Consultant Tells Province (Again): Support Halifax, Not Greenfield Ports

In 2016, consultant CPCS completed a 70-page, $80,000 report for the Province of Nova Scotia and the Atlantic Canada Opportunities Agency (ACOA) entitled The Nova Scotia Transportation Sector: Global Challenges and Opportunities in which it weighed the relative merits of Nova Scotia’s existing and proposed container terminals and concluded that:

Nova Scotia’s gateway strategy should focus on enabling a greater mass of traffic through the Port of Halifax and HSIA [Halifax Stanfield International Airport]. To this end, public policies, plans and investments should focus on the growth of the regional freight market (exports and imports). In tandem, the Province should do more to support the Port of Halifax and HSIA marketing efforts in overseas markets for inland gateway traffic. Any investments should focus on incremental improvements necessary to bolster the competitiveness of these existing gateways and associated corridors, rather than grand (and risky) projects seeking to redefine trade flow patterns through Nova Scotia.

And in case that was too subtle a summation of its views of the container terminal projects in Sydney and Melford, CPCS stated elsewhere:

In any case, it is our view that the current market would be unlikely to support more container ports in Nova Scotia.

transport_report

 

Second opinion

The government didn’t much like that conclusion, with Transportation Minister Geoff MacLellan telling Michael Tutton of the Canadian Press that while he found the research “helpful,” the province wasn’t endorsing the findings:

“With respect to Melford and Sydney … there’s real opportunity here. … The fact there’s no real estate left on the eastern seaboard says that they need a wide open, green-space port,” he said in an interview on Wednesday.

He also discussed it with the CBC, saying the report was not the final word on the projects in Sydney and Melford which depend “largely on private business.”

“It’s the private-sector groups that are leading those conversations, that have to drive this by way of finding shippers, finding operators, and by way of getting those massive development dollars that are required to get this started,” said MacLellan.

Which is actually how CPCS advised any secondary container terminal project should be developed — by the private sector. But MacLellan seemed to want to leave the door open to public assistance to the project — at the very least, he apparently wanted a second opinion on the viability of Sydney and Melford.

Now, I don’t know about you, but when I want a second opinion about something, I don’t normally turn to the same person who gave me the first opinion (if for no other reason than to avoid a “You’re stupid,” “I’d like a second opinion.” “You’re ugly, too” situation)  but the Department of Transportation and Infrastructure Renewal (TIR) had no such qualms, commissioning another study from CPCS, one whose existence was revealed just this week by CP’s Tutton.

This time, the consultant produced a $50,000 (equally shared between ACOA and TIR, according to a government spokesperson), 48-page report entitled Nova Scotia Port Competitiveness:

Nova Scotia Port Competitiveness (Final Report March 2018)

Although it covers somewhat different ground than the original study (going into greater detail about the history of containerization and the decision-making process in the container-shipping industry, for example), the new report (dated March 2018) actually comes to the same conclusion as its 2016 predecessor, advising the government of Nova Scotia to focus on the Port of Halifax rather than investing any public money in greenfield container terminal projects at Melford or Sydney:

We would certainly advise against direct public support for significant infrastructure development plans premised on a major reconfiguration of North American transportation flows. Both the Melford and Novaporte container terminal development projects are predicated upon such major reconfigurations. In our view, there are simply too many market uncertainties and associated risks to warrant public funding for such projects, which may, or may not materialize in attracting new traffic and a greater share of North American traffic flows through Nova Scotia.

Any new terminal development is risky and should be driven by firm commitments from private sector industry stakeholders who fully understand the shipping business and are prepared to shoulder most of the risk.

CPCS doesn’t end with: “What part of ‘private sector’ did you not understand the first time?'” But it could have.

 

Full understanding

Call me crazy, but when I read the phrase, “private sector industry stakeholders who fully understand the shipping business,” I do not think immediately of our Port of Sydney promoters: ad-executive-turned-port-developer Albert Barbusci, Montreal real estate developer Jonathan Wener and business consultant and self-published historian Barry Sheehy, who together make up Sydney Harbour Investment Partners (SHIP). In fact, if I didn’t know better, I’d suspect the author of the 2018 CPCS report was taking aim directly at Barbusci & Co with that little reference to “fully” understanding the shipping industry.

That lead author, by the way, is Pat Morin, who joined CPCS in 2006. According to his CPCS bio:

Mr. Morin holds a degree in Electrical Engineering and he has over 25 years of port experience for a consulting firm, a leading shipping company, a container handling terminal operator, and bulk handling shipping terminals. He has senior management experience in many aspects of maritime and inland transportation including general management, marketing, operations and maintenance.

He was the President and CEO of the largest Canadian common user container handling facility on the east coast of Canada. While working for the CAST Group – a leading container shipping company – Pat was in charge of coordinating European inland and port operations. Pat has been working with us on the Nigeria Port Restructuring project.

The “largest Canadian common user container handling facility on the east coast of Canada,” by the way, is Halterm, the Halifax container terminal. I don’t know why CPCS is so coy about naming it, unless it’s afraid people will feel Morin’s advocacy for Halifax over Sydney and Melford stems from personal bias rather than knowledge of the shipping industry. But if working for Halterm automatically biases you toward Halifax, then Mike Uberoi, the CEO of Melford Atlantic Gateway, is also biased toward Halifax because he worked there too.

Uberoi seems to be the only member of the “partnership of Nova Scotia businessmen” (including Hugh Lynch, Robert Stevens and Paul Martin) behind Melford with port experience, but I have to note that Melford’s partnership with terminal operator SSA Marine has put Mark Knudsen, the president of SSA Conventional which includes terminal operations and Ari Steinburg, VP project engineering and implementation, on the Melford Atlantic Gateway Inc board.

 

Unfazed

Back in 2016, when that other CPCS study was released, Port of Sydney CEO Marlene Usher dismissed its findings as “outdated,” according to the CBC:

[Usher] said she views Sydney and Melford as better located than Halifax to be a “true Atlantic gateway” for ultra-large ships coming from the Suez Canal.

Halifax, on the other hand, is “congested by urban growth,” she said. “There is no room for the port to grow the required 300 to 400-acre site.”

Albert Barbusci (via Novaporte website)

Albert Barbusci (via Novaporte website)

(It’s worth remembering here that Usher is an ACOA bureaucrat who has been seconded to the Port of Sydney for reasons having nothing to do with her “full understanding” of the shipping industry.)

This time around, it was Barbusci himself who responded to the CPCS report, and according to the Cape Breton Post, he was “unfazed” by it. (But honestly, people, when has Albert ever been fazed? When the Chinese company he claims is going to build our port was banned from purchasing a Canadian construction company for “national security” reasons? Not a chance. When 2016 came and went without an announcement  about “construction of a major, ultra-modern container terminal?” No way. The unsinkable Albert Barbusci sails on.)

The reason for his lack of fazement (?) was this:

“We never had expectations (for funding) from the government other than whatever would be normal supporting infrastructure, if you will, for any project of this nature that would be brought to any city or any province,” he said.

So, two things.

One, has he forgotten how much government funding has already gone into his “private sector” development? We can only dream this container terminal dream of ours because the federal, provincial and municipal governments (with a little help from Nova Scotia Power) paid $38 million to dredge Sydney harbor.

The Port of Sydney Development Corporation has spent over $1 million on “business development” related to the container terminal project.

The CBRM is not only preparing to give SHIP a sweetheart deal on harbor lands, it’s paid to send Mayor Cecil Clarke (the very non-private-sector face of port development until 3 February 2018, when he decided his work there was done and he could hand it off to Barbusci and run for the leadership of the provincial PC party) and his entourage to China on port business.

And the provincial government has been coughing up $720,000 a year to stop the American rail firm Genesee & Wyoming from (literally) tearing up the Cape Breton and Central Nova Scotia Railway (CBNS) tracks.

(We used to hear regularly about the “$1.2 million” of their own money Barbusci and Sheehy had invested in the project, although we never saw any receipts, but I haven’t heard a new total in a long time. And while we’ve been assured, pretty much since Day One, that they have their financing for the project all lined up, they have never seen fit to share any more details of that financing with us.)

And two, nice try at downplaying the investment required in “normal supporting infrastructure” but Barbusci is obviously talking about the rail line, and we know the estimated price tag to bring it up to something like scratch is at least $100 million.

Clearly, a $100 million investment in a rail line is precisely the sort of “significant infrastructure development plan” the report is warning the provincial government away from.

(And why should the government be funding railway upgrades anyway, when the line is run by one of these sainted “private sector” companies that is supposed to be driving this project?)

I think Barbusci really should be fazed.

 

Local market

Halifax, Melford and Sydney all have their advantages, which the reports acknowledge. In fact, the most recent report acknowledges it in a handy, table format:

Source: Nova Scotia Port Competitiveness, CPCS, March 2018

Source: Nova Scotia Port Competitiveness, CPCS, March 2018

But all Nova Scotia container terminals, whether real or imaginary, face one serious hurdle: the small size of the local — and even the regional — market. As CPCS concluded in 2016:

The Port of Halifax is Nova Scotia’s primary marine intermodal gateway. Though it boasts certain competitive attributes (proximity to major trade lanes, deep water, available capacity, for example), it lacks the same critical mass of traffic enjoyed by other ports competing for traffic to/from inland markets, owing in no small part to the small regional market in Nova Scotia. It also suffers from a relatively long geographic distance to inland markets and a single rail service provider. As a result, the Port of Halifax is likely to remain a largely discretionary port. Global and North American trends and market developments are unlikely to materially change this. Key to the long term success of Nova Scotia as a marine gateway is critical mass of traffic – essential for attracting shipping lines, and other logistics activity. Diluting critical mass of traffic across multiple ports in Nova Scotia risks being counterproductive.

The authors allow that “global and North American trends” could make a new-build container port designed specifically for ultra-large container vessels (ULCV) viable, but there are so many unknowns involved that CPCS deems it too risky for a government to invest in such projects. The private sector, it argues, is better positioned to handle that risk.

Which is what the promoters at Melford and Sydney also seem to be saying — except when they want government assistance with expropriating land (Melford) or upgrading a rail line (Sydney).

 

Prince Rupert?

Of course, the flip side of this is that governments at all levels — municipal, provincial and federal — are showing no signs of heeding CPCS’s warnings.

CBRM Mayor Cecil Clarke

After the release of the HATCH report on the cost of upgrading the Sydney to Truro rail line, both MP Rodger Cuzner (whose riding includes the Melford project) and then-Transport Minister Geoff MacLellan (who is MLA for Glace Bay) told the Cape Breton Post they would be prepared to consider a request to fund the rail line upgrade. Said Cuzner:

Certainly, if the container terminal does go forward it would be an essential part of that. As a federal government, our role would be to support the Province of Nova Scotia. The port development piece in itself, that won’t be driven by any government, that’s got to be private investment that goes ahead on its own merit. I believe there is a role to play for governments in the support with infrastructure and the rail line would be such a piece of infrastructure.

Said MacLellan:

This is a private-sector operation so as they’re developing the business plan, looking at what’s got to be done at the port, what’s got to be done with the rail, attracting the investors to build it, attracting the shippers to keep the market flowing and actually have the business on the ground … like everything else, when an infrastructure request is made, we’ll consider it.

And in response to this latest CPCS report, CBRM Mayor Cecil Clarke told the Post that:

…the study’s authors missed an opportunity to investigate how governments assisted in the growth of port traffic in British Columbia.

“Prince Rupert that started off with one little train weekly has grown to 14 trains a week, expanded the terminal capacity. …They went from 800 wharf-related jobs at a low to now more than 900 workers on dock,” Clarke said when reached by phone on Thursday.

“Government invested in the Prince Rupert model and Prince Rupert and Vancouver are doing better because of it.

This is an astonishing response because it seems to suggest we should be adopting an entirely different model for developing the Port of Sydney than the one the mayor himself has championed for the past six years.

Back in February 2017, CBC Information Morning Cape Breton interviewed Herb Pond, who had been mayor of Prince Rupert when the container terminal was developed. (The interview is apparently no longer available online.) Pond told the CBC’s Steve Sutherland that federal and provincial government funding had been crucial to the development — together, they put $60 million into the construction of the terminal.

But he also explained the Prince Rupert is operated (as is the Port of Halifax) by a Port Authority. Canadian Port Authorities (CPAs), which are governed by the Canada Marine Act, are “federally incorporated, autonomous, non-share corporations that operate at arm’s length from the federal government, who is the sole shareholder.” The feds don’t “direct or influence” the actions of CPAs, which set their own fees, are responsible for maintaining commercial shipping channels and “act as landlords,” renting out terminals.

This is not the model that has been proposed for the Port of Sydney, where the terminal is to be financed, built and operated by private companies (if you consider a state-owned Chinese construction company “private,” which I’m not sure I do).

In fact, if you go back to the 2007 Port of Sydney Master Plan, you’ll see Port Authority was not one of the governance models considered. (This was back in the days when total development costs for a two-phase, 1.5 million TEU capacity container terminal capable of handling 12,000 TEU vessels and including an intermodal rail transfer facility were estimated at $302 million.)

The bottom line is that despite two reports — a combined 118 pages — advising governments not to consider putting money into infrastructure supporting greenfield container terminal projects, all three levels of government seem open to putting money into infrastructure supporting greenfield container terminal projects.

Do you suppose they’ll go looking for a third opinion?

 

 

 

 

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