Dubai grinds toward port sale

October 07, 2006|By Meredith Cohn | Meredith Cohn,Sun reporter

It has been six months since a Dubai company said it would sell its stake in U.S. ports to appease lawmakers in Washington, but Dubai Ports World says it may need another month or more to identify a buyer.

In a recent letter to members of Congress, a company official said it had five to eight firms participating in a second, and final, round of bidding for contracts in Baltimore, New York and close to two dozen other ports. That round is getting under way.

Lawmakers, who turned the purchase by the Arab government-owned firm into a huge political matter earlier in the year, don't seem concerned with the delay - though several said they haven't stopped paying attention. They view the company's post-Sept. 11 control at gateways to U.S. soil as a security threat.

"The leadership of Dubai Ports World made a commitment to the U.S. people and to the American government and our office expects them to honor it," said Allyn Brooks-LaSure, a spokesman for Sen. Robert Menendez, a New Jersey Democrat who joined lawmakers from both parties to oppose the sale of port operations to the Dubai company in March.

The company had the blessing of the Bush administration and had closed on the deal. But Dubai Ports World executives later bowed to political pressure and agreed to resell the U.S. operations. They were part of a $6.8 billion global portfolio acquired from London-based Peninsular & Oriental Steam Navigation Co., or P&O Ports.

Dubai executives said it would take four to six months to sell off the American operations, a timeline that was delayed because the company's financial books had to adhere to U.S. accounting standards.

In the past several months, the fuss on Capitol Hill has largely died down, although Congress passed a port security bill just before leaving town last week to campaign for fall elections. Some who monitor national security say the legislation was a step in addressing problems on the waterfront.

But it also passed "in part, to inoculate itself against charges that it was asleep at the Dubai Ports World switch," said Donald F. Kettl, director of the Fels Institute of Government at the University of Pennsylvania and author of books including System Under Stress: Homeland Security and American Politics.

What the bill did not do was address the core issue of who should run American ports, he said.

Foreign companies already perform several port operations, although they employ many Americans as supervisors and provide thousands of hours of work for U.S. longshoremen. Most of the world's largest port operators are based outside the United States, which Kettl and others said could be complicating efforts to find an acceptable buyer for P&O Ports.

The letter from the Dubai Ports World company to lawmakers, dated Aug. 31, said some of the bidders are "considering or planning to work with a minority partner, some of whom have ultimate parent companies that are from the European Union, Japan or Canada."

It was unclear from the letter if any of the bidders were now experienced port operators. Rather, the letter said they were "infrastructure funds, private equity houses and strategic bidders."

Officials with the Dubai firm and P&O, which is still running the U.S. operations as a separate entity, did not respond to messages seeking comment.

Charlie Papavizas, a partner at the Washington law firm Winston & Strawn LLP who specializes in the maritime industry, represented a client who was interested until recently in buying the Dubai company's U.S. operations. He said the client, whom he declined to identify, thought the offers would not bring top dollar. That could pose another problem because the Dubai company has said it would not sell the portfolio at a loss.

The asking price of the U.S. operations has not been made public, but the company has said they are valued at about 10 percent of the total P&O portfolio, or about $680 million.

Papavizas said the eventual buyer could be a newly created U.S. entity set up by multiple firms or even a foreign firm. It's not clear if that would be acceptable to the company or to lawmakers.

"It'll all be in eye of the beholder, the American people and Congress," he said. "They'll want to know if Dubai Ports World followed through and sold the assets to an American company."

meredith.cohn@baltsun.com

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