Smooth Redemption Policy of Port Facilities in Case of Ocean Space Utilization

Abstract

The ports of the world are operated by port authorities. The systems for establishing port facilities are roughly classified into two types depending on their sources of revenue. In the first type of system (used mainly for channels, breakwaters, berths, etc.), the national/local government and the port authority share the cost of construction. In the second type of system (used for cargo handling facilities, reclaimed lands, etc.), the port authority alone raises funds through a port-related bond-financed project and issues bonds. One characteristic of such bond-financed projects is that the costs of operating the facility and redeeming the bonds are funded through usage fees for the ground and profit from the sale of reclaimed land. Port authorities now require a smooth redemption policy for bonds issued in the past. However, port authorities have found it difficult to choose between having to raise usage fees and land prices high enough to enable smooth redemption in bond-financed projects on the one hand and having to reduce usage fees and land prices to reinforce international competitiveness in port logistics on the other. Unless a solution to this problem is found quickly, the finances of port authorities may become even more constrained, given the rising trend in port construction costs due to the risks of disasters such as earthquakes and due to growing interest rates. This is because prior investments are required for the construction of port facilities that takes a long time (between 5 and 10 years) and usage fees and profits from the sale of land must be suppressed to low levels because of political pressure. This will lead to larger bond issues and therefore a greater necessity for a smooth redemption policy of port facilities in the case of ocean space utilization. The authors first describe the structure of port management in the world, and analyze the financial situation of port authorities. Next, the authors point out that as the capital, maintenance, and management costs of port facilities grow in response to large-scale natural disasters, which exceed existing assumptions, and other factors, port authorities are being forced to take measures to address this. Lastly, the authors argue that public incentive assistance to shipping companies and logistics companies can effectively address the conflicting demands of reinforcing international competitiveness, strengthening disaster restoration capabilities, and enabling the smooth redemption of bonds in bond-financed projects.