Draft Final Report
for
Port Experts Group
on
Port Administration, Management, and Operation

Thailand

Contents

1.    General Background

2.    Port Administration, Management, and Operation in APEC Economies

2.1    The summary case of Australia
2.2    The summary case of Brunei Darussalam
2.3    The summary case of Chile
2.4    The summary case of Hong Kong
2.5    The summary case of Japan
2.6    The summary case of the Philippines
2.7    The summary case of Thailand
2.8    The summary case of U.S.A.

3.    Private Participation in Port Services: Advantages and Disadvantages

3.1    Advantages
3.2    Disadvantages

4.    Trend toward Port Privatization: Lessons from APEC Economies

4.1    Available Options for Privatization
4.2    Determining Factors to Privatization
4.3    The Changing Roles of the Government and Private Sectors

5.    Conclusion

1. General Background

Rapid development of global trade and technology advancement, improvement of port's efficiency, and rationalization of port administration, management, and operation are among the most important and urgent issues for port. The changing structure of international trade and the global concern on safety standard and environment at sea affect the present roles of port. While port organization, management, and operation of member economies are varied, the ability to adapt their roles to the new environment is essentially needed. The efficiency and adaptability of ports responding to the global concern would attribute to the trade pattern and the development of regional trade as a whole.

Introduction of information technologies and systems in ports has indicated significantly improvement of efficiency and rationalization of port administration, management, and operation in major ports in Asia and Pacific Region in some extent. Therefore, it is important for ports to adjust their attitude to the new port administration, management, and operation.

2. Port Administration, Management, and Operation in APEC Economies

According to the information received from 8 APEC economies, port administration, management, and operation of each economy can be summarized, in alphabetical order, as follows;

2.1 Australia

Under the Commonwealth's Constitution, the State and Territory governments are responsible for the provision and maintenance of port facilities but not the legislation with respect to port infrastructure. Therefore, it is up to each government to determine its own regulatory role in port administration, management, and operations.

The majority of Australian port authorities operate as statutory corporations under State Legislation. The legislative provisions under which port operates vary from state to state. While many port authorities have adopted a "landlord" role, port services are provided by private sector.

State governments generally retain ownership in corporatised ports through ministerial shareholding and the power to appoint board members while state government departments take control of non-corporatised ports.

2.2 Brunei Darussalam

The government-run port of Brunei Darussalam, the Muara Port, is administered, managed, and operated by the Ports Department under the Ministry of Communication. The Ports Department is responsible for management of infrastructures of commercial port facilities and operational management of the covered and storage areas, berth allocation, and cargo in an out of port.

Muara Port plans to privatize the new container terminal to an experienced operator. Privatization will involve only operation and management of leased container terminal. Other port activities such as operation of general cargo will be run by The Ports Department.

2.3 Chile

In accordance with the law N/19542 issued in December 1997, the Chilean government has developed an autonomous administration port system to each of the ten Chilean state ports. The complete autonomy given by the government to each port is exercised by the designated director. Therefore, each port authority prepares and develops its own master plan before submitting to Transport Ministry for approval.

The master plan which is aimed to fix physical limit, capacities, and a general design of ports in a medium and long term encourages private and public involvement in state port development, administration, management and operations.

With the aim to improve port efficiency, privatization is introduced and done by contract through public tenders on certain activities such as loading and unloading, cargo transfer, storage, port works, and commercialization etc. Port authority, therefore, limits its functions to the necessity for its good administration.

2.4 Hong Kong

Regulatory role of government regarding administration, management, and operation at the Port of Hong Kong is exercised by the Marine Department. Government's role is limiting to monitoring the market situation, providing a discussion forum for the industry and the compliance to international standards with regards to safety and environmental protection, ship registration, manning, pollution, and maritime search and rescue operation. Government encourages private investment and supports with positive non-intervention policy.

A free port philosophy of management is the guiding principles. The philosophy of free port, free enterprise, and free market is to provide a minimum scale of regulatory and bureaucracy framework while complying to all internationally accepted practices and standards. Port activities are left to private enterprises and market forces. Cargo handling facilities at port have been developed and are operated by the private sector in order to take advantage of their commercial skill and reduce port bureaucracy to a minimum.

2.5 Japan

According to the Ports and Harbour Law (law No. 218, 1950), the "Port Administrator" is assigned to develop, administer, manage, and operate ports and harbors in Japan to unify the port administration.

The "Port Administrator" is a port and harbour board, established by a corporation statute and set up individually or commonly by general local public entities. Jurisdiction of the administrator is limited to subjects concerning national benefit and, at the same time, the port administrator is not able to obstruct fair competition by the private sector and will not operate any business in competition with the private sector.

Port administrator or local public entities control harbour limits (water areas) and waterfront area (land area) which are designated by the national government and are in charge of port plan, port improvement and share of cost, management of public properties and regulation of use, and commercialized administration. However, port facilities are being operated by commercial firms.

National government directs, adjusts, and assists the autonomous administrative body only for the benefits of port and harbour municipalities; especially in the main areas of formulating national policy, supervising, and supporting port administrator.

The law also prohibits private enterprises from becoming a port administrator.

2.6 The Philippines

Ports in the Philippines are administered by the Philippines Ports Authority (PPA) which was created under Presidential Decree (PD) No. 505 and amended by PD 857 in December 1975. PPA is mandated to implement an integrated for planning, development, financing, and operations of ports for the entire Philippines.

PPA plays both the "landlord" and "regulator" roles. As landlord, PPA is mandated to plan, develop, construct, maintain, and operate under a national port development plan. As the regulator, PPA controls and regulates the operations and management of the ports in Philippines, both public and private.

As a government corporation, PPA is vested with finance autonomy, therefore, does not rely on national government for its budget.

However, the policy of accelerating privatization of major ports has been reviewed and contained in the Medium Term Port Development Plan (MTPIP). Privatization, from the Philippines' point of view, is the transfer of the ownership of government corporations and assets to the private sector. According to the privatization policy, PPA will transfer the operations, management, maintenance, and development of government ports to private sector through one of the identified investment programs, such as, Build-Operate-Transfer, joint venture, leasing of port real estate, and private port operations while maintain its regulatory role to monitor port operators to comply existing rules and regulations

2.7 Thailand

Under the Port Authority of Thailand Act B.E. 2494 (1951), the Port Authority of Thailand (PAT) was established as an autonomous body under the general supervision of the Ministry of Transport and Communications. Its administrative and operational policies are laid down by the Board of Port Commissioners. Currently, PAT manages the Bangkok Port and Laem Chabang Port.

Board of Commissioners, appointed by the cabinet, has the administrative power and lays down policies to control and supervise the activities of PAT which include dredging, facilitating vessel berthing and leaving, loading and unloading sea-going vessels, and storing and delivering cargo.

Private involvement in port administration, management, and operations includes contract out the government port infrastructure to private sectors for management and operations. The examples of this particular case are the Port of Songkla and Phuket. The ports were constructed by Harbour Department and its ownership has been transfered to the Treasure Department. Due to the privatization policy, the ports have been contracted out through bidding. The bid winning company, the Chaopraya Terminal International Co., Ltd. entered into an agreement with the government to manage and operate the ports under the Monitoring and Support Committee set up by the Ministry of Transport and Communications. Under the contract, the government will provide mechanical equipment, as agreed, while the company pays rent and revenue to the government.

The concession of container terminals at Laem Chabang Port to private sector for management and operation at is another example of private involvement policy. The government also gives permit to private operators to administrate, manage, and operate 4 main container terminals along the Chao Phraya River as public terminal in order to relieve congestion at Bangkok Port. These terminals are the Bangkok Modern Terminal

Co., Ltd. (BMT), the Thai Prosperity Terminal Co., Ltd.(TPT), the United Thai Shipping Co., Ltd., and the Siam Bangkok Port Co., Ltd.

The current economic situation has alerted the government to reform economic structure of the country. Privatization of key infrastructure sectors including Port Authority of Thailand is taken into implementation process to increase service efficiency, decrease investment of PAT, and increase flexible administration of PAT.

After having been privatized, PAT will be the uniform of holding company; focusing on planning and regulation duties for a fair competition and welfare maximization for the consumer. Bangkok Port and Leam Chabang Port will turn to the subsidiary companies of PAT.

2.8 U.S.A.

The existing U.S. port governance system is due to the U.S. system of federalism and has the following characteristics:

• Decentralization (to state and local government),

• Processing various organizational forms for public ports,

• Being created as public entity and assigned their mandates and institutional arrangements in 1940s and earlier,

• The structural location of ports is created and supervised within the jurisdictional location of bi-state, state, are-wide special district, county, special municipal district, city, and territorial.

• The organization structure of public ports varies between the most autonomous and independent to the most dependent. However, seven organizational forms appear as executive agency, department, compact, commission, district, authority, and public corporation.

• Ports are assigned mandates, goals, purposes, and powers by their sponsoring general purpose governments. However, ports tend to be multi-purposes organizations whose mandates are diverse, complex, and tied to improve the economy of the port communities. Although there are many port goals, the priority one is the maximization of the throughput of cargo into and out of harbour areas.

• Methods of selecting policy boards include the following patterns: appointment and election of policy boards, the policy boards is replaced by appointed department heads, appointment or direct election of port commissioners, and appointment of large number of commissioners and election small number of policy boards.

3. Private Participation in Port Services: Advantages and Disadvantages

Private participation in port services has many forms and levels. Applying of private participation at one particular scope depends upon social background and current situation of individual port. No matter what level of private participation the port allows to acquire, it has both negative and positive output.

3.1 Advantages

The advantages of port privatization are:

Competition: In case of plural ports which have the same hinterland and provide the same services or in case of one port with several stevedoring companies, the competition leads to more efficient services.

Reasonable prices: due to the competition at port, each player make effort to lower the service charges and the traffic shifts from the place of low efficiency to the place of high efficiency.

Repressing over investment: In normal situation, the winning player must raise funds for new investment to maximize profit. Private investment will encourage the maximized use of port capacity in order to minimize service charge. Thus, the necessity of new investment is avoided.

Commercial flexibility: One benefit of privatization is the deregulation of pricing; thus, creating market flexibility. In other words, service charge based on market mechanism will secure guaranteed volume of cargo to the port, reliable service, and high productivity.

Decrease government financial aid: Private investment in port facilities help decrease government's investment in port infrastructure. In the case where national resource is constraint, the amount to be invested in port will be assigned to other purposes.

Response speed: Private sector will take advantage of technological advances at its full extent.

3.2 Disadvantages

Disadvantages of the private participation are:

Monopoly and Cartel: In the industrial sector where natural monopoly occurs such as port operation, the regulation against monopoly of private sectors is more difficult than that of public sectors.

Short perspective of the private sector: The perspective of private sector is usually shorter than 20 years. It takes a much longer term to recover the investment in port infrastructures.

Shortage of funds: Port facilities and cargo handling machines require a very large amount of funds. This problem is especially notable in developing countries.

Discriminatory treatment: In case of the private sector owns (or get concession of) a port facility, it tends to give priority to its own use, and it is difficult to ensure public use. In addition, the owner (or concession) may be resold.

Maximizing the profit: Without regulation, private port may begin another business which brings a larger profit.

4. Trend toward Port Privatization: Lessons from APEC Economies

The organization and administration, management, and operations of port in APEC economies vary from economy to economy at a large scale. In some economies, the individual port may operate as independent entities while others administer their ports by a single central authority. However, the trend of port administration, management, and operation is moving forward more or less to privatization.

While the term "Privatization" is commonly used to explain the transfer of ownership and control, as well as, transfer of operating and development rights of an existing enterprise, activity, or service from the public to private sector, "Public participation" and "public involvement" in port administration, management, and operation, frequently applied in the context of APEC, have the same meanings but implies less degree.

Privatization is complete when the entire ownership of government?s existing interest is transferred or sold off to private sector With complete transfer, the private sector fully controls and manages the enterprise and assumes the commercial and financial risks.

There are almost an infinite number of different forms of privatization; ranging from granting of management contracts to private companies to the sales of all assets. The conditions that exist in each country will determine what form of privatization will be most desirable. Selection of appropriate form depends on the nature of activities to be privatized and on the local environment and situation. Obviously, political and financial approaches are the main factors that push each government to adopt privatization in its port system at a certain degree. Like the case of APEC economies, some economies may apply the policy at the soft degree. Others may exercise concept at the strong end of the spectrum.

4.1 Available options for privatization

Although there are only eight examples of port administration, management, and operation in APEC economies, the following patterns of privatization possibilities, listed in order of generally declining public sector control and increasing private sector orientation, can be observed;

a.    Commercialization

Under the commercialization approach, the government organization concerned such as port entity, remains under public sector ownership, management, and operation. Commercialization strategies, however, seek to introduce into public port management practices typical of the private sector including working toward more

clearly defined and quantified objectives which have a financial orientation. The services are then provided within a commercial framework with its objectives of, at least, recovering full cost of the operations and perhaps making a profit. One example of commercialization is the operation of etrading funds' which are basically accounting

frame-works established by legislation that enables government departments or organizations to provide service on a commercial basis.

b.    Service contract

A service contract establishes a commercial relationship between the public port management and a private sector operator for the provision of services to the port authority and usually not directly to the port users. Service contracts may be used to reduce port investment requirements, to avoid adding to the public sector payroll or to obtain operational efficiencies of the private sector. Entering into service contract does not alter the status of public ownership or management of the port.

Common examples are contracts with the private sector to maintain port equipment or to provide towage services to the port which, in turn, offers them to the port users. Other areas where service contract may be appropriate include port security and fire protection.

If the private sector is to provide services director to the port users, then some form of licensing or operating agreement is used. For example, licensing of stevedoring company is commonly used to provide cargo handling labour in a number of ports in Asia-Pacific.

c.    Management contract

Management contracts establish a commercial relationship between the public port owner and a private sector management team. The contract may cover the entire port or a specialized terminal, e.g. for container. Under a management contract, the public body retains ownership and the responsibility to set policy, employ port staff, and make necessary investment. (The contractor may, however, be required under the terms of the agreement to provide some items of mobile equipment.) The private manager provides management expertise, supervision, and perhaps training, consistent with the programme designated by the owner. Compensation for the contractor may, in part, be geared to performance target.

d.    Corporatization

Corporatization occurs when a port is transformed from its statutory role as a government department or a quasi-independent entity subject to the conditions of a Port Act to a more or less fully commercialized but government-owned body under the same form of national legislation such as a Companies Act. The levels of independence from day-to-day bureaucratic intervention and of financial freedom (and responsibility) are ordinarily enhanced by such a move.

It must be recognized that establishing a public governmental organization as a state-owned corporation does not always imply nor convey to that body the full operational characteristics or a private enterprise company. A state-owned corporation means the governmental entity is detached with some autonomy from its parent organization (e.g. Ministry of Transport) and as an independent organization, it is usually responsible for its own financial resources and administrative decisions within enabling legislation. In many cases, however, the corporation is still regarded as begin civil servants

e.    Joint venture

A joint venture is the establishment of an operating company between a government entity, in this case the port, with a private sector company (including foreign company if permitted by legislation) to construct, manage, and/or provide port infrastructure and services within the enabling legislation. The government entity may invest by way of cash, assets, land, or right to use the foreshore as its share of equity in the joint venture company while the private sector company may invest in upgrading the facility or new equipment as well as the provision of technical and or managerial expertise.

f.    Leasing

Leasing generally provides for the full transfer of specific assets from a port or its parent ministry to a private sector operator for stipulated purposes and for an agreed period of time. For example, the port may lease facilities and equipment to the private sector to be used for providing specific services to port users.

g.     Build-Operate-Transfer or Build-Own-Operate

All the forgoing options could apply to existing assets owned by the public sector. When investment in new infrastructure facilities such as ports or terminals, is sought from the public sector, the mechanism is Built-Operate-Transfer (B.O.T.) or Build-Own-Operate (B.O.O.). This type of participation in both infrastructure and equipment of some particular aspect of the port's activity such as the construction, management, and operation of a container terminal under some form of agreement with the port or the government.

In a big picture, the changing port environment, social and economics background, and situation of each port are factors for each government to determine privatization in its port system. However, the key determining factors are rationalized from the fact that government regulations and processes always obstruct efficient operations of commercial activities and the fact that private sectors possesses better managerial skills and strength. Also, port infrastructure and service involvement of the private sector brings investment sources outside government and, thus, provides the opportunity to share risks and, in times of rapidly changing economic environment, to respond quickly to market, demands, and opportunities.

The principal strengths of the private sector to perform administration and operation of port are due to a stronger management capability to recruit and compensate qualified managers, technicians, and labour, relative freedom to operate outside of political and bureaucratic constraint, and their potential experience in developing facilities and providing services to match the competitive situation of global trade. Also, private sectors are able to access to investment resources in the infrastructure to serve trade in a faster manner while some individual governments may lack this competent ability.

4.3 The changing roles of the government and private sectors

The role of government and private sectors changes accordingly depending on the form of newly privatized entity they apply. The government can act as a competitor in the case that a public sector terminal or port continue to operate in the competitive manner to a private operation to ensure that there is no private monopolistic practices. The public operating role is also subjected to check on the performance of the private operator in terms of operating and cost.

The government may wish to remain an active participant in the project under consideration. The exceptional case of government being the active partner or shareholder is when the government invite outside operational expertise for financial participation.

In some cases, government may determine to retain shareholdings and consequent representation on the Board of the enterprise, which provides the right to cast a controlling vote or final veto to protect essential interests such as national security. In this case, government board members should deliberate and vote only with a "commercial" orientation. Routine policy and regulatory matters are under the responsibility of external controlling bodies e.g., the landlord port authority or regulatory agency.

Frequently, government lease public assets such as ports to the private sector to encourage private sector participation. Through a lessee is constrained on commercial activities while the government change its role to landlord.

Sometimes, the government, as being planner and/or developer, supplies facilities consistent with its plan and then turn them over to the private sector for lease and operation. These investments are made by for the purpose of commercial attractiveness of the port itself.

If a port is to be privatized in parts rather than as a whole, a number of common services remain the responsibility of the landlord such as the maintenance of access

channels for shipping, of pilotage and towage services, of security and protection. Such service may be contracted out but the provision would ordinarily remain the responsibility of the landlord. The lease agreement should specify these support or common service responsibility of the landlord/government.

The government may wish to maintain the a policy role in the sector as a policy maker or reserve a right to maintain an ongoing regulatory function to ensure compliance with safety and environment rules and with the enforcement of contractual conditions.

The government?s decision on whether it wishes to maintain its role as a marketer is dependent upon its perception as to the national importance of the port facility or activity to be privatized and upon its judgement whether, through its contract with private operator, it can achieve all the results it demands.

Under the board umbrella of commercialization/privatization, the government has many options as to how it will introduce an nurture a commercial perspective. In some instances, the preferred approach will be dictated by the significance of the asset to be privatized. In other cases, existing laws may preclude certain approaches to private sector involvement.

There are a board range of options for the private sector role; depending on scope of policy and law. These possible roles of the private sector are described as follows;

In the case that the government sells entire port complexes to private sector, the full private ownership has been transferred to the private sector; allowing them to have the highest degree of control and flexibility to administrate, manage, and operate the port structure.

If there are obstacles to full private ownership or if government decides to retain a role, the form of partnership such as joint venture may be appropriate.

The port or terminal, whether fully private or a joint venture, may be leased from the formal owner; the government, in most case. Leases should address not only payment and land control, but also the responsibility of the tenant (e.g., performance standards) and of the landlord (e.g., for provision of supporting services and/or office infrastructure).

In some case, the government want to improve efficiency and operational performance in its port, private sector involvement could then be limited to recruitment of port-specific management expertise. One method of bringing in experienced port operators/managers is to obtain existing employees of domestic stevedoring companies or shipping lines, or local representatives of foreign shipping lines. Another approaches include recruitment of experienced managers from home or aboard on a consultancy basis to work alongside existing management and signing a management contract with reputable firm to take over the operation of the port or a particular terminal for a specific period.

Each category of private roles mentioned above can be said that they are the function of private operator. However, it is noted that in the pure operation contract or a lease of existing port facilities, it is necessary to stipulate whether the private sector operator utilize port equipment or provide investment in port equipment.

In some ports, the government or current port management invest in facilities while in others the responsibility to develop port physical structure is transferred to the private sector (developer).

The government may invite the private sector to participate in port activities as a market developer with the object of attracting new business to port.

5.    Conclusion

The development of global trade and port technology, as well as, the changing port environment, social and economics background, and the current port situation has urged port to adjust its roles and response to the new concept of port administration, management, and operation.

Higher port productivity and efficiency are to be sought to improve port performance. While government financing resources to develop port infrastructure are

limited, the alternative for involvement of private sector in port administration, management, and operation is considered.

Due to the varieties of port structures, automonous body, and economy and political environment of the eight examples, the information is adequate to track a similarity of port administration, management, and operation. From the examples of eight

APEC economies whose case studies represent the guidelines for port administration, management, and operation, the pattern indicates private participation at different level in port administration, management, and operation.

Privatization has many forms and levels; ranging from the soft end (commercialization) to medium scale (corporatization) to the strong tail (Built-Operate-Transfer). Each level shows the degree of control by the government with proportion to the degree of private involvement in port administration, management, and operation it allows.

Privatization has both positive and negative return. However, once it is taken into force, the roles of the government and private sectors change accordingly.

Ministry of Transport and Communications of Thailand
Office of the Maritime Promotion Commission
Maritime Transport Division
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This page was last updated on 1 Feb, 2008