Port infrastructure is getting a boost from new investment

Capitalising on their strategic position on South America’s Pacific coast, Peruvian ports have consistently played an important role in the country’s economy. Essential to connect mining exports with international markets, ports have seen their participation in international commerce expand as economic growth has raised the level of exchanges over the past decade.

From 2011 to 2013 the cargo moved through Peruvian ports has increased from 81.8m tonnes to 92.1m tonnes, according to 2013 statistics by the Ministry of Transport and Communications (Ministerio de Transportes y Comunicaciones, MTC).

Growth & Capacity

Despite positive signs of economic expansion driven by a natural resources boom, this growth in the amount of cargo handled has strained port capacity in most facilities. Authorities expect to reverse this with scheduled investment in ports already under concession, as well as through new concession contracts expected to revitalise ports in other economic centres across Peru. With 92% of international trade going through ports, growth is both dependent on and has a direct impact on port capacity.

Besides rising economic performance, strategic industries will also feed into port traffic. The mining sector is to receive $60m of investment to develop several production areas over the next decade, especially in the Cajamarca region. Concurrently, expansion work is under way at nearby ports of Paita and Salaverry to enable them to handle the rise in traffic.

Star Performer

The Port of Callao, close to the capital Lima, remains the most important port, receiving 72% of the 4550 vessels that went through Peruvian ports in 2013. In the first three months of 2014, container traffic at Callao rose by 36%, compared to the same period the previous year.

“No other capital in Latin America has the advantage of having a port in the city. Furthermore, it is a port that can operate 365 days a year because of natural conditions protecting it. Around 70% of the country’s economic activity passes through Lima, which is a great advantage for the port,” César Venegas Núñes, executive director of the Peruvian section of Business Alliance for Secure Commerce, an international organisation focusing on trade security, told OBG.

The port is divided into two sections: a northern one under concession by APM Terminals, and a southern section managed by DP World. Both private operators have invested heavily in modernising port equipment, as demanded by the contracts and as a way to make operations more efficient. APM Terminals is currently investing $30m to equip its concession with 13 post-Panamax cranes, which will allow it to receive vessels carrying up to 16,000 containers. The four initial cranes were installed in mid-2014, with the remaining nine on schedule to go up by early 2015.

This is part of a five-phase, $800m expansion plan and includes new equipment, handling space and port dredging. After completion of the two initial phases by 2015, representing an investment of $365m, handling capacity is to rise from 900,000 twenty-foot equivalent units (TEUs) to 1.6m TEUs. DP World invested $6m in 2013 to acquire three new portico cranes and raise the number of total cranes in its concession to 21.

“The greater potential of the Port of Callao is not to be a trans-shipment hub, but to become a ‘gateway’ port connected to smaller ports in the country and the western parts of Brazil, Bolivia, northern Chile, Ecuador and Colombia. However, this will require a lot of investment in infrastructure to ensure connectivity,” Gerard van den Heuvel, CEO of DP World, told OBG.

“The size of the Port of Callao makes it an interesting alternative as a regional hub, and in order to achieve this we need to work on making it more efficient and lowering costs to make it more attractive,” Alvaro Galindo Neumann, executive director of port holding company Tramarsa, told OBG.

Storage Space

Callao’s success, coupled with the urban expansion of Lima, has constrained the infrastructure of the surrounding areas. Transporters using the port thus rely on a network of warehousing and logistics areas in the vicinity. This has had an impact on the number of movements needed to ship cargo, taking a toll on local roads and neighbourhoods, with intense traffic from trucks moving to and from the port. “Additional services that complement port activities to provide a good logistics chain are not expanding correctly to support the growth happening in the ports,” Ivana Llaque, project manager at the investment promotion division for airports and ports at investment agency ProInversión, told OBG. “Currently, there are some dry port areas that are private operators. But they are not all centred in the same place in order to generate the necessary efficiencies.”

To resolve the issue, the MTC is putting together a concession plan to develop new handling space close to the port. The plan consists of allocating land that is part of the Peruvian navy’s base next door, to develop a logistics area to serve the port. The concession-holder will structure the 33.5-ha area with logistics services and operate it for 30 years. More space would be needed long term, but authorities recognise that this is a step in the right direction to help ease congestion.

Tender

The tendering process for the proposed “Logistics Platform and Truck Parking and Service Centre” is under way, with the winner to be announced by July 2015. Total investment of $100m is expected, and the operator awarded the concession will have to relocate some of the navy buildings in the concession area to another part of the base, as requested by the navy.

Despite its advantages, the new logistics area will create other challenges. Although close by, the new zone will have no direct access to the port. One option being considered as a solution is building a road overpass to link the port to the new logistics area. This would increase the cost of the project, with the MTC estimating the elevated road would need an investment of some $400m. Authorities are considering whether to supply the full investment needed or to co-finance it.

Salaverry Concerssion

Additional port infrastructure is expected to be tendered in the coming months. The MTC has already received two specific proposals to operate the Salaverry Port in the Libertad region, under a 30-year concession deal. The first proposal was presented in 2012 by Consorcio Transportadora Salaverry (CTS). However, the proposal was exclusively focused on developing the port for mineral exports. The MTC required that proposals to take over the port include a comprehensive infrastructure revamp, encompassing a terminal for mineral exports as well as development of a container handling area and a bulk cargo zone. The biggest challenge for managing the port will be maintaining the necessary depth, as sand accumulation in the area requires regular dredging.

CTS restructured its initial proposal, designing an offer with an investment of $470m over the 30-year period. The initial investment phase, valued at $220m would include building a new dock and two new terminals, one for container handling and a second one for mineral exports, keeping the existing terminal for bulk cargo. CTS has also announced that its concession plan would be fully self-financed, without need for additional co-financing by the Peruvian government.

The second offer for Salaverry Port is by Andino Investment Holding (AIH), the Peruvian infrastructure developer already in charge of the Port of Paita and recent winner of the concession to build and operate the new Chinchero Airport in Cusco. The AIH offer, valued at a total investment of $430m for the 30-year period, focuses on positioning Salaverry as a feeder port for ports further north, in Colombia and Panama.

Investment would be divided into five phases, with the operator committing $107m initially to dredge the port, renovate equipment on the existing terminals, as well as develop a warehousing space for grains and a container handling area. AIH’s offer also factors a certain amount of co-financing from the state to help support the periodic dredging work required.

Award Process

Both these proposals were filed under the private initiative law in September 2014, and Peru’s National Port Authority (Autoridad Portuaria Nacional, ANP) has to wait three months for any additional proposals. If other offers do emerge, the ANP will request that ProInversión launch a tender for the competing offers. If a third proposal does not appear after the three-month period, APN will decide which of the initial two proposals wins the concession.

In the meantime, investment is going into other ports. In the north-west, the Port of Paita is set to receive a $170m revamp. The first phase of the investment programme, valued at $156m, was concluded in September 2014. This included purchase of two new cranes, a new container area and a 300-metre dock. The port has been managed by a consortium made up of AIH and Portuguese contractors Mota Engil since 2009.

Port concessions have proved that the privatisation model, if well applied, can effectively raise competitiveness of strategic infrastructure. By aligning private management of public facilities with commitments by concession-holders to invest in its modernisation, authorities might be able to improve service level at other ports that are still under public management.

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The Report: Peru 2015

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