The State of Delaware and a subsidiary of Gulftainer Company Limited (“Gulftainer”) have finalized a concession agreement for the operation and further development of the 100-year-old Port of Wilmington (“Port”).

While the concession agreement signed on September 18, 2018 is not publicly available, it is expected, based on deal terms described in Port documents submitted in support of approval of the P3 transaction,[1] that the agreement grants Gulftainer exclusive rights to manage the Port for a 50-year term. In return, Gulftainer agrees to invest up to $584M in the Port in the first 10 years to improve the Port’s cargo terminal facilities, $411M of which will be used to develop a new 1.2 million TEU (twenty-foot equivalent units) container terminal. Gulftainer will pay concession fees to the State based on cargo volume along with periodic adjustments for inflation. These fees could reach $13M by the tenth year of the concession.[2] At the end of the concession, Gulftainer must hand the Port facilities back with the capacity to handle specified minimum service and tonnage volume requirements.

In May 2017, Diamond State Port Corporation (“DSPC”), the state entity that owns and operates the Port, issued an RFQ seeking private partners to develop, finance and/or operate port-related infrastructure.[3] After evaluating submissions, DSPC signed a non-binding letter of intent with Gulftainer in December 2017.

As Gulftainer is a port management and logistics firm based in the United Arab Emirates (“UAE”), the concession agreement was reviewed by the Committee on Foreign Investment in the United States (“CFIUS”). CFIUS evaluates the national security implications of foreign investments in United States companies and operations and may prohibit foreign investment that poses a threat to United States national security. In June 2018, CFIUS determined that the agreement was not a “covered transaction” under Section 721 of the Defense Production Act of 1950,[4] and as such the parties were cleared to execute the agreement.

The Wilmington/Gulftainer deal is comparable to the $1.3B lease and concession agreement entered into in 2010 by Maryland Port Administration (“MPA”) and Ports America Chesapeake, LLC (“Ports America”) for the development and operation of the Seagirt Marine Terminal (“Seagirt”).[5] As with the Wilmington/Gulftainer concession, the Seagirt concession has a 50-year term and Ports America agreed to make significant capital investments, including developing a new terminal.[6] Ports America’s financing included a combination of tax-exempt bonds and equity. The Seagirt P3 deal reportedly enabled the State of Maryland to avoid the need to incur additional debt, provided a capital reinvestment payment to the Maryland Transportation Authority and allowed the port to handle larger vessels two years earlier than scheduled.

Ports are exploring alternative ways to deliver and finance large infrastructure projects, and the Wilmington and Seagirt P3 deals are examples of how private sector financing is being integrated into these transactions. Both deals demonstrate how, for the right projects, alternative approaches may allow ports to better capture the value of their existing infrastructure and accelerate delivery of port infrastructure improvements.

 

[1] DSPC Board of Directors Resolution 18-15 Regarding Recommendation of a Proposed P3 with GT USA Wilmington, LLC, available at http://www.portofwilmington.com/uploads/1/1/0/4/110497727/p3.pdf and http://www.portofwilmington.com/uploads/1/1/0/4/110497727/p3_presentation_-_4-6-18_dspc_board_meeting.pdf.

[2] “Governor Carney, Diamond State Port Corporation, Gulftainer Sign Agreement to Expand Port of Wilmington,” State of Delaware Press Release (September 18, 2018) available at https://news.delaware.gov/2018/09/18/governor-carney-diamond-state-port-corporation-gulftainer-sign-agreement-expand-port-wilmington/.

[3] “Request for Qualifications: Formation of a Public/Private Partnership (P3) with the Diamond State Port Corporation”, DSPC Public Notice, available at http://diamondstateportcorp.com/HTML/our_facilities/Bids&Proposals.htm.

[4] Letter from Department of the Treasury Deputy Assistant Secretary of Investment Security Regarding CFIUS Case 18-105 GT International Limited FZC (United Arab Emirates)/Certain Assets of Diamond State Port Corporation (June 25, 2018) available at https://governor.delaware.gov/wp-content/uploads/sites/24/2018/06/06252018-Letter.pdf; “Government Panel Signs Off on Port of Wilmington-Gulftainer Agreement”, Delaware Business Now (June 30, 2018) available at https://delawarebusinessnow.com/2018/06/government-panel-signs-off-on-port-of-wilmington-gulftainer-agreement/.

[5] Ports America Chesapeake, News Alert, available at https://www.pachesapeake.com/Seagirt/Default.aspx.

[6] Maryland Transportation Authority, “Public-Private Partnerships in Maryland,” available at http://mdta.maryland.gov/partnerships/tp3overview.html.