Kinder Morgan Starts Talking

Filed in Delaware by on February 11, 2013

Kinder Morgan is making its proposal to privatize the Port of Wilmington to the Diamond State Port Corporation today. We’ll hear more about this (I hope) in tomorrow’s news, but wanted to take a look at this deal via what we know already. The most recent information has come from a few NJ articles — Deal to lease Port of Wilmington at risk; Delaware’s Port of Wilmington plan includes expansion; andKinder Morgan seeks new challenge in Del.

1. This deal is like what Baltimore has done for its Port. I can’t find this immediately, but I have heard Alan Levin make this claim and I think that it is in print in the NJ archives. Certainly, the NJ Editorial on this touches on this claim as a reason to carry on with it. The problem is, it isn’t true. The Port of Baltimore is a BIG facility, with multiple terminals (both public and private, but we are only talking about the public ones here). As of now, the Seagirt Terminal is the one that is leased and operated by Ports America. The other terminals are under the authority of the State of Maryland (although Ports America provides management and/or operating support to the others. PA also runs a packaging operation at Dundalk Marine Terminal.). What would be different about the Port of Wilmington deal as proposed with Kinder Morgan is that the State of Delaware looks quite poised to hand over a monopoly to KM. Because the Port of Wilmington only has this facility and there is no opportunity for taking business to another terminal here. Why is this important? Come with me to Item 2.

2. The interests of existing Port businesses. Right now, the Port of Wilmington handles mostly fruit and containers, with some additional business in salt, fuel (Magellan which does business for WaWa) and some other entities. Kinder Morgan is mostly in the business of handling bulk materials at its other ports. One of the NJ articles does note this (with some analysts pooh-poohing the idea that KM might disrupt what is already at the port in favor of the business it actually knows AND knows it can make money at), but with a monopoly on the Port’s operation, would they have the right to adjust the Port’s business model as they see fit?  Would the lease contract place some restraints on this? Who knows. What is true:

  • The bulk handling business employs far fewer people than the current Port business lines.  You get this from the 2/1 NJ article:
  • The company’s first construction at the port, to accommodate new business and beyond the $200 million, would include three bulk storage buildings, as well as a liquid storage facility, according to a Kinder Morgan presentation. Kinder Morgan projected the expansion opportunities in bulk business would add between 16 and 27 direct jobs.

  • Businesses outside of the port gate doing storage, repackaging, transloading, trucking and so on are pretty much tied to a diversified port business.  These businesses are employing well over 16 or 27 direct jobs and these are the kind of decent-paying blue-collar jobs needed in this economy.
  • Some of what the Port currently handles is fairly specialized cargo.  Fruit and fruit concentrates coming from Central American ports comes to Wilmington then shipped from here to distribution and/or processing plants throughout the east.   One of the reasons why this Port handles so much of this cargo is due to an 800,000 sf cold-storage facility there which is the largest of its kind on this coast.

Cars and other vehicles come and go from this port, with a local business at the Port that will customize vehicles for export (like police fleet vehicles). Cattle is loaded to ships for export from the Port. The Port also manages some bulk products too, like steel, salt and petroleum products, which are the kinds of products that KM is most familiar with.

3. Money. If you closely read the article where the KM folks sat down with the News Journal, you’ll see a great many numbers with little commitment to any of them, but lets look at the numbers that seem to have a commitment:

Kinder Morgan’s director of business development, Kevin Golankiewicz, said the company anticipates making at least $200.5 million in investments over time, while making lease payments of $142.5 million over 50 years – coming out to $2.85 million per year – to the port corporation. Also included would be a $16.5 million upfront payment.

$2.85 million/year doesn’t sound like a great price for giving this firm a monopoly at the Port.
$142.5 million lease payments over 50 years — again, this looks like buying at the bottom of the market for something that ought to be alot more valuable to the State
$16.5 million up front payment doesn’t even wipe out the Port’s debts (mostly to DelDOT)
$38.15 million is what is left of the $200 million investment and that is what is supposed to be for the improvements to the port that the State says they can’t afford.

Additional committed investments look like they will be made in additional cranes, bulk storage buildings and a liquid storage facility — again, investments in the business that KM already knows best.

Other investments being touted — like building out berths in the Delaware — certainly won’t happen unless there are clients for them. Which is fine — except that many of the municipal or state ports that we are in competition with are building facilities to capture new business (the New Panamax ships, for instance). So we get a fairly puny revenue stream in exchange for monopoly control of the port, additional investments of $38M and new business carved out of KM’s existing cargo. I’m not seeing any of the long term improvements that might build on this Port’s current expertise or add to it. Yet the state will say that it doesn’t have the money to make the kind of upgrades to this port that will make it more competitive. They did find more then $8M for Amazon’s new facility, and how much for Bloom Energy? Not including the fees imposed on Delmarva rate payers to help fund this? But the State can’t figure out a way to get $38M in improvements done at a Port facility that is up and functioning AND is increasing the amount of goods being moved through it.

There’s a few more threads to follow here and we’ll take a look at some of those after we get news on today’s Board Meeting. But here’s hoping that someone is thinking about a better deal than this one.

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  1. Port Privatization Update - My Note Book | February 13, 2013
  1. OnTheWaterfront says:

    $38 Million over 40 years is less than a million dollars a year, thats $2 million less than the state gives every year to the port!

  2. Very good reporting here Cassandra. Thanks!

  3. Julius says:

    Delaware Liberal,

    Thank you so much for your support in covering the Port Privatization deal with Kinder Morgan. The state of Delaware
    gives UD $170 million/year and Delaware Tech $76 million/year in
    our taxes which benefits our local economy. The Port brings in
    over $330 million/year and over $31 million in taxes for the state. Over 16,000 jobs could be lossed and Kinder Morgans’ profits would go back to Texas. It is up to our community to demand that our state legislatures do their due diligence to explore all options to protect our state assets and build back a strong local economy and the middle class. I also want to thank Senator Marshall for championing Senate Bill #3, all the bloggers and Nancy W. for their support. Cassandra-Excellent Blog today.

    See Kavips blog:
    http://kavips.wordpress.com/2013/02/12/newest-critique-of-kinder-morgan-port-deal/

    Julius Cephas ILA 1694-1 President
    We’re in the 8th Inning-Let’s Keep up the Fight!

  4. liberalgeek says:

    So you appear to be reading the $200M as all expenditures for the port over 50 years. One could also read the number as $200M over and above the lease costs. Either way, 2.85M/year is stealing money.

    Based ONLY on the cold storage facility, they can generate more than $5M/year. This is based on a current refrigerated storage quote in Philly at $6.50/sqft/year. Doing the simple math, an 800,000 sqft facility can generate $5.2M/year.

    And we are going to lease it to them for $2.85M/year? And throw in all of the other facilities for free? I need to start a port management company.

  5. cassandra_m says:

    LG, it took me a few reads of that paragraph to come to that calculation, which might be wrong. But this was in today’s article about the meeting yesterday:

    Kinder Morgan is proposing a minimum package of $200.5 million, including $142.5 million in lease payments, plus a $16.5 million up-front payment. The company has also pledged $12.5 million for infrastructure improvements, $24 million over 20 years for maintenance, and $5 million toward expansion.

    Minimum package of $200M all in. The article notes that the current port Executive Director says the port needs $156M for the repairs the port needs. So then the question is what is going to happen to the $142.5 in lease payments? Is this the pool of money expected to fund the repairs required? Even so that doesn’t make much sense, since the payments would come over 50 years and the repairs are apparently needed now.

  6. Norinda says:

    The $2.85 million/ year does not include the tax breaks Kinder Morgan would receive from moving existing employee pensions into a 401K plan. Considering this, KM would probably operate the port for FREE. Could
    anyone clarify?

  7. cassandra m says:

    Where are you getting that KM will move existing defined pensions into a 401k plan?

  8. Dave says:

    “does not include the tax breaks Kinder Morgan would receive from moving existing employee pensions into a 401K plan.”

    Not only am I curious how what the tax breaks would be from converting from one plan to another, but I am also interested in how one “converts” a defined benefit plan into a defined contribution plan.