Deciphering Brazil's Port Reform Program

Drewry Maritime Advisors
Monday, December 10, 2012

Seasonal congestion, bottlenecks and queues are realities at Brazil ports: what is the Government doing to ameliorate the situation?

Drewry Maritime Advisors decipher the Brazilian Governments long-awaited port reform & investments program, aimed at unlocking existing constraints within the country’s port system, and their unravelling of a somewhat complicated state of affairs is set out below.

On December 6th, the Brazilian Government unveiled its long-awaited port reform and infrastructure investments package. The announcement of this set of measures was initially to take place in June 2012, but has been postponed several times, an indication of the complexity of the port system’s structure in this leading emerging country.

Seasonal congestion, bottlenecks and queues both in the maritime and the land-side accesses to the ports are recurring realities in many Brazilian ports. One of the reasons can be found in the lack of deployment of new port capacity over the years, while importers, exporters, ship-owners and logisticians alike point at two decades of neglect of infrastructure investments in the sector.

The twofold package consists of:

  • Public investments in port infrastructure, to the tune of US$ 25bn, will apply to new port projects, dredging programs and improvements to the landside access to the ports
  • Reforms of various aspects of the current legal and regulatory structure of the port industry will reflect new orientations in the public-private-partnership framework.

The main items on the reform and reorientation front are:

  • Private terminals will be allowed to handle 3rd party cargo
  • The selection criteria for terminal concessions will be: lowest tariff to user i/o highest payment to the Government as hitherto
  • In both cases, the Government will call the shots, within a pre-established national master-plan
  • Port Authorities will be modernized, professionalized and de-politized, and subjected to management contracts
  • Procurement will be facilitated by new, more flexible rules and procedures

A series of thorny issues remain unresolved and will need to be addressed soon to bring serenity back to the sector:

  • There exist a bitter rivalry between concessionaires in public ports and private terminals in the container segment. The former complain about what they consider as the unfair competition exercised by the latter. The private terminals position has now been vindicated by the Government, but some concessionaires invoke the unconstitutionality of the recent measures.
  • There will now be 3 different regimes for port operators: private terminals, concessions based on the highest offer, and concessions based on the lowest tariffs. This new framework is ripe with potential further conflicts on the issue of the “level playing field”.
  • Contracts at 98 terminals of all types and sizes have expired or about to expire. Their operators were anxiously expecting that the contracts would be extended, but for 55 of them, the Government has decided that they should be re-tendered. The other 43 might be extended for 25 years, after negotiations involving commitments to carry out new investments and introduce additional capacity and efficiency gains.
  • While the professional associations invoke the existence of repressed private investments to the tune of US$ 5bn, due to the uncertainty of the situation, there are indications that some of the involved operators might actually elect to go to court to protect what they consider to be their legitimate interests.

These orientations are dividing the private sector, displeasing the incumbent operators and rejoicing the outsiders. Amidst concerns that some developments might lead to a renewed judicialization of the sector, there are also many positive signals.

“These six months of indecision have frozen many new project developments, on the grounds of heightened regulatory risks” says Michel Donner, Senior Advisor at Drewry Maritime Advisors. “The concerns have been partly reduced, but not completely removed. However, the package (investments and reform) provides a new landscape for the whole sector, among others by facilitating the penetration by new players. The changes are likely to contribute to unlock the badly needed capacity expansion of the port system, and will bring up a host of new business opportunities for private investors, albeit possibly with lower profitability levels.”

The first projects on the Government’s list are: the container terminal in Manaus, and the Porto Sul deep-water multipurpose port complex in Ilheus (Bahia). It has almost gone unnoticed that, coincidentally, both have at long last received their environmental license in October and November, respectively.

Another project likely to progress rapidly is the 2nd container terminal in Suape. This project was in the starting blocks already in April 2012, but had to be slowed down, pending the release of the Government’s policy changes in relation to PPPs.

As the dust settles and debate in the industry continues, the coming months will prove vital in maintaining the momentum this announcement has created, especially as some issues remain unresolved.

Source: Drewry Maritme Adviso


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