Port Reform and Concessioning in Developing Countries

Abstract

Over the past decade many ports, with the exception of the UK and New Zealand ports that were privatised, have introduced private participation in port operations through different forms of concession or lease agreements. One of the most common reasons for private participation was believed to be efficiency gains through the introduction of competition. However, the potential for creating private monopolies in most cases is contentious, because the investment in the cost structure of ports render them natural monopolies; if not dealt with carefully, this could give rise to anti-competitive behaviour. It is normally accepted that terminal operations in the ports of developed countries are contestable due to the size of the markets and the competition with adequately adjacent foreign ports. However, that is not the case in developing countries with low cargo volumes; remote countries that only serve natural hinterlands; and end ports on the north–south routes that are not located on existing major shipping networks. Most of these ports pursue private participation in order to generate funds for investment; increase efficiencies; and ensure cost-effective services. To avoid monopolistic behaviour in such cases, a sound regulatory framework is necessary, but without preventing commercial entrepreneurship. In this article, port reform and the issues regarding concessioning of terminals will be discussed along with the regulation needed, if free market competition does not already exist. The implications of concessioning under such circumstances of regulated competition will be discussed and applied to South Africa as an example.