Virginia Gov. Bob McDonnell on Tuesday gave conditional approval to the March 26 decision by the Virginia Port Authority Board of Commissioners not to outsource port operations to private investors for decades and instead restructure the existing organization to make the VPA and its Virginia International Terminals operating arm more efficient.
Many assumed the final decision rested with the VPA, but McDonnell administration officials insisted the governor had the final call on whether to proceed with a multi-decade concession agreement in exchange for upfront money, upgrades to port infrastructure and other considerations. Two groups, global terminal operator APM Terminals and a consortium led by investment bank J.P. Morgan Chase, had made proposals to run the port for up to 50 years, saying the state would gain any where from $3 billion to $4 billion in value from the arrangement.
The VPA board said that the private offers undervalued the Port of Virginia and that VIT could achieve comparable economic benefits for the state.
In a statement, McDonnell made clear that the VPA board only had preliminary authority to make a decision, and left open the possibility that if reforms don't pan out the state would consider other public-private partnership offers for the port.
"Over the past week, I have reviewed the letter and information sent to me by Virginia Port Authority Board of Commissioners Chairman William Fralin following the board's decision to terminate further evaluation of Public Private Transportation Act proposals for port operations. At the beginning of this process, I was clear that the initial decision-making authority for whether or not to recommend a private concession was vested in the Board of Commissioners. After conducting my review, I accept the board's decision, and I believe it is in the best interests of the Port of Virginia and the Commonwealth at the current time," he said.
McDonnell laid out his vision for port improvements designed to make the Port of Virginia a desired destination for the new generation of massive container vessels currently being deployed by ocean carriers.
"For Virginia to realize this opportunity, however, we must address both the short- and long-term challenges facing the port. In the short-term, we must promptly restructure the current operational arrangement between the VPA and Virginia International Terminals, Inc. to reduce costs, eliminate duplication of effort and grow cargo volumes. In the long-term, we must address challenges like developing Craney Island, attracting manufacturing and distribution centers that use our port, improving infrastructure outside of the port, better coordinating economic development efforts, bringing dual-access rail service to all of our container terminals, and improving the port's financial picture to reduce dependence on state funding.
APMT's unsolicited proposal to privatize the port and McDonnell's philosophical support for developing transportation infrastructure through privately financed deals put pressure on the VPA to address the administration's concerns about the organization's business approach. The restructuring proposals and new legislation passed by the General Assembly to strengthen the VPA's industrial development role were developed concurrently with the review of the private bids.
McDonnell said it is up to the VPA board members, all of whom he appointed, to make sure the Port of Virginia achieves its potential.
"Given these challenges, my acceptance of the board's decision is conditioned upon the implementation of certain recommendations made by the board. First, the board must immediately commence a global search for a permanent management team. Second, the VPA must promptly follow through on plans to implement the corporate restructuring of the VPA/VIT relationship. Third, as part of this restructuring, the board's outside auditors must conduct a comprehensive review of VIT prior to the VPA assuming all liability for port operations. Finally, the board must provide a detailed plan for meeting the cargo volume, revenue and cost-reduction targets that served as the foundation for its decision. If these actions are not taken, it will be difficult for the Port of Virginia to remain competitive, create jobs and attract economic development opportunities over the long-term. We owe it to not only the citizens of Virginia, but also to our customers, to ensure that the Port of Virginia is the most cost competitive and operationally efficient port on the East Coast," he said.
(Read Gov. McDonnell's full statement about the Port of Virginia and the new path forward.
) - Eric Kulisch