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P3 Project for San Juan Cruise Port Conjures Airport Deal

By on September 21, 2018

Editor’s note: The following originally appeared in the Sept. 20, 2018, issue of Caribbean Business.

A public-private partnership (P3) for 20 to 30 years via $360 million to $500 million in private capital investment and management continuity under a master plan are some of the key points that would make up a Puerto Rico Public-Private Partnerships Authority (P3A) project that seeks to position the island as the lead player in the Caribbean’s cruiseship industry.

The Puerto Rico Ports Authority is struggling to maintain and improve the island’s airports and seaports due to deteriorating finances. Multiple owners and operators for other port facilities and a lack of coordination between ports are direct contributors to deep-seated issues that Director Anthony Maceira intends to address with the development of this project.

“We are going to transfer to private hands the operation and maintenance of some assets that right now are in a decrepit state, and after 20 to 30 years, we will receive them in a much better state. The vision is, in that period, that a solid cruise industry would have developed in Puerto Rico,” said the ports chief, who was emphatic in comparing this concession with the P3 model used in 2013, when a contract was granted to Aerostar Holdings LLC to operate the Luis Muñoz Marín International Airport until 2043.

The cruise industry is the fastest-growing leisure travel market in recent years. The Caribbean market comprises about 35 percent of the total, or more than 10 million passengers a year. “At its best moment, Puerto Rico serves 1.4 million passengers, and what the governor wants is for the island to be the leader in that market throughout the Caribbean,” explained Maceira, who took out his cellphone to read an email from a cruiseline executive.

“The CEO of a cruise company writes to me, ‘I am following up and letting you know that we’re looking forward to this process,’ and this is one who even submitted a letter favoring the P3 process because it is one of the cruiselines that right now can’t bring their vessels to San Juan,” Maceira said, adding Norwegian Cruise Lines as an example, as the company has expressed interest in docking its largest ship on the island, which doesn’t have a suitable dock for it.

Eight companies participated in the government’s market-sounding, which revealed that the industry would require more time for the request for qualifications (RFQs) because the project encompasses a substantial injection of private capital. Ports expects that at least four of these will participate in the RFQ. The names of these companies cannot be published due to the confidentiality of the process, but Maceira told Caribbean Business about the type of business they conduct.

“We cannot say the names but the company that submitted the unsolicited proposal is public knowledge—Global Ports Holdings. I can tell you that there is a bit of everything—there are [U.S.] American, European companies, with physical presence in Asia; port operators, cruiselines. There is a variety and that’s what we’re looking for, that there is healthy, but very strong competition,” Maceira said.

Does a P3 benefit Puerto Rico?

As part of the agreement with Aerostar, Ports received a $615 million payment in 2013. Until 2018, the corporation invoiced a fixed $2.5 million a year, with increases as dictated by the consumer price index. Starting next year, the payment will amount to 5 percent of the gross earnings of the airport operator, a figure that continues until 2033, when the total goes to 10 percent until the termination of the 40-year agreement in 2043.

Ports expects to benefit monetarily from this business, which seeks long-term rent of piers 1, 3, 4, 11, 12, 13, 14, the Pan-American docks and the pedestrian promenade between docks in the southern area of Old San Juan via fixed-fee and variable-revenue fee models based on the gross income of the project manager, an advance or a combination of these, as was the case for the Muñoz Marín Airport partnership.

Despite claiming the transfer of the airport to Aerostar was good business, Maceira pointed out that one of the mistakes when assigning a value to the property was failing to “optimize” the value of its assets. In the case of the cruise ports, while it is true billions in federal aid are expected to help rebuild them, it is not a mistake to push a P3 of this magnitude.

“At the moment, we are working on a legal process and mathematical formula so, once the federal funds begin to be received, the private entity may be able to function as a grant manager,” thus private investment is reduced and Ports’ income from the management concession of the piers and surrounding areas is greater, Maceira said.

“To better manage the maritime transportation system as a whole and make ports more attractive to maritime businesses and investors, maritime industry experts’ input indicates the need for consolidating ownership and oversight of the nine main ports,” read both the draft and final version of “Transformation & Innovation in the Wake of Devastation: An Economic & Disaster-Recovery Plan for Puerto Rico,” the document that seeks $906 million in federal funds to repair ports in San Juan, Peñuelas, Guánica and Fajardo.

Is there redundancy between the estimated private investment and the federal funds requested, Caribbean Business asked.

“The federal funds being requested are under section 428 of FEMA’s [Federal Emergency Management Agency’s] Hazard Mitigation [Grant Program]. Part of what the package allows is that money is assigned to recipients and subrecipients based on the shortened estimates between the federal government and local government, but the money can be moved. The authority [Ports] could decide to redirect this money to the airports because it got another way to finance the repair of the cruise ports, as long as it is for permanent work in compliance with FEMA parameters,” the Ports director explained.

“To ensure that backup capacity exists if the Port of San Juan is damaged, PRPA [Ports] and other port operators plan to further develop an existing seaport to provide redundant capacity through the use of public-private partnerships,” reads the final document submitted Aug. 8 and unanimously certified by the island’s fiscal oversight board 20 days later. The latter warned the administration of Gov. Ricardo Rosselló to avoid budgetary and implementation risks, in compliance with the Puerto Rico Oversight, Management & Economic Stability Act.

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