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Re-writing the concessioning small print
01 May 2007
It has become increasingly clear in the last two or three years that there is a growing requirement to consider in greater detail the aspect of exit arrangements from a terminal concession or a similar contract that gives management and operating rights to a specific party for a given port facility. Indeed, PS highlighted this requirement some time back but today it has been thrown firmly under the spotlight by the actions of the Port Authority of New York and New Jersey (PANY&NJ). The Authority took the controversial step of stating that it required a “transfer fee” of $84m following the sale of DP World’s Port Newark Container Terminal concession to the AIG Investment Group.
This fee was subsequently negotiated into a new arrangement whereby AIG agreed a one-off payment of $10m towards a new highway overpass and gave an undertaking to invest $40m over the 23 years remaining on the lease.
Subsequent to this, however, the PANY&NJ has applied another transfer fee of $54m to the sale of Orient Overseas International Ltd (OOIL)’s Staten Island container terminal concession to the Ontario Teacher’s Pension Plan.
OOIL rejected, in writing, the Authority’s demand as unjustified but this has apparently cut little ice with it – Richard Larrabee, Director of Commerce, PANY&NJ, in turn responding that the OOIL situation is “absolutely consistent with the terms and conditions required of Port Newark Container Terminal”, and even more tellingly noting that future transactions of this nature will be subject to a similar transfer fee. This, of course, brings into the frame the recently announced sale of Maher Terminals to RREEF Alternative Investments, an arm of Deutsche Bank.
The PANY&NJ has come up with a methodology as to how such transfer fees are calculated – which essentially is based on applying a charge equivalent to one third of the public investment in a given facility. While the methodology is clear, however, the rationale behind it is very murky. To be blunt, it appears to be nothing short of opportunistic culling of part of the profit from the sale of businesses that have already taken away a large degree of risk and investment from the public sector.
MIKE MUNDY
