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Who'll Buy Dubai's US Port Operations?    [

    Bush's Loss on Ports Deal Dents Image, Exposes Rifts
    Bloomberg

    Friday 10 March 2006

    The collapse of a plan to let a Dubai company manage U.S. ports marks another setback for President George W. Bush, exposing deteriorating relations with fellow Republicans and underscoring a perception of incompetence stemming from the government's response to Hurricane Katrina.

    Bush found himself publicly rebuked by members of his own party - many of whom are seeking re-election this year - amid strong public opposition to the deal.

    "It's hurt him, and it's hurt him where he has always believed he had great strength, and that's in executive management," said Charles Jones, a retired political science professor at the University of Wisconsin in Madison who is now a senior fellow at the Washington-based Brookings Institution. "This looks like they don't know what they are doing."

    With Congress poised to pass legislation blocking the Bush- backed agreement, state-owned DP World yesterday abandoned its efforts to assume control of operations at six major U.S. seaports and cargo unloading businesses at 15 others as part of its $6.8 billion acquisition of London-based Peninsular & Oriental Steam Navigation Co. DP World said it would sell P&O's leases on the ports to a U.S. entity.

    The dispute also raised fears of damage to commercial and diplomatic ties between the U.S. and the United Arab Emirates, of which Dubai is part, as well as other Middle Eastern countries. Reem al-Hashimy, commercial attach of the U.A.E. Embassy in Washington, said in an interview that "the decision was really done primarily to salvage the relationship between the U.A.E. and the United States."

    Political Damage

    The controversy has damaged what was supposed to be a political rebuilding year for Bush, who in 2005 failed to sell to the U.S. public and Congress his plan to change Social Security, which he had framed as the signature domestic issue of his second term. The response to Katrina and sectarian fighting in Iraq intensified criticism of him, and Americans in the most recent Bloomberg/Los Angeles Times poll opposed the port deal by a margin of more than three to one.

    Bush's approval rating fell to its lowest level ever in an Associated Press/Ipsos poll this week, dropping to 37 percent from 40 percent last month. Two-thirds of Americans said they believe the country is on the "wrong track," according to the March 6-8 survey.

    "I have said all along that I thought the administration didn't handle this very well, and I'm glad now that at least to most people's satisfaction, it's been resolved," said Senator Rick Santorum, a Republican from Pennsylvania who is running for a third term this fall.

    DP World's pullout ends a stalemate between Congress and Bush, who had threatened to veto any legislation blocking the deal.

    "No Acrimony"

    "This is over, we can all go forward, there's no acrimony," New York Republican Representative Peter King, chairman of the Homeland Security Committee and an opponent of the ports plan, said at the White House. "There's no more problem. There's no more division. We all stand together."

    Still, some in Congress want more say in how such acquisitions are approved and will work to change the process, now handled solely by the executive branch. One proposal by Minnesota Republican Senator Norm Coleman would bar foreign government ownership of vital U.S. assets.

    The administration in January approved DP World's purchase of P&O after a 30-day review. Congressional criticism drove DP World to agree to a new 45-day review of the deal. That extended review had just begun.

    "I think that Congress has to have a say," said Senator Richard Shelby, an Alabama Republican. "We've got to have a meaningful way to vet these deals."

    Upper Hand

    The debate also let Democrats gain the upper hand on national security, an issue that has always been a strong suit for Bush. Democratic strategists said the controversy could lessen the Republican advantage on that issue.

    "Any political observer will tell you that any development that lessens or negates the Republican advantage on security is a good thing for Democrats, which is why they will keep talking about it," said Joe Lockhart, a strategist who served as press secretary to President Bill Clinton.

    The administration may also find it needs to consult more with Congress to have success on other policy matters, said Republican strategist Rich Galen, who headed GOPAC, the political action committee run by former House speaker Newt Gingrich.

    "Departments didn't talk to departments, agencies didn't talk to agencies, and then, once the news reached the White House, the White House didn't think to talk to Congress," Galen said. "It's almost unprecedented."

    Anxious Party

    Galen said the issue isn't likely to have a lasting effect on Bush because members of his own party anxious to separate themselves from the president heading into November's elections can now do so.

    "If any Democrat campaigns against them by saying they are Bush clones, they can say, 'Oh yeah? What about the Dubai ports deal?"' Galen said. "For most members, they have established as much distance from the president as they need."

    Tom Rath, Republican national committeeman from New Hampshire, said the controversy reflected the realities of an election year. "It's March, and there are congressional elections in November, and at some point it's every person for himself," he said.

    Fighting terrorism has been the source of Bush's primary political strength since the Sept. 11 attacks. The DP World deal helped change that: For the first time, a majority of Americans, 54 percent, disapprove of Bush's handling of terrorism, according to the Bloomberg/Los Angeles Times poll, which was taken February 25 to March 1. That was up five points from January and a reversal from January of last year, when 54 percent of Americans approved.

    Shying Away

    Some analysts said Middle East investors may shy away from high-profile purchases of U.S. companies following the port flap. "It will have a chilling effect on Middle East direct investment in companies," said Gary Hufbauer a senior fellow at the Institute for International Economics in Washington. "I don't think it does anything to Middle East investment in bonds and shares."

    The effect on foreign investment from other countries depends on any changes Congress may make to the law governing such investment, analysts said.

    "Congress needs to walk a fine line in ensuring transactions continue to be scrutinized without chilling the foreign investment the U.S. needs," said David Marchik, a partner at the Washington law firm Covington & Burling and author of a soon-to-be published book on foreign investment.

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    Who'll Buy Dubai's US Port Operations?
    The Associated Press

    Thursday 09 March 2006

    Washington - The Dubai-owned company that pledged to surrender its $700 million worth of U.S. port businesses amid a furor on Capitol Hill wants to guarantee it doesn't lose money on the deal. But now that DP World is out of the political frying pan, it could find itself confronting a fire sale of its American assets.

    Faced with unrelenting pressure from Congress, Dubai's ruler said DP World will transfer to an unspecified American company all U.S. port operations it acquired when it paid $6.8 billion for London-based Peninsular & Oriental Steam Navigation Co.

    In its statement, DP World said its decision was based on the understanding that it will have time to coordinate the complex transfer and that "DP World will not suffer economic loss."

    DP World executives and others in recent weeks have estimated the value of Peninsular & Oriental's U.S. operations at roughly $700 million.

    But experts believe it's unlikely DP World can sell its newly acquired U.S. business for $700 million, given the political pressure to quickly hand over those operations to an American company. They warned this could become an expensive case of buyer's remorse.

    "It does seem like they're unloading this in the equivalent of a fire sale," said William Reinsch, president of the Washington-based National Foreign Trade Council and a former senior Commerce Department official.

    When DP World offered a stunning $6.8 billion for Peninsular & Oriental in early February, analysts were surprised the price had risen so high during the two-month bidding fight between Dubai and Singapore-owned PSA International Ltd. PSA, the world's fourth-largest terminal operator, withdrew from bidding on Feb. 10.

    The British firm manages and runs important port operations in New York, New Jersey, Baltimore, New Orleans, Miami and Philadelphia. It also plays a lesser role in dockside activities at 16 other American ports.

    It was unclear which company or companies might run the U.S. port operations. There are only a handful of recognized maritime firms with the resources to acquire all of Peninsular & Oriental's terminal operations in the United States, but DP World could sell the concessions for its U.S. port operations separately.

    The largest maritime firms are not based in the U.S., although nearly all of them own and operate U.S. subsidiaries.

    It was unclear whether any overseas parent company - especially one run by a foreign government - would be acceptable to critics in Congress. In its statement, DP World promised to sell its domestic operations to an unspecified "U.S. entity."

    DP World's suitors could include PSA International; Hong Kong-based Hutchison Whampoa Ltd.; Chinese-owned China Ocean Shipping Co.; Hapag-Lloyd AG of Hamburg, Germany; Denmark-based A.P. Moller-Maersk; and Seattle-based SSA Marine.

    At Miami's port, an early critic of the Dubai ports deal, Eller & Company Inc., said it was considering an offer to buy out Peninsular & Oriental's operations there and possibly at other ports.

    Eller jointly manages and operates a Miami terminal with the British shipping giant. It raised alarms with U.S. lawmakers over the Dubai deal and filed lawsuits in Florida and London to prevent the takeover.

    It said it objected to becoming an "involuntary partner" with Dubai's government but previously said it was not in the running to acquire P&O's Miami operations.

    "This wasn't on our agenda and not something we had considered," lawyer Michael Kreitzer said Thursday. "But as Congress started to speak out and say there was a dearth of American companies doing this, we started talking to our board of directors about putting a proposal together.

    "We could move very quickly, and we're certainly reaching out to see if there is an opportunity for us," Kreitzer said.

    At Maersk, a spokeswoman said the company was always looking to expand its global commerce operations but declined to discuss the Peninsular & Oriental situation. Maersk and P&O jointly manage and operate a major cargo terminal in New Jersey's port.