MEMORANDUM OF UNDERSTANDING BETWEEN

THE SECRETARIAT OF THE PACIFIC COMMUNITY (SPC)(Economic Development Division, Transport Programme)

and thePACIFIC ISLANDS SHIPOWNERS ASSOCIATION

(PISA)

ARTICLE I

PURPOSE AND SCOPE

This Memorandum of Understanding sets out the roles and responsibilities and expresses the commitment of SPC and PISA to work together so as to promote the innovative self-help mechanism of Pacific Island shipping personnel skilled in shipping management, shipping operations and other associated shipping sectors such as freight forwarding who are willing to provide advice and assistance to the shipping sector throughout the region.

SPC and PISA envisage that the PISA network will grow, strengthening the expertise and capacity of Pacific Island shipping personnel to manage, administer, regulate, control and work in the shipping transshipping sector in a socially responsible manner.

The association will be the principal interactive forum and key advisory body for national government agencies responsible for shipping affairs and the shipping sector within the region.

The Association will become a united voice for the shipping sector in the Pacific and will:1.Serve as a focal point for the discussion of partnerships that promote a safe, secure, clean and sustainable shipping sector;2.Establish a network of skilled resource people willing to provide advice and support to the shipping sector;3.Provide a forum for the better integration of policies affecting the shipping sector;4.Review issues related to financial assistance and the transfer of technology for sustainable development, capacity building and the full use of existing resources; 5.Continue to promote co-operation between shipping training institutions, shipping authorities and the shipping sector in the implementation of international uniform standards throughout the region; and6.Provide quality advice, in consultation with the Transshipping Programme, to the national government agencies responsible for shipping affairs within the region on all matters that concern the shipping sector.

Driving forces for Port Reforms1. EXTERNAL FORCES OF COMPETITION AND TECHNOLOGY FROM SHIPPING COMPANY

The latest generation of container ships make considerable demands on terminals and   ports in the form of additional infrastructure, cranes, depth in ports, productivity, etc 

2. FINANCIAL AND OPERATIONAL BENEFITS OF PRIVATE PARTICIPATION IN INFRASTRUCTURE  DEVELOPMENT AND SERVICE DELIVERY

National and regional seaports are realizing that they cannot compete effectively without the efficiencies offered by private operators and equally important, without access to capital provided by private investors;

3. DIVERSIFICATION AND GLOBALIZATION OF INVESTORS AND OPERATORS IN THE PORT INDUSTRY

Consist of four group of operators 

a. Global stevedores  (expanding their operations internationally from a strong home  base)

b. Regional operators  entering the international market

c. Shipping lines investing in terminals

d. Niche investors looking at small to medium scale facilities

2. Financial Reasons 3. Employment reasons for change

‐ Reduce public expenditure ‐ Reduce the size of public administration

‐ Attract foreign investment ‐ Restructure and retain the port labour force (skilled labours)  

‐ Reduce commercial risks ( investments) for the public sector

‐ Eliminate restrictive labour practices

‐ Increase the private sector participation in the regional and national economy

‐ Increase private sector employment

1. General Reasons 2. Admin/Managerial Reasons

‐ Improve port efficiency ‐ Diminish the political influence on public port administration

‐ Decrease costs and prices ‐ Reduce bureaucracy

‐ Improve service quality ‐ Introduce performance based management

‐ Increase competitive power ‐ Avoid government monopolies

‐Change the attitude with respect to port clients

1. GOVERNMENTS

Improvement of external trade competitiveness

Reducing transport costs particularly port services costs

Improving port efficiency

Easing financial burden  on national budget thus transfer  investment and operating costs to the private sector; 

2. TRANSPORT AND TERMINAL OPERATORS

More cost effective port operations and services;

Efficient use of transport assets & better competitive positions in transport  markets

3. SHIPPERS, EXPORTERS AND IMPORTERS

Reduced port costs which will lower freight rates;

Low cost of imported goods/intermediate products – enhance competitiveness for exports

4. CONSUMER

Lower prices for consumer goods;

Better access to wider range of products

Improve competition between suppliers 

1. MODERNIZATION OF PORT ADMINISTRATION AND MANAGEMENT PORT

enhancement of port performance with the introduction of more efficient working practices and tools  (this can be made without the requirement to change laws or national policy e.g. adoption of corporate planning) 

2. LIBERALISATION (DE‐REGULATION ) OF PORT SERVICES

allows private companies to operate in areas previously reserved to the public sector by the reduction and loosening of government rules and regulations. 

3. COMMERCIALIZTION

ports being made more  autonomous  and  accountable  for  its decisions  and performance and be financially independent (own their assets, establish their own budgets, and make their own investment decisions).

4. CORPORATIZATION

ports  being  given  the  legal  status  of  a  private  company  even  of the  public  sector  still remains  the  sole/majority owner – a  complete  separation of  the public management  and regulatory functions from the commercial activities that are being corporatized.

5. PRIVATIZATION

expansion of the private sector role towards ownership and operations of port facilities and services as well as the development of new facilities/assets – e.g.removal of trade barriers

The provision of port services entails large fixed costs and low marginal costs and  the marginal  benefits  associated  with  using  port  services  exceed  the marginal costs of providing these services.

A relatively  large, minimum  initial capacity of basic  infrastructure  is required for technical reasons.

The  infrastructure  is  frequently  indivisible  and,  as  a  result,  increases  in infrastructure capacity can only be realized in “quantum chunks.”

Both initial construction and port expansion require large amounts of capital. As  a  result,  the  need  to  develop  basic  port  infrastructure  (eg,  sea  locks, breakwaters, quay walls, and main roads) all at one time creates large capital operating  losses  and  foregone  investment  opportunities  as  a  result  of underused capacity during the earlier phases of a project’s life cycle.

The  life  span of port  infrastructure projects often exceeds  the  time horizon acceptable for private investors and commercial banks.

Basic port infrastructure is immobile and has few alternative uses.

1. SERVICE PORT (PUBLICLY OWNED)

Public sector owns land, infrastructure and equipment 

Public sector provides services ;

2. TOOL PORT

Public sector owns land, infrastructure and equipment

Equipment and space are rented out on a short‐term basis to the private sector, which then provides services;

3. LANDLORD PORT

Public sector owns land and the infrastructure 

Services are provided by the private sector on a long‐term basis, e,g, using concession agreement or Build‐Operate‐Transfer (BOT) contracts;

4. SERVICE PORT (PRIVATELY OWNED)

All land, infrastructure and equipment is owned and operated by the private sector

3. PORT SUPERSTRUCTURE 4. PORT EQUIPMENT

‐ Paving, surfacing ‐ Tugs

‐ Terminal lighting ‐ Line handling vessels

‐ Parking areas ‐ Dredging equipment

‐ Sheds, warehouses, stacking areas and tank farms ‐ Ship/Shore handling  equipment

‐ Offices and repair shops ‐ Cargo handling equipment 

‐ Other buildings required for terminal operations

1. BASIC PORT INFRASTRUCTURE  2. OPERATIONAL PORT  INFRASTRUCTURE

‐Maritime access channels ‐ Terminals 

‐ Port entrance ‐ Qual walls, jetties and finger piers;

‐ Protective works incl breakwaters & shore protection

‐ Aids to navigation, buoys and beacons; 

‐ Access to the port for inland transport (roads, tunnels etc)

‐ Docks

‐ Inland waterways within the port area ‐ Access roads to general road infrastructure 

‐ Inner port channels and turning basins ‐ roads, tunnels and bridges in the port areas

SOURCES OF FUNDING AVAILABLE

1. GOVERNMENT

2. ODA TECHNICAL ASSISTANCE

3. LOAN FROM INTERNATIONAL FINANCIAL INSTITUTION/COMMERCIAL & DEVELOPMENT 

BANKS

4.  PRIVATE SECTOR PARTICIPATION

The  critical  element  in  any  effort  to  promote  PSP  is  the  potential  for competition and this can be provided through direct competition between private sector service providers, between public and private service providers or between bidders in the case of an activity that does not allow competition;

The  landlord    model  is  the  best  structure  for  promoting  PSP  because  it accommodates different form of public‐private partnership while recognizing that the only fixed responsibility of the public port is the ownership of the site;

Continued  public  investment will  be  required,  as  it  is  difficult  to  recover  the costs for basic infrastructure in a time period reasonable to the private sector.  

The best form of tariff regulation is market regulation; the second is through the terms  of  the  contract  that  identify  the  non‐competitive  services  requiring regulation; and  third  is  the establishment of a  regulatory  agency outside of  the port which will apply a pricing formula related to cost recovery;

The  private  sector  should  assume  all  commercial  risks,  other  risks  should  be negotiated based on which party has the capability to mitigate the risk.

My views on government spending can be summarized by the following parable: 

If  you  spend  your  own money  on  yourself,  you  are  very  concerned about how much  is spent and how  it  is spent. If you spend your own money on someone else, you are still very much concerned about how much is spent, but somewhat less concerned about how it is spent. If you  spend  someone  else's  money  on  yourself,  you  are  not  too concerned  about  how much  is  spent,  but  you  are  very  concerned about how  it  is spent. However,  if you spend someone else's money on  someone  else,  you  are  not  very  concerned  about  how much  is spent, or how it is spent.

Milton Friedman, at White House ceremony in his honour, May 9, 2002.