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Friday, October 21, 2016

Is the Honeymoon Over In Philadelphia?

August 11, 2000

Launched nearly two years ago with high expectations of an efficient U.S. Shipbuilding facility, it appears the revitalization of the Philadelphia Naval Shipyard as a viable commercial entity is waning. Aside from the fact that the yard's parent company, Kvaerner (KVAER.OL), has essentially exited the international shipbuilding scene, the yard has entered the crosshairs of Pennsylvania's Auditor General Robert P. Casey Jr., whose office recently issued a scathing report that alleges the organization's top officials are nearly the only ones to have benefited from the $400+ million project. But while full details of the report were released yesterday, suspicions of political undertones were detected, as it is worthy to note that the chief creator/negotiator of the deal is Governor Tom Ridge, a Republican, and the auditor is a Democrat facing re-election. In addition, the Auditor General's release of information regarding the project was far from straight-forward bottom-line numbers, rather using examples perhaps meant to stir disgruntled taxpayers. A release from the Auditor General's office included statements such as "Imagine living rent-free in a $675,000 house …" Regardless of intent, the report is sure to stir the fires set beneath the shipyard to produce commercial ships as planned. "I had great hopes for this project and the thousands of good, family- sustaining jobs that were promised,'' said Casey who, as a member of the Delaware River Port Authority, voted to authorize the expenditure of DRPA funds for the Kvaerner project. "I am still hopeful that ships will be built and more jobs will be created. However, our audit raises serious concerns about the Ridge administration's failure to negotiate a deal that was in the best interest of Pennsylvania workers and taxpayers, and its failure to provide vigilant oversight of this project.'' Kvaerner has a good track record of taking shipyards left for dead and turning them into some of the most modern, competitive ship construction facilities in the world. For example, its two Finnish yards in Turku and Helsinki are widely regarded as two of the finest in the world, and are leaders in the construction of high-value, technically challenging cruise ships. Also, its revitalization of a shipyard in Warnow, Germany several years ago resulted in one of the more technically advanced yards in the world. The December 1997 Master Agreement between the governmental parties (the Commonwealth, the City of Philadelphia, and other public entities) and Kvaerner provided $429 million of public funds -- including $227 million from Pennsylvania taxpayers -- to Kvaerner for the construction of the shipyard, employee salaries and benefits, and employee training. Casey's audit found that the Master Agreement imposed ambiguous obligations on Kvaerner and deferred the required performance of most of its obligations for several years, if ever. More significantly, it granted Kvaerner the right to abandon the project and escape responsibility for operating the shipyard and building ships, after having earned fees for constructing the yard at taxpayer expense. "The Master Agreement created both the incentive and the economic rationale for Kvaerner to enter into this project irrespective of its ability to sustain shipbuilding operations in Philadelphia or of the long-term economic viability of the project,'' Casey said.

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