Drewry: Brazilian Port Reforms

Drewry Maritime Advisors depicts the possible new maritime ports and maritime landscape in Brazil after the Port Reform Bill was approved by Congress, at long last and in extremis, on May 16th 2013.

On December 6th, the Brazilian Government had unveiled its long-awaited port reform package, under reference MP595, also named “Provisional Measure of the Ports” or “MP dos Portos”.

The Government needed the MP595’s full 6-months validity period and had to work hard to finally have it approved by Congress, just few hours before the deadline on May 16th 23h59, after one of the longest (and most tumultuous) parliamentary sessions in recent history.

In the meantime, March and April 2013 witnessed a spectacular all-time high in the seasonal congestion, bottlenecks and queues both in the maritime and the land-side accesses to ports that are recurring realities in some of the main Brazilian ports like Paranagua and Santos. For example, up to eighty idle vessels have been counted on a given day at Santos anchorage, waiting for berths, while at the same time 10-12 km long truck queues paralyzed the road access to the urban, industrial and port areas on both banks of the port.

The two main items of the reform bill are the following:

• Private terminals will be allowed to handle 3rd party cargo
• The selection criteria for future terminal concessions in the Public Ports will be: lowest tariff to user instead of highest concession payment to the Government as hitherto

Congress has introduced significant changes to the text of the original proposal on a number of other important issues:

• Centralization: the Federal Government wants to remain in control of the promotion and authorization of new private terminal projects and new concessions in the Public Ports. But the amendments allow Port Authorities controlled by States or Municipalities currently running Public Ports to organize public tenders for future concessions located within their existing Zoning Plans.
• Extension of existing concessions: the Government initially wanted to re-tender all concessions, already expired or upon expiry. The amended version foresees the possible one-time anticipated renewal for the post-1993 concessions, in exchange for investment commitments. (many of them involve container terminals).
• Casual Labour: the amended version makes it compulsory for private terminals to use casual labour for stevedoring activities, in the same way as required of private concessionaires of terminals located in the Public Ports. The amendment also seeks to expand the obligation to shore-side dockworkers jobs.
• Participation of shipping lines: the amended version prohibits any private company where shipping companies hold more than a 5% share to bid for port installation concessions.

The President has 15 working days to promulgate the law. She holds the prerogative to veto parts of new text, and it is generally expected that she will. So the above described rules are not final.

In particular, it may be expected that the amendments having a restrictive impact on the competitive access to the port activities, be it for private investors or labour, will be overruled.

On the other hand, the Executive is keen to retain control on the port concessions and their renewal mechanisms. Automatic renewal clauses and amendments weakening the Government’s control in the tendering processes might also face a Presidential veto.

The fundamental purpose of the Port Reform Bill is to energise the port sector by attracting private investment. The shortcomings of the current system have been identified and the new legal framework is an attempt to enable the sector to fulfill its role in support of the economy of the country.

“These eleven months of indecision have frozen many new project developments, on the grounds of heightened regulatory risks induced by the prevailing legal uncertainty” says Michel Donner, Senior Advisor at Drewry Maritime Advisors. “The complete and final new set of rules of the game should (finally) be known by early June. Even if it is not perfect and does not please all the players, it will allow a broader circle of interested parties to sharpen their pencils, redo their calculations and prepare the new port investments the Country so badly needs. The changes are likely to contribute to unlock the long awaited capacity expansion of the port system, and will bring up a host of new business opportunities for private investors.”

And he concludes: “Realistically, however, it still takes 4 to 7 years for greenfield projects to be commissioned, so the expected new wave of port projects will probably not be ready in time to alleviate next years’ congestion peaks in Paranagua or Santos”.

Drewry, May 21, 2013