February 24, 2006

Dubai Company Delays New Role at Six U.S. Ports

By DAVID S. CLOUD and DAVID E. SANGER
http://www.nytimes.com/2006/02/24/politics/24ports.html?_r=2&th=&oref=login&emc=th&pagewanted=print

WASHINGTON, Feb. 23 The Dubai company at the center of a political furor over its plans to take over some terminal operations at six American ports said Thursday night that it planned to close the deal next week, but that it would "not exercise control" over its new operations in the United States while the Bush administration tried to calm opposition in Congress.

The statement may provide a little time and political breathing room for President Bush, who has appeared stunned at the opposition from Republicans and Democrats alike over the deal involving one of the country's few close Arab allies. But it was not clear how long the company was willing to suspend control over its new American properties, or whether its offer would assuage the members of Congress, governors and mayors who have vowed to block the deal.

In a statement, the company, Dubai Ports World, said that its $6.85 billion purchase of the Peninsular & Oriental Steam Navigation Company of Britain spanned 30 terminals in 18 countries.

"The reaction in the United States has occurred in no other country in the world," said Ted Bilkey, the chief operating officer for Dubai Ports, which is controlled by the government of the United Arab Emirates. "We need to understand the concerns of the people in the U.S. who are worried about this transaction and make sure that they are addressed to the benefit of all parties. Security is everyone's business."

The action came after the Bush administration and leading members of Congress, including Senator John W. Warner, Republican of Virginia and the chairman of the Senate Armed Services Committee, quietly told the company that more time was needed to derail Congressional action to block the deal.

Earlier in the day, administration officials and Senate Democrats clashed in a public hearing on Capitol Hill about whether allowing Dubai Ports to assume management of terminals at American ports would represent any kind of national security risk.

In an effort to calm Congress, the administration released a confidential letter sent on Jan. 6 in which the company committed itself to continuing its participation in a range of American-led initiatives to close gaping security holes in ports around the world. This included an agreement with the Department of Energy a year ago to use new equipment in Dubai's own seaports intended to sniff out radioactive shipments.

Among the ports in the United States where the company hopes to take over terminals, only one, in Newark, is similarly equipped with nuclear detectors. On Thursday afternoon, hours before the company's announcement, the Port Authority of New York and New Jersey, which owns the Newark container port, said it would terminate the lease of P &O Ports, the current manager of the terminal, in an effort to stop what it termed an illegal transfer to the Dubai company.

White House officials had said that because the deal was formally approved by the Committee on Foreign Investment in the United States in mid-January, the administration had no legal channel to reopen its review of the acquisition, a step being pressed by Congress, unless it determines that the company misled the federal government.

But with members of Congress threatening to enact legislation to block the deal, the White House strongly signaled that it would welcome an agreement by Dubai Ports to delay final closing of the deal, which is scheduled next week.

In its statement Thursday night, the company said, "It is not only unreasonable but also impractical to suggest that the closing of this entire global transaction should be delayed."

So instead, the company's lawyers came up with a plan under which Dubai Ports would essentially become a silent partner, owning the management contracts for the six facilities but recusing itself from managing them.

"DP world will segregate P & O's U.S. operations while it engages in further consultation with the Bush administration and, as appropriate, Congressional leadership," the statement said.

The company appeared to be facing the political reality that unless it blinked, its entire deal could be scuttled.

The White House, while defending the deal, had sent some less-than-subtle hints. Karl Rove, the deputy White House chief of staff and President Bush's chief political adviser, said in an interview with Fox News that while the acquisition by Dubai Ports World would pass its final regulatory hurdles next week, "there's no requirement that it close, you know, immediately after that."

Mr. Rove added: "Our interest is in making certain the members of Congress have full information about it, and that, we're convinced, will give them a level of comfort with this."

A senior White House official said, however, that Mr. Bush was still firm that he would veto any effort by Congress to overturn the deal.

"He's completely adamant about this," another aide to Mr. Bush said. If a Dubai company is treated as less trustworthy than a British one, the aide said, "he thinks that the signal in the Mideast would be disastrous."

Critics of the deal said earlier in the day that a delay was insufficient.

"A simple 30-day cooling off period without the full 45-day review that should have been done from the beginning is not adequate," said Senator Charles E. Schumer, Democrat of New York. "If the president were to voluntarily institute the review and delay the contract, that would obviate the need for our legislation, but a simple cooling off period will not allay our concerns."

Senator Warner said at the public hearing that the White House needed to "recognize the very strong sentiment in Congress" for requiring further review of the acquisition. Mr. Warner said he hoped the political uproar would "work itself out" without Congress intervening.

His statement appeared to be aimed at persuading the White House and Dubai Ports World to accept political reality and submit the deal to further examination.

Mr. Warner convened the hearing at which a group of administration officials conceded little ground in a nearly three-hour briefing on the details of the deal. The group, led by the deputy Treasury secretary, Robert M. Kimmitt, said that the administration's interagency review of the transaction had taken three months, and that the Dubai company had been willing to address concerns raised by the Department of Homeland Security.

In the Jan. 6 letter to the department, the company agreed to operate the terminals "to the extent possible with the current U.S. management structure" and to maintain existing security policies. But most of its assurances centered on compliance with existing United States law.

Democratic lawmakers asserted that acquisition fell under a provision of the law requiring a far more extensive, 45-day government review of transactions that have potential national security implications or involve, as this transaction does, a state-owned company.

"Is there not one agency in this government that believes this takeover could affect the national security of the United States?" asked Senator Carl Levin of Michigan, the senior Democrat on the Armed Services Committee.

But Mr. Kimmitt said "all of those concerns were addressed" in the administration's initial, three-month examination of the deal. When the interagency panel charged with reviewing foreign acquisitions met in mid-January its only formal meeting on the Dubai Ports World acquisition no agency raised further national concerns, Mr. Kimmitt said. That made an additional 45-day review unnecessary, he said.

Democrats disagreed, and even Mr. Warner conceded that the language of the statute could be read to require the additional investigation. Senator Hillary Rodham Clinton, Democrat of New York, said that the administration's review "appears to be cursory at best" and that "port security is too important to be treated this cavalierly."

When Congress returns from recess next week, House and Senate lawmakers from both parties are expected to introduce legislation to require further examination of the acquisition's national's security implications, an idea that the Republicans leadership in both chambers have supported.

Mr. Schumer and Representative Peter T. King, Republican of New York, have said they will propose companion bills to block the Dubai Ports World acquisition until after the 45-day review is completed.