VIRGINIA PORT AUTHORITY BOARD VOTES IN FAVOR OF RESTRUCTURING
(The following is a reformatted version of a press release issued by The Virginia Port Authority and received via electronic mail. The release was confirmed by the sender.)
March 26, 2013
VPA Board Approves Reorganization; Plan Will Restructure Both VPA and VIT
Norfolk - Today the Virginia Port Authority Board of Commissioners voted today to restructure its operating company and overhaul the port’s long-term strategy.
The actions follow an extensive 18-month review of port operations, including the evaluation of two private proposals to assume operations of the port. In 2011 Gov. Bob McDonnell tasked the board to conduct a detailed review of port operations to identify actions necessary to grow cargo volumes and return the port to profitability.
“We are transforming The Port of Virginia to meet a changing and increasingly competitive environment,” said William Fralin, chairman of the VPA board. “We will move forward as a stronger, leaner organization that is better-positioned to serve the ocean carriers and port customers, attract cargo to Virginia and be more accountable to Virginia taxpayers. “The Port of Virginia looks forward to continuing to operate as the premiere gateway for international maritime commerce on the US East Coast.”
The board will convert Virginia International Terminals (VIT) from a non-stock corporation to a single member Virginia limited liability corporation under more direct control by the VPA. The new structure will eliminate duplications, increase efficiencies and reduce costs.
The board will also begin the process of recruiting the permanent executive director and chief commercial officer to lead the streamlined organization, and expects to have the permanent leadership in place as early as fall 2013.
“Moving forward, it is imperative that we empower and hold accountable a strong leadership team that can successfully continue our drive toward greater efficiency and reduced costs,” Fralin said. “We want leadership who can deliver premiere port service and sustained cargo and economic growth to Virginia.”
The board will also overhaul its strategic plan to determine ways to ensure the port remains competitive over the long-term. The strategic plan will focus on advancing major capital improvements, reducing debt levels and attracting new distribution centers and manufacturers to help drive increased cargo and economic development across the Commonwealth of Virginia.
As part of today’s action, the board terminated review of unsolicited proposals submitted by APM Terminals, Inc. and Virginia Port Partners (VPP), noting that neither proposal accurately reflected the potential net present value of the state’s terminals and revenue potential.
The 12-member board weighed the reorganization plan against two unsolicited proposals from APM Terminals North America and JP Morgan that were each seeking a long-term concession to be the VPA’s terminal operating company. Those proposals were submitted to the state’s secretary of transportation last April and December, respectively, under the Public-Private Transportation Act of 1995.
After careful analysis and consideration of the risks and opportunities the board determined that the retention and improvement of the public sector operator is a more attractive opportunity for the Commonwealth of Virginia. In making its determination, the board took into account a number of factors, including the following:
• The analysis of cash flows calculated for the APMT and VPP proposals and the public sector comparator shows that the public sector comparator provides more net cash flow as compared to the best achievable proposal. The analysis includes operational changes and execution of key structural business model changes;
• An analysis of the revenues and cargo volumes forecast by APMT and VPP as compared to revenues and cargo volumes forecast by the public sector comparator shows that the public sector comparator is comparable to a concession;
• The belief that the public sector comparator has the ability to generate sufficient revenue over time to allow the VPA to service its existing debt and fund the capital expenditures described in the VPA’s updated 2040 master plan;
• While both PPTA proposals present an opportunity for the VPA to acquire APMT’s marine terminal in Portsmouth, the VPA already has control of this facility until 2030 pursuant to the lease between the VPA and APMT;
• Cargo volumes at the Port of Virginia are beginning to show improvement following several years of slow growth. Calendar year 2012 was the port’s second best year on record in terms of cargo volume and the port is off to a strong start in 2013. Given the port’s improving market outlook, the Board does not believe it is beneficial to implement a concession at this time; and
• Given the port’s natural and infrastructure advantages and position on the East Coast, combined with the future prospects of significant changes in shipping trends as a result of the Panama Canal Expansion, the increased use of the Suez Canal, and the move to substantially larger cargo vessels, now is not the optimal time to concession operations at the Port of Virginia.
“We thank both of the companies that put forth proposals because their very real interest in The Port of Virginia, I believe, affirms a long-held belief within the industry that Virginia is home to the premier port on the US East Coast,” Fralin said.
Last fall, after a year of discussion, the VPA brought forth its proposal to restructure VPA and VIT and the board began its consideration of the plan in parallel to the privatization offers. The focus of the reorganization is to create a more unified - streamlined -- organization focused on port growth, improved communication between the two entities and creating efficiencies across the board.
The Virginia Port Authority (VPA) is a political subdivision and public instrumentality of the Commonwealth of Virginia, reporting its operations and finances to the Governor and the General Assembly through the Office of the Secretary of Transportation. The VPA owns and operates four general cargo facilities on behalf of the state: Norfolk International Terminals, Portsmouth Marine Terminal, Newport News Marine Terminal and the Virginia Inland Port in Warren County. In addition, the VPA leases and operates APM Terminals in Portsmouth and the Port of Richmond.
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