Operator Series: Chile's EPV looks to leave difficult 2017 behind

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Thursday, January 11, 2018

Last year was a rough year for Chilean state-owned port operator Empresa Portuaria de Valparaíso (EPV).

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In mid-February, a group of workers temporarily downed tools and blocked access to the terminal operated by EPV concessionaire Terminal Pacífico Sur (TPS), one of three concessionaires at the port, causing thousands of passengers from two cruise ships to be unable to disembark for several hours.

The incident marked the beginning of a cruise exodus from Valparaíso, as several cruise lines announced that they would opt for the port of San Antonio, also located in Valparaíso region (V) for the 2017-2018 season.

By December, EPV had lost 25 cruise arrivals for the season, and would only receive 13 during that period, a stark decline compared to the 44 ships the concessionaire received in 2016.

San Antonio has been the big winner in this situation, as the mayor of the city, Omar Vera, told radio Cooperativa in September. Passengers from cruise ships spend an average of US$100 per person while in the city, and that each ship has an average of 2,000 passengers, he said.

San Antonio expects to receive 16 more ships between January and April, meaning the city will pull in US$3.2bn in tourist spending alone.

EPV, meanwhile, has set up a working group with TPS, its other two concessionaires - Terminal Cerros de Valparaíso (TCVAL) and Valparaíso Terminal de Pasajeros (VTP) - and the city administration in order to coordinate efforts to regain the confidence of the cruise operators in the medium term.

EPV's referential investment calendar for the 2014-2018 period entailed a total of US$720mn in investments from its concessionaires as well as other projects related to improving road accesses to the port and a new rail station.

But now, in the longer term, EPV plans to secure the presence of the cruise industry by building a terminal exclusive for ships of this kind, and so far three alternatives have surfaced for the project.

COMPETITION FROM TPS PROPOSAL

Shortly after EPV announced its cruise terminal plans, TPS unveiled an initiative of its own, which would re-use the infrastructure of EPV's existing Muelle Barón passenger terminal.

The proposal includes a study by consulting firm PRDW Aldunate Vásquez Ingenieros, which concluded that the construction of the new terminal would take 18-24 months.

The proposed structure would be able to receive ships with a length of up to 300m. Works include the installation of a concrete platform that would be 148m long and 12m wide.

EVP immediately rejected the TPS plan, calling it "unfeasible" and "untimely." It also said it was already working on the feasibility studies for its own project with advisory from Moffatt & Nichol.

One of the main differences between the two plans is that EPV's initiative would use Valparaiso Passenger Terminal's (VTP) infrastructure as opposed to Muelle Barón. The latter is considered by EPV to be the most exposed area of the Valparaíso coast since it lacks wave breaker protection.

The first phase of the studies for the EPV project was finished in September and estimated the cost at US$44mn, daily El Mercurio de Valparaíso reported EPV's CEO, Gonzalo Davagnino, as saying.

This phase entailed the engineering, business model and market research studies, while a second phase is currently being conducted, a spokesperson from the company told BNamericas. The second phase is expected to be finished by mid-January.

AGUNSA'S PROPOSAL

Another proposal came from Agunsa, which is the owner of concessionaire VTP. In December, the multinational presented a project of its own to develop a cruise-exclusive terminal.

The proposed port would be able to handle two 300m cruise liners simultaneously. No further details about the project have been made public and EPV said its technical teams would review the proposal during a 90-day period.

OTHER ISSUES

Outside of the cruise port issue, EPV recently decided to extend TPS' concession until 2029, two years before it was originally set to expire.

According to the state-owned company, the decision was made after the concessionaire confirmed its interest in carrying out an upgrade for the container terminal that it operates, which entails expanding site 3 and reinforcing sites 4 and 5 of the terminal's berth No. 1.

Meanwhile, EPV hit a roadblock in December with a supreme court ruling voiding construction permits for a controversial US$200mn mall at Muelle Barón in partnership with mall operator Mall Plaza.

EPV has said the cancellation puts long-term investments worth US$1.8bn in peril and that it is evaluating legal and administrative action. It should be noted that the Puerto Barón project was part of the 2014-2018 investment calendar. 

"The challenge we face today is related to searching for formulas to keep an open space and access to the sea to locals that congregates and balances the desires of the citizens, the attractiveness of the investment based on a public-private partnership, and the necessity of maintaining a competitive port," the company said in a statement.

EPV will also see a change of hands at one of its concessionaires since OHL Concesiones, which was the owner of TCVAL, will now be owned 100% by Australian fund IFM Investors. The 2.8bn-euro (US$3.4bn) transaction is expected to be completed during this quarter.

Due to the loss of cruise arrivals at terminal 1, terminal 2 will handle 73% of the cruise arrivals this season. The terminals are operated by TPS and TCVAL, respectively

The concessionaire has been carrying out small-scale improvements to its terminal in order to be able to receive bigger ships. According to EPV, 400mn pesos had been invested by TCVAL in this area by September. 

PERFORMANCE

EPV saw its earnings increase 24.6% year-on-year to 4.4bn pesos in January-September last year. The strong performance was mostly due to tariffs-related revenue from its commercial ports and a 6,409% increase in "other incomes," which the company attributed to recoveries linked to insurance compensations.

In the same period, EPV also saw its income taxes jump 96%, the company's latest results report shows.

The EPV terminals mobilized nearly 9Mt during the first nine months of 2017, up 18% from the previous year.