Labor Toolkit

Financial Implications of Port Reform

Readers of this module should gain an appreciation for port finance and its relationship to reform as well as how the financial risks and rewards vary from one reform option to another. Some of the financial implications that need to be taken into account include risk allocation among port stakeholders, potential sources of funding for the reform process, and pricing port services to achieve revenue and public policy objectives. A comprehensive financial model is also included as an annex to Module 5.


Financial Implications of Port Reform


Cost Risk

Revenue Risk

Part A: Partnerships in Ports: Risk Analysis, Sharing, and Management


Characteristics of the Port Operator

General Aspects

National Environment

Industrial and Commercial Dimension

Specific Aspects Particular to the Port Sector

Vertical Partnership with the Concessioning Authority

Horizontal Partnership with Numerous Players

Long-Term Commitment

Risk Management

Country Risks

Legal Risk

Monetary Risk

Economic Risk

Force Majeure

Interference or “Restraint of Prices” Risk

Political Risk

Project Risks

Construction Risks

Hand-Over Risks

Operating Risks

Procurement Risks

Financial Risks

Social Risk

Commercial or Traffic Risk

Regulatory Risks

Regulatory Tools

Technical Regulations

Economic and Financial Regulation

Scope of Operator Activity

Public Service Obligations

Noncompetition Guarantees

Pricing Controls

Fee or Subsidy

Golden Share Blocking Minority

Risk and Port Typology

Operator Handling Only Its Own Traffic

Operator Acting on Behalf of a Third Party in a Competitive Situation

Operator Acting on Behalf of a Third Party in a Monopoly Situation

Transit or Transshipment Traffic

Mixed Situations

Other Concessioning Authority Guarantees

Contractual Risks

Contract Management

Indexation Risk

Credit Risk—Bonds

Approach of the Different Partners to Risk and Risk Management

Concessioning Authority

Project Sponsors


Concluding Thoughts

Part B:
Principles of Financial Modeling, Engineering, and Analysis:
Understanding Port Finance and Risk Management from Public and Private Sector Perspectives


Measuring Economic Profitability from the Perspective of the Concessioning Authority

Differential Cost-Benefit Analysis

Commonly Used Economic Profitability Indicators

Assessing the Economic Costs of the Project

Rating Risk from the Perspective of the Concession Holder

Financial Profitability and “Bankability” of the Project

Assessing the Project Risks by Producing a Rating

Commonly Used Financial Profitability Indicators

Payback Time

Project IRR

Project NPV

Investment Cover Ratio

Project Discount Rate—Cost of Capital

Financial Debt Remuneration Requirement


Risk Rating by Determining rd

Debt Remuneration Requirement Conclusion

Equity Remuneration Requirement

Sharing of Public-Private Financial Commitments:
Arbitration between Financial and Socioeconomic Profitability

Financial Project Engineering

Financial Structuring within the Framework of a Project Finance Set-Up

Debt Structuring

Long-Term Commercial Debt

Foreign Currency Loans

Guaranteed Commercial Debt

Export Credits

Financial Credits with a Multilateral Umbrella (A- and B-loans)

Bonded Debt

Structuring Equity and Quasi-Equity

Equity Provided by the Public Sector

Equity Invested by the Project’s Sponsors

Equity Invested by Multilateral Institutions

Equity Invested by Bilateral Institutions

Specialist Investment Funds

Managing Exogenous Financial Risk

Interest Rate Risk Management

Interest Rate Swaps

Firm Financial Instruments in the Over-the-Counter Market

Firm Financial Instruments in the Organized Markets

Conditional Financial Instruments (interest rate options)

Foreign Exchange Risk Management

Counterpart Risk Management and Performance Bonds

Financial Engineering and Political Risk Management

Guarantees Offered by Multilateral Agencies

Guarantees Offered by Export Credit Agencies

The Use of Private Insurers for Covering Political Risks

Financial Modeling of the Project

Construction of the Economic Model

Capital Expenditure Types

Operating Revenues and Expenses

Operating Revenue and Charges in Terminal Management Operations

Operating Finance Requirement

Operating Account Balance

Tax Flows

Construction of the Financial Model

Cash Flow Statement

Profit and Loss Account (income statement)

Balance Sheet



Box 1: Richard’s Bay Coal Terminal: A Wholly Private Terminal

Box 2: Port Réunion: A Single Container Terminal Using Several Handling Contractors

Box 3: Owendo Ore Terminal in Gabon

Box 4: Container Terminals in the North European Range

Box 5: Container Terminal Operator in the Port of Klaipeda

Box 6: Port of Djibouti: Transit and Transshipment

Box 7: Djibouti Fishing Port: Public Service and Semi-Industrial Activity

Box 8: Horizontal and Vertical Partnerships in the Port of Maputo, Mozambique

Box 9a: The Country Ranking Developed by Nord-Sud Export

Box 9b: The Country Ranking Developed... (continued)

Box 10: An Example of Export Cover by COFACE in a Port Project

Box 11a: Principal Guarantees Offered by an Export Credit Agency for Project Financing: The COFACE Example

Box 11b: Principal Guarantees...(continued)


How To Use The Toolkit


Framework for Port Reform

The Evolution of Ports in a Competitive World

Alternative Port Management Structures and Ownership Models

Legal Tools for Port Reform

Financial Implications of Port Reform


Part A: Public-Private Partnerships in Ports

Characteristics of the Port Operator

Risk Management

Concluding Thoughts

Part B: Principles of Financial Modeling, Engineering, and Analysis

Measuring Economic Profitability from Perspective of the Concessioning Authority

Rating Risk from the Perspective of the Concession Holder

Financial Project Engineering

Financial Modeling of the Project


Port Regulation:
Overseeing the Economic Public Interest in Ports

Labor Reform and Related Social Issues

Implementing Port Reform


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