06/06/12: Thoroughly check that horizon

This op-ed appeared in The Virginian-Pilot on the date shown.

IF SOMETHING sounds too good to be true, it probably is.

APM Terminals would like to take over the operation of the Port of Virginia. Reading through the unsolicited proposal, one thought kept coming to my mind: How much money will APM make on this deal?

After all, no prudent business would offer as much as $3.2 billion to Virginia and its localities unless they could make that money back — and then some.

While I was unable to pin down exactly how much money APM might make, a chart at the top of page 26 of the proposal gave a hint.

Using “the more conservative GDP-multiplier technique,” as the proposal calls it, the traffic at the Port of Virginia is forecasted to triple in 25 years, even while its share of the market remains flat.

No wonder APM wants to operate the port — and for 48 years, to boot.

I can only imagine what the years beyond those 25 look like, not to mention what the less conservative regression analysis showed. No doubt APM is literally salivating at the possibility.

There is pretty much unanimous agreement that the Port of Virginia is well-positioned to benefit from the widening of the Panama Canal. The $5.25 billion project, which will enable the movement of larger vessels, is expected to be completed by the end of 2014. APM would like to complete the deal by the end of the year and take over operations on Jan. 1, 2013.

Perhaps the most tempting reason for accepting the APM proposal is that it will make more money available for transportation.

A look at the most recent financial statements for the Virginia Port Authority reveals net operating losses for each of the past two years.

These losses were mitigated by an allocation to the Virginia Port Authority from the Commonwealth Port Fund. The allocation is 4.2 percent of the revenues from the Commonwealth’s Transportation Fund and is used for capital projects.

Part of the pitch by APM is that it will take on the planned expansion programs, freeing up cash for other transportation projects.

That we need more money for transportation is no secret. But would we give away the store in the process?

According to its June 2011 fiscal year financial statements, the operation of the terminals by the VPA component unit, Virginia International Terminals Inc., generated $278 million in revenue.

If the conservative estimate is that volume triples in 25 years, I would expect that number to triple as well. And if the port increases its share of the market, the numbers would be even better.

This proposal sounds like it’s just too good to be true. I hope the decision-makers think of the longer term possibilities before signing off on this deal.