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Port looks at firms to evaluate lease deal

By Amanda Casanova
The Daily News
Published March 15, 2011

GALVESTON - A consulting firm to evaluate a proposed lease between the Port of Galveston and two private companies could be chosen in two weeks, Port Director Steve Cernak said.

After hearing presentations, the Wharves Board

of Trustees voted Monday in a special meeting to start negotiations with two consulting firms - KPMG and Martin Associates.

The company hired would be responsible for assessing a lease with The Carlyle Group, a private equity firm, and Hutchison Port Holdings, which operates more than 50 ports in 25 countries and handles as much as 15 percent of the world's containerized cargo.

In February, the wharves board approved pursuing a public-private partnership with Hutchison Port Holdings and The Carlyle Group.

The bidders were selected by the Bank of Montreal, which was hired in April 2010 to look for private firms willing to invest in some port facilities.

The two private companies proposed a 75-year master lease that would give them control of existing leased assets, a 100-acre terminal to be developed on the west end of the port's island property, a 20-acre terminal for roll-on, roll-off cargo, port land on Pelican Island and the cruise ship terminal and operations.

In exchange, the port would have about $60 million in debt paid off, upfront cash, 10 years of capital expenditures, annual expense payments and a share of profits from cruise and freight revenues.

"Now, we have to find the balance point," Cernak said.

Both consulting firms could take up to three months to complete an evaluation.

John Martin, of Philadelphia-based Martin Associates, said his consulting firm has estimated enterprise values of terminals nationwide.

He also said his company will be working with the help of TEC Inc., a global company with expertise in infrastructure and planning.

"You have to look at the true economic value of the port," Martin said. "A lot of times, ports leave a lot of money on the table because they're only looking at the land values. The key will be to look at the total value."

The other consulting firm vying for the job, KPMG, has earned a top spot on a national ranking of financing advisers the past four years.

"We have the experience," said Piyush Mishra, director of global infrastructure and projects group for KPMG. "We have done similar transactions such as this in the past."

While the transaction is "unique," Cernak said the agreement could become "more the normal in the industry."

"There's a misconception that the city of Galveston subsidizes the port with tax dollars, but that's not true," he said. "We are an enterprise. This is an expensive business, and it provides economic impact."

The board also voted to hire Houston-based Vincent & Elkins for special legal counsel for the proposed lease, allotting up to $50,000 for the attorneys.