Freeing Freeport from Family Feudalism

The Malta Independent on Sunday

Freeing Freeport from Family Feudalism

Ever since the Marsaxlokk Port ( as its was commonly known until 1987 under Labour administrations that gave birth to it around 1980) was renamed Freeport the name of Marin Hili became synonymous with it. He has been spearheading this project and has chaired the Corporations which were eventually set up to own and operate the Freeport in the name of the Nation which still owns it.

Many were surprised that not even the Labour administration of 1996 ` 1998 did de-throne Mr. Hili from the Freeport`s chair in spite of his being branded a baron by the incoming Prime Minister in the run-up to the 1996 elections.

Over the years we have been bombarded with media hype, press releases, open-days, glossy brochures and what have you all telling us what a great project Freeport is and what a marvellous job Mr Hili was doing in directing it. At one stage we had it from Prime Minister`s Fenech Adami`s mouth that the Maltese nation ought to erect a monument for Mr. Hili in recognition of his sterling service to the Nation.

For those of us who read the figures and are not easily blinded by the hype we have known for some time that the situation at the Freeport is not as rosy as it was depicted.` Financial Statements regularly returned a profit but this was always dependent on government handouts. Sometimes these were in the form of management fees for overlooking the spending of government`s own money, millions of liri, voted in the Capital Budget of central government for the development of the port which would eventually be used by Freeport.` It seems like my charging you project fees for building my own house at your expense! Recently it took the form of a subsidy on interest charges regarding external financing for the development of terminal 2.

My first brush with Freeport came about two years ago. They were trying to refinance the US$ bond to finance terminal 2 into a 30 year $250 million sovereign guaranteed bond. Some other time I will tell how I had to ruin my Easter of 1998 to help saving this issue from sure disaster to an over-subscription success. But it must be stated that without a sovereign guarantee this bond would have been a non-starter.

Freeport`s own financials were nowhere near enough to support such a line of credit and most projections of 1994 were grossly off-mark. Freeport could only boast of increasing throughput measured in TEU (units which measure the equivalents of twenty foot container moves) without any assurance that such increasing turnover would indeed produce a bottom line near enough to service the Bond, let alone the millions over millions which we as a nation have been pouring annually into this project since 1980.

Following this experience I had supported an initiative to see whether Freeport could be networked with some international` port operator to give it stability and assurance of throughput at optimum rates.

We spoke to the best of the breed. The Port of Singapore Authority (PSA) had just made an investment in the port of Genoa and was looking for a strategic partner in central Mediterranean.

Without any commitments or assurances on either side the then Labour Government and PSA agreed for the latter to conduct a due diligence exercise and after that to discuss possible future co-operation on the basis of informed positions. This was effectively carried out in Summer 1998 as the country was undergoing political turmoil leading to early elections. The PSA team first arrived in Malta on the same day that Dr Sant was demanding Mintoff`s resignation at that fateful Vittoriosa meeting.

By the time PSA concluded their due diligence we had a new government. A government that later tried to parry criticism for the scandalous way it privatised Mid-Med Bank by suggesting that Labour Government had intended to privatise Freeport the same way. This is absolutely false as no assurances or promises were made to PSA except that future co-operation, if any, will be discussed after their conclusion of the due diligence exercise.

As it happened following their due diligence PSA informed the new nationalist government quite curtly that from their findings they saw no scope of co-operation. No reasons were given and none will ever be given. But for those of us who can read looks, interpret signals and understand silence it is clear that PSA did not like what they found.

Eventually the Freeport Financial Statements for 1998 were published and the jig-saw started to form. Freeport was trading at a significant loss.` Turnover was being built by quoting sub-optimal rates. Criticism to this effect surfaced in the Malta Independent but it went unreplied and unheeded. Freeport continued to organise open-days, and to distribute glossy brochures in the Sunday papers telling us what a great project it is and what a formidable job its Chairman Marin Hili was doing. The monument he deserved was growing taller.

The advent of the new millenium started to bring talk of privatisation plans for Freeport. One only privatises the best. So for those who believed the hype and were convinced that Freeport was in good financial health the choice was sensible. For those of us who can see through the gloss into reality for what it is, `privatisation of Freeport appeared unreachable except on terms which would wash out the hundreds of millions which the Nation invested in this project.

My long ears with major international investment banks that were invited to advise on this privatisation confirmed all my thinking. Freeport is unprivatisable except by giving it out on a management contract to an international port operator that would drive stepped improvements in efficiency and assure maximum throughput at optimal rates.

My fears were all confirmed with the front page report of the Business Weekly of Thrisday 20th April 2000 titled `French shipping line and German partner show strong interest in Freeport`

As we approach privatisation Mr Hili seems to have stopped singing his glory to Freeport`s potential. Instead gloom is now falling all over. He is quoted as saying `But risks are getting too big. The answer is sell the hub to private investors by year-end`. He is also reported as saying that the investment required to keep pace with rivals is simply too big for a small island.

I am smelling that the 1999 Financial Statements will be making bad, very bad reading.

How is it that as we approach privatisation rather than enhance the enterprise value we start talking the enterprise down` How is it that just when Terminal 2 is ready and operational and we have invested all that was needed to invest in it, we are now suddenly seeing that the investment needed is too big`

We have invested too many millions in this project to let it be run as a family business whose losses are underwritten by big daddy. Before Freeport can be put on a serious privatisation track it must first be freed from family feudalism. Privatisation is serious business and has to be conducted in the most transparent of matters free from conflicting interests, apparent or real.