Investors eye eastern Adriatic ports

By bne IntelliNews April 23, 2015

Clare Nuttall in Bucharest -


Expectations of an upturn in international trade have helped revive interest in the ports of the eastern Adriatic, which potentially offer a more direct route to continental European markets for cargo shipments from the Far East. To compete successfully with North Sea ports, however, better infrastructure both at the ports and linking them to industrial centres is needed.

Koper Port in the northeast corner of the Adriatic, close to Slovenia’s border with Italy, is seen as a standout success in the region. In 2014 the port handled just under 19mn tonnes of cargo after achieving a steady increase in the last decade from 12.4mn tonnes in 2014. The port operates several specialised terminals including the largest container terminal in the Adriatic. On March 16, the president of port operator Luka Koper’s management board, Dragomir Matić, announced plans for investments of €800mn into the port’s infrastructure by 2020, with a special focus on container freight which, Matić said, has the largest potential for stable growth.

Not only that, the port’s management and the Slovenian government have invested heavily into related infrastructure, including a railway from the port to the Slovenian capital Ljubljana, as well as promoting transit links to countries including Poland and the Czech Republic.

Other governments in the Western Balkans are keen to emulate Koper’s success. In neighbouring Croatia, for example, the Rijeka Gateway Project aims to turn the port into a gateway to Central Europe with support from the World Bank. However, other ports such as Bar in Montenegro and Durres in Albania need a lot of investment – both into their own operations and related infrastructure.

There are clear benefits to doing this. “There is a need for modernisation and in some cases expansion of the Balkan ports. This should increase trade, which obviously helps economies to grow. Ports should also benefit from the current increase in world trade,” says Sue Barrett, director for transport at the European Bank for Reconstruction and Development (EBRD). 

Jan Van Hove, professor of European and international economics at the European University College Brussels and coordinator of the Brussels-based Globalization research centre, points to the example set by infrastructure investments in the CEE region, where countries such as Poland have benefitted enormously. “Some companies are interested in Southeast Europe because of lower costs, but you can’t really look to labour costs as the main advantage in this region, so infrastructure will be the next step,” Van Hove says.

Port of call

Despite their sometimes pressing investment needs, ports in the region are increasingly seen as valuable by international investors.

Alain Baron, head of the international transport unit and enlargement unit at the European Commission’s Directorate General for Mobility and Transport, points out that the Balkan ports can potentially give speedier access to continental European industrial hubs such as Bavaria, which at present are served mainly by north European ports. More cargo is also expected to enter the eastern Mediterranean when construction of a parallel lane to the Suez Canal, which started in 2014, is completed. “I am sure that for Mediterranean ports there is a margin for growth,” Baron adds.

“Ports in the Balkans are seen as valuable. They can offer a shorter alternative access route to parts of central Europe than north European ports, although time is needed for road and rail networks to be completed,” agrees Barrett.

Several Southeast European countries – in particular landlocked Serbia – are under-served by existing transport links. Serbia has taken advantage of its skilled workforce and low labour costs to become a growing industrial hub for the region, attracting companies including Italian automaker Fiat, which is now its largest exporter. Belgrade has even set aside its political differences with Albania as it seeks access to Albanian seaports, and the two countries plan to seek funding from the EU for six regional infrastructure projects.

Several Balkan ports are also being considered as locations for liquefied natural gas (LNG) regasification terminals, as European governments search for alternatives to Russian gas imports. Italy set a precedent in this area, opening the Adriatic LNG terminal to handle LNG imports from Qatar’s North Field. Now Croatia plans to commission a feasibility study for an LNG terminal on the island of Krk. LNG terminals at Levan in Albania and Bar in Montenegro have also been proposed.

Chinese junks

As the source country for much of the cargo entering Europe, China is playing a role in development of ports and other infrastructure in Southeast Europe. China’s Cosco Pacific  took over the management of part of Greece’s Piraeus port in 2008, since when there has been a substantial increase in traffic through the port. The Chinese company is now considering a bid for a majority stake in the port, Greek Deputy Prime Minister Yannis Dragasakis said in March. At the December 2014 China-CEE forum in Belgrade, Beijing also announced billions of dollars worth of infrastructure investment, including in the Belgrade-Budapest railway, apparently aimed at creating a corridor from Piraeus to central Europe.

Elsewhere in the region, the Albanian government has reportedly been in talks with an unnamed Chinese state-owned company over Shenjin port, which former Prime Minister Sali Berisha had previously promised to Kosovo.

The China-CEE Investment Cooperation Fund, a $500mn private equity fund cornerstoned by China Eximbank, has also looking for exposure to ports and other infrastructure in the region. “We are interested in both seaports and river ports. We have a potential co-investor in a UK company which specialises in developing ports globally,” says Bill Fawkner-Corbett, investment director for Central and Eastern Europe at the fund’s investment advisor CEE Equity Partners. “I think this is an area that is relatively under-developed, with only limited western input, but that has quite high potential. With a dose of expertise we can produce better results.”

However, China is not the only source of investment. In March, P&O Ports, set up by Dubai’s state-owned Ports Customs & Free Zone Corporation (PCFC) to manage small ports in emerging markets worldwide, said it expected to close one of its first deals in Albania. The Dubai government announced on March 25 that the company is already in talks with the Albanian government, as well as the governments of Madagascar and Somalia, according to local press reports.

Meanwhile Turkey’s Global Ports announced back in 2013 that it was taking over management of Kontejnerski Terminal i Generalni Tereti (KTGT). Global Ports said it planned to turn the loss-making Montenegrin firm into a transport gate for the Balkans. Also in 2013, another Turkish company, Kurum, won a 35-year concession to manage the container terminal at Durres.

For these ports to realise their potential, however, infrastructure investments are needed. “Success also depends on linkages with other transport networks, and developing soft infrastructure,” the EBRD’s Barrett says, citing the success of Slovenia’s Koper.

Other governments are now following suit. In Montenegro, for example, the largest ongoing infrastructure project is the Bar-Bolijare highway, which will be mainly financed by a €689mn loan from China Exim Bank. To improve the connection between Bar and the Serbian capital, the Bar-Belgrade railway is being rebuilt, this time with a Russian loan.

While the focus has been on improving ports and related roads and railways, both Barrett and Baron argue that “soft” infrastructure is equally important. This can cover anything from better management of the ports themselves to streamlined customs procedures allowing goods to be transported more quickly to EU markets.

“The western Balkan countries are undermining their competitiveness because they cannot ensure quick delivery from their ports to regional industrial centres and consumer markets. The time spent at international borders is not taken seriously enough,” Baron says. He also points out that with railway liberalisation still not completed, prices are high and companies do not have the option to choose between several operators in a competitive market.


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