BIG BIDS BUT BAFFLING LOGIC

The latest example of this is in Cochin, India where Dubai Ports International, a company that has had its failures before on the concession front, recently won the concession for the Cochin container terminal.

Bids were invited by the port authority on the basis of the incoming investors – international terminal operators – offering a percentage of the revenue of the existing container terminal as well as being required to pay an annual rental for the terminal, royalty per container and some fairly exorbitant prices for existing container handling equipment.

By way of background, the concession agreement further provides for the incoming investor to eventually become involved in an entirely new container terminal development on a BOT style basis.

The key factor though in submitting a bid was undoubtedly the percentage of revenue over the lifetime of the concession that an incoming investor was prepared to forego as part of the concession payment.

Various well-known entities took a look at the opportunity – for example ICTSI, PSA Corp and P&O Ports – and basically decided that the structure of the bid opportunity did not allow for enough, if any, profit potential and thus withdrew before the bid stage.

This left in the frame two entities – Hili Industries together with an Indian partner and Dubai Ports International. Hili Industries, the company owned by Marin Hili former Chairman of Malta Freeport, decided it could take a run at the project on the basis that while the port authority was asking for a lot it could still bid as its overheads are a lot lower than those of the average developer.

Hili Industries is effectively a niche player within a niche, owning 100% of the Baltic Container Terminal in Riga, Latvia and being in a 50:50 joint venture with MSC in a multipurpose terminal in Venice, Italy. It thus bid what it considered to be a liberal10% of turnover as the main part of its bid.

Dubai Ports International, the winner of the two horse race, bid a remarkable 33% of revenue – a figure that has some wise heads in the industry asking, “how are they ever going to make money on this basis?” And the answer, simply put, is that they are not!

The next question is why?

And the answer to this is equally baffling – who knows?

Further, given that Dubai Ports International has made some expensive mistakes in the past, notably its withdrawal from the Beirut container terminal concession after it was tendered the first time round, the question has to be asked why put yourself in the pain zone again? There is seemingly no logic to the Cochin bid and not even the logic of hoping to renegotiate the concession terms at some future stage.

Is it, then, simply the fact that Dubai Ports International doesn’t really understand the market and the real parameters of bids for concessions in order to create a win: win. It is certainly beginning to look that way!

Another concession Dubai Ports International secured late last year was the new container terminal for Constantza Port in Romania and again the price it paid was high.

Additionally, it is interesting to note that it didn’t seem to make any attempt to deal with other fundamentals such as putting the Maritime Ports Administration Constantza under pressure to wrap into the brand new container terminal all the existing low-cost container handling operations surrounding the new container terminal. These were allowed to continue and presumably will for ever chip away at the viability of the new operation.

Certainly, it is hard to imagine in this instance too when Dubai Ports International will see a black line in the balance sheet of this particular operation!