PSE Circular for Brokers No. 316-00

February 10, 2000 PSE CIRCULAR FOR BROKERS NO. 316-00 PRESS STATEMENT ICTSI mulls pulling out of Rosario concession Management unhappy over illegal strikes, loss of client confidence, extraordinary costs, negligence of government officials International Container Terminal Services, Inc. (ICTSI) is studying the option of pulling out of its concession for the management of the Port of Rosario in Argentina following inaction on the part of provincial Argentine government agencies to maintain industrial peace at the port, which has resulted in heavy losses for Puerto Rosario, S. A (PROSA). Loss of confidence from clients, an extremely hostile working environment, extraordinary costs, negligence on the part of government officials, and the resultant heavy losses have prompted PROSA to withhold payment on the first canon due in January. PROSA is the concessionaire at the Port of Rosario. It is 100 per cent owned by ICTSI International Holdings Corp., a subsidiary of ICTSI which holds ICTSI's interests in its foreign operations. In ICTSI's business, it is normal to incur initial losses, and to encounter labor resistance as changes and betterments are introduced. This can last up to six months. However, with the cooperation and assistance of various government agencies and the police, conflicts and disputes are eventually settled legally and peacefully. llcd However, repercussions of the strikes at the Port of Rosario were already starting to be damaging and far ranging, and PROSA realized that the situation was moving beyond the start-up stage. It had also reached the limit in trying to start what should have been a normal business enterprise. Pulling out of the concession is just one of the options being studied by ICTSI. Another is suing ENAPRO. Despite repeated appeals by PROSA to intervene or assist in the settlement of illegal strikes by militant port labor groups, hardly any action was taken by the local police department, prefecture, the former governor of Sta Fe Province, ENAPRO, the local Secretariat of Labor and the National Ministry of Labor. At the time of the awarding of the concession, the Argentine government had given assurances that industrial peace will be maintained at the port. cdlex As a result, since its takeover in July 1998, PROSA has been for most part operating in an extremely hostile environment as a result of illegal strikes staged intermittently by port workers. The first conflict began the day after the takeover. Two more strikes were held after that, with strike days totaling 190 days. During those 190 days, the port was virtually paralyzed. PROSA personnel had to be brought in and out of the port by sea and air transport, as strikers barred all land entries to the port. Cargo had to be ferried by barge in and out of the port. Acts of vandalism and violence were committed by the strikers, endangering and harming lives, port property and cargo. Loss of confidence from port users caused volumes to drop with many port users shying from the Port of Rosario, and opting instead to use other nearby ports. PROSA had projected to move some two million tons in 1999, but handled only over one million tons by end-1999. PROSA had projected revenues of USD13 million, but will make only USD5 million. prcd Loss of volume resulted in a substantial decline in revenues. Revenues earned were eaten up by extraordinary costs to secure the port and to open sea and air access to the port for both PROSA personnel and for cargo. The cost of deploying barges to ferry cargo amounted to USD150,000 a month. Each strike day translated to a loss of almost USD40,000 each day. ICTSI estimates that PROSA will incur losses of USD12 million in 1999. Meanwhile, PROSA is beset by customer complaints for work stoppage, delays, breakage, losses, all direct results of the illegal actions taken by the strikers. Many of the port's clients have taken their cargo elsewhere. PROSA is helpless because the solution requires government police action, and this has not been provided. prcd Despite the abnormal operating conditions, PROSA undertook development projects at the port in the hope that the situation would normalize after some reasonable period. Total investments to date amount to USD20 million. The worsening situation, however, prompted PROSA to shelve further improvements at the port until the situation normalizes. Because normal work has not been possible, PROSA has decided to withhold payment on the port rentals due in January, promptly advising ENAPRO of its decision to do so. The company hopes to be able to review the concession terms with ENAPRO, and prod the government to fulfill their obligations to provide a normal working environment for legitimate business. Under the concession agreement, PROSA will be in default only after failure to pay two canons. PROSA has withheld payment on only one canon, and is technically not in default of the contract A performance bond issued by PROSA of USD5 million also acts as a guarantee for the company. Meanwhile, ICTSI said that its other operations in Manila, Buenos Aires, Veracruz, Ensenada, Dammam, and Karachi are very healthy and performing quite well. They do not expect the situation in Rosario to drag down the excellent performance of these operations.