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Planning a world-class port
http://www.sina.com.cn 2003/08/11 11:25  Shanghai Daily

  Investors are beating a trail to Shanghai to pitch for a part of the Yangshan Deep-water Port mega-project. With the blueprint calling for the construction of 50 shipping berths and a 31.8-kilometer bridge, the project will firmly establish the city among the world's leading ports. Zhu Yanyan previews what's in store.

  In a project of world-class proportions, Yangshan Deep-water Port has all the potential to become the envy of Asia's fast-growing port industry. More so, investors, both domestic and foreign, have been pulling out the stops hoping to get a part of the multibillion dollar construction work.

  The port, located on two islands in the East China Sea near Shanghai, has a designed capacity to handle more than 20 million twenty-foot equivalent unit containers annually by the year 2020.

  If the cargo flow within the region lives up to expectations, Shanghai will easily have enough business to be ranked among the top ports in the world.

  Hong Kong, currently No 1 in terms of cargo throughput, handled 19 million TEUs last year.

  Yangshan, however, will be on equal footing with its southern cousin when complete.

  The blueprint calls for the building of 50 shipping berths and a 31.8-kilometer bridge linking the city's southeast tip with Small Yangshan, one of the two islands.

  The port is the centerpiece of Shanghai's efforts to build itself into a shipping center for northeast Asia. It is also hoped to be a magnet for investment.

  Banks, without question, are among the major beneficiaries of the project.

  The first phase of the construction at the Yangshan islands, which is expected to cost 14.3 billion yuan, has drawn loans worth 7.5 billion yuan (US million) from five domestic banks. Each has provided 1.5 billion yuan.

  Shanghai Tongsheng Investment (group) Co Ltd has been set up specifically by three state-owned companies to manage the investment for the Yangshan project. It has a registered capital of 5 billion yuan.

  The city's largest port operator, Shanghai International Port Management group, holds a 40 percent stake in Tongsheng. The port operator is said to have plans to invest in the port's management after its completion.

  "We're working on plans to get the future management right after the first phase is complete, but we haven't decided yet in which way to make the investment," said Wang Qingwei, an investment manager of the port management group.

  When the first phase of construction is complete in 2005 - five berths and the Cross-sea Bridge - Tongsheng has a further credit line of 17 billion yuan from a consortium of 10 Chinese lenders for future building.

  Gu Gang, president of Shanghai Tongsheng, says there is also more banks awaiting to inject capital into the port.

  "No doubt such a project will cost a great deal of money and the cost is always rising with many unexpected things emerging. But now we have abundant investment behind us and money is not an issue," Gu said.

  The project is also benefiting from favorable loan policies as the banks have provided interest rates much lower than usual. Banking officials, however, declined to reveal the rate.

  "Banks are willing to offer loans to the port since it's one of the key projects in China. There won't be any risks for them to get back their loans with the government backing the project," said Zhu Anping, an analyst with Shenyin & Wanguo Securities Research and Consulting.

  Asked why all the lenders involved were domestic, an official explained that Shanghai was in urgent need of a deep-water port, a factor which drove them to kick off the construction as soon as possible.

  "It will take a long time for foreign banks to go through a series of procedures to join in the project. That's why we chose loans from domestic banks," said Gui Mo, chairman of Yangshan Tongsheng Port Construction Co Ltd.

  Industry officials and analysts say the infrastructure won't yield substantial returns in the initial years. For this reason, investors have had their eye on the port's operation instead of the construction process.

  "For the first phase of construction, the annual return will be between 6 and 7 percent, just a reasonable level. But the returns from the investment in future construction and dock operations will be attractive," said Zhang Huimin, Shanghai municipal government's deputy secretary-general.

  The return from the initial phase will be lower than the usual dock infrastructure rate of between 8 and 10 percent. This is because all auxiliary facilities, such as water and power and gas supplies, are being built simultaneously with the first five berths, Zhang added.

  The management of the port has also attracted much interest for its huge TEU throughput potential. The port will service the Yangtze River Delta and the many inland cities along the waterway.

  More than 1,000 investors have shown strong interest so far.

  Gu said 20 of them have handed in their detailed investment plan.

  However, there had yet to be a decision process on which way Tongsheng will pick investors to manage the port. Industry insiders say there will likely be an open bidding process among interested investors.

  Officials have been vocal in that they prefer well-known names to be selected, hoping to take advantage of their port management experience.

  China's two shipping giants, China Ocean Shipping (group) Company and China Shipping (group) Co Ltd, head a list of those wanting a piece of the lucrative project.

  Joining them is the Singapore-based PSA Corporation Ltd, which has already invested in such major Chinese ports as Dalian and Guangzhou. The company sees Yangshan as a key role in its China expansion.

  The world's largest port operator, Hutchison Port Holdings, controlled by Hong Kong billionaire Li Ka-shing, also has its eye on the port, according to sources close to the project.

  Hutchison officials say they're still awaiting project details from the relevant authorities.

  In Shanghai, the world-renowned port operator has its foot in two ports, namely a 50 percent stake in Shanghai Container Terminal Ltd. It also has 30 percent of the 1.9-billion-yuan Shanghai Pudong International Container Terminals Co Ltd, which operates the first phase of the local Waigaoqiao port.

  P&O Ports, which has just signed a deal with Qingdao port to invest in its Qianwan container berth program, is also keen on investing.

  Other potentials include the world's largest shipping operators such as American President Lines and the Hong Kong-based OOCL.

  The port is expected to start operation at the end of 2005. The two islands, namely Big Yangshan and Small Yangshan, are 27.5 kilometers away from the city's southeastern Nanhui District. Via a 31.8-kilometer bridge, cargo will be easily transferred between the islands and Nanhui's Luchaogang area.

  The first phase of the project will be capable of handling more than 3 million TEUs.

  With four more berths to be built in the next year, the annual handling capacity will be increased to 5.5 million TEUs.

  Local officials hope the port will help build Shanghai into the shipping hub of northeastern Asia, where some of the world's top-10 ports, such as Kaohsiung, Hong Kong and Busan, are located.

  "To become the shipping center in northeast Asia, Shanghai needs a deep-water port as large-scale container ships have been a new trend in the global shipping industry," said Zhang Huimin of the city government.

  Local officials and construction experts had selected other sites around the city as potential port locations but they were abandoned due to their limited water depth.

  The two islands were chosen for their ideal water depth and relatively short distance to the open sea.

  However, the new project faces heavy competition from the region's ports looking to lure as many shipping operators as possible.

  Knowing the competition, local officials are devising ways to draft attractive policies to attract business.

  "If there's no competitive service qualities and reasonable charges, infrastructures at Yangshan won't be fully utilized," Gu said.

  Port fees for items such as navigation and freight downloading which currently are higher than some neighboring ports, will surely be reduced to attract international shipping operators.

  Industry officials also hope there will be special incentives to help Yangshan attract international business.

  "If we have these kinds of policies, Yangshan is sure to benefit. We will try our best to strive for similar free-trading policies," said Yangshan port's Gui Mo.

  However, he cautioned that a totally free port copied from overseas is implausible at Yangshan at the current stage.

  He added that officials need to devise special trading and customs rules suitable at the port areas to ensure its prosperity.




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