New guidelines on the award of concessions for port-towage (part three and last)

Let’s continue and conclude, in this issue of our Shipping and Transport Bulletin, the analysis of the new guidelines on the award of concessions for port-towage issued in March 2019 by the Italian Ministry for Infrastructures and Transports [5].

In the previous issues of our Bulletin, we focused, in particular, on (i) the premises of the guidelines at issue, (ii) the procedural provisions for the identification of a concessionaire and the award of concessions, (iii) the information that the Administration must necessarily include in calls for tenders and – finally – (iv) the requirements to participate in tenders. In the end, we have introduced the tenders evaluation criteria.

It should be reminded that said criteria are set by the so-called "evaluation grids" attached to the guidelines and concerning the technical as well as the economic requirements of the aspiring concessionaire. In particular, the guidelines provide for a maximum score of 75 points to be awarded to the criteria for the evaluation of the technical offer and a maximum score of 25 points to be awarded to criteria for the evaluation of the economic offer.

The grids can be modified according to the specific needs of each single port, by way of example agreeing a different ratio between the "weight" of the technical offer and that of the economic offer, provided that - in any event - the contract is awarded in compliance with the criterion of the most economically advantageous tender.

So, let's examine - in a nutshell and without entering into the details of scores and calculation methods - the criteria for evaluating offers.

As far as the evaluation of the technical offer is concerned, the criteria set out in the guidelines are as follows:

1. 1. Threshold values and “weight” of technical and organizational requirements relevant to the quality of the service: the grids indicate the priority technical requirements that tugboats must have and the requirements relevant to the quality of the service, indicating the relevant scores to be assigned. Threshold values are also provided, that if not achieved will result in the exclusion of the bidder from the tender;
   2. Technical requirements of tugboats: both first and second lines [6] are evaluated from a technical point of view, calculating an overall average score for an “aggregate” evaluation of the fleet;
   3. Average age of the fleet: obviously a lower average age offers better guarantees of functionality and reliability. The age of a tugboat is calculated from the date of its first registration. Given that, unavoidably, the average age of the fleet increases during the period of validity of the concession, there is an obligation to “restore” said average age when it reaches about half of the term of the concession;
   4. Technical equipment that allows timely maintenance work on tugboats: to ensure maximum efficiency and continuity of service, it is essential that any maintenance work on tugs can be carried out in a short time. As a result, aspiring concessionaires who have the easiest access to the distribution network of engine parts and a warehouse, close the place where the service is provided, equipped to carry out on-site maintenance interventions on the fleets tugboats will be rewarded;
   5. Organisational-managerial characteristics of the aspiring dealer: still with a view to efficiency and continuity of service, the aspiring concessionaire with the greatest experience in the organization and management of towing activities and - as such - considered more prepared to deal with any emergencies or peaks in demand will be rewarded. To this end, the professional experience of the (deck- and car-) service managers and of the captains indicated in the organisation chart of each participant is also important.

With regard to the criteria for the evaluation of the economic offer, the guidelines highlight, first of all, how safety must be safeguarded in accordance with economic conditions that make the tariffs sustainable for service users. Consequently, it is provided that the call for tenders must specify the maximum cost value at which the tender can be awarded.

In practice, two scenarios may occur: (i) the structure of the service remains substantially the same as that of the outgoing concessionaire, or (ii) the structure of the service changes with respect to that of the outgoing concessionaire [7].

The methods for calculating the maximum cost of the service, which are different between the first and second scenario mentioned above, are quite complex and for the sake of synthesis a detailed analysis of said methods of calculation and consequent assessment of costs cannot be carried out herein.

We will therefore merely point out that the first scenario is based on the premise that the two-year tariff increases established by Circular No. 16872 of 28.12.2012 (which provides for containment coefficients to be applied to increases above 9%) proved to be sustainable for users, leading in fact to an average of increases recorded of about 14%. This percentage is therefore taken as reference for the possible maximum tariff increase that could be incurred by the individual user of the service (and therefore for the calculation of the maximum cost of the service that can be offered in the tender).

With regard to the second scenario mentioned above, it should be noted instead that - in accordance with the guidelines - the maximum cost for the award of the service must be determined on the basis of the tender strategy adopted by the Administration and, consequently, the tender documentation must provide all the information necessary for the drafting of bids. In this context, the economic-financial plan, which must be drawn up for the entire duration of the concession and updated every five years, is particularly important. Indeed, in practice, the cost of organising the service stems from this plan. In order for the plan to be reliable, the guidelines require it to include a series of cost items comprising (i) annual personnel costs, (ii) annual costs for each tugboat and its maintenance, (iii) annual overhead costs (insurance, legal and tax advice, utilities, etc.) and (iv) cost margin (which must take into account the expected return on investment and coverage of operational risk).

After having briefly observed the criteria for evaluating offers, we conclude our analysis by examining the criteria for the determination and adjustment of tariffs.

It is evident that prior knowledge of the criteria for determining and adjusting tariffs is essential - for aspiring concessionaires - in order to assess their business risk. Again, for the sake of synthesis, we cannot go into detail on the methods of calculation and therefore we limit ourselves to giving a general overview of the provision of the guidelines:

1. 1. First determination of the tariff: the tariff, which must allow a flow of revenues such as to cover the initial total cost, is established by referring to the previous tariff system and, in particular, by adjusting the percentage of the previous tariffs in order to align the revenue with the aforesaid initial total cost.
   2. Annual tariff adjustment: the tariff must be adjusted annually on the basis of the cost offered in the tender, revalued according to the ISTAT (FOI) index for the previous year and the actual cost for consumption and lubricants incurred in the previous year.
   3. Five-year tariff adjustment: every five years, the Maritime Authority must convene the Port System Authority, the concessionaire and the national representatives of the service providers and users to evaluate the economic-financial plan updated by the concessionaire on the basis of the forecasts relating to the services that may be provided in the next five years. Therefore, two hypotheses may arise:
      • Should no substantial change in performance be expected and a change in tariff within the limit 14% be, therefore, sufficient, the calculation methods specifically provided for in the guidelines shall apply. Should, instead, the expected tariff variation exceeds 14%, the Maritime Authority will evaluate the introduction of the so-called "availability tariff" [8] (or its increase if the same has already been applied). In the event that even the introduction or increase of the availability tariff cannot guarantee ex ante the economic-financial balance of the concession, it will be necessary to redefine the organisation of the service (reducing the operating structure of the concessionaire). If even the reorganisation of the service is not sufficient to achieve this balance, the concessionaire may withdraw from the concession (with no indemnity or compensation), without prejudice to the obligation to continue to provide the service pending the new tender procedure (for a maximum of twelve months from withdrawal);
      • Should, instead, substantial changes in performance be envisaged, the calculation methods specifically provided for in the guidelines shall apply (except for possible diversifications - in the application of the change - resulting from the assessments of the Maritime Authority). Also, in this case, if according to the concessionaire’s opinion the tariff solution does not allow the same to reach the economic-financial balance of the concession, the concessionaire may withdraw from the concession (with no indemnity or compensation), still without prejudice to the obligation to continue to provide the service pending the new tender procedure (for a maximum of twelve months from withdrawal).
   4. Extraordinary adjustment: in the event that, in the first four years of each five-year period of the concession, extraordinary events occur (for example, the opening or closure of a terminal) such as to affect for at least 1/3 the overall trend of trades subject to towage, the Maritime Authority will convene all the entities mentioned above to evaluate a possible new economic-financial plan that takes into account the extraordinary events occurred.

We have completed this preliminary analysis of the new guidelines for the award of concessions for port-towage. We will now see how these guidelines are actually applied. Certainly, at this stage, taking into consideration also of EU Regulation 352/2017 on provision of port services and financial transparency of ports, the regulatory framework for launching tenders has finally been laid down.

This article is for information purposes only and is not intended as a professional opinion. For further information, please contact Simone Gaggero or Ekaterina Aksenova.

[5] Circular of the Ministry for Infrastructures and Transports No. 11 of 19.03.2019

[6] For the distinction between first lines and second lines, please see the second part of this analysis, published in the September-October 2018 issue of our Shipping and Transport Bulletin

[7] The provisions for this second scenario shall also apply to ports which – according to Circular No 1589 of 17.06.2003 – were considered to have low turnover

[8] The availability tariff, which in practice has the purpose of "covering" the economic imbalance of the concessionaire, must be paid by all potential users of the service