The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

All "homes across New Providence" will benefit if the island's sole cargo port operator expands into Nassau's cruise port and LNG bunkering, its top executive argued yesterday.

Michael Maura, chief executive of BISX-listed Arawak Port Development Company (APD), told Tribune Business that diversifying into new opportunities would not only boost shareholder returns but potentially enable the company to lower port tariffs and fees.

He explained that the shipping companies, and major importers, could then pass these reduced costs on to Bahamian households through lower grocery and consumer goods prices, helping to offset the recent 12 percent VAT hike and generating all-round benefits that extend beyond APD and its shareholders.

Emphasising the Nassau Container Port (NCP) operator's continuing eagerness to expand beyond cargo shipping, Mr Maura told this newspaper it was still "pursuing" both the Prince George Wharf management contract and the possibility of supplying visiting cruise ships with liquefied natural gas (LNG) via a bunkering facility.

With APD's fuel supplier partner, New Fortress Energy, still on board, Mr Maura said: "We remain interested in LNG bunkering because more and more of these cruise ships coming out of these yards will be operating on LNG.

"Disney Cruise Lines executives were here in Nassau several weeks ago, talking about three large vessels coming into service in the next several years that will be operating on LNG and calling in The Bahamas.

"We believe that with our location, and business in the maritime industry, we'd like to pursue that. That's something we still have on the board. We'd need government support to make that a reality."

Vessels docked at Prince George Wharf would be refuelled with LNG supplied from a bunkering facility at APD's Arawak Cay facilities, with the fuel brought in by ship to a small regasification plant that would convert it back from liquid form.

APD told Tribune Business earlier this year that cruise industry growth, coupled with new regulatory demands, had created the bunkering opportunity. Besides the 100 new cruise ships set to sail out of shipbuilders' yards within the next five years, International Maritime Organisation (IMO) directives will impose limits on ship emissions from 2020.

That is driving the cruise ship industry to use LNG as its main fuel, with 20 per cent of 'new builds' expected to use this source. And, of the 100 vessels in the industry 'pipeline', around one-third - some 30 - are destined for the Bahamas and Caribbean.

APD and New Fortress, though, face competition in the LNG bunkering business from the rival that beat them to Bahamas Power & Light's (BPL) new power plant contract. For Whitney Heastie, BPL's chief executive, revealed to this newspaper that Shell North America plans to offer similar ship refuelling services from the infrastructure it will build at Clifton Pier to service the new power plant.

Still, APD's bunkering plan offers clear synergies with APD's other targeted expansion venture - its involvement in the bid with Global Ports Holding, and CFAL, the Bahamian investment advisory firm, to win the contract to take over management/operations at Nassau's cruise port.

Should the consortium be successful, APD will be hired to provide "the non-executive operations and facility support" for its plans to transform the cruise port into a leading global destination.

"On Prince George Wharf, we remain interested in participating from a Bahamian labour support perspective, and hope to be given that opportunity," Mr Maura reaffirmed. "The staff have worked very hard to develop a first-class reputation for APD in the Caribbean, and we'd like to be able to be able to broaden out into the cruise space and do it a mile east of us.

"There's two prominent parts to this. If you consider bunkering with LNG and cruise port operations, we have intentionally selected two sectors where we will not displace any existing Bahamian enterprises.

"With LNG bunkering there is no one doing that. By APD getting into that business it will not negatively impact any Bahamian enterprise. It's not simply transferring income from one Bahamian enterprise to another. We're expanding our economy."

The APD chief executive continued: "There are two other issues. From a shareholder perspective we're seeking to develop new income streams. As we're no longer solely dependent on cargo coming across our bulkhead, it provides greater security to our shareholders from a dividend perspective.

"We are also governed by the 10-12 percent Internal Rate of Return (IRR), which means as we generate income from new sources it helps us to reduce our port tariff and container tariff. We're able to lower the tariff cost on grocery shipments. By going into new businesses the impact goes beyond APD into homes across New Providence."

One of the terms imposed on APD by the last Ingraham administration, as the port operator was structured, is that it must target an annual IRR of between 10-12 percent every year. This was intended to strike a balance between shareholder interests, in terms of profitability and dividends, and those of consumers by keeping port tariffs, fees and charges at a reasonable level.

The KPMG accounting firm is required to assess whether the IRR goal is being achieved every two years. If APD is exceeding the target, KPMG can recommend that tariffs be lowered, whereas if it is below target it can call for a raise.

Income from new business sources, such as the cruise port and LNG bunkering, would thus enable APD to hit the 10-12 percent IRR target with lower port charges and tariffs - thus reducing the costs passed on by shippers and importers to Bahamian consumers. It would also mitigate annual increases in government lease payments and staff cost of living adjustments.

Tribune Business understands, though, that APD's top executives are concerned that the company may miss out on lucrative business opportunities as a result of constant politically-related criticism directed its way.

The company, ever since its creation, has come under fire from the Progressive Liberal Party (PLP). The Opposition's current leader, Philip Davis, frequently singles out the Arawak Cay port with rhetoric that charges the FNM with "creating a monopoly for some of the Bahamas' wealthiest families" - a reference to the shipping company owners who collectively own 40 percent of APD.

This, though, ignores that cargo ports are likely a "natural monopoly" on New Providence, plus the fact that some 11,000 Bahamian public shareholders collectively own 20 percent of APD following its initial public offering (IPO).

The Nassau Container Port also acts as the Government's largest revenue collection point for VAT and import duties/Excise Tax, with APD's own data showing it has contributed $30m to the Public Treasury - including $7m in the 2017 financial year - to the Public Treasury since it began operations in 2012.

APD, which handles 90 percent of international cargo coming into New Providence, also provides a platform for the employment of 400 workers between itself and the operators that use it.

Mr Maura, meanwhile, said APD also hoped anticipated regulatory reforms by year-end 2018 will enable it to move forward with its 700 kilowatt solar energy project planned for the inland Gladstone Freight Terminal (GFT).

"We understand that BPL and the Utilities Regulation and Competition Authority (URCA) are close," he told Tribune Business. "We are advised that by year-end they would have completed regulatory work for large-scale solar applications.

"We look forward to that, as we still want to move ahead with the large-scale solar project at the Gladstone Freight Terminal. That's about three-quarters of a mega watt (MW), 700 KW." APD has in the meantime also hired outside consultants to advise it on how to reduce energy costs through improved efficiency.