Future Operations at Seagirt Marine Terminal by dfgh4bnmu


									A Report to the Maryland General Assembly

  Senate Budget and Taxation Committee


     House Appropriations Committee


Future Operations at Seagirt Marine Terminal
           2007 JCR, pp. 82-83

                March 2008

The Maryland Department of Transportation
                  Future Operations at Seagirt Marine Terminal
                          2007 JCR, pp. 82-83 (Part II)

This report was prepared by the Maryland Port Administration (MPA) in response to the
2007 Joint Chairmen’s Report, pages 82 and 83. The language directs that:

   “The committees are interested in the current review of options for future operations
   at Seagirt Marine Terminal that the Maryland Port Administration (MPA) and the
   Maryland Port Commission are currently undertaking. Options include: renew the
   contract with the current stevedoring company; procure a new contract; or pursue
   other options, such as a long-term lease of the terminal to a terminal operator. As a
   decision on operations will affect funding MPA’s funding needs, capital projects,
   operations, and the Transportation Trust Fund, the committees would like to be kept
   aware of the decision-making process. The Committees request two reports no more
   than six months apart, on actions and decisions relating to future operations at
   Seagirt Marine Terminal. Over the course of these two reports, the Committees

       •   A description of the options that are available for Seagirt operations:
       •   The cost, advantages and disadvantages of each option;
       •   What effect each option will have on construction of a 50-foot berth at Seagirt
           (who will have responsibility for funding and construction);
       •   The actions taken in regard to this matter (i.e. studies, requests for interest,
       •   The final decision on future operations; and
       •   Justification for such decision.

   This information should be provided in the reports as it becomes available. It is the
   intent of the committees that if MPA decides to enter into a long-term lease with a
   terminal operator, the committees shall have 45 days to review and comment on the
   proposal before the lease term is commenced.”

The Maryland Department of Transportation/Maryland Port Administration submitted the
first of the two required reports to the Maryland General Assembly in September 2007.
(The first report on the future operations at Seagirt Marine Terminal is attached.)

Background and Need for Investment at Seagirt Marine Terminal

The Port of Baltimore is one of the most significant contributors to the economy of
Baltimore City, and the State of Maryland as a whole.

Based on 2006 activity levels, the Port generates 50,200 jobs, 16,500 of which are direct
jobs generated by cargo and vessel activities. The average salary in 2006 for a direct job
at the Port was $47,780. The remaining jobs are supported by the spending of port-
related businesses and the holders of direct jobs.

                  Future Operations at Seagirt Marine Terminal
                          2007 JCR, pp. 82-83 (Part II)

This employment provides a significant impact of $3.6 billion annually in personal wages
and salary to the City and region (for direct, indirect and induced jobs combined). Also,
port-related activities contributed $1.9 billion in business revenue and $388 million in
State and local tax revenue in 2006.

The container business is vitally important to the MPA’s overall business, accounting for
66% of the total general cargo handled at MPA’s public marine terminals, and 60% of the
agency’s operating revenue. The worldwide containership fleet is moving toward larger
vessels, which require deeper channels and berths. A new, deeper berth is required at
Seagirt Marine Terminal to enable the Port of Baltimore to handle these larger ships. A
50-foot container berth would enable Baltimore to accommodate the larger containerships
in service along the East Coast and retain existing container business.

The cost of a 50-foot berth at Seagirt, including dredging, the marginal wharf and four
container cranes, is estimated to be between $100 and $120 million. This funding is not
presently in the MPA’s six-year capital budget, nor is it anticipated that this funding will
come from the Transportation Trust Fund. Thus, there is consideration of a public-
private partnership, which would bring this investment.

Current Operations of Seagirt Marine Terminal

Currently, Seagirt Marine Terminal is operated by the MPA and Maryland International
Terminals, Inc. (MIT) through Ports America under procurement contract #210002-S that
was awarded on September 19, 2001. Under this contract, Ports American provides
vessel stevedoring and other marine and landside terminal services at the facility. These
services are the services offered to container customers by MIT. The MPA’s contracts
with its container customers at Seagirt are in the name of MIT.

The initial term of the contract is for six years from November 1, 2001 until October 31,
2007. The State has an option to renew the contract for an additional six-year term.

In March 2007, the MPA went before the Board of Public Works (BPW) with a
modification that extended the term of the current contract by one year (November 1,
2007 through October 31, 2008) with the option of extending the contract for two
additional terms of six months each, if needed.

The decision to proceed with the shorter-term modification was requested by the MPA
and the Maryland Port Commission (MPC), and approved by the BPW, to allow for
additional time to determine:

       a)      Whether the current procurement contract should be renewed for 6 years.
       b)      Whether the MPA should continue with an operating agreement but with a
               new contract based on a new procurement.

                  Future Operations at Seagirt Marine Terminal
                          2007 JCR, pp. 82-83 (Part II)

       c)      Whether the facility should be leased on a long-term basis to a private

Seagirt could be leased to a private terminal operating company, an ocean carrier, an
investment company or other private entity. For each discussion, the term “private
concern” is used in this document to mean any of these.

Prior (September 2007) JCR Report on Future Operations at Seagirt Marine

The prior report on future operations of Seagirt Marine Terminal, submitted in September
2007, addressed the first three topics requested by the committees, i.e. a description of the
options; the cost, advantages and disadvantages of each option; and the effect of each
option on the construction of a 50-foot berth at Seagirt. That report is attached to this
one for ease of reference. This report will focus on the last three areas of information
requested by the committees:

   •   The actions taken in regard to this matter (i.e. studies, requests for interest, etc.);
   •   The final decision on future operations; and
   •   Justification for such decision.

An update of each of these areas is provided below.

The actions taken in regard to this matter (i.e. studies, requests for interest, etc.).

The actions taken with regard to a public-private partnership at Seagirt Marine Terminal
are summarized below.

   •   The Maryland Port Commission, in 2006, formed a committee to evaluate the
       situation and advise Maryland Port Administration staff on whether or not a
       Public-Private Partnership (PPP) should be considered. The Port Commission
       Committee recommended that PPP be evaluated further.

   •   The Maryland Port Administration (MPA) issued a publicly advertised Request
       for Information (RFI) that was sent to over 20 terminal operators and steamship
       lines to determine willingness of the private sector to operate and invest in the
       Seagirt Marine Terminal. The responses indicated a willingness to invest only if
       the private concern had a greater role in operations and/or a longer-term

                   Future Operations at Seagirt Marine Terminal
                           2007 JCR, pp. 82-83 (Part II)

•       MPA had discussions with experts in the PPP field to understand what is
        occurring with regard to private investments in ports, availability of capital, what
        is occurring at other ports such as Jacksonville, Oakland, and Portland, how to
        best position Baltimore and Seagirt for maximum value, etc.

•       The MPA refined the options being considered for future operations of Seagirt.
        There are essentially two approaches available for Seagirt operations. The
        options are either an operating agreement where the MPA would continue in an
        operating role, or a concession/lease where the MPA’s role would be as landlord.
        As such, the MPA is considering three variations on these two approaches:

               1a. Continuing with the current operating agreement/contract for the
               remaining 6 year term. Private investment under this scenario is unlikely.

               1b. Continuing with an operating agreement but based on a long-term
               contract (estimated 20 to 30 years) wherein private investment might be

               1c. Doing a long-term concession/lease (estimated 20 to 50 years) to a
               private concern wherein private investment for improvement and
               maintenance would be attracted. In this case, MPA would serve as

    •    The MPA has started a Valuation of Seagirt. This is an in-depth analytical
         evaluation to estimate the likely value that a long-term concession or lease of
         the facility might bring to the State. The MPA is using a consulting team with
         expertise in the container market and container terminal operations to develop
         an operating and financial model to estimate a value for Seagirt Marine
         Terminal. Among the information to be developed for a 50-year term, is the

               -Maximum capacity of the terminal, with current and new technology;
               -Cargo projections, given capacity parameters;
               -Revenue projections;
               -Operating costs of the terminal, given alternative operating scenarios;
               -Anticipated major maintenance and capital improvement costs; and
               -Earnings before interest, taxes, depreciation an amortization (EBITDA).

    •    Maryland Department of Transportation (MDOT)/Maryland Port Administra-
         tion (MPA) and the Maryland Transportation Authority (MdTA) will likely also
         require the assistance of a financial expert to put a final valuation on the asset,
         given the environment and activity in financial markets, and financial market
         interest in infrastructure investments.

                  Future Operations at Seagirt Marine Terminal
                          2007 JCR, pp. 82-83 (Part II)

     •   The MdTA is the owner of Seagirt Marine Terminal and the MPA has
         approximately $200 million in outstanding debt on this facility to MdTA.
         MdTA is fully informed regarding the consideration, which is underway
         regarding Seagirt, and will be fully kept up-to-date in advance of any action that
         the Authority might be asked to take regarding long-term commitments for

It is anticipated that the estimated value of Seagirt will be a major consideration in
MDOT/MPA deciding how to proceed. The valuation of Seagirt should be completed
this summer.

Outreach on the options under consideration, and a decision on how to proceed, needs to
be undertaken with key legislative leaders and members, the Maryland Transportation
Authority Board, the Board of Public Works, etc. Outreach will also be needed to other
stakeholders associated with the facility.

The final decision on future operations

A final decision on future operations at Seagirt, and whether or not a public-private
partnership will be pursued, will not occur until later this year. The decision will be
driven, in part, on the estimated value of the asset.

Justification for such a decision

As a final decision has not yet been made, there is no justification. However, the final
decision will consider what is in the best interests of the State and what would be most
beneficial in the long-term success of Seagirt Marine Terminal and the Port of Baltimore.


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