Under the Investment Agreement between TICT and Tartous Port General Company (TPGC), wars and civil disorders constitute force majeure.
Writing off the TICT contract and remaining net assets in its 2012 consolidated accounts would amount to US$1.2m; conversely, ICTSI will be saving US$4m annually in port fees and cash operating expenses.
Economic and business conditions in Syria have been volatile as a result of trade sanctions by the European Union and the United States, along with the closing of the Syrian-Iraqi border. The Port of Tartous, where TICT operates, should have been the transit point for transhipment trade to and from Iraq.
The current crisis negatively impacted volume growth and forecasts. At the time ICTSI submitted its bid in 2005, Syria’s container market was growing. However, volumes dropped by 4%in 2010 and by 14% by the end of 2011, setting the Syrian container market back five to six years to 2006-2007 levels.
TICT has also encountered policy setbacks from the Syrian government’s strategy on public-private partnership (PPP), resulting in delays in government\’s deliverables under the contract. TICT and TPGC signed a PPP investment agreement in March 2007 for the operation and development of the container terminal. To date, TICT had paid over US$13m in port fees and rentals.
However, TICT\’s performance under the investment agreement was derailed by two major events. Firstly, the eruption of political unrest and spiralling violence in Syria and secondly, by TPGC\’s refusal to acknowledge the existence of unforeseeable change of circumstances and to provide relief under the agreement when TICT invoked it.
The agreement allows either party to seek relief if there is an unforeseeable change in circumstances that materially upsets the economic balance of the parties from when they started. The Syrian situation has deteriorated into an open civil war and the company decided that to continue operations under such circumstances is unsustainable and dangerous to TICT personnel.
In terms of throughput and revenues, TICT’s contribution was 0.6% and 0.4% of ICTSI’s consolidated volume and revenues respectively in the first nine months of 2012. In terms of totals assets, TICT accounted for 0.4% of total assets as of September 30, 2012.
ICTSI has made it clear that termination of its Syrian concession has no bearing on its other port concessions worldwide.