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26 Years. $1.6 Billion. Its the Largest Project Ever Undertaken By the Virginia Port Authority. Now, It Just Has to Figure Out Where All That Money Will Come From.

Posted on: Tuesday, 22 November 2005, 12:00 CST

By TOM SHEAN

BY TOM SHEAN THE VIRGINIAN-PILOT

On his first day at the Virginia Port Authority, Jeff Keever got a tour of the state agencys Norfolk office from J. Robert Bray, the executive director. Bray saved the news for later.

On the second day, he said, Craney Island is all yours,

recalled Keever, who became the authoritys deputy executive director and heir apparent to Bray last November.

Today, the port authoritys effort to develop a container terminal on an extension of Craney Island in Portsmouth consumes 25 percent of his time, Keever said. The $1.6 billion project, which will take 26 years to complete, is the largest in the authoritys history.

The demands on Keevers workday arent likely to ease. Part of his assignment requires closing a significant gap between the cost of building the terminal and the money that the port authority expects to raise on its own through port revenues, state financing and bond offerings. The port authority also is examining the possible use of a public-private partnership with a company that could have some role in the terminal. That would be a marked departure for the state- owned-and-operated port.

Finding money for expansion is a challenge that most ports are facing, said Aaron Ellis, a spokesman for the American Association of Port Authorities, a trade group in Alexandria. In addition to paying for more wharves and cranes, ports are facing rising costs for dredging and demands for tighter security, Ellis said.

In the near term, the biggest issue involves federal financing. After a lengthy study of the projects feasibility and environmental impact, the Army Corps of Engineers gave its preliminary blessing in September to the Craney Island terminal. The corps, however, cautioned that the federal government would contribute only $24.6 million toward construction of dikes on the terminal site, a fraction of the $280 million that the port authority had wanted.

The sticking point involves paying for preparation of the terminal site, which will rest on sand and mud dredged from local waterways and deposited along the eastern edge of Craney Island. The government-owned land has been the repository for material dredged from shipping channels and other sites in Hampton Roads. The port authority had counted on having the Army Corps of Engineers pay half the cost of building the dikes and preparing the site.

But the Army Corps contribution is less than half the $50 million the port authority has proposed spending to compensate for environmental damage to the Elizabeth River and shoreline wetlands during construction.

In its study of the project, the corps predicted that the container terminal would generate $6 billion of economic benefits for the country.

We think thats a strong case for some federal funding, said Keever, who had been executive vice president of the Hampton Roads Maritime Association before moving to the port authority.

He and others at the port authority have continued an aggressive pursuit of federal dollars to cover part of the development cost. They have been working with Virginias U.S. senators, John Warner and George Allen, for legislation that would boost the federal share of financing for projects such as the Craney Island terminal.

We are only seeking federal funds for extending the life of Craney Island, Keever said. Were not expecting the feds to pony up to build a marine terminal in Virginia.

Proposals for building a marine-cargo terminal on Craney Island have been tossed around for decades. The latest campaign for a terminal was prompted by rising container traffic, which has pushed the ports terminals in Norfolk, Portsmouth and Newport News closer to their limits.

The influx of consumer goods in recent years, especially from China, has spurred Wal-Mart, Target and other retailers to build giant warehouse-distribution centers in Hampton Roads because of its container terminals.

Other ports along the East Coast, including those in Charleston, S.C., and Savannah, Ga., have witnessed cargo growth and embarked on similar expansion efforts. In Charleston, the South Carolina State Ports Authority is seeking to turn part of a former naval station into a container terminal. Those developments have fueled concern that Hampton Roads might lose business if it fails to add container- handling capacity.

George H. Brown, chief executive officer of the Norfolk stevedoring company CP&O, predicted that Hampton Roads will remain attractive because of its deep water and expansion opportunities. Major shipping lines, he said, have been adding much larger container ships to their fleets, especially for their Asia routes. Those ships, he said, will need deep channels, something this port already has.

The decision by A.P. Moller-Maersk Group to build a container terminal in Portsmouth for its Maersk Sealand shipping line demonstrates Hampton Roads appeal in the shipping world, Brown said.

The $450 million terminal, which is scheduled to open in two years, will satisfy only part of the rising demand for container- handling capacity in the port, Keever predicted.

Individuals in need of money for a project often resort to credit cards, a home equity line of credit or loans from family and friends. Lining up money is much more complicated when the project costs more than a billion dollars.

When complete, the container terminal at Craney Island will have a mile-and-a-half of wharf space and 20 container cranes. The project is scheduled to be built in four phases between 2013 and 2032. The port authoritys timetable calls for three years of engineering and design work beginning next year and then preparation of the site to receive dredged material.

We have to begin construction in 2013, Keever said. Beginning in 2009 is when we start spending some big dollars, and we want to be sure were prepared. We dont want financing to delay the project and lose cargo.

To carry that off, port authority finance director Rodney Oliver must have the needed money lined up as each phase begins. Some of that money will come from revenues that the authority collects from Virginia International Terminals Inc., a private affiliate that manages the authoritys terminals. Some will come from tax revenue paid into the states Commonwealth Port Fund, and some money for equipment will come from a leasing program that the authority has with the Bank of America.

However, the bulk of the financing will likely come from bonds that the authority sells to investors. To help that process go smoothly, the port authority has kept credit-rating agencies informed of its Craney Island project and given credit-agency analysts tours of the planned site, Oliver said. A favorable credit rating can reduce the interest rate that an issuer such as the Virginia Port Authority must pay to the buyers of its bonds, while an unfavorable rating may limit the size of the pool of potential buyers.

James Dille, a stockbroker with Scott & Stringfellow Inc. in Norfolk who specializes in managing municipal-bond portfolios, predicted that the port authority would have no trouble selling bonds for its Craney Island terminal.

After the damage done to the port of New Orleans from Hurricane Katrina, some investors might look more closely at backing for the bonds, Dille said. Still, the authoritys bonds have a favorable name and are well accepted in the marketplace, he said.

The demand for something like that would be huge, because demand for municipal bonds has become a nationwide market, he said. An offering of $100 million of their bonds could be sold in a couple of hours.

Several years of unusually low interest rates have provided a bonanza for borrowers, including government agencies. One concern for bond issuers is the upturn in interest rates, which pushes up the rates that issuers must pay for the money they borrow. The port authoritys financial assumptions have been conservative, so higher rates probably wont add significantly to its borrowing costs, Oliver said.

To gain greater flexibility when issuing bonds in the future, the port authority will seek permission from the authoritys board to issue variable-rate bonds, he said.

One possible ingredient to the funding mix might change how the port authority has operated since its creation. The port authority is looking at a partnership with a private company. In Virginia, companies have teamed up with state and local governments to help finance and build toll roads and a handful of other public projects.

Elsewhere in the country, ports have formed partnerships with private companies as a way to pay for new terminals, said Ellis of the American Association of Port Authorities. Earlier this year, the port of Portland, Ore., opened a $40 million car-import terminal, the product of a partnership with automaker Toyota.

Brown, chief executive officer of stevedoring firm CF&O, said his company would consider becoming a partner with the port authority in the Craney Island project if the opportunity arose. CF&O is a joint venture formed last year by Cooper/T. Smith, a Mobile, Ala.-based stevedoring firm, and P&O Ports North America, a major manager of marine terminals and provider of stevedoring services.

While the port authority has studied the possibility of using a public-private partnership for the Craney Island terminal, its too early to say what role a private partner might play if the authority decided to use a partnership, Oliver said.

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Reach Tom Shean at (757) 446-2379 or tom.shean@pilotonline.com.

Source: Virginian - Pilot

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