Limassol Port constitutes not only the main port of Cyprus but also the most eastern port of the European Union, located in a strategic location between three continents. With its transformation almost completed, it will probably be the one that will put the country in the map as one of the most important international transportation and logistics hubs in the Mediterranean.
In order to transform the Limassol Port into the safest, most efficient, competitive and contemporary port of the region, a multimillion – euro project was launched in 2014. The development was to be held in accordance with a subsequent commercialization process that would include the realization of an E.U. package of assigned targets and reforms in addition to the modernization of the port's operations and services.
As a first step to the achievement of these objectives was the commercialization of the port's activities, a task which was assigned to the Ministry of Transport, Communication and Works of the Republic of Cyprus, by the council of ministers and the House of Parliament, following a legislative vote. The two key priorities of the project according to the Permanent Secretary of the Ministry of Transport, Communications and Works, Alecos Michaelides, were to "maximize value to the government" and "attracting investment" in order to achieve long-term growth and creation of new working positions.
Two years later, the commercialization of the activities of the Limassol Port has been successfully finalized. Rigorous effort in line with a competitive, transparent and international tender procedure, which attracted the interest of renowned global port operators, led to the completion of the process, the selection of the operators and the signing of the relevant concession agreements.
The Concession Agreements
Cyprus has signed concession agreements with the consortium of EUROGATE International GmbH (majority participant), Interorient Navigation Company Ltd and East Med Holdings S.A. who received concession for the Container Terminal. Moreover, two separate concessions for the operation of Marine Services and the Multi-purpose Terminal were awarded to the consortium of companies DP World Limited (majority participant) and G.A.P. Vassilopoulos Public Ltd. The concession period for the Container Terminal is 25 years, while it is 15 years and 25 years for the Marine Services and the Multipurpose Terminal respectively.
Upon signing the agreement, the Permanent Secretary stated that "These consortia represent partnerships between strong, acclaimed international operators and local companies that will work together with the Cyprus Port Authority, in its new role as the Independent Regulator, to develop the activities and the assets of the Port. These contracts have essentially dawned a new era of development for Limassol Port".
Furthermore, the Cypriot Parliament, had given its approval, which involved a contract-signing ceremony that took place at the Presidential Palace in the presence of both government officials and the press on April this year. The Minister of Transport, Communications and Works, Mr. Marios Demetriades had characteristically commented that "The economy of the country has gained a new development pillar. The new era at the port of Limassol is beginning". He added that the state will have an income of 1.9 billion euro in proceeds and investments, in the next 25 years from the port's commercialization, exceeding the initial expectations of the government. According to reports, the government has additionally received a bonus of 10 million euro with the signing of the contracts.
Sultan Ahmed bin Sulayem – DP World, Mr. Demetriades – Minister of Transport, Communication and Works, Mr. Thomas Eckelmann – President and CEO, Eurogate and Mr. Alecos Michaelides, Permanent Secretary at the Ministry of Transport, Communication and Works (Source: ant1iwo)
In regards to the concession agreements, Mr. Michaelides has highlighted that the state retains the ownership of the Limassol Port, with the operators capitalizing on their experience and know-how to ensure the port's future development through the growth of the commercial activities and the implementation of the finest operational techniques. On a similar tone with the Minister, Mr. Michaelides said that the agreements are "not only a source of revenue, but they also upgrade Cyprus' role in the south-eastern Mediterranean by promoting it as an important regional centre of investment and maritime commerce in the area."
Sketching the Tender Process
The tender process itself constitutes an interesting aspect to delineate with its two-stage formula. Firstly, it was published in the OJEU Notice, the Official Journal of the European Union, the Cypriot e-procurement system and was promoted by the international press at the same time, in order to attract significant investment interest and media coverage. Stage one included the evaluation of the expressions of interest. The second stage invited the pre—qualified parties, which were formulated by taking into account personal, technical and financial criteria, to tender by issue. The tender submissions were upon evaluated on commercial and technical aspects using a pass or fail method.
The process was completed with the ranking of the successful tenderers/candidates in decreasing order as per their financial offers. In fact, the tenderer with the highest offer was announced as the preferred tenderer and assigned one for each lot, while the tenderer with the second highest offer was confirmed as the reserve bidder. The contracts were then finalized following a series of meetings with the preferred candidates, during which the concession agreements were customized and their tender submissions were put into contract. The financial structure of the agreements consisted of an advance payment, a minimum annual fixed fee and a revenue share.
The Transaction and Services Concession was designed by N M Rothschild & Sons in cooperation with legal advisors Pinsent Masons, along with support from their local partners while it was coordinated by the ministry. Additionally, the main advisory team was supported by KPMG, which carried out market research, insurance advisors and virtual data room providers. The total cost of the project, including advisory fees, was approximately €4.4m, in addition to the cost of the ministry's own resources, specifically the project team, internal administration and management during these two years.
It is expected that the transfer of the port's activities to the new operators will be completed within January 2017, which will also mark the end of the transition period. On another note, there has been a rapid progress regarding the Cyprus Ports Authority's regulatory framework upgrade and its transformation into a modern, independent regulatory body.
Mr. Michaelides stressed that "The journey towards the successful completion of the project involved an intricate process of asset definition and assignment, in addition to asset and services delineation. Also crucial was the introduction of the law amendments and new regulations, together with extensive public consultation and close cooperation with a wide range of government bodies, EU directorates and stakeholders" while he added that "The original timeline that we set out was met, which I think can be attributed to the close monitoring, effective project management, personal dedication and the professional work of the project team. I will also add that strong political will and support was pivotal in achieving the ambitious targets that we set out. In fact, the whole project has been characterized by excellent cooperation among all team members, both on the side of the ministry and of the advisory teams." The Permanent Secretary underlined the importance of the project by describing it as the second largest Public Private Partnership in Cyprus, following the construction and operation of Cyprus' airports.
In an effort to portray who the concessionaires involved in the privatization process are, we have taken a closer look at their activities and gathered information from several reports.
Starting with Eurogate Group, which is based in Germany, it is important to note that it is an independent operator of 11 container terminal stations from the Baltic to the Mediterranean Sea namely in Germany, Italy, Morocco, Portugal and Russia. It is a leading shipping line, independent container terminal operator in Europe with a total throughput of more than 14.5 million TEUs in 2015. A privately held company established in 1999 by the merger of the container activities of BLG Logistics Group AG & CO. KG, Bremen (Germany) and the container activities of Eurokai GmbH & Co KGaA, Hamburg (Germany). BLG Logistics is owned by the City of Bremen.
Next in order is Interorient, a global provider of marine transportation services, owned by the family of Adonis Papadopoulos and established in 1979. The company operates currently offices in Cyprus, Germany, Philippines, Latvia, Ukraine and Russia. Among its core activities are included the ship owning, ship management, shipping investments and commercial operations.
Furthermore, a company incorporated under the laws of Luxembourg as of 1988 as a Private Wealth Management company is East Med Holdings S.A. East Med holds shares in several companies operating in shipping, logistics and marine services. One of the main shareholders in East Med is D.C. Mouskos Holdings Limited which is 100% owned by the family of Mr. Demetris Mouskos.
Among the concessionaires, we find DP World, a company that plays an significant part in the global commerce, with its activities varying from terminal stations, to marine services, logistics and auxiliary services. The consortium includes DP World Limited and G.A.P Vassilopoulos Public Ltd. DP World is among the pioneers of global trade and an integral part of the supply chain. It has a portfolio of 77 operating marine and inland terminals supported by over 50 related businesses in 40 countries across six continents with a significant presence in both high-growth and mature markets. DP World has significant experience in operating and developing multi-purpose ports in the Middle East, Europe, Asia and the Americas, where the company's multi-purpose operations handled 15.6 mln tonnes of bulk/general cargo; 28 mln tonnes of liquids (oil and ammonia); almost 1 mln Ro-Ro units; and 800,000 passengers in 2014.
DP World, operates marine services through its subsidiary, P&O Maritime, a global provider of maritime solutions to governments and leading port operators, commodity traders, mining companies and oil and gas majors. The company operates a fleet of 140 vessels across the EMEA region, South America and Australia. DP World is a publicly listed company with 20% of its shares traded on NASDAQ Dubai.
Last but certainly not least is the G.A.P Vassilopoulos. The firm was established in Cyprus in 1964 and is listed on the Cyprus Stock Exchange. Its operation circle ranges in a diversity of services with noteworthy expertise in the transport and logistics segment.
Renewing Cyprus Economy
Perhaps the most important outcome of the successful commercialization of the Limassol Port is the overall dynamism observed in the Cyprus local economy. The magnitude of this project has been valuable in this process as it contributes significantly in shaping Cyprus image as a modern and secure investment destination. The Limassol Port has contributed to the increase of a variety of activities, including investment and maritime while it is expected to add further value once the plans for the creation of an oil and gas offshore supply base and terminal are completed.
What is more, earlier this year the Limassol Mayor, Mr. Andreas Christou, had invited energy giants TOTAL and ENI to move their onshore logistics facilities at Limassol's Port. It is true that Limassol has been in the centre of economic development despite the financial crisis and its port had indeed a substantial role on this. According to the Limassol Mayor, over € 100 million euro have been used on development projects, which we are planning to analyze in a future article. Christou stressed that despite a 35% budget cut within 2015, the public was able to enjoy the benefits of large projects such as Limassol's marina, the new port's passenger terminal and expanded quays, the waterfront park, the city's redevelopment and Garillis park. Major road works have also taken place in an effort to unite the coastal avenue with major traffic arteries.