Current

practices in European ports on the awarding of seaport terminals to private

operators:towardsacodeofpractice

Author(s):Notteboom,T.,Verhoeven,P.,Fontanet,M.

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InternationalAssociationofMaritimeEconomistsConferenceLisboa,Portugal,July2010.

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in European ports on the awarding of seaport terminals to private operators: towards a code of
practice. Paper presented at International Association of Maritime Economists Conference,

Lisboa,
Portugal, July 2010

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Topic: Ports
Sub- Topic: Port Concessions (special session)

CURRENT PRACTICES IN EUROPEAN PORTS ON THE AWARDING OF

SEAPORT TERMINALS TO PRIVATE OPERATORS:
TOWARDS A CODE OF PRACTICE
Theo Notteboom 1
Institute of Transport and Maritime Management Antwerp (ITMMA)
University of Antwerp
Keizerstraat 64, 2000 Antwerp
Phone: +32-3-2655151, Fax: +32-3-2655150
theo.notteboom@ua.ac.be
Patrick Verhoeven
European Sea Ports Organisation (ESPO)
Treurenberg 6, 1000 Brussels
Phone: +32-2-7363463, Fax: +32-2-7366325
Patrick.Verhoeven@espo.be
Martina Fontanet
European Sea Ports Organisation (ESPO)
Treurenberg 6, 1000 Brussels
Phone: +32-2-7363463, Fax: +32-2-7366325
Martina.Fontanet@espo.be
Abstract:
The awarding of port services to private operators has become one of the most important tools for port
authorities to retain some control on the organization and structure of the supply side of the terminal market.
This paper discusses the awarding of terminals in European ports. The first part provides information on current
practices of port authorities around Europe on tendering and contractual arrangements linked to the awarding of
terminals. This includes the terminal awarding processes, the duration of the terminal award contract and the
contract stipulations. The discussion is based on the results of an extensive survey among European ports
conducted in spring 2008. In a second part the concessioning of port terminals is placed in the EU legal and
policy context. The paper concludes with an extensive discussion on the desirability, feasibility and possible
content of a code of practice on concessions for European ports. Such a code of practice which is currently being
developed by the European Sea Ports Organization (ESPO) serves as a substantial contribution of port authorities
to the soft law approach in EU port policy development.

Keywords: concessions, seaports, European Union, code of practice

Author for correspondence and presenting the paper

Topic: Ports
Sub- Topic: Port Concessions (special session)

CURRENT PRACTICES IN EUROPEAN PORTS ON THE AWARDING OF

SEAPORT TERMINALS TO PRIVATE OPERATORS:
TOWARDS A CODE OF PRACTICE

1. INTRODUCTION
Landlord port authorities are challenged to develop effective terminal awarding procedures in
view of attracting private operating companies. The granting of terminal concessions and
leases in seaports is a highly complex matter guided by regulatory, economic, environmental
and technical considerations. Theys et al. (2010) reviewed all important questions related to
the procedures in view of selecting the most appropriate operators for their scarce land and the
conditions under which these private companies can be given the right to operate the facilities.
The questions were grouped in various phases of the concession process: the pre-bidding
phase, the prequalification phase, the selection phase and the post-bidding phase. It is widely
recognized that the awarding of port services to private operators has become one of the most
important tools for port authorities to influence the prosperity of the port community
(Notteboom, 2007; Pallis et al., 2008). Through the awarding procedures and the contract,
port authorities can in principle retain some control on the organization and structure of the
supply side of the terminal market, while optimizing the use of scarce resources such as land.
Many landlord port authorities around Europe are evaluating existing practices and exploring
new methods to structure terminal awarding processes and to design concession agreements.
There is not a lot of academic work available yet to support them in their search. Notable
exceptions include the work by Juan et al. (2004) on a quantitative methodology for designing
concession agreements for the port of Valencia, Engel et al (2004) on a Demsetz-alike auction
applied to the Chilean ports of Valparaso and San Antonio, Theys and Notteboom (2010) on
the duration of terminal contracts and Ferrari and Basta (2009) on a DEA approach to
calculate concession fees for Italian ports.
Contrary to Theys et al. (2010), this paper does not portray to present methodological issues
and challenges regarding the concessioning of terminals in seaports. While some of the
authors have been involved in papers on other significant topics that can be examined in
relation to the awarding of port services to private operators (see e.g. Theys and Notteboom
(2010) on the duration of concession terms), this paper discusses the development of a code
of practice, a key area for joint action between port authorities across Europe. This paper
explores the desirability, feasibility and possible content of a code of practice on concessions
for European ports. Such a code of practice is currently being developed by the European Sea
Ports Organization (ESPO). It could help individual port authorities in developing sound and
effective terminal award procedures and concession contracts. It would also serve as a
substantial contribution of port authorities to the soft law approach in EU port policy
development. The value of the paper lies in its empirical approach of current practices and
policy challenges when developing a European-wide perspective on concession arrangements
and procedures. All authors are closely involved in these discussions in the field and can thus
present a first-hand view on the topic. The first part of the paper summarizes current issues
and practices on tendering and contractual arrangements linked to the awarding of terminals
in European ports. The discussion is based on the results of an extensive survey among
European ports conducted in spring 2008. In a second part the concessioning of port terminals
is placed in the EU legal and policy context. The paper concludes with an extensive
discussion on the proposed code for practice on concessions for European ports.
2

Topic: Ports
Sub- Topic: Port Concessions (special session)

2. CURRENT TERMINAL AWARDING PRACTICES IN EUROPEAN PORTS

In mid 2008, ESPO in cooperation with ITMMA of the University of Antwerp conducted a
survey in order to shed light on terminal awarding practices in Europe. In total about 80 port
authorities around Europe received the survey. Answers were obtained for 43 terminal
projects in European seaports, resulting in a response rate of 54%. Two thirds of these
projects related to greenfield developments (i.e. the terminal site is either reclaimed from the
sea or encompasses land not previously used for port or industrial activities), while the
remaining cases related to brownfield sites (i.e. site has been used before for other port or
industrial activities). About 44% of the terminals considered started operations recently. For
about a quarter of the projects, the awarding and contracting procedures were already
completed, but the terminal has not started up operations yet. In 13% of the cases the
awarding procedure was completed, but the contract with the future operator was not finalized
yet. For the remaining cases the awarding procedure had not been started up yet or the
awarding procedure is ongoing. Large, medium-sized as well as small terminal projects were
represented in the survey. About 61% of all responses related to container terminal projects
(26 in total). We estimate that this represented about 35 to 40% of all container terminals in
Europe that have started/will start operations or have been/will be awarded in the period
2003-2010. The survey results were mainly providing a good representation of the current
situation in the European container terminal industry.
A detailed discussion of the survey results is presented in Notteboom and Verhoeven (2010).
For the purpose of this paper we summarize the main findings with policy relevance:

The awarding methods used. The survey revealed that competitive bidding is used in 75%
of the concession granting today. In the cases where terminals were directly appointed,
port authorities did so mainly for strategic reasons (e.g. the creation of intra-port
competition or the securing of further expansion possibilities for efficient incumbent
firms) or because the terminal project represented a marginal extension of an existing
facility (for instance the extension of an existing container terminal with one berth).
Mediterranean ports massively opt for competitive bidding processes, while the Baltic
ports show the largest diversity in awarding methods. In 83% of the cases following a
competitive bidding process, the port authority published an open call for tender. In about
38% of the cases, the terminal is awarded to one of the candidates in only one round. One
third of the projects considered involves the reduction of the number of candidates in a
first round (via a qualification/eligibility stage or selection stage). The remaining
candidates take part in a second round (for example they get an invitation to tender). The
final awarding is made in the second stage. Almost equally important is an awarding
process covering more than two rounds, typically including a selection stage and two or
more rounds to narrow down the number of candidates. Large terminals are characterized
by more complex awarding processes, while an awarding process of only one round is
frequently used for small and medium-sized terminals. Any competitive bidding should
comply with the principle of equality, which states that every candidate should be equally
treated and compared and that there will be no favouritism in the awarding of the
concession or no substantial reduction of competition.

Criteria to select the winning terminal operator in case of competitive bidding. The
selection stage typically includes minimum requirements related to the financial strength
of the candidates (included in 86% of the cases) and minimum requirements related to the
relevant experience of the candidates in terminal handling (included in 92% of the
3

Topic: Ports
Sub- Topic: Port Concessions (special session)

competitive bidding procedures considered). In about half of the terminal projects

considered, the expected throughput is considered as the most important criterion in the
selection process. Price bids play an important role as well, but in 30% of the terminal
projects the price bid was not part of the awarding process due to the specificities of the
pricing system used by the port authority. Other important criteria used in view of the
final awarding stage of a terminal include the contribution to the economic development
of the region/country, the financial proposal (others than the price bid) and the technical
proposal for the terminal. When asking about whether or not the port authority uses a
formalized system in the final awarding stage, 41% of the respondents indicated they have
no specific quantitative mechanism in place, but make a final choice based on a qualitative
overall appreciation of the proposals. In 59% of the cases, the respective port authorities
use some sort of scorecard system: various aspects of the proposal are rated and the results
are added up to a weighted or unweighted score, based on a score for each of the
evaluation criteria related to the elements in the proposal.

The duration of the concession agreement. The duration of the agreement is of crucial
importance both to terminal operators and port authorities. Port authorities try to find a
balance between a reasonable payback period for the investments made by terminal
operators on the one hand and a maximum entry to potential newcomers on the other
(Notteboom, 2007). Contract durations in the sample ranged from 4 to 65 years. Two
thirds of all terminal contracts have a term of 21 to 40 years. Not surprisingly, larger
facilities tend to have longer contract durations. In 58% of the terminal award procedures
included in the survey, existing laws impose minimum and or maximum limits on the
duration of the terminal award contract. Legislators in EU Member States have developed
thresholds on concession durations in view of safeguarding free and fair competition in
the port sector. While clear rules of thumb on the determination of the contract duration
seem hard to find, the survey clearly indicates the duration mainly varies with the amount
of the initial investment required both from the terminal operator and the port authority. A
more detailed conceptual and empirical discussion on the duration of concessions is
provided by Theys and Notteboom (2010).

Performance-based stipulations in the concession agreement. Contracts often take the

form of performance-based agreements to create incentives for the terminal operator to
meet the objectives of the port authority. The most commonly used clauses relate to
minimum throughput requirements (included in 90% of the contracts), environmental
clauses (85%) and clauses with regard to changes in the ownership structure of the
terminal (included in over 80% of the contracts). The survey results made it clear that the
threshold values in the throughput clauses are often determined via negotiations between
terminal operator and the port authority. About 68% of the contracts in the sample
explicitly refer to the payment of a penalty to the port authority (e.g. a fixed amount per
ton or TEU short) in case the terminal operator does not meet the throughput guarantees as
set in the agreement.

Termination, renewal or extension of the concession agreement. Concession agreements

often include clauses referring to the conditions for renewal of the terminal use after the
end of the regular contract term, clauses referring to an extension of the contract term if
the terminal operator makes additional investments during the regular contract term and
clauses referring to interim evaluations (for example every five years) during the contract
term. Some 40% of the contracts considered contain clauses referring to what happens if
the contract is not extended after the end of the regular contract term. In 63% of these
cases, the clauses explicitly refer to financial compensations for the value-added linked to
4

Topic: Ports
Sub- Topic: Port Concessions (special session)

investments made by the terminal operator in a specified period prior to the end of the
contract term. Port authorities in Europe seem to follow different paths when it comes to
dealing with the terminal superstructure at the end of the contract. In 30% of the cases
under consideration, the port authority decides at the end of the contract term on what to
do with the superstructure. Common approaches also include the removal/destruction of
the superstructure by the terminal operator at the end of the contract term (28%) or the
transfer of the assets to the port authority without any form of compensation (26%). The
survey further revealed that it is not common practice for the port authority to financially
compensate the terminal operator for the superstructure that was transferred at the end of
the contract term (15%).
The survey results make clear that a large diversity exists among European ports, particularly
in terms of the specificities of the awarding procedures deployed. The observed diversity is to
a large extent the consequence of the range of and priorities in objectives followed by the
respective port authorities, the specific local situations and markets the ports are operating in
and the size differences among the terminals considered. The specific design of the contract,
its regulatory regime, the pricing regime and the way the terminal is awarded reveal the
priorities of individual port authorities and as such play an important role in local port
governance.
Notwithstanding existing differences, the terminal awarding practices in European ports seem
to be converging with respect to some specific aspects. The vast majority of European port
authorities are trying to optimize the use of scarce land via the inclusion of throughput
specifications in the contract. They are also increasingly using the terminal awarding process
in view of a broader environmental compliance of port activities and a sustainable
development of the port. Port authorities continue to use terminal award procedures also in
view of shaping the structure and market organization of the terminal handling business in the
port area, thereby in principle ensuring further capacity growth for efficient incumbent firms
and ensuring intra-port competition by allowing new entrants in case a poor competitiveness
urges the port to do so.
All of the above points make that port authorities should be given the possibility to work out
awarding procedures for new terminals taking into account local objectives and the need for a
sustainable and highly competitive port context. If further policy action at a national or
supranational/EU level were to be envisaged, it should be aimed at empowering port
authorities better to fully take up their responsibilities and to further develop their role as
(local) regulator in an environment that provides legal certainty to all parties involved. We
argue this can best be done through a code of practice instead of detailed legislative proposals.
Before elaborating further on the desirability and possible content of such a code of practice,
we first discuss the current status and history of concession agreements in EU policy
documents.

3. EU RULES ON SERVICE CONCESSIONS AND THE EUROPEAN PORTS

POLICY COMMUNICATION
3.1.

The uncertain status of terminal awarding regimes under EU law

The granting of rights of use to ships, goods and terminal operators is subject to the general
rules of the EU Treaty, such as the provisions regarding freedom to provide services and the
prohibition of abuse of a dominant position. The awarding of long-term rights of use to port
5

Topic: Ports
Sub- Topic: Port Concessions (special session)

service providers, especially in cargo-handling, can be governed by a number of legal

constructions (Van Hooydonk, 2002), including the rather rigid EU Directives on public
procurement and the more flexible regime governing service concessions which seems to be
the preferred option for port authorities. Essential elements of service concessions include the
transfer of responsibilities to the concessionaire and the fact that a significant risk inherent in
the delivery of the services lies with the concessionaire (Petschke, 2008).
The granting of service concessions is subject to general EU legal principles of equality of
treatment, transparency, proportionality and mutual recognition which the European
Commission clarified in a horizontal interpretative communication (European Commission,
2000). It was however for a long time unclear to what extent these principles were applicable
to the variety of terminal awarding regimes existing in Member States (Van Hooydonk,
2002). Whereas in some countries these are governed by public law and take the form of
public service contracts or public domain concessions, in others these are governed by private
law and take the shape of ordinary lease agreements. In yet other cases a variety of unilateral
permits, authorisations and licenses exists, whereas some countries or ports do not seem to
have any particular regime or form whatsoever (ESPO, 2005). Also, the notion services
caused considerable confusion since service concessions would normally concern activities
whose nature and purpose, as well as the rules to which they are subject, are likely to be the
State's responsibility and may be subject to exclusive or special rights (European
Commission, 2000). Privatisation processes have however more or less liberalised cargo
handling services in most Member States and the European Court of Justice even ruled that
these services are of a commercial nature and not different from any other economic activities
(European Court of Justice, 1991).

3.2.

The port services Directive: a failed attempt to provide legal certainty

The European Commission published in 2001 a Directive proposal on market access to port
services (European Commission, 2001). The aim of the proposal was to establish rules for
market access to port services including the use of transparent selection procedures. The
political debate, animated by aggressive trade union protests, focused on labour-related
aspects of the proposal. The essence of the Directive was however about the way in which
port authorities would use terminal awarding agreements to regulate market access for
potential service providers, thus ensuring market contestability and intra-port competition (De
Langen and Pallis, 2006; Verhoeven, 2006; Pallis, 2007). The Directive proposal also set rules
to avoid discriminatory behaviour of port authorities that were directly or indirectly engaged
in the provision of port services themselves.
Although the Commissions initial proposal was quite dogmatic, the compromise that was
painstakingly devised afterwards by Council and Parliament did acknowledge the strategic
role of port authorities and took into account the need to ensure continuity of investments and
legal certainty for existing agreements. Influenced by continued labour unrest as well as
internal political meddling, the European Parliament however rejected the final compromise
on the Directive proposal in November 2003. In 2004 a second version was published
(European Commission, 2004) which also failed to find political support, mainly because
some of its key features did not respect the compromises already reached on the first proposal
(Verhoeven, 2006). The uncertainty regarding the status of terminal awarding regimes under
EU law therefore continued to exist.

Topic: Ports
Sub- Topic: Port Concessions (special session)

3.3.

The soft law approach of the European Ports Policy Communication

Following the rather traumatic double failure of the port services Directive, the European
Commission took its recourse to soft law and published, after an extensive process of
consultation, a Communication on a European Ports Policy (European Commission, 2007)
which contained a chapter with guidance on the use of port concessions. The Commission
confirms that terminal awarding agreements granted by a public port authority are to be
considered as service concessions under EU law, regardless what their status is under national
law (public or private law, contract or unilateral measure etc.). The key element is not the
actual cargo handling service itself which as explained above is a normal commercial
service, but the fact that access to port land is a precondition for providing this service. The
granting of the use of a piece of port land would thus be a measure through which the port
authority disposes of a public good of which the availability is limited and which allows the
performance of the commercial cargo handling activity which would not be possible without
the availability of this public good. The public aspect would even be stronger in case port
infrastructure is financed by public means. Only if the port and its real estate would be fully
private, run as private companies and if all its components would be fully financed by private
means an exemption from the rules governing service concessions would seem to be feasible
(European Commission, 2008).
The application of EC Treaty rules and principles on service concessions is elaborated in the
above-mentioned horizontal interpretative communication of the Commission (European
Commission, 2000). This guidance has now been specifically applied to the port sector
through the concessions chapter of the European Ports Policy Communication. The
Commission first of all identifies the basic principle that public authorities granting a
concession are bound by a transparency obligation, implying that their initiative must be
adequately advertised, that the procedure must be fair and non-discriminatory and that it can
be reviewed. Such obligation of transparency consists in ensuring, for the benefit of any
potential candidate, a degree of advertising sufficient to enable the concession to be opened
up to competition and the impartiality of the selection procedure to be reviewed. The
transparency obligation would not only apply to concessions involving cargo handling
services, but also those concerning technical-nautical services (pilotage, towage and
mooring). Here the Commission is more precise about the use of selection procedures,
stipulating that these must be given adequate, European-wide publicity.
Seen from a port governance point of view, the Commission clarifies some important
additional points. First it says that the transparency obligation does not hinder port authorities
from setting selection criteria which reflect the commercial strategy and development policy
of a given port that will be the basis for granting the concession. This is an important
recognition of the discretionary power of port authorities, which was a crucial issue during the
debate on the port services Directive. In addition, the transparency obligation would only
apply to contract awards having a sufficient connection with the functioning of the internal
market, excluding for instance cases of very modest economic interest which would make
contract awards of no interest to economic operators located in other Member States. The
second important point relates to the length of concessions. According to the Commission,
durations must be set so that these do not limit open competition beyond what is required to
ensure that the investment is paid off and there is a reasonable return on invested capital,
whilst maintaining a risk inherent in exploitation by the concessionaire. This again
corresponds with the perspective of the port authority, wishing to ensure a balance between a
reasonable payback period for the investments made by terminal operators, on the one hand,
and a maximum entry to potential newcomers, on the other (Notteboom, 2007). The
7

Topic: Ports
Sub- Topic: Port Concessions (special session)

Commission adds that, when a concession expires, renewal is considered equivalent to

granting a new concession and is therefore bound by the above-mentioned transparency
obligation. This raises an important question regarding the common practice of prolongations
whereby a concessionaire makes additional investments before the expiry of his concession.
Also, it is not clear to what extent clauses on possible prolongations can already be included
in the initial concession agreement. A third point is that the Commission accepts provisions in
concession agreements which aim at ensuring that the terms of the concession are respected
and at protecting the legitimate interests of ports and local communities, notably with regard
to overall quality and performance of port services. A condition is that these provisions do not
infringe Treaty rules or Community legislation. The Commission would thus allow the active
use of concessions as intelligent governance tools, an issue which is elaborated further in this
paper. The final point relates to the safeguarding of rights of workers in case of transfer of
activity further to a selection procedure. This would mean that, subject to conditions, new
concessionaires may be obliged to take over staff employed by the previous concessionaire. It
remains to be seen to what extent this may impose an entry barrier to new operators and thus
reduce market contestability.

3.4.

Further initiatives

It is important to underline again that most of what is explained above is based on the
interpretation of the European Commission and has therefore the status of soft law. For the
time being there is no secondary legislation in place which confirms these principles although
the Commission is considering the development of a horizontal Directive on concessions
(Petschke, 2008). Neither is there solid jurisprudence of the European Court of Justice
available in the field of port concessions. Port authorities could therefore choose to take the
risk of ignoring the principles that the Commission set out in its ports policy communication.
This hardly seems a responsible strategy however. Leaving aside the possibility that a
legislative approach may still be forthcoming, it would be unwise to ignore the above-cited
principles simply because it is likely to incite litigation from operators who were not granted a
concession in a given port. The question should therefore rather be whether the guidance
provided by the Commission provides sufficient legal certainty for port authorities and
recognises and empowers their strategic role.
The Commissions guidance can be qualified as being very supportive to the position of the
port authority, confirming its discretionary power in the selection of operators and the setting
of concession conditions. Apart from specific questions already raised above, such as the
prolongations of concessions and take-over of personnel, two fundamental problems however
remain which are inherent to the soft law nature of the Commissions communication. First,
contrary to for instance the port services Directive, the communication does not foresee
transitional rules for existing agreements since it is not introducing new legislation but simply
giving an overview of principles based on the fundamental rules of the Treaty. It is however
common knowledge that many concessions in European ports were not granted on the basis of
the transparency obligation required by the Commission. This leaves a great deal of
uncertainty as regards existing agreements. Second, it could be argued that the interpretative
guidance of the Commission may not be sufficient to empower the position of port authorities
and ensure a level playing field among them that would match the bargaining power of
terminal operators as well as political influence often exercised in the granting of concessions
(Verhoeven, 2009).

Topic: Ports
Sub- Topic: Port Concessions (special session)

It is obvious that these concerns could have been more adequately addressed through
legislation which would undisputedly have created greater legal certainty. The future will
demonstrate how effective the soft law approach will be. In this respect, two pending issues
should be noted. First, there is the already mentioned possibility that secondary legislation on
concessions may still be forthcoming, but then at a more horizontal, cross-sector level. This is
however not certain and depends on the priorities of the new European Commission that took
office in February 2010. Second, there is the survey on current practices regarding the
awarding of seaport terminal contracts in Europe which the ESPO commissioned in 2008 and
of which the results are summarised in this paper. The survey is a first step towards the
publication of a code of good governance on port concessions which ESPO is preparing to
complement the soft law guidance provided by the Commission. It is hoped that in this way a
number of the unanswered questions may be solved in a practical manner.

4. TOWARDS A CODE OF PRACTICE ON TERMINAL AWARDING IN EU

PORTS?
Terminal awarding policies as part of governance structures are not static but evolve
constantly in line with the requirements imposed by the market. The dynamics in the port
environment urge the port authority to continuously evaluate the effectiveness of their
terminal award policies in light of market trends. This supports the argument for giving full
ownership and responsibility on terminal awarding procedures to the port authorities. A
code of practice could be a useful complement to the Commissions guidance and avoid a
rigid legislative approach. In the context of the soft law approach in EU port policy
development, ESPO is making an attempt to produce a sector-based code of practice on
concessions of seaport terminals which would match principles of good governance and serve
as an addition to the basic principles laid down in the 2000 and 2007 Communications of the
European Commission. The Code would gather best practices and show realistic situations to
which port authorities are confronted when awarding concessions to terminal operators and
when managing its tenants through the contract duration.
The last section of this paper provides an overview of the overall objectives, scope and
possible content of an ESPO Code of practice on Concessions of seaport terminals. Secondly
it provides a discussion on its desirability and feasibility.

4.1. Objectives and scope of the ESPO Code of practice on concessions

The ESPO Code of Practice on concessions of seaport terminals is primarily aimed to help
port authorities improve their concession methods and instruments in order to obtain more
valuable concessions from a governance perspective. To that end, the Code gives practical
guidance to port authorities on the entire awarding process of seaport terminals, from the
selection and design of the awarding procedure to the materialisation of the agreement in a
contract. In that sense, efforts are being made to develop a real toolkit for port managers,
which would contain a number of instruments, methodologies and illustrative examples to
improve ports concession practices. The Code aims as well to be useful to disseminate
lessons learnt from experience, warning port authorities about potential pitfalls in the process
of awarding a concession and during the concession term.
On the other hand, the Code of practice sets out guidance on how the EC principles apply to
seaports concession practices. It aims as well to put some light on a number of questions
9

Topic: Ports
Sub- Topic: Port Concessions (special session)

which are still unclear after the adoption of the Commissions EU Ports Policy and its chapter
on Concessions, such as concession duration and prolongations. In that sense, the Code
intends to identify and propose a number of pragmatic solutions/options to be used by
managing bodies of ports.
The ESPO Code of Practice primarily focuses on concessions granted by publicly owned port
authorities that adhere to the landlord model. It is however expected that a number of
European ports under ongoing port reform programmes and in the process of privatising
terminal operations may also benefit from it. The Code may also be of interest for landlord
port authorities from other parts of the world where concession instruments are also in use.
Throughout the code, the term concession is broadly defined as the instrument used by port
authorities to grant market access to port services, regardless of how these instruments are
named and defined under national laws. In the context of the Code, only those port services
where access to port land is relevant are considered (i.e. the handling of cargo and
passengers).

4.2. Content of the ESPO Code of Practice

The ESPO Code of Practice has been structured in two main sections. The first section
concentrates on the main phases which constitute a terminal awarding process. It describes the
preparations to be undertaken by port authorities before initiating the process of
concessioning and provides guidelines for the appropriate selection and design of the
awarding method and its later implementation. The second section of the Code focuses on the
contract established between the port authority and the awarded operator and on the
provisions to guarantee the enforcement of the agreement during the concession term. The
code also provides an overview of the basic principles governing concessions as laid down in
the interpretative Communication on concessions of 2000 and elaborated in the EU Ports
Policy Communication of 2007. It also emphasises the variety of terminal awarding regimes
existing across Europe which have its origin in specific law provisions at national, regional or
local levels. Finally a glossary of vocabulary to clarify concessions-related terminology as
well as EU technical terms is also being developed in the form of an annex to harmonise the
different terminology which is used across Europe.
As emphasised earlier, the Code intends to be a real toolbox for port managers. To that end,
check lists, detailed explanations and methodologies are being developed for the main issues.
The Code also intends to provide advice to port managers through recommendations and
warnings. Practices are also illustrated by concrete examples.
A number of innovative practices are also being considered in the Code which might be
adopted by more port authorities across Europe or catch the attention of port managers. One
example is the organisation of a market consultation prior to initiating any awarding
procedure, which has been successfully used in a few ports. It benefits both the port authority
and the private sector by enabling an exchange of information on a non-committal basis with
the purpose of at a later stage, better tailoring the competitive procedure and the subsequent
agreement to the market needs. A market consultation is a powerful tool to test the market
interest in a given plot of land and to explore innovative ideas from potential participants.
Increasingly sophisticated practices are also introduced to design concession payment
systems. New practices based on a profit distribution concept would allow port authorities to
share with the concessionaire profits in excess of a value determined in the contract on the
basis of the internal rate of return (IRR). The internal rate of return defined as the
10

Topic: Ports
Sub- Topic: Port Concessions (special session)

concessionaires shareholders aggregate internal rate of return linked to the committed

investments over the concession period. In the same line, financial models which calculate the
IRR of potential bidders would help assessing the adequacy of the multiple offers received in
a competitive-driven awarding procedure. Discussions are also taking place on whether to
include in the code practices in use in other sectors. One example would be the variablelength concessions in practice in other sectors, which determine the duration according to a
determined return of investments. The concession duration would expire the year after the
internal rate of return would exceed a determined percentage, although in any case before a
number of years determined by contract (see Theys and Notteboom, 2010 for a more detailed
discussion).
As regards the part of the Code dealing with the materialisation of the agreement, while the
possibility to include ready-to-use samples of clauses and templates of contract agreements
was considered initially, it remains to be seen whether it will be possible given the
confidentiality of most of the contracts. Consequently, efforts are being directed towards
identifying a list of must-have contract clauses (or provisions) together with their objectives
and to provide guidelines on their possible content. In that sense, the Code may finally contain
a standard template of the General Terms and Conditions document which is used in many
ports to lay down the basic provisions that govern concession agreements in a port. The
General Terms and Conditions document is usually complemented by the specific agreement
laying down the special conditions which reflect the particularities/specificities of a concrete
project or plot of land. The articles contained in the General Terms and Conditions document
are in general the result of years of experience in the relationship between landlord ports and
their tenants. They establish the rights and obligations of both managing bodies of the port
and concessionaires and contain provisions to safeguard the interest of the port authority and
the wider community. Common provisions relate to the definition of construction and
maintenance obligations, the limitations to the use of the land, the establishment of safeguard
instruments such as bonds or bank guarantees linked to the execution of works or to the
performance of the concessionaire, the conditions for the transfer of the concession or in case
of change of control of the concession holder. Provisions which clarify under which
circumstances the concession would end and the effects of the termination are also found in
the General terms and conditions which are always complemented by the Specific Conditions
document (i.e. title, deed, etc...). The Code will also look at the key issues contained in this
Specific Conditions document.
Finally, the Code will also look at those aspects of concessions which are open in the existing
EU policy framework. One outstanding issue both as regards its importance and difficulty is
the determination of concession duration. ESPO is working to provide a methodology to help
port authorities determine the optimal concession length. The methodology would build on
the principles of the Commissions statement on concessions duration in the EC Port Policy
Communication. By breaking down this statement, the methodology would identify the key
elements which would need to be taken into account by the awarding authority when
determining the contract length. Among these key elements, the amount of committed
investments and their contribution to anchoring the operator (movable assets vs. immovable
assets), the depreciation of investments, taxation matters, market and risk factors are being
developed in the methodology. In this paramount issue, the ESPO Code of practice intends to
encourage port authorities to stimulate competition between terminal operators by means of
optimum concession durations. It is its purpose as well to send a clear message to the
European Commission underlining that the decision to set the duration of a concession should
be left to the port authority.
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Topic: Ports
Sub- Topic: Port Concessions (special session)

The possibility to renew or prolong concession contracts bound by the transparency obligation
is also being analysed. Port authorities are looking for practical solutions which may help
overcome problems in terms of the continuity of investments. The possible options would
need to be discussed with the European Commission. Consequently it is under consideration
whether it would be interesting to revive the options proposed in the failed First Port package
which was however supported by the European Commission and the industry at that time. On
the one hand, it offered the possibility of a prolongation once during the last ten years of the
concession conditioned to significant investments. As an alternative, the incumbent could
request the port authority to launch a selection procedure before the end of the concession if
significant investments were foreseen. However, even in this framework, several elements
concerning prolongations would still remain unclear. Among these, the possibility in the
context of an extension, to update clauses of the contract to take into account for example new
environmental requirements or the right of the port authority to execute or refuse an
extension, when this possibility is set in the contract.

4.3. Desirability of a Code of Practice

Producing the ESPO Code of Practice is proving to be a useful exercise to examine and
improve port concession practices in European seaports. It has provided port authorities with
a specific forum for discussion on concessions key issues and has developed into a platform
of exchange of information, experiences and innovative practices. Interestingly, the exercise
has resulted as well in internal debates on concession goals, port authorities objectives and
concession contract provisions to empower managing bodies of ports.
The process of producing the code is also unveiling key concerns of port authorities linked to
terminal concession practices in general and in particular as regards the enforcement of the
concession contract and the achievement of the concession goals. In that sense, the Code of
practice will certainly serve the interest of port authorities in their search for more valuable
concessions at this moment when port authorities are confronted to increasingly powerful
market players. As an initiative for the self improvement of the industry, the elaboration of a
Code of Practice has already proven to be a desirable exercise for the sector and is likely to
lead to the improvement of the current practices.
On the other hand, following the ESPO/ITMMA survey as discussed in the first section of this
paper (see also Notteboom and Verhoeven, 2010), the ESPO Code of practice would be a step
forward towards providing more transparency to current industry practices and towards the
acceptance by port authorities of the EC principles governing concessions. In this way the
Code of Practice would form a substantial contribution from the industry to the soft law
approach on concessions. It cannot be denied that a long period of vagueness regarding
seaports concession practices has existed. With this initiative, port authorities would show
their willingness to normalise practices accordingly to the principles of good governance and
the principles of the EC Treaty.
It is hoped that the Code of Practice will also help port authorities to fully benefit from the
existing flexible regime governing concessions and avoid turning to the more stringent
procedures linked to EC Public Procurement Directives in the search for greater legal
certainty.
Finally, the elaboration of the ESPO code of practice is uncovering the lack of experience of
managing bodies of ports on the organisation of competitive selection procedures and the lack
12

Topic: Ports
Sub- Topic: Port Concessions (special session)

of sound methods behind the decision making of port managers on key issues such as the
determination of the contract duration, the design of payment systems and fees, etc.
Obviously, these aspects have implications on the feasibility of the ESPO Code of Practice,
issue which is discussed in the next section.

4.4. Feasibility of the ESPO Code of practice

The elaboration of the Code of Practice is being confronted with a number of constraints.
Firstly, the lack of experience in open awarding procedures in a considerable number of ports
has resulted in a shortage or unavailability of concrete examples. On the other hand, fierce
competition between seaports in Europe has also lead to some reticence to provide concrete
input. The confidentiality of contracts is also hindering the progress made on the Code and
makes very difficult to include in its content samples of key clauses or to define an ideal
contract template. Another important constraint relates to the difficulties to address the few
issues which remain unclear after the adoption of the Commissions EU Ports Policy and its
chapter on concessions. If no practical and realistic solutions were identified and provided in
the content, the final product could be an incomplete code of practice. In that sense, before its
publication, feedback will be requested from the European Commission to validate the
content of the code from a legal and policy perspective.
The Code is being drafted by a special sub-committee within ESPO (i.e. the Port Governance
Committee) and will need to be ratified by the ESPO General Assembly. The ESPO Code of
practice on Concessions is seen as an evolving code which would go through regular revisions
in order to update its content and include innovative practices to ensure that the Code is
constantly responding to the evolving needs and concerns of the industry. This feature may
then help to publish a first version of a Code of practice which could be improved in the next
years.

5. CONCLUSIONS
Port authorities around Europe are evaluating existing practices and exploring new methods to
structure terminal awarding processes and to design concession agreements. The European
Commission has confirmed in its recent European Ports Policy Communication that terminal
awarding agreements granted by public port authorities are to be considered as service
concessions under EU law, regardless what their status is under national law of Member
States. This means that terminal awarding agreements are subject to a number of basic
principles with regard to equality of treatment, transparency, proportionality and mutual
recognition. If further policy action at a national or supranational/EU level were to be
envisaged, it should be aimed at empowering port authorities better to fully take up their
responsibilities and to further develop their role as (local) regulator in an environment that
provides legal certainty to all parties involved. We argue this can best be done through a code
of practice on general principles instead of detailed legislative proposals.
This paper explored the desirability, feasibility and possible content of a code of practice on
concessions for European ports. Such a code of practice developed by the European Sea Ports
Organization (ESPO) could help individual port authorities in developing sound and effective
terminal award procedures and concession contracts and could be a useful complement to the
Commissions guidance and avoid a rigid legislative approach.
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Topic: Ports
Sub- Topic: Port Concessions (special session)

The Code intends to gives practical guidance to port authorities on the entire awarding
process of seaport terminals in the form of a real toolkit for port managers. To that end, check
lists, detailed explanations and methodologies are being developed for the main issues. The
Code also intends to provide advice to port managers through recommendations and
warnings. The Code will also look at those aspects of concessions which are open in the
existing policy framework such as the determination of concession duration and the
possibility to renew or prolong concession contracts.
The Code should provide port authorities with a specific forum for discussion on concessions
key issues and has developed into a platform of exchange of information, experiences and
innovative practices. It will also be a step forward towards providing more transparency to
current industry practices and towards the acceptance by port authorities of the EC principles
governing concessions.

14

Topic: Ports
Sub- Topic: Port Concessions (special session)

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