ICTSI pulls out of Syria

Friday, December 28, 2012

International Container Terminal Services, Inc. (ICTSI), through its subsidiary Tartous International Container Terminal jsc (TICT), has announced the pull-out of its business in the Syrian Arab Republic due to the civil war in that country, and the resulting untenable, hostile and dangerous business environment.

ICTSI has pulled out all its Filipino employees prior to the announcement of the pull-out.

Under the Investment Agreement between TICT and Tartous Port General Company (TPGC), wars and civil disorders constitute force majeure. The Syrian civil war is escalating, exposing everyone, both combatants and civilians, to increasing threats of death and destruction every day.

Writing off the TICT contract and remaining net assets in the 2012 consolidated accounts of ICTSI would amount to USD1.2 million. Furthermore, ICTSI would be saving USD4 million annually, in terms of port fees and cash operating expenses, from the termination of the Agreement and write-off.

Since 2011, ICTSI had been operating under an extremely difficult environment in Syria. Economic and business conditions in Syria have been volatile as a result of trade sanctions by the European Union and the United States, and the closing for trade of the Syrian-Iraqi border. The Port of Tartous, where TICT operates, should have been the transit point for transshipment trade to and from Iraq.

The current crisis negatively impacted volume growth and forecasts. At the time ICTSI submitted its bid in 2005, Syria’s container market was growing and on track as projected. However, volumes started to plummet by four percent in 2010, and 14 percent by end 2011. The drop has set the Syrian container market back five to six years at 2006-2007 levels.

TICT has also encountered policy setbacks from the Syrian government’s strategy on public-private partnership (PPP). There were delays in government´s deliverables under the contract. TICT and Tartous Port General Company signed an Investment Agreement in March 2007 under a PPP structure for the operation and development of the container terminal.

Until the start of the Syrian crisis, TICT had diligently fulfilled all its financial obligations to TPGC. To date, TICT had remitted over USD13 million to TPGC in port fees and rentals. The annual investment fee and variable fee were paid on time.

However, TICT´s performance under the investment agreement was derailed by two major events: (a) the eruption of political unrest and spiralling violence in Syria starting in 2011, and (b) TPGC´s refusal to acknowledge the existence of unforeseeable change of circumstances and provide relief under the investment agreement when TICT invoked it. The Agreement allows a party to seek relief if there is an unforeseeable change in circumstances which materially upsets the economic balance of the parties from when they started. The situation in Syria has since then deteriorated into an open civil war. To continue operations in Syria under those circumstances was clearly unsustainable and dangerous to TICT personnel.

In terms of throughput and revenues, TICT’s contribution for the first nine months of 2012 was 0.6% and 0.4% of ICTSI’s consolidated volume and revenues, respectively. In terms of totals assets, TICT accounted for 0.4% of total assets as of September 30, 2012.

ICTSI has made it clear that termination of its Syrian concession has no bearing whatsoever on all its other port concessions worldwide, all of which are experiencing steady growth and smooth operation.

International Container Terminal Services, Inc., press release