Michael Pinto: Troubled waters

We cite national security issues related to Hutchison, like the US did with Dubai Ports, but the real issues are the monopoly Dubai Ports has in India, or those thrown up by Google.

As Dubai Ports World (DPW) fought Port Singapore Authority (PSA) over who would win the hand of P&O Ports, it probably never crossed their minds that the real battle would be fought not in the complicated financial world of reverse takeovers or cash-and-carry options, but with the intransigence of American lawmakers and public opinion. Conscious of the fact that by acquiring P&O Ports they would become the largest port company in the world, PSA dug deep into their war chest and came up with an offer of 470 pence per share which effectively valued the company at about $6.23 billion. DPW topped this with a bid of $6.8 billion, a 71 per cent premium over the price at which P&O's shares were traded before DPW first expressed interest in taking over the company. The meeting called to decide on this issue saw some angry barracking by a small but vociferous group of P&O shareholders, who questioned the patriotism of the proponents of the deal. But faced with these astronomical figures, 99 per cent of those present voted in favour of the DPW offer and PSA, unwilling to up the ante any further, retired worsted from the contest.

For DPW the real battle began, strangely enough, after they earned the right to acquire P&O. Just as the Dubai-based company heaved a sigh of relief at having won the prestigious bid, they were faced with a furious outcry in the US over the acquisition of the 6 terminals that P&O ran there. The message was simple: regardless of decisions taken in corporate boardrooms across the world, a UAE-based company will never run container terminals in American ports. The scale of the opposition was eloquent testimony to the rising hysteria and intolerance in the US following the events of 9/11. Republicans and Democrats alike cut across party lines to ensure that the new owners would not be allowed to inherit a share of the American pie.

Within days of the announcement of the bid, Republican Representative Hayworth introduced a Bill to prohibit entities owned or controlled by foreign governments from operating at seaports in the US. Not to be outdone, Senator Coleman (R) introduced the Foreign Investment Transparency and Security Act of 2006, to amend the Homeland Security Act of 2002, to limit foreign control of investment in critical infrastructure and to ensure that a majority of board members in corporations owning such infrastructure must be American citizens while the Chief Security Officer would have to be an American. Representative LoBiondo introduced the Maritime Terminal Security Enhancement Act of 2006, requiring the port's security plan to be submitted for fresh approval if the ownership of the terminal changed. It also provided that the qualified individual charged with security in the port would have to be an American. Senator Dorgan (D) went one step further. He introduced a Bill to prohibit acquisition, merger or take-over of P&O by DPW.

The medal for the most amazing reason for opposing the deal, however, had to go to Hillary Clinton. The main plank of her argument was that since DPW was owned by the government and not by a private party, they would be less concerned with profitability and more prone to taking decisions on extra-commercial logic. How this would make them anything other than poor businessmen, is not quite clear. Equally unclear is how this, by itself, would make them a security risk.

In all this, the fact that port security is not the responsibility of the terminal operator, but of the federal government was completely forgotten. In other words, regardless of who operates the container terminal, security would still be with public authorities such as state, county and city governments who own and develop sea port facilities. So, citing security as a reason for blocking the DPW take-over was meaningless. No one should know this better than the Americans. It was they who orchestrated the entire Convention on Port Security (now referred to as ISPS), even meeting the costs of the special session of the IMO called to adopt the convention that gave it international acceptance in the shortest possible time.

It is instructive to see what prevails elsewhere in the world. The German airport operator, Fraport, was, until 2001, wholly owned by the German government. Even though there has since been a partial privatisation, a controlling portion of the company's shares is still with the government. If Fraport were to win the contract to operate an air terminal in the US (as they have in India, in partnership with GMR) would the Democratic Party and Hillary Clinton oppose them on the same grounds? PSA itself, which came very close to winning the race for P&O, is owned by the government of Singapore and it would have been interesting to study the American reaction if they had won the bid.

Having said all this, however, it has to be admitted that American hysteria over security is not unique to them. For years India has kept out Hutchison, the largest and most successful port operator in the world on the specious ground that its owner has links with the Chinese leadership. The fact that the same company is active in the telecom sector cuts no ice. Policymakers are equally ambivalent about the fact that in the modern wired world, every naval site can be seen on Google and the sanctity of naval bases in the vicinity of ports is not compromised by an independent operator. The concession for the Mumbai container terminal remains undecided more than three years after it was ready for bidding because government cannot make up its mind on whether Hutchison's participation in the bid compromises security. Ironically, with the takeover of P&O, DPW now controls a swathe of ports in the sub-continent, starting with Karachi and sweeping through Mundada, JNPT, Cochin, Colombo, Chennai, Vishakapatnam and Kulpi in Kolkata. The huge implications of allowing a virtual monopoly in an area as vital as ports is overlooked while we grapple with such ephemeral issues as whether a port operator can peer over the wall to see what someone in the naval dockyard is doing.

The writer is a former shipping secretary to the government of India