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NYCT complains about terminal sale conditions

NYCT complains about terminal sale conditions

New York Container Terminal is stepping up a public relations campaign against the Port Authority of New York and New Jersey over conditions the authority wants to impose in exchange for approving transfer of the lease of the terminal, located in the Howland Hook area of Staten Island, to the Ontario Teachers’ Pension Plan.

   In a “white paper” designed to support its contention that the port agency is being unreasonable in its demands over the transfer of the facility, NYCT said failure to achieve transfer to a new owner from the parent of Orient Overseas Container Line could lead to “stagnation of an important facility at risk of becoming a stepchild of a foreign shipping company that has demonstrated by its actions that it wishes to deploy its capital in new ships, not expanded terminals.”

   The Howland Hook terminal is one of four that Orient Overseas (International) Ltd. agreed to transfer to the pension plan last fall as a partial sale of its terminal business.

   While the sale of terminals in Vancouver, Canada, and the Global Terminal in Jersey City, N.J., have been completed, talks between the port authority, OOIL and the pension plan broke down last week over the compensation and conditions that the port authority is requesting.

   Steve Coleman, a spokesman for the port authority, said the NYCT walked out on the discussions after the authority declined to accept its last offer.

   Jim Devine, chief executive officer of NYCT, accused the agency of wanting to “dictate, not negotiate.”

   The port authority said the conditions are similar to those it placed on Dubai Ports World before it approved the sale of the Port Newark Container Terminal to the AIG insurance company.

   OOIL and the pension fund claim that what the port authority is requesting exceeds what was required of the Dubai-based company, whose purchase of terminals around the country had caused a firestorm of controversy.

   According to NYCT, the port authority is asking for:

   * A $37 million consent fee.

   * An increase in the security deposit from $1 million to $9 million.

   * Investment of $17 million during the balance of the lease.

   * A change in the paving provision of the existing lease costing the terminal an additional $7 million.

   * Commitment to agree to a security fee.

   * Full access to all the terminal’s financial matters including quarterly and annual reports.

   * An option to purchase the terminals equipment if the terminal’s lease is terminated for cause.

   * A requirement to pay up to $1.5 million for out-of-pocket expenses incurred during review of the transaction.

   * An agreement to pay the port authority a 24 percent premium over lease market rates in the event of a holdover situation.

   In a press release issued Monday, the pension plan said it would invest at least $17 million at NYCT and up to $57 million at NYCT and the Global Container Terminal.

   “In addition, the port authority will receive $5 million for its future use in connection with the terminal. The capital expenditure commitment provided for in the proposal is almost 50 percent more than the $40 million commitment the Port Authority received from AIG in the recent Port Newark Container Terminal transaction, even though the New York container terminal on Staten Island lease is half as long,” the Ontario Teachers’ Pension Plan SAID.

   However, the Global Terminal is privately owned.

   In an interview last week, Richard Larrabee, director of the Port Commerce department, explained that his agency works with terminal operators to provide the most efficient transportation system possible. It makes investments in common infrastructure such as deeper channels, intermodal rail facilities, and better local roadways, as well as direct investments at its tenants terminals such as berth dredging, improvement to the quay so bigger cranes can be accommodated, paving and lighting.

   “We enter into an agreement with the terminal operator and they make whatever profit they can and we don’t begrudge them that,” Larrabee said.

   But when the terminal operators “make a decision to take that operating agreement and turn it into a financial instrument and sell the business for financial consideration we believe that fundamentally changes the relationship,” he said.

   The port authority has a right to review lease transfers, and in doing so the agency has a responsibility to make sure the new owner has the expertise and financial wherewithal to continue to operate the terminal well, he said. Larrabee said he has been pleased that financial investors like the pension plan have been retaining experienced managers and putting together management groups to oversee their terminal businesses.

   But he said the port authority feels that some financial consideration is due the port authority for investments it has made that “dramatically increase the value of the terminals.”

   And he noted even with due diligence, the port’s risk is increasing with new investors taking control of a vital regional asset.

   “The proposal presented to the Port Authority of New York and New Jersey demonstrates our long-term commitment to the future and growth of the port,” said Jim Leech, senior vice president, Teachers’ Private Capital. “The port authority’s focus on short-term enrichment puts the economic development of the area at risk, and eliminates jobs that would be created as a result of our investment.'

   NYCT, in its white paper, claimed: “While it is understandable that the port authority has a responsibility to ensure both the suitability and the financial wherewithal of a proposed new tenant, the port authority’s actions and demands regarding this proposed change in the lease reflect something more.

   “What appears to be driving the actions of the port authority is the belief, expressed by some officials, that the value of NYCT was driven up by the investments made by the port authority, and that the port authority is therefore entitled to share in the 'profit' to be made by OOCL in the sale. This attempt to extract a share of the profits is misguided,” the white paper claims.

   The request “doesn't take into account either the critical role that OOCL played in creating and developing the current terminal” or the potential role that the pension plan will have in the terminal’s future development.

   “Indeed, the transfer of the terminal’s lease by OOCL will not only help ensure the terminal’s continued access to virtually unlimited investment capital given the proper incentives for investment,” the pension fund claimed. “It will ensure as well that the investments made to date by the port authority — as well as by OOCL — will continue to bear fruit, for the benefit of the port as a whole, and the entire region.”

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