Page 60: of Maritime Reporter Magazine (June 2003)

Part III. Financing Problems &

Solutions.

Over the course of the entire 20th

Century, our maritime sector has only infrequently been successful in attract- ing sufficient private sector financing to meet national needs without some form of federal program assistance. History confirms that standing alone, maritime transportation projects have generally not provided returns which have been adequate to attract these investments from private sector U.S. capital sources.

The Merchant Marine Acts of 1920, 1936 and 1970, all bear witness to this history.

The MarAd programs available under the Merchant Marine Act of 1970 and the Federal Ship Financing Act of 1972 were intended to address this problem.

These programs enable qualified U.S. citizen operators: (i) to accumulate the equity for fleet replacement on a tax deferred basis over a period of up to 25 years, and (ii) to access private sector commercial vessel financing with terms of up to 25 years, matched to vessel service lives.

Commercial asset-based vessel financ- ing, when available, will generally be limited to no more 80 percent of vessel cost, with a term of no more than 10 to 12 years, or less than one-half the life of most of these vessel assets, with inter- est rates at best in the six percent to 6.5 percent range.

Title XI guarantees allow 87.5 percent of vessel cost to be financed over 25 years with current rates in the 4.5 per- cent range. Commercial financing can be expected to more than double annual debt service requirements in the early transaction years.

This will increase the cost for the transportation service being provided — be it a time charter rate to an energy company, or a ferry fare for a work- bound commuter — by the same multi- ple.

Access to these programs is currently being discouraged by an OMB that: (1) refuses to allow Congressional consider- ation of a change in the CCF program that would allow these U. S. operators to use the $1.4 billion of their own already set aside monies to contract for the OPA 90 tankers, passenger ferries and other vessels to be engaged in Coastwise serv- ices: and (2) is acting to discontinue the financing guarantee "public-private partnership" program for accessing long term private sector financing matched to vessel lives, because this will involve an alleged example of "corporate welfare."

Acting in the context of this rather grim background, and in the face of

OMB's expressed opposition, the

Shipbuilder's Council of America (SCA) has recently lead two successful Title XI industry efforts. First, it gained

Congressional and Administration approval for a $25 million Title XI appropriation for FY 2003 as a part of the Iraq war supplemental appropria- tion.

Second, it obtained House Armed

Services Committee approval for $30 million of Title XI authorization for FY 2004. One respected maritime commen- tator has described the first SCA success as a "miracle" for the shipbuilding industry. But, whether of not a "mira- cle," this was by any standard an impor-

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