Uproar Surprised Dubai Firm

In the late 1990s, the government-owned company that would become Dubai Ports World was a relatively small domestic ports authority, managing ports in the United Arab Emirates city-state of Dubai.

Then it began buying terminals elsewhere in the Middle East, in India and in Europe.

In 2004, Dubai Ports World paid $1.15 billion for the global port assets of CSX Corp., which gave the company critical terminals in Asia and made it one of the 10 largest port terminal operators in the world.

Now its proposed $6.8 billion purchase of the 169-year-old Peninsular and Oriental Steam Navigation Co. of London (P&O), a vestige of the British Empire that operates ports in Baltimore, New York and other major U.S. cities, has touched off a huge political battle, vaulting the company outside the insular world of the global maritime industry. Dubai Ports World last night offered to delay part of the transaction, giving the White House more time to convince lawmakers that the deal does not present a security risk.

The rapid growth of Dubai Ports World mirrors the swift expansion of Dubai into a commercial power that is less and less dependent on oil wealth, which is modest by Persian Gulf standards. The glittering city-state has the Middle East's leading airline, Emirates, and has been snapping up other foreign assets, including the Essex House hotel in New York.

Dubai's leader, Mohammed bin Rashid al-Maktum, known as Sheik Mo, is the driving force behind the city's foreign investments and domestic building projects that include man-made islands shaped like palm trees, the world's tallest tower, an underwater hotel and a theme park to dwarf Disneyland.

Strategically located on the Persian Gulf, Dubai emerged in the late 1990s as a major port. So when the city began its ambitious economic growth campaign, becoming a global port operator made strategic sense. Now the company wants to expand into a new market, the United States, a massive importer of foreign-made goods.

Although the U.S. ports are causing the current ruckus, they are in fact only a small piece of P&O's business. But they are an important part of the deal because they would give Dubai Ports World a presence in a critical market where the company currently has no assets. "It's a strategic value. That's what's important," Chief Operating Officer Edward H. Bilkey said on CNN on Wednesday night.

Last night, in an offer coordinated with the White House, the company said it would not exercise control over U.S. port operations until further talks have been held between administration officials and lawmakers. The company said the rest of its transaction with P&O will move forward as planned.

"We need to understand the concerns of the people in the U.S. who are worried about this transaction and make sure that they are addressed to the benefit of all parties," Bilkey said in a statement. "Security is everybody's business."

The explosive fight over port security, direct investment in the United States by Arab countries and the secretive process by which the federal government reviews foreign purchases of potentially strategic domestic assets caught the company and others in the industry off guard. Dubai Ports World and P&O executives and maritime industry analysts had expected that the deal, first reported and discussed in October, would continue its smooth and anonymous path to completion on March 2.

"We did not expect this to happen. No one foresaw this in any way," said Michael Seymour, president of P&O's North American operations. "P&O and DP World thought we had gone through the regulatory process in considerable depth, both from an antitrust and a security perspective, and frankly, we thought we were there." One of the members of the review committee that approved the proposed purchase of the U.S. ports was Treasury Secretary John W. Snow, the former chairman of CSX. However, Snow left CSX in January 2003, almost two years before Dubai Ports World acquired the CSX port assets in December 2004.