Analysis: Eyes on VA port as it decides today on new business model

   Many eyes in the maritime industry Tuesday will be on Norfolk, Va., where the Virginia Port Authority’s Board of Commissioner’s is scheduled to vote on whether to pursue negotiations with one of two private bidders for a long-term management contract to operate the state-owned port facilities.
   U.S. ports in the past decade have frequently entered long-term leases for individual terminals giving private companies operating freedom for decades at a time in exchange for some combination of upfront cash, revenue-sharing, assumption of responsibility for infrastructure expansion, and other considerations. The concession being considered by Virginia officials is relatively unique in that it would give up day-to-day control of the entire port. 
   The whole-port privatization concept was also tried by state officials in Delaware, but energy distribution giant Kinder Morgan this month announced it has suspended efforts to secure a 50-year lease for the Port of Wilmington because of vocal union opposition to the deal. The possible outsourcing of a major economic development asset in Virginia has also drawn intense opposition from all parts of the local waterfront, including labor, container lines, customs brokers, motor carriers, and vessel agents. Critics say global operator APM Terminals, which launched the entire process with an unsolicited bid last spring, could use its monopoly status to give preferential access to certain logistics providers and also make business decisions to benefit sister company Maersk Line, the world’s largest container shipping company, at the expense of other port customers. The second bidder, a consortium of JP Morgan, Maher Terminals and Spanish ports operator Noatum, could be less controversial in that regard.  
   APMT has said its proposal is worth $3.1 billion to $3.9 billion over 48 years, including $395 million in upfront payments and contributed assets, $952 million in monthly payments, $660 million in revenue-sharing, and $515 million in taxes. The JP Morgan consortium offer is valued at $3.1 billion in current dollars, including a $400 million concession payment.
   APMT is the single operator in 13 ports around the world, including Gothenburg, Sweden, and Aqaba, Jordan.
   As part of its offer, APMT has agreed to hand over ownership of its privately-funded terminal in Portsmouth to the Port of Virginia, which is currently leasing the facility for 20 years. APMT’s pitch is that it can achieve greater efficiency by wrapping all the terminals together to rationalize costs and service.
   Republican Gov. Bob McDonnell’s administration has backed many public-private partnerships for transportation projects that generate revenue and clearly has an affinity for using private capital instead of state funds where possible. The VPA board ostensibly will make the decision on whether to privatize the port or stick with a state-owned Virginia International Terminals that is in the process of undergoing significant management reforms, but McDonnell retains final authority to go ahead with any deal. He also claims for himself authority to go ahead with a concession deal even if the VPA board recommends otherwise, a position that runs contrary to a legal opinion by state Attorney General Kenneth Cuccinelli.
   Many probably assume the dye is cast for a private takeover of the port, but nothing should be taken for granted. In fact, the General Assembly’s recent passage of a landmark transportation funding package could change the calculus for grabbing private money. McDonnell got the ball rolling with a proposal to scrap the gas tax in favor of a sales-tax hike dedicated to surface transportation maintenance and expansion, but the legislature instead went with a 3.5 percent tax on wholesale gasoline (6 percent on diesel) to replace the 17.5-cent per gallon gasoline tax and other revenue measures designed to raise $3.5 billion through 2018.
   McDonnell now has a sustainable source of funding in place after years of gridlock that left the state robbing its capital transportation account to pay for maintenance. The port was viewed as a potential cash cow that could help fund other transportation needs. The money would come from a combination of the down payment, annual payments and the elimination of a modest state subsidy to the Port of Virginia.
   If Virginia officials opt for the status quo – albeit with fixes to turn the port into a profit engine – then we may come to find that one of the reasons was passage of the multi-billion transportation package. – Eric Kulisch