Port Authorities Should be Retained in the Public Sector - Case Study Example

Port ities should be retained in the public sector". (Anon Critically assess whether there is a case for this approach or whether port ities should be transferred to the private sector irrespective of circumstances. Introduction: The last decade has seen a transformation in international transport management. The former segmented approach to international transport management has given way to an integrated management. These changes and consequent customer demands and stiff competition have brought pressure for port authority reforms. These port reforms have an impact on the regulatory, legislative and managerial functions of the ports. (Globalization, Privatisation & Restructuring of Ports. Ports, Shipping & Waterfront Reform). The path to port reform, however, has not been smooth as there have been protests against reforms in the port sector. Yet the need for port reform remains due to several factors. Among these factors the main contributing factors are the development in technology of the shipping industry and competition. Technological advances have seen larger and faster ships becoming an integral part of the shipping. Competition has come from the increase in the number of ports by the developmental activities of countries, as they strive to build up their infrastructure. (Ports. Port Reform). Despite these driving factors there is opposition to port reform that leads to privatisation. The opposition comes from the reluctance on the part of the government to give up its control of the functioning of ports and the resistance from labour. There are differing viewpoints between those who support the privatisation of ports and by those who oppose it. Both sides have valid points to support their arguments. In such a situation it needs proper analysis to come to a sound conclusion on the contentious issue of privatisation of ports. Evolution of Ports: Ports came into existence as a means of entry onto land. The next stage in development came about as a result of the trade between different countries. The increasing trade volume was the initial driving force in the evolution of ports. Port reform has now become an urgent requirement even threatening its very existence. There are five factors that have led to this situation. The first is competition from the existing ports. The next is the threat from new ports that are being developed. The third is the possibility of substitutes developing. The next is the growing bargaining power of the port users and finally the emerging bargaining power of the port service providers. These factors impact on all ports irrespective of size. (THE EVOLUTION OF PORTS IN A COMPETITIVE WORLD). The need for port reform has been established. The next step is to analyse the best means for this port reform and whether public sector or privatisation is best suited for it. In this analysis arise the vexing issues between public sector and privatisation as seen in all infrastructure changes that are happening around the world. (Shirley, M.M and Walsh, P. Public versus Private Ownership: The Current State of the Debate). Meaning of Public Sector and its Relevance to Ports: The public sector is the means through which any government meets its requirements to provide basic services to the citizens of the country. The understanding of basic services varies from country to country. Transportation has been included in the public sector in many countries, especially those that had or still have socialist leanings. The reason for this is that it involves public transit. Another reason is that ports are an important economic investment of a nation and have a significant role to play in the economic growth of the country. (public sector). Meaning of Privatisation: The term privatisation is the process by which the assets or services that the government of a country has or delivers through the public sector is transferred to the private sector. There are two ways in which this can be achieved. In the first mode the government may choose to have minimal involvement and transfer all the assets and services. In the second mode it may choose to maintain dominant control of the activity by retaining the assets and only give up the services aspect by creating a partnership with the private service providers. Therefore privatisation need not mean the total transfer of assets and services from the public sector to the private sector at all times. (What is Privatisation?). Misinterpretation of the Meaning of Privatisation of Ports: Misinterpretation of this broader perspective of the methods of privatisation adds to the controversy with regard to the usefulness of privatisation. We have seen that privatisation does not necessarily mean that government hands over total control of an asset or facility. Yet, controversy arises from the belief that privatisation necessitates the government relinquishing total control. (Sharaf: No privatisation of Egyptian ports). Such beliefs could also lead to violent protests against privatisation and provide strength for the opposition to privatisation of ports. (Bacon, D. (2005). CAFTAS Vision For The Future - Privatisation At Gunpoint). The Two Paths to Privatisation of Ports Around the Since there are two ways in which privatisation can take place, the same is reflected in the privatisation of ports. The first is total transfer of assets and services to private companies, thus becoming company ports. The example of this can be seen in the United Kingdom where the ownership and services have been transferred to the owning company Associated British Ports (ABP). (Company ownership. Who Owns The Port). Transfer of the ports to a private company has been mainly to increase the profitability of the port. Ownership need not be restricted to a single port and in the United Kingdom Associated British Ports owns twenty-one ports. (Associated British Ports Holdings PLC). Profitability need not be the only reason for such a mode of privatisation. In the developing world finances for the development of the ports could be a restraining factor and some governments go in for such a mode of privatisation. (Govt weighs offer for sale of port). In the second way of privatisation, the port authority retains the port infrastructure and the regulatory functions, while passing on the services at the ports to the private sector. Such a port model of privatisation may be looked upon as a landlord port. This mode of privatisation is the more popular mode of privatisation outside of the United Kingdom. This popularity extends to different kinds of ports as well as different countries. In 1997 a study of the leading one hundred container ports showed that eighty eight percent of these ports had gone in for the landlord mode of privatisation. (PORTS & TERMINALS). In the United States of America a majority of the ports of are landlord ports. (Port Activities, Functions, Types). In the developing countries too this form of port authority is gradually emerging as the means to privatisation. India is one of the fast emerging economies of the developed world with a large coastline and twelve major ports and a number of small ports. India has initiated port reforms at the major ports bringing in the private sector. (India’s Role in GloBallast Programme). Around the world ports are moving towards one form or the other of private participation. (Do privately run ports have the edge). Worldwide Experience of Privatisation: The worldwide experience of privatisation has been satisfactory and Table 1 provides a sample of this. These experiences show that privatisation helps ports to compete more effectively and this has only made privatisation more popular. Table -1 Worldwide Port Privatisation Experience Country Project Description Result Argentina Ports privatisation Playa Blanca Rosario Santa Fe Queqen New regulatory framework developed to establish autonomous administration for provincial ports Major ports corporatised with boards comprised of national authorities provincial authorities, users, concessionaires and unions Concessions running at two major ports Success Chile All ports 15 unions controlled all ports; wages so high that union members hired substitute workers at 50% of their wage Private stevedore companies permitted to compete for business Government bought off workers for USD50M in severance payments Saving of USD 40M in year and USD 96M per year after 4 year Success Malaysia Kelang container terminal Privatisation of country’s major port over 1983-86 5 year employment guarantee to labour and safeguard on pension benefits 21 year license to operate terminal Only movable equipment sold, not publicly owned real estate 6 bidders all of which were international/local consortia Sold for USD 30M to Australian/Malaysian consortium work which had container experience Success Mexico Veracruz BOT of port services awarded in July 1991 3 competing concessions awarded to Mexican companies Objective to attract USD1B investment to upgrade port to world class competitiveness 4200 workers terminated; military had to seize control of port Since privatising, volume up 37% and productivity up 40% Success Philippines Manila International Container Port Poro Point Port Bangle Point Port 25 year concessions granted to foreign consortia Primary developer is UK Port facilities upgraded; traffic volume and productivity doubled Success Source : UN, World Bank, Interviews (PORTS. Infrastructure Development). Benefits and Demerits of Privatisation: An analysis of the benefits and demerits of privatisation is essential to know whether privatisation of port authorities is a move in the right direction. Table 2 provides us with the main advantages and disadvantages of privatisation. Table – 2 Infrastructure Benefits Disadvantages Ports Fall in real port authority charges  Faster ship turnaround time  Increased labour productivity Increased focus on user pays Job losses  Flow-on social an economic consequences Source : (Economic and Social Impacts of the Privatisation of Regional Infrastructure and Government Business Enterprises in Regional and Rural Australia). Merits of Privatisation: The benefits that result from privatisation are many and they all make the port more competitive. These benefits also target the threats that ports face as seen earlier and reduce the impact on them and thus make them more successful functionally. As a result of drop in the real port charges and quicker turn around for ships it becomes beneficial for the user shipping companies to use such ports. The increased focus on user pays ensures that revenue inflow to the port is enhanced. Finally the restructuring of the labour factor increases the productivity. Reforms of the labour has been a target area for some time as the labour in the public sector, which included ports, has been benefiting from higher wages with low productivity. This is in comparison to the private sector. This has been a drain on the economy of countries. (How long can the public-sector gravy train stay on the rails?). The increased labour productivity has been brought about by more effective human resource management techniques of the private sector. Table 3 provides a clear picture of the changed labour scenario brought about by privatisation and this is applicable to the privatisation of ports. Table - 3 Before Privatisation After Privatisation Personnel Management Preferential salaries, additional benefits, significant indirect salary component Preference in recruitment to family members of employees and unionised workers Internal labour market based on length of service and experience Reduced daily working hours and overtime Labour stability High level of rotation of management staff (union as stable reference) Overstaffing Reduction of additional benefits and indirect salary Internships, bursaries, flexible hiring arrangements Internal labour market based on formal qualifications, high level of rotation Flexible working hours, reduced overtime Greater internal flexibility Greater discretionary powers for enterprise Reductions in staff levels (redundancies, retirements, etc.) Union participation Uniform union strategies based on claims and demands High level of participation and union membership Selective benefits Diversified and more defensive union strategies Lower level of participation and union membership Abolition of benefits Collective bargaining Centralized bargaining One collective agreement per enterprise Decentralized bargaining by sector Separate collective agreements for each enterprise Source: (Corradetti, S. (1999). The impact of the privatisation of public sector enterprises on labour relations and conditions of work and employment in the air and land (rail) transport sector). The successful experience of privatisation is echoed in reports from countries as well as ports. The public sector participation in the economy of Taiwan was as high as 51. 3% in 1959, which by 1988 was reversed with private participation touching 81.9%. This increased privatisation has been one of the driving forces behind the economic growth of Taiwan. (Public Sector Vs. Private Sector. Taiwan’s Economic Growth). The port of New York and New Jersey has announced a record handling for total cargo handled to the tune of over $110 billion in 2004, for the first time and expects this to grow in 2005. (PORT OF NEW YORK AND NEW JERSEY SETS CARGO RECORDS IN 2004, ANNOUNCES PLANS TO HANDLE FUTURE GROWTH). Demerits of Privatisation: An examination of the demerits of privatisation will provide an understanding of the validity of these demerits and the depth of it. The first demerit is that of job losses. This is a valid demerit as job losses can result from management techniques of the private for more efficient and competitive functioning of the private sector. This does cause worry for the labour at ports and the labour union and is one of the areas of major opposition to privatisation of ports. (EMPLOYMENT IMPACT). Yet, this demerit does not affect all ports equally and does not seem to be a demerit in some ports with the job loss not taking place at all. The Port of Houston reported an increase not only in the port related jobs, but also direct jobs at the port with the increase in business seen in the year of 2000. These direct jobs come from the companies that are providing the support services in the cargo handling and the services related to the vessels visiting the ports. Hence though there is validity in the demerit of job losses it is not seen all over and could be a demerit in those ports that have been overstaffed to a large extent. (ECONOMIC IMPACT). The next aspect is the concern over the possible loss of the regulatory role and control of the government. Privatisation of ports need not reduce the regulatory role or control of the ports by governments. This can be seen by the recommendations of the lending agencies for infrastructure reform like the World Bank. These recommendations suggest that the decentralisation be done in such a manner that the functions of the ports be first segregated. This is to be followed by decentralisation with the services being privatised and the regulatory and control functions of the ports be retained by the governments or local authorities. (Lethbridge, J. and Ra’anan, Z. (1991). PORT ADMINISTRATION: PUBLIC VS PRIVATE SECTOR). Even in the company ports in the United Kingdom, the government retains its regulatory and controls of the ports through the port authority, as the company functions are subordinate to the port authority functions. (Duties And General Powers Of The Port Authority. Port of London Act - PART III). Conclusion: Therefore the demerits of privatisation of port authorities are more of an illusion rather than real, with probably only the loss of jobs possibly having a negative impact. This has to be weighed against the critical role that privatisation of the infrastructure plays in the economic growth and enhanced living standards of the citizens of a nation. There is lot of worth in the saying privatise or perish in the survival and growth of ports. (Impact of Infrastructure Privatisation). List of References. Associated British Ports Holdings PLC. November 22, 2005, from Associated British Ports. Web site: http://www.abports.co.uk/geninfo/abphplc.htm. Bacon, D. (2005). CAFTAS Vision For The Future - Privatisation At Gunpoint. Truthout/Perspective. November 22, 2005, from, “Scoop” INDEPENDENT NEWS. Web site: http://www.scoop.co.nz/stories/HL0505/S00168.htm. Company ownership. Who Owns The Port? November 22, 2005, from PORT CITIES Southampton. Web site: http://www.plimsoll.org/LifeOfAPort/ComesToLife/WhoOwnsThePort/CompanyOwnership.asp#3. Corradetti, S. (1999). The impact of the privatisation of public sector enterprises on labour relations and conditions of work and employment in the air and land (rail) transport sector). November 22, 2005, from International Labour Office. Web site: http://www.ilo.org/public/english/dialogue/sector/techmeet/sdpt99/sdpt2.htm. Do privately run ports have the edge? (2001). November 22, 2005, from, Businessline, The Hindu. Web site: http://www.thehindubusinessline.com/businessline/logistic/2001/12/24/stories/0924f051.htm. Duties And General Powers Of The Port Authority. Port of London Act - PART III. . November 22, 2005, from, PORT OF LONDON AUTHORITY. Web site: http://www.portoflondon.co.uk/display_fixedpage.cfm/site/statutory/id/101#5A%20[General%20duties%20and%20powers%20of%20the%20Company. Economic and Social Impacts of the Privatisation of Regional Infrastructure and Government Business Enterprises in Regional and Rural Australia. November 22, 2005, from Background Paper. STANDING COMMITTEE ON TRANSPORT AND REGIONAL SERVICES. HOUSE OF REPRESENTATIVES. Web site: http://www.aph.gov.au/house/committee/trs/privatisation/prpaper.doc. ECONOMIC IMPACT. November 22, 2005, from THE PORT OF HOUSTON AUTHORITY. Web site. http://www.portofhouston.com/geninfo/economicimpact.html. EMPLOYMENT IMPACT. November 22, 2005, from, Labor Impacts of Private Participation in Infrastructure. Web site: http://rru.worldbank.org/documents/toolkits/labor/toolkit/module2/employment_impact.html. Globalization, Privatisation & Restructuring of Ports. Ports, Shipping & Waterfront Reform. November 22, 2005, from 10th Annual Australasian Summit. THE WORLD BANK GROUP. Web site: http://www.worldbank.org/transport/ports/ps_docs/austral.htm. Govt weighs offer for sale of port. (2000). November 22, 2005, from Trinidad Guardian. Web site: http://www.hartford-hwp.com/archives/43/237.html. How long can the public-sector gravy train stay on the rails? (2005). November 22, 2005, from management issues – at the heart of the changing workplace. Web site: http://www.management-issues.com/display_page.asp?section=blog&id=2469. Impact of Infrastructure Privatisation. November 22, 2005, from Papers and Links. World Bank. Web site: http://rru.worldbank.org/PapersLinks/Impact-Infrastructure-Privatization/. India’s Role in GloBallast Programme. November 22, 2005, from GLOBIS INDIA. Web site: http://madz-ballastprototyp.tripod.com/main/india_response.htm. Lethbridge, J. and Ra’anan, Z. (1991). PORT ADMINISTRATION: PUBLIC VS PRIVATE SECTOR. November 22, 2005, from TRANSPORTATION, WATER AND URBAN DEVELOPMENT DEPARTMENT.THE WORLD BANK. Web site: http://siteresources.worldbank.org/INTPRAL/Resources/338897-1117630103824/td-ps5.pdf. Port Activities, Functions, Types. November 22, 2005, from AAPA ONLINE. Web site: http://www.aapa-ports.org/industryinfo/port_activities.htm. PORT OF NEW YORK AND NEW JERSEY SETS CARGO RECORDS IN 2004, ANNOUNCES PLANS TO HANDLE FUTURE GROWTH. (2005). Press Release: 28 – 2005. November 22, 2005, from THE PORT AUTHORITY OF NY & NJ. Web site: http://www.panynj.gov/AboutthePortAuthority/PressCenter/PressReleases/PressRelease/index.php?id=657. PORTS. Infrastructure Development. November 22, 2005, from Prime Minister’s Council on Trade And Industry. Web site: http://indiaimage.nic.in/pmcouncils/reports/infra/ichap6.htm. PORTS & TERMINALS. November 22, 2005, from IndiaCore.com. Web site: http://www.indiacore.com/ports.html. Ports. Port Reform. November 22, 2005, from, Privatisation ToolKits. The World Bank Group. Web site: http://rru.worldbank.org/Toolkits/PortReform/Highlights.aspx. public sector. November 22, 2005, from, investorwords.com. Web site: http://www.investorwords.com/3947/public_sector.html. Public Sector Vs. Private Sector. Taiwan’s Economic Growth. November 22, 2005, from The Asian Business Site. Web site http://www.geocities.com/apapadimos/Taiwan_Pages/Public_Vs_Private.htm. Shirley, M.M and Walsh, P. Public versus Private Ownership: The Current State of the Debate. Abstract. November 22, 2005. Web site: http://ideas.repec.org/p/wbk/wbrwps/2420.html. THE EVOLUTION OF PORTS IN A COMPETITIVE WORLD. November 22, 2005, from The World Bank Group. Web site: http://siteresources.worldbank.org/INTRAL/Resources/33897-1117197012403/mod2.pdf. What is Privatisation? November 22, 2005. Web site: http://www.privatization.org/database/whatisprivatization.html. Read More