Why Port Authorities Should Become Active Business Partners
Traditionally, it has been the cruise lines that have initiated and controlled the development and operation of cruise ports throughout the Caribbean. Cruise Lines in need of improved Ports of Call sought out strategically located deep water ports and approached the appropriate government or port authority with development deals. These deals were based on land leases, berthing agreements, or a combination of both, furthering the objectives of the cruise lines over those of the host country.
New approaches to port development are changing the way in which port authorities are now viewing the wider opportunities for economic growth. These changes greatly affect what is and isn’t built in the Caribbean and who benefits from these developments.
The Cruise Lines’ “user” approach usually came with some strings attached such as exclusivity or priority berthing. Many deals came with long-term commitments and were put in place not only to provide for long term planning for the line, but also protected the market place from competition. A small or foreign cruise line found it difficult to enter the market as primary destinations were locked up in long term deal structures.
Many of these deals or berthing agreements left governments or port authorities in the position of landlord, but did not allow them full financial participation in the economic development brought on by this new expanding tourism sector. Previously, governments would seek out Cruise Lines as investors for port projects. Although many of these partnerships left the host country with an improved port and much needed infrastructure improvements, there was very little, if any, additional revenue shared with the Port Authority. Governments simply became long-term landlords with fixed fees, and the country as a whole benefited little from the earnings each time ships came to port.
Recently, we’ve seen this scenario reversed thanks to Public Private Partnerships (PPP’s) being developed in the region. Governments can now take an active role in what is being developed, and participate in the long-term benefits offered by the holistic port business model. These partnerships allow governments to protect the nation’s assets, improve tourism infrastructure, and share in a long-term revenue stream that previously would have been impossible. IDEA’s business model focuses on securing these types of PPP‘s with governments and port authorities. This is a key ingredient in our Design, Build, and Operate development approach.
For Caribbean island nations that don’t have access to large amounts of public funds to improve much needed infrastructure, PPP’s are the perfect scenario. Undervalued land holdings, usually old industrial port sites, can be contributed by the government to the project as equity; enabling the government to become a full vested partner in the development deal. Rather than purchasing or leasing the property, a PPP creates a long-term relationship between the landowner and the developer in a mutually beneficial business partnership. Infrastructure can then be built or improved to increase revenue opportunities on property the government owns and/or creates. The project can be financed as a joint venture where all parties’ agendas and long-term goals are aligned.
By engaging in partnerships that provide sustainable opportunities for their country, a Port Authority and government has the option to not just be a landlord, but participate directly in the long-term revenue stream generated by such projects. The financial future of many islands in the Caribbean now depends on the growth of sustainable tourism projects that will drive substantial revenue now and in years to come.
If you are interested in learning more about Public Private Partnerships in the tourism sector, please contact IDEA for more information.
