Financing maritime transport infrastructures

The maritime transport of goods and passengers is an industry of a huge and growing strategic importance for industry, trade and personal mobility. However, it’s often ignored the value of their contribution to the social and economical sustainability of a country.

A strong transportation sector, open and competitive can be a key to retaining economic activity and creating new ones in an increasingly globalized world, in which developing countries have to take profit from their geostrategic positions as international logistics platforms.

The logistic function of the ports is a key factor in competitiveness improvement, which by generating integrated services to the freight, contributes to the loyalty and attraction of new maritime traffic.

From the strategic point of view, the ports that have logistics activity zones have more competitive advantages over other ports that do not integrate it and remain independent and indifferent to the chain of production, transportation and distribution.

Countries whose geo-location makes them geopolitically important and whose international trade transportations are conducted mainly by sea are particularly attractive to investors interested in the port construction and operation sectors.

Private-sector involvement in the maritime port industry takes place by means of (1) transferring operation rights through privatisation, (2) the build-operate-transfer (BOT) model and (3) launching private greenfield projects through licensing and permit methods.

The financing of these three models varies according to the scope of the investment. In practice, the transfer of operation rights is used for projects limited to the extension and operation of a public port, rather than construction from scratch. Thus, the private sector requires CAPEX financing of the business and acquisition financing for the payment of the concession fees. However, greenfield and BOT models require construction financing for the construction of ports from scratch and also CAPEX financing for the operation period.

In any case, in a project finance-structured deal, it is essential to form an effective financing structure, as the project will mainly be financed through revenue to minimise the input from project sponsors.

Accordingly, the profitability of the project is essential, since the financing is secured by the revenue and assets of the project itself. A detailed feasibility study of the project to be implemented should be made in order to achieve secure and functioning implementation of the project itself and its financing structure.

The establishment of security over the main assets of these projects use to be a bottleneck. Transfer of these rights is subject to the approval of the public administrations, which is entitled to amend the relevant agreement executed with the investor for the specific servitude and usage rights if these rights are transferred, and there is no defined legal procedure for obtaining the prior consent of the administration for a possible transfer.

Risk minimisation is another essential aspect of project finance. In order to have a successful project finance-structured deal, the project\’s financing risks should be identified and analysed, then allocated to the party that will be able to minimise the chances of such risk and bear its consequences if realised.

Risks such as those relating to changes in the law, political approaches, or involvement of the public give rise to hesitation over implementing port projects by virtue of the disequilibrium in agreements to which state or administrative authorities are a party. Therefore, sophisticated risk mitigation mechanisms should be introduced and approved to attract private capital to port projects.

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