CONCESSION RENEWAL: Q&A
BETTER THE ‘DEVIL’ YOU KNOW WAPPP(1) engages in a Q&A addressing key areas of challenge in the concession renewal process. Six key questions are addressed
8 It is important for port authorities to have clear visibility regarding their goals when approaching the concession renewal task
The November 2021 issue of PS featured an article from Geneva-based WAPPP(1) that reflected on the often challenging subject of concession renewals. The article prompted significant discussion and feedback to the extent that together with WAPPP PS came up with the idea of a follow-up Q&A-based discussion responding to key questions that flowed from the original article. These questions with responses from WAPPP, led by Erik Wehl and Neil Davidson, are featured below. In formulating responses to what are identified as six key questions relating to concession renewal the authors drew upon a sample of 20+ European terminals – mainly container terminals – that had recently approached concession renewal. By far the lion’s share of this sample saw renewal with the incumbent operator, 14 were renewed on average five years before concession expiry and the average concession period was just under 19 years. Further, the renewed concession arrangements typically included requirements for additional investments seen as necessary over the extended lifetime of the concession, e.g. to accommodate past and anticipated market, regulatory, and other structural changes, per example to accommodate bigger vessels etc. According to PS’s understanding, this situation is reflected around the world – i.e. with concession award favouring renewal at the end of the initial term as opposed to running an entirely new public tender. Indeed, the latter is seen to be more the exception than the rule. The following six key questions and answers are intended WAPPP is a global non-governmental organisation. It sets as key objectives helping its members to achieve their professional goals and the promotion of best practices in Public Private Partnerships (PPP).
1
30 | MARCH 2022
to promote positive dialogue and learning between host port authorities, other government agencies and private sector organisations involved with concession renewal. Ultimately the goal is best practice in PPP arrangements – the stated aim of WAPPP which includes incubating new approaches and debunking myths. CONCESSION RENEWAL – SIX KEY QUESTIONS 1. Does it always have to be a renegotiation rather than a straight renewal? For any concession of significant length (10 years plus) it is almost inevitable that circumstances will have changed in some material way as it nears its end, be that micro level factors such as the nature of the traffic being handled, technological developments and operational requirements or more macro level factors such as market demand and government policy. These factors usually affect both the port authority and terminal operator sides of the equation. In addition, the concession award process is increasingly seeking to achieve a broader environmental compliance for port activities and the sustainable development of the port. A well-designed concession (especially one reflecting the development of best practices over time) may be able to cope with these issues and simply be renewed as is, but much more likely the changes (and the rate of change) are such that both parties find it in their interest to reset the goalposts. This is particularly the case given that if it is a renewal rather than a short extension of the concession, the stage needs to be set for the next 15-25 years. Significant investment will be involved and hence renegotiation immediately comes onto the table, especially as factors such as volume commitments and incorporation of new regulations go hand in hand with this.
For the latest news and analysis go to www.portstrategy.com/news101
