Abstract
The goal of this paper is to analyse which concession alternative for Callao port, mono- or multi-operator, is more beneficial for the Peruvian society. The author uses the regulation theory, publicly available data, Monte Carlo simulation and real-option theory to analyse the viability of the concession under both alternatives. Its main findings are the following: (a) Although it seems preferable to concession Callao under a multi-operator scheme, superiority of one option over the other will depend on the nature of the port's cost function. If the latter is sub-additive for the forecasted demand, a mono-operator option would be more desirable. (b) If the concession of Callao port was to be carried out under a mono-operator scheme, the Peruvian Government could obtain proceeds in excess of US$ 60 million, or port users could expect to pay 22% lower tariffs for the use of the infrastructure. (c) Without a subsidy, the mono-operator alternative is the only viable one. (d) The real cost of the required subsidy, imposed on the Peruvian society, could amount up to US$ 12 million, while the benefits of the multi-operator alternative would amount up to US$ 60 million. Therefore, its benefits being higher than its costs, it is preferable to concession Callao port under a multi-operator scheme, even if a subsidy is required.
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Notes
The main source of information for this paper has been the study performed by OSITRAN to set new tariffs at terminals operated by ENAPU (see OSITRAN, 2003b). Another important source of information has been a draft submitted by the Ministry of Transport (see MTC, 2003), which describes the cost and characteristics of the container terminal planned for Callao port. The author recognises the shortcomings of working with secondary sources of information, but considers that it will not diminish the value of his findings, especially considering that it is unlikely that the final decision on the design of the Callao port's concession process will be made with more accurate information, since there is none.
The author thanks for their valuable comments and suggestions. The usual disclaimer applies.
It is worth noting that the terms ‘mono-operator’ and ‘multi-operator’ have opposite meanings whether they refer to firms operating within a terminal or a port. In this paper, a ‘multi-operator’ scheme refers to a situation where more than one company operates in a port, all of them with exclusivity rights over their terminals.
See Laffont and Tirole (2000) and Gallardo (op.cit) for a theoretical explanation of the trade-off between information gathering and the extraction of monopolistic rents.
To avoid confusion, it is important to keep in mind that since Peruvian operators are in charge of the infrastructure and superstructure of the ports, their duties cover those usually performed by terminal operators and port authorities in most ports of the world.
Since is very difficult to estimate in detail the nature and timing of reposition investments, it is customary in capital budgeting to assume an accrued figure, implicitly supposing that the net present value of the real disbursements will match the supposed amount.
It means the projections are not influenced by the inflation. This implicitly supposes that the current relative prices will maintain through the life of the concession.
Since there is no data available to estimate the probability distribution and standard deviation of these variables, they were set using the author's own judgment. Although this may be subject to criticism, it is necessary to take into account that the lack of certain information is precisely the reason why, when performing a Monte Carlo simulation, some variables are supposed to take values different to those supposed in the deterministic valuation.
It is worth noting that average market share figures refer to the entire life of the concession. If a terminal has a market share below this limit during any year or combination of years, this does not necessarily mean its economic viability is jeopardised.
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Defilippi, E. Intra-Port Competition, Regulatory Challenges and the Concession of Callao Port. Marit Econ Logist 6, 279–311 (2004). https://doi.org/10.1057/palgrave.mel.9100114
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DOI: https://doi.org/10.1057/palgrave.mel.9100114