The attempt by private infrastructure investors to cash in on future revenue at the Port of Virginia ended Tuesday when the state agency that runs the port decided that two private bidders had not offered enough to replace the money the state stood to make if it held onto the container terminals.
The unanimous vote by the Virginia Port Authority’s board of commissioners to reject separate bids — by APM Terminals and a private investment group let by J.P. Morgan — to take over the port’s container terminals is only the latest in a series of U.S. port privatization efforts that have gone nowhere for a variety of reasons.
The Virginia Port Authority’s board of commissioners voted instead to reorganize the port agency’s structure by integrating the port’s operating unit, Virginia International Terminals, more closely under its control and eliminating duplicate management functions.
The unanimous vote brings to an end a period of political controversy at the port that began in 2012 when APM Terminals made an unsolicited bid to take over the operating rights of the VPA’s terminals that it estimated would be worth between $3 billion and $4 billion over the 20-year term of the lease.
Under its Public Private Transportation Act, Virginia was required to solicit other bids for the terminals, which attracted offers from Carlyle and RREEF. Carlyle’s proposal was estimated to be worth $1.78 billion to $2.1 billion over the life of the contract. RREEF’s proposal had an estimated value of $3.3 billion. Carlyle and RREF later dropped out of the bidding and their bid morphed into Virginia Port Partners, a joint venture between J.P. Morgan IIF Acquisitions and Maher Terminals, which would operate the port, along with an affiliate partner, Noatum, a company that operates other ports throughout the world.
But political opposition to the privatization effort mounted in in the Virginia Legislature during the drawn-out bidding process. The VPA board commissioners, who had mostly been appointed by Virginia Gov. Bob McDonnell, took their time examining the bids and kept requesting more information about them to make sure the state would receive what they were worth.
In the end, the board decided the state stood to gain more by having a reorganized VPA and VIT continue to operate the port. Its analysis determined that the best achievable option would result in a risk-adjusted net cash flow loss for the state of $53.8 million.
“In the final valuation and analysis of the port operating concession offers, only one of the private investor options presented significant value for the Commonwealth when compared to the public sector comparator,” the VPA said in a statement.
“While this offer provided the Commonwealth with a modest value premium over the public sector scenario, the substantial risk and uncertainty caused by the complex provisions and legal, operational, and contractual issues are considered to be too great and have therefore resulted in the determination that this option is unachievable,” it said.
This was not the first time the VPA terminals had attracted privatization bids. In 2009, CenterPoint Properties bid $2.2 billion to operate the VPA terminals, which brought two subsequent offers by Carrix and Carlyle Group. But in 2010, the state dropped consideration of all the bids.
Other attempts to privatize U.S. ports have also failed. In March, Kinder Morgan Energy Partners ended its $200 million bid to buy the lease to operate Delaware’s state-owned and operated Port of Wilmington for 65 years in the face of opposition from local port business and labor opposition that feared the move would cost them business and jobs.
In 2011, Hutchison Port Holdings and the Carlyle Group dropped their bid to acquire the terminals at the Port of Galveston, which had been working with BMA Capital Markets for more than a year to attract a private operator to invest as much as $500 million in its breakbulk, dry bulk and roll-on, roll-off facilities and to build a two-berth container terminal at the port.