On 3 June 2016, the Government of Timor-Leste signed an agreement with Timor Port S.A. granting this company a 30-year concession to design, co-finance, build, operate and transfer back a new international container and cargo port at Tibar, around 12km to the West of Dili.
When it is completed in about four years’ time, the new Port will turn into reality an important element of the vision contained in Timor-Leste’s Strategic Development Plan 2011-2030. The Tibar Bay Port project is being implemented as a Public-Private Partnership, or PPP, meaning that the private partner, Timor Port S.A., is engaged over the long run not only to build the infrastructure but also to provide a public service (operating and maintaining the Port).
Timor Port S.A., the concessionaire, is a company registered in Timor-Leste that is owned by the Bolloré Group, a French company specialized in port concessions and logistics. The concessionaire was the winner of an international competitive bidding process led by the National Procurement Commission in accordance with the highest standards of professionalism and integrity, which included a pre-qualification stage based on proven technical and financial capability.
The new Port: an urgent necessity
Dili Port has become an economic bottleneck due to its many limitations, which include an inadequate layout, draft limitations that restrict access by larger vessels, no available land to extend the port and road congestion within Dili.It is already the case that ships often have to spend several days waiting before they can unload their cargo, which creates substantial delays and significantly increases costs –ultimately implying higher costs for the final consumers in Timor-Leste. This problem will continue to get worse as traffic continues to grow – between 2006 and 2014, container traffic in Dili Port increased by more than 200%. While efficiency improvements are still possible in Dili Port, this can only be a temporary fix given the limitations to the expansion of a port in the middle of the city. Moreover, moving container and cargo traffic outside the city will free up Dili Port for passenger traffic and recreational uses, giving back the waterfront to the city and its inhabitants.
A Port to serve Timor-Leste for many decades to come
Tibar Bay Port will be a state-of-the-art port with a 630m-long berth (compared to 289m at Dili Port) and the equipment to ensure quick and efficient movement of containers and cargo (including ship-to-shore gantry cranes). The new Port will be able to accommodate much larger ships than Dili Port (maximum vessel size will be 3,500 TEU initially and 7,000 TEU by the end of the concession period), which will allow for savings in freight costs which will ultimately mean lower consumer prices. The capacity, and the design specifications, are such as to ensure that the Port will be able to serve the country for many decades to come, well beyond the 30 years of the concession period.
The advantages of implementing the Port as a PPP
Implementing the project as a Public-Private Partnership makes it possible to bring the experience and know-how of a world-class port operator to Timor-Leste, introducing innovation, fostering operational efficiency and providing a better service to the public. It enables the Government to shift some major risks to the private partner, including the risk of construction delays (the concessionaire will have to pay penalties for each day of delay), cost overruns (which will be borne entirely by the concessionaire) and failure to meet performance indicators (which will also give rise to penalties). It also creates the right incentives: because the concessionaire will both build the port and operate it, they will be incentivised to build the port to a very high quality standard so that they will themselves benefit during the operations phase. Finally, implementing the project as a PPP will make it possible to bring to Timor-Leste what will be the largest private investment to date in the country, sending a signal to other investors that Timor-Leste is an attractive place to do business.
The cost of the project and who will pay for it
The capital investment during the construction phase will be $278.3m, of which $129.45m will be funded by the Government and 148.85m will be borne by the concessionaire. Over the 30 years of the concession, it is anticipated that the concessionaire will be required to make additional investments totalling $211m (in additional equipment and in maintenance and expansion works) in order to keep meeting its performance indicators. These $211m will be exclusively funded by the concessionaire, at no additional cost to the Government. Of the total expected capital costs during the construction and operation phases of the concession, the Government will fund 26% ($129.45m) while the concessionaire will fund 74% ($359.85m). In addition to that, the concessionaire will bear all the operating costs on its own. In return, they will be allowed to charge a regulated tariff from the users of the port (shipping companies) during the life of the concession.
A financially-viable project for the Government, an economically-viable project for the people
A detailed cost-benefit analysis was conducted early in the project that found the new port to have an economic rate of return in excess of 20% even for conservative traffic forecast scenarios. This is due to the large social and economic benefits associated with the project, including the avoided delays and diversion costs that would quickly escalate if a new port was not built; the significant savings in freight costs resulting from larger vessels calling at Tibar Bay Port; the employment- and income-generating effect induced by the expenditure; and the social and economic value of freeing up Dili Port for other uses. It is estimated over 500 jobs will be created during the construction phase, of which the large majority will be for Timor-Leste citizens and permanent residents. Total terminal staff during the operations phase will start at around 300 and gradually increase to more than 600 over the concession period. The direct financial returns for the Government will include a royalty fee per container and per tonne of bulk cargo; navigation and dockage fees as a function of the number and size of the vessels; and the tax returns from the operation – in addition to the value of the Port when it is handed back to the Government at the end of the concession period. These direct returns are estimated to give rise to a financial rate of return close to 10% on the Government’s investment, meaning that the project comfortably pays for itself from the perspective of the Government. Unlike what is the case in some other PPPs across the globe, there are no traffic, revenue or profit guarantees, nor any obligation of any kind by the Government to ensure the financial equilibrium of the concession in relation to a possible demand shortfall.
Addressing environmental and social concerns
A detailed Environmental and Social Impact Assessment will be conducted in the next few months which will build on the Scoping Study that was conducted prior to launching the project. It will include an Environmental Management Plan which will identify and establish a hierarchical series of measures to address all the impacts: first and whenever possible, avoid the impact; second, mitigate the impact; finally, offset any remaining impact which cannot not be avoided or mitigated. This will include measures to avoid, mitigate or offset any impacts on the livelihoods of fishermen using the area, as well as to resettle the 10 households that own huts and shelters within the site.