Positives and negatives to Gdansk's prospects of profit

29.05.2008

Going for gold
 

An interview with Ryszard Strzyzewicz PhD,
President of the Board of the Port of Gdansk Authority SA

- What was the vision of the port development strategy for the coming years and the panacea for the recovery from the current difficulties brought on by the decreased turnover in coal and oil that you presented to the Supervisory Board during the selection process of a new management board?

- As I was getting prepared for the competition, I did not have a full insight into the opening balance. I realized however that the situation I was about to confront would be far from comfortable and thus I tried to directly identify the causes for concern. I have a substantial experience in managing companies, which - besides addressing running problems - required that I implement recovery and restructuring processes. This refers to projects I did for Raiffeisen Atkins SA and those supervised on behalf of the Governor in several dozens of privatised companies in the Pomeranian region. The forecasts I made were always based on reliable analyses of the economic and financial standing of companies, their prospects for growth and investment profitability.
This understanding of economic rationale was my master key to taking reasonable actions that I brought forward to the Supervisory Board of the Port of Gdansk Authority. At the same time I was mindful of the specific character of this company.

- Speaking of investment profitability, when will the clearing and construction work begin on the new, enlarged hinterland of the Gdansk Container Terminal, which will enable the handling of the most rapidly expanding area of transportation in the recent years?

- I am getting to know about the shortage of hardened yards for container storage that is so annoying for GTK. In view of what has been said above, I will only repeat that, while my priority is to maintain the existing infrastructure in good condition, creating dreams about the "new thing" must heavily rely on current profits. In other words, my intention is to give the necessary support to the company performing container handling operations at the Szczecinskie Quay at the earliest time possible. Bear in mind, however, that containers are additionally processed at the new Deepwater Container Terminal in the Outer Port and Ro/Ro cargo can also be handled at the Polferries Terminal owned by the Polish Baltic Shipping Co. and at the newly built Westerplatte Terminal. I realize that all companies operating on the premises of the Port of Gdansk have the right to equal treatment as they all contribute to the PGA's financial results. With the newly appointed port management, we hope to establish the kind of cooperation that will guarantee equal growth opportunities to the entire port.

- What is the financial standing of the Gdansk port and will there be funds available to finance further scheduled investments in infrastructure, with the assistance of European Union funds?

- PGA closed the previous year with a net profit of approx. PLN 11 million. While this result may not be spectacular, it does not raise pessimism in my opinion. I greatly rely on the support of Mr. Slawomir Wrzesniak, Vice-President of the Board, chiefly due to his many years' experience in managing finances of one of the major port companies. We continue our efforts to acquire funds from the Operational Programme Infrastructure and Environment. Currently placed on a reserve list, we hope to get short listed as primary projects. We can utilize PLN 127 million, thus obtaining an 85 percent co-financing for the years 2009-2013, and reasonably ensure adequate own contribution. The depreciation alone brings over PLN 20 million annually, and is still rising. Even assuming that the decreased turnovers of coal and crude oil persist, other activity should yield the expected results.

- How advanced are the talks with investors and the implementation of projects scheduled on the premises of the Gdansk port? I mean the PERN fuel bases, a change in the profile of Siarkopol, a new LOTOS base, the universalization of coal handling facilities in the Northern Port, the LPG Terminal in the Inner Port, the grain terminal and the logistics centre and, last but not least, the increasingly publicized power plant. What are your plans for the buildings and facilities of EuroPort and Rudoport?

- Let me begin with the latter. I am not alone in being surprised that five - if I recall correctly - successive management boards of the Gdansk port failed to close the problem of ill-judged investments. All that is left from the idea of building the biggest terminal on the Baltic designed for handling mainly grain for... Russia and Ukraine - today's exporters of this commodity - and iron ore for Polish steelworks is a squalid pier and concrete warehouse structures. And, of course, the continued lawsuits. I feel the urgent need to put an end to both issues. The access roads for motor vehicles, railroads and provided infrastructure must start bringing profits to the port.
A much more complex issue to us as the management board of a port company is to launch investments that have to be decided on in Warsaw. In one go, you have listed the assignments that have been classified as crucial for "Poland's energetic safety". This magic term - paradoxically - opens up new prospects for the Gdansk port and, at the same time, imposes restrictions on our independent actions.

- All port entities complain that the Act on Sea Ports is far from perfect. Why does Gdansk seem to be affected more than the others by its negative effects?

- The Act on Sea Ports of 1996 places port authorities in the position of strategic companies i.e. vital to the national economy and puts us under the obligation to fulfil - nearly on a non-profit basis - a supplementary role to the state. However, we are accountable for the financial results like commercial entities. The practical experience of the past few months, especially traumatic for the Gdansk port, has proved that these roles can be mutually excluding. Forty years ago, our port was profiled to handle liquid fuels and coal exports thus slowing down its growth as a universal port facility. As Warsaw was constantly changing its strictly political decisions concerning the diversification of oil supplies, the former port managements - in my opinion - got slightly confused in the process. It is not my intention to subject them to criticism as the reality and the pace of transformation in Poland rendered it difficult to control the situation at the level of the port management board. I believe, however, that the time has come to embark on more decisive measures aimed to clarify the situation. In this spirit, we are going to continue the actions of our predecessors by holding "get-together" talks with partners authorized by the government to make decisions regarding flow directions of oil pipelines. I refer to companies such as PERN "Przyjazn" SA and OLPP Ltd as well as ORLEN, LOTOS and Naftoport. At the same time, I believe that binding proprietary decisions made by the Ministry of State Treasury will respect the interest of the City of Gdansk and the whole Pomeranian region. The City of Gdansk - our second owner - expects us to take dynamic action, rationalize overheads and launch new shipping lines and, in return, we can rely on its full support. Of that I have been duly assured by Mr. Pawel Adamowicz who - as the Mayor of Gdansk - additionally holds the Chairman position of our company's Supervisory Board. Although my intention is to maintain the closest possible cooperation with the City of Gdansk, I would also like to revive a broad variety of ideas that lay behind appointing the Port Interests Council. The Port must - in the most natural sense - combine interests of the companies operating on its premises into a cohesive whole, at the same time generating new perspectives for growth in the region. Such measures could be exemplified by the efficient realization of the Pomeranian Logistics Centre in the port hinterland or the aforementioned power plant. As concerns the LPG and grain terminals you have mentioned, we will address these issues in our own capacity by granting support to the companies that have already undertaken to build them.

- Speaking of which, how advanced is the privatization process of the port operating companies - with the participation of PGA SA - in particular Port of Gdansk Cargo Logistics?

- There are currently over 200 businesses operating on the premises of PGA. They perform a wide range of operations utilizing port land and facilities. In practical terms, the privatization required by the Law in the 1990 has been completed. PGA still holds substantial stakes in Port of Gdansk Cargo Logistics. However, we are mindful of the negative experience with ad hoc privatizations in the Gdansk port and do not intend to take any hasty steps in the case of Port of Gdansk Cargo Logistics as it represents the largest and the most significant part of the port's former activity. This company performs its operations on almost all quays owned by the port and its efficient performance directly affects the PGA results. Due to its key importance to PGA, a tender has been announced which unfortunately most probably has failed to select a suitable investor. I will not approve of a privatization that fails to ensure robust performance of the port and guarantee the economic security coupled with a high level of future investments.

- There seems to be a similar risk related to the issue of the "quasi-secondary" privatization of the Northern Port, which has recently been increasingly publicized in Gdansk... How are you going to respond to the company shareholders' demands?

- The Northern Port is a limited liability company incorporated under the Polish law in 1994. The contract made at that time, which is due to expire by the end of December 2010, provides that we lease to them coal and liquid fuel handling berths that are part of the former Outer Port. As a member state of the European Union, Poland is under the obligation to treat each business entity on equal terms. I have just been officially informed that, on 30 May this year, the General Shareholders' Meeting of the Northern Port Ltd is going to adopt a resolution to increase the company's share capital by Sea-Invest NV from Belgium. As a result, the port-based terminal of the Polish oil pipeline will be put at the disposal of an EU partner. From the commerce point of view, I should be pleased that a bidder was found who is interested in port investments. However, political aspects such as Poland's energetic safety, which returns time and again, are decided on in Warsaw. If there are any non-economic reasons that should prevent this situation from happening, the relevant decisions are beyond the scope of competence of PGA.

- In this interview we have frequently mentioned issues that suggest the obsolete nature of the binding Act on Sea Ports and Harbours. Is it a fact that, since it was enacted in 1996, the change that has occurred in Poland has been so profound that the Law aimed to guarantee an economic boom has become a hindrance to growth?

- Let me put it in other words. The respect we have for our business partners, carrier companies and cargo operators cannot collide with the particular care we take of the property, assets and interests of the State Treasury. While managing a company that operates at the point of contact between two different worlds, I must have tools at my disposal that grant a Polish port real competitive rights in such specific circumstances. It must be clear therefore whether I am to manage a commercial company with all the consequences resulting from the economic freedom since I am held accountable for its profitability or, whether I receive assistance in the form of legal privileges - a kind of bonus - until the market opportunities become equal. The same applies to finance where phases are scheduled for entering the Euro zone. I heard all too often about the positives and negatives to the actual situation. Therefore I can emphasize that the geographical position of the Gdansk port alone will not guarantee economic profitability. The realities of port operations do not allow playing "ship games". They require that dollars, euros, roubles and - best of all - Polish zlotys be counted carefully.

Janusz Kasprowicz
PGA SA Spokesman