Saturday, Jul 21, 2018
Infrastructure | Transport | North America & Caribbean | Costa Rica

New port terminal at Limon to open up Costa Rica

4 years ago
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Paul Gallie

Managing Director of APM Terminals

An ambitious project of more than $1 billion is being undertaken by APM Terminals to expand and improve Port of Limon’s infrastructure and Costa Rica’s ability to compete for trade.

President Solís, talking about the conditions this country offers to foreign investors, said: This is why we need to respect contracts and guarantee the legality of contracts like indicators of APM Terminals. Why, in your opinion, is it good for foreign investors to come invest in this country?

Thank you for this opportunity. It is so important for Costa Rica to have this access to the expertise and funding required to improve infrastructure under the framework of concessions, which is the framework recommended by the World Bank and other intergovernmental organizations, both in the region and around the world, as a very successful way of bringing foreign investment into a country.

The importance of the things the President has mentioned, such as judicial security, is one of the key items that give confidence to my shareholders and board of directors to make this significant investment, which is the largest private investment in infrastructure in the history of Costa Rica. Probably if you go back in history, when the railway was built from San José to Limón over a hundred years ago, that was maybe the last significant infrastructure project in the country.

So, I think judicial security and the maintenance of contracts is important. The contract that we have is with the State of Costa Rica; during the 33-year concession period we will work with 8 or 9 governments, as we do around the world. APM Terminals has 17 terminals in 17 ports around the world in just about the same number of countries. So we are very experienced over the last 30 years or so in operating under concession agreements with various governments, because most of those terminals are operated under those conditions.

I think the rule of law generally is another important factor. So the fact that the judicial branch is completely separated from the executive branch here in Costa Rica also gave my shareholders peace, a number of years ago when we decided to participate in the international tender, because there was a sufficient confidence in the way Costa Rica was structured, which is not always the case in all countries.

And then the main thing: there is a need. Of course, if there was no need to improve the port we wouldn’t be here. Yes, it is our business: we finance, build, operate and maintain container terminals and other types of ports around the world, but first there needs to be a need. And that need is very obvious down in Limon in the Caribbean coast because, just to give you an example: the largest ship that can come in has a capacity of only two and a half thousand containers. Whereas only a few hours sailing away is the Panama Canal, which is under expansion, and today it can take ships of twice that size (of around 5.000 TEUs) and in a few years it will be able to take ships of 13.000 TEUs.

So Costa Rica needs to take advantage of its neighbor to the south. It has almost got a second chance, really. A hundred years ago it never took advantage and I think the countries that surround the Panama Canal are in a great position to take advantage of the economies of scale, of larger vessels, which will transit the expanded Panama Canal and with Costa Rica’s booming exports, especially on the tropical foods side, they are in a win-win position.

When we interviewed the Minister of Transportation, he said a country with such a small economy needs help from the private sector and that they have to boost the partnerships between the public and private sectors to build the infrastructure the country actually needs. APM Terminals is investing more than 1 billion dollars in Costa Rica, why would you say is an example of the perfect partner for this government?

I think that is being proven firstly by our participation in the international tender and winning that tender that was extended to the international port operators community. We have, firstly, as part of the Maersk Group, the financial strength to make this type of investments; the first phase is in the region of 700 million dollars and the full project will be, as you said, of 1 billion dollars. So we have the financial strength to make these type of investments and we have the expertise to implement the project on time, on budget and safely.

As managing director of this project I have three promises that I made: I have a promise to the State of Costa Rica and to the port authority to deliver what we have promised to deliver on time and on budget and to operate that port for 33 years in accordance with the concession contract. I have a promise to my shareholders as well to deliver their expectations. But, more importantly perhaps, I have a promise to the community of Limon, who are really going to benefit the most from this investment. There is no other plan for the development of Limon, which is the poorest of the provinces in Costa Rica, and considering that 80 percent of the trade in Costa Rica passes through Puerto Limon, the country cannot do without it. So it is quite surprising, and of course it is the result of various things over history, but Limon has been the forgotten province and this new project will be a cornerstone of the revitalization of not just the city of Puerto Limon, but also the whole province of Limon.

You mentioned also that Costa Rica is a small country and that may be true in size of land, but I often I believe that it is not because you are a small country that you have to think you are small. I mean, Singapore is smaller than Costa Rica but it is pretty important in the world. So, you have to look at the major part of what Costa Rica does. It is the largest pineapple exporter in the world with 84 percent of the US and EU pineapple market; 84 percent is phenomenal. It is also the world’s third largest banana exporter. So this puts in context the need for proper facilities that are able to take larger vessels so that the exporters can participate in the global market with economies of scale.

Talking about the project you said it will be a world class, modern, safe and efficient terminal operating under international standards and procedures. How will this infrastructure increase competitiveness and bring development not just in logistic terms but also in social and economic terms?

The present port of Limon and the two terminals that operate suffer from four major restrictions: one is the depth of the water, which doesn’t allow large ships to come in. Another is that they don’t have sufficient capacity to allow ships to berth when they arrive, so the average berthing time is over 24 hours and it has increased 25 percent in the last year.

The third thing is that they don’t have proper cargo handling equipment to efficiently turn those ships around. These ships are the most expensive assets in the logistics chain; if you are moving a container of bananas from the plantation in Costa Rica to the supermarket in Switzerland or Chicago then the most expensive part of that logistics chain is the ship; they cost well over 100 million dollars each.

And time is money so you need to get the ships in and out and keep them moving. If you don’t have the proper cargo handling equipment then the ship is just wasting time. It will also waste time if it can’t berth on arrival and that adds to the cost, because the captain needs to increase speed to keep his schedule, and the relationship between fuel consumption and speed is exponential, so for each nautical mile per hour that he has to sail faster he is burning a lot more fuel (and marine fuel is 600 dollars a ton), and the shipping lines wont assume that cost, they pass it on to their clients, the exporter; that is why the freight rates out of Costa Rica are some of the highest in the region for comparable distances.

The other thing is that the benefit to the community is that we are going to provide jobs. We can say that in the construction phase our construction contractors require around 700 people for the first 3 years of construction. We require another 600 people to operate the terminal initially, and that will rise to about 1000. But the really big advantage to the community is the confidence that will come about by APM Terminals having put a billion dollars into Limon. Now other companies, especially international companies, will say: “Hey! These guys must have something right; if they are putting a billion dollars here then maybe I should put my business alongside”. Which, of course, is the worldwide tendency, to have logistic domes alongside a port; there are many examples in the region and around the world where we see an industrial arch, free trade zones, distributing companies and even some type of manufacturing alongside the port.

And then you could use data from World Bank for example of how many indirect jobs could be created. It is a guess, but it could range anywhere between 10 to 1, to 25 to 1. So, if another 10.000 jobs are created in Limon because of the port, then that is a great thing. Nobody else has a plan for the province, so where is the hope for the next generation of kids who need work if there is no investment in the port and the cost of exporting just rises and rises? Costa Rica’s exports would become uncompetitive, especially on a regional level. Everybody is producing bananas and pineapples: Colombia, Ecuador, Honduras, Panama; and that is just in this region, but they are also competing with bananas coming out of West Africa, they are competing with pineapples coming out of Thailand. So Costa Rica is a global player but it wants to become a member of the OECD and it needs to have efficient ports in order to fulfill its membership requirements.




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