Introduction
Competition in the national port sector is the subject matter of a recent study by the Portuguese Competition Authority (“PCA”), carried out under the latter’s supervisory powers and put to public consultation between 13.07.2015 and 30.09.2015. Simultaneously with the announcement of the public consultation, the PCA carried out surprise inspections on the premises of companies located in the ports of Viana do Castelo, Lisbon, Setúbal and Sines, in the context of an investigation into cartel suspicions , allegedly in the form of market partitioning, in the port services sector.
The two initiatives, albeit of a very different legal nature (only the second one refers to an administrative offence procedure), show that the Portuguese Port Sector is currently under the close scrutiny of the PCA.
The study and its proposed recommendations
The study identifies “symptoms” of inefficient functioning of the sector as well as several competitive constraints as possible underlying causes, amongst which (i) supply-side concentration, (ii) high installed capacity utilization rate observed in several port infrastructures (and associated risks of bottlenecks); (iii) different levels of specialization of port infrastructures (and consequent softening of competition between them); (iv) high barriers to entry; (v) vertical integration of certain port operators; (vi) absence of countervailing buyer power by users of port infrastructures.
The analysis undertaken by the PCA resulted in a series of recommendations aimed at promoting the efficiency, quality, and competitiveness of national ports.
The first recommendation concerns the governance model for the port sector.
It points to the need for clear separation between the activities of regulation, port administration, provision of services and operation of port terminals, and for the attribution of regulation functions to the Authority for Mobility and Transports, the new sector-specific regulator. Port administrations should have as main goals for their activity the promotion of an efficient use of infrastructures, of port services performance, and of value for money generated for port users. This, in turn, requires effective competition between port terminals and between port service providers as well as reduction of the rents charged (to a level that is strictly necessary to assure the economic and financial sustainability of port administrations and their ability to finance investments).
The PCA further recommends that port administrations periodically disclose indicators of efficiency and productivity of ports and port terminals that allow for a comparison of performance between national and international ports.
The second recommendation refers to the concession model.
Concession proceedings and contracts should be designed so as to secure effective competition between candidates and should assure a more frequent “return” of the concession to the market.
In this respect, the PCA’s recommendations include - in line with the principles and solution established in Directive 2014/23/EU on the award of concession contracts - (i) the setting of contract duration strictly in light of the timing required for recoupment of the investment (in certain cases even below such timeframe, against adequate compensation to the concession holder), (ii) anticipated contract termination mechanisms, (iii) an effective transfer of risk to the concession holder, (iv) the launching of new tender procedures in case of substantial modifications to the concession, and (v) proportionate, non-discriminatory and equitable criteria for the awards. The PCA further recommends that port authorities should be granted the power to exclude certain candidates whenever competitive conditions in the market are at risk.
The third recommendation concerns the rent model.
The PCA recommends a reduction in the level of remunerations earned by port administrations, in particular, a reduction of variable rents. Indeed, a reduction in the level of variable rents is expected to result in lower marginal or variable costs for concession holders, which would allow the latter to charge lower the prices downstream. In addition, a decrease in the weight of variable rents is also recommended as such a modification would have the advantage of decreasing the level of risk undertaken by port administration regarding demand fluctuations on the one hand, and, on the other hand, increasing the incentives of port operators to attract additional cargo.
Finally, it is suggested that these principles apply already in renegotiation processes for existing concession contracts, provided however that any reduction of the rents charged should have as countermeasure a reduction of the duration of the concession.
The forth recommendation concerns the liberalization of access to port services.
It advocates in favour of a general rule of freedom of access to port services and limitations in the number of services providers as the exception. Said limitations should be justified only in case of space limitations, in which case a number of at least two service providers for each type of service (selected pursuant to competitive tenders and for short-terms contracts) should always be retained. Another possible justification for limiting freedom of access might be the need to impose public service obligations.
Finally, measures should be adopted to ensure the pass-through of costs along the value chain, so that reductions achieved upstream translate into benefits downstream. To that effect, contract mechanism linking incentives to performance should be created, e.g., by including in concession contracts performance indicators and specific objectives in terms of cargo movements and level of use of infrastructure (alongside with the respective penalties and premiums) and port administrations should implement a system of effective monitoring of compliance with those indicators and objectives.
Comment
The recommendations proposed by the PCA cover different stages of the port sector value chain and correspond to an attempt to carry out a profound intervention in a sector that is of high strategic value to the national economy.
At present, the results of the public consultation are not yet known and there is also no public calendar for the PCA’s analysis of the contributions and potential modifications to the conclusions of the study.
Once the final recommendations are issued, the PCA may, according to the law, monitor compliance with the recommendations and request from the addressees all information necessary to assess their implementation.
