Texas port receives ok to hire PPP adviser

Port of Galveston CEO Steve Cernak outlined several opportunities for private capital to improve the port by building a new container terminal and expanding other cargo-handling operations. A lease on the port’s entire facilities is also possible. ‘We’re open to ideas,’ he said.

The Port of Galveston in Texas has received the go-ahead from its board to hire BMO Capital Markets as an advisor on what could become a broad public-private partnership to lease and expand its cargo-handling facilities.

“The whole thing is in play – except for the cruise operations,” said Steve Cernak, the port’s chief executive referring to the Texas Cruise Ship Terminal serviced by Carnival and Royal Caribbean cruise lines. “Everything else presents an opportunity.”

The biggest opportunity, he said, was to build a two-berth, hundred-acre cargo container handling facility at the port, which has not handled containerised cargo since 2002. The facility could be build on the western end of the port’s properties, where there are two slips, or piers that require ships to dock perpendicular to the land to be discharged.

The port owns the rights to the submerged land in between the slips, Cernak said, and he has “a permit in hand” to fill that land in create space for the container terminal.

The other big development opportunity at the port involves filling in land in between two other slips on the eastern end of the port, where ships come in to drop off large, bulky cargo such as automobiles and construction equipment. These types of cargos have to be rolled on and off the ships using specialised moving equipment and hence they are called “roll-on, roll-off” operations.

Cernak said that filling in the slips could provide an opportunity to expand the roll-on, roll-off operations while maintaining cash income from their ongoing operations.

Additionally, there is a shipyard at the port – the Gulf Copper Marine Works – that was damaged during Hurricane Ike, which battered Galveston in September 2008. “That might present an opportunity for a fund to come in and help repair it,” Cernak said.

The over-arching idea is to diversify and expand the port’s cargo handling operations in preparation for the completion of the $5.25 billion expansion of the Panama Canal. Scheduled for 2014, this project would enable much larger container ships from China to travel across the canal to ports such as Galveston, located in the Gulf of Mexico, and others on the East Coast of the US.

Cernak added the port was already being dredged to enable larger container ships to use its facilities. Once the 45-foot depth is achieved, he estimates that ships carrying between 4,000 to 5,000 containers will be able to use the Port of Galveston’s facilities.

“The idea is not to be late to the game,” he said.

In preparation for these larger ships, several ports in the US have already executed or are evaluating public-private partnerships to expand their port facilities. The Port of Baltimore hired a private equity firm, Highstar Capital, to finance a new berth in preparation for cargo from larger ships in exchange for a 50-year contract on its Seagirt marine terminal. In March, the firm won a similar big-ticket, 50-year concession for a container terminal at the Port of Oakland in California.

Cernak said the Baltimore and Oakland deals would “probably be fairly reasonable templates” for the Port of Galveston’s project. But he didn’t rule out an even bigger opportunity: a long-term lease on the port’s entire facilities, except for the aforementioned cruise terminal.

“It could take that extreme here,” he said. “We’re open to ideas.”