Ports 2.0: A wave of investment and debate on the horizon

With investment of around US$900 million in the main terminals in the north and center of the country, and plans currently in the design or approval stages for a further US$600 million, the port sector is undergoing a renovation phase in which ideas such as the Puerto de Gran Escala large-scale port in the central region are resurfacing. In turn, this is stimulating a new debate on the real capacity required to fulfil the needs of the country.

By Fabiola Venegas

Following a decade in which focus was on the consolidation of projects launched under the process of private capital incorporation between 1998 and 2007, Chilean ports are once more the stage for major investment. This phenomenon comes in response to the international-trade related challenges facing the country, as well as those concerning internal connectivity, transport and logistics.

Investment in expansion, led significantly by public and private terminals, totals almost US$900 million and is concentrated on the ports of San Antonio, Valparaiso, Arica and Iquique. In addition to this amount, future plans have already been submitted to distinct means of approval which total over US$600 million of further investment.

These figures demonstrate the extent of the commercial reactivation of the port sphere, and this has been confirmed by the trade associations of not only this sector, but also those related to infrastructure. Accordingly, certain concrete projections have been devised for the medium term: the Cámara Chilena de la Construcción (Chilean Chamber of Construction), or CChC, estimates that the total value of projects undertaken from 2016 to 2020 will reach US$1.725 billion, while the latest evaluation of the Cámara Marítima y Portuaria (Maritime and Port Chamber), or Camport, sets the figure over the same period at US$2.109 billion. It should be noted that these projections are subject to modification due to the upturn in the current quarter.

The current dynamism of the industry has revived the major strategic plan which aims to elevate Chile to the status of a leading player in global trade: the Puerto de Gran Escala (Large-scale Port), or PGE. The technical studies into the future construction of the PGE have reactivated interest from the leading port companies Empresa Portuario San Antonio (EPSA) and Empresa Portuario Valparaiso (EPV).  The PGE, also known as the ‘megaport’ of the central region, has garnered preliminary investment projections of US$2.4 billion.

The scale of the development, approval and design plans of the megaport have stimulated debate between authorities and experts on several issues. These include: the magnitude of the port infrastructure gap in Chile; the level of urgency to expand quaysides to attract the vessels that dominate global shipping routes and which are capable of transporting containers of 12,000 or 15,000 twenty-foot equivalent units (TEUs), which are containers measuring 6.1 meters in length and 2.4 meters in width; and the relationship between service quality in Chilean terminals and current gaps in terms of enhancing efficiency through improved management, prior to engaging in extensive investment.

The race between San Antonio and Valparaiso

The epicenters of sector-wide plans and investment are the large ports located in the country’s central region. In San Antonio, combined investment totals US$700 million from resources injected by various concessionaires. This is the case for the company Puerto Central, a firm linked the Matte and Angelini Groups, which has invested US$480 million in a 700-meter wharf at the Costanera Espigón quayside. Similarly, the company San Antonio Terminal Internacional (STI), controlled by the Luksic Group, has extended its wharf to a total of 930 meters, incorporating eight cranes via US$100 million of investment. “This project expanded our loading capacity by about 1.6 million TEUs”, says José Francisco Iribarren, General Manager of STI, a company which, in conjunction with the State-owned EPSA, has invested a further US$40 million to dredge the port in order to consolidate its depth at 16 meters.

The private sector has also invested significantly in the neighboring port of Valparaiso. The concessionaire Terminal Pacífico Sur Valparaíso (TPS), which is linked to Ultramar, concluded the extension of its wharf to 740 linear meters, enabling it to handle two container ships of 325 meters in length. “TPS has already invested US$100 million to increase its ship-handling capacity, although it continues to pursue investment projects, the most recent of which will include the addition of three new cranes in 2018 at a value of US$25 million”, says Oliver Weinreich, General Manager of the company. He also points out that operating capacity has been increased by 18%, to 1.3 million TEUs. Further growth in Valparaiso will be overseen by the company OHL, which has submitted a second supplementary appendix for its Estudio de Impacto Ambiental (Environmental Impact Study) in order to undertake a large-scale extension project via investment of US$500 million.

Both ports have also opened up a joint front related to cruise ships. Traditionally, the cruise industry has been located in Valparaiso but this changed in April 2017 when San Antonio welcomed 1,700 passengers from the cruise liner, Norwegian Sun. The cruise ship docked in San Antonio due to problems experienced during disembarkation as a result of striking port workers in Valparaiso port in March. As a result, for the 2017-2018 season, six companies took the decision that their international cruise ships would dock in Puerto Central in San Antonio as of October 2017, generating new expectations in the city. “We have certain competitive advantages, we want passengers to feel at home with our facilities and services, and would like them to return here next season”, says the Mayor of San Antonio, Omar Vera.

The move by Puerto Central produced a response from EPV in Valparaiso. Last month the company committed to devising an international tender for a specialized cruise liner terminal over a period of two and half years, and is open to the possibility of the municipal government participating in its management. Similarly, OHL approved the injection of US$1 million to the concessionaire, Terminal Cerros de Valparaíso (TCVAL) to improve the services provided to passenger ships. “Valparaiso is undergoing its own process of renovation, opening itself up to new initiatives such as the terminal for exclusive use by cruise ships, which will greatly impact the local and regional economy”, states the Mayor of Valparaiso, Jorge Sharp.

This two-city rivalry is expected to continue across all the key strategies that are targeting the development of Chilean ports, most especially in terms of which one will host the PGE megaport. Both EPSA and EPV have, at different rates, reactivated their technical studies into the future construction of this megaport, which is envisaged to meet the handling demand of 6 million TEUs projected to 2030, according to the Ministerio de Transportes (Ministry of Transportation).

While the government finalizes its decision on the location of the PGE, both port companies are rolling the metaphorical dice. More significant progress in this regard has been made by EPSA which has invested CLP$9.5 billion in preliminary studies prior to it tendering its detailed engineering plans in 2018, in parallel with awaiting the outcome of the passage of the Environmental Impact Study which is due for completion by the end of this year. If this timeline is fulfilled, the company proposes to be ready to begin construction on the first phase of the required mole in 2019. This would involve the construction of two intermodal and semi-automated terminals which, in conjunction, will have an annual handling capacity of 6 million TEUs and total investment of US$3.366 billion. Reception of the first vessel would be scheduled for 2026.

“We are designing a world-class infrastructure project with high standards of innovation and various distinctive elements”, declares the President of EPSA, José Luis Mardones. In turn, the perspective from the Municipality of San Antonio is explained by Christian Ovalle, the Local Planning Secretary, who foresees the megaport as including eight berths and with the capability to transport 30% of its cargo via railway.

Alternatively, the EPV proposal for developing the PGE includes as 2,216-meter-long mole, three berths of more than 367 meters in length and public-private investment of US$1.495 billion in a first phase planned to 2026, followed by a further US$614 million in a second phase.

Beyond the individual PGE proposals of each port, the activation of this initiative has placed several aspects in the spot light, including what the optimum timeline should be and how exactly the development should coincide with the needs of the country.

The opinion of TPS is that Valparaiso and the wider region genuinely needs the megaport, especially given the rising demand expected in the future. With an estimated annual growth rate of 8%, the PGE is a key requirement to 2029, according to the company. Consequently, “we have outlined the importance of driving the large-scale Yolanda Terminal urban-port project, which is the Valparaiso Puerto Gran Escala, as a way of maintaining the competiveness with which the port has been characterized in recent years”, states Weinreich.

The operating company at San Antonio, STI, explains that the ports in the V Region are currently operating at 45% overcapacity, which is why there is still a significant gap in terms of defining the characteristics and optimal time for driving the PGE. “Priority has to be given to improving the connectivity and complementary infrastructure of the terminals”, says Iribarren. As such, EPSA predicts that container demand will exceed the maximum capacity of the ports in the V Region by 2026.

Regarding the location of the PGE, the former Minister of Public Works and General Manager of the Consejo de Políticas de Infraestructura (Infrastructure Policies Council), Carlos Cruz, stresses the urgency to accelerate the development of the megaport while also emphasizing the need to execute the project in coordination with the proposals from San Antonio, Valparaiso, and even the facilities at Quintero-Ventanas.

The most important point, he states, is to consider alternatives such as “reinforcing the idea of what the PGE port can generate, and then seeing how this relates to future developments that may arise in Valparaiso, without the need to enter into further conflict”.

This debate is accompanied by the ongoing initiatives in the northern ports (see Snapshot), with projected investment of US$4.39 billion between 2016 and 2025 in the northern region, according to estimates from the portfolio of global port projects from CChC.

The big definitions

The dimensions of the megaport and the decisions implied therein point directly to public policy. While the Mayor of Valparaiso, Jorge Sharp, maintains that a project of this magnitude “must follow the path laid out by a national strategy that does not yet exist”, Cruz underscores the need for a presidential advisory council “to devise converging policies that provide Chile with the infrastructure capacity it requires to resolve ongoing logistics challenges”.

In terms of the progress achieved from a “global and shared” perspective “with multiple actors from across the sector”, the Subsecretario de Transportes (Undersecretary of Transportation), Carlos Melo, says that his ministry has laid the foundations for “a set of objectives that require work in several areas, including defining an institutional and regulatory framework to organize the overall system; incorporating logistics into territorial planning; adapting the current role performed by State-run port entities; developing a city-port relationship that generates shared value; promoting efficiency and innovation in the logistics sector; and enhancing employment conditions”.

In light of its direct operational relationship with the port system, the Asociación Logística de Chile (Chilean Logistics Association), or ALOG, raises the need to establish a “specialized technical body with powers similar to those of a ministry, to ensure consistent public policy over the long term that is founded on the participation of all involved actors”, says the General Manager of ALOG, Cynthia Perisic.

Meanwhile, Camport warns that the national logistics system is stagnating and that the response requires “providing public institutions with the sufficient regulatory powers, including the ability to oversee progress, along with the right amount of flexibility to incorporate the prevailing dynamism from the sector”.

The importance of competiveness

A crucial factor for authorities and experts is determining the correct moment in which to initiate future port investment, based on the real margins related to system capacity and the related levels of efficiency and service. In this regard, the International Transport Forum, an Organisation for Economic Co-operation and Development body, predicts that the increase in global cargo transportation will occur primarily in the shipping sector, which will constitute 85% of all freight movements. Furthermore, in a context in which the country transports more than 90% of its cargo via ports, Chile ranks second in the region in the Logistics Performance Index of the World Bank, after Panama.

All indications point to a steadily growing demand for port services. This is demonstrated by the increase in Chilean imports and exports by 11.6% and 8.0%, respectively, during the second quarter of 2017, as compared to the 2016 period, according the Banco Central de Chile (Chilean Central Bank).

“The global movement of cargo is set to rise, primarily in shipping, and Chile is achieving efficiency levels similar to very high performing countries. However, not much more can be done in terms of improving efficiency due to structural issues”, argues Carlo Piaggio, Infrastructure Manager at CChC. His argument coincides with the viewpoint set out by the Comisión Estrategia 2030 de Puertos y Logística (Commission for the Ports and Logistics Strategy 2030) which warns that, although the national port system has been able to confront increasingly demanding global competition due to its efficiency levels, “this has limits”.

“We should not wait until there is a capacity deficit to start the planning process” says the former Undersecretary of Transportation during the government of Sebastián Piñera, Gloria Hutt. She adds that there is evidence that the country will experience an infrastructure deficit by 2020 and that this narrowing gap is already affecting the competitiveness of Chilean exports and indices. In addition to emphasizing that investment initiatives by ports and concessionaires are well underway, she states that logistics efficiency “requires the anticipation of the capacity of wharfs and quays, as well as the internal and external workings of the system in general, by ensuring the provision of additional support areas in line with the model of the Sistema Integrado de Comercio Exterior (Integrated System of Foreign Trade), since this is the future of the ports”.

One approach that is less focused on the rate of investment and more on how to unblock the “bottlenecks” that undermine service efficiency is the one put forth by Camport. Accordingly, the Chamber, which is presided over by Daniel Fernández, warns that the current gaps in port terminals “are creating lost opportunities due to the lack of access capacity. With good management and improvements to existing terminal infrastructure, it would be possible to meet the demand over the coming years, while also making plans for the required future investment”.

The challenges facing Chilean ports are as varied as the possibilities for future improvements. To ensure progress is achieved, all actors agree on the need to unite the logistics-port system under a new institutional framework based on common regulations and designed with users in mind.

Competition from the north

Recent months at ports in the I and II Regions of the country have been as equally dynamic as those at their counterparts in the V Region. These northern ports operate in the context of the large-scale transportation of minerals and cargo from Bolivia, for which the Chilean terminals account for 50% of the total, handling 2.1 million tons with a value of US$2.8 billion in 2016, according to data from the Instituto Boliviano de Comercio Exterior (Bolivian Institute of Foreign Trade). In this context, the Chilean State-run company Empresa Estatal de Iquique is investing in redevelopment work to enable the arrival of the latest generation deep-water vessels. This includes injecting US$15 million to reconstruct the mole at Terminal 1 that was damaged in the 2014 earthquake, in addition to a similar investment amount for the construction of 100 meters of wharf that is due for completion this year.

Similarly, Terminal Puerto de Arica (TPA), the concessionaire linked to Ultramar, has invested US$120 million to modernize its facilities since the beginning of its contract in 2004. This has enabled the company to increase its handling capacity from one million tons of cargo a year to three million tons, 80% of which is to and from Bolivia.

In the II Region, Complejo Portuario Mejillones (CPM), a subsidiary of Codelco, plans a large-scale development that includes the construction of a new port for bulk carrier vessels and a logistics and services area. The investment plan of US$114 million is expected to transform the bay into a logistics platform and the first phase of construction is scheduled to begin towards the end of 2018.

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