The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A more than $1 million tax burden increase, combined with a delayed Baha Mar-related upswing in container volumes, has forced the Arawak Port Development Company (APD) to postpone plans to reduce its tariffs.

This development, unwelcome for the shipping industry, the Bahamian community and all Nassau Container Port (NCP) users, was unveiled in APD’s recently published annual report, which still promised that the tariff structure would be “reviewed” in 2014.

Blaming delays to the planned reduction on the tax increases contained in the 2013-2014 Budget, and Baha Mar’s failure to yet deliver planned container volume increases, APD said there was “no possibility” this would happen in the year to end-June 2014.

“While Baha Mar’s past container volumes have positively impacted APD, the level of contribution has not yet met projections. Furthermore, the timing of the long awaited surge in project-related volumes remains uncertain,” APD’s annual report said.

“APD had hoped to be in a position to effect further tariff reductions during this fiscal year, but the absence of the spike in project volumes, coupled with an unexpected increase in taxes amounting to over $1 million has negated any possibility of a reduction this year.”

This will likely disappoint many in the private sector, especially food stores, wholesalers and other large importers, who may have been banking on a reduction in APD’s port fees to help contain, or mitigate, cost increases elsewhere in the supply chain.

Still, the BISX-listed operator/owner of Nassau’s only container port tried to provide a glimmer of optimism, promising: “A tariff review will be undertaken in the New Year, and the company’s performance will be measured against the internal rate of return (IRR) target range of 10-12 per cent.

“Factors which will influence the company’s performance in the New Year will include, but not be limited to, total cargo throughput, any increases in operating cost, and the impact of VAT. Fortunately, APD does not anticipate an increase in TEU-associated (twenty-foot equipment unit) port fees this year.”

The APD annual report made no mention of the likely impact Value-Added Tax (VAT) will have on its business, or the shipping industry generally, despite the fact it will have to add the 15 per cent levy to all its tariffs and fee-based income.

These will inevitably raise supply chain costs that, ultimately, will be borne by all Bahamian consumers. While businesses will also see their costs rise, they will either be able to ‘net off’ the VAT or claim a refund credit, as it is paid in their inputs.

Elsewhere, APD is projecting that its net income for the 2014 financial year will be relatively flat versus last year’s performance, growing just 0.92 per cent from 2013’s $3.495 million to $3.527 million.

This was despite revenues being forecast to increase by 4.46 per cent to $26.353 million, compared to this year’s $25.228 million.

And the annual report revealed that APD, and the Nassau Container Port, were “under plan” projections for 2014 to-date as they awaited “a material injection of Baha Mar volumes” from the $2.6 billion Cable Beach project.

“NCP’s TEU volumes, as at August 2013, are tracking about 5.67 per cent under budget,” the APD annual report said.

“Additionally, total revenue as at August 2013 are tracking about 6.67 per cent under budget. Baha Mar volumes that were expected to increase beyond historical levels during the third quarter of 2013 have not yet materialised. Recognising that Baha Mar’s management continues to promote a December 2014 opening, APD’s management concludes that the increase in volumes is imminent.”

For 2013, APD processed 65,246 TEU containers, a figure 12.65 per cent higher than forecast volumes of 57,919.

“Our bulk aggregate volumes during 2013 were 726,697 tons or 9.16 per cent lower than our forecasted volumes of 800,000 tons,” APD added.

Michael Maura, APD’s chief executive, disclosed that less than 50 per cent of the port’s weekly container slots were being used, indicating that demand remained weak and there was much spare capacity in the market.

“In Nassau the market remains in transition, as evidenced by the severe over capacity. Today, there are approximately 2,750 TEU container slots available each week on the ships that call at the Nassau Container Port,” Mr Maura wrote.

“The total import demand, however, is 1,270 TEU containers or 46.15 per cent of the available capacity. Alternatively, 53.85 per cent of the total TEU container slots to Nassau each week are empty.

“The market should anticipate the lines bringing the overall weekly TEU capacity to Nassau in line with demand and rates at some point in the future. This will likely occur post Baha Mar construction.”

Elsewhere, APD said 2013’s operating expenses came in 3.88 per cent lower than projected at $19.357 million, while total comprehensive income was 39.04 per cent higher than budget.

Describing this performance as “remarkable” for an 18 month-old start-up, having taken the company’s retained earnings from a $3.387 million deficit to a positive $108,106, APD gave its 11,500 shareholders hope that a dividend payment may soon be forthcoming.

“The Board of Directors will continue to monitor the company’s financial performance, and anticipate dialogue with shareholders relating to dividend payments during the first six months of 2014,” APD said.

With its previous preference share issue having raised $36 million, some 71 per cent above the $21 million target, APD used the proceeds to pay down its $41 million Royal Bank of Canada (RBC) bridge loan to just $5 million.

It described the interest rate attached to the preference shares as the “most competitive” in Bahamian history.