The future of Brazil’s port privatization program

The latest phase of Brazilian port privatisation and terminal concessioning is rolling out.

The past two years have seen contracts signed leading to R$3.5 billion (US$630 million) of initial investment into terminals’ infrastructure and another R$1.4 billion paid as down payments to local port authority and federal government coffers in Brazil.

Dozens more multi-million dollars contracts are up for grabs over the next two years taking in both port terminals and port authorities themselves. Diogo Piloni, the Minister for Ports and Waterways, under the powerful all-encompassing Ministry for Infrastructure (MINFRA), advised Port Strategy in a recent interview that the concessioning process has been progressing “very well” and the next key sell-off will be the port authority for the port of Vitoria, where Brazil’s last surviving Brazilian owned box carrier, Log-in Logistica, operates a container terminal.

SANTOS PORT AUTHORITY SCHEDULED FOR EARLY 2022

Companhia Docas do Espirito Santo (or Codesa) will be auctioned off in November of this year, says Piloni, with the revised and final tender documents going out in August, but with preliminary rafts of information going out in May. This concession will pave the way for the much anticipated sell-off of the Santos Port Authority (SPA), scheduled for early 2022.

“Over the past two years we have completed 21 new contracts for port terminals and from them we will see Reais3.5 billion (US$630 million) invested in those terminals over the next three years as we are loading up the investment period into the beginning of the contracts,” explains Piloni. “Right now (in early March) we are undertaking a roadshow to better inform some Brazilian infrastructure operators of what is on offer with the Vitoria (Codesa) and Santos port authorities and various terminals.” He added that PricewaterhouseCoopers is helping with the “modelling of the Codesa privatisation”

The Ports minister, who has been working very closely over the past 24 months with MINFRA Minister Tarcisio Gomes de Freitas (a close ally of Brazilian President Jair Bolsonaro, who is hoping to be re-elected in October 2022), says he is keen to attract Brazilian and international pension funds as well as international and Brazilian based Terminal Operating Companies (TOCs) to participate in forthcoming tenders.

Piloni notes that between the start of this year and through to the end of 2022 another R$7.9 billion (US$1.40 billion) of investment is forecast for capital expenditure in Brazil’s ports. On top of this, he says another R$6.0 billion (US$1.06 billion) has been raised from private port developments outside the organised port areas (Companhias Docas).

WARM-UP TO JEWEL IN THE CROWN

The Codesa privatisation is seen as the “warm-up act” to the privatisation of the jewel in the crown of the Companhias Docas, which is the Santos Port Authority (SPA) – formerly Companhias Docas do Estado de Sao Paulo – Piloni believes that the SPA could fetch as much as US$5.6 billion.

Those interested in bidding for SPA include a number of investment funds (including some based in Saudi Arabia) and some “Brazilian infrastructure operators”, but it is still not known if dredging companies will be allowed to bid – which was being suggested up until last year – as the concession rules are still being drawn up. Boskalis, Jan de Nul and Van Oord all have heavy involvement in Brazil.

A consortium called DAGNL, headed up by DTA Engenharia (an engineering and consulting company), and including Garín, Alvarez & Marsal (a global firm specialising in management turnarounds) and two local law firms, won the bid to draw up the privatisation concession document for the port of Santos, and that will be available by the end of this year, says Piloni.

“We have looked at some ports in the world that have been privatised, such as Melbourne in Australia, (back in 2015),” added Piloni. “It was sold back then for US$5.6 billion and, as it is a similar size to SPA, and handles around 130 million tonnes a year, like Santos, and three million TEU, compared with four million TEU at Santos, we could use it as a benchmark in terms of value.”

PRIVATISATION BLUEPRINT LAID OUT

The blueprint for the privatisation of the Santos Port Authority (SPA), which changed its name from Companhia Docas do Estado de Sao Paulo, or Codesp, to SPA to make it more attractive to international investors, was laid out by Casemiro Tercio Carvalho, the former president of Codesp who is now working as a senior infrastructure partner at StonePartners, a consultancy firm.

Piloni said that a rule change in 2019 means that “bidding money” from several of the temporary and also the permanent concessions granted in Santos recently will go to the coffers of the SPA and that will, in turn, be included in the price of the bid for the SPA concession. This money, which already totals R$800 million (US$142 million), will eventually have to be spent on infrastructure, he adds.

As one sardonic Santos veteran notes: “Watching the development of the port over the past few years has been like watching turkeys being fattened up for Christmas. I would add though,” he says, “that I really admire the way Piloni and Tarcisio are going about their business nationally, and I think they are two of the most competent people in the entire government.”

As well as these two port authorities, dozens of port terminals are also on the agenda for concessioning or reconcessioning out as the Brazilian government tries to both improve the laggard transport logistics sector in the country and also to raise much-needed funds for the exchequer which has plunged into huge debt owing to President Bolsonaro’s COVID-19 strategies.

National assets not only in the port sector but also airports, railroad and highway franchises, are all being concessioned out, with an overall total of R$201.9 billion (US$35.8 billion) of investment and fees forecast. Part of Bolsonaro’s privatisation campaign has been to sell off more shares and assets of the state-controlled oil and logistics giant, Petrobras.

This has led to dozens of Petrobras owned liquid bulk terminals being sold off. Antaq, the Brazilian regulatory body for ports and waterways, held a virtual public hearing for the latest bidding process for a liquid bulk terminal in Fortaleza, under the auspices of Companhia Docas do Ceara (the local port authority).

“The aim throughout this whole process is to see new, modern infrastructure being offered to the market and to provide more alternatives for the supply chain,” concludes Piloni. “The leasing processes are now in full progress, bringing more investments and attracting a greater diversity of agents to our ports, stimulating the economy and generating in many cases a more competitive and efficient intra and inter port environment.”

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