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Dubai Ports Pledges to Transfer Ports to U.S. Entity

March 9, 2006 at 12:00 AM EDT
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MARGARET WARNER: For a look at today’s announcement by Dubai Ports World, from the business and political perspectives, we turn to Simon Romero, a business reporter for The New York Times in Houston, and Norm Ornstein, a longtime congressional watcher for the American Enterprise Institute.

Welcome to you both.

Norm, first of all, Senator Warner goes to the floor, announces Dubai Ports World is going to, he said, transfer all their U.S. operations to — to a U.S. entity.

Was that a shock? Why did it happen today?

NORMAN ORNSTEIN, American Enterprise Institute: It was absolutely a shock.

The — both houses of Congress were really prepared to forge ahead in the Senate, somewhat reluctantly, at least on the part of the Republican leadership, to block this deal. The House Appropriations Committee yesterday voted 62-2 to attach something to the emergency appropriations that would block the deal.

And the Senate voted earlier today to allow an amendment by Senator Schumer to block the deal, something that they didn’t particularly want. The Republican leaders went to the White House this morning. And I — I think that was the beginning of the unraveling of this, in a very rapid fashion, something nobody really anticipated.

MARGARET WARNER So, the Republican leaders, meaning Senator Frist, the majority leader, and Dennis Hastert, the House speaker, basically told the White House, this is going to — you are going to be rolled on this?

NORMAN ORNSTEIN Yes.

What we — what we pretty much know, from what people who were in the meeting said, was at a — at what was a regular meeting of the congressional leadership, they said flatly to the president, you are going to lose on this. If you veto it, your veto will be overridden.

Since it is the first veto of your presidency in more than five years, that makes it almost the worst of all possible worlds for you, and not particularly good for us. We got to get a way out of this.

MARGARET WARNER Now, Senator Warner also read a — a curious — well, he read a statement, in which he said that…

NORMAN ORNSTEIN Yes.

MARGARET WARNER … the — that the UAE prime minister, Sheikh Mohammed — and, as we know, the UAE actually controls this company — quote — “had advised the company that this action is the appropriate course to take.”

Do you know anything about the degree of coordination between the administration and the UAE government on this?

NORMAN ORNSTEIN We don’t know specifically what happened here.

What we do know is that there has been a lot of talk back and forth between Dubai, the United Arab Emirates, and the White House about this. My guess is that what Senator Warner was doing was deflecting attention away from the White House’s direct role, and basically trying to cut its losses on this, by having it run through Sheikh Mohammed, having Sheikh Mohammed basically say, it’s in our interests to do this, instead of making it look as if the White House has said, get out of this.

MARGARET WARNER So, Simon Romero, let me just — for our viewers, I will re-read the operative sentence, because there has been a lot of debate about what it means.

The — Senator Warner said, D.P. World will transfer fully the U.S. operations to a United States entity.

Now, does that sound like full divestiture of the U.S. portion of this deal?

SIMON ROMERO, The New York Times: Well, Margaret, it’s very hard to tell at this point, because, you know, there were reports earlier today that were saying that some private equity companies in the United States were interested in bidding for those U.S. assets.

But what — like you — exactly like the D.P. World statement says, they’re not saying that they are selling them. They are simply saying that they are transferring them. So, that could very well mean that they could create a legal entity that is based in the United States, that has American managers, and even an American board of directors, but could still be effectively controlled by — by Dubai.

MARGARET WARNER Is there any kind of model for that, that kind of you’re — you are shedding the operations, but you are not completely giving up total control?

SIMON ROMERO That’s right.

It’s — it’s — you know, it’s a strategy that, you know, American companies have often employed in their operations in politically sensitive areas of the world. It’s not completely unknown. You know, Halliburton, for example, has done something like this in Iran, where they operated for many years, up until recently. They simply operated those — those — you know, those Iranian operations out of an offshore entity. And that could be very well what — what the Dubai company is planning to do as well.

MARGARET WARNER Now, let’s say we are talking about a sale. How many — you wrote an interesting piece in The Times about how U.S. companies, over the last few decades, have really gotten out of this business.

How many American companies, because they did say they were selling it to a U.S. entity, are in a position to, one, buy this — these — these port operations, and, two, to run them?

SIMON ROMERO Well, that is a great question.

You know, of the top eight terminal operations companies in the world that do these type of — this type of work at — at big international ports, only one is American. And that company is based out of Seattle. It is called SSA Marine. It is a family-owned company. But it’s not nearly of the same scale as — as Dubai Ports World or its competitor in bid for — for P&O, which was a company that was controlled by Singapore’s government.

So, you know, American companies really began ceding these — these terminal operations to foreign companies decades ago.

MARGARET WARNER Now, Dubai Ports World’s statement also said it wanted to make sure it didn’t suffer an economic loss.

If the total deal of buying the British company was close to $7 billion — I think it was 6.8 — how much of that is the U.S. share? In other words, how much would they have to sell those — those operations for?

SIMON ROMERO Well, you know, the U.S. share is really just a fraction of — of what P&O does around the world. P&O is focused mainly in these thriving ports in Asia. And the U.S. operations account for just about 10 percent of P&O’s business.

So, if you did a — sort of a back-of-the-envelope calculation of what the U.S. operations might be worth, you could say maybe $600 million or $700 million.

MARGARET WARNER So, Norm, the congressional reaction, at first, it sounded a little cautious. How do you read it now? Was this enough to avert a collision?

NORMAN ORNSTEIN No, it wasn’t.

And while a number of Republicans breathed a sigh of relief that, at least in the short run, they have averted a disaster, and some were saying publicly, well, it’s fine now, many, privately, were almost as cautious as Democrats.

And it’s partly because of that first scenario that Simon mentioned. In fact, what Dubai Ports had offered earlier, what the administration had been talking about, was having a kind of separate U.S. entity. That wasn’t acceptable to Congress.

If this is done now through the backdoor, where D.P. has any role at all, Congress is going to go ballistic, and it’s going to be a disaster, I think, for the administration.

They have got a dilemma now, because there simply aren’t American companies that have the know-how and the breadth to do this. Interestingly, and perhaps ironically, what I had heard earlier in the day, as they were looking at those that have the — the kind of resources, Halliburton was a name that came up. And Democrats, I’m sure, are saying, please, God, let that happen.

MARGARET WARNER Duncan Hunter, the chairman of the Armed Services Committee, who has been pushing hard to — for this legislation, said today, as far as he is concerned, it is not over yet, until there has been a divestment, or it’s not over until the documents are inked.

Yet, today, the Dubai Ports World deal went through. In other words, they formally, as I read it, took control of the British company. So, how do you square that circle? I mean, there — there is going to be a lag time, isn’t there? Do you think that the House may still go ahead with this vote next week?

NORMAN ORNSTEIN There is going to be a substantial lag time. And my guess is that the House is going to want to take a vote that simply reaffirms what the Appropriations Committee said and what Duncan Hunter wants to do, and what Democrats would be delighted to have, a vote on the record, where they are saying, no, we draw a line in the dust.

That is going to make it even more difficult. And, of course, American companies that might want to get into this, including some capital investment firms, would like to make a bundle out of this, you know, find a way to buy it cheaply and then subcontract out.

But, clearly, Dubai Ports World won’t allow that to happen. And now, since we — it appears the congressional reaction is stuff that we couldn’t — such that we couldn’t even get Singapore, a closely ally, involved, it’s going to be very difficult to — to have this work out in the short run.

MARGARET WARNER So, Simon, what are you hearing from potential — maybe not potential buyers, but people in that community about — I mean, is D.P. World going to be forced to sell at a fire-sale price? Are — are — are companies kind of licking their chops; they’re going to be able to pick up what is, I gather now, a profitable business at a pretty good price?

SIMON ROMERO Well, that is certainly what the financial investors are hoping for.

You know, they are looking at a company that is in distress, that has been somewhat surprised and taken aback by the political reaction in the U.S., something that they — that Dubai definitely did not expect. And, you know, big private equity investors, this is how they make a living.

They — they go in and sort of swoop in and buy distressed assets, or assets that are perceived to be distressed, hopefully at a low price. They hire professional managers. In this case, I think they would go out of their way to hire American managers, as much as possible, and — and, hopefully, later, you know, of course, sell the company at an elevated price.

MARGARET WARNER Simon Romero of The New York Times, and Norm Ornstein, AEI, thank you both.

NORMAN ORNSTEIN Sure, Margaret.

SIMON ROMERO Thank you.