Privatizing the Port of Wilmington

Filed in Delaware by on December 10, 2012

If you’ve been following the NJ over the past few weeks, they’ve done a couple of stories on work that Diamond State Corporation (the entity that runs the port for taxpayers) and DEDO have been doing to try to privatize (or get a private partner — not so sure of the difference between the two) the operations of the Port of Wilmington. Much of this discussion is being held outside of the public eye, something that should concern every taxpayer. Without public scrutiny or input, Diamond State has hired a management/financial consultant, put out a solicitation, received responses, shortlisted two potential investors (one a local group, the other not) and made a selection — Kinder Morgan.

Kinder Morgan is a huge organization and they mostly bill themselves as an energy transport company. They do have terminal operations as a business component, and they operate facilities throughout the Mid-Atlantic, including Camden, NJ; Fairless Hills, PA, Sparrows Point, MD and others in VA. Much of the news and growth of Kinder Morgan is in transporting fuels of all kinds — coal, natural gas, petroleum and petroleum products. There is much speculation that any expansion of the Port of Wilmington will include the development of a facility to ship natural gas from here, which would require a facility to liquefy the natural gas for transport. Some years back, there was a planned LNG facility in Logan Township NJ, and was scuttled largely because Delaware successfully argued in the Supreme Court that the water adjacent to this proposed site was the territory of the State of Delaware. Keep in mind that the largest LNG transport ships need a shipping channel of approx. 40 ft and the new shipping channel in the Delaware will be 45 ft.

It is hard to know what it is that Kinder Morgan and the State have in mind for this facility. Certainly they are looking at expansion of the facility as well as repair:

Wilmington’s best hope for a big piece of that action requires development of new pier and cargo-handling facilities on the Delaware River itself, a potential $500 million investment unlikely under a taxpayer financing approach.

Limited portions of the Wilmington solicitation indicated that the port had insufficient resources to meet tenant capital needs or to take advantage of opportunities created by an ongoing deepening of the Delaware River’s main shipping channel.

Interesting that the State can’t help this port fulfill its potential as an asset while throwing money at banks and other ventures. Especially since this port doesn’t have much opportunity to pick up and go to another state. But what is true is that this potential -$500M investment deserves a great deal of scrutiny. In looking for info on Kinder Morgan, I found that they know their way around doing deals with public money with little public scrutiny. We definitely need to know what kinds of operations Kinder Morgan will be restricted from doing. We need to know that under the table deals to circumvent environmental regulations are not being done (here is a report from the Sightline Institute on KM and some of their environmental record. I do not know how reliable this report is — posting a photo claiming that it shows coal dust contamination without sampling data is questionable to me). We need to know what kind of balance sheet support KM will be getting from taxpayers. We need to know that taxpayers will not be giving back money to Kinder Morgan if they run into a financial downturn (like the casinos). We need to know that Kinder Morgan will not destabilize the good jobs that are already at the port, and commit to more good jobs. We need to know that Kinder Morgan will not be making its money (or financing this operation) by asking employees to work more for less money.

This last bit is really key. Everytime the administration trots out another check for another firm, they tell us that they are investing in “good jobs for Delawareans”. In this instance, the good jobs with good middle class wages exist. We really need to know that this deal is not a hidden race to the bottom, with the current and future workforce the folks who get to pay the price for this privatization. We’ve heard some concerns from union folk about this deal and we’re prepared to share those concerns, but they’ll need to step it up here and get better and reliable information out to their friends who are just as concerned. And I’ll point out that unions really delivered for a number of candidates this election season and they’ll need to be pretty active in making sure that the folks they pulled out the stops for are reminded of their commitments. But in the meantime, I think that it would be smart to let your legislators know that this deal needs real public scrutiny — not just a perfunctory public hearing after the deal is made.

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"You don't make progress by standing on the sidelines, whimpering and complaining. You make progress by implementing ideas." -Shirley Chisholm

Comments (17)

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  1. Jason330 says:

    “Interesting that the State can’t help this port fulfill its potential as an asset while throwing money at banks and other ventures.”

    Great point. This seems like a great bet. If it is a thinly veiled attempt to bust the Port’s unions – then we all lose.

  2. Know who Kinder and Morgan are/were? Two former execs at…Enron. Can you say “Destroy their pensions”?

    Y’know what else I noticed? This major story was dumped out there by the Markell Administration on a Friday. A Friday news dump.

    Thanks, Cassandra, for writing this. Frankly, it’s why we need blogs.

  3. cassandra m says:

    Oh yes, forgot to note that this was a Friday afternoon news dump. Meaning that they are definitely hoping to have as little attention paid to this as possible.

    Did not know about the Enron connection, ugh.

  4. Andy says:

    Interesting that the State can’t help this port fulfill its potential as an asset while throwing money at banks and other ventures.”

    Great point. This seems like a great bet. If it is a thinly veiled attempt to bust the Port’s unions – then we all lose.

    Duh whether anyone wants to admit it or not this Governor hates public sector Unions and the port workers for intents and purposes are public workers

  5. Jason330 says:

    This can’t be outright union-busting though. You’d expect him to have to win another Dem primary at some point.

  6. Andy says:

    Why not? The Governor’s track record of hate for public sector unions can not be denied. Ask any state worker

  7. Kinder Morgan’s financial dealings smell something like Enron’s. And pensioners were the ones getting screwed, courtesy of Kinder Morgan and Goldman Sachs. Can’t figure out how to link it, but Delaware’s Court of Chancery was left to try to untangle the fiscal legerdemain in Consolidated C. A. No. 6949 CS. Here’s just a sample of the fancy maneuverings:

    1…Goldman Sachs – which holds a 19.1% equity interest in Kinder Morgan – steered the supine El Paso Board into jettisoning a previously announced spin-off of El Paso’s exploration and production
    (“E&P”) business (the “Spin-Off”) in favor of a low-premium sale to Kinder Morgan, thereby advancing Goldman Sachs’s own interests in seeing its investment in Kinder Morgan increase in value. The Board’s actions threaten to deprive El Paso’s shareholders – who are slated to vote on the Proposed Transaction pursuant to incomplete and misleading proxy materials – both of their right to receive maximum value for their shares in this change of control transaction and of
    their right to make a fully informed decision on the Proposed Transaction.

    2. In 2006, Richard Kinder (“Kinder”) took Kinder Morgan private in a $22 billion transaction. Goldman Sachs co-invested alongside Kinder in the deal, arranged $7 billion in financing for the transaction, and served as the acquiring group’s financial advisor.

    3. For years, Kinder desired to add El Paso to his growing empire. On several occasions, Kinder approached El Paso’s management about a potential merger, but a transaction of this magnitude was not feasible without the ability to use Kinder Morgan stock as acquisition

    4. To eliminate this issue, Kinder took Kinder Morgan public in February 2011 (the“IPO”). The IPO was the largest private equity-backed IPO in United States history, and was a boon to Goldman Sachs, which snagged the plum role of lead underwriter, profited from the saleof $950 million of its Kinder Morgan stock, and retained a 19% equity interest and two seats on the Kinder Morgan board.

  8. pandora says:

    Excellent blogging, Cassandra. Like a lot of people, I missed this story on Friday.

  9. Dana Garrett says:

    Good blogging. This does open up the possibility of busting the union and reducing the wages of the workers. As such it’s a deal breaker for me. I think it might be interesting to do a study to see if other states and municipalities are selling off their ports or have done so in the past and what effects it has had on wages, union membership, and local economies.

  10. In a delicious irony of timing, it turns out that Chancery Court Judge Strine found in favor of the plaintiffs to the tune of $110 mill in their lawsuit against Kinder Morgan and Goldman Sachs the SAME WEEK the port story was announced.

    You see, Goldman Sachs held a 19% interest in Kinder Morgan when, acting as financial advisor to El Paso LNG, it advised the company to sell to Kinder Morgan at a low level that cost every shareholder of the company. Never informed El Paso of this blatant conflict-of-interest. Scum.

    That likely explains why Alan Levin and the Markell administration buried the story of the port agreement. Didn’t want anyone making the connection between the Kinder Morgan they want to partner with, and the Kinder Morgan that was party to a $110 mill payout in the Delaware courts.

  11. gary myers says:

    Is the Port of Wilmington within, and covered by, the Coastal Zone Act? If so, under present law, would that not put a crimp on expanding its geographic footprint or introducing a new bulk storage transfer facility for LNG or other energy producing materials? If it is in fact covered by the CZA it might take legislative change, or some nimble loophole lawyering, to have the Port be remade to fit Kinder Morgan’s plans.

  12. cassandra m says:

    I believe that the Port would be covered by the CZA. The closed Pigeon Point landfill is next to the port on the Delaware River side, I believe.

    The thing to note is that I have no idea whether the expansion here is going to be related to natural gas transport. Which is part of the point — the public hasn’t been exactly welcome in this process. Besides, the state’s “business friendliness” seems to rely on working at ways to circumvent things like the CZA. The Delaware City refinery has an application to do a major expansion and that facility is right in the CZA. It isn’t entirely clear (or I haven’t kept up) on what that expansion might mean in terms of the CZA.

  13. heragain says:

    I’m the opposite of impressed about this “good Delaware jobs” routine, anymore. When we start fining, um, assessing a wage tax on…every resident of the Garnet Valley school district who works at a Good Delaware job, so we can pay for the infrastructure and environmental costs associated with providing them, then we can talk.

    Thanks, cassandra.

  14. cassandra m says:

    Here’s Bloomberg on the Kinder Morgan settlement. This entire deal was marked by a lack of disclosure on multiple angles.

    So here’s the thing to think about — if these guys are willing to screw over EACH OTHER in a fairly easy money deal for all of the parties involved, what do you think is in store for taxpayers?

  15. Anon says:

    The Port of Wilmington was exempted by the Coastal Zone Act. Not that it matters, as the Markell Adminstration has not adheared to the law anyway, and will undoubtedly seek to signficantly weaken it through the “reform” efforts of Executive Order 36.

    The surrounding areas managed by Port Contractors are covered by the CZA, so there may be some issues with expansion if the Act is not gutted by DNREC and the Governer. O’Mara is holding the DNREC hearing on removing regulatory impediments to development in NCC on January 22, on a cold dark night so few people show up.

  16. cassandra_m says:

    Thanks for clarifying that, Anon.