Board of Trustees of the Galveston Wharves June 23, 2008 Meeting

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1 Port E-News July 2, 2008 Board of Trustees of the Galveston Wharves June 23, 2008 Meeting Cristina Galego Public Relations Department Port of Galveston PH: May 2008 Financial Results: Regular Monthly Meetings of the Board of Trustees of the Galveston Wharves are televised on the City of Galveston s Channel 16. Port of Galveston and Galveston Port Facilities Corp. Consolidated Income Statement: May 2008 Actual Year-to-Date May 2008 Actual Year-to-Date May 2007 Actual Operating Revenue $1,491,612 $10,331,080 $8,890,431 Operating Expense $937,271 $5,943,765 $5,440,451 Net Operating Income (Loss) $ 518,341 $ 4,387,315 $ 3,449,980 Add - Security Cost Recovery $ 57,405 $ 307,859 $ 282,079 Add Other Income $91,594 $ 552,506 $769,065 Deduct Other Expense $ 274,199 $ 1,353,033 $1,403,036 Net Income (Loss) After Other Income and Expense $393,141 $ 3,894,647 $ 3,098,088 Deduct Depreciation and Amortization $ 305,417 $ 1,527,083 $ 1,389,165 Net Income (Loss) from Operations $87,724 $ 2,367,564 $ 1,708,923 TO UNSUBSCRIBE TO THE PORT E-NEWS, PLEASE RESPOND TO THIS AT CGALEGO@PORTOFGALVESTON.COM AND ENTER UNSUBSCRIBE IN THE SUBJECT LINE.

2 PORT E-NEWS - PAGE 2 OF 7 May 2008 Cargo Results Cargo Increases for May 2008 vs. May 2007 The Port experienced a gain over May 2007 in: Bulk Export Grain, Bulk Liquids, General Cargo, and Ro-Ro Cargo and Incidental Containers at various wharves and piers. Cargo Decreases May 2008 vs. May 2007 Comparison with May 2007 shows that there were decreases in cargo for May 2008 versus May 2007 in the following areas: Bulk Import Fertilizer, Refrigerated Bananas and Fruit and Bulk Cement. At the end of May 2008, Total Cargo Tonnage was 53.04% Above Year-ending May 2007, with 3,333,848 Short Tons vs. 2,178,486 Short Tons (+1,155,362 Short Tons) May 2008 Cruise Results Cruise Passenger Activity: Year-to-Date Embarkations end-may 2008 vs. May 2007: Down 26.88% (-73,276 Passengers) Year-to-Date Disembarkations end-may 2008 vs. May 2007: Down 27.08% (-74,193 Passengers) Year-to-Date Port-of-Call Passengers end May 2008 vs. May 2007: Unchanged Cruise Passenger Vehicle Parking: May 2008 vs. May 2007: Down 17.65% (-992 Vehicles) (4,628 vs. 5,620 vehicles) Year-to-Date end-may 2008 vs. May 2007: Down 25.59% (-8,933 Vehicles) (25,973 vs. 34,906 vehicles) Additional Reports: Cruise Terminal Security Condition, Area Maritime Security Committee and Security Related Issues The Port including the Cruise Terminals are currently in Maritime Security (MARSEC) Condition I. The Transportation Workers Identification Credential (TWIC) issuing office opened in Galveston on April 30. The Galveston office is located at 6000 Broadway, Suite 103 across 59 th Street from the post office. Hours of Operation are from 8:00 a.m. to 5:00 p.m., Monday Friday. Individuals requiring TWIC cards can pre-enroll and schedule appointments on line at Pre-enrollment can accelerate credentialing by allowing workers to provide biographic information ahead of time thereby eliminating delays at the enrollment center and reducing the total enrollment time for each worker. If all identification paperwork is in order, the actual enrollment process takes less than 15 minutes. Delivery of the TWIC takes from six to eight weeks after enrollment. The Coast Guard will publish in the Federal Register the TWIC compliance dates for each Captain of the Port Zone. On April 2, the U.S. Department of Homeland Security (DHS) announced that the final compliance date for the TWIC will be April 15, 2009, which reflects a realignment of the September 25, 2008 compliance date set in the final rule. The TWIC Status Report (TWIC Dashboard) for June 6 indicated that 686 individuals had enrolled at the Galveston site. Of the 686, only seven enrollments were listed for Longshoremen. The locals will be sent a letter reminding them of the importance of having their members enrolled. Once the compliance date is set by the Coast Guard Captain of the Port, access to the Port, including the cruise terminals, will not be granted to those individuals without a TWIC.

3 PORT E-NEWS - PAGE 3 OF 7 On June 12, there was a special convening of the Houston-Galveston Area Maritime Security Committee (AMSC) at the Houston Community College NE auditorium. The purpose of the meeting was to present the draft Port-Wide Risk Mitigation and Trade Resumption/Resiliency Plan and offer a final chance for stakeholders to provide inputs before the plan is submitted for approval. The plan was prepared by ABS Consulting Group under a contract with Harris County, but paid for by federal security grant funds. When completed, this Plan will be used to prioritize projects requested under the Federal Security Grant Program from the eligible parties and identify those projects that provide the greatest risk reduction benefit for the port area as a whole, and which support the developed plan. The final plan will be approved by the AMSC in September 2008 at which time individual grant applications will be accepted for consideration. Port staff is developing grant requests in order to meet the application deadline. The project to install Radiation Portal Monitors (RPMs) at the Port of Galveston is active again. RPMs are a part of the homeland security effort to interdict the illicit import of nuclear and radiological materials or devices. At the Port of Galveston, the project consists of installing primary and secondary drive through portals that will detect the presence of nuclear and radiological materials. The east and west end gates will be the sites for the monitors. This project will be entirely funded by Customs and Border Protection (CBP) and the portal booths manned by CBP inspectors. Initially, CBP will screen all trucks and containers leaving the Port of Galveston. Contract management is being done by Pacific Northwest National Laboratory (PNNL). Contract award is expected approximately July 21 and Notice to Proceed on August 18. Project completion is anticipated in early October The next Area Maritime Security Committee is scheduled for July 24, 2008 at the Port of Houston Authority offices. CY2008 Projected Cruise Revenues The CY2008 Projected Cruise Revenues are based on averages for passengers and vehicles that recognize seasonal variations and more accurately reflect peak periods during the year. Through May 24, revenues for Carnival cruises were based on an average of 3,200 passengers and 325 vehicles per cruise for Conquest and 2,275 passengers and 350 vehicles per cruise for Ecstasy. After May 24, projected revenues for cruises of Conquest were based on an average of 3,525 passengers and 325 vehicles per cruise and 2,550 passengers and 400 vehicles for Ecstasy cruises. In 2008, passenger numbers are less than 1% behind projections and vehicle numbers are 2% ahead of projections. Private discount parking lots and hotel/motel free parking for customers affect the vehicle numbers. Cruise Terminal No. 2 Improvements At the August 27, 2007 meeting of the Board of Trustees, the Board entered into an Interlocal Agreement with the Galveston Port Facilities Corporation (GPFC) to perform facility improvements necessary at Cruise Terminal No. 2 to accommodate the arrival of Royal Caribbean Cruise Lines Voyager of the Seas at the end of December In addition, the Board approved the decision of the GPFC to enter into a design-build agreement with CH2M Hill Constructors, Inc. to complete these improvements at a cost not to exceed $2,880,884. These improvements included a new awning in front of the terminal, an expanded baggage laydown area and a stores handling facility in the current truck staging area west of the terminal. The project also includes extending the current sidewalk in front of the terminal an additional 120. At the April 2008 Board meeting, the Trustees approved the action of the GPFC to increase the cost of the design-build agreement by an additional $30,250 to fund design work for the parking area and loop road in front of Cruise Terminal No. 2. The total cost of the project was increased to $2,911,114. Given the disruption to Cruise Terminal No. 2 operations and the exposure to the weather for the cruise passengers if the old awning was removed, the contractor, RLN Industries, Inc., was directed to wait until after Voyager of the Seas departed on April 27 to finish construction of the awning. The trusses for the awning have been installed. The awning portion of the Terminal No. 2 improvements will be completed in mid-july. The entrance and Customs area vestibules will be completed in early August. Work on the new stores facility is in progress. All concrete work associated with the building and the loading ramp has been completed. The stores handling facility will be completed by the end of June. Work on expanding the baggage area began as scheduled the first week of March. The concrete slab, which is the new floor of the expanded baggage area, has been poured and the building structural steel erected. Completion of the baggage area exterior is also scheduled for the end of June. The interior will be completed by mid-july. The parking area west of the terminal that was used for ILA and employee parking for this season has been paved. This was the site of the buried rail tank car which has been removed. The expansion project was part of the FY2007 Capital Improvement Budget and was carried over into FY 2008.

4 PORT E-NEWS - PAGE 4 OF 7 Pier 10 Improvements At the January 2008 Board meeting, the Trustees approved $75,000 in Capital Improvement funds for Pier 10 Uplands Improvements. These funds were necessary to make improvements at Pier 10 to relocate Wallenius Wilhelmsen Logistics (WWL) from Pier 34. Improvements included the construction of five additional truck loading ramps able to accommodate two trucks at each ramp, demolition of the old Container-Gate Clerks and Checkers canopy and check out booths and striping of the area. These improvements are completed. However, there are additional improvements necessary on the Pier 10 wharf and in the uplands area to accommodate WWL cargo and operations. At the February 2008 Board meeting, the Trustees approved an additional $150,000 for these improvements. The Pier 10 Wharf repairs were identified in the Pier 10 Condition Assessment completed in April 2007 and include pile and cap repair. The uplands improvements will include removing the rail spur in the area of the gantry crane and paving this site and the existing rail storage yard at Pier 10 after GRI has completed the necessary track maintenance. This paving will provide additional laydown and storage area for the WWL operation. The Port also worked with GRI to repair the lead track to the rail east of the Plant No. 9 warehouse. This lead track is used to offload equipment shipped via rail. These repairs are complete and the Port has paved over these repairs to allow WWL to drive across the track. The gantry crane, which was sold at auction, has been removed. This will facilitate the removal of the spur and the additional asphalt paving in this area. The Port has also constructed additional truck loading ramps in the old canopy area. The light repairs at Pier 10 approved in the FY2008 Renewal and Replacement Budget are completed. The successful bidder for the container cranes will meet with Port staff, WWL and Ports America on June 20 to discuss dismantling the cranes. American Roll-on Rolloff Carrier and Höegh Autoliners are now calling at Pier 10. Pier 35 Wharf Repairs At the April 2008 Board meeting, the Trustees approved $40,000 to repair the subsidence at the Pier 35 CHS facility. The bulkhead was repaired similar to the repairs made at Pier 39/40 T-head, the subsidence area filled in and paved with concrete. Repairs are complete. This is the last report on this item. Pier 37 Wharf Repairs During an investigation of water leaks on the west end of the Port, a large void approximately 20 x20 x10 was discovered on the pier apron near the northeast corner of the Pier 37 warehouse. The void was created by a leak in a 2 and 1/2 ship s service line that washed the fill through a hole in the sheet pile bulkhead. A subsequent inspection revealed a second void to the north of this location and a third void in the ramp landing area for the ro-ro vessels. The entire area was surveyed and a cost estimate to repairs these voids developed. A plan and funding request for completing the repairs was presented at the July 2007 Board meeting. At the August meeting, the Board approved $136,115 in FY2007 funds to repair the undermining at the Pier 37 apron in the area by the K-Line Ramp. The topside repairs to the Pier 37 laydown area are complete. The void under the ramp landing area has been filled. Repairs on additional voids from the repaired area south approximately 300 feet are on hold pending receipt of additional funds. An additional $200,000 to complete the repairs will be requested in the future. Pier 41 Demolition On September 18, 2007, bids to demolish the Pier 41 warehouse were opened. The low bidder was Cherry Moving Co. at $815,000. The bid included demolition of the warehouse and crushing of the materials. The Notice of Acceptance of the Proposal was sent October 15. A Notice to Proceed was issued November 5. Cherry demobilized from the site before Christmas to allow Holcim to remove the equipment for their cement operation from the warehouse. Cherry remobilized at the Port on February 25 and concentrated their efforts on the demolition of Plant No. 3 in order to accommodate the delivery of wind towers. On March 3, Cherry moved some of their equipment to the Pier 41 warehouse and resumed their demolition efforts. The Pier 41 warehouse is demolished. Crushing the concrete and site clean-up should be completed by June 30, There will be approximately $7,000 in change orders due to contractor remobilization after Holcim removed their equipment and for clean-up of the warehouse prior to demolition. These change orders will be presented to the Board of Trustees for approval at the July 2008 meeting.

5 PORT E-NEWS - PAGE 5 OF 7 Galveston Channel and Port of Galveston Maintenance Dredging Work has begun on the 2008 project to complete the maintenance dredging in the Galveston Harbor Channel to remove the approximately 5 million cubic yards of material that will restore the federal channel to the currently authorized 40 depth. This maintenance dredging is being done in anticipation of beginning the project to deepen the channel to 45 in Plans and specifications have been developed and the project advertised in May. The proposals will be opened on July 10 and contract award is anticipated in early August with actual dredging beginning in September. Attempts will be made to award the contract to a hopper dredge as before to allow for disposal offshore thereby saving capacity on Pelican Island for future disposal. The Corps of Engineers has approximately $5 million in FY 2008 Operations & Maintenance (O&M) funds and anticipates another $5 million available in FY This funding level will be enough to only remove approximately 2 million cubic yards of the 5 million cubic yards of material necessary to begin the deepening project. The deepening project is funded through a different account (Construction General (CG)). The Port Director traveled to Washington, DC to discuss this funding shortfall with the Texas Congressional delegation and the Corps of Engineers Headquarters staff. Port staff, along with the Port s dredging consultant, Gahagan & Bryant, is working with the Corps to coordinate the different options for maintenance dredging in certain portions of the channel with the Corps deepening options to ensure the most effective use of limited funds. Galveston Channel Deepening Project The Project Cooperation Agreement (PCA) between the Board of Trustees and the Department of the Army was signed on June 21, The agreement represents the planning document for the project to deepen the Galveston Harbor Channel from 40 feet to 45 feet and outlines the obligations of the Federal Government and the Port of Galveston to complete the project. The PCA requires the establishment of a Port Coordination Team (PCT) to provide consistent and effective communications between the Port and the Federal Government and generally oversee the project including but not limited to matters related to engineering and design; plans and specifications; scheduling; contract awards or modifications; contract costs; proposed management plan for dredged or excavated material disposal; and anticipated requirements for operations and maintenance of the channel after deepening. The PCT has met monthly since July The PCA also requires that not less than 60 calendar days prior to the scheduled date of issuance of the solicitation for the first contract for construction of initial general navigation features (the Galveston Harbor Channel and the dredged or excavated material disposal facilities), the Federal Government shall notify the Port in writing of such scheduled date and the funds the Federal Government determines to be required from the Port for their sponsor s share of the costs. Also, not later than the scheduled date, the Port must verify to the satisfaction of the Federal Government that required funds have been deposited in an escrow or other account acceptable to the Federal Government, with interest accruing to the Port. The escrow agreement between the Department of the Army, the Board of Trustees and Moody National Bank, which establishes this escrow account, has been signed. The Port has deposited approximately $4.267 million into the escrow account to cover the funds required for the FY2008 cost share expense. The project schedule is dependent on the funds appropriated to the Corps and will slip if sufficient funds are not provided. The contract award schedule was modified in February The overall plan for the Galveston Channel Deepening is to complete it using two contracts and possibly a third if funding is constrained or the extension of the 45 channel to TAMUG is approved. Contract No. 1 will prepare the Pelican Island Placement Area (PA) and include some dredging to the 45 depth. Preparation includes improving the weirs and drop inlets and raising the levees with existing material. Contract No. 2 will be awarded following completion of Contract No. 1 and will complete the remaining dredging of the original 45 template and build the levee foundations at the San Jacinto PA using clay material obtained by deepening to the 45 foot project depth. This contract is expected to be completed by early An Independent Technical Review (ITR) of the plans and specifications for the channel deepening was conducted on June 4. The review indicated many issues with the design and schedule for the project. The result was a delay in the award of Contract No. 1 until early September. Completion of this contract is now anticipated in mid Additionally, Contract No. 2 will be impacted by the City s negotiations with the Corps of Engineers over development within the San Jacinto PA that would remove it from consideration as a disposal site. If necessary, Contract No. 3 will be awarded after completion of Contract No. 2 and finalize the deepening of the remainder of the Galveston Channel to the 45 project depth. This contract is expected to be completed by late 2010 or early The Port and the Corps continue to conduct monthly Port Coordination Team meetings to move this project along.

6 PORT E-NEWS - PAGE 6 OF 7 IED Delivery Detection System and Infrared Video Surveillance Enhancement In March 2004, the Port received $1,108,000 in Round 3 Port Security Grant funds to purchase and install cameras throughout both cruise terminals in addition to several other projects to enhance security measures at the terminals. In October 2004, the Port received an additional $1,071,200 in Round 4 Port Security Grant funds to purchase and install an ID card access system in high risk areas as identified in the Port s security assessment and an automatic license plate recognition system for use at the main entrance gates to the Port and at the cruise terminals. In October 2006, the Port received $664,933 in Round 6 Security Grant funds to install appropriate technology to expand the Port s Improvised Explosive Device (IED) Delivery Detection System to include the approaches to the cruise terminal from seaward and two day/night capable (infrared) cameras to visually identify and track vessels entering security zones as designated by the Port. To assist with the integration of these technologies into the existing Port security and surveillance systems, the Port entered into a Consulting Agreement with MPRI, Inc. The purpose of this contract is for MPRI to provide acquisition logistic services for the Port including system engineering/design and technology procurement planning and integration. Under the agreement, MPRI is issued a series of task orders to complete all aspects of these projects. Task Orders to install the cameras, the access control system and the license plate recognition system (Task Orders 1.0 through 4.0) have been completed. Task Orders 5.0 and 6.0 were issued on April 30, 2008 and will fund the installation of the Round 6 projects to improve channel surveillance capabilities. AGENDA BUSINESS ITEMS E-1 Discuss and Consider Acceptance of the Galveston Wharves (Port) And Galveston Port Facilities Corporation (GPFC) Combined FY2007 Financial Audit, Federal Single Audit and Response to the Schedule of Findings and Questioned Costs Accepted audits E-2 Discuss and Consider Proposed Investment Allocation of Funds And the Associated Fees Presented by Frost Bank as Trustees of the Galveston Wharves Pension Plan Trust Approved diversified spread E-3 Discuss and Consider Approval of Resolution Approving the Advance Funding Agreement for a Transportation Enhancement Project between the Port, the State and the City for Construction of Improvements in the Vicinity of the Pier 21 Area Described as the Port of Galveston-Pedestrian/Railroad Safety Program, Funded in Part by a Statewide Transportation Enhancement Program Grant Approved E-4 Discuss and Consider Policy Regarding Public Information Act Requests that Require Large Amounts of Employee or Personnel Time Follow guidelines set out by State and do not adopt a separate Port policy E-5 Discuss and Consider Approval of First Amendment to Consulting Agreement with TCB, Inc. dated December 17, 2007 for Engineering and Other Related Services with Respect to the 41 st Street and Harborside Drive West Entrance Area at the Port to Extend the Agreement an Additional Three Months to expire September 30, 2008 Approved

7 PORT E-NEWS - PAGE 7 OF 7 E-6 Discuss and Consider Attendance at the Annual Convention of the American Association of Port Authorities to be held September 21, 2008 through September 26, 2008 in Anchorage, Alaska. Any Board member desiring to attend should notify Port staff. E-7 Discuss and Consider Delinquent Payment of Percentage Rent from Gulf Copper & Manufacturing Corporation and Consideration of Exercise or Waiver of Rights and Remedies under the Lease for Said Delinquent Payment Approved delayed payments E-8 Discuss and Consider Lease with T&T Marine Salvage, Incorporated for the Berthing and Operation of Offshore Service and Supply Vessels, Launch Services, Operations in Support of Lightering Vessels, Operation of a Fuel Dock, Storage of Vessel Supplies and Related Construction Activities at the Old Navy Dock on Pelican Island Approved, provided all terms are worked out within the next thirty days for successful negotiations between Port staff, Port attorney and T&T Marine and their attorney. E-9 Discuss and Consider Payment of Expenses Under the Interlocal Agreement for Container Terminal Planning Dated March 25, 2008 Between the Board of Trustees and the Port of Houston Authority, and the Issuance of a Request for Qualifications to Develop Project Outlines for the Conceptual Planning Study for the Project, in an Amount Not To Exceed $30,000 Approved for amount not to exceed $30,000. E-10 Discuss and Consider Written Offer to the Department of the Army to Accelerate All or a Portion of the Port s Obligation to Make Cash Contributions Under the Project Cooperation Agreement Dated June 21, 2007 for Construction of the Galveston harbor and Channel Approved E-11 Discuss and Consider Request from Ted O Rourke to Participate in Pre-Litigation Mediation with Respect to his Threatened Lawsuit Against the Port of Galveston Relating to an Alleged Incident with a Port Police Officer on December 2, 2007 Port Counsel to write letter to Mr. O Rourke declining offer. Next Meeting The next regular meeting of the Board of Trustees of the Galveston Wharves is scheduled for Monday, July 28, 2008 at the main offices of the Port of Galveston located at 123 Rosenberg, 8 th floor. Agendas are scheduled to be posted on the Port of Galveston website at prior to the meeting.