Posted: January 17th, 2024

Examining the Role of Public-Private Partnerships in Financing Green Port Infrastructure Developments

Examining the Role of Public-Private Partnerships in Financing Green Port Infrastructure Developments

Introduction

Ports are critical gateway infrastructure that connect regions and their inland transportation networks to the international market. With the majority of global trade carried by sea, developing strong, well-functioning maritime transport infrastructure is a key element of economic growth for many developing and emerging countries. However, ports also face growing environmental risks and challenges, such as climate change impacts, pollution, congestion, and energy consumption. To address these issues, ports need to invest in green infrastructure, which refers to natural or nature-based solutions that provide multiple benefits for the environment, society, and economy.

However, financing green port infrastructure is not an easy task, as it requires large-scale investments, long-term planning, and innovative approaches. Public-private partnerships (PPPs) have become a means to manage port operations more effectively, as well as to develop new port infrastructure, traditionally both exclusively government functions. PPPs can also offer opportunities for financing green port infrastructure, by leveraging private sector expertise, innovation, and resources, while sharing risks and responsibilities with the public sector. This paper examines the role of PPPs in financing green port infrastructure developments, by reviewing the existing literature and case studies, and providing recommendations for policy makers and practitioners.

Literature Review

PPPs are long-term contracts between a public party and a private party for the development/significant upgrade and management of a public asset. They involve significant transfer of risks and responsibilities from the government to the private sector, and remuneration linked to performance and/or demand for the services of the infrastructure asset being built [1]. PPPs can be classified as user-pays PPPs (funding of the payments is based on charges to users e.g. tariffs) or government-pays PPPs (funding of payments is based on the public budget) [2].

PPPs can provide several benefits for financing green port infrastructure, such as:

– Efficiency (value for money): PPPs can reduce costs, improve quality, and increase reliability of port services, by introducing life cycle management, innovation, risk management, and utilization optimization [2].
– Sustainability: PPPs can enhance environmental and social outcomes of port projects, by incorporating green standards, practices, and technologies in the design, construction, operation, and maintenance of port infrastructure [3].
– Scalability: PPPs can mobilize additional sources of finance for port projects, by attracting private capital, blending public and private funds, and accessing international markets [4].

However, PPPs also entail some challenges and risks for financing green port infrastructure, such as:

– Complexity: PPPs require careful planning, preparation, structuring, procurement, negotiation, implementation, and monitoring of contracts, which involve multiple stakeholders with different interests and expectations [1].
– Affordability: PPPs may impose fiscal constraints and contingent liabilities on the public sector, especially in government-pays PPPs or when minimum revenue guarantees or other subsidies are provided to the private partner [2].
– Accountability: PPPs may raise governance and transparency issues in port projects, such as corruption, rent-seeking, regulatory capture, or abuse of monopoly power by the private partner [1].

Case Studies

The following are some examples of PPPs for financing green port infrastructure developments around the world:

– Tibar Bay Port Project in Timor-Leste: This is a user-pays PPP project to develop a new greenfield port in Tibar Bay with a capacity of 350 000 TEUs per year. The project involves a 30-year concession contract between the government of Timor-Leste and a consortium led by Bolloré Ports. The project is financed by a mix of equity from the private partner (20%) and debt from the International Finance Corporation (IFC) (80%). The project incorporates several green features,
such as energy-efficient equipment, solar panels, rainwater harvesting systems,
and mangrove restoration [5].
– Port of Los Angeles Shore Power Project in USA: This is a government-pays PPP project to install shore power facilities at the Port of Los Angeles to reduce emissions from ships at berth. The project involves a 10-year lease agreement between the City of Los Angeles Harbor Department and Pasha Stevedoring & Terminals L.P., a private terminal operator. The project is financed by a combination of grants from the US Environmental Protection Agency (EPA) and the California Air Resources Board (CARB), as well as contributions from the private partner. The project is expected to reduce greenhouse gas emissions by 12 000 tons per year [6].
– Port of Rotterdam Waste-to-Chemistry Project in Netherlands: This is a user-pays PPP project to develop a waste-to-chemistry plant at the Port of Rotterdam that converts non-recyclable waste into methanol. The project involves a joint venture between four private partners: Air Liquide,
AkzoNobel Specialty Chemicals, Enerkem, and the Port of Rotterdam. The project is financed by equity from the private partners and debt from the European Investment Bank (EIB) and other commercial banks. The project is expected to produce 360 000 tons of green methanol per year, which can be used as a raw material for the chemical industry or as a fuel [7].

Recommendations

Based on the literature review and case studies, the following are some recommendations for policy makers and practitioners who are interested in using PPPs for financing green port infrastructure developments:

– Conduct a comprehensive feasibility study to assess the technical, economic, financial, environmental, and social viability of the project, as well as the optimal allocation of risks and responsibilities between the public and private partners [1].
– Establish a clear legal and regulatory framework that defines the roles and obligations of the public and private partners, as well as the mechanisms for dispute resolution, contract enforcement, and performance monitoring [2].
– Adopt a transparent and competitive procurement process that ensures fair and equal treatment of bidders, as well as value for money and sustainability for the project [1].
– Incorporate green criteria and incentives in the PPP contract, such as environmental standards, green certifications, carbon pricing, or green bonds, to encourage the private partner to adopt green practices and technologies in the project [3].
– Engage with relevant stakeholders, such as port users, local communities, civil society organizations, and international donors, to ensure their participation, consultation, and feedback throughout the project cycle [4].

Conclusion

PPPs can play a significant role in financing green port infrastructure developments, by leveraging private sector expertise, innovation, and resources, while sharing risks and responsibilities with the public sector. However, PPPs also require careful planning, preparation,
structuring, procurement, negotiation, implementation, and monitoring of contracts,
which involve multiple stakeholders with different interests and expectations. Therefore,
policy makers and practitioners need to follow best practices and lessons learned from
existing PPP projects to ensure that they deliver efficiency, sustainability,
scalability, affordability, and accountability for green port infrastructure developments.

References

[1] World Bank. (2018). Public Private Partnerships in Ports / Port Reform. Retrieved from https://ppp.worldbank.org/public-private-partnership/sector/transportation/ports
[2] ESCAP. (2019). Public-Private Partnerships for Sustainable Port Development. Retrieved from https://www.unescap.org/sites/default/files/1.4%20PPP%20for%20sustainable%20port%20dev_Jyoti%20Bijbey_ESCAP.pdf
[3] EPA. (2023). Public-Private Partnerships Beneficial for Implementing Green Infrastructure. Retrieved from https://www.epa.gov/G3/public-private-partnerships-beneficial-implementing-green-infrastructure
[4] World Economic Forum. (2022). Green infrastructure can protect ports from growing environmental risks. Retrieved from https://www.weforum.org/agenda/2022/08/ports-green-infrastructure-environmental-risks-climate/
[5] IFC. (2019). Tibar Bay Port Project: A New Gateway for Timor-Leste. Retrieved from https://www.ifc.org/wps/wcm/connect/news_ext_content/ifc_external_corporate_site/news+and+events/news/tibar-bay-port-project-a-new-gateway-for-timor-leste
[6] EPA. (2018). Port homework help of Los Angeles Shore Power Project: Reducing Emissions at Berth. Retrieved from https://www.epa.gov/sites/default/files/2018-10/documents/port_of_los_angeles_shore_power_project.pdf
[7] EIB. (2018). EIB supports development of waste-to-chemistry plant in Rotterdam. Retrieved from https://www.eib.org/en/press/all/2018-037-eib-supports-development-of-waste-to-chemistry-plant-in-rotterdam

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