Alex Binkley on port privatization

Ports disappointed with handling

of study on federal privatization

By Alex Binkley
True North Perspective

Monday 6 March 2017 — The study of port privatization prospects by investment bank Morgan Stanley Canada left the operators of the country’s 18 main ports in the dark about what is being considered.

While the port study and a parallel examination by Credit Suisse of the potential privatization of Canadian airports are complete, they won’t be released until the federal budget is presented to Parliament later this month.

In November, the government revealed circuitously that it had hired Morgan Stanley to provide financial advice based on concepts advanced in the Emerson report on the Canada Transportation Act Review. That process was to include “receiving proposals from institutional investors or private equity investors.” The ports were excluded from the discussions.

Both Robin Silvester, CEO of the Port of Vancouver, and Jim Quinn, his counterpart at the Port of Saint John, are highly critical of the ports’ exclusion from the discussions. Silvester warned privatization could cripple future capacity-increasing investments in ports while Quinn said the port authorities have plenty of ideas about governance they would have liked to share with the Morgan Stanley and the government.

Meanwhile Wendy Zatylny, President of the Association of Canadian Port Authorities, says a trip to Australia at the invitation of that country’s port association left her convinced Canada doesn’t have much to learn from that country’s port privatization process.

Prior to the start of privatization, the status of the Australian ports was comparable to the Canadian ports prior to the Canada Marine Act reforms in 1998 that established the Canadian Port Authorities (CPAs), she said in an interview. While Transport Canada operated the ports here, “the Australian ports were connected to state agencies and were basically just government entities. They had trouble with competition and had no commercial discipline.”

On the other hand, the CPAs “are effective commercial corporations,” she adds. Ottawa needs “to look at the entire context of what CPAs are, what they’re responsible for and what kind of oversight they operate under.”

While the Australian ports mostly serve the hinterland within 50 kilometers of them, Canadian ports “have extended supply lines that stretch across the country.”

Last fall, Transport Minister Marc Garneau said the privatization studies would be released for discussion before any decisions were made. In late January comments to the Greater Vancouver Board of Trade, Garneau insisted the studies were simply a matter of exploring different possibilities. “Please do not make the assumption that because you hear about it in the papers that this is a done deal,” Garneau said. “It is just a new government exploring different possibilities.”

He didn’t say why the studies were being kept under wraps until the budget is released. Transport Canada couldn’t answer that question either.

Silvester said in a speech to the Greater Vancouver Board of Trade in December that the port is working well as a federally owned and operated facility. He later told reporters that other Canadian port managers share his frustration. “There is a degree of concern about the prospect of privatization. I am not alone in the view that the current governance model works well,” he said.

Quinn said in an interview Canadian ports “are better off than before 1998. The review should have involved the people who manage the assets on the government’s behalf. We should have had a dialogue on the potential options. Instead we faced a lot of uncertainty and a lack of clarity.”

He says the concept of regional port authorities needs to be fully discussed to answer both the potential and pitfalls of privatization and possible private-public partnerships.

As a follow-up after the report is released, “the government should set up a roundtable process for discussing the report so we can talk with senior government officials about what direction it should take. In the end this would put the government in a much better position.”

Maritime industry figures note that Morgan Stanley is best known for privatizing government assets and questioned whether it’ll consider the recommendations in the Emerson report for a share-capital structure for the ports and regional amalgamation of the smaller ones. The Emerson report called for movement toward more commercial, market-based operation of ports to reduce their dependence on government funding but did not use the term privatization.

The report noted that port authorities have “been able to strike a reasonable balance between commercial disciplines and public interest in ports as enablers of trade development.”

However the current federal control funding model is making “it increasingly difficult for the port authorities to respond to evolving trade demands.” That’s especially evident when it comes to access to capital for future expansion.

One of the challenges facing Morgan Stanley will be how to treat the Port of Vancouver, which in 2015 handled nearly 102 million tonnes of traffic, compared to the others. Saint John, Montreal and Quebec City were the only others to surpass 20 million tonnes. Eleven ports including Halifax handled less than 10 million tonnes that year.

Silvester says he wonders what “problem the federal government is trying to solve? Things can always be improved and we are open to that discussion.

“But if the problem they are looking to solve is simply how do they find some money, the problem my organization could end up being faced with is suddenly an amount of money we’ve been using to increase capacity in the gateway is now going toward servicing debt for a lot of money some entity has paid the government to take over the port.”