For sale: One old outclassed seaport

Haifa Port / Photo: Eyal Izhar, Globes
Haifa Port / Photo: Eyal Izhar, Globes

Haifa Port faces severe competition from the new Chinese-built Bay Port next-door, but bidders are still lining up for its privatization.

The familiar view of Haifa Bay is changing beyond recognition. The construction of the new Bay Port by Chinese company SIPG is well advanced. Last Friday, the new cranes arrived, each 30 storeys high, for unloading the giant container ships that will start visiting the port about a year from now. According to the company, these are among the largest bridge cranes in the world: each crane can lift two twenty-foot containers at once, an aggregate weight of 60 tonnes.

At the state-owned old Haifa Port, they are gearing up for war. A tender will shortly be issued for bringing in a strategic investor to upgrade the port's infrastructure, develop its commercial facilities, and prepare it for tough competition with the new port.

In these crazy times, with the coronavirus pandemic raging, would you buy from the State of Israel a secondhand port with workers who are among the highest paid in the country, alongside which will operate a spanking new, automated Chinese port, and agree to put NIS 1 billion down, as the state is demanding?

It turns out that there are businesspeople ready and willing to buy the veteran port, and even to pay a handsome price for it. Asi Shmeltzer and Shlomi Fogel, who are among the owners of Israel Shipyards Ltd., were until recently considered the leading candidates to win the Haifa Port tender. The pair has experience in running a port: Israel Shipyards operates a private port behind Haifa Port.

In the past few days, a new contender has appeared on the scene, a well-known personage to those familiar with the industry. Eli Tilles, who led Nakash Brothers to a win in the tender for the privatization of the Port of Eilat, has confirmed that he intends to compete in the forthcoming tender at the head of an international consortium that he has put together. Tilles has been in the ports industry for over four decades, during which he has held a number of positions at the Ports and Railways Authority and in marine businesses in Israel and around the world.

"I know the port extremely well," Tilles said in response to an approach by "Globes", "and I think that as with every government company, privatization will make it possible to make it more efficient and to develop it very significantly from a business point of view."

Globes: What can you say about your partners?

"They are two leading Western companies that between them manage 50 seaports handling containers, general cargo, and passengers. I can't at this point disclose further details, but I'm proud that two such companies, that have never invested in Israel before, are prepared to come here at the height of such a severe economic crisis. I am also a partner in the consortium, and intend to stay in the company if we win in order to advise on the process."

Tilles does not give many interviews. He has had a rich career in shipping and railways in Israel and around the world. He came to the Ports Authority in the mid-1980s, and advanced to the position of operations manager. After that he served as CEO of Negev Star, a subsidiary of Zim Integrated Shipping Services Ltd. and Israel Chemicals (TASE: ICL: NYSE: ICL), both then state-owned companies. He set up a company operating tugs for drilling platforms, a cargo shipping company in Cyprus, and other ventures. He is particularly proud of having carried out the first reform at the Israel Ports Authority, without any strikes.

A senior figure in the ports industry told "Globes", "He has been at every juncture in the development of the industry, and as far as experience goes, I don't think he has any rivals."

The sale of control of Haifa Port is one of the biggest ever privatizations to be carried out in Israel to date. The port was recently valued at NIS 1.2 billion. It has a central role in the development plans of the city of Haifa, and is an asset of strategic importance to the Israeli economy.

There are those in the government who see the port as having an important role to play in promoting commercial relations with the Palestinian Authority, with Jordan, and even with more distant countries. This is as part of the "Tracks for Regional Peace" program initiated by Israel Katz in 2017 as minister of transport, which he intends to continue to promote in his current role as minister of finance. The idea is to create a trade route that bypasses the Red Sea by connecting the Port of Haifa by rail first of all to Irbid in Jordan , and from there to the Emirates, Oman, Saudi Arabia, and in the future to Syria and Iraq as well.

Privatization process gets underway

The process of privatizing Haifa Port, which up to now has taken place below the radar, is expected to move up a gear in the coming weeks. Next week, the committee for the sale of state shares is due to discuss the process for selling the port formulated by the Government Companies Authority. If the procedures are approved, a call for proposals for buying the port will be issued this month. Bids will be filed in February next year, after a few months of a road-show in which the Government Companies Authority will attempt to drum up interest among international cargo terminal operators and investment bodies.

In the assessment of the financial bids, a substantial bonus will be awarded to companies with experience in operating container ports. The participation of international logistics firms will also be welcomed, given the ambitious business development plans. The winning bid is due to be selected in April 2021, and ownership will be transferred a month later.

Among Haifa Port's troubles. Covid-19 is probably the least. During the most of the period of the pandemic, the port has operated at 100% of normal output and sometimes even more. Seaports have been one of the most robust industries during the crisis, in complete contrast to the catastrophe that has befallen airlines. This is likely to raise the attractiveness of the Port of Haifa for investors who have fled air cargo.

The main threat to the Port of Haifa is, as mentioned, the Bay Port being constructed north-east of it. The plans of SIPG, which will operate the port from mid-2021 for the next 25 years, have yet to be revealed, but it is believed that the new port will employ no more than 300 workers. The Port of Haifa currently employs 1,070 workers, whose average monthly pay is NIS 33,000, putting them in first spot in the entire public sector.

The good news is that a retirement program for 200 "generation A" employees will shortly be implemented. Each of them has been offered a package worth NIS 2.5 million. 100 no less costly workers belonging to the Maritime Department will leave the port's headcount when the Maritime Department becomes part of Israel Ports Company, in accordance with a recently signed agreement.

Among others, these workers include the famous pilots, who earn NIS 80,000 a month and more. The port has NIS 500 million cash (plus another NIS 200 million earmarked for severance pay), a balance that will grow by NIS 180 million that the state will pay for the Maritime Department.

2,000 more housing units

The new Chinese-built port will deal solely with loading and unloading containers. Unlike the relatively shallow Haifa Port, the Bay Port will be able to handle latest generation container vessels, which are too large to enter Haifa Port. This crucial advantage, alongside low manpower costs, extensive experience in port operation, and the new equipment, should tip the scales in competition over container handling very clearly in the new port's favor, dealing a severe blow to Haifa Port's containers revenue.

Haifa Port will be able to compete with the Chinese-run Bay Port in containers only in another ten years' time, when the project to construct a deep-water quay enabling Haifa Port to handle the giant ships is completed. The cost of the quay, estimated at NIS 1-1.5 billion, will be financed by NIS 400 million government aid and by the money that the port's buyer undertakes to invest in it.

Until it is able to compete with the Bay Port on container handling, the Port of Haifa will attempt to develop other port activities that are not open to Bay Port under the current franchise terms. Among other things, this will mean passenger ships and shipping of vehicles. In general cargo too (ie cargo not in containers) Haifa Port has room to develop and to restore to itself business that in recent years it has lost to the private port.

Another area that can be expected to bring revenue to Haifa Port is real estate. The Waterfront project, being promoted by the government in conjunction with the Israel Land Authority and the Haifa Municipality, is one of the largest urban projects planned in Israel for the coming years, and the Haifa Port Company is a part owner of it. The project is a mix of residential and commercial areas, similar to what is found in Barcelona and other coastal cities.

Behind the scenes, discussions are taking place between the parties involved on substantial expansion of the project. On the agenda are 2,000 housing units in addition to the 500 units already planned for the site, an addition that will facilitate financing of the plan to put below surface level the railway that currently divides Haifa from its coastline, thereby connecting the site with Haifa's lower city.

Published by Globes, Israel business news - - on July 20, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Haifa Port / Photo: Eyal Izhar, Globes
Haifa Port / Photo: Eyal Izhar, Globes
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