In a lease, the terminal remains the property of the Port and the Lessee (the shipping company) pays only a more modest “in lieu of” property tax that is usually based on the lease payment amount rather than the assessed valuation of the facility. A second major reason is that most shipping lines do not have the cash, or credit lines, or have better ways to use their money rather than to build terminals unless they absolutely have to. They would also incur debt at a taxable bond rate and would be required to pledge their own corporate credit. It would also be difficult to sell a mortgage backed bond since they do not own the land and it would require them to list the debt on their balance sheet.23
In the U.S., the way container terminal construction and financing has been done is that the public sector (the port) provides both the financing and the construction of the facilities. Then they are usually leased to private terminal operators which may be an independent terminal operator or a subsidiary of a steamship line. Then, after that, the private terminal operator will operate the terminal.24 The negotiations are complex and container terminal leases are usually 30-year contracts with periodic evaluation clauses.25
The way terminals are typically constructed is that the port plans the construction along with the operator who will lease the terminal. The Port issues the debt instruments in order to finance the construction. Then the port lets the contract for bid to a private contracting company based typically on the lowest bid price. There is no connection between the construction contract that is let to a private construction company and the terminal lease itself.26 There are some examples in the U.S. where a user from the private sector has been involved in construction. The most recent is involving Terminal 18 construction in Seattle where the terminal was financed by a so-called “project financing”. In this financing scheme, the project itself served as the credit for the debt that is issued by a subsidiary of the port district. The construction is then managed by the private sector lessee of the terminal and in this case, Stevedoring Services of America.27
The leasing of public quay/land built with tax revenue to the private sector
In Japan, the law allows exclusive lease to a shipping company, but there are no subsidies under the PTPC model.28 Under the Public system model, the PMB shall not prevent the public from using public mooring and their related facilities and prohibits a single specified user to use the facilities exclusively. As a general rule exclusive use is not allowed, but there are exceptions.29
The Port of Kobe has two terminals with the exclusive use of two shipping companies, where both Mitsui OSK and COSCO each have two separate berths (350mx350m) for exclusive use. All construction and Superstructure is provided by PTPC. Stevedore and machines are provided by the private sector. Exclusive use of a terminal requires a 10-year contract and the lease is based on construction costs and negotiation of the lease. Exclusive Lease charges previously at older terminals were 500 million Yen per year per berth. The new PTPC lease is l billion Yen per year per berth, and in these examples 2 billion Yen per year for the two berths.30
In the U.S. the land or the quay is leased to private sector organizations who may use the land exclusively but they do not use tax revenues. In a sense, they are a beneficiary of tax revenues because the port uses tax revenues to support the debt financing of the terminals but no tax revenues go directly to the private sector organization.31
