The recently passed Security and Accountability for Every (SAFE) Port Act 2006 (Act) has made a number of changes with potential effects for US port investment. The changes include requiring increased container screening in US ports and allocating funding for the implementation of enhanced security measures by private sector entities. These matters will be of interest to potential private investors in, and financiers of, US ports infrastructure, particularly when valuing ports assets and assessing the extent of regulatory compliance.
Perhaps surprisingly after the uproar over Dubai Ports World’s proposed acquisition of P&O’s US terminal operations, the Act does not prohibit foreign ownership of US ports or terminal operations, although it does require the resubmission of a facility security plan whenever there is a change in ownership that ‘may substantially affect the security of the facility’. The Act also requires the individual having authority over security actions to be a US citizen, though this requirement can be waived if a satisfactory background check has been conducted on the individual. However, note also the potential impact of the Exon-Florio Act, which gives the President the right to block the acquisition of a US business by a foreign entity on the grounds of national security and which, given the strategic importance of the security of US ports, may be relevant to the acquisition of ports infrastructure by a foreign company.
The Act also requires 22 designated US ports to operate non-intrusive inspection and nuclear and radiological detection systems – this will result in the inspection of 98 per cent of the cargo shipped to the US for conventional, biological, chemical or nuclear weapons. The Act increases funding for grants to private parties to implement enhanced security measures – it permits the appropriation of up to $400m per year for the next five years for port security grants. The grants programme is competitive and allows private entities to request federal funding to implement increased port security measures. Eligible uses include training programmes, fences, lights, surveillance cameras and information-sharing mechanisms regarding terrorist threats.
The Act changes the grounds on which port security grants are made. Previously, funding was to be allocated on a ‘fair and equitable’ basis; now funding will be allocated based on risk. Presumably this will ensure that larger ports in major metropolitan areas such as New York will benefit substantially from the programme. Other changes include tying federal port grants to state plans, area plans and port-wide risk management plans and allowing multi-year funding of approved projects for up to 20 per cent of each year’s grants.
The Act also requires the development and implementation of a strategic plan for the security of the international supply chain, which will cover recommendations to enhance the security of the supply chain, the roles and responsibilities of private stakeholders and federal, state and local governments, goals for ensuring the security of commercial operations and the impact of supply chain requirements on small and medium sized companies. The plan is to be prepared by the Department of Homeland Security, the sole agency responsible for port security, who must consult with the government and private stakeholders.