Harbours – The business plan

Before building a marina, operators must analyse the feasibility and profitability of each operation’s business plan, which is based on a careful cost-benefit analysis

by Paolo Viola*

In Italy, marinas are one of the most important “drivers” of tourism and one of the main sources of the country’s economic growth, and yet we are late on this front about our European competitors. Italy’s coastline offers more than 500 tourist harbours with a total of about 160,000 berths. The market is moving towards larger and larger ships with higher quality standards. Operators in the industry show interest both in building new marinas (despite the times and difficulties in obtaining state concessions and municipal permits) and in repurposing existing ports (also thanks to funding that has been made available). The compass that guides the choices operators make about how and where to invest in the Business Plan, i.e. the analysis of the feasibility and profitability of the financial and economic plan of each operation, which in turn is based on a careful cost/benefit analysis.

To explore this issue, which is at the very heart of the development of a marina, I have invited Marco Ventura, architect, Business Unit Manager of the “Engineering” Division and Manager of the “Energy Requalification & Sustainability” Team at WiP Architetti, who has gained considerable experience in this field and whom I have involved in my recent marina projects. This year, Ventura and his team have also produced an important industry study on energy retrofitting and cost-benefit analysis. It is the first study of its kind in Italy and includes a chapter specifically dedicated to marinas.

COST-BENEFIT ANALYSIS IS A TECHNIQUE USED TO ASSESS AND OPTIMISE THE CHANGE IN ECONOMIC WELL-BEING THAT RESULTS FROM AN INVESTMENT BY ESTABLISHING A STANDARD FOR MEASURING THE COSTS AND BENEFITS OF A PROJECT, INCLUDING THOSE TO SOCIETY, OVER A GIVEN PERIOD OF TIME.

On the basis of this study, I asked architect Ventura to briefly explain the cost-benefit analysis applied to marinas. “The Cost-Benefit Analysis is a technique that helps assess and optimise the variation in economic well-being that derives from an investment by setting a standard to measure the costs and benefits of a project – also in society – within  a given period. The Cost-Benefit Analysis contains two main parts: the financial analysis, which assesses a project’s profitability, and the economic and social analysis, which is based on the data in the project’s Business Plan and transforms them into social costs and benefits to analyse the social, economic and environmental impacts of a given project on the community. The Cost-Benefit Analysis is the tool that is usually recommended to preventively assess the economic convenience of the most important public interventions in port areas, under Italian (Leg. Decree 228/2011) and European (Model ACB DG-REGIO, 2014) regulations. Should the Cost-Benefit Analysis not be requested for a specific project by higher-ranking regulations, it is considered appropriate to solely contemplate the environmental benefits related to the reduction of fossil energy consumption and CO2 emissions, since these are the goals of the DEASP (Environmental Energy Planning Document for Harbour Systems) (Italian Leg. Decree 169/2016, art. 5, paragraph 3, point ‘a’). I remember that – as stated in the guidelines for drafting the DEASP(1) – the reduction of CO2 in harbour systems needs to be obtained using different interventions and works (e.g. improving building efficiency, changing the energy carrier for both boats on the quay and service equipment and vehicles, improving the efficiency of cargo and people handling systems, building plants to co-generate and produce energy from renewable sources, etc.) and that any planned interventions, before being executed, need to be previously assessed in terms of their technical and economic feasibility through a Cost-Benefit Analysis, which should be intended also in a socio-economic and global sense (art. 5, paragraph 3, point ‘a’ of Italian Leg. Decree 169/2016)”.

OVERALL, THE PORT SYSTEM HAS BENEFITED FROM A NUMBER OF INCENTIVES IN RECENT YEARS, AND THERE ARE MORE TO COME, PARTICULARLY IN RELATION TO ENERGY TRANSITION AND ENVIRONMENTAL SUSTAINABILITY, BOTH OF WHICH ARE ISSUES THAT WILL BECOME INCREASINGLY IMPORTANT IN THE NEAR FUTURE, IN ADDITION TO INFRASTRUCTURE.

This approach – based on an integrated and multidisciplinary project, supported by preliminary feasibility studies, a business plan and economic and financial analyses that satisfy and compensate all the stakeholders involved – is undoubtedly the one that should always be adopted in order to reduce the risk of ideas, good intentions and projects remaining on paper or on a hard disk.

The reduction of CO2 emissions in port systems can be achieved through various interventions and works. Prior to their implementation, these works must be assessed in terms of their technical and economic feasibility by means of a cost-benefit analysis, taking into account social, economic and global aspects.

“It is very useful, as Ventura reminds us, to apply the cost-optimal methodology introduced by Directive 2010/31/EU, also known as the Energy Performance of Buildings Directive (EPBD) Recast. This methodology allows you to evaluate different solutions to increase energy efficiency, taking into account not only energy and architectural variables, but also economic factors in terms of investment costs, maintenance and operating costs, and possible disposal costs. The concept of Cost Optimisation has been defined as “the level of energy performance that results in the lowest cost over the estimated economic life of the building”. Essentially, the cost-optimal methodology assesses the sustainability of the project and what we could define as the ‘harmony of numbers’ that is the foundation of any successful operation”.

It is often necessary to revise the project, and consequently the business plan, because the development of a marina can take up to several years, from the preliminary analyses to the actual development. Given the dynamic nature of the reference market and the large number of variables involved (costs, income, interest rates, etc.), which are themselves subject to many variations, both the business plan and the financial and economic plan must be constantly reviewed and updated as necessary. The “course” of the project must be assessed from various perspectives, i.e. whether it is in line with the pre-established objectives and financial forecasts (a.k.a. cash flows), or whether adjustments or changes to the strategy are necessary to achieve the fulfilment of the project and the satisfaction of all parties involved.

Also, the new Italian Public Contract Code (Leg. Decree no. 36 of 31/3/2023(2)) defines the various forms of Public-Private partnerships and establishes the different project levels for the concession of works and services for public works. The first project level is specified in the “Project of technical and economic feasibility” about the Business Plan mentioned in art. 182, point 5: “Calls for tenders and their annexes, including, where appropriate, the terms of reference and the business plan, shall be drawn up in such a way as to ensure an adequate level of bankability, i.e. the availability on the financial market of resources commensurate with the needs, the sustainability of these resources and the congruent profitability of the capital invested. Such calls may also require that tenders be accompanied by expressions of interest from the financial institution”.

THE BUSINESS PLAN MUST IDENTIFY AND ESTIMATE ALL THE PARAMETERS THAT AFFECT THE BUSINESS. IT MUST ALSO CALCULATE ALL PRELIMINARY PROJECT COSTS AND FORECAST FUTURE DEVELOPMENT, IMPLEMENTATION, MAINTENANCE AND GROWTH COSTS.

At this point I ask architect Ventura what the main points of the business plan are in general terms and which parameters are most important to focus on.“Generally speaking, the Business Plan needs to identify and take into account all the parameters that impact a given operation (time, costs, revenues, financial costs, etc.) It needs to estimate all preliminary project costs and forecast future costs of development, implementation, maintenance, and growth. A very important aspect to keep in mind for a tourist harbour is the duration and respective cost of the requested state property concession given the work’s financial amortisation. Some of the main costs to consider for the implementation of these works are maritime works, construction and road work, possible further surfaces/destinations of use included in the project, expenses for the design, construction supervision, safety, financial costs, and any unforeseen costs. In addition, there are management and operational costs, as well as maintenance costs, etc. Among the revenues, which are estimated based on a market and main competitor analysis, are: boat mooring fees/rentals (depending on the size, duration, and season), garage or parking fees/rentals, prices/rent of possible additional surfaces included in the project (residential, hospitality, workshops, retail, etc.). Each cost and revenue needs to be temporarily allocated in the Business Plan based on the timeline established for the works and the forecasts concerning the “sale”/rent of spaces. In case public funds are available, the plan should also consider these amounts and monitor their availability with a particular focus on the times and procedures needed to obtain them. The corporate structure will then have to be defined as well as, for tax purposes, the “financial leverage” (debt ratio or leverage), i.e. the ratio between the total financial debt (D) and equity (E): the Financial Leverage is = D/E.For the financial balance of operations, the parameters to mainly keep an eye on are the Net Present Value (NPV) and the Internal Rate of Return (IRR), which need to be compared to the industry benchmark for comparable operations as expected by the involved stakeholders. Lastly, particular attention must be placed on the risk assessment and sensitivity analysis of the various identified scenarios”.

The aim of the National Recovery and Resilience Plan is to make port activities more sustainable and compatible with the surrounding urban context by providing funding for projects aimed at increasing energy efficiency and reducing energy consumption in port facilities and operations.

So how can we sum up the main objective of a business plan for a marina? “The main objective is to establish the feasibility of the project, i.e. whether or not it can be profitable within the concession period, taking into account the cost-benefit ratio. It is also useful to seek funding from credit institutions in order to carry out the project/work in accordance with the strategy defined, i.e. to demonstrate the sustainability and profitability of the operation, in the event that the possibility of involving other partners/investors is assessed”.

Overall, the port system has benefited from a number of incentives in recent years, and there are more to come, particularly in relation to energy transition and environmental sustainability, both of which are issues that will become increasingly important in the near future, in addition to infrastructure.

Italy’s coastline offers more than 500 tourist ports with a total of around 160,000 berths. The market is moving towards larger vessels with higher quality standards. Industry operators are showing interest in both the development of new marinas and the redevelopment of existing port facilities.

The last contribution I ask architect Ventura to make concerns the funding for these works. What can you tell us about that?In the EU, incentives such as the CEF programme (Connecting Europe Facility) have been made available, with a financial donation for the period 2014-2020 of about €33.2 bn. The majority of which – 26 bn. – was invested in Transportation (air, rail, road, water). As far as national funds are concerned, one of the goals of the 2014-2020 “NOP (National Operational Programme) for Infrastructures and Networks”(3) is the development of sustainable transportation systems. It allocates € 2.5 bn. to projects presented by the 5 Integrated Logistical Regions (Campania, Calabria, Basilicata, Apulia and Sicily), which need to include harbours, logistics platforms, freight terminals, etc. and connect them with the multimodal corridors of the European transport network. (The development of sustainable transportation systems is also a key priority in Italian Regional Operational Programmes).

Among the general tools implemented to support operations for energy efficiency and renewable sources, whose actual availability can vary in time, are the following:

• the thermal account, which, with a capital contribution from 40 to 65%, funds small energy-efficiency interventions in buildings;
• the all-inclusive fee for power plants using renewable sources;
• a tax reduction of 50-65% (for private operators), which furthers the funding of small interventions;
• white certificates, which are effective for medium to large interventions;
• the Revolving Fund for Energy Efficiency, for interventions aimed at increasing energy efficiency in the harbour’s public buildings.

The NRRP(4) includes several opportunities, with particular reference to the “Green Ports Project”, whose actuators are the nine AdSPs in central and northern Italy (for an overall amount of 270 million Euro, 45 mln of which are reserved for the concession holders). Its goal is to make port activities more sustainable and compatible with the urban contexts around them through funding assigned to projects that aim at increasing energy efficiency and reducing the energy consumption of port facilities and operations.

Several interventions have been planned, including:

• energy production from renewable sources;
• energy efficiency of port buildings and lighting systems;
• use of electrically-powered means of transportation;
• interventions on inefficient energy infrastructures in the harbour;
• creation of infrastructures for the use of electricity;
• reduction of polluting emissions from berthed ships.

One of the goals of the investment from the NRRP (€ 700 mln)(5) is to power the docks (cold ironing) to reduce the dependence on fossil fuels and the environmental impact of the maritime transport industry to a minimum. This is an intervention that will mainly concern ports in the central network of the Trans-European Network Transport (TEN-T). The investment that has been proposed consists of building a shoreside network of power supply for berthed ships to strongly reduce the use of on-board auxiliary engines to autonomously produce the necessary electrical power and significantly reduce emissions of CO2, nitrogen oxides, and fine particles, as well as the acoustic impact. The goal is to install electricity for an overall power of 682 MW by June 2025”.

To conclude on a more poetic note, and I would like to thank Marco Ventura for his decisive contribution to the analysis presented in this article, we can imagine that the project and the business plan respectively represent the sail (the energy and passion of the design idea) and the hem (the course to be followed to reach harmonious and sustainable figures) in the construction of marinas that can accommodate our beloved boats and restore our strength.

Paolo Viola (Naples, 1936) is an engineer and urban planner specialising in harbour design, head of the “Marina & Waterfront” area at WiP Architetti s.r.l.

(Harbours – The business plan – Barchemagazine.com – November 2023)