Haifa Port buyers say they're ready for competition

Haifa Port Credit: Shlomi Yosef
Haifa Port Credit: Shlomi Yosef

The new, Chinese-managed Haifa Bayport will be a strong rival, but Haifa Port has its advantages.

For a much higher sum than was estimated, at the end of the pricing process, the consortium consisting of Israel’s Gadot Chemical Terminals (1985) Ltd. (TASE: GDTR) and Indian company Adani Ports and Special Economic Zone Ltd. won the tender for the sale of Haifa Port. The consortium will pay NIS 4.1 billion. The government had hoped for NIS 3 billion, and estimates in the industry were even lower, but it seems that the amount that the Indian company agreed to pay reflects geo-political considerations. The company is close to the regime in India.

Under the terms of the tender, the deal is due to close within 90 days, after payment of the acquisition price and the signatures of the minister of finance and the minister of transport on the various documents and approvals. The government estimate that the deal will actually be completed earlier, within 45 days.

Sources in the ports industry describe the tender as one of the most important to have taken place in Israel. Most of Israel’s foreign trade in goods goes through its seaports. They handle 99% of the country’s export and import cargoes, which represents a very high dependence in comparison with other countries. The success of the tender means that the operation of all the ports in the Haifa area is now in private hands. The winning consortium will compete with the new Haifa Bayport, operated by China’s SIPG, and the Israel Shipyards port. The only state-owned port remaining is the Port of Ashdod, which will compete with the Hadarom Container Terminal constructed nearby and operated by Dutch company TiL.

Haifa Port handles about two million containers a year. The winning consortium plans to expand throughput substantially through the Indian company’s ties. Adani Group founder and chairperson Gautam Adani is one of the wealthiest people in the world, with a net worth estimated at $113 billion. The company that bears his name is a business empire with holdings in terminals and seaports in the Far East. Among other things, the group also has businesses in energy, infrastructure, and metals trading.

Gadot Chemical Terminals intends to strengthen the seeds cargo business at Haifa Port, and will compete in this area with the Israel Shipyards port. There is also a considerable real estate aspect to the deal. A senior Gadot executive told "Globes" that the company estimates that the buildings at the port are worth roughly NIS 1.5 billion, among them the empty Hangar 15 covering 10,000 square meters on which it will be possible to create a mix of cafés and restaurants and other outlets, in addition to the potential for a seafront project. Nevertheless, given the pricing of the competition, it is not at all certain that the consortium will achieve its planned profit.

Local and global competition with China

Besides the business considerations, the Adani Group has other reasons for buying Haifa Port. Lauren Dagan Amoss, a researcher at the Research Center for Maritime Strategy and Policy at Haifa University, who has researched the attempts by Indian concerns to penetrate Israeli markets, told "Globes": "Their interest here is also to reduce the Chinese presence as much as possible, because China has become India’s biggest enemy, and in recent years India has woken up to the importance of the Middle East and has been trying to close the gap versus China’s presence here."

The buyers will face growing competition with the private Haifa Bayport under Chinese control and with the as yet unsigned agreement on the urban seafront. They will also, however, enjoy various opportunities, such as a switch to sending goods as general cargo because of soaring container prices, and the queues at the ports that generate plenty of work. In 2021, 15% of the work at the port was handling general cargo, 31% was loading containers, and 54% was unloading containers. The competition will force Haifa Port to develop in the area of general cargo. In addition, in passenger ships, existing bookings put the expected number of passengers passing through the port at 426,000 by the end of this year and 611,000 next year.

The new Haifa Bayport, a few kilometers from the old Haifa Port and clearly visible from it, began operations last September, managed by Chinese state-owned company SIPG, under a 25-year concession.

The new port, constructed at an investment of billions of shekels, is one of the most technologically sophisticated ports in the Mediterranean basin, and perhaps in the world. It’s a computerized, automated port with huge, advanced cranes, and a semi-autonomous loading system aided by artificial intelligence, an internal fifth generation communications network, and other technologies. The result of all the automation is ultra-low running costs in comparison with traditional ports.

The Haifa Port tender winners do not, however, come to this battle empty handed. The consortium sees substantial potential in Haifa Port, and is trying to convey the message that the opening of the rival port nearby, the "Chinese" port, will only spur it to step up activity while maintaining Haifa Port as a stable business.

A senior source at the consortium said, "We certainly think that we’ll give a fight to the neighboring Chinese port at Haifa. Our prices will be very competitive. The Adani Group estimates that it will be able to increase its activity at the port considerably, by bringing in giant overseas customers. We’ll also give a serious fight in general cargo. Our activity will cover all the State of Israel’s imports of produce, steel, coal and chemicals. We have plenty to do, and we intend to expand the quays and undertake significant innovation and upgrading for the port."

Haifa Port is larger in area than its rivals. It sits on 1,500 dunams (375 acres), and has quays that can accommodate many ships. The Israel Shipyards port covers 200 dunams (50 acres) and the Bayport covers 700 dunams (175 acres). A further advantage is that Haifa Port is a working port with a widespread network of ties in the shipping industry.

Bonuses and layoffs

A change in ownership naturally raises fears on the part of the employees. The Adani-Gadot consortium says that the structure of the deal is intended to give the employees peace of mind. Apart from the large amount of cash that will accrue to the port, each employee will receive a privatization bonus, and, according to the messages emerging from the consortium, since the state has already undertaken a streamlining program at the port, the privatization process itself was carried with the employees’ agreement and involvement.

Of the total price in the deal, NIS 1 billion will be invested in Haifa Port’s capital and NIS 2.9 billion will go the state. The consortium and the state will each allocate 3% of these sums for employee bonuses, some NIS 120 million. Under the streamlining agreement with the employees, 200 of the highest paid employees will be laid off with severance pay, and the remaining 700 employees will have their jobs protected for ten years and will each receive a bonus averaging NIS 100,000.

The management and board of directors will have a pool of 32 months adaptation pay costing NIS 1.3 million, to be divided between the eleven senior managers on a differential basis such that each will receive 1-5 months’ salaries, while the buyers will be able to decide which of them will remain in the company’s management. Statutory posts will be abolished. It is estimated that each senior manager will receive NIS 40,000-180,000.

The chairman of the board himself will receive between NIS 150,000 and NIS 200,000.

Published by Globes, Israel business news - en.globes.co.il - on July 18, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

Haifa Port Credit: Shlomi Yosef
Haifa Port Credit: Shlomi Yosef
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