Case Studies: Port of Koper

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Project Overview
Koper1.jpg
Port of Koper, Slovenia
Project Type: Both
Contract duration: 35 years from 2008
Budget: 463 M Euro – Annual Financial Assets (Public sector investment: 70%, Private sector investment: 30%)
Project Time Line: Luka Koper and the Republic of Slovenia signed the concession agreement on the basis of Decree on the administration of the freight port of Koper, port operations, and on granting concession for the administration, management, development and regular maintenance of its infrastructure (Ur.l.RS 71/2008, 32/2011) by which issues related to port activities, management, development and ordinary maintenance of port infrastructure for a period of 35 years were settled. After this period an open tender competition is required.

Introduction

Port of Koper is the only Slovenian freight port, located on the west coastline of city Koper. The development of the port started in 1957 on the part of the operative shore where a new city by-pass is located. Main milestones for port and company Luka Koper (which was established by the government in 1957, and privatized and transformed in 1996 into Luka Koper d.d) are: 1963 - the status of a free-trade zone is acquired, 1967 - railway connection between Koper and the hinterland is established, 1979 - Container Terminal is constructed, 1984 - Terminal for Coal and Iron Ore is constructed, 1988 - Grain silo is constructed, 1996 - Car Terminal is constructed, 1998 - Livestock terminal is constructed, 1999 - Parking garage is constructed, 2001 - Intensive construction takes place at Pier II , 2004 - the status of a BIP post (border inspection post) for goods for the EU is acquired, 2007 - the daughter company Adria Terminali, d.o.o., which is managing the inland terminal in Sezana, is founded; a new information system for the operational work and marketing activity (TinO) started with its implementation, 2008 - Luka Koper and the Republic of Slovenia signed the concession agreement for a period of 35 years , 2010 - Terminal for alcohols is built (Annual Report, 2012).

The concession contract on port activities, management, development and regular maintenance of port infrastructure in the area of the Port of Koper was signed in 2008 (Annual Report, 2008). Through negotiations and by harmonizing the wording of the concession contract, the contracting parties succeeded in aligning the interests and conditions enabling the Republic of Slovenia to influence the only port in the country while at the same time providing foundations and conditions for the further successful operations and development of Luka Koper, d.d. The shared goal of the two parties was to guarantee further development of the port, port infrastructure and related activities. Management, governance and operation of the port have been divided between the concession grantor and the concessionaire; they also agreed on the methods of harmonized operation in order to achieve the concession goals serving their common interest.

The Port of Koper group is a public limited company and operates as a holding. The ownership structure at the end of December 2008 is divided between the largest shareholder Republic of Slovenia with 51% equity stake, some financial or investment or insurance companies, City of Koper and others. Ten largest shareholders keep the 76,05% of total equity stake. The Port of Koper group is one of the most relevant generators of the development of transport for the region. The economic effects of port activity are multiplicatively reflected in direct surroundings and wider environment, what is visible in the activities of maritime, road and railway carriers, in freight forwarding, agencies, and in trade, catering, tourist, financial and other services (Trupac and Twrdy, 2010). Central and Eastern Europe Market is very important. According to the new TEN-T regulation proposal it is situated on the Mediterranean and the Baltic Adriatic corridor, and it is and entry point for goods on the way between the Near and Far East and the European market and vice versa and exit point from the European Union.

Luka Koper strategy is focused in building up a higher competitiveness and more efficient operation (Trupac and Twrdy, 2010). This is based on five basic directions: the universality of the range of port services offered on the highest quality level; port is a commodity distribution centre; an efficient information network and logistical connection with the world; stability and profitability of the operation in the long run; and sustainable development which also include care for the natural environment. The quality orientation is seen through the gotten certificates, for example: ISO 9001 certificate, ISO 14001 environmental certificate, certificate, EMAS environmental management system, BS OHSAS 18001, ISO 22000 and HACCP as well as and it has acquired the status of AEO (Authorized Economic Operator), cooperation with REMPEC centre Regional Marine Pollution Emergency Response Centre for the Mediterranean Sea. It is the only one port in North Adriatic with an implemented environmental protection quality system, as well as the occupational health and safety system, and the safety of foodstuffs system, so its strategy is to remain a friendly port with clean sea, and to be recognized globally in this respect (Annual Report 2012).

In 2008 port has 44 hectares of indoor warehouses on 290 hectares of land area, 100 hectares of outdoor warehouses, 26 ship moorings on 3,134 meters of shore alongside 166 hectares of sea area. The total cargo throughput amounted 16 M tones which increased to 17,9 M tones in 2012. In 2008 32% of the handled cargo was designated to or coming from the Slovenian market (29% in 2012) and 68% to or from hinterland countries. The Passenger Terminal accepted 18,0 thousand visitors in 2008 and recorded 64,5 thousand in 2012. The container terminal handled 0,21 M TEUs in 2008 and increased to 0,57 M TEUs in 2012. The strategic goal for 2027 is to increase the container transport’s operation to 2 million TEUs. The operation revenue in 2008 by cargo was 131 M Euro (has increased to 144 M Euro in 2012), distributed in various types of goods: 49% of dry bulk, 19% of containers, liquid cargoes 18%, 9% of general cargo, 5% of vehicles (in 2012: 23% of dry bulk, 23% of containers, 22% of general cargo, 11% of vehicles, 5% of liquid cargos and 16% of other). Port holds the leading position in the North Adriatic Area in terms of container throughput, and the second in the Mediterranean area in terms of car throughput. It performs most of its services for hinterland countries as Austria, Italy, Hungary, Slovakia, the Czech Republic, Poland, Germany, Serbia, Switzerland, Croatia, Bosnia and Herzegovina, Serbia, Ukraine and Russia.

The Contracting Authority (Public Party)

After the 1996 when Luka Koper was privatized, the government and Luka Koper started to create new relationship. The legal relations were not fully arranged from the time of the privatization till the adoption of Maritime Code in 2001, Public Private Partnership Act in 2006 and Decree on the administration of the freight port of Koper, port operations, and on granting concession for the administration, management, development and regular maintenance of its infrastructure in 2008. By these regulations, Republic of Slovenia is the manager of the port; Ministry of Infrastructure and Spatial Planning is responsible for managerial and governing tasks; some specific tasks are given to Slovenian Maritime Administration, which is working under the cover of the Ministry.

It was naturally to give the first concession directly to the company which developed the port for 50 years in proactive and competitive way. The uniform concession agreement replaced the old rental agreement from year 2000. By the concession agreement a new legal framework was established, by which Luka Koper got the priority concession for 35 years, in accordance with the Maritime Code. In the concession agreement the awarding authority and the concessionaire regulated their mutual rights and obligations arising from the concession. The public and private party agreed on managerial and governing tasks, responsibilities, obligations and activities in the port.

During the privatization process in the nineties (1996), the Republic of Slovenia officially became the owner of the port area together with the Municipality of Koper. In fact, through its in kind contribution (port roads, railway tracks, gates, entrances, sewage and water supply, electrical network, illumination, telecommunication installations) it has received direct ownership of 51% of company’s shares. However, all the investments for arranging the infrastructure (making it operational) were performed by Luka Koper.

The state public assets connected with the port activities, is public share in Luka Koper d.d. and land property within the concession area. That means that the state has directly and indirectly approximately 70% of ownership which is the financial assets in Luka Koper d.d ; the state is the owner of some parts of lands in the concession area; Luka Koper d.d. invest its finance in ports infrastructure (public and private).

The main tasks and obligations for the governmental side (not included in the Concession agreement of Luka Koper) are: the safety of navigation, smooth operation, permanent implementation of maritime activities, development of port, control of all concessions, acquisitions of water rights, concluding the PPP service contracts, providing public services, renting land, establishing proprietary rights, managing the port infrastructure, care for safety and defense needs, providing shore moorings, prescribing the regulations.

The concession fee is 3.5% of the company’s operating revenues, reduced by received port dues (paid by ship-owners). Investments in port infrastructure are made by the concessionaire in agreement with the Republic of Slovenia and based on port infrastructure development programs. Maintenance works of the port infrastructure dedicated to public transport is financed from port dues, while Luka Koper takes care for financing of all the other investments in the port infrastructure.

The Concessionaire (Private Party)

Luka Koper, d.d. operates under a two-tier management system, which involves three corporate governance bodies: The General Meeting of Shareholders, the Supervisory Board and the Management Board. The competences of individual bodies are defined in the Companies Act and stipulated in greater detail in the Company’s Articles of Association and the Rules of Procedure of the Supervisory Board and the Management Board. The General Meeting of Shareholders is the ultimate body of the Company, deciding on status changes, profit-sharing, and the appointment and discharge of Supervisory Board members. The Supervisory Board supervises the operations of the Management Board, appoints and dismisses the Management Board, provides for the Management Board’s motivation and adopts annual reports. The Management Board manages the operations of the Company.

The concession contract guarantees that concessionaire would be able to perform the activity in the Port of Koper without interruption within the concession period. From its beginning Luka Koper is active and competitive port. Through the years some cargo owners have redirected their goods from other ports to Koper in an attempt to reduce costs. Port of Koper succeeded on the advantage of its universality, by compensating the decrease in throughput of one product group by the higher throughput of other goods, high-quality and reliable services.

As the State is not providing any sources of financing, the company started to cooperate in European projects, based on its own knowledge.

Users

Users of the terminal are ship-owners and shipping agents, freight forwarders; less often importers/exporters. Luka Koper is aware that customer relationship is the key to ensure a positive corporate performance, so they constantly measure the quality of their services. They try to achieve success by optimizing the supply chain, which decreases customers’ expenses and at the same time by ensuring reliable and high-quality services aimed at achieving mutual benefits.

Key Purpose for PPP Model Selection

The main reasons for concession model was to separate the interests and conditions enabling the state to influence directly the development of the only port in the country and to leave the terminal operator to manage and operate the port.

Beside development, also the other topics were very important for the agreed solution, as:

  • solving a situation where it wasn’t very easy to determine who did what in the past since the political system was completely different,
  • social benefit of having 1000 people employed in the group and a wealthy company that is supporting many of the activities of the local community,
  • company on which to press to have a comprehensive environmental system instead of having many terminal operators without having the entire port area under control,
  • company that takes advantage in economical terms of synergies that arise from operating all the terminals,
  • having a healthy company that in year 2012 paid 2,6 M Euro of corporate tax to the State + all the other taxes (VAT, taxes on building rights, etc),
  • changing the rental agreement with a new concession agreement in which a concession fee was higher than the previous rent,

It was of both interests to care actively for further development of the port, so the concession agreement was signed 12 years after the privatization process, during which the company invested in the port.


Project Timing

Serious discussions began in 1996, from ownership transformation of the Company, through the conclusion of a lease contract in 2000 to the adoption of the Maritime Code in 2002, along with the pertaining secondary legislation and signing the concession contract on port activities, management, development and regular maintenance of port infrastructure in the area of the Port of Koper in 2008. It is the result of several years of harmonization of the relationship between the Republic of Slovenia and Luka Koper d.d.

Project Locality and Market Geography

The port is located by an urban environment, which influence on the spatial development, so consequently it became much more environmental friendly. Its operation as a transit port gives it an international character. Local traffic has important impact on the urban road network, and port is a Priority Project of the TEN-T.

The Port of Koper is some 2000 nautical miles closer to destinations east of Suez than the ports of Northern Europe. From Koper there are regular direct and reliable shipping container lines to - hub ports in the Mediterranean as well as direct lines with the Far East. More than thirty container lines use the Port of Koper. Land transport from Koper by road and by railway to the main industrial centers in Central Europe is approximately 500 km shorter then from North European ports. Some two‐thirds of cargo is transported by rail, which means that more than 500 wagons arrive and leave the port on a daily basis (Trupac and Twrdy, 2010). The traditional hinterland markets are Austria, Italy and Hungary, Germany, Slovakia, the Czech Republic and other East European markets, partly the Balkans.

Procurement & Contractual Structure

Tendering

The concession contract on port activities, management, development and regular maintenance of port infrastructure in the area of the Port of Koper is the result of several years of harmonization of the relationship between the Republic of Slovenia and Luka Koper d.d. – from ownership transformation of the Company in 1996 through the conclusion of a lease contract in 2000 to the adoption of the Maritime Code in 2002, along with the pertaining secondary legislation (Annual Report, 2008). For the first 35 years period, the concession was given directly to Luka Koper d.d. by the governmental Decree on the administration of the freight port of Koper, port operations, and on granting concession for the administration, management, development and regular maintenance of its infrastructure (Ur.l. 71/2008). After this period, the open tender is required, under the PPP regulation (Ur.l. 127/2006). The main competition measure, after the fulfillment of obligatory conditions (proper registration, not being bankrupt, not being convicted, fulfilled the obligations relating to social security contributions and taxes, at least 5 years references), is the height of concession fee and its early payment.

Contract Structure

The essential elements of the concession contract are:

  • duration of the concession contract;
  • specification of the method for concession fee calculation;
  • agreement between the contracting parties about the method of investing in port infrastructure;
  • governance, management and operational rules applying to the port;
  • ensuring the openness of the port;
  • rights and obligations of the contracting parties in case the concession relationship terminates or is cancelled.

The term of the concession is 35 years, as specified by the Maritime Code. This is a suitable period for the concessionaire to ensure the foundations and realize its development ideas.

The agreed concession fee is 3.5% of the Company’s operating revenues, reduced by received port dues. The concession fee also includes rent and the right of superficies. It also encompasses water rights, the water fee and other duties related to sea usage.

Investments in port infrastructure are made by the concessionaire in agreement with the Republic of Slovenia and based on port infrastructure development programs. Luka Koper d.d. invests in all ports infrastructure and after the expiry of the concession date it is obliged to give it back to the state, if the concession is not extended with Luka Koper d.d.

Providing openness of the port is an obligation and goal of both contracting parties. The obligation involves offering services to everyone interested and eligible according to the principles of the EU acquis. It is the Company’s goal to make the Port of Koper the primary and best port for the countries of Central and Eastern Europe. The contract also defines the termination and cancellation of the concession relationship as well as the methods and consequences thereof.

In 2009, the concession fee amounted to total EUR 3.55 million, or 3.5-times the current lease amount, which is close to EUR 1.1 million. In year 2010 it comes up to EUR 3.95 million, in year 2011 4.47 million and in year 2012 to 4.48 million.

Risk Allocation

Luka Koper faces several risks, related to the state investments on public connecting infrastructure, which can influence its attractiveness in the logistics chain, and of insufficient provision of infrastructural connections with the hinterland, like: the delay in the modernization of the Slovenian railway network; standstills in the construction of the second Koper–Divaca track; unsuitable policies in the area of systematic arrangement of railway transportation implementation in the light of transportation liberalization, insufficient competitiveness level of the public railway infrastructure in comparison with the more competitive transport routes. These ones try to be mitigated by comprehensive communication and cooperation with state bodies and institutions in determining national developmental projects. Some of the national investments will be supported by EU funds. All the operational risks are on the concessionaire side.

The concessionaire has to deal with market risks, which are connected with the competitive position, as a result of decreased macroeconomic conditions of operation on hinterland markets, delay in developmental activities compared to neighbored competitive ports, decrease in the market potential of traditional cargo groups. Port active monitors the situation, including the competition, try to develop and offer new services, improve partnerships with buyers, and promote activities on overseas markets.

The risk of port’s insufficient or delayed infrastructural development to meet the needs of customers in terms of quality and volume of services as a result of inappropriate depth of basin I at the shore of the container terminal, shortage of storage and handling surfaces, standstill in the development and increase of physical capacities of the container transportation as the fastest growing cargo group in recent years, limited number of berths, are handled by Luka Koper by organizational adjustments and by enhancing the quality and reliability of performed services, introduction of new services and projects (ex. foundation of the first private railway carrier) also with investments in the key infrastructure and equipment.

Risk of increased requirements regarding social responsibility, which are reflected in additional requirements of the local community for the reduction of potential harmful impacts of the Port’s community on the environment, individual aspirations of the local community for the limitation of the Port’s activity and its development, are held by operator in cooperation with local community. Some of the most relevant issues were already addressed in the National spatial plan where a coherent and comprehensive final solution for the port development was achieved (considering all the main stakeholders).

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Risk of unsuitable reliability and availability of the key equipment affects, like the effective operation of the technological equipment, the acceptability and suitability of equipment in terms of ecology, constant high availability of certain types of irreplaceable machines, are also operational risks. Risk of high dependencies on key partners’ services in case of: the suspension of operations by partners involved in the logistics chain and by port service performers, are managed by strengthening partnership relations.

Environmental risks due to emissions of GHG or substances to the environment, which have negative consequences on the health and life of people or negative material consequences are monitored on the basis particularly ISO 14001 and EMAS standards and controlled regularly.

Performance

The contract contains general statement on performance, like control of all operative activities. Luka Koper is public limited company, so state holder has the members in the supervisory board, which nominates the management board and decide about port’s current performance as well as influences on the future of the port.

For the better performance the "Pier III" project -an additional container terminal in the Port of Koper should be constructed in order to cater for an annual container transshipment capacity of 750,000 TEUs. Pier III will have an operative berth of approximately 1,000 m for the berthing of vessels with a draught of up to 17 meters, a warehouse area of approximately 1,000 m x 200 m, railway tracks, access roads and other infrastructure.

References

  • Luka Koper, Annual Report 2012, http://www.luka-kp.si/eng/investors/annual-reports
  • Trupac, I., Twrdy, E. (2010) More Efficiency through the Supply chain integration – Case study of the Port of Koper. Annual Conference of the International Association of Maritime Economists, Lisbon 7-9- July.
  • Pomorski zakonik. Uradni list Republike Slovenije 26/2001. Mairtima Code. Official gazette of the Republic of Slovenia. (in Slovenian)
  • Uredba o upravljanju koperskega tovornega pristanisca, opravljanju pristaniske dejavnosti, podelitvi koncesije za upravljanje, vodenje, razvoj in redno vzrdzevanje pristaniske infrastrukture v tem pristaniscu. Decree on the administration of the freight port of Koper, port operations, and on granting concession for the administration, management, development and regular maintenance of its infrastructure Uradni list Republike Slovenije 71/2008, 32/2011. (in Slovenian)
  • Zakon o javno-zasebnem partnerstvu, Uradni list Republike Slovenije 127/2006. Public Private Partnership Act, Official gazette of the Republic of Slovenia. (in Slovenian)
  • Zakon o javnem naročanju. Uradni list Republike Slovenije st. 128/2006. Public Procurement Act, Official gazette of the Republic of Slovenia. (in Slovenian).
  • Zakon o reviziji postopka javnega naročanja. Uradni list Republike Slovenije 128/2006 in nasl. Public Procurement Auditing Act (Act on the Auditing of Public Procurement), Official gazette of the Republic of Slovenia. (in Slovenian).