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Megaport bidders disqualified: Transshipment port in drydock
The San Juan Star / November 22, 2004

By Larry Luxner

Puerto Rico's much-hyped $700 million Port of the Americas project along Puerto Rico's south coast has become entangled in a web of disputes.

The so-called "megaport" in Ponce originally envisioned handling 3 million TEUs at two sites in Ponce and Guayanilla, in a project worth $1 billion. It was later scaled back to a $700 million project of 1.3 million TEUs a year at a 1,200-acre complex in Ponce, and is scheduled to be completed by the end of 2006.

Yet the project's only two bidders have been disqualified for reasons that remain unclear.

"We closed the process by notifying the participants that their proposals were not in compliance with the expected requirements that the government stated in the original RFP," said Ramón Torres, executive director of the Port of the Americas.

Torres refused to elaborate, saying only that "this is the official statement from the board," and that "the two proposals that were under evaluation were not accepted by the board of directors. We are now defining a strategy to look for new alternatives to operate the existing terminal."

The two bidders were French-Italian construction consortium Saipem Bouygues S.A., which built the Caucedo transshipment port for CSX World Terminals in the Dominican Republic, and Mainports Puerto Rico, a local group organized by Frank Haacke, the honorary Dutch consul-general in San Juan, and consisting of the Port of Rotterdam and local firms Ayala Inc. and Horizon Lines.

Torres, who insisted that controversy over the winner of Puerto Rico's gubernatorial election has nothing to do with the project's delay, said the government is no longer negotiating with the two groups, which originally submitted a joint proposal.

But Haacke said that "we're still on speaking and negotiating terms with the government."

Haacke told The STAR on Friday that his company's original proposal was thrown out because "they put the bars of the RFP quite high, and we were not willing to meet" the government's demands.

"They were asking private industry to make certain guarantees and contributions to the project," he said. "Since we didn't know what the eventual scope of the project would be, we thought it wouldn't be responsible from the private sector to just give in to that requirement. We don't invest money when we don't know what the end result will be."

Originally, the government had intended that a private operator would finance the Port of the Americas. Now, said Torres, the government itself will finance the first phase of around $250 million.

"The government just approved a law to set in place an instrument to complete the design of the project, to acquire the land required to develop the port and initiate construction of the project," said Torres, who was promoted to his new post last month after serving as executive director of the Port of Ponce.

"The process has been segregated into different aspects. We will be looking for an operator for piers 4, 5 and 6, completing the design of the expansion and building the first phase of the project. Those three processes are underway concurrently while we provide followup on the final permitting of the project."

In the first five years of operation, the expanded port is to concentrate mainly on international transshipment cargo, with the focus shifting to domestic (Puerto Rico-U.S. mainland) trade once San Juan reaches its capacity around 2011 or 2012.

Torres said that within 10 years, 50% of the port's business will come from domestic traffic, and 50% will be transshipment. He also said the project will generate over 10,000 jobs for the island, whose unemployment rate presently hovers around 12%.

"Our main goal is to create jobs throughout the southern region of Puerto Rico," he said. "This project will be a tool to enhance opportunities for industrial sites in Ponce, with land that could be developed into facilities for manufacturing."

Earlier this month, Gov. Sila Calderón inaugurated the first phase of the transshipment port, with an initial investment of $40 million in repairs for piers 4, 5 and 6, which should be fully operational before year's end. The repairs are being financed through a line of credit with the Government Development Bank, and will be repaid through a bond issue through the Port of the Americas Authority.

A spokeswoman at the Puerto Rico Industrial Development Co. (Pridco) said the repairs "will enable the docking of huge post-Panamax ships in the facility, a class of cargo carriers that won't be able to reach the port until Ponce Bay is dredged."

To that end, the dredging — expected to last 10 months — is awaiting environmental permits from the U.S. Army Corps of Engineers. The local subsidiary of Weeks Marine Inc. has been awarded the dredging contract. The dredging itself entails a channel 1,200 feet long, about 400 yards wide and 50 feet deep to accommodate the huge vessels.

In addition, the bathymetric studies needed to gauge the depth of the bay prior to dredging will be done by the U.S.Geological Survey, at a cost of $125,000.  

Yet skepticism over the Port of the Americas project remains high, both within and outside of Puerto Rico.

"My personal opinion is it will be very difficult for that project to secure international financing," said Larry Yunt, vice-president of sales for CSX World Terminals in Charlotte, N.C., which operates the Caucedo container terminal in the Dominican Republic. "It'll be difficult to build a viable financial model with the labor costs associated with activities in that terminal."

That, he said, is because Puerto Rico's hourly wages are comparable to those on the U.S. East Coast, though it's debatable whether labor costs are a critical factor in the success or failure of a transshipment operation.

Ian Blair, senior vice-president of operations and development at the Port Authority of Jamaica, warned in a phone interview from Kingston that the risks associated with Puerto Rico's megaport project are very high.

"In the early stages of the project's life, you'll have to get major customers, so therefore you might not be able to meet all the necessary financial commitments in terms of a project payback. We are strictly an entity on our own, without any government support. If Puerto Rico intends to use public funds for this project, they might be in serious trouble."

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