LESSONS FROM A SUCCESSFUL SECTOR UK PORTS AS AN EXAMPLE Report of seminar 180 held on 4th September 2013 Church House, London SUMMARY
SEMINAR PROGRAMME 09:00 Coffee & registration 09:15 Chairman's introduction Richard Everitt, Chief Executive Port of London Authority 09:30 UK ports: a strategic partnership government and industry Linda Willson, Maritime Commerce and Infrastructure Department for Transport 09:55 Regional planning authorities working adjacent to a major port 10:20 Discussion 10:40 Coffee 11:10 Financing and developing ports Philip Ridley, Head of Planning and Coastal Management Neil Valentine, Senior Loan Officer Transport Division Lending Operations in Western Europe 11:35 The journey for Liverpool2 Graeme Charnock, Chief Financial Officer 12:00 Discussion 12.25 Chairman's closing Richard Everitt, Chief Executive comments 12:30 Lunch 13:45 Close Suffolk Coastal and Waveney District Councils European Investment Bank Peel Ports Group Ltd Port of London Authority 2
KEY CONCLUSIONS PURPOSE Whilst some major projects continue to suffer delays or increases to their costs, the maritime ports sector in the UK has witnessed significant investment in new developments, upgrades and key infrastructure. This seminar sought to learn those lessons which have contributed to these successes and to learn what could be transferred to other sectors to mirror that progress. KEY MESSAGES Unlike the concentration of a relatively small number of megaports on the near Continent, in the UK we have a large number of ports of varying sizes distributed around the coastline. Hence investment is scattered and sometimes ports in the UK compete with each other. Because of long lead times, risk quantification and apportionment is a big issue. Government has lots of good policies which provide stability, but all (private) projects have to be business driven. Whilst there is a National Policy Statement for ports, other relevant ones are needed e.g. for road and rail. There is a laissez-faire approach to ports in the UK, although the industry does prepare well. Taking marine transported goods as close as possible to their destination reduces road mileage this is attractive to the European Investment Bank, although the minimum project size for the bank is 150 million. Commercial banks no longer want to fund projects beyond five years. KEY LESSONS Ministerial commitment is critical for cross-government working and to optimise public/private contributions. Local bodies (including the planning authority) should work together. This can best be achieved when there is a common goal, such as desired growth at Felixstowe. This cooperation can even cover budgetary issues like business rates. For private ports investment, use was made of an independent project adviser role with reviews every six months. Capital costs and outcomes should be allowed to move in line with newer evidence. Future-proof investments, especially with the arrival of much larger ships in the near future. Take people into your confidence to pull everyone together in times of need: right people, right relationships. These are the views of Malcolm Noyce, Executive Director, MPA 3
INTRODUCTION The half day event began with an overview of the ports sector in the UK, and provided context for the presentations and discussions that followed. This introductory session was given by Richard Everitt, Chairman of the Port of London Authority, who chaired the morning s proceedings. The different ownership structures were outlined, and it was explained that whilst the UK s ports are predominantly privately owned, they also include municipal and trust ports. The overview went on to look at key features of the sector for example the goods and tonnages handled at the major ports. It was noted that the ports sector has a significant impact on the UK economy, a view supported by a recent study by Oxford Economics entitled The economic impact of the UK maritime services sector: ports. For example, about 120,000 people are directly employed in the UK, a 5% increase since 2009. UK PORTS: A STRATEGIC PARTNERSHIP GOVERNMENT AND INDUSTRY The first presentation was given by the Head of Maritime Commerce and Infrastructure at the Department for Transport. It looked at the development of ports from the perspective of central government, and reiterated the importance of the maritime industries both to the economy and to growth. It was explained that the Government s main objectives in relation to ports strategy are set out in the National Policy Statement on ports, which provides a clear regulatory framework. The policy statement also provides a range of information about developing the planning for a major project, and the requirements that government would want to see in place. For example, one of the key objectives is to encourage sustainable port development and cater for long-term forecast growth. The presentation went on to discuss the rationale behind the development of a strategic partnership between government and industry. The key goals were outlined, some of which are owned by government, some by industry, and some jointly; more detailed objectives are currently being developed. The goals all have the single aim of ensuring a thriving UK ports industry: keeping the UK supplied and connected, while protecting the environment. This shared cross-government and crossindustry understanding constitutes a platform around which ministerial-level round table meetings have been introduced. Another initiative is to improve cross-departmental planning, policies and processes for example between government departments, Natural England and local government associations. Looking to the longer term, a continuing clear and stable regulatory environment is vital, whichever administration is in place after 2015. The session concluded by looking at the importance of stakeholder input to port projects. It was stressed that it is essential to identify all the interested parties early on, engage with them effectively, and aim for an integrated plan going forward. 4
REGIONAL PLANNING AUTHORITIES WORKING ADJACENT TO A MAJOR PORT In the second presentation, the Head of Planning and Coastal Management for Suffolk Coastal and Waveney District Councils looked at the role of the regional planning authorities in meeting challenges faced by the port of Felixstowe. Felixstowe, which is privately owned, handles 40% of the UK s container traffic. The port has consent to expand further and improve its off-port facilities so that its customers can operate more efficiently in a competitive market. The world shipping business is now delivering ships 400 metres long and there is a need for the port to adapt to this. However, Felixstowe faces a number of challenges. For example, there is emerging competition from Southampton and London Gateway, both of which will benefit from investment in rail infrastructure upgrades announced in the latest government spending review. By contrast, as part of the planning consent, Felixstowe is required to deliver improved rail facilities at its own expense. In addition, the recent proposal to introduce a toll road on the A14 the major connecting road to the Midlands and the North could place Felixstowe at a significant disadvantage with the shipping companies and haulage industry that use the port. Felixstowe lies within the Suffolk Coastal District Council area, which is a lower tier planning authority within Suffolk County Council. It was explained that the role of the planning authority is to help to deliver the growth of the port and its associated businesses by looking beyond its boundary. The District Council works closely with the port, landowners, neighbouring authorities, the County Council and the Local Enterprise Partnership (LEP); this collaborative and joined-up approach, involving the public and private sector, is essential to deliver growth and ensure that competitive advantage is maintained. The presentation concluded with a look at the progress of strategy plans for the region, such as the New Anglia LEP plan for growth in Suffolk and Norfolk, and the Suffolk Coastal District Local Plan, which includes an area action plan for Felixstowe. FINANCING AND DEVELOPING PORTS In this session a member of the European Investment Bank s (EIB s) Western Europe transport lending team outlined the role of the bank, its ownership and governance, and its role in funding major projects. Owned by the shareholders the 28 EU Member States the overall aim of the bank is to promote European objectives and make a contribution to the Europe 2020 strategy. It was explained that EIB is a not-for-profit organisation. Dividend monies are accumulated on the balance sheet rather than being paid to the shareholders; this enables the bank to lend in a very costeffective way, generally at a cheaper rate than the commercial banks. Where possible the funding is matched to the economic life of the asset. Loans to the transport sector represent about 23% of total lending by sector, of which about 7% is for maritime transport. continued 5
developing continued Transport projects have to demonstrate satisfactory economic and financial returns. The presentation went on to describe EIB s project appraisal process and the eligibility criteria used to select projects in the maritime sector. Maritime transport fits into two EU priorities: Trans-European Networks (TENs) and climate change action. Ports play a role in both: as part of TENs, and in the mitigation of adverse climate change, for example by the use of sustainable transport for maritime cargo via rail and inland waterways. EIB is very active in the UK, lending some 4 billion per year across a wide range of sectors. In the ports sector it has recently supported long-term investments for London Gateway, the upgrading of container facilities at Southampton and for the new container facility at the port of Liverpool. The presentation concluded with guidance on obtaining EIB project approval for example, aim to have EIB board approval in place before starting commercial fundraising, and bear in mind it typically takes six months to obtain. THE JOURNEY FOR LIVERPOOL2 Liverpool2 is a deep water container terminal in the outer Mersey estuary which is due to open in the third quarter of 2015. The new terminal will enable 90% of the world s largest vessels to call directly at a centrally located UK port and distribution hub. This will give the end customer access to 65% of the UK s population within a radius of 150 miles. In this final presentation the Chief Financial Officer of Peel Ports Group outlined the various stages of the Liverpool2 project journey, and the strategic rationale behind the development. It was explained that the project has had a long gestation period, but in the past 18 months the business plan and the detailed design have been established, and funding has been secured. It was noted that 33% of containers end up in the north of England, but at present only 8% of those come through the existing port of Liverpool/Manchester ship canal route; 90% of deep sea volumes enter the UK in the South East. Liverpool2 will provide the opportunity to rebalance this, enabling Liverpool/Manchester to regain the volumes it experienced in the early days of containerisation. With ten motorways within ten miles of the port, much of the infrastructure is already available. In addition, the port of Liverpool and the Manchester ship canal are both part of the Peel Ports Group; this 44-mile green highway is a multimodal transport network linking water, rail and road, and connecting deep sea cargo with inland container hubs. The EIB has loaned significant funds towards the project, with the balance of the cost funded by banks, regional growth funding and internally generated funds. The presentation went on to outline some of the numerous permissions and approvals that were required as part of the planning and funding processes, and the timescale for construction. It concluded with an overview of some of the lessons learned to date, noting that more lessons will undoubtedly be learned as the project proceeds. 6
CONCLUSION In summing up the proceedings the Chairman said that what had come through during the event is the message that the ports industry is vibrant, and positioning itself for growth. He noted that issues for national and local government and other public agencies include the need for a coherent approach and a strategy for the sector. For example, the investment in major projects infrastructure, which the private sector is taking forward regarding access to and from the many ports, requires coherence in the consenting process. A key message for everyone in the major projects arena is early engagement, be it with the funders, the planning authority or the many stakeholders who have an interest in these investments. 7
PARTICIPATING ORGANISATIONS Bechtel Ltd Bircham Dyson Bell LLP British Ports Authority CJ Associates CMS Cameron McKenna LLP Chiltern Railways Copper Consultancy Deloitte LLP Department for Transport European Investment Bank Freshfields Bruckhaus Deringer Major Projects Association Mott MacDonald PA Consulting Group Parsons Brinckerhoff Peel Ports Group Ltd Pinsent Masons LLP PricewaterhouseCoopers Port of London Authority Suffolk Coastal and Waveney District Councils Risk Solutions Thales Group The Nichols Group Turner & Townsend URS Infrastructure & Environment UK Limited WMG: University of Warwick 8