Study backs 1 operator for North Harbor

Allowing more than one operator to run the dilapidated North Harbor facility will require unnecessary duplication of services and lead to higher charges over the long term, according to a study commissioned by the Philippine Ports Authority (PPA).

The PPA commissioned its own study to counter previous feasibility studies conducted by port users and other private groups who argued against limiting the management of the port to only one group.

At stake are the interests of a giant consortium led by the International Container Terminal Services Inc. (ICTSI) which has been lobbying for a single integrated operator and a group of port users including shipping lines and cargo shippers which want more than one operator to allow competition.

The PPA-commissioned study debunked claims that North Harbor is big enough to support more than one operator and will only give a "false sense of competition" since the operators will be servicing their respective markets with "very little sharing and thus very negligible competition."

Government agencies have been at loggerheads over the privatizatioin of the North Harbor, whether it should be bid out or disposed of through a negotiated sale. Also in question is whether to limit the private operator to only one group or to allow as many operators as will be interested in providing port services. To rehabilitate and develop North Harbor, the PPA study said investors will have to invest at least $200 million by 2010. The expected internal rate of return, the study revealed, is only 7.64 percent and this assumes 100 percent of the market.

The PPA said two or more operators will mean that each must provide the full range of services for both cargo and passenger handling. "Investing for 100 percent of the market while getting only 50 percent is bad economics," the study pointed out. "Even if the PPA were to construct the facilities on its own and bid out its operations later, it would still opt for a single integrated terminal operations."

The PPA said the three major lines using the port account for 70-80 percent of container volume, operating both roll-on/roll-off and load-on/load off ships as well as carry general cargo on deck.

"When a container is booked for carriage, it will not be known whether it will be carried on a RoRo or LoLo vessels," the PPA study said. "Therefore a segregation of the port area between RoRo and LoLo is impractical."

The study also said the operators will have to provide separate passenger terminal buildings each which the PPA said the market can not support especially during off season. "As the two operators would be located at opposite ends of the port, the distance to the berths precludes a shared terminal even if it was operationally acceptable," the study said.

According to the PPA, the topography of the harbor also precludes locating a passenger terminal midway along the port without serious operational disruptions or dramatically increased costs of building on stilts over water.

The PPA said each operator will also have to reclaim land to provide storage space for containers and general cargo as well as to provide marshalling areas adjacent to the berths. The level of reclamation on the other hand, will reduce the berth length to a point where some vessels will have to be diverted to alternate facilities.

The study said the need for reclamation will become even more pronounced as demand increases by 100 percent over the next 10 years and by another 80 percent over the following decade.

"The need to reclaim land will be inevitable but the opportunity will have been significantly reduced by the two separate developments," the PPA study said. The net result, according to the PPA, is the loss of economies scale and the increased costs and inherent inefficiencies of having two discrete operations.

"This will lead to an increase in overall charges rather than the benefit of free market competition which would normally be expected to accrue," the PPA said.