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REPORT OF THE HIGH LEVEL REVIEW GROUP

SUBMISSION TO THE MINISTER OF COMMUNICATIONS, MARINE AND NATURAL RESOURCES

Table of Contents

  1. Role of the Shareholder - Report Recommendation
  2. Role of the Port Company - Report Recommendation
  3. Port Company Mergers - Report Recommendation
  4. Involvement in the Private Sector - Report Recommendation
  5. EU Directive on Market Access to Port Services - Report Recommendation
  6. Corporate Governance - Report Recommendation
  7. Regulation - Report Recommendation
  8. Dún Laoghaire Harbour Company - Report Recommendation
  9. Addressing Environmental Matters - Report Recommendation
  10. Follow up Studies - Report Recommendation

Role of the Shareholder - Report Recommendation

  • The Shareholder declares without delay its position on the future funding of ports;
  • The Shareholder should clearly communicate the commercial role of and the objectives for the commercial port sector; this requires an agreed definition of the function of a port;
  • The Shareholder should place on the record that it is prepared to liquidate or put into examinership any port company that finds itself in financial difficulty;
  • Any future guarantees for port bank loans and any Letters of Comfort in any form should be withdrawn; the Department should advise all banks that the State as shareholder will not guarantee any prospective loans;
  • The practice of appointing port users and councillors to port boards should be discontinued on grounds of potential conflicts of interest;
  • Port users, local authority councillors and other interested parties should be members of a Port Users' Forum which should have a formal consultation role and be consulted on a regular basis by port management;
  • Formal liaison arrangements between Departments should be established to ensure an integrated policy on transport, and if necessary the transfer to the Department of Transport responsibility for the full integration of all of the transportation functions including ports;
  • To facilitate the future development of the ports, ownership in the Foreshore within the port's jurisdiction should be transferred to the ports on negotiated and realistic terms provided a detailed assessment and adequate provision has been given to alternative economic and social developments of these foreshore transfers. The transfer will require a change in legislation and assurances that any future sale of the foreshore, other than by public acquisition, must reflect its true intrinsic and monetary value;
  • Rosslare Port should be treated on the same basis as a commercial port operating under the Harbours' Act and be subject to the general recommendations of this Report;

Company Response

  • We would welcome a clear statement from the Minister outlining the commercial role and purpose of the ports. The issue of the future funding of the ports should be addressed as part of this exercise.
  • Ports should be exposed to the same commercial risks as private commercial organisation and state guarantees for loans, in normal circumstances, should no longer be available.
  • As local authority councillors provide a valuable link to the local communities, in which the ports operate, we would not support their exclusion from the boards of port companies.
  • We would welcome closer liaison with state departments including the Department of Transport and the National Roads Authority on transport issues.
  • Foreshore should be transferred to the ownership of port companies. The present arrangement is inefficient and a deterrent to the economic development of the foreshore.
  • Rosslare should compete on the same commercial terms as the other port companies.

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Role of the Port Company - Report Recommendation

  • Port management should not be distracted by non-core, non commercial activities or matters of a social or cultural nature; non-core social and leisure activities, particularly jetties and berths, should be transferred to local authority ownership, provided it does not interfere with primary functions;
  • Clear commercial and operating targets should be set by the Boards;
  • Ports themselves will have to adopt radical and innovative thinking in relation to addressing the funding of their infrastructure needs;
  • Every effort should be made to modernise local work practices without delay through the partnership model;

Company Response

  • If non-core social and leisure facilities are to be transferred to local authority ownership it is important that proper provision is made for the long term maintenance and conservation of these facilities. This is particularly important in the case of Dún Laoghaire where for many years the ports commercial revenues have been the sole source of funding for one of the country's most important heritage assets.
  • The board of the Dún Laoghaire Harbour Company sets clear commercial and operating targets.
  • Management and staff have substantially improved productivity in the six-year period since corporatisation. In the period up to the end of 2002 operating profits increased by 72% while staff numbers fell by 25%. Both parties are committed to further improvements in productivity using the partnership model.

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Port Company Mergers - Report Recommendation

  • Ports companies should be consolidated on a regional basis to reduce overheads, to focus on the strategic trade needs of the region and to rationalise investment plans;
  • The Port of Galway should take over responsibility for Rossaveal because of their commercial activities;
  • The Port of Cork should take over responsibility for Bantry given their close operating relationships;

Company Response

  • We fully support port mergers where it can be clearly demonstrated that they will increase competitiveness, reduce costs and increase profitability. It is important also that mergers do not have a negative impact on the growth and development of either of the hinterlands of the ports being merged (see Page9).

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Involvement in the Private Sector - Report Recommendation

  • We suggest that the concept of opening up port company ownership to the private sector, while not ruled out, is not pursued at present. This option could, however, be considered by the Department in the future in the light of the finances of the relevant ports, the effect on the public interest, the extensive legislation, and oversight framework required and the likely necessity to appoint a regulator;
  • Nevertheless, we do recommend that a "do minimum" approach be implemented in conjunction with the introduction of private sector operational skills and investment under Public Private Partnerships, where these approaches can deliver efficient and cost effective port products;
  • We would also recommend that the Port Companies explore a range of different forms of concession including the build, operate and transfer model and the design, build, finance and operate model to deliver port infrastructure where these forms can deliver value for money. This will require the identification of pilot projects which would be then subject to further feasibility study;

Company Response

  • Full privatisation of ports should only be considered in circumstances where it can be clearly demonstrated that there is an overall gain to the economy in the form of more efficient and cheaper port facilities. The use of the landlord model and public private partnership have, in the case of Dún Laoghaire Port, led to an increasing level of private participation in the development and management of the Port. Port management will continue to pursue these and other avenues for private participation provided they demonstrate more efficient and cheaper utilisation of the port's facilities.

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EU Directive on Market Access to Port Services - Report Recommendation

  • The principles of the EU Regulation on Market Access, when the Directive has been adopted, should be accelerated and extended to all commercial ports;
  • The Commission for Aviation Regulation should be the Competent Authority for the EU Directive on Port Services to avoid any unnecessary expense and to make use of available experience and expertise;

Company Response

  • We are committed to the principal of more open access to ports by service providers and to ensuring that competition between service providers within ports takes place on a level playing field.

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Corporate Governance - Report Recommendation

  • The extent of the corporate governance requirements established by the shareholder, particularly of a reporting nature, should be reviewed;
  • Each port should review its bye-laws regularly to ensure that they reflect current requirements;

Company Response

  • We are committed to the achievement of the highest standards of corporate governance and to the full implementation of Government Guidelines.
  • The port's byelaws are reviewed and updated on a continuous basis.

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Regulation - Report Recommendation

  • Market dynamics should be encouraged through structural reform rather than through the introduction of a Regulator at this time:
    • by requiring ports to be more transparent in the way port charges are determined and charged;
    • by encouragement towards the landlord model to improve efficiencies, reduce costs and provide competition.
    • by the use of competition legislation, and
    • through the establishment of competing terminals where practicable.
  • A Ports' Ombudsperson should be appointed to provide an independent conciliation and appeals, including binding arbitration, service which would hear and decide on cases where a port user believes that the costs of either a port service or a port charge is unfair or discriminatory. The Ombudsperson will be reimbursed by the parties to the dispute

Company Response

  • Competition rather than regulation is the correct way forward. In this context it is important that port mergers can clearly demonstrate that they will increase competition.
  • We support the establishment of a National Port Users Forum and we would be concerned that an Ombudsperson would duplicate some of its functions.

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Dún Laoghaire Harbour Company - Report Recommendation

  • There is a mandate conflict between the commercial and heritage obligations of Dún Laoghaire Harbour Company; the responsibility for the cultural and heritage aspects should be transferred to Dún Laoghaire Rathdown County Council and consideration given, on commercial and economic grounds, to merging Dún Laoghaire Port Company and Dublin Port Company to become the Dublin Bay Port Company focusing on fast craft business;

Company Response

  • The maintenance of Dún Laoghaire Harbour has for many years been funded from the commercial activities of the Harbour Company and its predecessors the Dept. of the Marine and the Board of Works. If its internationally important cultural and heritage assets are to be transferred to local authority ownership, it is important that proper provision is made for the long-term maintenance and conservation of these facilities.

    The Dún Laoghaire Harbour Company revenue from its commercial activities will be over €10million in 2003. After the payment of rates and taxes, all of this money will be used to fund the maintenance and development of the harbour including its heritage assets. Dún Laoghaire Rathdown County Council does not have the funds to maintain the Harbour without recourse to higher commercial rates, a course of action, which, will be strongly resisted by the local business community.

    An unwanted consequence of the merger of Dún Laoghaire and Dublin ports could be the funding of the future development of Dublin from Dún Laoghaire's commercial revenues at the expense of deterioration in the fabric of Dún Laoghaire Harbour's internationally important heritage assets.

  • A merger of Dún Laoghaire and Dublin's commercial port activities can only be justified if it will increase competitiveness, efficiency and profits. The report does not give a justification for the merger on any of these grounds.

    Dún Laoghaire and Dublin compete for roll-on roll-off freight, accompanied cars and passenger traffic on the Central Corridor. The report does not explain how the merger of the two ports will increase competition. In the absence of any explanation it is logical to assume that consolidation will reduce rather than increase competition.

    The profitability of Dún Laoghaire Port compares favourably with the other major ports. In the last five years operating profits at the Port have grown by a compound average of 12%PA. Most of this profit growth has come from the development of the Port's non- shipping activities. Non-shipping revenue has grown at an exceptional 38% compound PA and is expected to exceed €2.5 million in 2003. This figure, which compares favourably with the total turnover of some of the other major ports, has been generated from marine leisure and parking revenues and from the profitable development of the ports property assets. There is considerable scope for further growth in non- shipping revenue in future years. However, the momentum could be lost in a large merged port organisation where the main focus would have to be on the growth of shipping revenues.

    A point, we believe has been missed by the authors of the report, is that business profiles of the two ports are diverging at an accelerating rate, as a result of the continuing growth of Dún Laoghaire's non-shipping revenues, and, as a result, the synergies and consequent cost savings arising from any proposed merger are minimal.

    Dún Laoghaire Port has a lean management structure consisting of a Chief Executive, a harbour master, an operations manager and a maintenance manager. Most of these positions would have to be maintained in any merged structure. The Port also has a loyal and committed staff, which has cooperated fully in its profitable growth and development in the years since it was corporatised. Staff numbers in this period have been reduced by 25% on a voluntary basis. Further significant staff reductions are not envisaged and are not likely to be given additional impetus by the proposed merger of the two ports. Savings in wages and salary costs are not therefore likely to be significant if the two ports are merged.

    The report expresses concern about the future viability of Dún Laoghaire Port after the current operating agreement with Stena Line terminates in 2006. This comment ignores the significant strides that have been made by management to diversify away from the Port's dependence in the past on shipping revenue. It is also relevant that negotiations with Stena Line on a new operating agreement are already well advanced. The guiding principal of the negotiations, which has been accepted by both parties, is that any new agreement should be profitable for both parties.

  • The growth and development of Dún Laoghaire Port has been restricted by poor road infrastructure in the vicinity of the port. The report seems to be suggesting that Dún Laoghaire should be used for all fast ferry traffic. If this should happen without a significant upgrade of the road infrastructure, the consequences would be a significant deterioration in the quality of life for people living in Dún Laoghaire and its immediate hinterland.

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Addressing Environmental Matters - Report Recommendation

  • In addition to the normal procedures, there should be regular meetings of interested parties, e.g., port management, Departmental Commercial Port staff and Coastal Zone staff, relevant state and non-governmental agencies to discuss how environmental matters should be addressed and progressed; Company Response: We would welcome the creation of a forum for the discussion of environmental issues.

Company Response

  • We would welcome the creation of a forum for the discussion of environmental issues.

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Follow up Studies - Report Recommendation

  • The Department should commission further studies:
    1. In the interests of ensuring the future viability of the commercial ports sector consistent with the recently published National Spatial Strategy, it may be necessary to initiate a study into the identification of which port companies should be merged, the steps to be taken to effect the mergers, the financial and other implications of such mergers and the timetable within which the mergers would be expected to take place;
    2. There should be a benchmarking study of the financial and operating performance of Irish ports vis-à-vis relevant counterparts in the UK and mainland Europe.
    3. There should be a ports' costs study.

Company Response

  • We would support the commissioning of the additional studies recommended. In the case of port mergers, in particular, insufficient justification is provided in the body of the report to justify an immediate implementation timetable.

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Additional Company Information

Port Review Letter

"Responding to your request for the views of the commercial port companies in relation to the findings contained in the report of the High Level Review of State Commercial Ports and the report of the Port Estates Task Force", view the whole letter here.

Port Estate submission

The strategic plan of each port must take account of the full economic role of the port and must be framed within a long-term strategic plan for the sector. The forthcoming publication of the National Spatial Strategy should be used to inform the definition of these roles. View the whole submission.

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