Maritime Policy & Management

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Current practices in European ports on the

awarding of seaport terminals to private
operators: towards an industry good practice
guide

Theo Notteboom , Patrick Verhoeven & Martina Fontanet

To cite this article: Theo Notteboom , Patrick Verhoeven & Martina Fontanet (2012) Current
practices in European ports on the awarding of seaport terminals to private operators:
towards an industry good practice guide, Maritime Policy & Management, 39:1, 107-123, DOI:
10.1080/03088839.2011.642315

To link to this article: http://dx.doi.org/10.1080/03088839.2011.642315

Published online: 06 Feb 2012.

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MARIT. POL. MGMT., JANUARY 2012,
VOL. 39, NO. 1, 107123

Current practices in European ports on the awarding

of seaport terminals to private operators: towards an
industry good practice guide

THEO NOTTEBOOMy, PATRICK VERHOEVEN*z and

MARTINA FONTANETz
yInstitute of Transport and Maritime Management Antwerp
(ITMMA), University of Antwerp, Kipdorp 59, 2000 Antwerp,
Belgium
zEuropean Sea Ports Organisation (ESPO), Treurenberg 6, 1000
Brussels, Belgium

The awarding of port services to private operators has become one of the most
important tools for port authorities to retain some control on the organization
and structure of the supply side of the terminal market. This paper discusses the
awarding of terminals in European ports. The first part provides information on
current practices of port authorities around Europe on tendering and contractual
arrangements linked to the awarding of terminals. This includes the terminal
awarding processes, the duration of the terminal award contract and the contract
stipulations. The discussion is based on the results of an extensive survey among
European ports conducted in spring 2008 and the European Sea Ports
Organisation (ESPO) Fact Finding Report published in 2011. In a second part,
the awarding of port terminals is placed in the European Union (EU) legal
and policy context. The paper concludes with an extensive discussion on the
desirability, feasibility and possible content of a good practice guide for European
ports on the awarding of terminals. Such a guide is currently being developed by
ESPO and intends to serve as a substantial contribution of port authorities to the
soft law approach in EU port policy development.

1. Introduction
Landlord port authorities are challenged to develop effective terminal awarding
procedures in view of attracting private operating companies. The granting of
terminal concessions and leases in seaports is a highly complex matter guided by
regulatory, economic, environmental and technical considerations. Theys et al. [1]
reviewed all important questions related to the procedures in view of selecting the
most appropriate operators for their scarce land and the conditions under which
these private companies can be given the right to operate the facilities. The questions
were grouped into the various phases of the terminal awarding process: the pre-
bidding, the prequalification, the selection and the post-bidding phases. It is widely
recognized that the awarding of port services to private operators has become one
of the most important tools for port authorities to influence the prosperity of the
port community [2, 3]. Through the awarding procedures and the contract, port

*To whom correspondence should be addressed. E-mail: Patrick.Verhoeven@espo.be

Maritime Policy & Management ISSN 03088839 print/ISSN 14645254 online 2012 Taylor & Francis
http://www.tandfonline.com/TMPM
http://dx.doi.org/10.1080/03088839.2011.642315
108 T. Notteboom et al.

authorities can in principle retain some control on the organization and structure
of the supply side of the terminal market, while optimizing the use of scarce resources
such as land.
Many landlord port authorities around Europe are evaluating existing practices
and exploring new methods to structure terminal awarding processes and to design
agreements between port authorities and terminal operators. There is not a lot of
academic work available yet to support them in their search. Notable exceptions
include the work by Juan et al. [4] on a quantitative methodology for designing
concession agreements for the port of Valencia, Engel et al. [5] on a Demsetz-alike
auction applied to the Chilean ports of Valparaso and San Antonio, Theys and
Notteboom [6] on the duration of terminal contracts and Ferrari and Basta [7] on a
data envelopment analysis approach to calculate concession fees for Italian ports.
Contrary to Theys et al. [1], this paper does not try to present methodological
issues and challenges regarding the awarding of terminals in seaports. While some
of the authors have been involved in papers on other significant topics that can be
examined in relation to the awarding of port services to private operators (see e.g.
ref. [6] on the duration of concession terms), this paper discusses the development
of a good practice guide, a key area for joint action between port authorities
across Europe. This paper explores the desirability, feasibility and possible content
of a good practice guide for European ports on the awarding of terminals. Such a
handbook is currently being developed by the European Sea Ports Organisation
(ESPO). It could help individual port authorities in developing sound and effective
terminal award procedures and contracts. It would also serve as a substantial
contribution of port authorities to the soft law approach in European Union (EU)
port policy development. The value of the paper lies in its empirical approach
towards current practices and policy challenges when developing a European-wide
perspective on terminal awarding arrangements and procedures. All of the authors
are closely involved in these discussions in the field and can thus present a first-hand
view on the topic. The first part of the paper summarizes current issues and practices
on tendering and contractual arrangements linked to the awarding of terminals
in European ports. The discussion is based on the results of an extensive survey
among European ports conducted in spring 2008 [8] and the ESPO Fact Finding
Report on European port governance [9]. In the second part, the awarding of port
terminals is placed in the EU legal and policy context. The paper concludes with
an extensive discussion on the proposed good practice guide on the awarding of
terminals for European ports.

2. Empirical results on terminal awarding practices in European ports

2.1. Current terminal awarding practices
In mid-2008, ESPO in cooperation with Institute of Transport and Maritime
Management Antwerp (ITMMA) of the University of Antwerp conducted a survey
in order to shed light on current terminal awarding practices in Europe. In total,
about 80 port authorities around Europe received the survey. Answers were obtained
for 43 terminal projects in European seaports, resulting in a response rate of 54%.
Two-thirds of these projects related to greenfield developments (i.e. the terminal site
is either reclaimed from the sea or encompasses land not previously used for port or
industrial activities), while the remaining cases related to brownfield sites (i.e. site has
been used before for other port or industrial activities). About 44% of the terminals
 Current practices in European ports 109

considered started operations recently. For about a quarter of the projects, the
awarding and contracting procedures were already completed, but the terminal
had not started up operations yet. In 13% of the cases the awarding procedure was
completed, but the contract with the future operator was not yet finalized. For the
remaining cases, the awarding procedure had not been started up yet or the awarding
procedure was ongoing. Large, medium-sized as well as small terminal projects
were represented in the survey. About 61% of all responses related to container
terminal projects (26 in total). We estimate that this represented about 3540% of
all container terminals in Europe that had started/would have started operations or
had been/would be awarded in the period 20032010. The survey results therefore
provided a good representation of the current situation in the European container
terminal industry. A detailed discussion of the survey results is presented in ref. [8].
For the purpose of this paper, we summarize the main findings with policy relevance.
In addition, we also include the findings of the more recent ESPO Fact Finding
Report on European port governance [9] which includes a section on the contracting
out of port land. The Fact Finding Report is based on the results of a web-based
survey that was directly addressed to individual port authorities. A total of 116 port
authorities from the 26 countries represented in ESPO responded. Together, these
port authorities manage a total of 216 different ports. In 2008, these ports handled
in total 66.2% of the overall volume of cargo handled by the total population
of ports represented in ESPO, covering the 22 maritime Member States of the EU
and four neighbouring countries. The results of the survey are differentiated
regionally, classifying port authorities in five groups: Hanse (Iceland, Norway,
Finland, Sweden, Denmark, Germany, Netherlands and Belgium), New Hanse
(Estonia, Latvia, Lithuania and Poland), Anglo-Saxon (UK and Ireland), Latin
(France, Portugal, Spain, Malta, Italy, Greece, Cyprus and Israel) and New Latin
(Slovenia, Croatia, Romania and Bulgaria).

2.1.1. The awarding methods used. The ESPO Fact Finding Report shows that
almost 60% of the responding port authorities award port land to third parties
through either a unilateral or multilateral (mostly bilateral) contractual arrangement
governed by public law. The public law nature of contractual arrangements is
strongest in Latin and Anglo-Saxon countries.
The ESPO Fact Finding Report also reveals that nearly three quarters of the
responding port authorities apply, always or conditionally, public selection proce-
dures to contract out port land, in some cases only when the land involved is of
strategic interest. Latin port authorities always use public selection procedures
while half of the Hanseatic port authorities never apply them (mainly smaller ports).
The same applies to close to half of the Anglo-Saxon port authorities, many of which
provide cargo handling services themselves. Medium-sized and large port authorities
use public selection procedures more often than small ones. Those port authorities
that always or sometimes use a public selection procedure use public tender (64%),
competitive bidding (21.3%) or other types of procedures (14.7%). A public tender
involves a call for proposals whereby all relevant contractual details are specified
in advance, whereas with competitive bidding an open call is held whereby contract
details are negotiated in a later stage. Those port authorities that never apply a
public selection procedure use a variety of methods including the first come first
served principle and direct negotiations on the basis of expressions of interest, either
by the port authority or a potential operator.
110 T. Notteboom et al.

In line with the Fact Finding Report, the ESPO/ITMMA survey revealed that
public selection procedures are used in 75% of the sample of terminal granting
procedures. In the cases where terminal operators were directly appointed, port
authorities did so mainly for strategic reasons (e.g. the creation of intra-port
competition or the securing of further expansion possibilities for efficient incumbent
firms) or because the terminal project represented a marginal extension of an existing
facility (for instance, the extension of an existing container terminal by one berth).
Mediterranean ports massively opt for public selection procedures, while the Baltic
ports show the largest diversity in awarding methods. In 83% of the cases following
a public selection procedure, the port authority published an open call for tender.
In about 38% of the cases, the terminal was awarded to one of the candidates in only
one round. One-third of the projects considered involved a reduction of the number
of candidates in a first round (via a qualification/eligibility stage or selection stage).
The remaining candidates take part in a second round (e.g. they get an invitation
to tender). The final award is made in the second stage. Almost equally important
is an awarding process covering more than two rounds, typically including a
selection stage and two or more rounds to narrow down the number of candidates.
Large terminals are characterized by more complex awarding processes, while an
awarding process of only one round is frequently used for small and medium-sized
terminals. Any competitive bidding process should comply with the principle of
equality, which states that every candidate should be equally treated and compared,
and that there will be no favouritism in the awarding of a terminal and no substantial
reduction of competition.

2.1.2. Criteria to select the winning terminal operator in case of competitive

bidding. The results of the ESPO/ITMMA survey show that the selection stage
typically includes minimum requirements related to the financial strength of the
candidates (included in 86% of the cases) and minimum requirements related to
the relevant experience of the candidates in terminal handling (included in 92% of
the competitive bidding procedures considered). In about half of the terminal
projects considered, the expected throughput is considered as the most important
criterion in the selection process. Price plays an important role as well, but in 30%
of terminal projects the price bid was not part of the award process due to the
specificities of the pricing system used by the port authority. Other important criteria
used in view of the final awarding stage of a terminal include the contribution to the
economic development of the region/country, the financial proposal (other than
the price bid) and the technical proposal for the terminal. When asked about whether
or not the port authority uses a formalized system in the final awarding stage, 41%
of the respondents indicated they had no specific quantitative mechanism in place,
but made a final choice based on a qualitative overall appreciation of the proposals.
In 59% of cases, the respective port authorities use some sort of scorecard system:
various aspects of the proposal are rated and the results are added up to a weighted
or unweighted score, based on a score for each of the evaluation criteria related to
the elements in the proposal.

2.1.3. The duration of the agreement. The duration of the agreement is of crucial
importance both to terminal operators and port authorities. Port authorities try to
find a balance between a reasonable payback period for the investments made by
terminal operators on the one hand and maximum entry to potential newcomers on
 Current practices in European ports 111

the other [2]. Contract durations in the sample of the ESPO/ITMMA survey ranged
from 4 to 65 years. Two-thirds of all terminal contracts have a term of 2140 years.
Not surprisingly, larger facilities tend to have longer contract durations. In 58% of
the terminal award procedures included in the survey, existing laws impose minimum
and/or maximum limits on the duration of the terminal award contract. Legislators
in EU Member States have developed thresholds on durations in view of
safeguarding free and fair competition in the port sector. While clear rules of
thumb on the determination of contract duration seem hard to find, the survey
clearly indicates that the duration mainly varies with the amount of the initial
investment required both from the terminal operator and the port authority.
A more detailed conceptual and empirical discussion on contract duration is
provided by ref. [6].
The ESPO Fact Finding Report largely confirms the findings of the ESPO/
ITMMA survey. In addition, it shows that some 63.5% of the responding port
authorities have the freedom to set the durations themselves. This percentage
is smaller for smaller port authorities and shows considerable variety according to
the region. For example, in Latin countries only half of the port authorities have the
freedom to set durations. Restrictions consist of maximum durations that are set by
legislation or are subject to approval by government. Most maximum durations seem
to vary around 3035 years, with very exceptional extremes of 10 and 70 years.

2.1.4. Clauses in the agreement. Figure 1 provides an overview of the outcomes of

the Fact Finding Report survey and the ESPO/ITMMA survey. The differences are
mainly explained by the different sample sizes and the nature of the projects
considered. The Fact Finding report results relate to contractual arrangements
between 2005 and 2009 of a large number of port authorities across Europe, while
the ESPO/ITMMA survey looks at a more restricted number of recently awarded
(mainly container) terminals or terminals undergoing a terminal awarding process.
Contracts often take the form of performance-based agreements to create
incentives for the terminal operator to meet the objectives of the port authority.
The most commonly used clauses relate to minimum throughput requirements,

Clauses allowing unilateral ending

Merger and acquisition clauses

Minimum investment clauses

ESPO/ITMMA Survey 2008
Clauses in case of non-extension ESPO Fact Finding Report 2011
Renegotiation clauses

Renewal clauses or extension clauses

Modal split clauses

Environmental performance clauses

Throughput guarantees

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Figure 1. Clauses applied in contractual arrangementsas a percentage

of contracts in the respective samples of terminals.
Source: Based on Refs [8, 9].
112 T. Notteboom et al.

environmental clauses and renewal and extension clauses. The ESPO/ITMMA

survey results made it clear that the threshold values in the throughput clauses are
often determined via negotiations between terminal operator and the port authority.
About 68% of the contracts in the sample explicitly refer to the payment of a penalty
to the port authority (e.g. a fixed amount per ton or TEU short) in case the terminal
operator does not meet the throughput guarantees as set out in the agreement.
Terminal awarding agreements often include clauses referring to the conditions
for renewal of the terminal use after the end of the regular contract term, clauses
referring to an extension of the contract term if the terminal operator makes
additional investments during the regular contract term and clauses referring to
interim evaluations (e.g. every 5 years) during the contract term. Some 40% of the
contracts considered in the ESPO/ITMMA survey contain clauses referring to what
happens if the contract is not extended after the end of the regular contract term
(25% of the cases in the Fact Finding Report). In 63% of these cases, the clauses
explicitly refer to financial compensations for the value-added linked to investments
made by the terminal operator in a specified period prior to the end of the contract
term. Port authorities in Europe seem to follow different paths when it comes to
dealing with the terminal superstructure at the end of the contract. In 30% of the
cases under consideration, the port authority decides at the end of the contract term
on what to do with the superstructure. Common approaches also include the
removal/destruction of the superstructure by the terminal operator at the end of the
contract term (28%) or the transfer of the assets to the port authority without
any form of compensation (26%). The ESPO/ITMMA survey further revealed that
it is not common practice for the port authority to financially compensate the
terminal operator for the superstructure that was transferred at the end of the
contract term (15%).

2.2. Viewpoints of port authorities on terminal awarding procedures

The ESPO/ITMMA survey also aimed at gathering viewpoints and perceptions of
managing bodies of ports around Europe on tendering and contractual arrangements
linked to the awarding of terminals. This part was not included in ref. [8] but
reported in ref. [10]. The viewpoints survey was sent to about 300 ports all over
Europe. A total of 72 managing bodies of ports responded. The geographical
distribution of the respondents is depicted in Table 1. Despite a moderate response

Table 1. Distribution of responses to the viewpoints survey.

Port region No. of respondents Percent

Atlantic range 7 9.7

Scandinavia/Baltic 22 30.6
Black Sea 2 2.8
HamburgLe Havre range 12 16.7
Mediterranean 24 33.3
UK/Ireland 4 5.6
Other 1 1.4
Total 72 100.0

Source: Ref. [10].

 Current practices in European ports 113

rate of 24%, some of the viewpoints survey results are presented here given their
relevance for the further development of this paper.
The viewpoints survey revealed the following interesting points regarding the
awarding methods and procedures (Figure 2three bars at bottom):
. Three quarters of the respondents argue that general regulatory frameworks can
only partially be applied to the awarding of terminals as they do not take into
account the specific nature of seaport terminals.
. An elevated 90% of the respondents agree with the statement that it is up to the
managing bodies of ports to work out awarding procedures for new terminals.
. More than 70% of the respondents agreed or even strongly agreed with the
statement that the managing bodies of ports (should) have the right to award
terminals by direct appointment when they have strategic reasons to do so.
. Irrespective of the existence of a scorecard system to award terminals, managing
bodies of ports should explain how the final selection among the candidates
is made. The weights and pass criteria are thus to be included in the bidding
documents if applicable.
The survey also brought forward a number of issues related to clauses in
agreements (Figure 2three bars at top):
. Port authorities strongly support the view that the determination of the
minimum throughput levels by the managing body of the port should be based
on a transparent and uniform calculation system used within the port.
. Two-thirds of the respondents support the statement that the managing bodies
of ports should include renewal/prolongation clauses in the contract to
guarantee terminal efficiency and sufficient investments by the terminal
operator in the last few years of the contract term.
. About 42% of the respondents agree with the statement that managing bodies
of ports should have the right to impose an additional royalty charge in case the
terminal changes hands during the contract term. A right to impose a royalty

Managing bodies of ports should have the right to impose a royalty

fee in case the terminal changes hands during the contract term (for
example via a merger or acquisition).

Managing bodies of ports should include renewal / prolongation

clauses in the contract to guarantee terminal efficiency and
sufficient investments levels by the terminal operator.

The minimum throughput levels should be based on a transparent

and uniform calculation system within the port.
Strongly disagree
Disagree
Managing bodies of ports need to explain how the selection among
the candidates is made. Neutral
Agree
Managing bodies of ports (should) have the right to award terminals Strongly agree
by direct appointment when they have strategic reasons to do so. No opinion

It is up to the managing bodies of the ports to work out awarding

procedures for new terminals.

General regulatory frameworks can only partially be applied to the

awarding of terminals as they do not take into account the specific
nature of seaport terminals.

0% 20% 40% 60% 80% 100%

Figure 2. Viewpoints of 72 port authorities.

114 T. Notteboom et al.

fee does not imply they will do so in practice. A lot depends on the existing
balance of power between the managing body of the port and the terminal
operator.

2.3. Discussion
The survey results make clear that a large diversity exists among European ports,
particularly in terms of the specificities of the awarding procedures deployed. The
observed diversity is to a large extent the consequence of the range of and priorities
in objectives followed by the respective port authorities, the specific local situations
and markets the ports are operating in and size differences among the terminals
considered. The specific design of the contract, its regulatory regime, the pricing
regime and the way the terminal is awarded reveal the priorities of individual
port authorities and as such play an important role in local port governance. The
results of the ESPO Fact Finding Report furthermore show that differences are to an
important extent determined regionally.
Notwithstanding existing differences, the terminal awarding practices in
European ports seem to be converging with respect to some specific aspects. The
vast majority of European port authorities are trying to optimize the use of scarce
land via the inclusion of throughput specifications in the contract. They are also
increasingly using the terminal awarding process to achieve a broader environmental
compliance for port activities and sustainable development of the port. Port
authorities continue to use terminal award procedures also to shape the structure and
market organization of the terminal handling business in the port area, thereby
in principle ensuring further capacity growth for efficient incumbent firms and
ensuring intra-port competition by allowing in new entrants when poor competi-
tiveness urges the port to do so.
All of the above points suggest that port authorities should be given the possibility
to work out awarding procedures for new terminals taking into account local
objectives and the need for a sustainable and highly competitive port context.
If further policy action at a national or supranational/EU level were to be envisaged,
it should be aimed at empowering port authorities to fully take up their
responsibilities and to further develop their role as (local) regulators in an
environment that provides legal certainty to all parties involved. We argue this
can best be done through initiatives such as a good practice guide instead of detailed
legislative proposals. Before elaborating further on the desirability and possible
content of such an instrument, we first discuss the current status and history of
service concessions in EU policy documents.

3. EU rules on service concessions and the European ports policy communication

3.1. The uncertain status of terminal awarding regimes under EU law
The granting of rights of use to ships, goods and terminal operators is subject to the
general rules of the EU Treaty, such as the provisions regarding freedom to provide
services and the prohibition to abuse a dominant position. The awarding of long-
term rights of use to port service providers, especially in cargo-handling, can be
governed by a number of legal constructions [11], including the rather rigid EU
Directives on public procurement and the more flexible regime governing
service concessions. Essential elements of service concessions include the transfer
 Current practices in European ports 115

of responsibilities to the concessionaire and the fact that a significant risk inherent
in the delivery of the services lies with the concessionaire [12].
The granting of service concessions is subject to general EU legal principles
of equality of treatment, transparency, proportionality and mutual recognition
which the European Commission (EC) clarified in a horizontal interpretative
communication [13]. It was however for a long time unclear to what extent these
principles were applicable to the variety of terminal awarding regimes existing in
Member States [11]. Whereas in some countries, these regimes are governed by public
law and take the form of public service contracts or public domain concessions,
in others they are governed by private law and take the shape of ordinary lease
agreements. In yet other cases a variety of unilateral permits, authorizations and
licenses exists, whereas some countries or ports do not seem to have any particular
regime or form whatsoever [14]. Also, the notion services causes considerable
confusion since service concessions would normally concern activities whose nature
and purpose, as well as the rules to which they are subject, are likely to be the States
responsibility and may be subject to exclusive or special rights [13]. Privatization
processes have however more or less liberalized cargo handling services in most
Member States and the European Court of Justice even ruled that these services are
of a commercial nature and no different from any other economic activities [15].

3.2. The port services Directive: a failed attempt to provide legal certainty
The EC published in 2001, a Directive proposal on market access to port services
[16]. The aim of the proposal was to establish rules for market access to port services
including the use of transparent selection procedures. The political debate, animated
by fierce trade union protests, focused on the labour-related aspects of the proposal.
The essence of the Directive was however about the way in which port authorities
would use terminal awarding agreements to regulate market access for potential
service providers, thus ensuring market contestability and intra-port competition
[1719]. The Directive proposal also set rules to avoid discriminatory behaviour of
port authorities that were directly or indirectly engaged in the provision of port
services themselves.
Although the Commissions initial proposal was quite dogmatic, the compromise
that was devised afterwards by Council and Parliament did acknowledge the
strategic role of port authorities and took into account the need to ensure continuity
of investments and legal certainty for existing agreements. Influenced by continued
labour unrest as well as internal political meddling, the European Parliament
however rejected the final compromise on the Directive proposal in November 2003.
In 2004, a second version was published [20] which also failed to find political
support, mainly because some of its key features did not respect the compromises
already reached on the first proposal [18]. The uncertainty regarding the status of
terminal awarding regimes under EU law therefore continued to exist.

3.3. The soft law approach of the European ports policy communication
Following the rather traumatic double failure of the port services Directive, the EC
took recourse to soft law and published, after an extensive process of consultation,
a Communication on European Ports Policy [21] which contained a chapter with
guidance on the use of port concessions. In that, the Commission confirms that
terminal award agreements granted by a public port authority are to be considered
as service concessions under EU law, regardless what their status is under national
116 T. Notteboom et al.

law (public or private law, contract or unilateral measure, etc.). The key element
is not the actual cargo handling service itself whichas explained aboveis a
commercial service, but the fact that access to port land is a precondition for
providing this service. The granting of the use of a piece of port land would thus be a
measure through which the port authority disposes of a public good of which the
availability is limited and which allows the performance of the commercial cargo
handling activity which would not be possible without the availability of this public
good. The public aspect would even be stronger if the port infrastructure is financed
by public means. Only if the port and its real estate were fully private, run as private
companies and if all its components were fully financed by private means, would an
exemption from the rules governing service concessions seem to be feasible [22].
The application of EC Treaty rules and principles on service concessions is
elaborated in the above-mentioned horizontal interpretative communication of the
Commission [13]. This guidance was used as the basis for the concessions chapter
of the 2007 European Ports Policy Communication. The Commission first of all
identifies the basic principle that public authorities granting a concession are bound
by a transparency obligation, implying that their initiative must be adequately
advertised, that the procedure must be fair and non-discriminatory and that it can be
reviewed. Such an obligation of transparency consists in ensuring, for the benefit of
any potential candidate, a degree of advertising sufficient to enable the concession
to be opened up to competition and the impartiality of the selection procedure to be
reviewed. The transparency obligation would not only apply to concessions
involving cargo handling services, but also those concerning technicalnautical
services (pilotage, towage and mooring). Here, the Communication is more precise
about the use of selection procedures, stipulating that these must be given adequate,
European-wide publicity.
Seen from a port governance point of view, the Commission clarifies some
important additional points. First it says that the transparency obligation does not
hinder port authorities from setting selection criteria which reflect the commercial
strategy and development policy of a given port that will be the basis for granting
the concession. This is an important recognition of the discretionary power of port
authorities, which was a crucial issue during the debate on the port services
Directive. In addition, the transparency obligation would only apply to contract
awards having a sufficient connection with the functioning of the internal market,
excluding for instance cases of very modest economic interest which would make
contract awards of no interest to economic operators located in other Member
States. The second important point relates to the length of concessions. According to
the Commission, durations must be set so that these do not limit open competition
beyond what is required to ensure that the investment is paid off and there is a
reasonable return on invested capital, while maintaining a risk inherent in
exploitation by the concessionaire. This again corresponds with the perspective of
the port authority, wishing to ensure a balance between a reasonable payback period
for the investments made by terminal operators, on the one hand, and a maximum
entry to potential newcomers, on the other [2]. The Commission adds that, when a
concession expires, renewal is considered equivalent to granting a new concession
and is therefore bound by the above-mentioned transparency obligation. This raises
an important question regarding the common practice of prolongations whereby a
concessionaire makes additional investments before the expiry of his concession.
Also, it is not clear to what extent clauses on possible prolongations can already be
 Current practices in European ports 117

included in the initial concession agreement. A third point is that the Commission
accepts provisions in concession agreements which aim at ensuring that the terms of
the concession are respected and at protecting the legitimate interests of ports
and local communities, notably with regard to the overall quality and performance
of port services. A condition is that these provisions may not infringe Treaty rules or
Community legislation. The Commission would thus allow the active use of
concessions as intelligent governance tools, an issue which is elaborated further
in this paper. The final point relates to the safeguarding of rights of workers in case
of transfer of activity further to a selection procedure. This would mean that, subject
to conditions, new concessionaires may be obliged to take over staff employed by
the previous concessionaire. It remains to be seen to what extent this may impose an
entry barrier to new operators and thus reduce market contestability.

3.4. Further initiatives

It is important to underline again that most of what is explained above is based on
the interpretation of the EC and has therefore the status of soft law.
The Commissions guidance can be qualified as being very supportive to the
position of the port authority, confirming its discretionary power in the selection of
operators and the setting of concession conditions. Apart from specific questions
already raised above, such as the prolongations of concessions and take-over of
personnel, two fundamental problems however remain which are inherent to the
soft law nature of the Commissions communication. First, contrary to for instance
the port services Directive, the communication does not foresee transitional rules
for existing agreements since it is not introducing new legislation but simply giving
an overview of principles based on the fundamental rules of the Treaty. It is however
common knowledge that many existing terminal contracts in European ports were
not granted on the basis of the transparency obligation required by the Commission.
This leaves a great deal of uncertainty as regards existing agreements. Second,
it could be argued that the interpretative guidance of the Commission may not be
sufficient to empower the position of port authorities and ensure a level playing field
among them that would match the bargaining power of terminal operators or would
resist the political influence that is often exercised in the granting of terminal
agreements [23].
It is obvious that these concerns could have been more adequately addressed
through legislation which would, if properly drafted, undisputedly have created
greater legal certainty. The port sector itself however clearly stated its preference for
soft law. As demonstrated earlier, this would be the best option to take into account
local objectives and the need for a sustainable and highly competitive port context.
In this respect, three pending issues should be noted. First, the Commission has
announced that it will produce in the course of 2011 a horizontal Directive proposal
on service concessions (the term horizontal refers to a multi-sectoral proposal
covering many different industries). This would apply cross-sector and is therefore
likely to remain fairly general, confirming the basic transparency principles that were
already outlined in the 2000 interpretative communication. Second, the Commission
is also evaluating its soft law policy for ports in 2012. It is too early to say whether
any specific (legislative) measures will result from this, taking into account that,
as mentioned, a horizontal Directive is already in the pipeline. Third, there is the
survey on current practices regarding the awarding of seaport terminal contracts
in Europe which ESPO commissioned in 2008 and of which the results were
118 T. Notteboom et al.

summarized in the first part of this paper. The survey is a first step towards the
publication of a good practice guide on terminal awarding which ESPO is preparing
to complement the soft law guidance and any (horizontal) legislation provided by the
Commission.

4. Towards a good practice guide on terminal awarding in EU ports?

Terminal award policies as part of governance structures are not static but evolve
constantly in line with the requirements imposed by the market. The dynamics in the
port environment urge port authorities to continuously evaluate the effectiveness
of their terminal award policies in the light of market trends. This supports the
argument for giving full ownership and responsibility on terminal awarding
procedures to port authorities. A good practice guide could be a useful complement
to the Commissions guidance and be helpful in the context of possible forthcoming
legislation. ESPO is currently producing such a sector-based guide which would
gather best practices and show realistic situations that port authorities are
confronted with when awarding contracts and when managing relations with
terminal operators through the contract duration.
The last section of this paper provides an overview of the overall objectives, scope
and possible content of an ESPO good practice guide on the awarding of seaport
terminals. Second, it provides a discussion on its desirability and feasibility.

4.1. Objectives and scope

The guide is primarily aimed to help port authorities improve their contracting
methods and instruments in order to obtain more value from a governance
perspective. To that end, it gives practical guidance to port authorities on the entire
award process of seaport terminals, from the selection and design of the award
procedure to the materialization of the agreement in a contract. In that sense, efforts
are being made to develop a real toolkit for port managers, which would contain
a number of instruments, methodologies and illustrative examples to improve ports
terminal award practices. The guide also aims to disseminate lessons learnt from
experience, warning port authorities about potential pitfalls in the award process and
during the contract term.
The ESPO good practice guide primarily focuses on agreements granted by
publicly owned port authorities that adhere to the landlord model. It is however
expected that a number of European ports that have port reform programmes
ongoing and/or are in the process of privatizing terminal operations, may also
benefit from it. The guide may also be of interest for landlord port authorities
from other parts of the world.

4.2. Content
The ESPO good practice guide consists of two main sections. The first section
concentrates on the main phases which constitute a terminal award process.
It describes the preparations to be undertaken by port authorities before initiating
the awarding process and provides guidelines for the appropriate selection and
design of the award method and its later implementation. The second section of the
guide focuses on the contract established between the port authority and the selected
operator and on the provisions to guarantee the enforcement of the agreement
during the contract term. The guide also emphasizes the variety of terminal award
 Current practices in European ports 119

regimes existing across Europe which have their origin in specific law provisions at
national, regional or local levels. Finally, a glossary of vocabulary to clarify terminal
agreement-related terminology as well as EU technical terms is also being developed
in the form of an annex to clarify the different terminology which is used across
Europe.
As emphasized earlier, the guide intends to be a practical toolbox for port
managers. To that end, check lists, detailed explanations and methodologies
are being developed for the main issues. The guide also intends to provide advice to
port managers through recommendations and warnings.

4.2.1. Terminal awarding process. A number of innovative practices are being

considered in the guide, which might be adopted by more port authorities across
Europe or catch the attention of port managers. One example is the organization
of a market consultation prior to initiating any award procedure, which has been
successfully used in a few ports. It benefits both the port authority and the private
sector by enabling an exchange of information on a non-committal basis with the
purpose of better tailoring the competitive procedure and the subsequent agreement
to the market needs at a later stage. A market consultation is a powerful tool to test
the market interest in a given plot of land and to explore innovative ideas from
potential participants. Increasingly, sophisticated practices are also being introduced
to design concession payment systems. New practices based on a profit distribution
concept would allow port authorities to share with the terminal operator profits
in excess of a value determined in the contract on the basis of the Internal Rate of
Return (IRR), which is defined as the operators shareholders aggregate IRR linked
to the committed investments over the agreement period. In the same way, financial
models which calculate the IRR of potential bidders would help in assessing the
adequacy of the multiple offers received in a competitive-driven awarding procedure.
Discussions are also taking place on whether to include in the guide practices in use
in other sectors. One example would be the variable-length agreements, which
determine the duration according to a determined return of investments. The
contract duration would expire the year after the IRR exceeds a determined
percentage, although in any case before a number of years determined by contract
(see ref. [6] for a more detailed discussion).

4.2.2. The contract and its enforcement. The aim is to identify a list of essential
contract clauses (or provisions) together with their objectives and to provide
guidelines on their possible content. In that sense, the guide may finally contain a
standard template of the General Terms and Conditions document which is used
in many ports to lay down the basic provisions that govern terminal agreements.
The General Terms and Conditions document is usually complemented by a specific
agreement laying down the special conditions which reflect the particularities/
specificities of a concrete project or plot of land. The articles contained in the
General Terms and Conditions document are in general the result of years of
experience in the relationship between landlord ports and their tenants. They
establish the rights and obligations of both the managing bodies of the port and
terminal operators and contain provisions to safeguard the interest of the port
authority and the wider community. Common provisions relate to the definition
of construction and maintenance obligations, the limitations to the use of the land,
the establishment of safeguard instruments such as bonds or bank guarantees linked
120 T. Notteboom et al.

to the execution of works or to the performance of the terminal operator, the

conditions for the transfer of the terminal or in the case of a change of control of the
terminal. Provisions which clarify under which circumstances the contract would end
and the effects of the termination are also found in the General Terms and
Conditions which are always complemented by the Specific Conditions document
(i.e. title, deed, etc.). The guide will also look at the key issues contained in this
Specific Conditions document.
Finally, the guide will deal with durations and prolongations of terminal
agreements. ESPO is working to provide a methodology to help port authorities
determine an optimal contract length. The methodology would identify the key
elements which would need to be taken into account by the awarding authority
when determining the contract length. Among these key elements, the amount of
committed investments and their contribution to anchoring the operator (movable
assets vs. immovable assets), the depreciation of investments, taxation matters,
market and risk factors are being developed in the methodology.
The possibility of renewing or prolonging contracts bound by the transparency
obligation is another complicated matter. Port authorities are looking for practical
solutions which may help overcome problems in terms of the continuity of
investments. One possibility is to revive the options proposed in the failed first
version of the port services Directive which was however supported by the EC and
the industry at that time. On the one hand, it offered the possibility of a prolongation
once during the last 10 years of the contract conditional on significant investments.
As an alternative, the incumbent operator could request the port authority to launch
a selection procedure before the end of the contract if significant investments were
foreseen. However, even in this framework, several elements concerning prolonga-
tions would still remain unclear. Among these, the possibility in the context of an
extension to update clauses of the contract to take into account for example new
environmental requirements or the right of the port authority to execute or refuse
an extension, when this possibility is set in the contract.

4.3. Desirability of a good practice guide

Preparing the ESPO guide as such has already proven to be a useful exercise
to examine and improve terminal awarding practices in European seaports. It has
provided port authorities with a specific forum for discussion of key issues and has
developed into a platform for the exchange of information, experiences and
innovative practices. Interestingly, the exercise has also resulted in internal debates
on contract goals, port authorities objectives and contract provisions to empower
managing bodies of ports.
The process of producing the guide is furthermore unveiling key concerns of port
authorities in particular as regards the enforcement of the contract and the
achievement of its goals. In that sense, the guide will certainly serve the interest
of port authorities in their search for more valuable agreements at times when
they are confronted with increasingly powerful market players. As an initiative for
the self-improvement of the industry, the elaboration of a good practice guide
has therefore already proven to be a desirable exercise for the sector and is likely
to lead to the refinement of current practices.
On the other hand, following the ESPO/ITMMA survey that was discussed in the
first section of this paper [8], the guide would mean a step forward towards more
transparency and towards the acceptance by port authorities of the EU principles.
 Current practices in European ports 121

In this way, the guide would form a substantial contribution from the industry to the
current soft law approach of the Commission. It cannot be denied that a long period
of vagueness regarding seaport concession practices has existed. With this initiative,
port authorities would show their willingness bring practices in line with the
principles of good governance and the principles of the EU Treaty.

4.4. Feasibility of the ESPO good practice guide

The elaboration of the good practice guide faces a number of constraints. First, fierce
competition between seaports in Europe has lead to a degree of reticence to provide
concrete input. The confidentiality of contracts is also hindering the progress made
on the guide and makes it for instance very difficult to include in its content samples
of key clauses or to define an ideal contract template. Another important constraint
relates to the difficulties to address the issues which remain unclear under the present
EU policy framework. In addition, the concept of a good practice guide is strongly
contested by terminal operators. Many of them deny that EU concession principles
would apply to the awarding of terminal agreements. From their perspective, a guide
of good practice based on these principles would therefore be counterproductive.
Finally, the biggest constraint is of a tactical nature, i.e. how wise is it to publish
a sectoral good practice guide on concessions at a time when the European
Commission may be preparing new legislative tools on concessions.
ESPO in any case sees the good practice guide essentially as a living instrument
which would go through regular revisions in order to update its content and include
innovative practices. In this way, the guide would continuously respond to the
evolving needs and concerns of the industry.

5. Conclusions
The awarding of port services to private operators has become a key tool for port
authorities to influence the organization and structure of the supply side of the
terminal market, while optimizing the use of scarce resources such as land. The EC
considers terminal award agreements granted by public port authorities as (service)
concessions under EU law, regardless of what their status is under national law of
Member States. Terminal award agreements are in any case subject to a number of
basic principles with regard to equality of treatment, transparency, proportionality
and mutual recognition. If further policy action at a national or supranational/EU
level were to be envisaged, it should be aimed at empowering port authorities better
to fully take up their responsibilities and to further develop their role as (local)
regulators in an environment that provides legal certainty to all parties involved.
We argue this can best be done through sector initiatives that are based on the
general principles of soft law instead of detailed legislative proposals.
This paper has explored the desirability, feasibility and possible content of a good
practice guide on terminal awards for European ports. Such a guide developed by
ESPO could help individual port authorities in developing sound and effective
terminal award procedures and contracts and could be a useful complement to the
Commissions guidance and be helpful in the context of future initiatives.
The intention of the good practice guide is not to provide a static document.
Instead the whole exercise is aimed at offering a dynamic instrument (in the form
of a toolkit for port managers) and forum used by port authorities to discuss
practicalities and goals linked to terminal award processes. To that end, check lists,
122 T. Notteboom et al.

detailed explanations and methodologies are being developed for the main issues.
The guide also intends to provide advice to port managers through recommendations
and warnings. The guide will furthermore address the determination of contract
duration and the possibility of renewing or prolonging contracts.
The good practice guide should provide port authorities with a specific forum
for discussion on terminal agreements. Preparatory work on the guide has already
established a platform for the exchange of information, experiences and innovative
practices. The guide will also be a step forward towards providing more transparency
to current industry practices and towards the acceptance by port authorities of the
EU principles governing concessions.

Acknowledgements
Patrick Verhoeven and Martina Fontanet have contributed to this paper in their own
name. The viewpoints expressed in the paper are therefore not necessarily those of
the European Sea Ports Organization.

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