Virginia Transportation Secretary Sean Connaughton made clear in an interview last week that he and Gov. Bob McDonnell will have the final say over whether to sell operating rights at the Port of Virginia to a private business.
Asked by a reporter Thursday, after speaking at a seminar in Northern Virginia about McDonnell’s novel plan to boost transportation funding, how the process would play out, Connaughton said the governor will sign off on any privatization decision “and the reverse is true too. We have the decision.”
Connaughton’s comments indicate that if the McDonnell administration believes privatization is the best option it could override the recommendation of a state board reviewing the proposals and strike a deal with one of the bidders.
State officials are considering an unsolicited proposal from marine terminal operator APM Terminals to take control of the entire port for 48 years. The company says its offer, including transferring ownership of its private terminal in Portsmouth to the state, is worth between $3.1 billion to $3.9 billion. A similar offer was subsequently submitted by an investment fund teamed with two strategic port operators.
The Virginia Port Authority Board of Commissioners is reviewing the two bids and one from Virginia International Terminals (VIT), the state-owned, non-profit company that currently operates the container and breakbulk terminals, as well as the inland rail port in Front Royal, Va. The Virginia Transportation Secretariat, through its Public-Private Partnership Office, is coordinating the entire process and is the primary point of contact in the state for the bidders.
The VPA board is scheduled March 26 to make its recommendation on whether to privatize the Port of Virginia or stick with the incumbent operator, but a lot of uncertainty remains about who will make the final call under the second scenario. Connaughton and other officials in Richmond, the state capitol, have voiced dissatisfaction the past two years with the port’s performance, saying it is losing money and not attracting enough cargo. In a surprise move in 2011, Gov. McDonnell cleaned house on the VPA Board with his own appointments.
The relative strength of the port’s finances depend to some degree on how they are defined. VIT has a net loss, but in addition to covering its daily cargo handling operations uses cargo revenues to support the port authority and its management structure. And money received from the Commonwealth Transportation Board goes to capital investments, not operations, local opponents of privatization say.
McDonnell would have to sign off on any recommendation to privatize the Port of Virginia, but less clear to observers and even many directly involved in the process is what happens if the VPA votes to keep VIT in charge of operations.
Last fall, Attorney General Kenneth Cuccinelli issued a legal opinion saying that the VPA is the “responsible public entity” to evaluate the proposals, select a final bidder and negotiate a long-term concession agreement. The legal opinion clarified, however, that the VPA may not sign a management contract without the final approval of the transportation secretary. But administration officials, including Connaughton, have suggested that all decision-making authority rests with them under the state law governing public-private partnerships and that the VPA’s responsibility is to provide input.
“The governor can make his own decision for VIT” and whether to maintain the status quo, Connaughton said to American Shipper. One reason is that the state must decide what to do with its 20-year lease of the APM Terminal facility, which has 17 years to run.
Legislation to reform the management of the VPA and VIT, including measures requested by the administration, has cleared the General Assembly. It includes a provision preventing any state entity from considering future unsolicited bids for port operations, but would not take effect until July. On Tuesday, the House version of the bill passed 95 to 5. Earlier this month the Senate passed the same language by a vote of 39-1.
The reforms are intended to reduce overhead and duplication of responsibility between the VPA and VIT, increase the VIT’s accountability and give the state more control over VIT. They will be implemented, if signed into law by Gov. McDonnell, because the VPA will still exist in some form even with a private operator to oversee the concession and deal with broader political issues affecting the port.
Several budget amendments are also being debated that would require a comprehensive study of the Port of Virginia’s economic value by the Joint Legislative Audit and Review Commission before any bids could be considered, which would address any near-term privatization effort if enacted.
Overriding a VPA decision against privatization would likely to create a political firestorm because it would represent a rejection of the governor’s hand-picked board, as well as a majority in the General Assembly and industry stakeholders in Norfolk who worry that state could be short-changed by the deal. One of the chief concerns being voiced is that a private operator like APMT might not act in a neutral capacity towards shipping lines, trucking companies and others doing business at the port.
In an op-ed piece in Wednesday’s Richmond Times-Dispatch, Sen. Frank Wagner, R-Virginia Beach, who authored S.B. 1305 to improve port operations, wrote that any decision about privatization should be done on the state’s timetable after careful analysis of whether the port is more valuable as a profit-generator or an engine of economic development.
“Privatization is intended to spur competition, but these bids do the opposite. Under the proposals, a single, private entity would operate all of Virginia’s port facilities. This amounts to a monopoly where competition is non-existent, unlike ports such as New York/New Jersey that have multiple privately operated terminals competing for business. This monopoly would also increase costs and stymie innovation, as no other company would be competing with the single operator,” Wagner said.
“Privatizing the port could very well be in the best interest of Virginia in the future, but that is a decision that must be made through deliberate and policy-driven analysis. Now is not the time, and the Port of Virginia is not the place,” he concluded.
John Crowley, APMT’s senior vice president of regulatory affairs, countered in a dueling op-ed that APMT can make the Port of Virginia profitable without requiring any state subsidies.
Among the many companies that depend on the Port of Virginia for business is railroad Norfolk Southern. The company invested millions of dollars in a public partnership with the federal government and several states, including Virginia, to clear a direct route between the port to Columbus, Ohio, to handle double-stack intermodal containers and improve transit times.
State officials “have to make sure” that if they turn over port operations to a private company their partner “has the same long-term incentives and vision” as the VPA for growth and economic development, Darrell Wilson, Norfolk Southern’s assistant vice president for government relations, told American Shipper on the sidelines of a transportation infrastructure conference at the U.S. Chamber of Commerce in Washington last week.
The railroad hasn’t publicly stated its position on the port privatization, but has given some feedback to the VPA, he said.
Trying to stem alleged losses at the port is a worthwhile goal, Wilson said, but state officials need to be careful because “they could end up putting themselves in a situation where people (read steamship lines) take loads out of Virginia and move them to another port.”
A private terminal operator has a fiduciary responsibility to its shareholders to maximize its profit, but could do so in ways that harm beneficial cargo owners, such as downsizing to align costs with throughput or trying to funnel as much cargo as possible through a facility at the expense of fluid operations, Wilson pointed out. One of the charges leveled against AMPT by industry stakeholders is that the A.P. Moller Maersk subsidiary is the sister company of Maersk Line, the world’s largest container line, and could request Maersk drop cargo in other East Coast ports to ensure it meets volume guarantees elsewhere.
The state contributed $9 million to the NS’s $320 million Heartland Corridor and “shouldn’t do anything that might jeopardize that long-term transportation asset that they helped create,” Wilson said.
“We’ve obviously invested a lot of money to serve that port and we have a lot of infrastructure, crews and other things we’ve done to maximize their ability to be efficient and grow,” he said. – Eric Kulisch