Shipping firms, distributors, importers favor multiple contractor policyfor North Harbor

Foreign and local shipping lines together with distributors, importers and exporters have asked the Economic Coordinating Council (ECC) to declare a multiple contractor policy in the privatization of North Harbor, saying the facility is big enough to be profitable for even more than two port operators.

In a meeting with Trade Secretary Manuel Roxas II and Executive Secretary Ronaldo Zamora who leads the Economic Mobilization Group, the Coalition for Ports Modernization (CPM) presented an economies of scale study countering the report of the Philippine Ports Authority (PPA).

CMP is a group led by the Association of International Shipping Lines, Filipino Shipowners Association, Distribution Management Association of the Philippines, the Export Development Council, United Dockhandlers Inc. and the various labor groups at the North Harbor.

PPA had commissioned a study which concluded that allowing more than one operator to run the dilapidated North Harbor facility would require unnecessary duplication of services and lead to higher charges over the long term.

The agency supported plans to award the North Harbor management contract to the giant consortium led by the International Container Terminal Services Inc. and Asian Terminals Inc. which have been lobbying for government to allow only one integrated operator to take over the facility.

In a letter to Roxas and Zamora, CPM argued that North Harbor is by far bigger than the combined operations of ICTSI and ATI and there is sufficient tonnage to allow at least two operators to operate profitably.

CMP said the South Harbor (operated by ATI) and the Manila International Container Terminal (run by ICTSI) have a combined cargo of 13 million metric tons in 1998, about two million metric tons less than North Harbor which handled 15.4 million metric tons during the same period.

CMP sited studies made by the World Bank, Asian Development Bank and the International Finance Corp. that based on an international benchmark, a terminal operator operating in berth with two ship-to-shore gantry cranes and sufficient back-up land can profitably handle at least 200,000 TEUs annually.

"North Harbor handles 706,000 TEUs annually. It can therefore technically accommodate even three operators," CMP said.

CMP explained that a container terminal would be at break-even point with a throughput of 70,000 TEUs per annum in an emerging economy and 100,000 TEUs in a developed economy.

"A completely successful operation making the right decisions in terms of terminal design and operation, would have a healthy profit margin of 44 to 64 percent," the CMP said.

Before North Harbor can be privatized through competitive bidding, whoever, CMP said government would have to declare that there be two or more operators, arguing that only competition would ensure the provision of the appropriate level of modernization.

CMP belied the study made by the PPA which indicated that investors would require at least $200 million by 2010. The expected internal rate of return, the study revealed, was only 7.64 percent and this assumed 100 percent of the market.

The PPA explained that two or more operators would 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 terminals operations."

The PPA said each operator would 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, would reduce the berth length to a point where some vessels would have to be diverted to alternate facilities.

The net result, according to the PPA, was the loss of economies of scale and the increased costs and inherent inefficiencies of having two discrete operations. "This will lead to an increase in over all charges rather than the benefit of free market competition which would normally be expected to accrue," the PPA said.