CLOGGED AQABA PORT CONTRACTED TO PRIVATE

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 002409

SIPDIS

NOFORN

CPA FOR WRIGHT

E.O. 12958: DECL: 03/24/2014
TAGS: EWWT ELTN ETRD IZ JO
SUBJECT: CLOGGED AQABA PORT CONTRACTED TO PRIVATE
MANAGEMENT COMPANY

Classified By: DCM DAVID HALE, FOR REASONS 1.5 (B) AND (D)


1. (SBU) SUMMARY: The GOJ has awarded a two-year contract
for management of Aqaba,s congested container port to
international port operator A.P. Moller over the objections
of some members of parliament and the port workers, union.
The award is good news for Jordanian industries dependent on
foreign inputs and for the transit trade to Iraq, which is
critical to Iraq,s reconstruction but also a primary cause
of port congestion. Even if the container port,s problems
are solved, however, other possible bottlenecks to the flow
of goods and reconstruction supplies to Iraq may need to be
monitored. END SUMMARY.


2. (SBU/NF) On March 8, the Aqaba Development Corporation
(ADC) and Aqaba Port Authority (APA) signed a contract with
Danish port managing company A.P. Moller Terminal (APM),
giving it the management of Aqaba,s heavily overcrowded
container port. APM, a subsidiary of the Maersk
conglomerate, won a tender that attracted eight offers for a
two-year port management contract with the option of a
25-year follow-on partnership contract. According to the
USAID-contracted consultants who arranged and helped
adjudicate the tender, only one U.S.-based port operator,
CSX, participated in the tender, and it placed no higher than
the middle tier of offers. The consultants said that APM
outbid Hong Kong-based Hutchinson Port Holdings and P&O, its
two closest competitors, on the basis of its better offer on
terms of payment and its relevant experience managing ports
in the region, at Salalah and Port Said.


3. (SBU) While handing over a state-run operation to a
private management company is consonant with the thrust of
Jordan,s economic policy over the past five years, it was
not without controversy. The change came as a direct result
of a specific set of circumstances: the meteoric rise in
incoming container and Ro-Ro (roll-on, roll-off; i.e.,
vehicle) transshipments through Jordan to Iraq after the war.
From April 2003 to December 2003, traffic through the
container port almost doubled, which many had predicted but
few had planned for, and the port has to date been unable to
handle the enormous increase in volume. The increased trade
created a bottleneck at the container port so serious that in
mid-September, the Jordan Shipping Agents Association imposed
and then increased a surcharge on ships unloading at Aqaba
container port that now amounts to $300 per 20-foot container
for ships arriving from Asia and $475 for ships arriving from
Europe and the United States. At that time, the waiting
period for a ship to be unloaded was less than a week; by
December, it was up to ten to 14 days.


4. (SBU) Adding to the bottleneck, according to APA Chairman
Saud Sroor, was the enormous number of automobiles pouring
into Jordan en route Iraq, which had just seen the removal of
a very large tariff on automobiles. The number of incoming
cars peaked at over 35,000 in May 2003 and then peaked again
in the autumn as container traffic was also coming to a peak,
amounting to well over 20,000 each month throughout the
autumn of 2003 vs. an average of around 7500 per month during
the previous autumn. The vehicular traffic has since
declined significantly.


5. (SBU/NF) The fact that the container port lacks computers
and is run on an index-card system did not help matters.
Also, for the first time, food for the UN-sponsored
Oil-for-Food program came in containers, and this had to be
unpacked and sorted at the port, Sroor told us. Despite the
conditions of overcrowding, which made the port more
difficult to operate, productivity in cargo handling
increased by 26% over 2002, Sroor said. A $24 million
investment in port handling equipment in October helped. We
have been unable to get a reasonable explanation why the
government did not provide more resources to the port earlier
on, so that productivity could be ramped up to match the
increased traffic to Iraq. Sroor, who is in charge of all
three of Aqaba,s ports ) the main port, industrial port,
and container port )maintains that he is happy that the
tender was awarded and will support A.P. Moller.


6. (SBU) The new operator will have a short time to meet
stringent targets set out by ADC: after three months in
operation, APM must have made substantial strides in
installing automation into the operations of the port and
have cleared up congestion to such a degree that the
container surcharge is removed. This should prove
challenging to APM, although Sroor claimed that the port is
already well on the way to getting the surcharge removed
without the help of a manager. According to Sroor, the port
has already reduced the average waiting time to 2-3 days for
ships wanting to unload cargo; the Jordan Shipping Agents
Association will remove the current surcharge after two full
weeks in which the waiting period for these ships is less
than 24 hours. After six months, Sroor said, the port must
be operating at an "international standard," and APM will be
expected to maintain this high level of performance
throughout the rest of the two-year contract in order to
extend their management of the port.


7. (SBU) The problems APM will face at the port are
substantial but not insurmountable. According to the terms
of the contract and assuming that APM would be able to secure
the follow-on agreement, APM will turn over about $700
million to the Aqaba Development Corporation over the next
five years. The tender has faced the vociferous opposition
of the Jordanian Ports and Clearance Workers, Association,
which claims that the "privatization" of the port will result
in massive job losses, and APM actions on personnel over the
next few years are likely to be constrained by the necessity
to tread lightly in this area. Sroor believes, however, that
the old age of the majority of port workers will allow the
downsizing of the port staff to happen gracefully by
attrition, as "most" of the permanent port employees would
likely retire "within the next five years."


7. (C/NF) There has been predictable resistance from
Parliament to the introduction of a foreign corporation as
concessionaire of Aqaba,s "crown jewel," the most active
component of a port that employs 4,700 Jordanians, primarily
from the underemployed and politically overrepresented south
of Jordan. ADC has been able to counter parliamentary
pressure on the subject by applying a two-track strategy:
first, denying that the contract is in fact a concession, and
second, accurately portraying the crisis atmosphere
surrounding the container port. A delegation of MPs passing
through Aqaba in late January was treated to a tour of the
container port,s full-to-bursting storage yards and then an
hours-long presentation by Imad Fakhoury, Chairman of the
ADC, on how the pending contract was only for two years,
management of the port, full stop. (COMMENT: Fakhoury,s
statement notwithstanding, APM will be awarded the long-term
concession that is the follow-on to the management contract
without any further tender if it is able to meet its
performance targets. END COMMENT.)


8. (SBU/NF) COMMENT: The quick tendering to an
internationally respected firm of a management contract for
the Aqaba container port would be a positive step under any
circumstances. Under the current circumstances of massive
congestion at a time when demand for use of the port for
transshipment of goods to Iraq is at an all-time high, the
entrance of APM is very good news. Sroor points out that a
high proportion of reconstruction-related items is likely to
be heavy equipment (unloaded in the as-yet-uncongested main
port rather than the container port). If so, the conditions
at the main port ) which will not be under APM,s authority
) will bear further monitoring. The resolution of problems
in the port is also likely to expose inadequacies and
bottlenecks further downstream in the customs-clearing
process or in the supply of suitable vehicles to truck
supplies north to Amman and Iraq.
GNEHM