Even During the Recession Private Companies Are Investing In Ports

Private sector is driving modernization efforts

“In the past year, trade volumes through Long Beach, Los Angeles and Oakland, which together handle nearly half of America’s international trade, have fallen nearly 15 percent,” reports the Long Beach Press-Telegram.

Despite the current recession and drop-off in business, private investors are still looking for opportunities to invest in the nation’s ports, suggesting investors think that ports will improve before many other parts of the economy. And cash-strapped governments should be looking to take advantage of these public-private partnership opportunities.

“Ports are going to be one of the first lines of the economy to turn, when the environment improves,” Christopher Lee, managing partner of Highstar, the company set to invest $150 million in the Port of Oakland. “We want to be ahead of the competition.”

Ports America Outer Harbor LLC, owned by Highstar, recently won the right to to upgrade and operate five container berths in the Port of Oakland through a 50-year concession and lease agreement.

The company’s operational plan includes an initial payment of $60 million, paid to the government, as part of a total investment of up to $150 million to upgrade 160 acres and berths within the Port of Oakland. A second, larger phase of the port agreement could involve a $350 million investment that would link the port with more rail lines.

The Oakland deal isn’t the only one. The Virginia Department of Transportation (VDOT) received an unsolicited $3.5 billion proposal from an Illinois firm, CenterPoint Properties, to develop a public-private partnership with the Virginia Port Authority.

The company wants to take over the state’s port operations, including the Port of Virginia which ranks among the 10 busiest ports in the country. The proposed deal is for a 60-year partnership and could be worth $8.9 billion.

“Competition is good,” Gordon Hickey, a spokesman for Gov. Timothy M. Kaine told the Daily Press. “We welcome private proposals and we feel that this is something worth looking at.”

While all of the details of the proposal are not yet known, it has been reported that Virginia International Terminals would become a subsidiary of CenterPoint with all 450 employees retaining their positions. The deal would also commit CenterPoint to building a marine terminal on Craney Island, estimated to cost $2.4 billion.

Virginians have wanted the Craney Island terminal for many years, but the cost has always looked prohibitive. This is an excellent opportunity to move forward with that project.

The Port Authority receives 4.8 percent of Virginia’s transportation Trust Fund spending – $36 million – in 2008. So with this deal, Virginia can save that $36 million or spend it on high-priority transportation projects; will get an billions upfront from CenterPoint that could be spent improving other infrastructure; and will finally see the Craney Island project built.

Under the Virginia Public Private Partnership Act of 1995, the proposal will require a review, and if the decision is to proceed, it will be subject to competitive bidding from other companies. The Virginia transportation department’s time-tested process of reviewing proposals has successfully brought other transportation public-private partnerships to fruition, such as the Beltway (I495) High Occupancy Toll Lane Project, the Pocahontas Parkway, and the Dulles Greenway.

Despite these past public-private partnership successes, initial reactions to CenterPoint’s proposal have been mixed. Some state legislators do not like the idea of “auctioning off” one of the state’s biggest assets. But, the ports would not be “sold” at all. As in other public-private partnership arrangements, CenterPoint would enter into a long-term lease agreement with specific performance standards for operating the ports. The Commonwealth of Virginia would continue to own the ports and oversee their operation through the concession contract. The state would establish very clear criteria that would allow it to re-take control of the ports if certain standards or expectations were not met.

Given Virginia’s history of success with public-private partnerships, which have brought new infrastructure to the Commonwealth, this proposal deserves serious consideration.

Public-private partnerships offer many of the country’s biggest ports an opportunity to modernize without taking more money from taxpayers.

Shirley Ybarra, former Secretary of Transportation in Virginia, is a senior transportation policy analyst at Reason Foundation.