One of the cardinal sins in the introduction of new port capacity is to deliver it before it is required. All the more so, if government has previously encouraged foreign direct investment into the same sector and it is clear that this has delivered adequate capacity for the long term.
The net result of this is the undermining of the original investment and its prospects of fair returns; the delivery into the marketplace of excess capacity which negatively impacts pricing; and – probably most damaging of all – sending out a signal to potential sources of FDI worldwide that the government will not necessarily act in the best interest of investors. Investor 1 basically becomes forgotten in the pursuit of the next tranche of money.
A good example of this type of situation is in Rijeka, Croatia where the government has recently launched a call for Expressions of Interest for its Zagreb Container Terminal. This project follows hot on the heels of the recent completion of an extensive investment program at the Brajdica Terminal Container Terminal, Rijeka, where the port authority has added a new deep water quay and related infrastructure, with an investment value of approximately E35m.
Image: Zagreb Quay scheme
International Container Terminal Services Inc, the newly appointed concession holder, has invested a further E30m in new ship-to-shore cranes, rubber-tyred gantries for yard operations, rail mounted gantries for intermodal rail operations and extensive terminal operating and other IT systems. In 2013, total container throughput at the terminal was in the order of 131,000 TEU and the terminal’s fully developed throughput capability is 750,000 TEU per annum.
With traffic now only increasing annually on a single digit basis in Rijeka it is clear that the introduction of a new container terminal platform will not be appropriate for many years to come. Further, the launch of the Zagreb Container Terminal project has a double irony to it in that container capacity in the Rijeka area is designed mainly to provide easy access to the Central and South East European countries such as Hungary, Slovakia, Southern Austria, Germany and Serbia, but while the roads are generally excellent in this respect the government has lagged behind in delivering on promises to upgrade the rail system to facilitate intermodal rail operations.
Block train services to Budapest and Belgrade have started to operate from the Brajdica Terminal and track upgrades are underway to ensure the competitive position of intermodal rail services from/to Rijeka. The commencement of third party private rail operators is underway but it is essential this process is fast-tracked as prescribed under EU law.
Part of the problem with the proposed delivery of the Zagreb Container Terminal appears to be that it is taking place in the context of the World Bank backed Rijeka Gateway Project, a program which has seen the institutional reform of the Port Authority of Rijeka in line with the landlord model and which in an infrastructure context basically aims to remodel the port-city of Rijeka.
The Zagreb Container Terminal is part of this program and its proposed development appears to be proceeding according to a timetable that takes no account of recent market developments and realities. Any new market study would inevitably suggest the need for a rethink in terms of this project’s timing. This, in turn, would avoid the unnecessary expenditure of tens of millions of Euros in basic infrastructure provision and at the same time have the major asset of proving that the Croatian Government is responsible in how it treats its foreign investors.
Given that Croatia, out of all the South East European countries, has been the country most seriously hit by the financial crisis in terms of FDI flows – it fell from $6bn in 2008 to $432m in 2010 – the country has every incentive to work on promoting its image regarding the successful realization of FDI projects. Undertaking the right studies to schedule projects is clearly an essential part of this.
Source: Port Strategy