Panama Ports, the Controller and the Shrewd

Since Contract 5 of 1997 "Approves the contract with PANAMA PORTS COMPANY, S.A. (PPC), for the development, construction, operation, administration, and management of the port terminals of containers, passengers, bulk cargo, and general cargo in the Port of Balboa and Cristóbal" enters its last phase prior to its extension, the pros and cons of maintaining a "strategic partner" that clearly has not been right in your actions towards our country.

And it is that of all the privatizations that were made under the five years of Ernesto Pérez Balladares as president, this contract with PPC, and the contracts of the northern and southern corridors with PYCSA and ICA, respectively, have been at least scandalous, for the interests of our country.

We have talked about the Brokers before, and even gave my opinion about the valuation of brokers at the time and I have also written earlier about PPC and its contract, but now, the Republic's Comptroller has issued a report on the management of CFP, which neither would have been done by the same PPC General Manager, it would have looked so pretty. I have little to say to the Controller that Panama owes PPC too much for having done us the favor of coming to Panama to "develop the ports of Balboa and Cristóbal".

As always, we will do an investigation of the facts, before reaching our conclusions about PPC's relationship with the Republic of Panama. Let us start with the original contract. In the concession, PPC is granted infrastructure and facilities in the Ports of Balboa and Christopher detailed in Annex I to this contract, but they are also granted, at option within the first 15 years, land, facilities and facilities on Diablo and Telfers Island at no cost to PPC.

PPC has "generated" jobs in both ports (and I put it in quotes since many of these jobs were already before PPC arrived, and even though, yes, they have increased, they did receive a base infrastructure for their operation unlike the ports that compete directly in Panama with them, they had to start from 0. These jobs generate payments to the CSS and the tax on individual income taxes for workers earning above US$800 per month (since less than US $11,000 per month does not generate income tax).

Again, this is not something any other operator would not have done under the same conditions. And do not misunderstand me, Panama had to privatize as much as possible, including the ports (and that the Bull lacked the IDAAN and other institutions that remain in the hands of the State, which is a lousy resource manager, since in addition to not appointing professional administrators and probes, they use the institutions as political loot).

There is also talk that PPC pays its taxes as if this were an achievement and success for a company when it is the duty of companies and individuals to contribute to the state.

PPC, according to the original contract was supposed to pay US$22.2 million per year as an annual payment to the contract, reviewable every 5 years, including the years of extension of the contract. This clause would disappear years later (in a more than mysterious and dubious way) to the detriment of Panama's position. In addition to paying a variable annuity of 10% of gross entry from all sources of income. In addition, the Republic of Panama retains 10% of the company's share capital, with a member on the Company's Board of Directors (designated by the Executive Branch), and the state will be exempt from any related obligations of contributions and contributions, in the event of capital increases.

PPC was required to invest in the next 5 years the sum of $50 million to improve the infrastructure and equipment received from the Republic of Panama (for which it would have to pay the single sum of $10 million to the Panamanian State), and received all employees of the Port Authority, who were fully liquidated in their benefits by the Republic of Panama, and for this purpose, PPC will advance Panama the sum of $30 million.

The contract shall last for 25 years from the entry into force of the contract, and it is advisable to renew it automatically for an additional period of 25 years, under the same terms and conditions provided that the company has fulfilled all its basic obligations under this contract. That is when the Controllers report was given in the tone that CFP had complied with the contract.

According to the PPC Websites, these are your investment milestones and TEU's through 2015:

• 1997 start PPC operation with 189,061 TEU's

• From 1998 to 2000 US$67 million is invested in courtyards and pier 15

• US$143 million is invested in Pier 17 and courtyards from 2000 to 2003

• Another US$90 million is invested in 14 and 15 docks in 2003, and 500,000 TEU's is already handled

• Another US$21 million is invested between 2005 and 2006 for Pier 7 and Phase I expansion. 1 million TEU's already handled.

• From 2006 to 2007 US$400 million is invested in pier 18 and patio, the first Post Panamax is received and 2.4 million TEU's are handled by 2008

• From 2008 to 2010 US$40 million pier 10 Cristobal and 3.4 million TEU's are invested in 2010

• From 2012 to 2013 US$10 million is invested in Pier 9 of Cristóbal and 4.1 million TEU's are handled in 2012

• In 2015 US$60 million is made in investments

According to these figures until 2015, according to the PPC Website, they have invested over US$800 million (according to the comptroller they have invested US$1,695.6 million), and Panama had not received any dividends associated with the transaction, until we started talking about it, and from this moment we received something like $8 million, when according to the original contract we should have received at least $1.25 billion from this operation (since with the value of money over time, it is obvious that this figure goes up much more), of which nothing has been talked about, under the pretext of having invested this amount in the operation (i.e. Panama has made 10% of the investments, even though the contract Law said that Panama did not lose its 10% and that it did not have to invest anything else in the company).

As PPC has 90% of the shares, and dominates the Board of Directors, and every year, the Panamanian representative is a mere spectator and we are not informed of what is decided, Panama has been kept away from decisions. Panama has waited patiently, and perhaps by 2022 the executive branch could make the best decision not to renew this contract, because, if one is someone's partner, the least he would expect is total transparency, decency, and that is something PPC has never given us.

Panamanians have never seen a single PPC Audited Financial Statement (of which we would be entitled since we are partners with 10% of the company), so it is difficult to really see what is going on in there. But if we consider that Panama made about US$25 million of this operation (before 1996), this gives us a starting point to calculate a history valuation of this company. If we take these US$25 million and increase them annually by taking inflation as an index and add the US$22 million that we had to pay and that Mireya Moscoso's government eliminated them, and 10% of their gross income, we could have a better figure on the value of CFP.

The historical valuation of this operation gives me at least a value of US$11,515 million, whose 10% or US$1,151.5 million belongs to Panama (which is quite close to the figure they stopped paying us, and I think I am falling short in my calculations).

Turning to the comptroller's report, he argues that PPC has received in revenue the sum of $4,345 million, which translates to $188 million per year in revenue and a profit of $39 million on average, which seems very low to me. This audit did not include transfer prices I imagine that HPH also passed expenses from HQ to PPC (from C/W London passed them to C/W Panama for a long time to the detriment of our shareholding). The controller's report does not appear to be an accounting or financial audit of the transaction, but an excuse includes a report of the Controller's favorable assessment of the transaction, such as the person acting as a reference for someone who is looking for a job. The Comptroller is not here for this!

Now, outside of all the PPC wrongdoing in Panama, on the financial, accounting, and legal side, PPC did reinvest the money in the transaction (I do not think everything, but if you notice the level of investment in equipment) and if you turned Panama into a port giant not only in the region but in the world. But that did not give them the right to do what they did.

Should Panama renew its concession to CFP? I really do not think so. Someone who treats you badly for 23 years does not deserve to stay married to us. Can we get a better partner? Yes of course. If when we try to privatize ports in 1996, they came out good prospects, now with what we have I am sure they will come out more.

What do we have to do? A better contract, with a fixed fee, a variable part, investment amounts, level of employment, taxes, and that we are paid our dividends annually regardless of what happens in the company (the metric must be income and not profit, to prevent us from being cheated), and that this contract cannot be adjusted or arranged by any executive body to safeguard the interests of the country.