VPA given authority to decide port privatization

   Stakeholders opposed to the privatization of the Port of Virginia turned out in large numbers Thursday at a public hearing in Norfolk, telling the Virginia Port Authority’s board of commissioners that the state’s existing operating company is already doing a good job growing cargo business and expressing concern that one of the bidders could steer business to related corporate entities at the expense of other service providers.
   Meanwhile, Virginia Attorney General Kenneth Cuccinelli on Wednesday evening issued an opinion that the Virginia Port Authority (VPA) has the sole authority to make a decision on whether to accept one of the three private proposals to operate the state’s marine terminals in Hampton Roads, and an inland port in Front Royal under concession agreements with terms ranging from 48 to 50 years. 
   Cuccinnelli’s designation of the VPA as the “responsible public entity” for evaluating the proposals and selecting a bidder to negotiate with on a long-term lease calls into question an executive order by Gov. Bob McDonnell last summer that placed decision-making authority in the hands of Transportation Secretary Sean Connaughton.
   The legal opinion clarified, however, that the VPA may not sign a management contract without the final approval of the transportation secretary.
   In April, Virginia’s Department of Transportation received an unsolicited proposal from APM Terminals to operate all the state-owned terminals. As part of the deal, APM Terminals offered to transfer ownership of its modern, highly efficient terminal in Portsmouth, which it leased in 2010 to the state and the VPA for 20 years. It says the net present value of its offer is worth $3.1 billion to $3.9 billion to the state.
   Carlyle Group, a private equity firm, and RREEF, the real estate arm of Deutsche Bank, responded to a subsequent state solicitation by submitting similar offers to run the port.
   On May 30, Gov. McDonnell issued an executive order delegating Connaughton as the point person for coordinating the review of the outside bids for the port and rendering a final decision. In a letter to the VPA board two months later, he clarified that state officials would look to the VPA to provide input in the evaluation process and technical expertise for negotiating any final deal.
   The Office of Transportation Public-Private Partnerships (P³) is currently shepherding the process and VPA staff members are participating in a working group that meets several times a week to review developments and help the private entities understand what additional information is required.
   Cuccinelli said the VPA was established by the General Assembly to oversee the port and has the power to lease all or part of its property.
   “Absent a legislative change made by the General Assembly, only the VPA can effectuate a concession with a private entity to operate the port facilities,” the attorney general wrote.
   Final approval for any negotiated agreement arising from the decision to pursue a concession would require the approval of the secretary of transportation, and by definition the governor, as is normal for a state agency such as the VPA, he said.
   Speaking with reporters following the public hearing, VPA Chairman Michael Quillen said the attorney general’s opinion doesn’t change much because it was always understood that the VPA’s recommendation would have to be approved by the transportation secretary and the governor.
   “We’re engaged now, so I don’t see a big difference,” he said. Gov. McDonnell’s order simply inserted Connaughton into the review process to make a recommendation to the VPA for a vote, he explained.
   Cuccinelli’s decision suggests “we should make a recommendation to ourselves,” he added.
   Any major decision by the VPA, such as for a bond issue or a bonus for the VPA’s executive director, has to be cleared by the governor as a normal course of business, Quillen said.
   Almost 300 people turned out for the public hearing and the vast majority of speakers, including representatives from liner carriers, the trucking industry, customs brokers, and logistics providers, spoke out against a concession. Most of the comments were directed at the possible control of the port by APMT. At least nine container lines remain opposed to the deal. Among their concerns is that APMT’s sister company, Maersk Line, is a major competitor.
   Virginia International Terminals’ CEO Joe Dorto received a 30-second standing ovation from the crowd following his defense of the company’s achievements at the port.
   Opponents say that state officials have put the privatization process on a fast-track at the expense of transparency and proper analysis of an economic decision that would affect the state for decades.
   Quillen told American Shipper there is no preconceived notion on the board about what the final outcome should be and that the timetable is open ended. The P³ office originally laid out some deadlines to move the solicitation process forward, but there is not timetable for reaching a final decision, he said. A decision is not likely until sometime next year, he added.
   “This is not in any way a formality,” Quillen stressed. 
   “We will take the time necessary for a thorough evaluation,” he said in his opening remarks. 
   The VPA has retained Drewry Shipping Consultants to help assess port operations around the world and provide advice on the best operating model for the port. The VPA, at the behest of the new board installed by Gov. McDonnell in 2011, has spent the past year reviewing the port’s infrastructure, finances, marketing and economic development activities to identify best practices and operating efficiencies.
   The three bidders and Virginia International Terminals, the non-profit operating arm of the VPA, are expected to deliver detailed, formal proposals to the state by Nov. 1 and the Office of Transportation P³ will update the VPA board at its next scheduled meeting on Nov. 27.
   The state so far has only received expressions of interest from the three private companies and there is no guarantee that they will submit binding proposals, Quillen said in the interview. – Eric Kulisch