Fri | Dec 9, 2016

The Payout: Inside the new US$510m port concession agreement

Published:Friday | April 10, 2015 | 12:00 AMMcPherse Thompson
President of Terminal Link and Executive Officer of CMA CGM Group, Farid Salem (left) presents gifts to Minister of Transport Dr Omar Davies (second left), Prime Minister Portia Simpson Miller, and President/CEO of the Port Authority of Jamaica Professor Gordon Shirley (right) at the signing ceremony for the 30-year concession agreement for Kingston Container Terminal, at the Office of the Prime Minister, Kingston on Tuesday, April 7, 2015.

The Port Authority of Jamaica will receive an upfront payment of US$75 million equivalent to the value of the equipment at Kingston Container Terminal (KCT), which are to be handed over to the new concessionaire Kingston Freeport Terminal Limited for operation.

The Port Authority will also be paid a fixed US$15 million per year on a quarterly basis as lease for the port facility, and a variable fee of eight per cent of gross revenues payable monthly, chairman and chief executive officer of the Port Authority, Professor Gordon Shirley told the Financial Gleaner.

He said the upfront fee represents the market value of the assets at KCT.

Shirley said the concessionaire will acquire the equipment, and that the Jamaican government would reacquire whatever equipment is on the property when the concession is terminated.

Kingston Freeport is the vehicle being used by the Terminal Link-CMA CGM consortium to operate the port under a deal with the Port Authority to finance, expand, operate and maintain KCT. The port is to be transferred back to Government at the end of the 30-year concession period.

"The government will also benefit from the payment of income and other related taxes," according to agreement signed at Jamaica House on Tuesday. The concessionaire was represented by President of Terminal Link and Executive Officer of CMA CGM, Farid Salem.

Kingston Freeport Terminal will dredge the access channel to the Kingston Harbour and the basin of the KCT to allow for the handling of larger vessels, which will transit the Panama Canal after the latter's expansion. The port of Kingston was last estimated to be around the eighth busiest in the Caribbean but the expansion under the concession is expected to push it into the top five.

Under the US$510 million (J$59 billion) agreement, transfer of operating control of the port will follow the financial close of the transaction, which is expected to be completed within six to eight months after the signing. As Prime Minister Portia Simpson Miller said in Parliament two weeks ago, the government will not provide a guarantee for the transaction.

During the concession period, Port Authority will retain responsibility for maintenance dredging of the channel and for putting in place regulations and policies in support of the development of the Greater Port of Kingston and other ports across Jamaica.

 

Ranked 11th worldwide

 

Terminal Link and CMA CGM, noting that the Drewry 2014 annual report of global container terminal operators ranked them together at 11th among the top 20 worldwide in 2013, said they expect to rise to seventh or eighth place in the rankings by 2017 on completion of new terminals under development as well as acquisitions and concession agreements, including KCT. Drewry is an independent research firm whose work focuses on the global maritime industry.

CMA CGM, which had a presence in Jamaica before the latest agreement, said that with a total of 2,400 metres of wharf, an 80-hectare surface and 15.5-metre draught, KCT will increase its capacity from the existing 2.8 million TEUs or 20-foot equivalent container units to 3.6 million TEUs.

The port will be equipped with 14 gantry cranes and 60 port riders, an extension that will turn Kingston into one of the Caribbean's five top ports, the shippers said.

Further development of the KCT is expected to facilitate the passage of Post-Panamax container vessels with a nominal capacity of 12,600 TEUs in comparison to the existing Panamax vessels with a capacity of 4,500 TEUs currently transiting the Panama Canal.

The CMA CGM Group said the new terminal will offer a deeper draught where larger vessels will be accommodated and that the additional equipment will allow for the development of transshipment operations via secondary lines in the entire area.

The terminal, where CMA CGM accounts for about 35 per cent to 40 per cent of market share, will be opened to all shipping lines benefitting from the same quality of services and treatment without discrimination, the group said.

"This investment is part of the CMA CGM Group global development plan" in the maritime sector, including acquisition of "new vessels more adapted to markets, as well as the creation of logistics platforms and the volume increase development in ports - for instance in the French Antilles," it added.

At the signing of the concession agreement, Minister of Transport Works and Housing, Dr Omar Davies, recalled that in the initial move to divest the port, CMA CGM had submitted an unsolicited bid and discussions had started. However, the Office of the Contractor General expressed concerns at the time and the process was suspended.

Over time there were other expressions of interest and the decision was taken to change the approach and invite the participation of major global terminal operators, five of which responded to the invitation and three were pre-qualified.

Terminal Link/CMA CGM was the only entity to respond to the bid, said Davies adding that "the irony of this is that we are where we were three years ago."

The Minister noted that a number of issues were raised in the press about the process and the need for information on the port's divestment, but said that while some of the concerns were legitimate, such sensitive negotiations cannot be conducted in the press.

"I sought to provide updates through Parliament about the various stages in the process but once a provisional preferred bidder had been identified then we had to allow the negotiations to proceed," Davies said.

The first phase of the Kingston Freeport concession agreement is expected to focus on improvements to the port's infrastructure over five years, at a cost of US$259 million.

That project will include 1,200 metres of berth, reinforced to meet the standards of Eurocodes 2004, a set of harmonised technical rules developed by the European Committee for Standardisation for the structural design of construction works in the European Union; 800 cubic metres of dredging reinforced to a depth of 15.5 metres, with the ability to accommodate Panamax vessels, and the ability to accommodate 12,600 TEU vessels.

Davies said questions have been asked about why the government was privatising KCT, widely considered to be one of Jamaica's prime assets.

First, he said, the concessionaire is a global terminal operator linked with a major container shipping line, which are leaders in their field. Terminal Link's portfolio currently consists of interest in 14 terminals and it has handled more than 12 million TEUs in 2014.

Second, KCT will be developed into a multi-user port, and third the capital cost of dredging will be assumed by the concessionaire, freeing the government from that obligation, he said.

According to the estimates of expenditure for fiscal year 2015/16, execution of the concession agreement with KCT is expected to result in significant changes in the operating and organisational structure.

The Port Authority is worth about $58 billion by assets. KCT accounted for about $10 billion of its $20 billion revenue base at FY 2014.

mcpherse.thompson@gleanerjm.com