A fairwater of the port's imagination

15.03.2011

The 1978 statistical success i.e. the 27.7 million tonnes throughput - thanks mainly to the transit crude oil from the then Soviet Union and to Polish coal - has long remained an unsurpassable threshold. The 1980 political crisis imposed restraints on our trade exchange and the Port of Gdansk retained its position only due to the long-standing contracts for energy resources. It took the port over 30 years of work to repeat the record throughput. It was not until last year, 2010, with small coal exports but thanks to the significant transit of Russian oil and the rapid growth in container throughput, that the Port of Gdansk reminded us of its potential by reaching 27.2 million tonnes throughput.

Does this mean that with this result each consecutive year will see the volume multiply? Has the record throughput come about... by itself? What are the prospects for the biggest port in Poland and what can hinder its growth? The political stability of cooperating national economies, legislative mobility, and a favourable response from national port-related structures are but one basis for analysis. One should not underestimate the role of the team directly involved in the port's management.

Three years ago, the new members of the Management Board of the Port of Gdansk Authority SA did not have a favourable opening balance. The President of the Board, Dr Ryszard Strzyzewicz, who has extensive experience in business management solving current problems and at the same time implementing repair and restructuring processes, announced an unusual term in office. Earlier on, he had realised projects for Raiffeisen Atkins SA and, on behalf of the region's Governor, supervised privatisation processes in Pomerania's several dozen companies, where tasks were similar to those required at the port: making forecasts has always called for a reliable economic and financial analysis of the companies, their prospects for growth and investment profitability. Ever since, the thus conceived economic rationale was to become the key to sensible activity. However, the Management Board has emphasised that the specific nature of a port company requires equal treatment of all (over 200) companies operating on its grounds, since they all contribute to the financial results earned by PGA SA.

The scale of the burden left over from the previous era, which emerged from a maze of documents analysed on a daily basis, required time in order to avoid any repetition of the previous mistakes. The new Management Board could not expect any praise for the first financial result as every penny of the profit was burdened with past loan liabilities. The task was not helped by the realisation that the former state company's 20-year privatisation process was implemented by the eighth management board. Undermining the predecessors' decision was not the point. The responsibility for the port's management is raised by the rank of the PGA SA Joint Stock Company being shortlisted among those companies having special significance to Poland's economic strategy, and also among even more elite companies crucial to the country's energetic security. The statutory tasks determine the shaping of the port's strategy which, due to usually high costs and lengthy project completion times, requires unwavering actions. Frequent changes in management have in effect hindered or stopped many serious conceptions.

The new management board had entered another year determined to quickly close the awkward problem of a failed investment project of the "EuroPort" grain and fodder terminal launched in winter 1995. In consequence, 59 hectares of superbly located port land had been laid idle for over fifteen years. A similar situation occurred with the 14 hectares of land passed over to the "Rudoport" company with the purpose of constructing an ore handling facility. Furthermore, adjacent, there were another 32 hectares of land "reserved" by PERN for the possible development of a fuel terminal, or another 30 hectares "in suspension" awaiting the construction of a power station. Due to the attractive location of the land, many high-profile operating companies came with an investment initiative. However, in the absence of adequate judicial decisions that would restore PGA's actual management over the grounds formally under its administration, no negotiations were possible. The documents clearly indicated that it was necessary to close the disputes immediately. However, based on the provisions, smart lawyers used different legal tricks and loopholes, thus delaying any final settlement.

The requirement of closing the privatisation processes, which was imposed by the Act on Sea Ports and Harbours, appeared equally difficult. The previously realised ideas in many cases proved from the perspective of time but ill-conceived populism: they failed to bring the expected benefits to the employees and until today generate losses to the parent company. The management board therefore had to face the problem when some operating companies (such as Rezerwa Ltd) badly craved for jobs from their parent company of PGA SA, others were underinvested and struggling for profit against strong competition from other advanced operators in the European ports (such as Port of Gdansk Cargo Logistics Ltd), and still some proved robust and independent (such as Northern Port Ltd).

Last but not least, another set of problems referred to the fact that the Act obligates seaport authorities to maintain operational efficiency and expand the port infrastructure. Until now, the Port of Gdansk still bears the traces of war damage in many places. How can investments be made - besides restoration - if hydrotechnical projects, which amortise over several dozens of years, are very costly and require both determination and continuity of management? For example, in comparison to the repair cost of one current metre of quay usually at 100-200 thousand PLN, the several million annual profit of the company managing the entire port (with almost 24 thousand metres of such quays) appears to be no profit at all. And, indeed, this provides no profit at all.

A realistic assessment of the situation coupled with determined sanative actions have finally brought about tangible effects. In the 20th year of the operation of the Port of Gdansk Authority and in the third year - the closing one of the office of the current management board - the Port of Gdansk has successfully achieved its record high throughput, producing at the same time the best financial results in the history of PGA. However, the realisation of what more could be done gave rise to a cautiously optimistic approach on the part of the Port of Gdansk's management. The couple of million opening balance in April 2008 did not bode well for the following months. During the three years' time, a careful analysis was made of the cost structure and more efficient ways of using some one hundred million PLN of annual revenue. The restructuring of the company allowed for cutting both standing and indirect costs. The optimisation of employment or in-house cost cutting helped to adjust the proportion of expenditure in the balance. The 18-million PLN net profit at the end of 2010 gave rise to satisfaction. Even more so as indeed that was the best profit ever earned by PGA. Still, there were a few ideas that failed to be implemented.

A proverbial minute short of closing the issue of Europort, PGA restored its management of this attractive land. The court announcement was expected any time of Europort's bankruptcy, which would enable PGA SA to finally terminate the unfortunate contract signed on 18 December 1995 with the Canadian company of EuroPort Inc. Poland. The port recovered the land last year and negotiations are currently coming to a close regarding its profitable utilisation.

In May 2010, upon the return of over 9 million PLN of delinquent fees, another 15 hectares of adjacent land, designated since 24 October 1996 for the development of the unrealised ore terminal, were "unfrozen". The company of Rudoport in conjunction with the Northern Port is currently developing the biggest Dry Bulk Terminal on the south Baltic Sea. Financial guarantees have been negotiated for this investment project in agreement with the Belgian Sea-Invest Group (the new owner of the Northern Port) and with the world's steel tycoon, Arcelor Mittal.

The year 2010 also saw the close, to both parties' satisfaction, of the issue regarding the formal and financial status quo of the rapidly growing DCT Gdansk SA. This was preceded by the opening in January of the Veterinary Border Inspection Post serving mainly the purposes of the container terminal and required for maintaining the high standard of its services. The contract regarding the construction of the Deepwater Container Terminal in Gdansk provided grounds for the operation of a container hub on the Baltic Sea. It was in the previous year that PGA SA bore the burden of launching shipping connections of such great importance, the financial settlement of the investment, creating a favourable atmosphere around the Port of Gdansk and providing modern tariffs.

On 4 January 2010, the first call ever in the port's history of an ocean-going ship inaugurating the regular deep-sea container service from Asia, opened up a broad gateway for the port. The "young" DCT terminal handled over 450 thou. TEUs, which greatly contributed to the Port of Gdansk's last year's throughput success. It greatly supported Gdansk in consolidating its leading position among the Polish ports, even more significant as the port has confirmed its cutting edge as a universal and state-of-the-art port facility.

However, for the sake of keeping the balance, it is also necessary to mention the port's "blot on the escutcheon". The investment project of the Westerplatte Ferry-Passenger Terminal conceived in 2005 by the previous management board failed to raise interest among ferry and cruise operators. A year and a half of the DFDS's ferry service operation to Trelleborg, Copenhagen and Gothenburg sharpened Gdansk's appetites for much tourist traffic and goods exchange, which has not been satisfied until this day. It will be hard to take full advantage of this investment without a wide-ranging offer jointly presented by the entire region of Pomerania - for the time being, the full cost of the terminal's operation must be accounted for in the PGA SA annual budget.

Efforts are continuing to complete the privatisation process of the Gdansk port's biggest operator, Port of Gdansk Cargo Logistics, which last year was transformed into a joint stock company. This complex task, now entering the phase of preparing a bidding procedure, requires much consideration due to its specific social and economic background. Employing over 600 staff, PGCL has recently shown good financial results despite the challenging months of the global crisis and difficult working conditions, and may soon prove to be a forerunner when it comes to the Baltic goods exchange.

The port's management board closely observes the initiative of building a new free access LPG terminal, as well as a fishery base promoted by the North Atlantic Fisheries Organisation. Similarly keen interest has been raised by projects launched by the City of Gdansk, Marshal of the Pomeranian Region and by the Polish government. While PGA SA can support many of these investments as a beneficiary taking advantage thereof, the port authorities have no rights of launching such actions according to the Act on Sea Ports and Harbours. Therefore, the construction of such facilities as a PERN storage and handling base or a power station, as well as a logistics centre, the Sucharski Route with a tunnel under the dead Vistula or the extension of the A1 motorway can only receive passive support from the port management - without any vital financial involvement.

Another significant element of the daily efforts involves contracts with companies - also those of secondary importance - leasing land and the port's infrastructure for the purposes of their operations. Half of the PGA SA revenue comes from these tenancy contracts. Faced with the free market conditions and strong competition, companies such as CRIST operating in the ship-building industry, will invariably choose a more profitable offer. Therefore, the port management could not exert any direct influence on this company's decision to relocate its business from Gdansk to the former shipyard grounds in Gdynia. Consequently, filling that gap in the revenue will need an intensified effort on the part of the PGA SA commercial, organisational and legal units.

Respect for a business partner, whether it be a carrier company, a cargo operator or a tenant, remains a daily routine at the Port of Gdansk. However, it cannot clash with the special care required of the assets and interest of the State Treasury. The leaders of a company operating at the edge of these two worlds must have at its full disposal the tools that can give a Polish port real competition rights in such specific conditions. The geographical location of the Port of Gdansk alone will not guarantee economic profitability. The port's reality is not about playing games. It is about counting dollars, Euros or roubles - but best of all, Polish zloties. The lack of understanding for this fundamental principle has recently been exemplified by the battle for the VAT, which in western European ports is levied on much more favourable conditions for companies operating in the port industry as compared to the Polish regulations. Hopefully, the common sense shown by the Polish Public Finance Commission on 22 February will continue to prevail in the discussions about this issue and in all other port considerations. The sudden amendment that was recently made in the interpretation of tax regulations by the Gdansk municipality, taking back from the port companies the right to partial tax exemption on real estate, may also result in the Port of Gdansk losing its competitive edge and opportunity for growth. The management board looks forward to finding a positive solution to this problem, as was the case with the VAT issue.

The seaport in Gdansk is arguably the oldest economic entity in Poland. This euphemism proves exceptionally justified in relation to the form of management which frequently changed its formal dimension throughout the centuries. The one-thousand-year's history of the Port of Gdansk witnessed both a "golden age" of growth and prosperity, as well as economic stagnation and decline. The most terrifying war time notwithstanding, it has never lost its significance for the region and even for the country. On the contrary - it remained a conquest or a trophy - like a bridge connecting two river banks. It was of little importance what kind of profits were generated from its operation by its direct shareholders since the main benefits were reaped by those who utilised it with the purpose of achieving their strategic goals. How can this realisation be restored and promoted?

The one thousand years' growth of the port town funded at the mouth of the Vistula river serves as the best evidence for the superb location of the Port of Gdansk. Its hydronavigational conditions and the depths of its waterways, the absence of tides and year-round possibility of accommodating ships without the ice class as well as its attractive land for investment and efficient transportation links with its hinterland place Gdansk in an increasingly better position among the major transport and economic centres on the Baltic Sea. The great importance for the future of the Port of Gdansk - almost similar to that represented by the construction of the coal and liquid fuels storage and handling facility of the Northern Port - relies today on the DCT terminal winning the rank of a container hub. This is also a new opportunity for the city which can fully utilize it by developing the Pomeranian Logistics Centre in its foreground, as well as constructing the Sucharski Route with a tunnel under the Dead Vistula and the Southern Ring Road, and by supporting projects aimed at providing better hinterland access to the port. These investments will enable major extension of advanced technologies in cargo handling and will intensify container throughput, thus boosting the rapid growth of the entire Pomeranian region as well as the national economy. Examining the potential represented by the port gives a guarantee of PGA SA becoming a highly successful business organisation.

Over the last three years, the Port of Gdansk has seen many visits from representatives of other ports' authorities. Similarly, PGA SA representatives were invited to visit a number of European centres. The communications with Flanders were prevailing due to the currently held negotiations. The Flemish ports of Antwerp, Gent, Zeebrugge or even Ostend have extensive economic hinterlands. Within a radius of 500 kilometres lies the economic heart of Europe, which acts like a magnet attracting carrier companies and their cargos. A similar situation exists for the Dutch seaports as well as the port facilities in western Germany. While it is not difficult to imagine the biggest container ships entering the Port of Gdansk, our economic hinterland is still too weak to fill up those containers. However, adding up Poland, Slovakia, Hungary, western Belarus and north-western Ukraine gives a population of circa 70-80 million people. Although the level of economic development in these countries cannot be compared to that in the countries located along the Rhine river, considering this area as traditionally close to Gdansk allows for drawing a broader perspective for the port. Our more elder readers may remember the saying repeated by comedians: "A Pole may not know about the sea when he is busy ploughing his field". Many years after, the sad truth unfortunately remains valid that Poland is an inland country. More than 500 kilometers of coastline and four major ports fail to convey the meaning of the sea as recognized in the Netherlands, Belgium or in Great Britain. The maritime economy in Poland is rather residual in nature when compared to the overall economy. One of the consequences of this approach is the invariably poor road and rail transport connections with the rest of Poland, not to mention the inland navigation.

The developed West has to face increasingly frequent congestions causing major traffic problems on its overland transportation routes. This is the reason why the European Union's transport policy puts more and more emphasis on the sea transport. And sea tourism is also worthwhile mentioning here. For example, while the port in Ostend handles barely half of Gdansk's cargo volume, its passenger traffic is several times larger. This is mainly thanks to its ferry services to Great Britain. There is also an opportunity for the Port of Gdansk to develop its ferry services but the ferry and passenger terminal on Westerplatte lies idle due to problems such as poor transportation to the centre of Gdansk. Although the City is a shareholder in the company managing the port and holds slightly over 2% of its shares, it could theoretically hold up to one-third of its shares. The increase could be possible through e.g. the contribution of land. Yet, the City has no such intention as it can see no immediate profit. According to the Act, the entire profit generated by PGA SA goes to the port's development. However, there are benefits that cannot be directly measured. Investments in port facilities made throughout one thousand years of Gdansk's development attest to this proposition.

Each zloty invested in the port's infrastructure will generate several more - for the entire port surroundings. Day by day, PGA SA examines the reasons for spending each earned zloty and analyses the economic efficiency of every quay in order to provide reasonable verification of investment trends and to determine the best possible direction of the port's development. The strategy of making true the slogan: "Gdansk - a port without limitations, Gdansk - a port for all ships and cargoes" requires a determined cooperation of all entities and institutions having influence on the port's operation. While this task proves difficult in a time of "global economic setbacks", it can be realised on the condition of mutual trust among the entire Port of Gdansk family. The Port of Gdansk can only succeed in bearing the burden of Poland's return to Europe provided that a common front has been created involving all the port's partners - a kind of a "fairwater of the port's imagination" - which will help recognize how much richer the countries having access to a sea are as compared to those who have to use the ports of other countries.

Janusz Kasprowicz
PGA SA PR Officer