0150-11081-0000TRANSMITTAL

COUNCIL FILE NO.DATETOEugene D. Seroka, Executive Director Harbor Department MAR 15 2018

COUNCIL DISTRICTFROMThe Mayor 15

PROPOSED SUCCESSOR PERMIT WITH PRAXAIR INC. TO OPERATE AND MAINTAIN AN AIR SEPARATION PLANT IN EAST WILMINGTON

Transmitted for further processing and Council consideration. See the City Administrative Officer report att; fed.

Ana GuerreroL .OR.

RHL'.ABN: 10180066t

CAO 649-d

REPORT from

OFFICE OF THE CITY ADMINISTRATIVE OFFICER

March 15, 2018Date: 0150-11081-0000CAO File No. Council File No. Council District: 15

To: The Mayor

From: Richard H. Llewellyn, Jr., City Administrative Officer

Reference: Correspondence from the Harbor Department datecVFebruary 2, 2018; referred by the Mayor for report dated February 6, 2018

Subject: PROPOSED SUCCESSOR PERMIT WITH PRAXAIR INC. TO OPERATE AND MAINTAIN AN AIR SEPARATION PLANT IN EAST WILMINGTON

RECOMMEDATIONS

That the Mayor:

1. Approve the Harbor Department (Port) Board of Harbor Commissioners (Board) Resolution No. 18-8242 authorizing proposed Successor Permit No. 931 with Praxair, Incorporated, to operate and maintain an air separation plant in East Wilmington; and,

2. Return the document to the Port for further processing, including Council consideration.

SUMMARY

The Harbor Department (Port) requests approval of Resolution No. 18-8242 authorizing proposed successor (replacement) Permit No. 931 (Permit) with Praxair Inc. (Praxair), Praxair provides industrial gas supply and process management program services, surface coating, and related services and equipment. The proposed Permit will allow Praxair to continue operating and maintaining an air separation facility and providing supply pipelines in East Wilmington, The Port states that the gas facilities supply the local refineries with industrial gases that are essential to the local refining process. According to the Port, the facility separates gases from the ambient air and the elements (such as nitrogen and oxygen) so that they can be used for specific industrial purposes.

BACKGROUND

The proposed Permit will replace Lease No. 88 previously entered into with Union Carbide Corporation (UCC) in 1966. The 50-year lease was approved to construct an air separation plant and pipelines to distribute gases on Port of Los Angeles (POLA) lands. UCC later separated its gas division to an independent subsidiary and renamed the company Praxair in 1992.

PAGECAO File No.

0150-11081-0000 2

PROPOSED PRAXAIR PERMIT

The proposed Permit will be fora term often years, with two ten-year renewal options, fora contract term up to 30 years, contingent upon Board approval. The Permit will include 9.08 acres of land in the Port of Los Angeles (POLA), with an additional 29,246 square feet right-of-way for the pipelines. The Port anticipates that annual revenue will be approximately $1,063,251 per year for the land and pipeline right-of-way, which represents a 52 percent increase in current rent, Total revenue will equal in excess of $10.6 million for the initial ten years of the Permit, with annual Consumer Price Index (CPI) based adjustments. Total compensation overthe 30-yearterm of the Permit could be as much as approximately $43.6 million, with an estimated average of 1.75 percent in annual CPI adjustment and approximately five percent increase at every five-year compensation reset. The Port states that the estimated internal rate of return is 12.4 percent over the 30-year term of the Permit.

The Permit will result in the continued employment of up to 30 full-time employees in jobs related to the maintenance and operation of the Praxair’s gas plant. An additional 30 employees will be hired for third-party jobs related to off-site trucking. Additional compensation by Praxair to the Port will include the following:

• $77,600 to pay for the pavement of part of POLA-owned streets (19,280 square feet of paving);• $364,759 in retroactive rent from December 2016, which is the difference between the

proposed Permit rental amount of $1,063,250 and the current lease amount of $698,492; and,• $294,279 from two ten-year renewal option fees.

In June 2017, Praxair announced that it had agreed to merge, in principle, with the Linde Group, a German industrial company, which would make it the largest gas supplier in the world. The merger between the two companies has not been finalized because of the need of majority shareholder approval by Praxair and transfer of company shares by the Linde Group for completion of the deal. The Port staff will return to the Board for the change in ownership and company name upon completion of the merger. The Port states that Praxair expects the merger will be completed in the second half of 2018. The Port is requesting the term of the Permit for ten years with two ten-year options as a result of the pending merger.

The City Attorney has approved the proposed Permit as to form and legality. The successor Permit will be effective on the first day of the month following execution by the Mayor, Council and Port Executive Director. Mayor and Council approval is required pursuant to Charter Section 606 because the lease permit term exceeds five years. The Port Director of Environmental Management determined that the proposed action involves the use of an existing facility involving no expansion of use of POLA land. Therefore the action is exempt from the applicable requirements of the California Environmental Quality Act (CEQA) and the Los Angeles City CEQA Guidelines.

FISCAL IMPACT STATEMENT

The Harbor Department (Port) requests approval of a proposed successor Permit with Praxair Inc. (Praxair). The proposed Permit will be for a term often years, with two ten-year renewal options, for a term of up to 30 years. The Permit includes 9.08 acres of Port land, with an additional 29,246

PAGECAO File No.0150-11081-0000 3

square feet of pipeline right-of-ways. Annual revenue is projected to be approximately $1,063,251 per year for the land and pipeline right-of-way, which represents a 52 percent increase in current rent. Total revenue will equal in excess of $10.6 million for the initial ten years of the Permit. Additional terms will include annual Consumer Price Index based adjustments, street pavement, retroactive rent payment and two Permit renewal option fees. The Permit includes continued employment for up to 30 employees in jobs and an additional 30 third-party jobs. Total compensation over the 30-year term of the Permit could be as much as approximately $43.6 million, with an average of 1.75 percent in CPI adjustments and approximately five percent increase at every five- year compensation reset. The Port states that the estimated internal rate of return is 12.4 percent over the 30-year term of the Permit. There will be no impact on the City General Fund and funds will be deposited in the Harbor Revenue Fund.

RHL:ABN:10180066

■