Freeing up the capital for the gateways

The Daily News featured an interesting story by way of the Business in Vancouver magazine on Tuesday.

In the page three article in Tuesday's paper, the Vancouver magazine examined the background to some legislation working its way through Parliament that could provide a major change in the way that Canada’s port authorities fund their projects.

The changes will level the playing field with their American competitors who have a much easier way of accessing the financing for their expansion or renovation projects up and down the coasts of the USA.

The Business in Vancouver article specifically targets the Ports of Vancouver, Montreal and Halifax as being the main beneficiaries of the new legislation, which leave us to wonder if the Port of Prince Rupert qualifies for this kind of easier access, or if it is governed by other rules for financing.

Considering the much discussed future of transportation through the Fairview Terminal gateway, it would seem unfair if the Port of Vancouver had the process streamlined for its expansion plans, while the Northern gateway had financial roadblocks in place that might slow down its potential and growth. It will be interesting to learn if the Port of Prince Rupert qualifies for the more relaxed regulations as well as what is described as the nation’s big three ports.

Of course all the changes in funding will mean little, if the American economy continues to decline over the next few years, with the bulk of the volume through the Rupert end destined for America, business forecasts will be impacted by any quick decline in imports to the US.

If that takes place, then changing the money rules while helpful probably won’t mean that much along the way, investors and lenders work in a world where they want return for their investment. Until economic prospects improve and the import flow increases, development plans may find a harder sell in the banking offices of the loan providers.


Funding boost for ‘big three’ ports
By Andrew Petrozzi
Business in Vancouver

The Port of Vancouver could soon be flush with capital as Ottawa aims to stimulate gateway development and investment by removing long-standing borrowing restrictions that apply to the country’s ports.

Business in Vancouver has learned the federal government is proposing changes to the Canada Marine Act that will allow Canada’s three largest ports - Vancouver, Montreal and Halifax – to borrow money from commercial lenders.

Federal legislation has thus far prohibited port access to such funds, which has drawn the ire of port operators and analysts who argue that the restriction undermines Canadian port competitiveness internationally.

Seattle and other U. S. ports, for example, have long had access to advantageous financing options to raise private-sector capital for infrastructure development. They also often receive investment funds from federal and state governments.

David Emerson, Minister of International Trade and Minister for the Pacific Gateway and the Vancouver-Whistler Olympics, confirmed in a BIV interview that the federal government is proposing the changes as part of an overall review of the nation’s transportation infrastructure.

“The barriers to (ports) being nimble and competitive have been some fairly rigid restrictions on their borrowing capacity, on their ability to make changes in their governance structure, their ability to utilize and extract value from their land holdings and to operate in a globally competitive environment that other ports in the world are now operating in.”

Emerson said the proposed changes would allow Canada’s three “tier one” ports with annual revenues in excess of $25 million to deal directly with the market and have their borrowing capacity assessed there rather than being imposed by government.

Ottawa will still limit lending to smaller ports, but he said that Ottawa is proposing to streamline the process so they won’t have to wait years for the government to make changes.

The legislation, scheduled for third reading last week, will likely be before the Senate soon for final approval. Emerson doesn’t anticipate opposition to it.

“It is not the kind of bill that invokes a lot of partisan attacks,” he said.

According to Emerson, world-class transportation and logistics systems, combined with strategic international trade and investment agreements, are key to improving Canadian competitiveness.

“Transportation to gateways and transportation and logistics generally are more important now than tariffs,” he said.

Chris Badger, Vancouver Fraser Port Authority COO, said the proposed legislation is extremely positive for the Port of Vancouver.

“We still have to meet requirements for borrowing, but it will allow us to act very quickly on issues where we think there is a good investment to be made,”

He said that investment could include buying strategic lands along the Fraser River to benefit the entire gateway.

He added that no projects are on hold awaiting the legislation, but Badger acknowledged that there are projects the VFPA could execute with more certainty once the legislation passed. While declining to cite specific examples, Badger confirmed the VFPA would be looking to make some “real strategic deals” soon.

The proposed changes will make Canadian ports more competitive, because they would have more flexibility to plan and undertake needed investments to meet demand growth, according to David Gillen, director of the Centre for Transportation Studies at UBC’s Sauder School of Business.

“They can also undertake investments that will serve traffic better and improve service quality. In the past, they were constrained on what they could do and therefore tended to under invest. In some ways, it has reduced uncertainty and thus the real cost of capital is less.”

He downplayed arguments that ports might over invest and build up excess capacity.

“They still have to go to the capital market, and the market will evaluate the proposed investment and therefore provide the scrutiny,” said Gillen.

Trevor Heaver, a professor emeritus in the Centre for Transportation Studies, added that the proposed legislation increases the flexibility and power of ports to manage their business.