Tauro failed to maintain and reinforce its leading position over the years, perhaps relying too much on its outstanding geo-physical characteristics (depth of the seabed, length of the quay, strategic central position). Transhipment demand is however extremely volatile and the shipping market, although fragmented, is dominated by a few major companies49 who change their strategies quite quickly to react to context and market developments50. One observed trend in company strategies is to directly invest in container terminals which then they operate themselves (often in a monopoly position), as for example the Korean Hanjin in Turkey.

48 Data provided by Calabria Region. 49 The continuous need for high and risky investments (for example for the purchase of ever larger ships) facilitates market concentration dynamics. For example, Maersk recently acquired some of the historic maritime operators such as Sea Land, CMBT, Safmarine, P&O Nedloyd (Source: MCT). 50 It was reported for example by some interviewees that, after the financial crisis in 2009, shipping companies decided to no longer cross the Mediterranean Sea but to circumnavigate Africa, as in the past, in order to save the cost of navigating the Suez Canal.

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Box 2.3 COMPETITIVENESS FACTORS FOR TRANSHIPMENT PORTS A vast number of factors may influence the shipping lines’ and the cargo owners’ decision regarding which port to call to. They can be referred to under three broad typologies: port’s physical characteristics, geographical location and management of the terminal and services offered. A list of them, based on findings derived from the literature, is provided below. Physical characteristics: - Length of quays; - Draft; - Terminal area and yard capacity; - Number of cranes; - Yard equipment (number of straddle carriers and reach stackers); - Monitoring and tracking systems. Geographical location: - Closeness to the main shipping routes; - Connection to the motorway and railway networks; - Closeness to the destination market. Organisation and management of the terminal and services offered: - Information systems sea/land; - Safety of the cargo: possibility that the cargo gets lost or is damaged in the course of the port operations; - Security of the cargo: quality of control of containers. - Personnel costs; - Anchorage fees and other taxes; - Productivity of the terminal operators and other agencies, administration and companies operating in the port; - Opening time of the port administration and services; - Cut-off time: average and maximum time between the discharge of the last containers and the ship’s departure; - Average waiting time to transfer the container from one mode of transport to another; - Average waiting time for the incoming ship before starting the unloading/loading operations; - Slotting availability: possibility of reserving a slot of time to carry out the unloading/loading operations; - Existence of industrial activity nearby the port; - Existence of a duty free zone; - Effective promotional activity and focus on customers; - Flexibility: possibility of changing reservations because of delays or other problems and of influencing the departure time of trains. Source: Authors processing research literature and interview reports

As confirmed by sector experts interviewed, in this context a key competitive advantage, more than the geo-physical characteristics of the infrastructure, is the quality and reliability of the service provided, not only by the private operators but also by the additional public actors providing ancillary services. A vital success factor is thus the capacity to maintain high productivity levels in order to cope with competition from other emerging ports and develop proactive commercial strategies aimed at medium-term agreements with shipping companies, in order to stabilize traffic flows in the medium run. This is also helpful in undertaking necessary investments (larger cranes, expensive maintenance of equipment, information

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

The competitiveness problems of Gioia Tauro should be placed in the wider context of the Italian port system, characterized by a lack of a unique development strategy at national level. As a recent report by the Bank of Italy51 underlines, the entire Italian logistics sector has competitiveness problems due to a fragmented and poorly integrated system of small operators, which limits the scope for economies of scale and translates into high operational costs (see section 4.4.2 for further details).

In 2009 the four top international operators held almost 40% of the global market: APM- Maersk (14.4%), MSC (12.3%), CMA-CGM (8.2%), Evergreen (4.2%)52. Initially they were all clients of Gioia Tauro but over the years they tried to develop their own terminals. For example, Evergreen decided to move to Taranto53 (Southern Italy, Apulia region) and now holds a 40% share of the terminal container traffic there54, CMA-CGM moved to Malta55 and Maersk is investing in Port Said and recently decided to move all its ships there for transhipment purposes. As of today MSC is the only major client of Gioia Tauro56.

At the same time terminal operators have also a role to play in the global shipping market and Contship has widespread strategic interests all over in the Mediterranean, not only in Gioia Tauro. Moreover, as was also pointed out by some of the interviewees, in 2008 Contship itself decided to move the traffic of Grand Alliance57 from Gioia Tauro to Cagliari (a transhipment port in the Sardinia region also operated by Contship) 58.

51 Banca d’Italia (2011) 52 Source: MCT. 53 Interviews reported that, before moving to Taranto, Evergreen actually asked for a concession of a port quay portion in Gioia Tauro, but MCT raised some concerns about possible problems of canal congestion. MCT however did not confirm this. 54 According to recent news however Evergreen is now moving from Taranto to Pireus port (Source: http://www.trasportoeuropa.it/index.php?option=com_content&view=article&id=5775:evergreen-lascia-taranto-per-il- pireo&catid=14:marittimo&Itemid=71). 55 After having asked for a concession in Gioia Tauro also. 56 The Italian authorities recently entered into negotiations with MSC in order to obtain an agreement for an increase in its traffic flow in Gioia Tauro in the future (Source: press conference Mr. Scopelliti, President of the Region Calabria, 07/07/2011). 57 A shipping company consortium made up of Hapag Lloyd, Misc, OOCL and NYK. 58 It was reported by some interviewees that political pressures from the President of the Sardinia Region to boost the Cagliari port were a determinant in influencing this strategic choice.

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Figure 2.5 MARKET SHARES IN THE MEDITERRANEAN PORTS

Source: Booz Allen Hamilton (2008)

In addition, intermodal transport did not take off. In 2007-2008 rail traffic volumes fell: although the existing infrastructure allows up to 10 couples of trains per day, currently less than 5 couples of trains enter or exit the terminal each day. According to technical studies59 and interview reports, this is mainly due to infrastructural limits in the Italian (especially Southern) railway system60, managed by Rete Ferrovie Italiane (RFI) and in the railway connection between the MCT terminal and the national railway network, which prevent the infrastructure from being fully exploited61. Besides infrastructural constraints, the reduction in port business also contributed to decreasing the demand for intermodal transport62.

In 2008 Gioia Tauro definitively lost its leading position in Mediterranean transhipment, but as early as 2004 it was already growing at a slower pace than its competitors. Competitiveness problems in the Gioia Tauro port have to do with labour costs63, productivity64, public services and taxes65, and reliability of service.

59 C-Log (2008). 60 Too small tunnels, lack of electrified rails or double tracks, especially in the Southern regions, are not suitable for long freight trains carrying almost 3 m. high containers (the modern ‘High Cube’ containers). 61 The radius of curvature of half of the existing of tracks is too small and not suitable for long freight trains. Hence, only half of the existing rail lines are operational. 62 It has been pointed out by interviewees that Grand Alliance was the shipping line that mostly used the railway gateway. 63 According to Eurispes (2010), the average hourly cost of a transhipment worker in 2009 is EUR 22.1 in Italy, EUR 3.1 in Morocco and EUR 1.9 in Egypt. Similar differences are experienced in case of white-collars costing EUR 22.9 in Italy, EUR 10.1 in Egypt and EUR 7.9 in Morocco. 64 As a matter of example, productivity level of cranes (in terms of crane moves per hour) is 23 in Gioia Tauro as compared to an average of 30 in Mediterranean ports and a range between 27 and 32 in international container ports (Source: C-Log, 2008; IBRD, 2009; and UNCTAD,2010). 65 In Gioia Tauro the total cost of calling on the port (including anchorage tax, piloting, towing and mooring) is 25% higher than in Port Said and 500% higher than in Malta (Source: Eurispes, 2010).

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Due to the severe traffic fall in the period 2008-2009 shipping companies focussed increasingly on cost saving strategies. North African ports are more competitive in terms of labour costs and taxes. Some actions were undertaken to cope with this source of disadvantage. MCT applied to benefit from a cut in labour social security costs, as already applies to coastal shipping. Also, anchorage tax was temporarily suspended by the Port Authority (although other Mediterranean ports did the same).

However, even more important than cost is the level of productivity and reliability of the services (frequent strikes have been recorded in the recent past with industrial relations deteriorating as a result of traffic loss).

The Columbine Maersk, a large container ship, was due to call at Gioia Tauro in Calabria on February 9th on its way from Tanjung Pelepas in Malaysia to Algeciras in southern Spain. But the Italian port was paralysed by a three-day strike, so the ship called instead at Valencia. Container vessels on which much of the world’s trade depends have tight schedules fixed months in advance, and such disruptions are costly to the businesses affected. In the short term the Calabrian port lost around €150,000 ($195,000) of revenue from the diversion of the Columbine Maersk. But the ultimate damage may be far greater. “Shipping lines require reliable ports and will sail their ships elsewhere if a port is not reliable”, says Cecilia Eckelmann Battistello, managing director of Contship Italia, Gioia Tauro’s operator. Source: The Economist, Febr. 22, 2007

Moreover, the efficiency of additional port services other than the pure transshipment terminal is also a key factor influencing port competitiveness. For example, despite the fact that the transshipment terminal is working 24 hours per day seven days per week, other port services are not aligned with this and operate to standard working hours. This means that, if a ship arrives on Friday evening, it may need to wait until Monday morning for some key procedures such as customs checks. This is a serious constraint in a business where time lost translates immediately into higher costs. Another example relates to the lack of a number of important services, such as a sanitary laboratory, which is needed for specific categories of goods (such as fish). Productivity is also influenced by the ICT facilities available in the port (in Gioia Tauro for example there are no broadband facilities).

On a global level, between 2005 and 2015 UNCTAD (2010) forecast an annual growth rate for global container trade volumes of 7.6%, compared to 9.5% per annum between 1987 and 2006. Even more positive were the forecasts for Mediterranean transhipment demand, which was expected to grow from 34 million containers in 2006 to 60 million in 2015 according to Ocean Shipping (2006).

As a consequence of these expectations a huge amount of money was planned for investments in the period 2005-2008. On one hand, ports either committed to expand and consolidate their capacity and service supply by developing inland connections (as for example in Algeciras), or offered competitive prices (as for example the establishment of a free trade area in Port Said).

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On the other hand, shipping companies boosted their order books by increasing their fleet capacity with larger and larger ships66.

The recent financial crisis saw a dramatic contraction in global traffic flows67 and this has exacerbated port competition and the need for high productivity levels (which translates into cost savings for shipping companies) in the Mediterranean ports. Moreover, according to sector experts, the financial crisis totally changed the modus operandi and vision of the shipping companies on transhipment, so that it is difficult at this moment to forecast future development in the global market (for more details see the CBA technical note, in Annex II).

To sum up, competitiveness problems in the port of Gioia Tauro as compared to other Mediterranean ports can be attributed to a mix of different causes, namely:

 a global negative trend which exacerbates volatility of transhipment demand and competition between Mediterranean ports;

 a systemic weakness in the Italian port system characterised by fragmented regulation and a lack of integrated planning;

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

 productivity and efficiency difficulties in administrative and management processes.

The current situation of the transhipment terminal in Gioia Tauro is critical. A potential response is the FPA signed in 2010, which is discussed in the next section.

2.4 SOCIO-ECONOMIC DEVELOPMENT OF THE BROAD GIOIA TAURO AREA Since the beginning of the project it was clear to national and EU public decision-makers that the transhipment terminal would not generate, per se, a positive impact on the area in terms of economic development, unless a number of conditions were in place. These conditions were related in particular to the strengthening of infrastructures (railway and development of an intermodal terminal) and other softer interventions (in particular grant schemes for private companies) in order to capture a larger share of goods going through the port, by offering other services (inland transport) or attaching segments of the supply chain (primary processing of raw materials and/or semi-finished products, assembly), which could generate value added within the territory. The awareness that the development potential could be fully exploited only by making the port part of an integrated strategy intended to amplify the spillover effects on the territory is reflected both in the European Commission Expertise sur le grand project

66 The trend is confirmed by the recent orders by the shipping companies, some of which have also “unlocked” orders for large mother ships previously suspended due to the economic crisis. In 2015 new ships of 18,000 TEUs are expected to enter the market (Source: experts interviewed). 67 Using UNCTAD (2010) words: “The year 2009 witnessed [...] the sharpest decline in the volume of global merchandise trade. In tandem with the collapse in economic growth and trade, international seaborne trade volumes contracted by 4.5% in 2009. While no shipping segment was spared, minor dry bulks and containerized trade suffered the most severe contractions”.

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(1996)68, and by the opinions of local actors reported in the press69, as well as internal documents of the Italian Government70.

In this vein, since the beginning of the project, works closely connected to the port have added a number of other publicly funded interventions aimed at creating conditions for the development of ‘the broad area of Gioia Tauro’. Many respondents pointed to, among all the studies and proposals made before the current FPA, the actions of the Prodi government starting in 1997 as the most serious attempt at wider development, even if it failed (see below). Interventions were aimed at diversifying the port of Gioia Tauro and, above all, the industrial zone behind it, by making it a driving force for local development.

In 1997, following a request by the EU a Master Plan was prepared. Its implementation was assigned to the "Committee for the Coordination and the Development of the area of Gioia Tauro71".

As reported in the 1997 dossier filed as a policy memo for President Romano Prodi, the local development strategy outlined in the Master Plan included the following interventions: a railway link between the port and the Rosarno rail station; the improvement and upgrading of the road network; the creation of an intermodal transport system; a maritime link between Gioia Tauro and Milazzo in Sicily (Ro-Ro traffic); the implementation of a plan for industrial development (to be supported according to the law 488/92); additional infrastructure investments and the establishment of a free trade zone. An important point taken up by the Master Plan was the use of a promotion company for the establishment of businesses in the area72. This role had already been foreseen in the 1993 Agreement for a promotion company aimed at implementing or facilitating industrial development in the area73. The Coordinating Committee, however, failed to implement the Master Plan because of, according to analysts, weakness of the governance structure74.

Under this framework, an application for a Global Grant was submitted by the local authorities to the European Commission. In 1998, the EC approved the application, aimed at supporting the creation and development of Small and Medium Enterprises (SMEs) in the crisis-area around Gioia Tauro75 mainly through a system of financial aids accompanied by guidance

68 “Although it carries some risks, the Gioia Tauro container terminal appears a sound, well managed project with some spin-off potential. However, positive action will be required to ensure that the regional benefits identified in this report materialise. We believe that the ERDF has an important long-term role to play in the Gioia Tauro area in ensuring that the necessary actions are taken”. European Commission, 1996. 69 Source: Press release from DG REGIO archive. 70 “By 2003, making all the necessary investments (1,119 billion Italian Lire for the period 1998-2003), it will be possible to reach an employment level of about 2,800-4,000 employees through direct effects and a level of about 6,250-9,500 employees through induced effects” from Committee for the Coordination and the Development of the area of Gioia Tauro, 1997. 71 Established by D.C.M. 14.12.1997 72 To perform these tasks, the company had coordinating powers over both the ASI-REG Consortium for the Industrial Promotion of the Province of Reggio Calabria, and the Port Authority that was being established. 73 This company was actually established in 1996 with capital of one billion Lire, shareholders being the Province of Reggio Calabria, ASI-REG, business association of Reggio Calabria, Fincalabra SPA, SPA Itainvest. The governance to implement and promote development was to have been entrusted to this company, however no evidence of its active role is available. 74 At the local level provincial and local municipalities complained of not having been sufficiently involved in its preparation, however the reality of conflicting, sometimes vested, interest is much more complex (see Section 4). 75 The grant (about 20 million ECU) covered the period 1997-1999 and it was part of the priority axis concerning "Industry, crafts and services" outlined in the National Operational Programme for the regional economic development of the Mezzogiorno.

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measures. The plan also included support for project management and monitoring, promotion, information and territorial marketing activities. The anticipated impact on employment was the creation or safeguarding of at least 450 permanent jobs through the launching of 35 new initiatives and the equipping of some 25 hectares with facilities for SMEs.

In addition to the Global Grant, national instruments for industrial promotion (in particular Law 488/92) were also used to facilitate the location of new enterprises linked to the port activity. The executing agency was the Consortium for the Industrial Promotion of the Province of Reggio Calabria (ASI-REG), which had competence over the industrial zones areas and responsibility for deciding the allocation of lots.

At the beginning of the port operations there was strong enthusiasm on the ground and willingness on the part of the business community to take advantage of this opportunity. The presence of financial incentives to locate firms in the area behind the port encouraged much entrepreneurial activity, however often lacking a precise strategy and expertise (the list of enterprises operating in the Gioia Tauro areas is included in Annex IV). In fact, unlike the historical ports, the Calabria entrepreneurial class with few exceptions76 lacked the necessary know-how for maritime-related activities.

Notwithstanding several attempts over the years to facilitate the promotion of new businesses (one of these involving attracting specialised firms from Northern Italy), most of these failed77. One success story of the Global Grant is ICO-BLG Logistics, the other terminal operator at the port, which obtained a grant in 2001 and applied for a concession for the ro-ro quay for car carrier activity78. C-Log (2008) reported that the surviving businesses have no or only a weak link to the port activity: “out of the 36 companies located in the Gioia Tauro area, less than 10 carry out logistic activities […] and only 4 are located inside the port area”.

It has been indicated that a constraint on business creation is that, as Gioia Tauro is an artificial port, unlike the historical ports (such as Naples or Genova), the territory totally lacked the entrepreneurial capacity and know-how to develop business opportunities linked to maritime traffic. Therefore the strategy was in particular aimed at attracting entrepreneurs from the North in order to bring in know-how from outside the territory.

Judiciary evidence and press articles pointed to some complaints from local entrepreneurs of poor transparency and excessive bureaucracy in the allocation of locations in the industrial area. At the same time ASI-REG believes that industrial promotion tools were not suited for the purpose since they did not address the actual constraints on the development of the industrial areas, such as:

76 These companies are currently suppliers and contractors of Medcenter. 77 Interviewees point out that most businesses left the area as soon as the public funds were discontinued. No precise data and official sources are available on this issue. 78 ICO-BLG was a joint venture by the Contship Group with a Japanese operator and some of the interviewees pointed that this was actually a smart move by Contship to, on the one hand obtain public funds to start a new operation and, on the other, to artificially create another terminal operator to ease concerns about its monopolistic position. The current Managing Director of ICO-BLG is a former manager of MCT, the two companies share the same office building, and the relationship between the two companies seems quite good.

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

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

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

While the first two aspects undoubtedly played a relevant role, the interpretation suggested by the current analysis points in particular to the third aspect as the key determinant of the lack of significant and relevant industrial development (see Section 4 for more details).

Organised crime also played a role in limiting the economic development of the Gioia Tauro area. Evidence from interview reports, press articles and judiciary reports confirms that organised crime has a strong interest in and influence on the port and port-related activities and that its pressure hampered the implementation of the business initiatives. Forms of influence on and interests in the Gioia Tauro port are manifold, from the request of a ‘fee’ to MCT, to the control of and interference in manpower selection and service firms selection. More details on this issue are presented in Box 2.4.

Box 2.4 THE ROLE OF ORGANISED CRIME Since the internationalization of ‘ndrangheta activity in the 1990s went in parallel with the construction of Gioia Tauro, it is likely that organised crime enjoyed a bonanza as a result of the port operations. As regards the relationship of MCT with organised crime, press articles indicate that from the beginning, the Piromalli family, the most influential in the Gioia Tauro area, asked MCT to pay a kickback of US$1.50 for each transhipped container as a sort of ‘security tax’. MCT declares that this was actually reported to the authorities and thanks to MCT legal actions have been taken against the Piromalli family. Again, a 2008 report of the Parliamentary Investigative Commission on Organised Crime, Mafia and Similar Organizations records an alleged agreement between Ravano and organised crime79. MCT strongly denies these allegations, which it considers libellous, and in an official note80 responded to the statements made in this report by recalling the numerous notifications and support provided by MCT to the judiciary powers to obstruct organised crime. As a matter of fact, no judiciary evidence exists pointing to the alleged agreements between MCT and organised crime. It is also worth remembering that Ravano died before project implementation, and the management team involved in the start-up phase managed the initial recruitment process in a transparent and professional way81, without yielding to pressures from local politicians and trade union representatives82. A different means of influence has materialized in terms of direct control over the container traffic. The 2008 report of the Antimafia Commission concluded that “the ‘ndrangheta uses the facility as a base for illegal trafficking”. In particular, the Commission maintains that the port is involved in the trafficking of

79 “The subordination of Contship Italia and of its founder Angelo Ravano to the ’ndrangheta has already been clear since the initial phase of the project, because Ravano wanted to realize his business project without obstacles and interference. Thus, he showed that he was considering the mafia organization not as an enemy of free economic initiative, that must be stopped and denounced, but as a reliable actor necessary to protect and ensure the implementation of his business project. The process about the issue, which ended in 2000, showed that the realization of the most important political/industrial investment ever conceived for the South of Italy had been preceded by a preliminary agreement between Contship and the mafia families of the Piromalli and the Molè from Gioia Tauro and Bellocco – Pesce di Rosarno, that were, but still are, dominant in the area around Gioia Tauro and were associated in a cartel led by the boss Piromalli” Italian Parliament, 2008. 80 Contship Italia Group and Medcenter Container Terminal, Official Note, 3 March 2008. 81 Involving two large consultancies from Northern Italy specialising in recruitment activities. 82 Reported in Munari T., 1997.

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arms and it is a strategic entry point for international drug trafficking to the point where, according to media reports83, investigators estimate that most of the cocaine coming from Colombia reaches Europe through Gioia Tauro84. The illegal trafficking is confirmed by the huge amounts of drugs confiscated in the port during various law enforcement operations, as quoted by the press in recent years85. The report goes further, claiming that “the entire gamut of internal or sub-contracted activities is mafia- influenced, from the management of distribution and forwarding to customs control and container storage”. Consequently, “it actually eliminated legitimate competition from companies not influenced or controlled by the mafia in providing goods and services, performing construction work and hiring personnel.” Legal actions were undertaken by the judicial powers, the most important ones being the ‘Porto’ and ‘One hundred years of history’ (Cent’Anni di storia) trials, which actually focused on the ‘ndrangheta influence over the port activities. During the trials criminal families gave evidence of having made a strategic choice to participate with “controlled” enterprises to the development of the wide area, obviously with the additional aim of enjoying public facilitation of their activities. Among the enterprises located in the industrial zones aided by public grants, 13 (35%) were traced back to people directly linked with mafia organizations and in 8 (20%) there were members somehow associated with people linked with criminal organizations86. It is worth noting that, the final sentence of the ‘Porto’ trial obliged the ‘ndrangheta families to pay compensation to indemnify the municipality of Rosarno for economic, moral and reputational damages. The sentence somehow recognizes that organised crime has been detrimental for the economic development of the area. Source: Authors

Additional initiatives to boost economic development in the area included the establishment of a free trade zone, a modal shift platform and a cooling platform for food, but none of these was actually implemented. As a matter of fact, logistics activities and intermodal services did not materialize (only 5% of the total containers use modes other than feeder to reach their final destinations87), and this was also the case with industrial activities. The industrial areas are currently almost empty and in most of the existing sheds no activities are being carried out. One of the few companies undertaking logistics activities linked to the port and using the railway is an Austrian wood company, GICOS, distributing goods from China.

A further, recent attempt was made in 200788 with the appointment of a special Commissioner of the Government for the preparation of a multi-annual plan for the development of the port and the broader area of Gioia Tauro. Even though the Commissioner was not able to launch any intervention, he did outline a strategy for development, relying mainly on logistics and intermodal transport89. A key point of the strategy is once again addressed at the governance mechanisms, for which it indicated that a strong structure, entrusted with promotional activities and able to go beyond local interests, and also supported by high level international sectoral expertise, would be necessary to implement the strategic priorities.

83 See for example The Guardian, December 19, 2006. 84 However, according to a report by Europol, the European gateway for cocaine is Spain (Source: EMCDDA/ Europol, Lisbon, April 2010). 85 For example see http://www.corriere.it/cronache/11_marzo_19/gioia-tauro-sequestro-cocaina_b8d92c98-5215-11e0-a034- 1db210fa1eaf.shtml; http://www.levanteonline.net/cronaca/italia/2886-sequestro-record-di-cocaina-purissima-nel-porto-di-gioia- tauro-.html; http://www.mediterraneonline.it/2010/02/23/maxi-sequestro-di-cocaina-a-gioia-tauro/. 86 Source: Parliamentary annual report on ‘ndrangheta (Italian Parliament, 2008). 87 Because the current characteristics of infrastructure (not suited for ‘high-cube’ containers, shape of the galleries, radius of curvature in some rail sections) and of the service offered (in particular high tariffs) still make the use of feeders less expensive. 88 Prime Minister Romano Prodi. 89 The strategic priorities have been identified in the "Strategic Development Plan" prepared by Booz Allen Hamilton (2007), on behalf of the Commissioner.

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The Strategic Plan was a key input to the draft of the Framework Programme Agreement which entered into force in September 2010, after some delays. Priorities of the FPA are the following:

 Maintain leadership in transhipment.

 Implement an excellent intermodal system.

 Create conditions for the establishment of large national and international logistics operators through the implementation of the Integrated Logistics Centre.

The FPA includes actions (infrastructural and non-infrastructural) with committed or planned funds. Financing for the operations total EUR 459.9 million.

Table 2.1 COMPOSITION OF INVESTMENTS ENVISAGED IN THE FRAMEWORK PROGRAMME AGREEMENT Stakeholder Euro Share Port Authority 80,950,000 17.60% Calabria Region 73,450,000 16.00% Ministry for Economic Development 25,000,000 5.40% RFI (national railways operator) 280,500,000 61.00% Total 459,900,000 100.00% Source: Ministry of Economic Development et al. (2010)

As shown, most of the resources are allocated to co-finance RFI investments, which are aimed at solving the infrastructural problems of the railway network that limit the intermodal potential of Gioia Tauro. These investments are expected to lead to an increase in traffic volumes carried by train in future years. Public stakeholders are placing great hopes on the implementation of the FPA with regard to the development of the Gioia Tauro area and this is particularly true for the Calabria regional Administration. As of today, only a few minor actions of the FPA have been implemented90.

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

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3 LONG-TERM DEVELOPMENT EFFECTS

In what follows a discussion about the main long-term effects produced by the project are presented and discussed. First, a summary of the effects produced along the seven categories91 identified in the First Interim Report are briefly reported. Then, the most significant ones are discussed and further evidence provided.

3.1 KEY FINDINGS Evidence shows that in terms of effects on socio-economic development and quality of life, the port of Gioia Tauro produced mixed results. In fact, although overall it brought some positive and significant results in terms of socio-economic development (both direct growth and endogenous dynamics evidenced in particular by the positive result of the CBA), in consideration of the current particular situation and the high expectations of the initial phase, influenced also by previous development plans which did not produce the expected results and frustrated by a subsequent series of unsuccessful initiatives trying to generate a broader development process, quality of life did not improve, particularly under the heading of what has been defined as ‘social happiness’. This is strongly supported by the qualitative analysis carried out, especially the interviews.

However, even some 13 years after the financing decision, the situation is not yet completely stabilized and further positive or negative developments may still occur.

Table 3.1 SUMMARY OF NATURE AND STRENGTH OF IMPACTS Strength* Level 1. Direct economic growth +3 Local - regional 2. Endogenous dynamics +2 National - global 3. Social cohesion 0 - 4. Environmental effects +1 Global 5. Territorial cohesion 0 6. Institutional quality 0 - 7. Social happiness -5 Local - regional *-5 = very strong negative effect; 0 = no effect; 5 = very strong positive effect (the criteria considered to assign the scores are presented in Annex I).

In terms of impact on the stakeholders involved in this operation, it is worth recalling that they range from local citizens to global players in the shipping business, and therefore the map of the impact on different stakeholders is multifaceted. Details of the magnitude, the supporting evidence and the causal chains of impacts are discussed in the following sections.

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

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Table 3.2 IMPACTS* ON DIFFERENT STAKEHOLDERS EFFECTS Terminal Users: Mediterranean Terminal Government and citizens operator shipping ports operator’s Local Regional National EU lines, contractors freight and owners, suppliers feeder vessels operators 1. Direct ec. +5 +2 +2 • growth 2. End. dyn. +2 +2 3. Social • cohesion 4. Env. Sust. +1 +1 5. Terr. cohesion • • 6. Inst. quality • • 7. Social -5 -5 -2 happiness *-5 = very strong negative effect; 0 = no effect; 5 = very strong positive effect, •= expected effects which did not materialised (the criteria considered to assign the scores are presented in Annex I).

Table 3.3 TEMPORAL DYNAMICS OF THE EFFECTS*

Effect Short run Long run Future Comments (years 1-5) (years 6- 10) years 1. Direct + ++ +/- Growing until 2007 with the traffic volumes in economic the transhipment hub. The positive effect is growth threatened by the problems of competitiveness in the Gioia Tauro port and by volatility in the maritime container transport market. 2. Endogenous + ++ ++ Positive effect needs to be continuously dynamics reinforced. Now stabilised, as long as the global port system continues to rely on the use of transhipment. 3. Social No effect. cohesion 4. + + + Fuel saving in the shipping business. Environmental effects 5. Territorial +/- No effect, but if the port regains cohesion competitiveness in the next years it may positively contribute to South-North cohesion. 6. Institutional +/- Missed benefit and it is uncertain whether some quality benefits will be generated in the future. 7. Social + - -- People of Calabria moved from initial happiness enthusiasm to frustration over the lack of effects on local development. *+ = slight positive, ++ = positive, +++ = strongly positive, +/- = mixed effect (the criteria considered to assign the scores are presented in Annex I).

Although there is a strict and direct link between short term socio-economic positive effects on growth and efficiency and long term potentials, positive short term effects do not necessarily

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stabilise in the long term. This is for example the case with the competitive advantage of the transhipment activity which needs to be continuously reinforced with adjustments and adaptations to the changing situation. The same applies to the effects on quality of life. In particular, in terms of social happiness, while in the short term the enthusiasm of the successful start-up of the terminal brought about positive feelings of a new start for the socio- economic perspectives of the areas, in the long term the lack of a proper development path has translated into high levels of frustration and social distrust.

3.2 DIRECT ECONOMIC GROWTH Positive, although not as significant as expected ex-ante, effects in terms of direct economic growth are the most significant long term effects produced by the port of Gioia Tauro. The transhipment and related activities created additional direct and indirect employment for MCT (reaching 1,200 people in 2007, the point of maximum expansion) and the few shipping companies providing direct services to MCT. The 2009 list of all companies operational in the Gioia Tauro area counts about 2,100 employees (see the list of enterprises in Annex IV) 92. It is also acknowledged that some transport and logistics companies have been established thanks to the port, while there is only one company processing products (coffee) imported via Gioia Tauro93.

Additional wider effects are certainly found in the entire port and logistics system in the form of an increase in traffic demand, however the magnitude of this effect and its attribution to Gioia Tauro is uncertain.

Direct employment effects materialised at the local level and in a relatively short period of time (about 500 people in the first year of operations, 1996, and reaching the current levels after a further 4-5 years) and are now relatively stable. However, this is also the most volatile effect and is exposed to high risks: if future traffic flows do not at least reach the level of 2007, dramatic employment cuts will be the first effect in the short run94. This is also the reason why the current critical situation is drawing the attention of public opinion to the future of the port.

The result of the Cost-Benefit Analysis supports this finding. The economic rate of return on the project is positive (10.44%), and the main economic benefit is via the employment created, captured by a low shadow wage95. It is however worth noting that:

 first, this result is less positive than expected ex-ante because of project overruns (especially for the private investor) and because additional expected employment

92 In terms of wealth, most of the interviewees and many press articles, quoting the Bank of Italy, indicated that the port is currently providing 50% of the total private income produced in the Calabria region. This cannot be confirmed by the evaluators because of the unavailability of official data. 93 A more recent and interesting initiative relates to an international agreement by ICO-BLG, the other port operator (car carrier), with Honda to distribute its cars through Gioia Tauro in Italy, Spain and France, including the implementation of some high-value processing activities, but this is still at the agreement phase. 94 Employment cuts have already been implemented since 2008 and a public support scheme for the safeguarding of employment (cassa integrazione) has been put in place more recently. 95 The shadow wage used in the CBA is of 0.33. This value is supported by empirical work by Del Bo et al (2011) and stems from the characteristics of the labour market in the Calabria region, especially in terms of high unemployment. Sensitivity analysis on the shadow wage indicates that this methodological choice is a critical one, strongly influencing the value of economic performance indicators.

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effects besides those produced by the container terminal did not materialize (reasons for this are discussed in the next section);

 second, a social cost has been paid for the concession of the terminal hub given at a rate 40% lower than the one required by law and which has been assumed close to the social opportunity cost.

Moreover, the project heavily relies on the existence of the unused port infrastructure built to serve the steelwork plant. If the port had had to be built specifically for the Contship/MCT operation it would not have been worth doing at all. Therefore, a social benefit stems from the consideration that a past, expensive and unsuccessful public investment was turned at least to a fruitful business operation providing some employment effect.

Finally, this result is valid but depending on the future development of the port activities. In fact, future scenarios may range from a catastrophic situation of port closure to a positive development with new traffic flows generated.

In terms of stakeholders one of the main beneficiaries of direct growth is the terminal operator, enjoying significant profit margins, especially in the early stages of operations. Contractors and suppliers also enjoy benefits from the development of the transhipment activities, however they have limited market power since they are mainly relying on the terminal operator as intermediary between them and the shipping companies. Employment effects were confined mostly to the local level, with only limited or no effect at the regional level, although this was the main expected benefit.

3.3 ENDOGENOUS DYNAMICS The port of Gioia Tauro produced two different significant improvements in terms of endogenous dynamics: one is related to the efficiency gains of the port system, the other is related to the learning and capacity building effect due to the spreading of a know-how related to the transhipment activity in a deprived area. Both these aspects are qualitatively described since their quantification requires resources and data beyond the scope of the current analysis.

Although difficult to quantify, sector experts agree that the development of transhipment activity bought efficiency gains (mainly related to huge cost savings) to the entire Mediterranean port system and even to the global maritime traffic system96. While this efficiency gain cannot be fully attributed to Gioia Tauro (the container shipment activity would have developed even without Gioia Tauro) it has to be acknowledged that the port generated significant positive spillover effects for the regional Italian ports97 and positively contributed to transhipment development in the Mediterranean Sea98. These effects are significant and

96 See for example Russo F. (Ed.), 2010. 97 Costa and Dallari (2008) stressed that the development of transhipment relates to the need to better organise maritime traffic, in a context of growing demand, without entering into competition with the smaller regional ports. When the Port of Gioia Tauro was built, an analysis of Mediterranean traffic showed that the new port would have not substituted for any other Italian or European ports, but rather would have integrated them. 98 C-log, 2008.

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positive, but are experienced mainly at national and global level. This is a long-term effect which is now stabilized and will persist a long time, at least as long as the global port system continues to rely on the use of transhipment.

Box 3.1 DEVELOPMENT IN THE GLOBAL PORT SYSTEM Development in the global port system In recent decades the global port system has undergone significant changes. In the last two centuries port competition was lower than at present, the key driver for port access was to gain market control over an area and port-related costs were negligible compared to ocean or inland transport costs. With globalization and development of information technology ocean transport achieved dramatic productivity gains. This led to an increase in port competition and the need to increase port productivity thanks also to the use of information technology which makes port activities highly capital-intensive (management software, quayside cranes, reach stackers, straddle carriers, automation). Moreover, with the increase in the size and speed of ships a new shipping network emerged, mainly due to the need to reduce the number of port calls (and related port costs). The move was from a point-to- point to a hub-and-spoke network, in the same vein as air transport, due to the need to concentrate freight at long-distance destinations (hub) and then distribute it to regional ports (spoke). Another advantage offered by the transhipment ports is the reduction of one of the highest costs for shipping lines: the shipment of empty containers. Because of the disequilibrium between importing and exporting countries, at the beginning of the 1990s it was estimated that at least 20% of transported containers were empty and the total costs of transporting them was about USD 3.5 billion per year99. The traditional end-to-end route greatly increases this cost, while careful research of lines and ports can reduce the transfer of empty containers.

From point-to-point to hub-and-spoke network

Source: Authors

Although concerns were raised when the project proposal was submitted regarding the potential competition effect on other Mediterranean ports, this proved to be overemphasised, since in reality it is acknowledged100 that Gioia Tauro port was beneficial to the entire Mediterranean maritime system. As explained in the box above, the whole global logistic supply chain underwent a significant transformation thanks to the containerisation of maritime traffic and the development of transhipment activity. For this reason pure transhipment ports cannot be considered direct competitors of regional ports. They instead contribute to some extent to improving global traffic flows by generating feeder traffic. As concerns the other pure transhipment ports in the EU system (Malta, Pireus and Algeciras), evidence available is less straightforward but suggests that competitive pressures came to the

99 Drewry Shipping Consultants, 1993. 100 See in particular C-log (2008); Costa and Dallari (2008) and Russo (2010).

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fore only recently, due especially to the emergence of the African ports. Although the evidence available is not conclusive in this respect and a more in-depth assessment is beyond the scope of the current analysis, it can be affirmed that Gioia Tauro has positive or no effects in terms of competition on other EU ports. In the near future problems of competition in the Mediterranean can increase, due to increasing investments in the sector and new ports expected to be developed.

At the local level additional side-effects in terms of economic development come from the learning and capacity building effects that the transhipment activity bought to public and private actors in the local system. It has been reported that employees, trade unions, business associations and decision-makers benefitted from being involved in such technologically advanced activities, operating in a global market and dealing with multi-national companies. Companies are said to have gained increased capacity in dealing with global transport operators, while in terms of know-how a technological centre was created in 2005101 as a research spin-off (in partnership with the Logistics department of the University of Calabria, which is an international centre of excellence in the field of Transport and Logistics). Moreover, a huge amount of research in the field of transport and logistics has been inspired and focussed on the transhipment activity in Gioia Tauro, given also its national and international relevance. It is worth noting that this was a wholly spontaneous process promoted by local entrepreneurs, stakeholders and academics.

“Transhipment? Even its meaning was not entirely clear. Many people did have problems even in pronouncing it (…) but it did not matter, transhipment soon became a magic word in Calabria” Source: Munari T., 1997

This is a long lasting effect which has now stabilised. It should be however noted that it does not include beneficial effects on the public administration and institutions (see below on institutional quality).

3.4 TERRITORIAL COHESION Evidence on territorial cohesion is mixed and relies on opinions and perceptions collected through interviews and press articles.

On one hand, it has been reported by interviewees and confirmed by evidence in the press and public debates that the development of the Gioia Tauro port brought the attention of national and international public opinion to one of the most neglected and poorly known Italian regions which became the location of an internationally known, flagship project. By moving the Calabria region from the periphery of Europe to the centre of Mediterranean Sea, the port project had the potential to reduce the North-South divide and enhance the territorial cohesion feeling and identity of people and citizens.

At the same time, the opposition and competition pressures from regional Italian ports, especially Northern ones, together with the lack of a coordinated national port strategy

101 Thanks also to Structural Funds support.

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(discussed in the next section) played a negative role in this respect by exacerbating North- South conflicts.

3.5 SOCIAL HAPPINESS Despite the initial positive expectations and enthusiasm at local, regional and national level, today significant negative impacts prevail in respect of the sense of frustration local people experienced due to the unfulfilled promise of widespread development in the broader Gioia Tauro area. Social distrust and disillusionment are tangible effects and are likely to influence future actions regarding the port. Those feelings can be perceived when talking to people, especially in this current time of crisis and uncertainty about the future. As a result of past experience, however, citizens, but also relevant decision-makers in public and private bodies, are experiencing a strong sense of pessimism and scepticism about the chances of solving the current problems and returning to the position of the relatively recent past when the port was thriving.

Admittedly, this social distrust partly reflects the unrealistic level of expectations raised during the initial phase of the port development, which in turn reflected years of unmet promises following the plans for steel and the energy production plants. Still, it is undeniable that there is a significant unexploited potential related to the port’s development despite many years (and much public resources) spent trying to trigger broader effects. Confused and overlapping responsibilities and lack of capacity and motivation of public and private managers are the determinants of this situation (see the following section for further elaboration).

3.6 SOCIAL COHESION Social cohesion is understood here as the capacity to reduce inequality among social groups, in particular vulnerable ones such as women, the elderly or migrants102. In this vein, while there is a positive social effect in reducing unemployment in a highly deprived area such as Gioia Tauro, especially for young people103, the project does not specifically address the needs of a particular social group, and therefore no relevant long-term effect on social cohesion are recorded.

3.7 ENVIRONMENTAL EFFECTS The cost decreases brought about by the transhipment activity are related to economies of scale from using gigantic globetrotter ships and reducing the number of journeys. A relevant saving is related to fuel costs. Moreover, some traffic from the South of Italy to Northern regions may have diverted from trucks to shipping. Both these circumstances increased environmental sustainability at the national and global level; however this is a negligible benefit as compared to the previous ones.

102 See the First Intermediate Report 103 Munari T., 1997, reports that among the employees of MCT in 1995 nobody was older than 29.

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3.8 INSTITUTIONAL QUALITY Given the uniqueness of the opportunity offered by the port of Gioia Tauro, its international relevance and the strategic significance for Calabrian regional development, one would have expected the quality of public institutions to have increased significantly. This is however not the case, as explained in the next chapter, and this is by far the main reason for the failure of the project from a regional development perspective.

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4 DETERMINANTS OF PROJECT OUTCOMES

In this section the key determinants of the long-terms effects discussed in the previous chapter are illustrated and discussed. After a brief presentation of the key messages, each significant determinant is presented and evidence and arguments supporting the findings are discussed.

4.1 KEY FINDINGS There is a shared view, from the literature and from interviews, about what have been the key determinants of the port’s performance. In particular, the success experienced in the early stages by the transhipment terminal operations are undoubtedly due to the excellence of the initial project design and the forecasting capacity of the private investment plan together with the skills and professional capacity of the Contship management team. At the same time, given its key features, transhipment activity per se is not an appropriate tool for triggering larger development effects, especially in a context characterised by weak entrepreneurial ability, poor public security and scarce administrative capacity. Therefore, since the context was not suitable for such a development operation to spontaneously generate positive development effects through a bottom-up process, the role of public institutions and the capacity and motivations of the private operator were key in determining the observed effects.

Table 4.1 IMPACT OF KEY DETERMINANTS ON PROJECT’S PERFORMANCE Strength* 1. Appropriateness to the context -4 2. Project design +5 3. Forecasting capacity +5 4. Project governance -5 5. Managerial response ±4** *-5 = very strong negative effect; 0 = no effect; 5 = very strong positive effect** Positive in the first phase, strongly negative in more recent years (the criteria considered to assign the scores are presented in Annex I).

For this reason, the key determinants of the long-term effects of the port of Gioia Tauro are the appropriateness to the context (in terms of key features of the institutional, cultural and socio-economic context which need to be changed or adjusted in order for the project to be successful), managerial response (in terms of capacity of an effective reaction to competitiveness loss in more recent years by the main terminal operator) and mainly the governance structure (in terms of capacity to coordinate the fragmented and often conflicting interests of many institutions and stakeholders relevant to the long-term general interest of the port).

While the quality of the project design and forecasting capacity has already been elaborated on in Section 2, this section further explores the issues of the appropriateness to the context, managerial response and project governance.

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4.2 APPROPRIATENESS TO THE CONTEXT The main economic impact of the port on the territory was expected to be through direct (port employment) and indirect job creation, where the latter included:

 manufacturing jobs and employment in port-related businesses (road haulage, for example),

 jobs resulting from the increased level of investor confidence generated by a successful large project and

 employment through regional multiplier effects mainly in the service sector – i.e. tourism, etc.104.

Other direct expected effects comprised: re-organization and improvement of the urban system and of public services, positive cultural impact on the image of the territory and cultural innovation thanks to the presence of international actors105.

However, because of its specific characteristics, pure transhipment tends to generate very little or no value added and development in the area where the port is located, since income is generated only where containers arrive at their final destination, where they are cleared (customs duties and VAT), opened and processed. A study106 estimated that when the goods are cleared through customs, stocked, handled and distributed through adequate and efficient transport infrastructures, the employment, turnover, profits and State revenues significantly increase107.

You can do transhipment on a desert island, no connection with the socio-economic local context is needed. Source: quotation from an interview.

In other words, transhipment can create local development only if it is integrated into the national and international logistical system. Actually, logistical activities became in the 1990s one of the main instruments for local development policies, since they are a source of value added, income and wealth not only at business-microeconomic level, but also at the local- macroeconomic level108. When transhipment ports are linked to the railway and road network, they become the junction point of much more dense and wider networks.

104 European Commission, 1996, Chapter 7.1: The Impact on the Social Economic Development of the Region. 105 Committee for the Coordination and Development of the Gioia Tauro area, 1997, p. 12. 106 Ministry of Transport (2008), quoted by Gian Antonio Stella, Corriere della Sera, 5 July 2011. 107 When moving from pure transhipment ports to multi-purpose ports “Turnover goes from 300 to 2.300 euro, profits from 20 to 200 Euro, income for the State from 110 to 1,000 Euro and for every 1,000 handlings 42 jobs can be generated, instead of 5”, from Gian Antonio Stella, Corriere della Sera, 5 July 2011, quoting the Ministry of Transport. 108 Unioncamere, 2008.

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Figure 4.1 VALUE CREATION IN PURE TRANSHIPMENT AND MULTI-SERVICE PORTS

SEA PORT LAND

Pure transhipment port

SEA PORT LAND

Intermodal terminal Multi-service port Production CUSTOMS centres for the manipulation of goods Source: Authors

Transhipment per se is a “closed” system. Although several attempts have been made to promote logistics and intermodal services, they have all failed. Such operations, in fact, need a coordinated and integrated strategy and involve many public and private actors and operators, usually with a national or even international dimension (operators in the transport and logistics supply chain: shipping companies, international industrial firms, commercial distribution operators, railway operators). In order for such initiatives to be successful a strong partnership is needed, but weak governance structures prevented such a condition being satisfied (see section 4.4).

4.3 MANAGERIAL RESPONSE The excellent professional reputation, exceptional leadership and visionary capacity, together with a strong business interest of Angelo Ravano were pivotal to the decision to initiate the Gioia Tauro port project. He was somehow an instrument of the ‘hiding hand’ at work, committing sufficient resources and prestige to the project that his strong motivation was seen as a good reason to rely on the success of this flagship operation despite all the risks the initiative was exposed to. The strong commitment of Contship was confirmed also when Ravano died in 1994 and the management team working with him carried out the project implementation. The Gioia Tauro operation represented a pilot project aimed at entering a totally new and promising business by bringing transhipment to the Mediterranean.

The first phase of the project start-up was full of problems and delays, mainly related to administratively cumbersome procedures to obtain licenses and permissions, friction with local institutions putting pressures on the recruitment process and the slowness of political processes. Motivated by the amount of resources committed (material but also in terms of reputation), MCT promptly responded to the impasse among the public actors by taking actions and implementing on its own (including investing extra money up-front in anticipation

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of funding) some of the investments expected to be carried out by the public sector109. However, as a consequence of the considerable additional investments undertaken, the financial exposure of the company significantly increased, raising concerns among shareholders and, according to Munari (1997), leading to a change of the Contship and MCT management team.

Box 4.1 ANECDOTAL EXAMPLE OF MANAGERIAL RESPONSE When the first ship arrives at the Gioia Tauro port on September 15, 1995, it is night-time and the works are still in progress. The ship’s captain sent a message to the port that he could not enter since the port entrance was totally dark. In fact, the lighting system of the port entrance was not ready (it was the responsibility of the public side) and, although MCT had bought the lighting at its own expenses, the batteries had been stolen the day before. Roberta Falqui, the general manager of MCT, called the employees and asked those with a private car to take it and she personally guided the car queue along the port entrance. By pointing the car lights toward the sea they managed to provide the boat with enough light to enable the pilot to enter the port. Source: Munari T., 1997 Source: Authors

Over the years a number of circumstances hampering the economic and strategic interest of Gioia Tauro within the company group are recorded. First, in 1997 Contship Containerlines, the shipping branch of the Contship group bringing significant traffic flows to Gioia Tauro, was acquired by CP ship (later taken over by Hapag Lloyd). Second, in 1999 the German Eurokai group, a shareholder of Contship Italia and a partner of Ravano, took over Ravano’s shares in the company and became the main shareholder. The Eurokai group is a large German logistics and transport operator, operating port terminals in Hamburg and Bremen. Thanks to this acquisition, MCT became part of a large European integrated logistics system. Then, in 2001 Contship Italia started new operations in the Mediterranean in the Italian ports of Livorno, Ravenna and Cagliari. At the time of writing, the company is investing in North Africa and the Black Sea. In particular, it is a shareholder, in partnership with Eurogate (part of the Eurokai group), MSC and CMA-CGM in the Tanger-Med transhipment terminal in Tangier, Morocco.

Under this company governance structure, Gioia Tauro is by nature less strategically important than before. Moreover, the company has interests in transhipment activities spread all over the Mediterranean (Cagliari, Gioia Tauro and Tangier), competing for the same broad Mediterranean market. However, a more accurate competitive analysis of transhipment indicates that the increase of activity in the Mediterranean led to the segmentation of the market into three separate areas (west, centre and east) so that ports are now serving only dedicated areas. This would suggest that the strongest competition for Gioia Tauro is with Malta, Pireus and Port Said, serving the Central and Eastern Mediterranean as well as the Black Sea, while Tangier, Algeciras and Valencia are competing for the Western Mediterranean traffic.

Given the current fierce competition among the Mediterranean ports, attracting traffic flows to Gioia Tauro requires much more demanding marketing and commercial efforts than was

109 For example, it was MCT who asked for permission to set-up the local revenue and customs offices. It also bought fire protection equipment and trained the rescue emergency teams.

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needed at the beginning of the 1990s. However MCT has not succeeded in attracting new clients in the recent past, putting forward the argument that the key competitive weaknesses of the port are labour costs and the inefficiency of additional public services, and the terminal operator is not in a position to influence the decisions of big shipping operators. The relevance of MCT’s strategy for Gioia Tauro is magnified by the substantially monopolistic position of the terminal operator in the port110. Some of the interviewees pointed to the lack of competition among terminal operators as an additional problem and a result again of governance weakness. The governance issue is discussed in the next section.

4.4 PROJECT GOVERNANCE The key constraints to economic development of the port project were recognised from the beginning and the necessary actions identified to overcome such constraints were relevant and pointed in the same direction111.

Planning, in terms of definition of a strategy, was not completely absent. There has been the Master Plan, the Framework Planning Agreement and it was clear since the beginning that transhipment alone would have not created a lot in terms of growth and development. The problem is how to move from planning to implementation. Here it seems there is the problem. Source: quotation from an interview

Why is it that, although knowing perfectly the problems affecting the port and making it uncompetitive (while recently it was the leading and most advanced Mediterranean container terminal), policies aimed at overcoming such problems were not implemented? Source: letter of Pippo Callipo (a leading Calabria entrepreneur) writing to President Napolitano G., 25 May 2011112

All the plans conceived to make the transhipment port project a driver for local socio- economic development failed at the implementation phase due to a lack of coordinated, strategically oriented and focused implementation efforts. This result is the perverse effect of the combination of two main factors:

 from one side, the existence of a large number of institutions and stakeholders involved in the decision-making process, with unclear and/or overlapping responsibilities, which by nature may result in conflicting interests;

 from the other, a general lack of motivation and coordination at different levels, which provides incentives for short-termism and opportunistic behaviour in the managing structures of key institutions.

110 After the initial concession MCT requested and obtained a concession of additional space on the quay. It is currently operating on 150 ha with a frontage of more than 3 km in length. 111 See strategic priorities in the Programme Agreement, Master Plan and FPA. 112 http://www.ildomani.it/dal-territorio/reggio-calabria/4651-callipo-scrive-a-napolitano-intervenga-per-il-porto-di-gioia-.html

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The system discourages firms to come to Gioia Tauro, it seems like everybody works against the port’s interests. Source: quotation from an interview

Although anecdotal evidence is available on this point, there is no doubt that project governance played a determining, negative role in project performance. This view is shared by all the interviewees and press articles, although with different nuances and specification.

Governance constraints are the result of a combination of national and local key characteristics of port governance. For this reason, after a brief illustration of the characteristics of port governance at the global and European level as benchmarks, and the key constraints at the Italian level, to put the case into a broader context, the specifics of the governance structure in Gioia Tauro are presented. Finally, the role of the European Commission over the entire period and with different initiatives is discussed.

4.4.1 Governance structure in the global port system The globalization of maritime traffic and the recent process of decentralization of port functions and management have resulted in a complex system of European port governance structures. They present a multiplicity of models depending on the level of decentralization, the role of private operators and the responsibility of management and administrative functions.

Box 4.2 MODELS OF PORT GOVERNANCE STRUCTURES According to a classification of the World Bank113, port governance models depend on the typology of services provided by public or private operators or those with a mixed nature, by their institutional orientation (local, regional or global), and the ownership of infrastructure, superstructure and equipment (e.g. ship-to-shore handling equipment, sheds, and warehouses), and the status of dock labour and management. Infrastructure Superstructure Port labour Other functions Public service port Public Public Public Majority public Tool port Public Public Private Public/private Landlord port Public Private Private Public/private Private service port Private Private Private Majority public Source: World Bank Port Reform Tool Kit, module 3, p. 85, 2004. European and especially Mediterranean Ports are mainly landlord ports, with a mixed public-private governance structure, with the Port Authority being the owner of the infrastructure and having regulatory powers, while private companies operate and provide port services (in particular the cargo handling and related operations). The World Bank highlights that, while in this model terminal operators are motivated to be more loyal to the port and to invest, given their long-term contracts, potential weaknesses are the need to better coordinate the marketing and planning activities, excessive bureaucracy and limited financial resources. Source: Authors

A more recent classification adds to landlord, regulator and operator, the innovative function of ‘community manager’, which is a coordinating function of all the stakeholders and interests within the port area, but relates also to the relationships of the port to the local surrounding

113 World Bank Port Reform Tool Kit (2004).

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context. A recent ESPO (European Sea Ports Organization)114 survey of 116 European Port Authorities identifies three typologies of approach for European Port Authorities. Most of them exhibit either a ‘conservative’ governance structure, limiting their role to a rather passive application of rules and regulations, or a ‘facilitator’ role, with a more dynamic attitude to attracting investments and undertaking partnership agreements with other ports or local agencies. Only in a few cases the Port Authority exhibits an ‘entrepreneurial’ attitude, aimed at promoting and carrying out infrastructural investments, negotiating concession contracts with private operators and acting with a global market perspective.

The nature of the global logistic chain and the way the decision-making mechanism works is such that there is the need for highly technical capacity and expertise to act with large global players and financial institutions. For this reason it is necessary that the appointment of the key public managers is made according to their capacities to perform this demanding task rather than in response to clientelism and opportunistic behaviour.

Box 4.3 DECISION-MAKERS IN THE CONTAINER GLOBAL LOGISTIC CHAIN Decision-makers in the container global logistic chain In the maritime container transportation sector there are numerous decision-makers:  The owner of the freight, who represents the transport demand;  The forwarding agent who receives the freight and has to decide which mode of transport to use to take it to its final destination;  The shipping line which has responsibility for the entire transport process and decides in which ports to land. The shipping lines usually land in big ports with high traffic demand, in order to optimise their route so as to serve as many markets as possible, by reducing the number of ships and in the meantime increasing transport capacity. Hence, the criteria for selecting a particular port are mostly of an organisational nature.  The feeder vessels operators, who take the cargo from the transhipment port and bring it to its port of destination.  The terminal operators have very limited influence over the choice of traffic route and their only leverage to attract shipping lines is to offer high productivity, reliability and high quality structures and equipment;  Intermodal operators in the port: ports effectively linked to the mainland railway and motorway network can attract higher demand by offering a choice of modes of transport for containers to reach their final destination;  The Port Authority can offer good quality infrastructure and discounted anchorage tariffs to shipping lines that decide to frequently land in the same port, or free duty zones; Additional influencing factors are the geographical location and structural characteristics of the port: not all ports are deep and large enough to accept container ships carrying more than 10,000 TEUs and not all the ports are located in the middle of the main trade routes. Source: Authors processing Costa and Dallari (2008), C-Log (2008) and Russo F. (2010)

4.4.2 Governance structure in the Italian port system Port governance is an issue not only in Gioia Tauro but in the entire Italian context. As pointed by the ESPO (2010) survey on European Port Authorities, the Italian Port system is suffering

114 ESPO (2010)

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from a delay in the reform process (the last port reform took place in 1994115) aimed at addressing the current lack of integrated planning and management of the entire logistic supply chain at the national level. Port Authorities have limited autonomy, especially at the financial level116, and this hampers their capacity to manage the conflicting interests of port operators and other stakeholders.

By contrast, in the Spanish context for example, a central public agency is in charge of coordinating the efficiency of the port system and executing port policy set by the government. Moreover, each port has a strong specific function, which enhances synergies rather than competitive attitudes among all the national ports, and Port Authorities are autonomous from a managerial and financial point of view. Finally, the system benefits from high political commitment at the central level.

In this fragmented national scenario, political support for the port system is more responsive to the pressures of local lobbies than to a transparent and consistent strategic vision. As an example, it is quite surprising that in the recent national logistic draft plan117, under which huge investments are planned for the ports of Trieste and Vado Ligure in Northern Italy, no mention is made to the Port of Gioia Tauro118, although the FPA in place, signed by among others the Ministry of Transport, is clearly aimed at developing in Gioia Tauro a logistic centre of national relevance.

Global shipping competition is played with the institutional support of regions and countries to ports and intermodal networks. In recent times, however, public support for the port system and political attention to Gioia Tauro has decreased. The financial and political action towards some big Northern ports only (Genova and Trieste in particular) is alarming. Source: Press article, Il Manifesto, 30.06.11, interview with Domenico Gattuso, Professor of Transport Engineering at the University of Reggio Calabria

4.4.3 Governance in the Port of Gioia Tauro As of today, many bodies have different competencies regarding management and development of the port and the broader Gioia Tauro area. Their specific mandates and objectives are not always aligned and consistent and often the ultimate effects have been a situation of difficult and unconstructive interactions. For example, a long-running dispute119 exists between ASI-REG and the Port Authority, regarding the ownership of a vast area of the industrial zone and, consequently, the allocation of competencies over the area120. There is a shared opinion among the interviewees that this situation paralysed on many occasions the decision-making process, delaying and jeopardizing the successful implementation of public actions.

115 Law 84/1994 shifted competence from the public to the private operators and introduced a new classification of ports and port labour activities. 116 This means for example that they cannot autonomously decide to decrease or cancel the anchorage tax; this requires a decree from the central Ministry. In the same vein, tariffs paid for port services are not directly included in the port authority budget but are firstly channelled to the central ministry which then redistributes them to ports on the basis of administrative rules. 117 Only three lines in the whole plan are devoted to Gioia Tauro (Ministry of Transport and Infrastructure, 2010). 118 Many interviewees highlight that the Northern regions are better able to advocate for institutional support than the Southern ones, thanks to their strong industrial, financial and political lobbies. 119 Since the founding of the Port Authority in 1998. 120 The case is still pending at the Civil Court of Reggio Calabria.

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Figure 4.2 GOVERNANCE STRUCTURE OF THE PORT OF GIOIA TAURO National Government

Prime Extraordinary European Minister Commissioner Commission Ministry of Ministry of Coordinating Transport Industry Committes

Calabria Municipality Region and Provinces

Contship Italia- MTC Port ASI-REG Authority Other Port operators

Harbourmaster, Custom office, Fire Brigade, etc.

Port Industrial area

Wide area of the Gioia Tauro Port

Note: Dashed lines are used to indicate past/temporary responsibilities or tasks. Source: Authors

Because of the extremely large number of parties involved, transaction costs are high and the incidence of fragmented actions is high. Strategic planning of the port development was independent and not integrated with the strategic planning of industrial development for the port-related activities. As an example, the location and structural design of the rail gateway, implemented by ASI-Reg during the port start-up phase, is such that is more useful for inland freight traffic supposedly related to the industrial zone development (the area where ASI-Reg had the main competence) rather than the container terminal hub121. In order to cope with this infrastructural bottleneck, a new gateway is currently under development (among the priority interventions included in the FPA), which is located closer to the container terminal (in the area under the Port Authority responsibility, which is actually the implementing agency) and with structural features (length and shape of the line) which are consistent with the current requirement for transhipment containers. This will give the opportunity to increase the intermodal potential of the container terminal.

121 For example, it is located close to the industrial zone and is not well connected to the terminal quay, which makes the use of the rail connection difficult for maritime traffic.

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A fragmented sharing of responsibilities did not help with the attraction of new firms to the port. It was reported that the level of administrative and legal steps a firm is expected to take if it decides to locate in the industrial area and the number of bodies and institutions expected to be dealt with is so high that anecdotal evidence is available of several firms becoming frustrated with the effort required and giving up on the idea of establishing close to the Port122.

If a business operator is interested investing in GT it has to deal with so many different entities and bureaucratic burdens that it gets frustrated and soon decides to go elsewhere. Source: quotation from an interview

Coping with such fragmented and complex distribution of responsibilities is made difficult by poor political will and possibly vested interests among the decision-making actors. Although the high visibility of the project and the attention of public opinion would be expected to play a positive role in enhancing political commitment to results-oriented behaviours, there are shared opinions among the interviewees that the political turnover at national and regional level led to ongoing stop-go development and discontinuity of strategic direction123, which slowed down the process and created institutional impasse124.

Industrial and logistical development requires quite a long timeline to plan, implement and operationalize the related infrastructures and services, since they involve railway connections, firm localizations, territorial marketing and transfer of know-how and technical skills. The nature of these initiatives is such that in order to generate some tangible results, a medium to long-term perspective is needed, while politicians tend to have much shorter vision. Using Hirschman’s notion (1967) the ‘fare bella figura’ generates incentives for political leaders to foster a commitment more on short-term results, which become visible sooner, rather than on the implementation and materialization of socio-economic achievements.

The pressures of organized crime may also have influenced political decision-making at different levels, by hampering the implementation of initiatives detrimental for their own

122 Munari (1997) also reports the same kind of problems experienced by Contship in the initial phase, problems which caused several delays and required extra unexpected managerial effort. For example, for the formal authorization of the availability of the area following the concession agreement they had to obtain authorization from the Harbour office, which had to request authorization from the Ministry for Maritime Commerce, which could not provide the authorization since the competence for the area was still with the development agency (Agensud), which in the meantime had been discontinued, so the request for formal transmission of responsibility had to be made to the commissioner nominated by the Ministry of Public Works. The formal steps for a single authorization were: Commissioner of Ministry of Public Works, Ministry for Maritime Commerce, Harbour office, Contship. In addition to that, the start of the entire operation required additional authorizations from: the Civil Engineering Corps, the local custom office, the Fire Brigade, the Revenue Office, the local technical fiscal office. (Source: Munari (1997), pp. 50-51) 123 In the period 1993-2010 ten different national governmental coalitions were in power, the longest-lived being the Berlusconi government in the period 11-06-2001/23-4-2005. Over the same period 5 different coalitions followed one another at the regional level. 124 A recent example is provided by the delays experienced in the preparation and agreement of the FPA. The preparation of the Master Plan likewise did not go smoothly: identified, after pressures from the EU, for governmental action (during the first Prodi government in 1996-98), it received less attention from the subsequent coalition. Again, the Special Commissioner for the port was nominated directly by the Prime Minister (during the second Prodi government, in 2006-80) whose mandate ended before the end of the Commissioner’s mandate. Thereafter the Commissioner received less high-level political commitment than was the case during the first phase of its activity.

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business and facilitating the selection of managers they could better control. However no conclusive evidence related to the Port of Gioia Tauro is available on this point125.

Lacking robust national political coordination, there are stronger incentives in terms of prestige and political visibility for public managers to promote infrastructural works126, rather than planning and regulating the service related to the operation of the infrastructure, the result being that much more effort and resources are spent on investing in infrastructure (also on improving skills) rather than on service provision in competitive markets (which is normally outside the control of public managers). This has led to a myopic logic in past (and also present) actions, of first building the infrastructure and then attracting the traffic (or, even worse, the belief that the traffic will automatically come). The need would be instead to reverse this logic, with the key transport operators expressing their needs and the conditions to be satisfied for the service to be competitive, and a strong partnership of transport and industrial operators, together with financing institutions and under strong political coordination, for the infrastructures to be realized.

4.4.4 The role of the European Commission Over the years the European Commission has been involved several times as co-financer of the Gioia Tauro development plans. In addition to the initial grant for the productive investment by Medcenter, the Structural Funds also co-financed:

 staff training for transhipment related operations;

 construction of the platform for modal shift, and

 the global grant to attract new businesses in the industrial areas.

On several occasions the EU Commission showed a high level of interest and commitment to promoting a sustainable and long-lasting local development in the Gioia Tauro Area, and provided stimulus and funds under different headings. From a more strategic perspective, it also exercised pressures to stimulate and accelerate some of the measures deemed necessary to complete the development plan. For example, it was following a Commission request that the Master Plan was prepared. Again, it was in the framework of Structural Funds programming that the new FPA has been discussed and drafted.

125 Past trials mentioned criminal pressures on some political decision-making processes, for example an ‘influence’ was said to be clear in the draft of the port Master Plan advocated during the Prodi government, however no politicians or public managers directly involved in the port activities were ever convicted in this regard. 126 Responsibility in contracting public works entails a strong power and influence over local economic interests.

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Box 4.4 KEY CHARACTERISTICS OF A SUCCESSFUL GOVERNANCE STRUCTURE IN GIOIA TAURO  Strong institutional coordination at national, regional and local levels to maximize synergies in the development of the role of Gioia Tauro as a logistics integrated hub for Southern Italy and Intra- Mediterranean traffic;  Ensure alignment between the Strategic Plan and other infrastructure, industrial, urban development plans for the area;  Ensure smooth implementation of the operational plan of action through effective monitoring and project management on single actions and implementing agencies involved;  Promote and implement high-level territorial marketing initiatives to attract key players and national/international investors;  Simplify and effectively manage the approaches for interaction, coordination and consultation with the Territory. Source: Abstract from Booz Allen Hamilton, 2007

The current FPA is aimed at overcoming the lack of integration, and the fact that all the main parties have signed the agreement has been reported as a key achievement in overcoming some of the limitations of past strategies127. The Strategic Plan128 also puts strong emphasis on the need for an independent agency, committed to the long term development of the broader Port area, to overcome governance weaknesses. The idea is however not new, since this need has been clear since the Programme Agreement between Ravano and the Italian government, and was subsequently reiterated several times, for example in the Master Plan prepared in the late 1990s.

The key mandate of this agency would be to coordinate a marketing effort at the global level to attract potentially interested operators to invest in the Gioia Tauro port, being able to dialogue with them and understand their expectations and business needs and guide investment plans in order to provide the required business conditions to attract traffic (in fact the role played by Ravano for the transhipment hub). It has been reported for example that preliminary exploratory activities with some large logistics operators have been carried out in the framework of the Strategic Plan informing the FPA; however no follow-up has been undertaken, especially in the form of high-level meetings, pre-agreements or similar.

The EU Commission played a pivotal role in this last FPA as well as in other instances to facilitate the promotion of an integrated development approach, fostering the role of the promotion agency as a key condition to overcome the governance limitations. However, past efforts were not (or only partly) successful, and no significant steps have been taken yet in the framework of the current FPA. This is due to the fact that problems arise during the implementation phase, while the EU Commission has a key responsibility during the programming phase and until the co-financing decision is taken. After that, it has only limited or no capacity to influence the downstream phase, which is in the hands of national and regional actors. The only tool to influence the process is by putting conditions on the use of the funds in terms of timing and destination (this was for example the case with the grant to

127 However the impression of the evaluators is that this aspect is more formal than substantial, with a shared pessimism about the actual potential of the FPA to actually be implemented in all its aspects. 128 Prepared by Booz Allen Hamilton on behalf of the former Special Commissionary of the Government (2007).

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Medcenter when the funds were conditional on the use of the infrastructure for transhipment purposes only), providing disincentives to delaying the process and deviating from the planned objectives. However this proved to have limited scope in substantially influencing the project performance.

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5 CONCLUSIONS

The Lord gave Gioia Tauro a seabed deep like Poseidon’s abyss. One day, he thought, this seabed, unique in Italy, will receive the gigantic container ships of the third millennium, and will finally make Calabria rich and flourishing. But then he saw that the people did not deserve it, and he made them blind. Source: Sergio Rizzo and Gian Antonio Stella, Corriere della Sera, 30/10/2010

The Gioia Tauro project was initiated in an entrepreneurial spirit. The project design and its implementation involved a new business activity in the changing global market for maritime services. The underpinning rationale for public funding was related to the ambition to trigger growth at the regional level. The challenge from this perspective was how to take advantage of a smart but self-contained business operation, betting on the generation of positive side effects.

The project was unable, however, to reconcile the tensions between the ambitions of both the private business and the policy makers, and the difficult local context.

The transhipment activity is fundamentally trait-taking, according to Hirschman’s definition. Transhipment does not require features specific to its location, apart from geography and some infrastructural endowments. However, the broader development initiative linked to the logistic hub was intended to be trait-making. In fact the development strategy required a number of institutional, socio-economic and political context specific ‘traits’. Given the starting point, many local features would have had to be adapted. The project would have needed to cope with the poor local entrepreneurial capacity, administrative cumbersome procedures, lack of maritime specific know-how and tradition, weak administrative capacity and fragile political leadership at the local level.

Developing a logistic pole and an industrial zone related to a transhipment activity of international significance, in the difficult context of Gioia Tauro, proved to be a too ambitious plan for the weak governance of the port system.

In terms of planning capacity, especially at the national and EC level, the key weaknesses to be addressed were duly acknowledged, but the implementation of the accompanying development measures was inadequate.

Radical and multi-faceted improvements in the contextual situation are still needed. It is perhaps not too late and the task is not impossible, but it will take much longer than what was expected at the project’s start-up, along with continued policy commitment.

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ANNEX I. METHODOLOGY OF EVALUATION

The present Annex summarises the methodological approach undertaken for carrying out the project case studies and presented in the First Intermediate Report of this evaluation study. Moreover, the Annex further elaborates on and specifies the definition of long-term effects considered throughout the case study and the typology of determinant mechanisms analysed in interpreting the project outcomes. The main objective is to provide the reader with a set of information describing how the project evaluation was conducted and to enable him/her to replicate this methodology.129

The Annex is divided into three parts: in the first one, the overall conceptual framework of the evaluation study is recalled and the definition of long-terms effects and project determinants are laid out; in the second one, the methodology of analysis followed to implement the ex-post evaluation is discussed; finally, the structure of the case study reports and the tools used to standardise them is described in the third part.

CONCEPTUAL BASIS The Conceptual Framework of this evaluation study is based on three dimensions of analysis: the object of the evaluation (the ‘What’), the timing of the long-term effects (the ‘When) and the determinants of the project’s outcomes (the ‘How’).

The ‘What’ dimension

The Team developed a classification of long-term effects, with the aim of identifying all the possible impacts of public investments on social welfare. A broad distinction of project effects is among effects on ‘Economic development’ or ‘Quality of life’. Investment projects can foster economic development, which is generally quantifiable by aggregate indicators, such as the Gross Domestic Product; although economic development is not disconnected from the wellbeing of society, it is acknowledged that there are a number of other factors that may affect public welfare, that are not captured by the traditional economic indicators130. For the purpose of this study, the notion of quality of life131 refer to the factors that affect social development, the level of social satisfaction, the perception of social reality and other dimensions which are outside the conventional economic dimension. Under these two broad categories, a taxonomy of more specific long-term development effects of investment projects has been developed. The definition of each type of effect is provided in Table I.1.

129 Specific recommendations which may enable application of the same evaluation methodology to future projects are discussed in the Final Report of this evaluation study. 130 Dasgupta, 2011 and Stiglitz et al., 2009. 131 Used also as synonymous with wellbeing, as mentioned in the ToR.

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Table I.1 TAXONOMY OF LONG-TERM DEVELOPMENT EFFECTS Effects Definition Checklist Economic development Direct economic Following the traditional growth theory132, both Did the project have effects on the endowment of growth public and private investment contribute to labour or capital production factors? Did it contribute increasing the stock of capital and thus economic to employment creation? Did it attract new growth. The direct contribution of a project to investments? Did it create new business economic growth, in terms not only of real growth opportunities? Did it produce time savings for business of GDP, but also, more generally, on economic trips? Did it produce decreases in travel costs? welfare is discussed within this category of effect. Endogenous Endogenous dynamics comprise all the factors that Did the project contribute to the improvement of the dynamics have an indirect effect on economic growth, by productivity of the economic system? Have social improving the productivity of inputs: the increase of behaviours changed as a result of the project? Did the the stock of competences and knowledge of human project provide new/improved skills, R&D investment, capital133, the introduction of a more advanced organisational changes that translated into an increase technology134 and changes in the organisational in labour productivity? model of economic actors, making them more efficient135, are analysed insofar they contribute to increasing the production function. Quality of life Social cohesion Public investment can affect social cohesion, by Did the project promote social inclusion? Did it minimising disparities, avoiding social improve the conditions of specific segments of the marginalisation and reducing income inequalities population (e.g. elderly, migrants)? Did it improve the across different socio-economic, gender or ethnic affordability of services? groups. Environmental Polluting emissions, biodiversity loss and depletion Did the project improve the quality of the natural effects of natural resources caused by large infrastructural environment? Did it alter wildlife habitats? Did it affect projects can affect social wellbeing of both the the ecosystem? Were there any environmental issues present and future generations. related to project implementation? Territorial The project can contribute to reducing welfare Did the project improve the territorial cohesion of the cohesion disparities caused by unequal distribution of region/country? Did it play any role in urban-rural or resources and opportunities among regions and core/periphery or cross-border dynamics? Did it their population. The focus, in particular, is on core- expand the territorial coverage of the delivery of a periphery and urban/rural differences. basic service? Institutional Investment projects can bring wide spill-over Did the project induce any institutional learning at learning effects to the quality of Public Administration and regional administrative level? Did it raise political other institutions at national, regional or local level. awareness regarding a specific theme? Did it have Institutional quality is strongly related to economic effects on the level of corruption? growth136, but it can also affect the quality of life of people, because of the intrinsic value that individuals can attribute to a well-ordered society137. Social happiness This category encompasses all those variables Are the project beneficiaries overall satisfied with the which may affect the subjective perception of project’s implementation and outcomes? Did the people’s wellbeing, and have to do with their project have any effect on the perception of quality of psychology, family context, religion and cultural life? Did it affect the sense of security of the target traits. population?

In researching all the possible long-term effects of project investments, it is acknowledged that there is a risk of duplication and double-counting: for example, a project for water treatment clearly has effects on environment, which may contribute to the development of new economic activities that foster economic growth.

132 Solow, 1956. 133 Becker, 1962. 134 Griliches, 1992 and Griffith, 2000. 135 Tomer, 1982 and Martinez, 2009. 136 See, for instance, Easterly et al., 2006. 137 Sen, 1987.

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The ‘When’ dimension

The temporal dimension of analysis relates to the point in the project’s lifetime at which the effects materialise for the first time, how they develop over time and whether they have already stabilised or are still evolving. A clear distinction emerges between short-term and long-term effects, with the former being the first contributions made by the project and enjoyed by society after a relatively short time following project completion (about 1-5 years); the latter, on the other hand, become visible after a longer period of time and tend to stabilise over many years. It is acknowledged that, given the varying timeframe for different effects to appear and stabilise, the choice of the time horizon and the timeframe at which the ex-post evaluation is carried out can significantly affect the results of the evaluation.

The ‘How’ dimension

Project outcomes, i.e. the way projects affect the generation of certain effects and the varying timeframe for effects to appear and stabilise, are not certain, but result from a non- deterministic combination of different and interrelated factors. Five stylised determinants of project outcomes have been identified: appropriateness to the context, project design, forecasting capacity, project governance and managerial response. Five Working Hypotheses are related to these dimensions and explain how each of them can influence the generation of the project’s short or long-term effects (see Table I.2).

The three dimension of analysis are logically interconnected and by combining the ‘What’, ‘When’ and ‘How’ dimensions the evaluator can disentangle the causal chain between the project’s inputs and the outputs.

METHODOLOGY OF ANALYSIS The methodology developed to answer the evaluation questions consists of a combination of quantitative (Cost Benefit Analysis) and qualitative (personal interviews, surveys, searches of government and newspaper archives, etc.) techniques. Qualitative techniques are probably better at determining why certain effects are generated, along what dimensions, and underlying causes and courses of action of the delivery process. The media (including websites or blogs), in particular, have proved to be an excellent source of evidence identifying or revealing both objective information and perceptions about the project, thus concurring to assess the project’s impact on social happiness. At the same time, quantitative data can provide an important support to test and validate certain findings derived from interviews and other sources. The most important contribution of the CBA exercise is to provide a framework of analysis to identify the most crucial aspects of the projects’ ex-post performance and final outcome138.

138 More details on the approach adopted to carry out the ex-post CBA exercise and, in particular, indications on project identification, time horizon, conversion factors and other features are extensively described in the First Intermediate Report of this evaluation study.

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Table I.2 KEY DETERMINANTS OF PROJECT OUTCOMES CONSIDERED Determinant Definition Working Hypothesis Questions to be answered Appropriateness Includes the Context traits can be more or less favourable for project performance Has the (political, cultural, socio-economic, institutional, regulatory) context to the context consideration of and deserve early and careful consideration about which to take or to played a role in influencing the attainment of long-term effects? institutional, cultural, make. Were there any political, social, cultural, economic, regulatory, or institutional social and economic The terminology of context traits that can be either ‘taken’ (that is, constraints to project implementation and performance? environment into accepted, as they are considered unchangeable) or ‘made’ (by changing Was the project ‘trait taking’ or ‘trait making’ in its nature? If it was intended to which the project is existing or creating new traits) is drawn from Hirschman (1967). be trait making, did it succeed? inserted. Project design Refers to the technical The technical and engineering capacity to design an infrastructure and to To what extent and in what way did the technical, structural and financial capacity to design the provide the appropriate mechanism for its financial sustainability should features of the project influence its performance? infrastructure project be sufficiently disciplined to reduce future risks; at the same time it Did the option selection process lead to the implementation of the most and to select the best should leave some degrees of ‘latitude’ to enable adjustments for promising project idea? project option. unforeseen circumstances. Was project design capacity a relevant factor in determining the observed ex- Following Hirschman, latitude is the characteristic of a project that post performance of the project? permits the project planner and operator to mould it, or to let it ‘slip’, in Was the project design flexible enough to be adjusted, if needed, to external and one direction or another. Some projects are so structured that latitude is unexpected constraints? severely restricted or completely absent: in these cases, the project is considered highly ‘disciplined’. Forecasting Relates to the A good initial investment in building the forecasting capacity does not Were the ex-ante forecasts based on a sound methodology and a comprehensive capacity feasibility and capacity eliminate risks, but it increases the knowledge of the context, improves set of information? to predict future the project design and optimises the distribution of responsibilities Were some important factors not sufficiently considered ex-ante? variables, such as the without lowering the commitment to performance. Was the forecasting capacity a relevant factor in determining the observed ex- demand level. post performance of the project? Project Concerns the number High stakeholder involvement, well-defined roles and responsibilities What are the interests and motives of different actors and incentives for governance and type of and incentive mechanisms require commitment of resources and decision-making? How did they change over the time-span considered? stakeholders involved increase the complexity of the decision-making process, which may be Was the ownership of the project clearly identified? throughout the project subject to particular pressures, but they can favour the project Did contractual arrangements improve the co-ordination of different cycle and how performance and its sustainability over time. stakeholders towards achievement-oriented results? responsibilities are Was project visibility a relevant political incentive to foster proper project attributed and shared. implementation? Was the project subject to political or other forms of pressure? Managerial Defined as the Unpredicted events that occur and undermine the sustainability of the How did the project react to exogenous, unpredictable, events? response managerial and project and its capacity to lead to expected benefits can be overcome by What remedial actions were put in place? What mechanisms were used to professional ability to prompt and adequate response from the decision-makers and project incentivise proactive responses? react to unforeseen managers, driven either by professionalism and experience or by Why were these events unexpected? Was it due to their purely exogenous and events. creativity and imagination. ex-ante unpredictable nature? Or, was it due to poor planning capacity?

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STRUCTURE OF CASE STUDIES AND STANDARD TABLES OF RESULTS Qualitative and quantitative findings are integrated in a narrative way, in order to develop ten project ‘histories’ and to isolate and depict the main aspects behind their long-term performance. All case study reports share the same outline, presented in the following Table:

Table I.3 OUTLINE OF THE CASE STUDY REPORT SECTION CONTENT Projects The first section provides a brief sketch of the unit of analysis. It describes the key structural description features of the infrastructure and the service delivered, the context in which it takes place, the target population and the current performance of the project. Origin and history This section describes the background in which the decision to initiate the project was taken, the need and objectives expected be met and the key stakeholders involved and their role. The section should present a brief chronicle of the main developments after the construction phase and the most recent facts. Description of long- This section should describe the main long-term development effects provided by the term development project. The seven categories of effects should be considered and for each of them an effects assessment of the contribution of the project to that specific effect, and the timing of their materialisation and evolution, should be given. Determinants of The main drivers influencing the performance observed are described and elaborated here. project outcomes The evaluators should provide their own assessment for each of the five key determinants of project outcomes identified in the conceptual framework. Conclusions The key messages in terms of lessons learnt are developed here. Annexes Ex-post cost-benefit analysis report, list of interviewees, other ad hoc analysis if relevant (such as stakeholder mapping).

In order to maintain the structure of all the case study reports as similar as possible, and facilitate the cross-project analysis of findings, a set of standard tables is used to summarise the main evaluation results related to three dimensions of analysis (‘What’, ‘When’ and ‘How’). Section 3 and 4 of each case study include standardised tables in which scores are assigned to each type of long-term effect and each determinant. Scores ranging from -5 to +5 are given in order to intuitively highlight which are the most important effects generated for each case study and which are the most relevant determinants explaining the project outcomes. In other words, scores are used to rank the effects and determinants, showing which ones are the most relevant. Moreover, the plus or minus signs indicate the nature of the effects produced by the project (was the impact positive or negative?) and of the determinant of project performance (did the determinant positively or negatively contribute to the project outcome?).

The same scores are used to disentangle the project’s impacts on different stakeholders. This table allows one to better interpret the aggregated score given to each effect, by understanding on which actor the project impacted the most: for example, a +3 score to “Direct economic growth” may be reflected by a very high positive effect on the infrastructure operator (valued, for instance, +5) and a slightly negative effect on other actors (valued -2). As shown by this example, the aggregate score of each effect and the scores related to different stakeholders should be consistent with each other and should results from a sort of weighted average of the impacts on individual stakeholders: an aggregate positive score is inconsistent with negative impact scores on all the different stakeholders involved.

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Table I.4 SCORES ON PROJECT’S IMPACT AND DETERMINANTS OF PROJECT OUTCOMES Score Meaning +5 Given the existing constraints, the highest positive effects have been generated. +4 Given the existing constraints, high positive effects have been generated, but more could have been achieved under certain conditions. +3 Moderate positive effects have been generated, with large scope for further improvement. +2 Some positive effects have been produced. +1 Very little, almost negligible, positive effects have been generated. 0 No effects have been generated. -1 Very little, almost negligible, negative effects have been generated. -2 Minor negative effects have been produced. -3 Moderate negative effects have been generated, but they could have been worse. -4 Highly negative effects have been generated. -5 The highest negative effects have been generated. Note: The same scores have been used for assessing both the project’s impacts and determinants. In the first case, they have to be interpreted as the nature and strength of effect generated by the project; in the latter, they indicate the strength of each determinant factor in influencing the project outcomes.

The ‘When’ dimensions results are synthetically presented by means of another table: for each kind of effect, a score is given to explain how the nature and strength of the impact evolved over the years, by focusing in particular, on the short-run (approximately 1-5 years after the project’s completion), the long-run (6-10 years after the project’s completion) and the future period. The Table contains information that allows the reader to immediately understand whether the project impacts have already stabilised or not. The meaning of the symbols used and an example of their application is presented in the following two Tables.

Table I.5 SYMBOLS USED TO DESCRIBE THE TEMPORAL DYNAMICS OF THE EFFECTS Symbol Meaning + or - Positive or negative effect. ++ or -- Positive or negative effects reinforced (in positive or negative direction) with respect to the previous stage. +++ or --- Positive or negative effects further reinforced (in positive or negative direction) with respect to the previous stage. +/- Mixed effect, it is not possible to assess whether the impact was positive or negative.

Table I.6 EXAMPLES OF TEMPORAL DYNAMICS OF THE EFFECTS Short run Long run Future Comments (years 1-5) (years 6- 10) years + + + The positive effect stabilised in the short-run. + ++ ++ The positive effect stabilised in the long-run. + ++ +++ The effect has grown over the years and is expected to increase also in the future. - + ++ The effect was at first negative; after some years it turned positive and it is still not stabilised yet. +/- + ++ Effects have been mixed in the initial stage, became positive in the long- run and are expected to further increase in the future.

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ANNEX II. COST-BENEFIT ANALYSIS

The present annex illustrates the ex-post CBA of the Port of Gioia Tauro, undertaken to quantitatively assess the performance of the project. The methodology applied is in line with the technical note provided in the First Interim Report and, more generally, with the EC Guide (European Commission, 2008). This annex aims to present in more detail the assumptions, results of the CBA and the scenario analysis for the Port of Gioia Tauro project.

METHODOLOGY, ASSUMPTIONS AND DATA GATHERING Ex post CBA has been based on the following assumptions:

 Project identification

The unit of analysis is the creation of a transhipment port in Gioia Tauro by the private company Medcenter Container Terminal (MCT), which operates in the port. In the economic analysis additional port services necessary for the transhipment purposes are also included (Port Authority, Customs and Immigrations, etc.). Other activities not directly related to the transhipment operations are not considered as part of the analysed project. Hence, investments, operating costs and revenues deriving from the car carrier activities, made by the other terminal operator ICO-BLG, and from other bodies operating in the industrial area outside the terminal are excluded both from the financial and economic analysis.

 Time horizon

The time horizon has been set at 30 years for all the project case studies of this evaluation. This means that the timeframe for the CBA of the Port of Gioia Tauro spans from 1994 (year zero), the first year in which capital expenditure for investment occurred, to 2024. Since the point of view is today (2011), the analysis presents a mix of historical data and forecasts: data from 1994 to March 2011 are historical (corresponding to 17 years) and from April 2011 onwards (covering 13 years), estimates are applied.

 Constant prices

The analysis is carried out at constant prices: data from 2012 onwards are estimated in real terms (2011 prices, no inflation), while available data up to 2011 are historical and therefore expressed in the official documents and sources of information in nominal terms: they have been reflated so as to turn them into prices at 2011 Euro139.

 Discount rates

Consistent with the choice of using constant prices for inflows and outflows, both the financial and social discount rates used are real. Financial discount rate is 5.0% for both the

139 For inflation the average percentage variation of consumer prices provided by the International Monetary Fund (IMF) was used. For consistency, the same source will be used also for the other case studies.

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backward and forward period of analysis, as suggested in the current EC Guide. In the economic analysis, a specific social discount rate for Italy for the past and the future periods has been calculated140. A real backward social discount rate of 2.9% and a real forward social discount rate of 2.4% are used. The reason for using specific social discount rates for Italy, which differ from the rate suggested in the EC Guide141, relies on the definition: “The social discount rate reflects the social view on how future benefits and costs should be valued against present ones and [...] is based on estimates of long-term growth potentials” of a given country (EC Guide). Recognizing that economic growth is not uniform between countries and is subject to dynamics, it is methodologically sound to use a specific rate for a given country and, within each country, to adopt two rates, depending on whether capitalising the past or discounting the future.

 Without the project scenario

All cash flows are incremental against a without-the-project scenario, consisting in the already existing but unused port infrastructure, producing no costs or revenues. Although a share of the infrastructure value was utilised in the project analysis and may be relevant to certain aspects of the financial appraisal, consistent with the EC Guide past investments are treated as written-off (sunk costs) and not included in the financial and economic flows of the CBA. Nevertheless, the case study takes into account, in qualitative terms, that the large amount of past investments represented a determinant for the project’s implementation. For the sake of completeness, the historical investments are described in Box AII.1.

 Data sources

Primary data have been gathered from balance sheets, opinions and information of the stakeholders and experts interviewed, a literature review (including Munari 1997, Costa and Dallari 2008, Russo 2010) and the press142.

Box II.1 HISTORICAL INVESTMENTS Historical investments The investments for the construction of the Port of Gioia Tauro date back to the 1970s, when the Italian State decided to locate an industrial centre for the steel industry in the Gioia Tauro area, and to provide it with a port. A large amount of expenditure occurred to carry out the feasibility and preliminary studies, to dig the channel, to move the Eranova settlement and to undertake other completions works. The total cost for building the port amounted at EUR 360 million, corresponding to more than EUR 3 billion at 2011 prices. The following table illustrates the investments carried out:

140 The methodology of calculation is presented in the First Interim Report. 141 Which for a Convergence region should be 5.5%, according to the current EC Guide. 142 See the List of interviewees and List of references in Annexes V and VI.

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Port expenditure item Expenditure period LIT billion EUR 000

Port construction 1974-85 366.716 189,393 Geotechnical investigations 1973 0.041 21 Port feasibility study 1973 0.014 7 Moving the Eranova settlement 1974-87 40.603 20,970 Hydraulic works 1986 59.330 30,641 Power supply 1993 3.756 1,940 Partial activation of the container terminal 1987 - 93 85.259 44,033 Completion of port infrastructure 1988 - 93 141.120 72,882 Total 696.839 359,887

Source: Authors processing ASI-RE, 1995

FUTURE SCENARIO This CBA is neither an ex ante nor a pure ex-post analysis, since the time horizon covers 17 years in the past, for which most historical data are available, and 13 years in the future. Hence, some hypotheses have to be made on the future trend of variables.

In particular, the costs and revenues of the investment for future years rely on the hypotheses made on container traffic demand. The 2009 crisis pushed many operators to revise their transport strategy and to change the route and destination port, this affecting the traffic levels in Gioia Tauro. Actually, the economic crisis contributed to cause a -17.6% decrease in the container traffic in Gioia Tauro, which substantially reduced in 2010 (-0.22%). In the first three months of 2011, the port has registered a 16% increase of throughput. However, the decision of its major client (Maersk Line) to stop using the port had a relevant negative effect: in the first semester of 2011 the traffic in Gioia Tauro has increased by only 0.1% as respect to the same period in 2010 143.

The traffic demand in the Port of Gioia Tauro may be also influenced by the growth of some North African markets, which can justify direct calls (e.g. in Tangier and Port Said) and decrease the relative importance of transhipment. According to some experts, direct call strategy may increase not only because of a demand growth, but also because of an excess of the ship offer: in 2007-08 the major shipping lines have ordered the construction of new mother vessels able to carry 12-18,000 TEUs. These giant ships are expected to be completed in the next few years and at that moment, the lines may decide to use the smaller ships (4- 6,000 TEUs) to make direct calls to some markets, such as in Northern Africa.

Finally, the future demand can be affected, at least to a certain extent, by the new investments foreseen in the Framework Programme Agreement for the Port of Gioia Tauro. The creation of an intermodal platform and the provision of new services linked to the port activities may increase the competitiveness of Gioia Tauro and stimulate the demand.

The Authors’ estimations about the future scenario keep into account all these factors and rely, in particular, on Eurispes recent estimations144:

143 Source: Eurokai Financial Report 2011Q1. 144 Euripes, 2010. Available at: http://www.eurispes.it/index.php?option=com_content&view=article&id=1503:cagliari-gioia-tauro- e-taranto-60-milioni-di-euro-in-5-anni-per-salvare-piu-di-9000-posti-di-lavoro-a-rischio&catid=40:comunicati-stampa&Itemid=135

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 Container trade in the Mediterranean is expected to increase by 25% between 2010 and 2015;

 Pure transhipment traffic in the Mediterranean is expected to increase by 12.7% between 2010 and 2015;

 Traffic in the ports of Cagliari, Gioia Tauro and Taranto is likely to increase by 13.5% between 2010 and 2015, corresponding to an annual average of 2.7%;

 On a longer term, the traffic in the Italian ports will still increase if a strategy to improve the Italian competitiveness is implemented.

MCT is more optimistic in this respect. In a recent official note, MCT has forecasted a 5% traffic growth in 2014 and 2015.

Figure II.1 TRAFFIC DEMAND IN THE PORT OF GIOIA TAURO (TEUS)– HISTORICAL DATA (1995-2010) AND FORECASTS (2011-2024)

4,000,000

3,500,000

3,000,000

2,500,000

2,000,000

1,500,000

1,000,000

500,000

0

1996 1997 1999 2000 2002 2003 2005 2006 2008 2009 2011 2012 2014 2017 2019 2020 2022 2023 1995 1998 2001 2004 2007 2010 2013 2015 2016 2018 2021 2024

Source: Authors elaboration based on MCT data

For the purpose of the CBA, the growth rate of the traffic of containers has been set at 0% in 2011, as a consequence of the decreasing competitiveness of the Port. From 2012 onwards the growth rate is cautiously assumed at 2%, below Eurispes and MCT’s valuation. For sake of simplicity, this growth rate is assumed to be maintained also in the longer term, from 2016 to 2024, under the hypothesis that the port will manage to attract other clients and to offer new services.

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FINANCIAL ANALYSIS MCT investments and sources of funds

The investment programme considered in the financial analysis has two main components:

Mechanical equipment for the new transhipment terminal;

Training courses for MCT employees.

Investment costs for the mechanical equipment component were covered by MCT and co- financed by the European Commission through ERDF. According to the Programme Agreement, MCT was supposed to invest EUR 148 million by 2001 (in nominal terms), but in 1999 it had already achieved and even exceeded this target. Other investments for the renewal of the equipment were made in the following years. In total MCT investments between 1994 and 2009 amounted to EUR 409 million145. The European Commission contributed through the European Regional Development Fund about 26% of the total MCT initial expenses, corresponding to approximately EUR 55.6 million.

Other investments that have to be added to the investments for equipment are those for MCT staff training, financed by the Region Calabria with resources from the European Social Fund (ESF). In total, EUR 8.4 million was invested in 1995 to train 410 workers. MCT was supposed to contribute by paying 10% of the training cost; however, in agreement with the Trade Unions it obtained a 20% reduction in the tax contribution on employees’ wages, aimed at covering the training costs for MCT. The effects of this agreement were that:

 MCT incurred lower personnel costs and used the released resources to co-finance the training course;

 the Italian State collected lower revenues, because of the reduction in the contribution deriving from personnel salaries.

In practical terms, the MCT share of training costs was covered by the State. No information is available on the ESF co-financing rate. .

Looking forward, it is assumed that no investments will be made up to 2013, given the risks related to traffic demand. Only after traffic recovery, MCT will probably make new investments to renovate the equipment, amounting to approximately 5 million per year. This is an extremely prudent hypothesis, according to which in total EUR 55 million will be invested for terminal operations in the coming years.

The residual value of the MCT investment in equipment is assumed, for sake of simplicity and prudence, equal to zero.

As for the sources of funds, in addition to EC co-financing, MCT had a number of options: medium-long term loans, leasing agreements, transfers from the holding company, capital

145 Unless differently stated, all costs are at 2011 prices.

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from new shareholders and other State contributions (such as the employee redundancy fund). However, detailed data are not available, making it particularly difficult to estimate the different sources of financing used by MCT.

Table II.1 PROJECT INVESTMENTS FOR MECHANICAL EQUIPMENT AND STAFF TRAINING (EUR THOUSAND, 2011 PRICES) Project year TOT 0 1 2 3 4 5 6 7 8 9 10 -17 -16 -15 -14 -13 -12 -11 -10 -9 -8 -7 Calendar year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 MCT 464, 5,00 45,4 56,2 55,1 34,0 16,7 34,8 6,36 4,75 10,6 14,2 investment 899 0 78 22 50 93 81 06 2 5 93 15 Total staff 8,41 0 8,41 0 0 0 0 0 0 0 0 0 training 6 6 Total residual 0 0 0 0 0 0 0 0 0 0 0 0 values Total 473, 5,00 53,8 56,2 55,1 34,0 16,7 34,8 6,36 4,75 10,6 14,2 investment 314 0 93 22 50 93 81 06 2 5 93 15

Project year 11 12 13 14 15 16 17 18 19 20 -6 -5 -4 -3 -2 -1 0 1 2 3 Calendar year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 MCT 41,357 16,142 24,444 25,864 18,537 0 0 0 0 5,000 investment Total staff 0 0 0 0 0 0 0 0 0 0 training Total residual 0 0 0 0 0 0 0 0 0 0 values Total 41,357 16,142 24,444 25,864 18,537 0 0 0 0 5,000 investment

Project year 21 22 23 24 25 26 27 28 29 30 4 5 6 7 8 9 10 11 12 13 Calendar year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 MCT 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 investment Total staff 0 0 0 0 0 0 0 0 0 0 training Total residual 0 0 0 0 0 0 0 0 0 0 values Total 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 investment

MCT operating costs

The project began its operational phase in 1995, before the completion of all the envisaged investments. The container terminal operating costs include the following:

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 Direct container terminal personnel costs: the number of MCT employees for the years 1995-2010 is available146. The number of employees is estimated to be stable in 2011; from 2012 onwards it is assumed to change in relation to the traffic demand forecasts, keeping constant the productivity level (TEUs handled per employee) calculated for the year 2010147. The personnel costs are calculated on the basis of the average unit cost of staff of EUR 38 thousand per year148, and it is assumed it will remain constant over future years.

 Other terminal costs (including material costs, electricity, cleaning and security and other minor operating costs): consistent with the information delivered by MCT and the results from the analysis of MCT budgets, the other terminal costs represent about 55% of total terminal costs. On the basis of this share, the other terminal costs have been calculated.

 The concession fee paid by MCT to the Italian State. In 1994 the fee was EUR 775 thousand per year and it was agreed to keep it constant for the whole concession period. For the first year of activity (1995), it has been assumed that MCT paid only EUR 194 thousand (one fourth of the concession fee), since MCT started to be operational only in the fourth quarter of the year. Yet, as a consequence of the increase of the transhipment terminal area the concession fees were later revised and in 2010 they amounted to EUR 1,439 thousand per year. In future it is assumed that there will be no further terminal expansions and that the concession fee will remain at the 2010 level.

MCT operating revenues

The port’s revenues derive from the container handling operations. Historical data on the terminal handling revenue, available in MCT balance sheets from 1995 to 2010, are used. For future years, forecasts are made on the basis of the expected traffic of container transhipment, keeping constant the amount of revenues per TEU (which was on average EUR 30 in the past).

146 Source: MCT balance sheets. 147 After a pick of productivity registered in 2008, the productivity level has decreased in 2009 and 2010 and it is back to 2006-2007 values. For sake of prudence, it has been decided to keep the 2010 productivity level as constant in future years. 148 The average unit cost of labour has been estimated on the basis of MCT balance sheets.

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Table II.2 MCT OPERATING COSTS AND REVENUES (EUR THOUSAND, 2011 PRICES) Project Year 0 1 2 3 4 5 6 7 8 9 10 -17 -16 -15 -14 -13 -12 -11 -10 -9 -8 -7 Calendar year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Operating costs MCT direct 0 3,191 12,973 15,399 18,932 19,011 22,571 24,459 27,980 29,309 31,291 personnel cost MCT other costs 0 3,900 15,856 18,821 23,139 23,236 27,587 29,894 34,198 40,319 41,255 Concession fee 0 194 775 775 775 775 775 775 775 974 1,139 paid by MCT Total container 0 7,284 29,604 34,994 42,846 43,022 50,932 55,128 62,952 70,603 73,686 terminal operating costs Revenues MCT revenues 0 541 16,554 40,402 59,103 68,104 77,106 70,852 83,158 88,857 96,191 Total container 0 541 16,554 40,402 59,103 68,104 77,106 70,852 83,158 88,857 96,191 terminal revenues

Project Year 11 12 13 14 15 16 17 18 19 20 -6 -5 -4 -3 -2 -1 0 1 2 3 Calendar year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Operating costs MCT direct personnel 34,435 34,979 42,239 47,178 41,339 40,834 40,949 34,953 35,653 36,366 cost MCT other costs 41,502 41,235 50,063 54,969 39,644 37,978 50,049 42,721 43,575 44,447 Concession fee paid 1,163 1,186 1,277 1,368 1,404 1,439 1,439 1,439 1,439 1,439 by MCT Total container 77,100 77,400 93,579 103,515 82,386 80,251 92,436 79,113 80,667 82,251 terminal operating costs Revenues MCT revenues 94,227 96,468 111,033 117,586 86,546 78,311 85,538 87,249 88,994 90,773 Total container 94,227 96,468 111,033 117,586 86,546 78,311 85,538 87,249 88,994 90,773 terminal revenues

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Project Year 21 22 23 24 25 26 27 28 29 30 4 5 6 7 8 9 10 11 12 13 Calendar year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Operating costs MCT direct 37,093 37,835 38,591 39,363 40,151 40,954 41,773 42,608 43,460 44,329 personnel cost MCT other costs 45,336 46,243 47,167 48,111 49,073 50,054 51,055 52,077 53,118 54,180 Concession fee 1,439 1,439 1,439 1,439 1,439 1,439 1,439 1,439 1,439 1,439 paid by MCT Total container 83,868 85,516 87,198 88,913 90,662 92,447 94,267 96,124 98,017 99,949 terminal operating costs Revenues MCT revenues 92,589 94,441 96,329 98,256 100,221 102,226 104,270 106,356 108,483 110,652 Total container 92,589 94,441 96,329 98,256 100,221 102,226 104,270 106,356 108,483 110,652 terminal revenues

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Return on investment and on capital

For the purpose of this ex-post evaluation, there is no need to calculate the financial profitability of the project (return on investment), as understood in the EC Guide, since neither the funding gap nor financial sustainability have to be assessed. The financial analysis has to be considered as a pure methodological base for the economic analysis. However, MCT financial performance is still considered and analysed, by compiling the profitability of the transhipment project to MCT from its balance sheets.

A selection of profitability indexes is presented in the following table: as shown, the ratios are positive each year, with the exception of 2009, as a consequence of the world economic crisis149.

Lack of reliable data on MCT sources of financing prevents us from adequately assessing the return on capital, by means of the Financial Net Present Value (FNPV) and Financial Rate of Return (FRR).

Table II.3 PROFITABILITY INDEXES OF MCT (%) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Return on capital 9.22 6.1 4.76 6.77 9.27 6.40 10.90 8.69 5.39 -1.22 employed150 Return on total assets151 4.29 1.47 0.47 2.22 4.38 2.69 6.37 4.38 1.08 -2.24 Profit Margin152 11.46 3.69 0.92 3.91 6.68 3.84 9.36 5.92 2.32 -4.14 EBIT153 Margin 14.85 7.88 4.23 6.85 8.53 5.93 11.35 6.70 4.18 -3.64 Cash flow/Operating 30.33 23.37 16.76 17.89 17.94 17.29 17.86 16.38 14.84 15.50 revenues Source: Authors processing MCT balance sheets

ECONOMIC ANALYSIS In order to assess the project’s return at the level of the economy, the perspective of analysis needs to be enlarged to include also the Italian State’s investments in the port infrastructures incurred from 1995 onwards and the operating costs and revenues of the Port Authority and of other services operating in the port.

Infrastructural investment costs

In addition to investment costs covered by MCT to finance the port’s equipment and staff training, large investments were made by the Italian State to complete the existing port infrastructure and to make the necessary adjustments to make the transhipment terminal

149 These indexes are strongly related to traffic demand, as the drop in 2009 demonstrates. If traffic demand does not recover in the coming years, MCT is likely to cut its operating costs (primarily personnel costs) to defend its margins. 150 The return on capital employed (ROCE) compares earnings with capital invested in the company, taking into account sources of financing. 151 The return on total assets (ROTA) measures a company’s earnings before interest and taxes (EBIT) against its total net assets. 152 The profit margin is the share of net profits in revenues. 153 The EBIT (Earnings Before Interest and Taxes) margin represents the share of EBIT in revenues.

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operational. The State allocated EUR 68 million (in nominal terms) to adapt and expand the existing port infrastructure. In particular, EUR 16.5 million was intended for the implementation of priority works, to be implemented between 1995 and 1997154. Another EUR 51.6 million was allocated for other works and was supposed to be spent between 1998 and 2001, but some of the works continued until 2006. All the priority works were completed and only 2 out of the 7 remaining lots were not implemented155. Since the investment cost of each lot is not available, it is assumed that about 80% of the envisaged investment costs were incurred. The total initial investment by the State was approximately EUR 77 million in real terms.

Other investments in the port infrastructure were made by the Port Authority on a yearly basis for ordinary and extraordinary maintenance. Approximately EUR 466 million was invested between 1998 and 2009156. In 2008 a significant investment was made to improve the infrastructure, by enlarging the channel and the container apron, building the traffic control tower and a new quay in the north basin, and to purchase new computer hardware and software equipment. Data are lacking for years 2010 and 2011, but it is hypothesised that the Port Authority will invest the same amount as in 2009. Considering that the Port Authority committed itself to carry out some investments in the port infrastructure (per the Framework Programme Agreement), it is envisaged that between 2012 and 2015 its investments will be EUR 10 million per year on average; in the remaining years it has been assumed that they will be stable at EUR 100 thousand per year. In total, the Port Authority’s investments amount at about EUR 509 million for the whole time horizon.

Between 2012 and 2015 the European Commission is expected to co-finance the Port Authority’s expenditure through the National Operational Programme for Mobility 2007-13. A co-financing rate of 50% is assumed and the EC expenditure will be EUR 10 million per year from 2012 to 2015.

The total residual value of infrastructure amounts at EUR 228 million. The following have been considered:

 The residual value of the State’s infrastructure investments for the transhipment port (occurred between 1995 and 2006), assuming a 50-year life horizon;

 The residual value of the Port Authority public investments, assuming a 50-year life horizon and that 90% of these investments relate to port infrastructure (thus excluding investments for the purchase and renewal of equipment, for which the residual value is assumed to be zero).

154 Source: Programme Agreement (Ministry of Budget and Economic Planning et al., 1994). 155 They correspond to the construction of the Harbourmaster’s accommodation rooms and works for the extension of the North quay. 156 Source: Port Authority budgets.

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Table II.4 INFRASTRUCTURAL PUBLIC INVESTMENTS (EUR THOUSAND, 2011 PRICES) Project Year 0 1 2 3 4 5 6 7 8 9 10 -17 -16 -15 -14 -13 -12 -11 -10 -9 -8 -7 Calendar Year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 State's investment 0 12,241 11,615 0 0 43,668 6,609 0 0 0 0 Port Authority's investment 0 0 0 0 37 101 37,001 1,955 18,473 22,638 281,639 Total other public investments 0 12,241 11,615 0 37 43,770 43,610 1,955 18,473 22,638 281,639 Residual value of terminal structures Residual value of terminal infrastructure (State) Residual value of terminal infrastructure (Port Authority) Total residual value 0 0 0 0 0 0 0 0 0 0 0 Total public investment 5,000 66,134 67,837 55,150 34,130 60,550 78,415 8,317 23,228 33,331 295,853

Project Year 11 12 13 14 15 16 17 18 19 20 -6 -5 -4 -3 -2 -1 0 1 2 3 Calendar Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 State's investment 0 2,855 0 0 0 0 0 0 0 0 Port Authority's 35 61 842 102,769 827 821 808 20,238 20,238 20,238 investment Total other public 35 2,916 842 102,769 827 821 808 20,238 20,238 20,238 investments Residual value of terminal structures Residual value of terminal infrastructure (State) Residual value of terminal infrastructure (Port Authority) Total residual value 0 0 0 0 0 0 0 0 0 0 Total public investment 41,392 19,057 25,286 128,633 19,365 821 808 20,238 20,238 45,238

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Project Year 21 22 23 24 25 26 27 28 29 30 4 5 6 7 8 9 10 11 12 13 Calendar Year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 State's investment 0 0 0 0 0 0 0 0 0 0 Port Authority's investment 20,238 100 100 100 100 100 100 100 100 100 Total other public 20,238 100 100 100 100 100 100 100 100 100 investments Residual value of terminal 0 structures Residual value of terminal -30,795 infrastructure (State) Residual value of terminal -197,948 infrastructure (Port Authority) Total residual value 0 0 0 0 0 0 0 0 0 -228,743 Total public investment 45,238 100 100 100 100 100 100 100 100 -228,643

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Other services’ operating costs

In the economic analysis the operating costs of a number of public administrations carrying out activities in the terminal are considered: these are the Port Authority, the Harbourmaster, Customs and Immigration, the Revenue Guard, the Health and Veterinary Services and the Fire Brigades. The operating costs of the pilotage and towage services, which are paid by the shipping companies, have also to be included in the analysis.

For the Port Authority, the total current cost of personnel in the years 1998157-2009 is available158. For the future it has been assumed that the current costs will grow as much as the traffic demand in the port, keeping constant the unit cost calculated for the year 2009159.

For the Harbourmaster, personnel costs have been estimated, based on the fact that personnel amounted at 55 and 85 people respectively in 1997160 and 2010: on average 65 people are assumed to be working at the Harbourmaster between 1999 and 2002, 75 between 2003 and 2006 and 85 since 2007. An average unit cost has been estimated from the accumulated personnel costs for the period 1997-2010. It is assumed that the average annual growth of personnel costs that occurred between 1997 and 2010 will be maintained also for future years.

For the personnel costs of other services, some hypotheses have been made on the basis of the EC Expertise data and of expert estimates. The personnel (and other) costs of these services have been calculated starting from 1997, since in previous years they were not operational.

Based on the information collected, the other costs of the Port Authority and of the Harbourmaster have been calculated by subtracting the personnel costs from the total operating costs; they represent approximately 70% of the total costs. For sake of consistency and simplicity, the other costs of the remaining services are also assumed to be 70% of total costs.

The other services costs in the port are included in the project between 1995 and 1999. After that, these costs pertained not only to MCT, but also to the other terminal operator ICO-BLG, which received part of the quay in 2000 and is expected to further expand its area in 2012. By assuming that the costs are proportional to the lengths of quay occupied, the factors used to calculate the costs pertaining to the container terminal are:

 100.0% from 1994 to 1999;

 91.1% from 2000 to 2011, as result of the establishment of ICO-BLG in the port;

 81.7% from 2012 to 2024, as result of the expected enlargement of ICO-BLG's terminal.

157 The year the Port Authority became operational. 158 Port Authority balance sheets. 159 This value does not differ significantly from the value calculated in 2007, before the economic crisis. 160 The year the Harbourmaster became operational.

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Other services’ operating revenues

MCT revenues are included in the economic analysis as social benefits generated by the project. The Port Authority’s inflows are also included in the economic analysis. Its current revenues, which are available for the period 1998 - 2009, include the concession fee paid by the terminal operator161, and port dues and wharfage paid by shipping lines. The revenues for the future are estimated to grow in line with traffic demand.

Custom duties are assumed to be negligible, both in the past and in the future period, since transhipment does not generate clearance duties. This is based on the prudent hypothesis that the railway terminal (envisaged in the recent Framework Programme Agreement) will not be activated and that the share of inland traffic in transhipment is not going to increase significantly.

161 Note that this item appears both in the costs and revenues, so it cancels out.

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Table II.5 OPERATING COSTS AND REVENUES OF OTHER PORT’S SERVICES (EUR THOUSAND, 2011 PRICES) Project year 0 1 2 3 4 5 6 7 8 9 10 -17 -16 -15 -14 -13 -12 -11 -10 -9 -8 -7 Calendar year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Public services’ operating costs Port authority personnel 0 0 0 0 3 147 453 553 744 676 798 costs Port authority other costs 0 0 0 0 883 1,152 1,478 1,542 2,831 1,920 2,246 Port authority total costs 0 0 0 0 886 1,299 1,931 2,095 3,575 2,596 3,043 Harbourmaster personnel 0 0 0 100 116 113 112 109 106 120 116 costs Harbourmaster other costs 0 0 0 237 275 269 265 258 253 284 276 Harbourmaster total costs 0 0 0 337 390 383 377 367 359 403 392 Other public services: 0 0 0 2,250 2,250 2,250 2,375 2,500 2,625 2,750 2,875 personnel costs Other public services: 0 0 0 5,250 5,250 5,250 5,542 5,833 6,125 6,417 6,708 other costs Other public services total 0 0 0 7,500 7,500 7,500 7,917 8,333 8,750 9,167 9,583 costs Public port services total 0 0 0 7,837 8,776 9,182 10,224 10,795 12,684 12,166 13,019 costs Container terminal 100% 100% 100% 100% 100% 100% 91% 91% 91% 91% 91% partition factor Public port services costs 0 0 0 7,837 8,776 9,182 9,317 9,838 11,559 11,087 11,864 to be assigned to the container terminal Public services’ revenues Port Authority's revenues 0 0 0 0 1,220 1,894 2,671 2,945 4,333 3,340 3,200 Public services’ revenues 0 0 0 0 1,220 1,894 2,671 2,945 4,333 3,340 3,200

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Project year 11 12 13 14 15 16 17 18 19 20 -6 -5 -4 -3 -2 -1 0 1 2 3 Calendar year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Public services’ operating costs Port authority personnel 909 1,223 1,390 1,887 1,470 1,453 1,430 1,459 1,488 1,518 costs Port authority other costs 2,345 2,292 7,304 3,460 3,939 3,914 3,851 3,928 4,007 4,087 Port authority total costs 3,254 3,515 8,694 5,347 5,409 5,368 5,281 5,387 5,494 5,604 Harbourmaster personnel 114 111 123 121 117 116 119 124 129 134 costs Harbourmaster other costs 270 264 293 287 277 275 282 294 306 319 Harbourmaster total costs 384 375 416 408 394 391 401 418 435 454 Other public services: 3,000 3,125 3,250 3,375 3,415 3,455 3,496 3,536 3,576 3,616 personnel costs Other public services: 7,000 7,292 7,583 7,875 7,969 8,063 8,156 8,250 8,344 8,438 other costs Other public services total 10,000 10,417 10,833 11,250 11,384 11,518 11,652 11,786 11,920 12,054 costs Public port services total 13,638 14,307 19,943 17,005 17,187 17,277 17,334 17,590 17,849 18,111 costs Container terminal 91% 91% 91% 91% 91% 91% 91% 82% 82% 82% partition factor Public port services costs 12,428 13,039 18,175 15,497 15,662 15,744 15,797 14,370 14,581 14,795 to be assigned to the container terminal Public services’ revenues Port Authority's revenues 3,422 3,625 12,286 14,252 13,243 13,143 12,931 13,189 13,453 13,722 Public services’ revenues 3,422 3,625 12,286 14,252 13,243 13,143 12,931 13,189 13,453 13,722

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Project year 21 22 23 24 25 26 27 28 29 30 4 5 6 7 8 9 10 11 12 13 Calendar year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Public services’ operating costs Port authority personnel 1,548 1,579 1,610 1,643 1,675 1,709 1,743 1,778 1,814 1,850 costs Port authority other costs 4,168 4,252 4,337 4,424 4,512 4,602 4,694 4,788 4,884 4,982 Port authority total costs 5,716 5,831 5,947 6,066 6,188 6,311 6,438 6,566 6,698 6,832 Harbourmaster personnel 140 146 152 158 165 172 179 187 195 203 costs Harbourmaster other costs 333 347 361 376 392 409 426 444 462 482 Harbourmaster total costs 473 492 513 535 557 580 605 630 657 684 Other public services: 3,656 3,696 3,737 3,777 3,817 3,857 3,897 3,938 3,978 4,018 personnel costs Other public services: 8,531 8,625 8,719 8,813 8,906 9,000 9,094 9,188 9,281 9,375 other costs Other public services total 12,188 12,321 12,455 12,589 12,723 12,857 12,991 13,125 13,259 13,393 costs Public services’ total costs 18,376 18,645 18,916 19,190 19,468 19,749 20,033 20,321 20,613 20,909 Container terminal 82% 82% 82% 82% 82% 82% 82% 82% 82% 82% partition factor Public services’ costs to be 15,012 15,231 15,453 15,677 15,904 16,133 16,366 16,601 16,839 17,080 assigned to the container terminal Public services’ revenues Port Authority's revenues 13,997 14,277 14,562 14,854 15,151 15,454 15,763 16,078 16,399 16,727 Public services’ revenues 13,997 14,277 14,562 14,854 15,151 15,454 15,763 16,078 16,399 16,727

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Other social costs and benefits

While the value of the port infrastructure built between the 1970s and the beginning of the 1990s is a sunk cost and therefore excluded from the financial and economic analysis, it has to be considered that the area could have been used for purposes other than the construction of a transhipment port: agriculture, fishing, shipbuilding, tourism etc. The concession fee that would have been paid in 1994 by other companies or individuals to carry out commercial activities can be assumed, for sake of simplicity, as a proxy of the opportunity cost of the port infrastructure. By law n. 494 of 4 December 1993 and on the basis of the area size (1,200,000 m2), the concession fee for the Port of Gioia Tauro should have been LIT 2,400 million per year (EUR 1.9 million)162. This is assumed to be the opportunity cost of the port infrastructure in 1994, which increases in proportion to the enlargement of MCT container terminal163. Such increase has been estimated on the basis of the unit cost of concession for 1m2 of area and the enlargements occurred over the years as reported by MCT balance sheets. It has to be noted that this fee is higher than the fee actually paid by MCT in the initial years of activity (EUR 775 thousand per year). As far as the social benefits generated by the project are concerned, these are probably not adequately represented by the revenues collected by the beneficiary and the Port Authority. In fact, the transhipment port in Gioia Tauro produced additional positive effects for the other Italian ports, by increasing the efficiency of the sea transport system and, to a minor extent, by generating new traffic. However, given the difficulty in quantifying and monetizing this effect for the purpose of the CBA, it is only qualitatively addressed in the case study.

From market to accounting prices

In economic analysis all input data are converted from financial to shadow prices, in order to reflect their opportunity cost. First of all, base conversion factors suggested by the Italian Guide for Public Investments (NUVV, 2001) are considered, with the exception of the shadow wage, for which a specific conversion factor for the Region Calabria is used164.

162 Source: MCT application form to ERDF financing (Contship Italia, 1994a). 163 In addition, every year the port concession fees envisaged by law are adjusted on the basis of inflation. 164 See the First Interim Report for details on how this conversion factor was estimated.

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Table II.6 BASE CONVERSION FACTORS Item Source Conversion factor Project design NUVV Guide 0.997 Expropriation NUVV Guide 0.648 Labour Del Bo et al. (2011) 0.33165 Civil works NUVV Guide 0.884 Equipment NUVV Guide 0.885 Other (energy, services, skilled labour etc.) NUVV Guide166 0.997

Table II.7 CONVERSION FACTORS USED IN THE ECONOMIC ANALYSIS

Item Projectdesign Expropriation Labour works Civil Equipment Other CF Existing port 4.0% 10.0% 50.0% 26.0% 10.0% 0.59922 Terminal container structures (MCT) 3.0% 40.0% 7.0% 45.0% 5.0% 0.67189 Terminal container structures (EC) 4.0% 50.0% 36.0% 10.0% 0.62282 Port infrastructures (State) 4.0% 45.0% 33.0% 10.0% 8.0% 0.64836 Extraordinary maintenance port 50.0% 40.0% 10.0% 0.6183 infrastructures New equipment and renewal 100.0% 0.885 investment Staff training 100.0% 0.997 MCT other costs 60.0% 15.0% 25.0% 0.58 Public port services personnel costs 30.0% 70.0% 0.7969 Public port services other costs 30.0% 70.0% 0.9634 Port revenues 100% 0.997 Source: Authors

On this basis, specific conversion factors have been estimated for the inputs (see the above table). In particular, the composition of conversion factors for different categories of investment is a working hypothesis made according to engineering judgement and experience on similar works. For example, the port services’ other costs are assumed to be composed by a small share of equipment costs (30%) and by a larger one (70%) of other costs, including, as instance, energy. The conversion factor for this item is calculated as a sum of the base conversion factors, properly weighted, of ‘equipment’ and ‘other costs’.

165 The shadow wage measures the social value of time spent working and it is defined as the social opportunity cost of labour for renouncing leisure time. The national conversion factor proposed by the Italian guide for public investments is 0.77. However, because of the specificities of the Calabria context, characterised by very high unemployment and low per capita GDP, the Authors decided to use the regional specific conversion factor recently calculated by Del Bo et. al (2011), which specifically considers the regional context. Actually, a lower conversion factor (0.33) is considered more appropriate to estimate the opportunity cost of labour in Calabria. Since no significant changes in the labour market are expected in future, the same conversion factor is used both in the past and future periods. The sensitivity analysis will test the elasticity of results (ENPV and ERR) to the chosen conversion factor. 166 It corresponds to the Standard Conversion Factor for Italy.

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Economic performance

The economic performance of the project – Economic Net Present Value (ENPV) and Economic Internal Rate of Return (ERR) - has been calculated by applying a 2.9% real discount factor for the period 1994-2011 and 2.4% for the years 2012-2024.

The ENPV is positive and equal to EUR 604.5 million and the ERR is 10.44%. The economic analysis is presented in Table II.8.

The CBAs carried out ex-ante167 for the EC Expertise reported a particularly high internal rate of return on investment in the case of the economic analysis: +39.8%. There are two reasons why the results obtained “ex-post” differ so much from the ex-ante expectations:

 Methodological differences and inaccuracies, such as the use of the value added by the terminal operator and other private sector port-related activities to estimate the port’s benefits;

 Optimism bias: the hypothesis of traffic growth and of the potential development that the terminal would generate were over-estimated, thus leading to very high expectations of social return.

167 One prepared by the “Comitato per il Coordinamento delle Iniziative per l’Occupazone” and submitted to DG Regio in support of the application form for ERDF co-financing and the other prepared by an external consultant company for the European Commission in support of the Expertise report (European Commission, 1996).

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Table II.8 ECONOMIC ANALYSIS (EUR THOUSAND, 2011 PRICES) Project year CF 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 -17 -16 -15 -14 -13 -12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 Calendar year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 MCT 0.6719 3,359 30,556 37,775 37,055 22,907 11,275 23,386 4,275 3,195 7,185 9,551 27,787 10,845 16,424 17,378 12,455 investment Staff training 0.9970 8,390 State's 0.6484 0 7,937 7,530 0 0 28,313 4,285 0 0 0 0 0 1,851 0 0 0 investment Port 0 0 0 0 24 66 23,990 1,267 11,977 14,677 182,60 23 39 546 66,631 536 Authority's 3 investment Residual value 0.6228 of terminal structures Residual value 0.6484 of terminal infrastructures (State) Residual value 0.6484 of terminal infrastructures (Port Authority) Total 3,359 46,883 45,306 37,055 22,931 39,653 51,660 5,542 15,172 21,862 192,15 27,810 12,736 16,970 84,009 12,991 investment 4 MCT direct 0.3300 0 1,053 4,281 5,082 6,248 6,274 7,448 8,071 9,233 9,672 10,326 11,364 11,543 13,939 15,569 13,642 personnel cost MCT other 0.5800 0 2,262 9,196 10,916 13,421 13,477 16,000 17,339 19,835 23,385 23,928 24,071 23,916 29,037 31,882 22,994 costs Port authority 0.7969 3 117 361 441 593 538 636 724 975 1,107 1,504 1,171 personnel costs Port authority 0.9634 851 1,109 1,424 1,485 2,727 1,850 2,163 2,259 2,208 7,037 3,334 3,795 other costs Harbourmaste 0.7969 79 92 90 89 87 85 95 93 91 89 98 96 93 r personnel

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costs Harbourmaste 0.9634 228 265 260 255 249 243 274 266 260 255 282 277 267 r other costs Other 0.7969 1,793 1,793 1,793 1,893 1,992 2,092 2,191 2,291 2,391 2,490 2,590 2,690 2,722 services: personnel costs Other 0.9634 5,058 5,058 5,058 5,339 5,620 5,901 6,182 6,463 6,744 7,025 7,306 7,587 7,677 services: other costs Other port 0 0 0 7,159 8,061 8,428 9,361 9,874 11,641 11,130 11,912 12,469 13,041 18,420 15,487 15,725 services total costs Container 100% 100% 100% 100% 100% 100% 91% 91% 91% 91% 91% 91% 91% 91% 91% 91% terminal partition factor Other port 0 0 0 7,159 8,061 8,428 8,530 8,998 10,609 10,143 10,855 11,363 11,885 16,787 14,113 14,330 services costs to be assigned to the container terminal Total 0 3,315 13,478 23,156 27,729 28,178 31,979 34,408 39,677 43,200 45,109 46,798 47,344 59,762 61,564 50,966 operating costs Opportunity 1,913 1,935 1,909 1,871 1,872 1,867 1,883 1,879 1,884 1,989 1,979 1,977 2,210 2,206 2,237 2,178 cost of the port infrastructure Total 5,272 52,133 60,692 62,082 52,533 69,698 85,523 41,829 56,733 67,052 239,24 76,585 62,289 78,938 147,81 66,135 economic 2 0 costs Terminal 0.997 0 539 16,504 40,281 58,926 67,900 76,874 70,639 82,909 88,590 95,902 93,944 96,179 110,70 117,23 86,286 revenues 0 3 Port 1.0000 1,220 1,894 2,671 2,945 4,333 3,340 3,200 3,422 3,625 12,286 14,252 13,243 Authority's revenues

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Total benefits 0 539 16,504 40,281 60,145 69,794 79,545 73,584 87,242 91,931 99,102 97,366 99,804 122,98 131,48 99,529 6 6 Cash flow -5,272 - - - 7,613 96 -5,978 31,754 30,509 24,879 - 20,781 37,514 44,048 - 33,394 51,593 44,188 21,801 140,14 16,325 0 Discounted -8,571 - - - 11,039 136 -8,187 42,263 39,461 31,272 - 24,669 43,279 49,384 - 35,359 Cash flow 81,516 67,848 32,531 171,18 17,787 6

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Project year CF 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 Calendar year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 MCT 0.6719 0 0 0 0 3,359 3,359 3,359 3,359 3,359 3,359 3,359 3,359 3,359 3,359 3,359 investment Staff training 0.9970 State's 0.6484 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 investment Port 532 524 13,121 13,121 13,121 13,121 65 65 65 65 65 65 65 65 65 Authority's investment Residual value 0.6228 0 of terminal structures Residual value 0.6484 - of terminal 19,966 infrastructure s (State) Residual value 0.6484 - of terminal 128,34 infrastructure 2 s (Port Authority) Total 532 524 13,121 13,121 16,481 16,481 3,424 3,424 3,424 3,424 3,424 3,424 3,424 3,424 - investment 144,88 3 MCT direct 0.3300 13,475 13,513 11,535 11,765 12,001 12,241 12,485 12,735 12,990 13,250 13,515 13,785 14,061 14,342 14,629 personnel cost MCT other 0.5800 22,027 29,028 24,778 25,274 25,779 26,295 26,821 27,357 27,904 28,462 29,032 29,612 30,204 30,808 31,425 costs Port authority 0.7969 1,158 1,140 1,162 1,186 1,209 1,234 1,258 1,283 1,309 1,335 1,362 1,389 1,417 1,445 1,474 personnel costs Port authority 0.9634 3,771 3,710 3,784 3,860 3,937 4,016 4,096 4,178 4,262 4,347 4,434 4,523 4,613 4,705 4,799 other costs Harbourmaste 0.7969 92 95 99 103 107 112 116 121 126 132 137 143 149 155 162 r personnel costs

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Harbourmaste 0.9634 265 272 283 295 308 320 334 348 363 378 394 410 427 445 464 r other costs Other 0.7969 2,754 2,786 2,818 2,850 2,882 2,914 2,946 2,978 3,010 3,042 3,074 3,106 3,138 3,170 3,202 services: personnel costs Other 0.9634 7,767 7,858 7,948 8,038 8,129 8,219 8,309 8,400 8,490 8,580 8,671 8,761 8,851 8,942 9,032 services: other costs Other port 15,808 15,859 16,094 16,332 16,571 16,814 17,060 17,308 17,559 17,813 18,071 18,331 18,595 18,862 19,133 services total costs Container 91% 91% 82% 82% 82% 82% 82% 82% 82% 82% 82% 82% 82% 82% 82% terminal partition factor Other port 14,406 14,453 13,148 13,341 13,537 13,736 13,936 14,139 14,344 14,552 14,762 14,975 15,190 15,409 15,630 services costs to be assigned to the container terminal Total 49,908 56,994 49,460 50,380 51,317 52,271 53,242 54,231 55,238 56,264 57,308 58,372 59,456 60,559 61,683 operating costs Opportunity 2,268 2,276 2,276 2,276 2,276 2,276 2,276 2,276 2,276 2,276 2,276 2,276 2,276 2,276 2,276 cost of the port infrastructure Total 52,709 59,793 64,857 65,777 70,073 71,027 58,942 59,931 60,938 61,964 63,008 64,072 65,155 66,259 - economic 80,925 costs Terminal 0.997 78,076 85,281 86,987 88,727 90,501 92,311 94,157 96,041 97,961 99,921 101,91 103,95 106,03 108,15 110,32 revenues 9 7 6 7 0 Port 1.0000 13,143 12,931 13,189 13,453 13,722 13,997 14,277 14,562 14,854 15,151 15,454 15,763 16,078 16,399 16,727 Authority's revenues Total benefits 91,219 98,212 100,17 102,18 104,22 106,30 108,43 110,60 112,81 115,07 117,37 119,72 122,11 124,55 127,04

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6 0 3 8 4 3 5 1 3 0 4 7 8 Cash flow 38,510 38,419 35,319 36,403 34,150 35,281 49,492 50,672 51,877 53,107 54,364 55,648 56,959 58,298 207,97 3 Discounted 39,627 38,419 34,492 34,716 31,805 32,088 43,958 43,951 43,941 43,929 43,915 43,899 43,880 43,858 152,79 Cash flow 4

Results of the economic analysis

Economic discount rate (backward) 2.90%

Economic discount rate (forward) 2.40%

ENPV (EUR thousand) 604,509

ERR 10.44%

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Synthesis of the hypotheses of analysis and sources

The following table lists the different sources consulted to derive the financial flows and the hypothesis and assumption made by the Team in carrying out the CBA.

Table II.9 SYNTHESIS OF SOURCES AND HYPOTHESIS MADE FOR THE CBA Item Source Hypothesis Traffic MCT Hypothesis for the future trend: +0% in 2011 +2% in 2012-2024 State investments ASI-REG and MCT Among the programmed investments: (Informative Note 10 Lira 32 bn: totally allocated Oct. 1995) Lira 100 bn: only 80% was actually allocated ERDF investments EC Final Execution Report MCT investments MCT and Programme It has been assumed for the future that investments will be zero till Agreement 2013 and EUR 5 million per year between 2014 and 2024. Staff training Agreement with the Trade Unions (August 1995) mentioned by EC Expertise, Munari (1997), press and DG Regio documents Port Authority Port Authority balance Investments between 2012 and 2015 will amount at EUR 10.12 investments sheets, FPA million per year on average and then they will stabilize at EUR 100 million per year thereafter. Direct container MCT balance sheets In 2011 they are assumed to remain at the 2010 level. From 2012, terminal the number of employees is expected to change in relation to the personnel costs traffic demand forecast, keeping constant the 2010 productivity level. Other terminal MCT balance sheets Other terminal costs approximately represent 55% of total costs. costs This share is assumed to remain constant in the future. Port authority Port Authority balance Assumed to grow in line with traffic demand. Only 91% of the personnel costs sheets estimated costs have been included in the CBA between 2000 and 2011; only 81% of the costs have been included from 2012 onwards. Harbourmaster The Harbourmaster Hypothesis on the number of employees and the average unit costs personnel costs provided the number made on the basis of the data provided by the Harbourmaster. Only of employees in 2010 91% of the estimated costs have been included in the CBA between and the cost for 2000 and 2011; only 81% of the costs have been included from personnel between 2012 onwards. 1997 and 2010 Other public EC Expertise Estimated to be between EUR 2.3 and 3.4 million in the period services personnel 1997-2010. Hypothesis for the future is based on traffic demand. costs Only 91% of the estimated costs have been included in the CBA between 2000 and 2011; only 81% of the costs have been included from 2012 onwards. Port authority Port Authority balance Assumed to represent 70% of total Port Authority costs in the other costs sheets future. Only 91% of the estimated costs have been included in the CBA between 2000 and 2011; only 81% of the costs have been included from 2012 onwards. Harbourmaster The Harbourmaster Assumed to represent 70% of total Harbourmaster costs in the other costs provided the amount future. Only 91% of the estimated costs have been included in the of other costs between CBA between 2000 and 2011; only 81% of the costs have been 1997 and 2010 included from 2012 onwards. Other costs of the Core Team hypotheses. Assumed to represent 70% of the total other services costs. Only 91% of the estimated costs have been included in the CBA between 2000 and 2011; only 81% of the costs have been

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included from 2012 onwards Container MCT balance sheets Future revenues are expected to growth in line with container terminal revenues traffic. The revenues are assumed to be constant at EUR 30 per TEU. Port Authority Port Authority balance Future revenues are expected to growth in line with traffic revenues sheets demand. Annual concession MCT, Programme In 1995 assumed to be ¼ of the concession fee normally paid, fee Agreement because MCT started operations only in the fourth quarter of the year.

SENSITIVITY AND SCENARIO ANALYSIS A simplified sensitivity analysis is made on key variables, in order to observe the extent to which certain variations of these variables affect the performance indicators. The Authors tested the sensitivity of a number of variables, for which the future forecasts are considered the most critical. The variables that are made vary and the ranges of variation are:

 Traffic demand: in the CBA 2% growth in traffic has been assumed starting from 2012. This variable is made vary between -1%, in a pessimistic scenario where the traffic keeps decreasing like in 2009 and 2010 because of the port’s competitiveness problems, and +5%, the annual growth rate recently forecasted by MCT for the years 2014-15.

Figure II.2 SCENARIOS ON TRAFFIC DEMAND IN THE PORT OF GIOIA TAURO (TEUS)

Base case Pessimistic (-1%) Optimistic (+5%) 6.000.000

5.000.000

4.000.000

3.000.000 TEU's

2.000.000

1.000.000

0 1995 2000 2005 2010 2015 2020 2025

Source: Authors

 MCT investments: the authors’ hypothesis is that MCT will finance some new investments from 2014 onwards, amounting at EUR 5 million per year. The project performance indicators are tested in the case of no further expenditures until the end of the horizon period, and alternatively in a very optimistic case of yearly investment

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amounting at EUR 30,000 (which is the average of investments between 1994 and 2001).

 MCT operating costs for personnel, which has been calculated on the basis of an average unit cost of EUR 38 thousand, is made vary from EUR 30 thousand (MCT unit cost of labour in 2003) to EUR 45 thousand, which is even higher than the 2008 value, when the unit cost reached its maximum (nearly EUR 41 thousand).

 MCT revenues: the amount of revenues on the container traffic, which in the past period amounted at EUR 30 per TEU and which has been assumed constant also for the future, is made vary from EUR 25 to EUR 40 per TEU. It has to be pointed out that in the period 1995-2010 the amount of revenues ranged from EUR 27 to 34. Hence, the values tested in the scenario analysis can be considered as borderline cases, relying on the hypothesis of great decline of MCT revenues because of the port’s loss of competitiveness, in the pessimistic case, and of a large increase of revenues deriving from new clients and from the provision of new services, in the optimistic case.

The results that are generated when each variable varies and all the others are kept constant are summarized in the table below.

Table II.10 VARIATION OF SELECTED INDICATORS SYNTHESIS OF SOURCES AND HYPOTHESIS MADE FOR THE CBA Variable Base assumption in Hypothesis ENPV ERR the CBA (EUR thousand): (%): base case 604,509 base case 10.44% EUR th. Demand 2% -1.00% 469,348 9.59% growth from 2012 5.0% 775,322 11.31% onwards MCT EUR 5,000 th. EUR 0 635,163 10.63% investments from 2014 EUR 30,000 th. 451,241 9.38% onwards MCT EUR 38 th. EUR 30 th. 711,020 11.15% personnel costs (unit EUR 45 th. 517,830 9.80% cost) MCT EUR 30 th. EUR 25 th. 410,494 8.90% revenues (revenues EUR 40 th. 992,539 12.66% per TEU)

On the basis of the sensitivity tests and on alternative assumptions on forecasts, a scenario analysis can be implemented by constructing two paths concerning future variable trend: an optimistic and a pessimistic scenario, where all the optimistic and pessimistic hypotheses made in the sensitivity analysis are respectively considered.

The hypotheses of the two scenarios are presented in the following table:

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Table II.11 HYPOTHESES FOR THE SCENARIO ANALYSIS Optimistic scenario Pessimistic scenario The demand will grow by 5.0% per year The traffic demand will not increase for the whole period Thanks to the recovery of traffic, MCT will make higher MCT will not make any further investments in the investments from 2014 onwards that what assumed in terminal structures the base case The unit cost of personnel will decrease, this increasing The unit cost of personnel will increase the port’s competitiveness The share of revenues on traffic will increase The share of revenues on traffic will return to its minimum value

The results are:

i) In an optimistic scenario, the ENPV would reach EUR 1,221million, with an economic rate of return of 13.47%.

ii) In a pessimistic scenario, the ENPV would be EUR 266million, with an economic rate of return of 7.49%.

UNCERTAINTY ANALYSIS In addition to the sensitivity analysis of the assumptions made to the future trend of key variables, the authors aim to test also the elasticity of results to some parameters used in the analysis, as a sort of test of the methodology used. These are:

 The conversion factor of labour, which was assumed at 0.33, tested against the assumption made by the Italian Guide for Public Investments suggesting 0.77;

 The social discount rate was estimated at 2.9% for the backward period and 2.4% for the forward period: however, the social opportunity cost of capital, i.e. the return that can be generated on the marginal project in the private sector168, is equivalent to a 5% real rate, as recommended by the EC Guide;

 The estimation of the opportunity cost of the existing port infrastructures, assumed at EUR 1,239 thousand (1995 price), but for which no certain values can be obtained. Hypothetically, this cost could be lower and amounting at the concession fee actually paid by MCT in 1995 (EUR 775 thousand), or higher, for example the double (EUR 2,500 thousand).

The difference with the standard sensitivity analysis stems from the consideration that variations in the parameters are not the result of the uncertainty about the future but relates to methodological choices and assumptions. The aim of this analysis is to test the robustness of some methodological hypotheses and to assess the sensitivity of the final results to them.

168 In a closed economy with perfect information, no distortions and no externalities the social discount rate and the social opportunity cost of capital are equivalent.

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Table II.12 VARIATION OF SELECTED INDICATORS SYNTHESIS OF SOURCES AND HYPOTHESIS MADE FOR THE CBA Value used in the CBA Value tested ENPV ERR (EUR thousand) (%) Social discount rate Backward SDR 2.9%; 5% 429,082 - forward SDR 2.4% Conversion factor 0.33 0.77 - 402,660 -1.35% for labour Opportunity cost of EUR 1,239 thousand (in EUR 775 th. 631,322 10.89% infrastructure nominal term in 1995) EUR 2,500 th. 531,747 9.29%

Each of chosen parameters has been made vary singularly and the results of the economic analysis can be observed in the table above. While the sensitivity of the opportunity cost of infrastructure is negligible, the social discount rate is more significant, although the result are still acceptable (positive and about two third of the reference case. The sensitivity of the conversion factor for labour is instead critical, but this is not surprising given that, as already discussed, the main benefit of the project is actually the employment created in a regions experiencing incredibly high level of unemployment.

RISK ASSESSMENT The risk assessment has been conducted on the four variables on which the sensitivity analysis was performed: traffic demand growth after 2012, MCT investments after 2014, future MCT personnel cost and MCT revenues per TEU.

For the sake of simplicity it is assumed that the probability of an increase or decrease in these variables has a triangular distribution with the value with the highest probability being the reference one and the lower and upper bound being the values defined in the scenario analysis. The risk assessment was elaborated by an experimental Monte Carlo simulation169 with 1,000 random repetitions so that an “educated guess” is made of the likely outcome. The key variables are made to vary contemporaneously within the ranges defined in the pessimistic and optimistic scenarios (see Table II.10).

In synthesis, the risk analysis shows that the ENPV is on average EUR 635 million, slightly higher than the reference case, and the average ERR is 10.59% (against a reference case of 10.44%); the ERR, in particular, is never lower than 7.64%. Hence, the positive outputs of the CBA appear to be robust to future possible variations in the key variables. These results indicate that the residual risk of the project over the remaining years of the time horizon coming from the selected variables is very low.

169 A proprietary software has been used.

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Table II.13 RESULTS OF THE RISK ANALYSIS ON THE ECONOMIC NET PRESENT VALUE (EUR THOUSAND) Reference value of the ENPV 604,509 Mean 635,758 Median 626,268 Standard deviation 153,649 Minimum value 269,131 Central value 679,864 Maximum value 1,090,597  Probability of the ENPV being not higher than the reference value 45.1 %  Probability of the ENPV being higher than the reference value 54.9 %  Probability of the ENPV being lower than zero 0 % Source: Authors

Figure II.3 PROBABILISTIC DISTRIBUTION OF THE ECONOMIC NET PRESENT VALUE (EUR THOUSAND) 1.00 0.90 Punctual probability Cumulated probability 0.80 Reference value 0.70 Minimum 0.60 Central 0.50 Maximum 0.40 Mean 0.30 SD low 0.20 SD upp 0.10 Median 0.00 260,000 460,000 660,000 860,000 1,060,000

Source: Authors

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Figure II.4 PROBABILISTIC DISTRIBUTION OF THE ECONOMIC NET PRESENT VALUE (EUR THOUSAND) 0.14

0.12

0.10

0.08

0.06

0.04

0.02

0.00

243,927 287,062 330,197 416,467 459,602 545,871 589,006 675,276 718,411 804,680 847,815 934,085 977,220 373,332 502,736 632,141 761,545 890,950 1,063,489 1,020,354 Source: Authors ENPV

Table II.14 RESULTS OF THE RISK ANALYSIS ON THE ECONOMIC INTERNAL RATE OF RETURN Reference value of the ERR 10.44 % Mean 10.59 % Median 10.64 % Standard deviation 0.99 % Minimum value 7.64 % Central value 10.32 % Maximum value 13.00 %  Probability of the ERR being not higher than the reference value 43.3 %  Probability of the ERR being higher than the reference value 56.7 %  Probability of the ERR being lower than the reference discount rate (2.4 %) 0 % Source: Authors

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Figure II.5 PROBABILISTIC DISTRIBUTION OF THE ECONOMIC INTERNAL RATE OF RETURN 1.00 0.90 Punctual probability Cumulated probability 0.80 Reference value 0.70 Minimum 0.60 Central 0.50 Maximum 0.40 Mean 0.30 SD low 0.20 SD upp 0.10 Median 0.00 7.6% 8.6% 9.6% 10.6% 11.6% 12.6% Source: Authors

Figure II.6 PROBABILISTIC DISTRIBUTION OF THE ECONOMIC INTERNAL RATE OF RETURN 0.14

0.12

0.10

0.08

0.06

0.04

0.02

0.00

7.1% 7.7% 8.0% 8.6% 8.9% 9.5% 9.8% 7.4% 8.3% 9.2%

10.4% 10.7% 11.3% 11.6% 12.2% 12.5% 11.0% 11.9% 12.8% 10.1% Source: Authors ERR

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ANNEX III. MAP OF STAKEHOLDERS

Stakeholder General description and responsibility Terminal • The terminal operator is a company providing the shipping lines with wharfage, dock, operator warehouse or other port terminal facilities. In the Port of Gioia Tauro there are two terminal operators: Medcenter Container Terminal (MCT) and BLG Automobile Logistics Italia. • MCT, set up by Contship Italia, established in the Port at the end of 1993. Contship signed the Programme Agreement on behalf of MCT. MCT implemented huge investments in the port structures, a small share of them co-financed by the ERDF. MCT is the main terminal operator and started transhipment activity in September 1995. • In 1994 it had to guarantee a certain level of throughput, employment and private investments; the targets were achieved much sooner than expected. It has the exclusive use of a 3,395 metre dock and a 1,600,000 square metre area. It pays a concession fee to the Italian State that is intended to recover the Italian government’s investment costs, but not the sunk investment costs associated with the port (as stressed in the EC Expertise). • BLG is a joint venture between a German logistics company in the automotive sector (part of the Eurokai group) and a company specialising in cargo handling. It has operated in the Port of Gioia Tauro since 2000. • BLG received by concession through the Global Grant a 110,000m2 area and a 330m dock, which later expanded to became 320,000m2 and 760m respectively. At this location, BLG carries out a car carrier activity for the automotive sector, but a technological centre is also available for processing, inspection, equipment installation, repairs and painting. Vehicles handled in Gioia Tauro mainly come from Chinese, Japanese, Korean and Indian manufacturers. Ministry of • The Ministry of Transport’s mission is to organise the major railway, road, air and maritime Transport communication lines on Italian territory. It implements the major infrastructure works in collaboration with ANAS (for the motorways) and FS Ferrovie dello Stato and Trenitalia for and railways. Navigation • The Ministry of Transport was one of the signatories of the Programme Agreement. It approved (also called the land concession to MCT and monitored compliance with the commitments undertaken by Ministry of the terminal operator. According to the Programme Agreement, the Ministry was also the Merchant responsible for the implementation of the rail link between the Port and the existing Marine, Battipaglia-Reggio Calabria railway line. Ministry of • The Ministry of Transport elaborated a draft Master Plan to explain to the European Infrastructure Commission the potentialities of the port. and • The Ministry of Transport has the role of appointing the presidents of the port Authorities in Transport) agreement with the relevant regions. In December 2010 the Ministry approved the Framework Programme Agreement for the port area of Gioia Tauro. Other • Other Ministries were involved in the story of the Port of Gioia Tauro. Besides the Ministry of Ministries Transport, other Ministries that signed the Programme Agreement were the Ministry of Budget and Economic Planning and the Ministry of Public Works. • The Ministry of the Interior was part of the Committee for the Coordination and Development of the area of Gioia Tauro, established in 1997. Prime • Two Prime Ministers had a particularly important role in the story of the port. First, Carlo Minister Azeglio Ciampi promoted the project for a new transhipment port by signing in 1993 the draft agreement (Protocollo d’Intesa) with Contship Italia; second, Romano Prodi nominated in 2007 the Special Commissioner to develop a new strategy for the port. • On the other hand, the press blames Silvio Berlusconi’s government for having little interest in the port of Gioia Tauro. Temporary • A Surveillance Committee was set up and regulated in 1993 (Regulation 2082/1993) to ensure committees compliance with European regulations, decide upon the monitoring and control activities, and propose initiatives to expedite the implementation of the transhipment project. The Committee was composed of representatives of the Government (Ministry of Budget and Ministry of Transport), the European Commission, the Region and Contship Italia. Five meetings took place between 1996 and 1998. • The Committee for the Coordination and Development of the area of Gioia Tauro (Committee “Bianconi") was foreseen in the Programme Agreement (Art. 7), but established only in 1997. The Committee was in charge of coordinating the activities related to the agreement and of the timing and execution of all works concerning the transhipment project. It was based in Rome and composed of the following parties: Prime Ministry, Ministry of Transport, Ministry of Public Works, Ministry of Interiors, Ministry of Finance and Region Calabria. • Committee “Soriero” was set up to support the Coordination Committee. The Committee was guided by Mr. Soriero Giuseppe, undersecretary of Transport, appointed by Prime Minister Romano Prodi, and included the same parties as the Committee “Bianconi”. Depending on the subject of the meeting, additional participants were invited, such as Contship and ASI-REG. The

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Committee was in charge of easing the procedures of different public administration, in order to expedite the implementation of all the infrastructural works and to guarantee collaboration between different public actors. Later, it was also tasked with discussing the draft Master Plan for the development of Gioia Tauro, prepared by the Ministry of Transport, and with sending a definitive version to the European Commission. This was sent in February 1998. Region of • The Calabria Region is one of twenty Italian regional administrative divisions. It has legislative, Calabria administrative, financial/fiscal and regulatory powers. Among these, it approves the General Urban Plans, which periodically defines the scope (residential, commercial or industrial) of the territorial areas. • The management of the Port of Gioia Tauro was originally assigned to the Region of Calabria. The Programme Agreement gave the region the role of coordinating the operations related to the transhipment major project, to ensure the timely implementation of investments and to guarantee the most efficient and effective use of the ERDF resources. These tasks were carried out by the Region through a regional executive agency for local development (ASI-REG). Association • The Association of the Industrial Development in the Province of Reggio Calabria (ASI-REG), of the established in 1963 and controlled by the Region of Calabria, has the role of promoting the establishment of industries, handcrafts and service business in the competence area, by Industrial expropriating lands, collecting concession fees, making available infrastructure and equipment, Development and providing services and consultancies. It has operated since the construction phase of the in the transhipment port, on behalf of the Region of Calabria. Province of • ASI-REG implemented several infrastructure works in the Port of Gioia Tauro before 1994. Reggio di During the construction of the transhipment port, ASI-REG’s roles were: i) to monitor Calabria (ASI- compliance with regional, national and European law, particularly with reference to REG) environmental issues; ii) to approve modifications to the Urban Plan of the industrial area of Gioia Tauro; iii) to implement infrastructural works within the port area, by investing Lira 32 billion (EUR 16.5 million) of its own resources between 1996 and 1996 and an additional Lira 100 billion (allocated by the Inter-ministerial Committee for Economic Planning) in the following years. • After the creation of the Port Authority, the ASI-REG consortium’s field of responsibility was limited to industrial development in the area at the rear of the Port. Intermediate • A consortium was set up as an intermediate body responsible for the Global Grant: body for the Mediterranea Sviluppo S.c.a.r.l. Its shareholders were ASI-REG (the major one), Fincalabria and Ecoter. Global Grant • Its responsibilities were the verification of the criteria to obtain the grants, monitoring the expenditure eligibility, certifying the existence of permissions and monitoring the status of infrastructure and equipment. Port • The Port Authorities are public bodies with legal status introduced by Law n.84 of 28.01.1994. Authority They are required for each port of national or international economic relevance. The number of Port Authorities, originally 18, is currently 24. Their presidents are appointed by the Ministry of Transport, after consultation with the interested region, from among a trio of experts designated by the Province, the municipalities and Chambers of Commerce, Industry, Handcraft and Agriculture. However the Ministry may decide, if there is a particular reason, to request a second list of three candidates. • The Port Authority is in charge of the planning, coordination, surveillance, promotion and monitoring of the port operations and of all the other commercial and industrial activities implemented within the port areas. The Port Authority is also responsible for the preservation of the seabed and of ordinary and extraordinary maintenance of the port communal areas and infrastructure. It has territorial responsibilities over the port areas, which are not part of the Urban Plan designed by the municipalities and approved by the Region: in fact, the ports are types of territorial entities, regulated by their Port Authorities through 3-year Operational Plans, in agreement with the municipalities in the surroundings. • When the Port of Gioia Tauro was upgraded from a regional to an international economic relevance port (Law 30.12.1997), a Port Authority was established on 16.07.1998. In 2007 the Port Authority of Gioia Tauro extended its area of competence to the port of Crotone and Corigliano Calabro and in 2008 also to the Port of Taureana di Palmi. This structure aims to maximise the benefits from scale economies, while preserving the peculiarities of each port. • When it was created, the Port Authority of Gioia Tauro took over from the ASI-REG consortium the management of the port and was charged with managing the infrastructures within the port area financed by ASI-REG. • Investments are carried out mainly with resources provided by the Ministry of Transport. It also implements promotional activities for the port (publications, a website), releases the authorisation to the enterprises that require to operate in the port and collects the concession fees, the anchorage taxes and other port taxes (based on the weight of merchandise disembarked and embarked). • Until 2005 the Port Authority forwarded tax revenues to the Ministry of Transport, which then reallocated them across all the Italian ports. Since 2006, tax revenues are entirely retained by

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the Port Authority. • In 2002 a legal dispute arose between the Port Authority and ASI-REG, concerning the ownership of an area included in the jurisdiction of the Port Authority but which ASI-REG continued to manage as if it was still under its own jurisdiction. Shipping • In every port a number of companies offer collateral services to the port users. They include: agencies custom operations, assistance in loading and discharging of cargoes, warehousing and distribution. • In Gioia Tauro, the largest shipping agencies are Serport Gioia Tauro and Saimare Gioia Tauro (Serport has been present in the port of Gioia Tauro since the first phase of the terminal operations). Other companies are Calabria Shipping Agency, Innovazione Logistica and Medmar. These actors have very limited negotiating power with the shipping lines, since they are usually direct suppliers to the terminal operator MTC. Consortium • The draft agreement (Protocollo d’Intesa) between the Italian Government and Contship Italia for port included among its objectives the creation of a consortium, mainly composed of private companies, for the management of general port services (excluded docking, piloting and promotion towage). Its objective was to promote the initiatives aimed at the improvement of the port and to manage the general port services, in collaboration with local entrepreneurs, namely: the executive centre, rest areas, training, maintenance, etc. • The consortium was supposed to be established within 2 months from the ratification of the Programme Agreement, but the Programme Agreement, signed on 29 July 1994, makes no mention of it. The consortium was finally set up in December 1996, after some conflicts between the Province and the municipalities, who asked to be represented on it. The Consortium included various private and public bodies: the Chamber of Commerce, Assindustria, local banks, Fincalabria, ASI-REG, GEPI, the Province of Reggio di Calabria. • There is no evidence that the Consortium actually operated. Some of the its functions were probably taken over by the Port Authority (maintenance of the common areas in the port and promotion). • The new plan for the development of the Port, developed by the independent consulting company Booz Allen Hamilton, highlights the need to establish an agency (withparticipation by the region and Ministries) in charge of surveillance, coordination and promotion of the new plan, also through territorial marketing activities. The proposal for such an agency, whose roles are in part similar to the Consortium’s, highlights the need to have a body in charge of the port’s promotion. Special • The special commissioner in Italy is a person nominated by the Government with extraordinary commissioner powers to address particularly urgent and severe problems. Thanks to the centralisation of powers, the commissioner should be able to address specific objectives more directly and quickly than a larger number of administrations, with different interests. • On 23 May 2007 the Prime Minister Romano Prodi nominated Rodolfo De Dominicis as special commissioner of the Government for the activities related to the development of the Port of Gioia Tauro for the period of one year. On 28.02.2008 De Dominicis’s public office was transformed into “special commissioner delegated for the management of the development plan for the Port of Gioia Tauro” and he held office until 31 December 2009. • The special commissioner for the Port of Gioia Tauro was in charge of designing a new development plan for the port and its industrial area. Its field of responsibility overlapped with the roles of the Port Authority and of the ASI-REG consortium. During his period in office, the commissioner selected the consulting company Booz Allen Hamilton as external advisor with the task of elaborating a Strategic Development Plan for the Wide Area of Gioia Tauro. This plan is the basis of the Framework Programme Agreement signed in December 2010 by the European Commission, the Italian government and all the stakeholders involved in the Port. Source: Authors

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ANNEX IV. LIST OF ENTERPRISES OPERATIONAL IN THE PORT AREA

Company Area Employees Financing source Situation at 29/07/09 AUTORITÀ PORTUALE (ex Oto 286,365 n.a. Own Resources Constructed but not Breda Sud) operational MODUL SYSTEM 8,277 n.a. Own Resources Constructed but not operational S.I.A.M 3,570 1 Own Resources Operational CO.ME.CA 10,160 27 Global Grant Operational S.I.A.M. (ampl.) 3,960 - Own Resources Operational M.C.T. 25,000 1273 Own Resources Operational WOODLINE INTERN. 11,005 9 Law 44/86 Operational DE MASI COSTR. 14,807 45 Own Resources Operational AUGIMERI 5,000 1 Law 488/92 Operational PROGETTO SUD 6,980 3 Own Resources Operational SAC 5,285 3 Law 44/86 Operational LP EDILIZIA INDUSTRIALIZZATA 2,000 2 Own Resources Operational TEKNO CISALL 5,412 15 Law 488/92 Operational C.R.G.T. 37,443 5 Own Resources Operational LEGNELITE 5,001 0 Law 44/86 Operational P.M.C. 6,396 3 Law 488/92 Constructed but not operational DOORS & WINDOWS 15,334 19 Law 488/92 Constructed but not operational ATLANTE 52,798 0 Law 488/92 Bankrupt DELIA SUD COFANI 7,121 6 Law 44/86 Constructed but not operational DE MASI COSTR .(ampl). 324 - Own Resources Operational ZINCAL 19,729 18 Own Resources Operational BLG 25,977 55 Global Grant Operational CARONTE & TOURIST (ex 10,658 101 Global Grant Operational Travel Tickets) 46,902 PREFABBRIKA 21,876 63 Law 488/92 Operational SEA WORK 10,214 50 Global Grant Operational BIMARE FRUTTA (ora C.G.S.) 24,109 6 Global Grant Operational ALLERA COSTRUZIONI 8,957 46 Law 488/92 Operational METALMECCANICHE ECOLOGIA OGGI 9,645 66 Global Grant Operational NATURAGEL 11,154 4 Own Resources Operational ALL SERVICES 10,273 0 Global Grant Bankrupt TECNOCLIMA 10,724 1 Law 488/92 Constructed but not operational ATLANTE (ampl.) 15,411 - Law 488/92 Bankrupt

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FINCEDI CALABRIA 38,617 49 Own Resources Operational VIBOLABELS 2,959 3 Law 44/86 Constructed but not operational BIMARE FRUTTA 10,050 - Global Grant Constructed but not operational ZEN MARINE 9,996 11 Global Grant Operational EUROPEAN VISION 5,509 3 Global Grant Operational GUINICELLI 16,501 2 Global Grant Operational INVECO 9,988 8 Global Grant Constructed but not operational RADIPLAST 5,499 5 Global Grant Constructed but not operational CLM (aff. GICOS) 8,032 10 Global Grant Operational INDUSTRIE SICMA 50,715 0 Law 488/92 Bankrupt GA.RI. 7,800 8 Own Resources Operational EDILMAG (ex Impredit) 13,200 29 Own Resources Operational PAN NOVA 5,056 1 Law 488/92 Constructed but not operational RIZZO ANTONIO 4,940 17 Law 488/92 Operational CO.ME.CA -600 Global Grant EFFEPIEFFE UNO 11,679 4 Own Resources Not yet constructed SANGIORGIO 3,943 1 Own Resources Operational GA.RI. (ampl.) 1,584 - Own Resources Operational POLISTIROLO 5,500 8 Law 488/92 Operational 2,353 RETI ELETTROSALDATE 5,500 8 Law 488/92 Operational 2,523 MORABITO PIETRO S 10,470 16 Own Resources Operational R.G.S. (ex Reefer & Contai- 40,948 19 Law 488/92 Operational EUROPLAST (ex Plastic Sud) 8,030 4 Law 44/86 Operational CON.AS.CO 5,001 8 Own Resources Operational ALL SERVICES 4,760 - Global Grant Not yet constructed AZZURRINA (ex Edilfin) 14,500 18 Law 488/92 Operational MEDMETAL 1,996 5 Concession Under construction agreement L’ULIVO 5,007 38 Concession Under construction agreement ASTER CONSULT 10,906 15 National OP Operational PREFABBIKA (ampl.) 14,260 - Law 488/92 Operational IL CORRIERE GROUP 5,000 1 Law 488/92 Operational 5,280 Law 488/92 EKOTEM SRL 27,000 13 Own Resources Operational MI.TI.FORM SRL 10,000 2 Own Resources Operational 2,194 Concession agreement SORGENIA (ex Soluxia) 20,015 - Own Resources Operational

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EUROMED SRL 19,939 0 Own Resources Not yet constructed L.E.M. 5,670 0 Own Resources Not yet constructed GICOS IMPORT-EXPORT S.R.L. 100,237 47 Own Resources Under construction MORABITO PIETRO S (ampl) 4,000 - Own Resources Operational DE MASI COSTR. 14,999 - Own Resources Operational ECOSERVIZI 10,060 - Own Resources Operational IAM 2,455 - Concession Not yet constructed agreement LOCAT (M.C.S.aff.) 5,131 4 Own Resources Operational F.C. IMMOBILIARE (ex. Citrus 15,188 0 Law 488/92 Constructed but not Pellets) operational DOC MARKET’S 24,335 - Funds FINECO Under construction Leasing PUNTO UNO INGROSS (ex tre 4,793 1 Law 488/92 Operational esse) TEC.AL.CO 34,818 - Law 488/92 Under construction CON.AS.CO (ampl.) 5,058 - Own Resources Not yet constructed GIOIA SUCCHI 17,181 - Own Resources Under construction EUROPLAST (ex Miniro) 5,080 Operational MI.TI.FORM (ex Miniro) 4,920 Operational CALABRIA AGRUMI SAS 4,521 n.a. Own Resources Not yet constructed GA.RI. (ampl.) 7,265 - Own Resources Not yet constructed Source: ASI-REG, 2010

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104

ANNEX V. LIST OF INTERVIEWEES

Interviews and correspondence were undertaken with the following individuals. We would like to thank them for their assistance in compiling our report.

Interviewees Position Date Place Giovanni Laganà General Director Department of Infrastructure and 12.05.2011 Catanzaro Transport, Region Calabria Salvatore General Secretary of the Authority of the Port of Gioia 12.05.2011 Gioia Tauro Silvestri Tauro Francesco General Director ASI-REG, Consortium for the industrial 12.05.2011 Reggio Calabria Cosentino development of the province of Reggio Calabria Carmine Crudo General Director MCT Medcenter Containers Terminal (CS 13.05.2011 Gioia Tauro Contship Italia Group) Francesco De Managing Director BLG Logistics (ICO-BLG) 13.05.2011 Gioia Tauro Bonis Salvatore Olando Former General Director of the Department for National 12.05.2011 Lamezia Terme and European Programming, Region Calabria (former Managing Authority of Region Calabria) Sergio Curi Professor at the University of Castellanza and C-Log 25.05.2011 Milano Rodolfo De Former Special Commissioner of the Italian Government 26.05.2011 Milano Dominics for the Port of Gioia Tauro Francesco De DG REGIO, European Commission 16.06.2011 Brussels Rose Alberto Piazzi DG REGIO, European Commission 16.06.2011 Brussels Giuseppe Biacca Former president of Serport 20.06.2011 Reggio Calabria Teresa Munari Journalist 20.06.2011 Reggio Calabria Domenico Professor of Transportation Systems, University of Reggio 20.06.2011 Via Graziella, Gattuso Calabria, Faculty of Engineering, Department of località Feo di Informatics, Mathematics, Electronics and Transport Vito 89122, Reggio Calabria Pasquale La Rosa Representative of the trade union CGIL, Reggio Calabria 20.06.2011 Reggio Calabria Ivan Vita Representative of the industrial association Confindustria, 21.06.2011 Reggio Calabria Reggio Calabria Santi Casciano Procurement Manager for Maersk line 20.07.11 Telephonic Francesco Russo Professor of Transportation Systems, University of Reggio 28.07.11 Telephonic Calabria, Faculty of Engineering, Department of Informatics, Mathematics, Electronics and Transport

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