Inward Investment in Wales

Written evidence submitted by Milford Haven Port Authority

Summary

· Milford Haven Port Authority is the statutory harbour authority for the port of Milford Haven. It is an independent commercial entity generating turnover of £27.8m and Profit Before Tax of £7.1m.

· This submission focuses on the role and benefits of infrastructure investment

· Whilst it is acknowledged that there are important categories of infrastructure besides ports and energy installations, this submission asserts that ports and energy offer the best opportunity for creating inward investment hubs with strong commercial logic and momentum

· Milford Haven is the largest port in Wales, and the 3rd largest in the UK. In fact, Milford Haven handles over 70% of all Welsh port traffic – more than twice as much as all other Welsh ports combined and is the UK’s leading energy port. Activities include oil and gas, ferries, fishing, cruise, ship repair and marine engineering, and marine leisure.

· Milford Haven has attracted over £2 billion of direct inward investment over the past 5 years, creating over 300 permanent high skill jobs and substantial levels of associated economic activity.

· The level of investment activity at Milford Haven has been driven by four factors

o The port’s exceptional depth of water – over 17m at all states of tide – permitting operational scale and lower cost/lower impact logistics

o Quick access to Atlantic trade routes unimpeded by locks

o Established and new infrastructure links (5GW electrical grid capacity, gas and fuel pipelines, and rail access)

o The availability of brownfield sites with existing jetties that reduced the regulatory process time for various approvals

· Milford Haven is planning a new £multi-million national centre for processing and redistribution of biomass fuels which will be underpinned by the same features – depth of water, location and inland grid and rail links. As the UK’s leading energy port Milford Haven is also the ideal location for the construction of new power stations.

· Whilst it would be desirable to comment more generally on infrastructure as a driver for inward investment, it is hard to avoid the established dominance of Milford Haven as a port and centre for the energy industry based on the port’s depth of water, its established linkages, the clustering of relevant skills including engineering, the opportunities available, and the levels of recent investment which prove the thesis. No apology is made therefore for the emphasis given to Milford Haven in this submission.

· The one major potential deterrent to similar levels of future inward investment is the complexity and risk of the consenting process, and the experience of the current operators in their attempts to run their operations cost effectively in the face of monolithic systems of regulation driven by self perpetuating bureaucracies. Irrespective of whether major projects have been successfully implemented, there is a substantial risk that Wales in particular (and the UK in general) is developing a growing reputation as a costly and difficult environment in which to manage an established complex operation, and that obtaining consents for major development entails exceptionally high amounts cost, time, and reputational risk to be worth contemplating when compared with the choice of allocating capital to alternative jurisdictions.

· The narrative at the political level may sound encouraging towards inward investment, but is always offset by other discourse focused on regulation and control, the practical effect of which is to block or delay development, impose cost and reduce sustainability.

· The Milford Haven story exemplifies the opportunities inherent in a port focused infrastructure development strategy. The creation of a conducive industrial and development zoning around ports, with comprehensive support for new links - coastal shipping, pipelines, transmission lines, interconnectors, railways, roads and IT - will create the strongest possible private-sector-led inward investment dynamic.

1.0 Milford Haven Port

1.1 Since 2007, the Port has attracted over £2bn of Inward Investment, based on three internationally significant projects:

· Construction of the South Hook LNG terminal

· Construction of the Dragon LNG terminal

· Construction of the Pembroke RWE gas-fired powerstation

1.2 These investments are in addition to substantial new investment by Murco Petroleum in 2010 to increase the capacity of its Pembrokeshire refinery, over £40m of capital investment by SEM Logistics to upgrade the UK’s largest petroleum products storage facility located adjacent to Dragon at Waterston, and over $750m being invested by Valero to acquire the Pembroke refinery from Chevron. The Chevron transaction of course represents an investment exit as well as an entry.

1.3 These investments were not stimulated or aided by grant funding, but are all based on the commercial logic associated with sound infrastructure investment:

· It is the deep water available within the port (17m+ at all states of tide) that allow the use of large vessels with commensurately lower shipping costs per tonne of cargo moved. It is axiomatic that this also means lower emissions per tonne of cargo moved.

· The port is connected to the market place via the electricity grid and the petroleum products pipeline running from Milford Haven to Birmingham and Manchester. These long established inland links were augmented, in connection with the development of the LNG terminals, by the construction by TRANSCO of a new gas pipeline.

· The recent developments were also based on the availability of appropriate sites.

1.4 In 2010, the Port of Milford Haven had a throughput of 42.9m tonnes of cargo, principally energy product in the form of LNG and oil products, but also including approximately 1m tonnes of RoRo cargo and 325,000 passengers on the Irish Ferries service from Pembroke Dock Ferry Terminal (owned by MHPA) to Rosslare, as well as the largest volume of fish in any Welsh port.

1.5 This cargo throughput makes Milford Haven Port the third largest port in the UK and represents over 70% of the total seaborne cargo movements for Wales. Milford Haven Port is therefore pre-eminent within Wales, and is the UK’s major energy gateway.

1.6 The established infrastructure in the form of berths, pipeline and grid connections, allied with the Port’s exceptional depth of water and established skill base is likely to make the Port area a key site for continued inward investment.

2.0 Linkages

2.1 The RWE Power Station at Pembroke would not be a viable proposition without the security of supply afforded by the LNG terminals. Equally its go-ahead was dependent on the pre-existence of the unused 400kVA spur and sub-station, essentially lying dormant since the closure of the previous oil-fired power station.

2.2 The fuel and LNG complex at Waterston also houses the new 48MW Milford Energy Cogeneration plant. Taking gas feed from the adjacent LNG complex, it provides electricity to the National Grid, and also provides heat and electricity to the adjacent LNG regassification Dragon LNG terminal. This configuration has succeeded in making the Milford Energy plant possibly the UK’s most efficient power station. The thermal efficiency to be derived from regassifying product from -167oc itself makes the case for the creation of additional high efficiency power stations associated with these terminals.

2.3 The LNG berths at South Hook and Dragon are not operating at full capacity. Productivity of the entire gas and fuel product logistics chains would be enhanced (meeting the demand with relatively lower environmental impact) by achieving more intensive utilisation of the berth structures and other infrastructure. The overall pressure for increased sustainability and productivity is likely to make Pembrokeshire an attractive, if not essential location for investment in additional new electricity generating capacity

2.4 Investment in new under-sea electricity connections from Pembrokeshire to Anglesey and from Pembrokeshire to Ireland will spur additional inward investment into value added operations within Wales and lead to the desired intensification of use of existing marine infrastructure.

2.5 The presence of the refineries, and indeed the gas terminals, has sustained a substantial cluster of high skill engineering companies which have gone on to compete in international markets for other fabrication projects. This successful sector, itself leading to the sustainable employment of over 500 highly skilled technicians, would be jeopardised were the refineries to close.

2.6 The revenues generated by the Milford Haven Port Authority from the consequential growth in shipping activity are enabling MHPA to make its own substantial plans for an investment programme in new and related commercial sectors. These plans include

· Investment to develop Milford Docks into a regional centre for the marine leisure and fishing industries – Milford Docks is the largest fishing port in Wales and contains a 328 berth marina.

· Investment to support the expansion of Pembroke’ Port’s boat building, ship repair, and other marine engineering businesses. Crucially this involves providing construction and assembly areas for participants in the renewable energy sector (tidal and wind)

· Investment to develop a new deep water facility to create a national facility for the handling of biomass as a key step to enable this sector to develop on a commercial basis.

3.0 Employment and Economic Contribution

3.1 MHPA has commissioned from Cardiff University an employment and economic impact study in relation to the Port of Milford Haven. It is expected to be available later in the year and to show that the port is directly responsible for over 2,000 high skill jobs in Pembrokeshire.

3.2 MHPA and the terminals based on the Haven spend over £100m on supplies and services within the Welsh economy.

3.3 The Construction of the two LNG terminals and Pembrokeshire Power Station created over 3,400 construction jobs (short term) at peak.

4.0 Government and Policy Inputs

4.1 Milford Haven Port can be taken as a case study for drawing general conclusions about Infrastructure as a key driver for Inward Investment and job creation within Wales: Milford Haven is not just another port, it is the pre-eminent port in Wales handling 70% (as stated) of Wales’ port throughput. The scope for Milford Haven with its substantial depth of water to attract Inward Investment is fully proven. The Investment over recent years has been driven entirely by sound commercial judgements based on the beneficial impact the use of the Port and its associated infrastructure (which includes the electricity and energy pipelines) can have on the major players’ global logistics chains.

4.2 As such it should receive a specific focus from government. The key input from government to make these projects happen has been the policy support and, simplistically, the granting of relevant planning and other consents within acceptable timeframes.

4.3 In some respects the investment is happening despite rather than because of government efforts. Inward Investors are driven by fear, as well hope. Regardless of the successes, any and all negative stories – eg about the complexity and timeframe required for securing a consent, day to day frustrations in connection with regulation and inspection, including the issue of standard operational licenses, the tone of political discourse and policy and all other negative encounters with the state in the broadest possible sense - can all too easily result in international companies deciding to invest their money in more supportive jurisdictions. Milford Haven Port, and all ports in Wales, are not only in competition with nearby ports but with all the major ports in Europe and elsewhere in the world.

4.4 For example, the current message in relation to the installation of a second gas pipeline connecting Milford Haven to the inland market place is that it will take seven years to deliver. If this timescale was instead 2 years, there would already be matching inward investment plans for the construction of additional berth capacity and tank storage.

4.5 As a further illustration, WAG’s recent consultation document on the evolution of Marine Spatial Planning listed the relevant European Legislation and existing Welsh plans policies and strategies (to which the Welsh Marine Spatial Plan will duly be added) and went on to make the questionable assertion that the final outcome of the work they are doing in 2011 to 2012 would be a clear set of national priorities. [1] The list of consequential UK legislation is equally daunting.

4.6 The consenting framework is overly complex, and of itself imposes massive risk in terms of

· The difficulty of bringing together a site, a plan, a customer contractual commitment, lending and finance commitments, and holding this matrix together for years whilst pursuing all necessary consents.

· The cash cost and risk of planning and obtaining all necessary consents

· Reputational risk

4.7 Inward Investors can only embark on such projects having first obtained absolute security in relation to a site, via ownership or an option.

4.8 Policy should therefore be directed towards defining inward investment zones where consent can be made progressively more straightforward and investors are able to focus on specific large scale and general purpose sites.

4.9 This is essentially what ports and airports are.

5.0 Sustainable Development

5.1 Objections to any port development will always be based on the local impact. This must be set against the role of a sustainable port development in reducing the cost and environmental impact of the entire logistics chain using the port.

5.2 This is particularly the case for Milford Haven with commensurate environmental benefits:

· With depth of water enabling the use of larger ships, the cost and emissions for every tonne of cargo shipped is reduced

· Users of the port are able to operate on a very large scale.

· The port is well located for the onwards coastwise shipment of processed product to other ports in the UK and Europe and for shipment to the United States

· The total impact, in terms of reduced cost of energy and security of supply have a significant impact on the competitiveness and sustainability of the UK economy

· The piled jetty structures prevalent in the Haven and which would be required for further inward investment opportunities do not impede the flow of water and have negligible discernable impact on the local marine habitats particularly by reference to natural waterway dynamics; to the extent there is any impact, this is more than offset by the wider environmental benefits of a more productive logistics chain stretching from the point of origin of the cargo through to the proverbial light switch.

5.3 Locating value-adding operations away from ports inevitably introduces a substantial and permanent deviation penalty on manufacturers. This has led to the growing support for the principle of "port-centric logistics". An important factor underpinning this dynamic is that the port is usually the point of contractual delivery by the supplier to the customer for many cargo shipments. This means that ports (and, by implication, airports) are a natural point in the overall logistics chain for receivers to inspect their cargos and begin the process of adding value.

5.4 In addition to pipeline, rail and electricity links, Milford Haven needs effective communication links. This is essential if professional management functions are to be co-located with the installations themselves. The motorway / dual carriageway road network stops 30 miles short at St Clears, mainline rail services stop at Swansea, and the IT network is under-invested, offering insufficient bandwith and speed.

6.0 Conclusion

6.1 Ports and their associated transport links have consistently proven their ability to be the leading driver of substantial Inward Investment.

6.2 The logic we imply for ports is as relevant for other types of key infrastructure investment (airports, roads, railways, IT), but the key feature of ports is that they constitute a natural development zone for value added activity. Handling over 70% of Wales sea-borne cargoes and offering 17m operational depth of water at all states of tide, Milford Haven is particularly important in this regard.

6.3 Port Centric Logistics is a key driver for establishing logistics chains with lower overall environmental impacts.

6.4 The impressive inward Investments in Milford Haven in recent years have all occurred without grant support, although that is not to deny that grant support is sometimes essential, particularly if such grants are available in rival jurisdictions.

6.5 The one step we look for to stimulate further inward investment into ports generally and Milford Haven in particular is a fully supportive fast track, and vastly simplified planning, consenting and regulatory environment. There is no balance in the current position, and there is no other single outcome that would have a greater and more profound impact on the scope for Infrastructure Investment to drive the Welsh economy.

May 2011