US embassy cable - 04AMMAN2409

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 002409 
 
SIPDIS 
 
NOFORN 
 
CPA FOR WRIGHT 
 
E.O. 12958: DECL: 03/24/2014 
TAGS: EWWT, ELTN, ETRD, IZ, JO 
SUBJECT: CLOGGED AQABA PORT CONTRACTED TO PRIVATE 
MANAGEMENT COMPANY 
 
Classified By: DCM DAVID HALE, FOR REASONS 1.5 (B) AND (D) 
 
1.  (SBU)  SUMMARY: The GOJ has awarded a two-year contract 
for management of Aqaba,s congested container port to 
international port operator A.P. Moller over the objections 
of some members of parliament and the port workers, union. 
The award is good news for Jordanian industries dependent on 
foreign inputs and for the transit trade to Iraq, which is 
critical to Iraq,s reconstruction but also a primary cause 
of port congestion.  Even if the container port,s problems 
are solved, however, other possible bottlenecks to the flow 
of goods and reconstruction supplies to Iraq may need to be 
monitored.  END SUMMARY. 
 
2.  (SBU/NF)  On March 8, the Aqaba Development Corporation 
(ADC) and Aqaba Port Authority (APA) signed a contract with 
Danish port managing company A.P. Moller Terminal (APM), 
giving it the management of Aqaba,s heavily overcrowded 
container port.  APM, a subsidiary of the Maersk 
conglomerate, won a tender that attracted eight offers for a 
two-year port management contract with the option of a 
25-year follow-on partnership contract.  According to the 
USAID-contracted consultants who arranged and helped 
adjudicate the tender, only one U.S.-based port operator, 
CSX, participated in the tender, and it placed no higher than 
the middle tier of offers.  The consultants said that APM 
outbid Hong Kong-based Hutchinson Port Holdings and P&O, its 
two closest competitors, on the basis of its better offer on 
terms of payment and its relevant experience managing ports 
in the region, at Salalah and Port Said. 
 
3.  (SBU)  While handing over a state-run operation to a 
private management company is consonant with the thrust of 
Jordan,s economic policy over the past five years, it was 
not without controversy.  The change came as a direct result 
of a specific set of circumstances: the meteoric rise in 
incoming container and Ro-Ro (roll-on, roll-off; i.e., 
vehicle) transshipments through Jordan to Iraq after the war. 
 From April 2003 to December 2003, traffic through the 
container port almost doubled, which many had predicted but 
few had planned for, and the port has to date been unable to 
handle the enormous increase in volume.  The increased trade 
created a bottleneck at the container port so serious that in 
mid-September, the Jordan Shipping Agents Association imposed 
and then increased a surcharge on ships unloading at Aqaba 
container port that now amounts to $300 per 20-foot container 
for ships arriving from Asia and $475 for ships arriving from 
Europe and the United States.  At that time, the waiting 
period for a ship to be unloaded was less than a week; by 
December, it was up to ten to 14 days. 
 
4. (SBU)  Adding to the bottleneck, according to APA Chairman 
Saud Sroor, was the enormous number of automobiles pouring 
into Jordan en route Iraq, which had just seen the removal of 
a very large tariff on automobiles.   The number of incoming 
cars peaked at over 35,000 in May 2003 and then peaked again 
in the autumn as container traffic was also coming to a peak, 
amounting to well over 20,000 each month throughout the 
autumn of 2003 vs. an average of around 7500 per month during 
the previous autumn.  The vehicular traffic has since 
declined significantly. 
 
5. (SBU/NF)  The fact that the container port lacks computers 
and is run on an index-card system did not help matters. 
Also, for the first time, food for the UN-sponsored 
Oil-for-Food program came in containers, and this had to be 
unpacked and sorted at the port, Sroor told us.  Despite the 
conditions of overcrowding, which made the port more 
difficult to operate, productivity in cargo handling 
increased by 26% over 2002, Sroor said.  A $24 million 
investment in port handling equipment in October helped.  We 
have been unable to get a reasonable explanation why the 
government did not provide more resources to the port earlier 
on, so that productivity could be ramped up to match the 
increased traffic to Iraq.  Sroor, who is in charge of all 
three of Aqaba,s ports ) the main port, industrial port, 
and container port )maintains that he is happy that the 
tender was awarded and will support A.P. Moller. 
 
6. (SBU)  The new operator will have a short time to meet 
stringent targets set out by ADC: after three months in 
operation, APM must have made substantial strides in 
installing automation into the operations of the port and 
have cleared up congestion to such a degree that the 
container surcharge is removed.  This should prove 
challenging to APM, although Sroor claimed that the port is 
already well on the way to getting the surcharge removed 
without the help of a manager.  According to Sroor, the port 
has already reduced the average waiting time to 2-3 days for 
ships wanting to unload cargo; the Jordan Shipping Agents 
Association will remove the current surcharge after two full 
weeks in which the waiting period for these ships is less 
than 24 hours.  After six months, Sroor said, the port must 
be operating at an "international standard," and APM will be 
expected to maintain this high level of performance 
throughout the rest of the two-year contract in order to 
extend their management of the port. 
 
7. (SBU)  The problems APM will face at the port are 
substantial but not insurmountable.  According to the terms 
of the contract and assuming that APM would be able to secure 
the follow-on agreement, APM will turn over about $700 
million to the Aqaba Development Corporation over the next 
five years.  The tender has faced the vociferous opposition 
of the Jordanian Ports and Clearance Workers, Association, 
which claims that the "privatization" of the port will result 
in massive job losses, and APM actions on personnel over the 
next few years are likely to be constrained by the necessity 
to tread lightly in this area.  Sroor believes, however, that 
the old age of the majority of port workers will allow the 
downsizing of the port staff to happen gracefully by 
attrition, as "most" of the permanent port employees would 
likely retire "within the next five years." 
 
7. (C/NF)  There has been predictable resistance from 
Parliament to the introduction of a foreign corporation as 
concessionaire of Aqaba,s "crown jewel," the most active 
component of a port that employs 4,700 Jordanians, primarily 
from the underemployed and politically overrepresented south 
of Jordan.  ADC has been able to counter parliamentary 
pressure on the subject by applying a two-track strategy: 
first, denying that the contract is in fact a concession, and 
second, accurately portraying the crisis atmosphere 
surrounding the container port.  A delegation of MPs passing 
through Aqaba in late January was treated to a tour of the 
container port,s full-to-bursting storage yards and then an 
hours-long presentation by Imad Fakhoury, Chairman of the 
ADC, on how the pending contract was only for two years, 
management of the port, full stop.  (COMMENT:  Fakhoury,s 
statement notwithstanding, APM will be awarded the long-term 
concession that is the follow-on to the management contract 
without any further tender if it is able to meet its 
performance targets. END COMMENT.) 
 
8. (SBU/NF)  COMMENT: The quick tendering to an 
internationally respected firm of a management contract for 
the Aqaba container port would be a positive step under any 
circumstances.  Under the current circumstances of massive 
congestion at a time when demand for use of the port for 
transshipment of goods to Iraq is at an all-time high, the 
entrance of APM is very good news.  Sroor points out that a 
high proportion of reconstruction-related items is likely to 
be heavy equipment (unloaded in the as-yet-uncongested main 
port rather than the container port). If so, the conditions 
at the main port ) which will not be under APM,s authority 
) will bear further monitoring.  The resolution of problems 
in the port is also likely to expose inadequacies and 
bottlenecks further downstream in the customs-clearing 
process or in the supply of suitable vehicles to truck 
supplies north to Amman and Iraq. 
GNEHM