PhD IVAN HERAK: ‘Until we ensure the extension of concessions, we cannot invest in marinas’

PhD IVAN HERAK: ‘Until we ensure the extension of concessions, we cannot invest in marinas’

The interview by Sandra Carić Herceg for Nacional is transmitted completely.

 

Member of the ACI Management Board for finance, corporate law and human resources, PhD. In an interview for Navigare, Ivan Herak talks about new investments, modernization of existing and construction of new marinas, and the problem of extending concessions on the maritime property, which are a condition for the continuation of started investments

One of the most famous and recognizable tourist brands in Croatia is certainly ACI, a company under whose management a total of 22 nautical marinas on the Adriatic have been operating for almost 40 years. In its four decades of existence, there were alternating years of strong growth and investment, but also periods of stagnation and problems in business struggles with the turbulent post-war period of complete tourism “drought”, and then with the covid pandemic. But in recent years, ACI has been rising again and growing not only with income but also with new investments, modernization of existing ones and construction of new marinas, which should satisfy the growing appetites of sailors who are looking for more and more additional facilities and better quality service with an expanded and modernized offer. About how ACI will respond to the requests of current and new guests, what has been done so far in this regard, what still needs to be done, and how the Gordian knot of extending concessions on the maritime property, which are a condition for the continuation of already started investments, will be untied. , we spoke with Ivan Herak, a newly appointed member of the ACI Board who assumed his new position in February and whose task, among other things, will be to secure sources of financing for planned projects.

NAVIGARE: In the past few years, ACI has embarked on serious investments with which it intends to modernize and expand the existing offer in its marinas. But the problem is the expiration of the concessions for most of the marinas owned by ACI at the end of 2030. Will and how will this fact affect already prepared marina renovation projects in the coming years?

Today, ACI is exposed to a series of problems that represent an objective obstacle to faster development, so problem identification and finding a solution are a prerequisite for continuing the development process. A major obstacle to the further development of the marina system is the limitations arising from valid spatial planning documentation, the issue of registration of maritime property and the legalization of built objects. In addition, ACI has an inadequate structure and quality of berths as well as facilities on land. An additional problem is human resources, primarily the age structure of employees. However, the biggest problem is the fact that for all ACI marinas, except the Slano marina, the deadlines for commercial use of nautical tourism ports – marinas expire in seven and a half years. It is actually a decisive limiting factor that at this moment euthanizes the further development of ACI and thus diminishes the competitive position of the system. Simply put, until we secure the extension of the concessions, we cannot make investments in our marinas.

NAVIGARE: You recently joined the ACI Board as a member in charge of finance, corporate law and human resources. Have you already tackled this problem, given that all further investments will depend on its solution? What have you done about it so far?

When it comes to the extension of the “old” concessions, in 2020 the ACI Management sent a request for the extension of the concessions to the competent Ministry of Maritime Affairs, Transport and Infrastructure. The issue in this regard is extremely complex and explaining it would take up too much space. The problem of extending concessions is solved at two addresses, the Ministry of Maritime Affairs, Transport and Infrastructure and the Ministry of Finance, and the State Attorney’s Office also give its opinion on the matter. At this moment, the situation has become a little more complicated, in fact, there are different views when it comes to the opinion of whether the laws that were valid at the time the concession contracts were concluded or the laws that came into force later are applied when extending concessions. For ACI, and not only ACI but for all marinas in Croatia that are in a similar position, this is a question of decisive importance. According to the valid concession contracts, all ACI marinas have a concession until the end of 2030, i.e. less than eight years (with the exception of Slano marina and anchorages). The duration of the concession is the factor that most limits the development potential of ACI. Namely, after the initial growth and take off in the 80s of the last century, there followed a period of war and many years of loss-making business, due to which the infrastructure and facilities of the marina were largely neglected. From 2007 to the present, more than HRK 750 million has been invested in the system, far more than the then-planned HRK 200 million, in order to bring the marinas to an acceptable level of arrangement that specific clientele is looking for. But in order for ACI to be able to compete with the marinas on the Mediterranean and the Adriatic in terms of quality and range of services, to be able to meet all environmental protection standards and ensure the desired level of safety, it is necessary to make considerable investments, the profitability of which in the existing conditions is highly questionable. Therefore, I repeat once again, the main prerequisite for the further development of ACI is the achievement of an extended term of concessions for all marinas in the system.

 

“The biggest problem is the fact that for all ACI marinas, except the Slano marina, the deadlines for the economic use of nautical tourism ports – marinas expire in 7.5 years”

NAVIGARE: What kind of feedback is coming from the Ministry of Maritime Affairs, Transport and Infrastructure? Does the Ministry have an understanding of the problems of the marina, including ACI, and is an agreement on concessions on the horizon? The drafting of the Law on Maritime Property and Sea Ports, which is of crucial importance for ACI, is also underway. What are the expectations of ACI in relation to the aforementioned law?

Cooperation with our parent Ministry of Maritime Affairs, as well as with the Ministry of Finance, is more than good. When it comes to the Law on Sea Ports and Maritime Property, we expect that the mentioned law will valorize the concessionaire’s investments. Otherwise, if the Law, for example, stipulates that the concession may or may not be extended under the given conditions, a number of issues will arise, such as the legal security of the investments made, and all this in relation to the fact that there are no known criteria by which decisions are made on whether someone’s concession should be extended or not. No less important is the issue of ensuring the equal position of economic entities on the market, considering that it is unacceptable that for the same investments one entity can be granted a concession extension, and another cannot. Namely, the Companies Act stipulates that the Management Board must run the Company with the attention of a good master. Likewise, ACI is a joint-stock company listed on the stock exchange. This means that the Management Board of ACI and the Supervisory Board are accountable to the shareholders for their decisions. That is why we must be sure that the investments we plan must be amortized during the concession period. Also, in this context, it is important to mention the “goodwill” (intangible assets of the company, marketing value of the brand and the reputation of the company, op. N.) that ACI brings to each of its marinas with its standards and management, as it creates the brand and image of each individual marina that is recognizable to guests and additionally attracts them. I mention this because I firmly believe that concessionaires should also be recognized for the value of “goodwill”. All of the above should be taken into account when adopting new regulations that regulate issues of concessions on maritime property.

NAVIGARE: ACI recently announced that it is looking for a strategic partner for the implementation of the Development Strategy until 2027. Has a partner been found and at what stage is the preparation of strategic development plans?

About ten days ago, the management of ACI chose the Institute for Tourism of the Republic of Croatia as a strategic partner in the development of ACI’s Sustainable Development Strategy for the period from 2023 to 2027. The decision was preceded by the drafting of the Project Terms of Reference by ACI. In a few days, we will sign the contract with the Institute, and the Strategy should be ready by the end of this year.

NAVIGARE: As one of the plans in the new Development Strategy, the process of unifying the offer, i.e. taking over additional services in their marinas, which were provided by external collaborators until now, was announced. What is the offer and what plans does ACI have in that area?

Yes, the problem with ACI is that about 75 per cent of the total income is from berth rental income. In marinas that operate in a competitive environment, income from moorings makes up only 20 to 30 per cent of the income structure. In other words, we cannot be satisfied with the added value we create. Therefore, in the further development of ACI, business diversification is imposed as one of the basic conditions for business stability and raising the level of income. Namely, although in the past most of the services in marinas were carried out independently by ACI, today most of the accompanying contents or secondary activities, primarily catering and service activities, charter services, agency services, trade and similar services, are performed by other natural and legal persons within the framework of various forms of business cooperation. ACI itself mainly relies on the provision of services for the use of moorings, raising and lowering vessels, parking, washing vessels and a negligible part of other tourist services. The above, as I mentioned, resulted in a revenue structure in which 75 per cent is revenue based on connections, and ACI itself thus becomes extremely dependent on the movements of the nautical tourism market and uses too little of the economic and tourist potential of the destinations where certain marinas are located. Consequently, business diversification with the aim of increasing income, creating new jobs and improving the quality of service provision is one of the key factors of future development. This implies the development of new as well as existing services that have been neglected until now for numerous reasons. After the market analysis, taking into account the existing human potential, financial resources and previous experiences, ACI will direct part of its finances technical and personnel resources in the development of catering and commercial activities such as hotel and retail, charter tourism and the development of service activities.

Back in 2018, ACI created a conceptual project for the conversion and reconstruction of the unused spaces of the Pula marina building, known as ‘Torta’, into an exclusive boutique hotel. 

NAVIGARE: When you have already announced new activities, we will mention the project of renovation of the marina in Pula, which, according to the announcements, should bring exactly such a change in ACI’s operations. What kind of project is it and how much will ACI invest in the modernization of the marina and what will boaters get from that investment?
Considering the attractiveness of the destinations where most of the marinas are located, the spatial capacities of the micro-locations within the marinas, traffic accessibility, as well as the availability and sufficiency of communal infrastructure, a large number of ACI marinas is an ideal place for the construction of hotels and various other facilities. For example, when it comes to hotels, depending on the location, it is possible to build small boutique hotels, with a capacity of 25 to 50 rooms, of the four-star category. The marinas in Umag, Opatija, Cres, Supetarska Draga, Vodice, Skradin, Trogir, Milna and Korčula, and finally the marinas in Pula, are suggested as potential locations for future ACI hotels. But until we solve the problem with extending the concessions, no major investments in our marinas will be possible, including in Pula. However, regardless of that, in several localities, including in Pula, we are intensively working on the creation of conceptual and executive project documentation.

NAVIGARE: Among other things, a plan to build a luxury small hotel in Pula was announced. What kind of hotel is it?
Back in 2018, ACI created a concept project, which essentially represents the conversion and reconstruction of the unused spaces of the marina building into an exclusive boutique hotel. It is planned that ACI would invest in the construction of a boutique hotel on the site of today’s round building of the administration of the Pula marina, known to the people of Pula as “the cake”, which would have commercial facilities, a reception, a coffee bar, a restaurant, sanitary facilities and offices of the ACI administration on the ground floor. On the first floor of the hotel, there would be 14 hotel units, each with a terrace, while on the second floor there would be another 12 hotel units with terraces and a view of the Pula Arena. A Sky Bar with an infinity pool would be located on the roof of the building. I emphasize that the future hotel will be in the dimensions of the existing ACI building. In addition to the decoration of the central building, the conceptual project also foresees the extension of pontoon piers C and D and the reconstruction of the associated infrastructure. The entire project aims not only to raise the category of the marina at four anchors but also to generally raise the quality of services in the Pula marina so that we can adequately respond to the demands of our sailors.
“Since 2007, over HRK 750 million has been invested in the system, far more than the 200 million HRK planned at the time, in order to bring the marinas to an acceptable level of arrangement that the specific clientele is looking for,” points out Ivan Herak.

NAVIGARE: The marina in Pula is located in the very centre of the city. How much is such a location advantage, and how much a disadvantage if we take into account the traffic jams during the tourist season and whether the announced works will facilitate access to the marina?

When it comes to the final implementation of the project, it is first necessary for the City Council of the City of Pula to adopt minor amendments to the Urban Development Plan, for which the Mayor of Pula promised us full support. A condition for creating the main project, obtaining the necessary permits and finally the construction itself is the amendment of certain segments of the Ordinance on the Classification and Categorization of Ports of Nautical Tourism. It should be noted that the project fits perfectly into the intended revitalization of the Pula waterfront, fully following current urban trends that favour the concept of renovating existing accommodation locations and capacities within the built-up areas of the city, i.e. trends that oppose the aggressive construction of tourist facilities in undeveloped areas of the city. Saturation of valuable localities is what Pula needs the least. In addition, we expect to solve the problem of parking for guests of the marina with the City, which is a pressing problem at the moment.

NAVIGARE: In part, you will participate, together with the local authorities, in the reconstruction of the Pula waterfront. Are the plans already completed and to what extent will ACI financially support the project?

Complementary to the aforementioned project is the Pula waterfront development project, which includes part of the maritime property managed by the Port Authority of Pula, the maritime property included in the concession for the ACI marina Pula and part of the property that is in general use managed by the City of Pula. ACI recently signed a Memorandum of Understanding with the aforementioned stakeholders, by which we expressed our intention to be partners in the aforementioned project. The project will contribute to a more beautiful and functional marina, but also to the return of Pula to the sea.

NAVIGARE: According to your estimates, how much will the costs of the renovation of the marina and the construction of the hotel be?

It is not possible to predict the costs of the extension in relation to the marina at this time. When it comes to the boutique hotel, we calculate that the value of the works would be around five million euros.

“We expect the Law on Sea Ports and Maritime Assets to valorize concessionaires’ investments.” Otherwise, a number of issues will arise, such as legal certainty

 

NAVIGARE: At one time, ACI announced its entry into the charter business and the acquisition of its own fleet of boats for rent. Is this type of offer still in focus and at what stage is the realization of that plan?

Croatia is currently the leading charter destination in the world, and charter tourism is the most dynamic Croatian tourism product with constant and stable growth rates for the last 15 years. The development of its own charter fleet, considering the main activity of ACI and the existing market framework, is imposed as a logical choice that will contribute to business diversification. Taking into account trends, but also previous experiences with the development of this tourist product, in the initial three-year phase, work will be done on developing a charter fleet made up exclusively of vessels under management. More precisely, charter management programs for external partners are planned, which would include mediation during the purchase, financing and insurance of vessels, as well as mooring services, vessel reservations, crew changes and vessel maintenance. Potential bases of the future charter fleet are marinas in Dubrovnik, Trogir, Vodice and Pula. Depending on the capacities of the existing marinas in the system, it is possible to establish three to four charter bases, one in the extreme south, one or two in the middle and one in the northern Adriatic with a maximum capacity of 300 charter vessels, which makes up about 10 per cent of the charter market.

NAVIGARE: When we talk about ACI’s big investments, one of them is the Porto-Baroš marina in Rijeka. At what stage is that project and what has been done so far to realize it?

Yes, the project is “difficult” at around 365 million euros, with the fact that I think it will ultimately amount to at least 450 million euros. The project is certainly one of the most important in the recent history of Rijeka, not only because of the expected economic benefits and the fact that Rijeka will be positioned on the nautical map of Croatia but primarily because of the transition of the archaic, inherited structure of Rijeka’s economy will be initiated through the project. Namely, in addition to the construction of the mentioned marina, ACI is ready with the Lurssen Group as a strategic partner to expand the marina and all the facilities that go along with it to a part of the Passenger Port, on the stretch from Riva Boduli to De Franceschijeva ghat. I would dare to say that this project represents a kind of litmus test for Croatia, not only because of the importance of the project for Rijeka but also because of the fact that the project was realized primarily thanks to the Croatian government. Likewise, the stakeholder in the project is ACI, which is 78 per cent owned by Croatia, while the other stakeholder is the respectable German company Lurssen Group, which, in addition to the aforementioned investment and purchase of the majority package of Liburnija Hotel Opatija, intends to invest in other projects in Croatia. All of this places a huge responsibility on the ACI Board, and therefore we intend to deal with the project very operationally on a daily basis. Ultimately, it is an investment that takes place in our country, and it is expected that the partners expect us to pull the project through the tangled tangle of their bureaucracy. When it comes to deadlines, we predicted that we could obtain the location permit by the end of this year, while the marina should be operational by the end of 2024.

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