Port Update Raises More Questions Than It Answers

Here's the strangest concept from Tuesday's port update by CBRM Mayor Cecil Clarke: To do business with the People's Republic of China, it is apparently vital to respect the rules of the private sector.

And one rule of the private sector in particular -- the one that says you must sign confidentiality agreements before you so much as look at private companies.

China, it is true, has managed a feat once thought impossible—adopting capitalism without democracy—but there is a through-the-looking-glass quality to the belief that the Mayor owes more loyalty to state-owned Chinese companies than he does to the citizens of the CBRM.

To his credit, Clarke did take a stab at “transparency” on Tuesday—you know, that thing he promised when running for office? The problem, as I see it, is that transparency does not come easily to him and his time in the company of corporate types and Communist officials has not helped him in that department.

But let's consider what he told a room of about 40 people at the Joan Harriss Cruise Pavilion on Tuesday:

He told us he'd been warmly welcomed in both Beijing and Dalian, China.

He told us he'd been “moved” by the television coverage of his visit to Dalian (which is to be our “sister port city,” although surely, given its 6.7 million population, it is our “big sister port city” if not our “Mama”).

He showed us a Mandarin newspaper headline he assured us was positive about his visit.

He showed us a promo video from the Chinese Communications Construction Company (CCCC) in which a large ship crashed through waves.

He showed us a photo of himself watching Albert Barbusci of Harbor Port Development (HPDP) partners inking an agreement with CCCC.

As to what was in this agreement, I have to admit, I don't know. I asked the Mayor, “What is the nature of the agreement between Harbor Port Development Partners and the Chinese Communications Construction Company?” but he didn't tell me. Apparently, telling would break the rules of the private sector. The Cape Breton Post is reporting that CCCC "plans to undertake the design and construction of Sydney’s container terminal including all required infrastructure," without explaining who will pay for this. If CCCC shares HPDP's predilection for working without payment, we can either thank our lucky stars for their generosity or wonder if we've hitched our wagon to the Worst. Businesspeople. Ever.

CCCC is big, I know that, and its projects are big, about that the Mayor was very clear. And CCCC “models” things or “models out” things. If you created a sound cloud of the Mayor's speech, the word “model” would appear in huge type. (And not modelling in a Kate Mossy way, in case you were wondering.)

I don't know what the working party from CCCC is going to be doing in Sydney for “eight to 10 months” from January 2016. I don't know whether CCCC is going to model our port or build our port or own our port or lease our port for 99 years. I don't know why HPDP is teaming with a company that the World Bank banned from its projects for eight years (beginning in 2009) for fraudulent practices (although at least it explains why CCCC might have some free time for the Port of Sydney). I don't know why, if the federal and provincial levels of government are so important to this project, no representative from either attended the meeting. I don't know why—if this super port is a serious possibility and will require a serious rail operator—the CBRM is messing around with Genesee & Wyoming instead of taking this marvellous opportunity to CN (or CP, for that matter, which is apparently looking at expanding). And I still don't know why the Mayor left for China without telling us where he was going.

But what I really don't know is how I can leave a 30-minute briefing knowing less than I did going in.

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Bill Goldston Follow Me
This is like announcing we've found a builder for our house...now we just have to find a lender to get the money...and then we need to find a job that pays enough to handle this.
Christian Murphy Follow Me
It is interesting that none of the Provincial or Federal representatives are engaged with this project. I would bet that there would be a Federal element to this considering that maritime activities fall under their jurisdiction. Oh well! Governments do what Governments do. It's all about reelection not community well being.
James MacKinnon Follow Me
This is definitely going to draw significant federal attention since CCCC's parent is the Chinese government. My only concern is if the diplomatic nature of this development could dilute or hinder progress. This is a large, long term project and until the study and 'model' come back with positive results, jubilation needs to be tempered. It's still too early to be deciding on white or dark meat when the chicken eggs have just been put in the incubator.
Joe Ward Follow Me
CCCC should acquire the rail line from G&W for its scrap value + 50%. If they acquire the rail line, we know they are really serious. However, the announcement does not indicate they are building it, nor paying for it if they do. And it doesn't indicate who will. An equity position means either they will invest some money out of pocket, or discount the price of their development services (which can be arbitrary, give or take a few hundred million) - or it could be as simple as acquiring the proposed land - letting them sell or lease it to whomever eventually could finance the project. Etc. One of the media reports quoted either the mayor or one of the HPDP partners as indicating that the $1-1.2 Billion in project costs was already lined up (they used alternative wording, tbd). That is the key here. Anything in this world can be built anywhere in this world, at any time, if somebody has the money to pay for it. Contractors or service providers are not investors, unless they actually invest something. However, they are stakeholders. And very important ones in actually moving a project forward. You have to have experts in port buildout actually putting numbers on the project before expecting investors to start committing to hundreds of millions in a potentially multi-billion project. I've heard $500 Million in earlier media statements, and we're now at $1 to $1.2 Billion. You can bet that gov or private investors are going to need to know with accuracy how much they'll have to invest to get it done. So ultimately, we have a huge contracting firm that is interested in taking on the project if somebody can pay for it. If, however, they committed to investing substantial amounts such as $300-500 Million of costs themselves, that would be a larger incentive to bring other investors on board. TBD.
Darrin McLean Follow Me
Joe, I don't follow the point of your statement about CCCC acquiring the rail line. G&W is in the business of operating rail service and they have direct control over the rail infrastructure. They're probably not going to let go of that knowing that the port development might proceed. Perhaps I'm missing something.
Joe Ward Follow Me
G&W is in the business of operating *profitable* rail service - wherever in the world that profitability can be achieved. However, in this region they are in the process of abandoning the line. Note: In their last interview with CBC, even in the midst of the CBRM/HPDP issuing a press release about their cooperation, their company rep still made it very clear that plans are to move forward with abandoning the line. They are simply open to the idea that if the port materializes it could change the business opportunity for them, and they would then consider not moving forward with the abandonment - which may include pulling up the rails and selling them for scrap metal. However, your point is valid. If they *really believe* that the port is going to be built and will deliver a great deal of container business for the line, then they won't abandon it or sell it. They have given a vote of no confidence thus far, even up to present date, by persisting in their plans to abandon it. The media should now contact them for a follow up and ask how the recent Chinese announcement has changed their position, if at all. So if we assume that they do not have confidence in the opportunity, but the Chinese do, then it would be appropriate for the Chinese to acquire the line. Specifically, why would they be ready to move on a $1-1.2 Billion dollar project and not have the rail line secured? Smart business at that scale warrants securing the line. Doing so gives them an additional competitive advantage as they could reduce rail transit fees for that portion of the line. G&W, for instance, had quadrupled the rates. Why give a 3rd party that kind of detrimental control over a billion dollar port project? Acquiring the line makes sense. In SWOT terms, having it stay with G&W is a threat. A threat that CCCC must be aware of and in a position to mitigate.
Darrin McLean Follow Me
I still don't see how your suggestion for CCCC to acquire the rail line is realistic. G&W owns it, controls it and they're going to do whatever is in their best interest with it. As I've said before, what we have here is a public asset that's in private sector control. And it's way too early in the port development feasibility analysis process for anyone to be making big capital investments. It looks to me that all CCCC has done so far is signed some documents that says they're going work with the project stakeholders analyze the business case for the port. Are you suggesting CCCC should seek to acquire the rail line at any cost before that analysis is done?
Joe Ward Follow Me
Ok, I see that we're actually very closely aligned in our thinking. So there were basically two main scenarios with this announcement. Scenario 1 - CCCC is building the port. It's all but a done deal; just final design and site analysis before starting the build. And it's paid for, largely by them. Scenario 2 - They are coming to visit the site, do design work, and essentially make a bid on the project. Aka assess how much it will cost to build. There are a range of alternative, intermediary interpretations, of course. BTW - Scenario 2 is not, on its own merits, a bad thing. We need to know accurate costs and have a design in place. Initial media made it sound more like Scenario 1. As we scrutinize the headlines and article copy more, it is much more apparent that Scenario 2 is what is more accurate. I'm in the Scenario 2 school of thought, and I believe the media was simply moving too fast, and printed inaccurate coverage. How does that all tie in to a G&W acquisition suggestion? So, when I suggest that CCCC should acquire G&W to secure the line and mitigate that risk factor, that suggestion is only relevant to Scenario 1. If they are suggesting that scenario is true, with a billion+ financing in place, then an acquisition of the rail line would be possible. In Scenario 2, this will not happen precisely as you indicated. They haven't committed to the project as the headlines might suggest. Therefore, it's extremely unlikely they would be moving to acquire G&W. I'm challenging the headlines. Re: Value of deal My napkin valuation was simply based on the scrap value of the rail line plus a premium for G&W to hand it over. It wouldn't be at any cost; and I'd assume that if they were negotiating they would have to hammer out a deal. CCCC would want a liquidation price, and G&W would want a premium value based on the ROI to CCCC on the multi-billion dollar port project they (along with HPDP's consortium) are promoting.
Bill Goldston Follow Me
I don't see CCCC owning a railroad. They are in the business of building container terminals and related infrastructure, not owning nor operating.them. They have to come back with a positive feasibility study and cool looking 3D model, otherwise there won't be anything for them to build and they will lose a $1b contract.
Joe Ward Follow Me
The HPDP consortium may want to do so. G&W is holding a major factor within their control. There was a news release that mentioned they had increased their container rates by a factor of 4X. If we're relying on rail - and a big part of the argument is about the cost advantages of shipping here (i.e. 500 miles closer to Chicago than BC, etc), then that has to be a consideration.
Christian Murphy Follow Me
First off, everyone keeps talking about a $1 Billion plus contract. For clarification purposes, there is no contract. There simply exists what I would refer to as an agreement to explore a potential business opportunity. Thus the study work begins. This will be touted as a great opportunity which will easily cycle into the next Municipal Election you can count on that. What we have to stop counting on is this actually happening. If Cecil succeeds, great! If not, he will like buy himself another 4 years, that simple. Obviously we are all screaming for accountability. CCCC will develop the pretty pictures and the project scope then HPDP will go out and hunt the investment for a tidy little piece of a big pie, while Cecil works towards getting buy in from the various levels of government. The government buy in will surround taking the risk out of the investment from the private sector. In short, the private sector will put the money in and if it fails the government will compensate them....we've seen it a dozen or more times. So folks, there we have it, it's happening and we might as well sit back and enjoy the show. I hope it will be a success but my gut feeling is it won't. But hey, I was once a Leafs fan too, now I can't watch hockey!
Richard Lorway Follow Me
A Leafs fan?!! That explains so much...
For clarity: Representatives from MP Cuzner's office, and several representatives from ACOA and NSBI (Province of Nova Scotia) were all in attendance at yesterday's public briefing. Parliament and the House of Assembly in Halifax are both in session.
Mary Campbell My Post Follow Me
Any and all clarity from the CBRM is, of course, to be welcomed. I did not know these people by sight and they were not introduced. (Parliament and the House of Assembly being in session, I must point out, rarely prevent politicians from attending meetings they want to attend!)
Dan Yakimchuk Follow Me
Mary, Perhaps they thought you were in the cheap back-row seats and did not have the same clear vision as those in the pre-paid front seats.
Joan O'Connor Follow Me
In the press scrum @ the end of that meeting, the mayor said the Ontario Teacher's pension fund is still on board as a backer.
No he did not. You must have mis-heard.
Joan O'Connor Follow Me
Yes, you're right, he said, " pension funds". I just listened to the recording. I had heard a couple of years ago that the Ontario teacher's Pension fund was interested, as well as a NY hedge fund.
Joan O'Connor Follow Me
I have an audio recording of the meeting if anyone wants to hear it. No idea how to post it here. The scrum at the end is not very audible in parts, you need to strain to hear it, but ya can, if ya try!
Mathew Georghiou Follow Me
Joan, if you are willing to share the audio recording, you can post it yourself on this website ... click the NEW POST button ... then use the ADVANCED option to attach a FILE/DOCUMENT. Alternatively, we can do it for you if you send us the audio file ... you can use www.WeTransfer.com and send to [email protected]
Joe Ward Follow Me
Any update on the audio recording? Would love to hear.
Joan O'Connor Follow Me
I have tried everything to convert that audio but no luck. I can drop it off somewhere, maybe at Mediaspark and it can be downloaded from my recorder. OSX has changed a lot of things and i'm not keeping up.
goCapeBreton.com Team Follow Me
Audio recording of Mayor Clarke's public meeting about the Port and Chinese firm CCCC has been added to this post (under Dec 8): https://capebreton.lokol.me/port-of-sydney---the-unfolding-story
Joe Ward Follow Me
Steve Sutherland from Information Morning talks with an industry analyst regarding the viability of new ports in Nova Scotia. http://www.cbc.ca/player/play/2681730583
madeline yakimchuk Follow Me
I heard that on my way to Eskasoni this morning. There is SO MUCH coming out I am starting to fall into a conspiracy theory mode... who oh who are the Liberals planning to run?
Joan O'Connor Follow Me
Bravo Steve Sutherland. JOC is the most respected shipping journal out there. It's really interesting to hear what they have to say. Maybe the only way to utilize either Melford or Sydney is to give them away...this seems to be what Cecil has planned for Sydport. It's all moot now, the economy is so bad that many ships are being mothballed and attracting a shipping line is going to be impossible, even if somebody is willing to build the terminal. Maybe the Chinese can establish a beachhead without firing a shot though :-)
David Mitchell Follow Me
There is potential for trailers on railcars and containers to Nth Syd re Nfld traffic, if G&W would take their heads out of the sand .

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