Port Sector Reform and Investments

in Brazil after new regulation

Cancun
January 2009
Objectives of the presentation

Discussing the perspectives brought about by the new Port

Sector Regulation in Brazil and give a brief panorama of
capacity requirements and future expectations

2
 CEGN is a maritime research group at the University of São Paulo created to
fill out the gap between research groups and the industry
Consultancies
IPT
Project Technological
Cenpes
firms Institutes

Others Others
Unicamp UFPE
Centro de
Universities Industry
Estudos
USP
UFRJ UFU em Gestão
Naval

Policy makers BNDES Brazilian

Development Bank

Our main objectives are:

• Produce high-level analyses to support investment decisions
• Help the Government to develop (implement) efficient public policies
• Identify technological trajectories for Brazilian shipyards and suppliers to become
competitive in the future
• Re-create the culture of maritime industry at the university
• Start a network for knowledge sharing among important players of the industry
3
Structure of the document

Importance of infrastructure Brazilian necessities and New regulation for the Port
investment: PAC investment opportunities Sector

Logistics infrastructure has

several bottlenecks. Brazil
Before 2005 Brazil
spends 15% of it’s GDP in To increase the necessary
witnessed 20 years of low
transportation, (USA-8%). participation of private
investment, especially from
The R$ 600 bi Growth capital in new ports it is
public sector. Sustainable
Acceleration Plan has necessary to have stable
economic growth heavily
already started to promote regulation and adequate
depends on investments.
important changes but returns.
The Brazilian Growth
private capital has a key Brazilian government will
Acceleration Plan (PAC)
role on the investments shortly conclude a long
may finally enable the
needed . The Port Sector process of privatization of
country to fulfill its potential
has been a major concern the sector, having adopted a
as a key global player.
for industries which depend model with 100% private
The country has enormous
on foreign commerce. The capital participation. The
capacity for commodities
country must improve its model shelter the general
supply, but logistics costs of
existing ports, and develop planning responsibility of the
those products may
new ones. Sector investors sector to the Special
represent as much as 50%
can find opportunities in Secretary of Ports
of their value
container and agricultural
bulk ports
4
Structure of the document

Importance of infrastructure Brazilian necessities and New regulation for the Port
investment: PAC investment opportunities Sector

Logistics infrastructure has

several bottlenecks. Brazil
Before 2005 Brazil
spends 15% of it’s GDP in To increase the necessary
witnessed 20 years of low
transportation, (USA-8%). participation of private
investment, especially from
The R$ 600 bi Growth capital in new ports it is
public sector. Sustainable
Acceleration Plan has necessary to have stable
economic growth heavily
already started to promote regulation and adequate
depends on investments.
important changes but returns.
The Brazilian Growth
private capital has a key Brazilian government will
Acceleration Plan (PAC)
role on the investments shortly conclude a long
may finally enable the
needed . The Port Sector process of privatization of
country to fulfill its potential
has been a major concern the sector, having adopted a
as a key global player.
for industries which depend model with 100% private
The country has enormous
on foreign commerce. The capital participation. The
capacity for commodities
country must improve its model shelter the general
supply, but logistics costs of
existing ports, and develop planning responsibility of the
those products may
new ones. Sector investors sector to the Special
represent as much as 50%
can find opportunities in Secretary of Ports
of their value
container and agricultural
bulk ports
5
 Before 2005 Brazil witnessed 20 years of low investment, especially from
public sector

Evolution of Brazilian Infrastructure Investments, between

1980 and 2001 (% of GDP)
Private Public Total
6% Average Annual GDP Growth Rate
5% World: ~5%
4%
Brazil: ~7%
3%
2%
1%
0%
50s 60s 70s 1980 1985 1990 1995 2000

Generalized low Capital

credibility in Latin Accumulation
• North American Liquidity Crisis America
• Rise in interest rates Mexico
• Rise in interest rates
• Low external capital inflow
• Decrease in Imports
• IMF: Debt interest payment and • Reduced exports due
current account deficit to devalued dollar
Source: World Bank 6
 Experience shows that economic growth occurs concomitantly to long-term
investment
GDP & GFCF Growth Rates – South Korea • There is a strong correlation
30,0 between Investments
20,0
(GFCF = Gross Fixed
Capital Formation) and the
10,0
GDP growth
0,0
1980 1985 1990 1995 2000 2005 • Additionally, infrastructure
-10,0
investments are great
-20,0 means to fight crises once
-30,0
Correlation - R2=0,90
there is available capital
GFCF growth rate GDP growth rate
• Crisis situations provide
GDP & GFCF Growth Rates - Brazil
moments for planning and
30,0 Brazil is poor in long term
plans
20,0

10,0 30,00
Brasil
0,0

% GDP
20,00
1980 1985 1990 1995 2000 2005
-10,0 10,00

-20,0
-
(30,00) (20,00) (10,00) - 10,00 20,00 30,00
-30,0
Correlation - R2=0,85 (10,00)
GFCF growth rate GDP growth rate
(20,00)
y = 0,3593x + 4,0349
R2 = 0,8094
Source: Graphic data - Gross Fixed Capital Formation (GFCF), from (www.nationmaster.com) (30,00) % GFCF 7
 Growth Acceleration Plan threatens to revert the situation with R$ 600bi
investment and concrete actions are taking place, although the pace is still
slower than predicted

Brazilian infrastructure investments (GDP’s %)

10%
Plausible investment 9.7% 9.9%
8% scenario subsequent to
PAC’s action 7.0%
6% 6.3% 6.2%
6.5%

4%
… 2.1% 2.5%
2% …
…
0%
1980 1985 1990 1995 2000 2007 2008 2009 2010
Private Public Amount Fulfilled Planned Estimated

The regulatory gap, common among legally Legal actions delaying the PAC
immature countries, results in huge judicial
obstacles: 1000 930
800
• Land dispossession 700%
600
• Environmental licensing
400
• Compliance with rules of tenders 116
200
• Inadequate studies 0
2007 Jan-Sep 2009 Jan-Sep
Source: World Bank, O Estado de São Paulo (05/01/2009) 8
 Brazil holds an important position in commodity supply. Logistics of those products
can represent 20-50% of their international value, and so reduction of those costs are
essential to Brazilian competitiveness [Mt]
Potential 240
Grains 2nd position
(Agricultural 160 among world’s
Bulk) 100 producers
2000 2004 2008 2012 2016

[Mt]
Potential 600
2nd position
Commodities
Iron Ore 240 410 among world’s
(Mineral Bulk1) producers

2000 2004 2008 2012 2016

Commodities will
hold the most
important position [Mm3]
in the industry Potential 163
value chain in the Petroleum 16th position
long run (Energy) among world’s
95
70 producers

Source: CONAB, IBRAM, DNPM, ANP, SIPOT/Eletrobrás, UNICA 2000 2004 2008 2012 2016
(1) % among worldwide reserves: Nb (91%); Bauxite (11%); Tin (11%); Manganese (10%); Ur (7%); Ni (7%); Gold (4,5%); and so forth; 9
Structure of the document

Importance of infrastructure Brazilian necessities and New regulation for the Port
investment: PAC investment opportunities Sector

Logistics infrastructure has

several bottlenecks. Brazil
Before 2005 Brazil
spends 15% of it’s GDP in To increase the necessary
witnessed 20 years of low
transportation, (USA-8%). participation of private
investment, especially from
The R$ 600 bi Growth capital in new ports it is
public sector. Sustainable
Acceleration Plan has necessary to have stable
economic growth heavily
already started to promote regulation and adequate
depends on investments.
important changes but returns.
The Brazilian Growth
private capital has a key Brazilian government will
Acceleration Plan (PAC)
role on the investments shortly conclude a long
may finally enable the
needed . The Port Sector process of privatization of
country to fulfill its potential
has been a major concern the sector, having adopted a
as a key global player.
for industries which depend model with 100% private
The country has enormous
on foreign commerce. The capital participation. The
capacity for commodities
country must improve its model shelter the general
supply, but logistics costs of
existing ports, and develop planning responsibility of the
those products may
new ones. Sector investors sector to the Special
represent as much as 50%
can find opportunities in Secretary of Ports
of their value
container and agricultural
bulk ports
10
 The logistic infrastructure has several weaknesses, but recent efforts are being made
in order to eliminate bottlenecks and, in so doing, stimulate economic growth
Why are investments necessary
• Unbearable occupancy rates in ports and terminals:
Vale up to 98% of commitment and several queue
days, the ideal being ~80%
•
• Operational indices above international benchmarks
a
Ports • Up to 1,500 TEUs/linear meter of berth x year and 7
TEUs/m² of backyard x year against 1,300 and 4.2,
respectively, by international benchmarks
• Queues: 20 days for fertilizer ships in Santos and
Paranaguá
• Stagnation of total railways extension: ~30.000 km
•
Railways • Concentration in the South and Southeast
a
25% • Weak synergy between railways and other modals
• Less than 15% of the highways paved
• Only 25% of the highways in good conditions
•
Highways • 80% of the highways with tolls are in good conditions
a
58% • Highways in good condition are deeply concentrated
in the South and Southeast
Sources: ANTF, ANTT, ABCR, PNLT, CNT, CEGN analysis, press % Share of cargo in transport mix
What is underway
• National Dredging Plan – allows for
increased efficiency and productivity
• Reporto: duty-free imports for equipment
• Absence of new public investments in
infrastructure: private investments are
necessary
• 3 new private ports/big terminals under
construction: Açu Port, Itapoá and Embraport
– R$ 3-4 bi investment
• Annual investment increased 400%, to R$
2.7 bi since the first privatizations in 1996
• Annual throughput increased 5% YoY
reaching 445 Mt – the share in total transport
volume increased from 16% to 25%
• Highway concession (average 25 years)
• The last federal round raised R$ 17.3 bi
• The last round in São Paulo raised R$ 8 bi
• These resources alone can increase the
annual investment in 33%
11
 Brazilian ports have inefficiencies and need improvements in 3 sub-systems
structures: land access, maritime access and terminals

Average Waiting time Maximum Draft

Access
for quay (hrs) Allowed (m)1
Main
Brazilian Land Channels Container Solid Bulk2 Current Required
ports
Vitória Unsatisfactory Unsatisfactory 9 45 9.3 12.5

Rio Unsatisfactory Satisfactory 6 N/D 12.5 13.5

Santos Critical Unsatisfactory 13 72 11.8 13.5

Paranaguá Unsatisfactory Critical 11 68 10.3 12.5

S. F. do Sul Unsatisfactory Unsatisfactory 14 64 9.5 12.5

Itajaí Unsatisfactory Unsatisfactory 20 - 9.5 11.5

Rio Grande Excellent Unsatisfactory 7 23 12.3 12.5

85% 60% 85%

National dredging
program is
1 Draft for container ships; Ship owners ANTAQ investing R$ 1.4 bi Ship owners
2 All solid bulks, excluding iron ore 12
 Third-party port investment opportunities relates to container, grain and
ethanol. Mineral and steel products are shipped by the own producer
Focus of opportunities

• The main new agricultural bulks

volumes will come from the
Midwest-Southwest to Santos and
Paranaguá, with alternative routes
to the North. Existing terminals
are saturated
New grain • The main ports for handling
volumes containers are Santos, Itajaí, Rio
generation
Grande and the ports of Rio de
Vitória
Janeiro and Espírito Santo,
Rio de Janeiro
almost all of which saturated
Itaguaí • New Ethanol is exported through
Santos
the ports of Santos and
Paranaguá
Paranaguá, and new routes
Itajaí emerge in the North-East, but
Rio Grande announced investments shall
Key
capture these trade volumes
Flow of containers
Flow of ethanol
Flow of bulk grain
13
 Brazil’s Midwest region presented 8% CAGR expansion in cultivated area
since 1997. Moreover, 80% of the country’s unused arable land is there

Agricultural expansion • Brazil cultivates ~56MHa and can

expand more ~106MHa
• 80%2 of the expansion will be in
Midwest
• Midwest region has been growing
CAGR of 8%, against 3% for
Brazil (1% for NE, 3% for N, 2% for
1990 5.6 Mha
SE and 2% for S)
2007 14.2 Mha
• Excluding currently inadequate
areas the Midwest still has
Cultivated land growth (Mha1) ~80Mha (~80% of total availability
in Brazil)
SE, NE, • It is estimated2 that in 2023 the
N and S 42 26 62%
regions
region will have ~36Mha of
planted land, leaving 58 Mha
Midwest available
14 80 15%
region
• The Midwest production is ~60
>5x Mt, and may reach 180 Mt3 in
2023
Arable land in use2 Land still % of land
(2007) available in use

1 M ha = Million hectares; 2 CEGN estimate; 3 Mt = Million tonnes 14

 The expansion of the Midwest, together with the feasibility of new distribution routes
will demand investments in port facilities in the North and North-East of the country
Belém (PA)
•Midwest: 7.5 Mtpa1
Santarém (PA)
Current Mw export volume2: 0
•Midwest: 32 Mtpa1
Current Mw export volume2: 0
Itacoatiara Itaqui (MA)
•Midwest: 1 Mtpa1
Others Current Mw export volume2: 0
High
7.5 * agricultural High agricultural potential region
2.6 *
potential
also
Export Import
railway Vitória
highway Midwest Current export volume2: 3.6 Mtpa
waterway • Will not attract cargo from Midwest3

Paranaguá
Current Mw export volume2: 4 Mtpa 4.7* 1.4*
• Will not attract cargo from the Midwest 3
Export Import

17.3* Santos
24.1*
7.5*
S. F. Sul •Midwest: 3 Mtpa1 +33Mtpa
4.1* 0.1*
Rio Grande 3.2*
EXP IMP
7.7* Export Import
2.6*
Export Import
Export Import
* Volume handled (Mtpa) 2007; 1 Potential cargo for export originated in the Midwest region (62% of the production in 2023 – projection CEGN); 2 Cargo originated in the
Midwest region; 3 Analysis CEGN; 4 Market Share; 5 In volume 15
 The execution of all investments listed in the National Logistics Program will
privilege the North and North-East flow, and remove urban bottlenecks

2007 2023
Transport modes (excluding ores) Transport modes after investments (excluding ores)

Source: PNLT Source: PNLT 16

Investment prioritization is not clear still. CEGN ranked investment Teles
Pires – Tapajós Waterway as the best investment for the long term, by far

Example:
• Current freight
for region :R$
174 /t
decreasing to
R$ 107 Mt with
waterway
• Investment is R$
1.31 bi
• Potential
production: 51
Mtpy
• R$ 2.61 freight
saving per year
for each R$ 1
invested

17
Regarding containers: the 5 largest ports were responsible for ~80% of the
container volumes. The South and South-East regions accounted for 86%,
albeit with high occupancy rates
Containers throughput in 2007 (thousand)

1600

1200

800

400

Itajaí

Sepetiba

Salvador
S.F.Sul

Santos

Manaus
Imbituba

Paranaguá

Suape
Fortaleza
Pecém

Belém
RJ
R. Grande

Vitória

Vl. Conde
• In 2007, Brazilian ports handled 4.16 M
containers (6.55 MTEUs)
• In the last 5 years, container handling grew
with a CAGR of 12%
• In 2007, the top-6 container terminals handled
on average 260,000 containers each
• The largest container terminal, Santos Brasil,
handled ~830,000 containers
18
To identify investment opportunities, CEGN analyzed the current infrastructure
available, the announced investments and projected productivity gains
Investments Short term
considered opportunities
North / North-East
45% 65% Salvador ; Suape;  Future concessions :
43% Pecem; Manaus Salvador, Belem, Piaui
2.0 2.8 2.7

2008 2013 2018

ES / RJ
56% 71%
63%

The average 1.8 3.4

3.8 Sepetiba-Tecon


global occupancy 2008 2013 2018
rate is 72% and
considered SP 82%
Santos-Brasil;  Future concessions:
adequate 76%
Tecondi; Embraport; Prainha e
89%
BTP*; São Conceiçãozinha
8.2 Sebastião*
6.4 In project:
3.2 Barnabé-Bagres

2008 2013 2018

South 73%
65%

86% Itapoá; S. F. do Sul ;  Future concessions:

7.3 Itajaí; Imbituba Rio Grande
Capacity (MTEU’s) 5.9
2.8
Demand (MTEU’s)
Occupancy rate 2008 2013 2018 19
* Probability of being carried out of 75%
Structure of the document

Importance of infrastructure Brazilian necessities and New regulation for the Port
investment: PAC investment opportunities Sector

Logistics infrastructure has

several bottlenecks. Brazil
Before 2005 Brazil
spends 15% of it’s GDP in To increase the necessary
witnessed 20 years of low
transportation, (USA-8%). participation of private
investment, especially from
The R$ 600 bi Growth capital in new ports it is
public sector. Sustainable
Acceleration Plan has necessary to have stable
economic growth heavily
already started to promote regulation and adequate
depends on investments.
important changes but returns.
The Brazilian Growth
private capital has a key Brazilian government will
Acceleration Plan (PAC)
role on the investments shortly conclude a long
may finally enable the
needed . The Port Sector process of privatization of
country to fulfill its potential
has been a major concern the sector, having adopted a
as a key global player.
for industries which depend model with 100% private
The country has enormous
on foreign commerce. The capital participation. The
capacity for commodities
country must improve its model shelter the general
supply, but logistics costs of
existing ports, and develop planning responsibility of the
those products may
new ones. Sector investors sector to the Special
represent as much as 50%
can find opportunities in Secretary of Ports
of their value
container and agricultural
bulk ports
20
 The private sector will play a key role in future infrastructure investments. In
order to stimulate private sector participation, the government must have two
priorities
Mitigate regulatory risks
• Regulation process must establish long-lasting
norms and criteria, bringing about greater stability
• Infrastructure concessions in for and confidence about future scenarios
Brazil:
• Regulatory Agencies should have greater
– Large volume of autonomy, better infrastructure, tools and salaries
renegotiations; 41% of
concession deals were
renegotiated, against 30% in
LatAm and Carribbean(1) Increase profitability
– Almost three in every four • Despite having opted for a privatization process
renegotiations were initiated by from 90’s onwards, the government still maintains
the government, fact that a crucial role in guaranteeing the long-run
exacerbates investment risk success of projects, offering subsidized capital
– Main reasons for revision were and regulating tariffs
changes to tariffs and • The initial 25 year concession period (set by law)
investment plans might be too short to allow attractive returns

(1) “Como Revitalizar os Investimentos em Infraestrutura no Brasil: Políticas Públicas para uma Melhor Participação do Setor Privado”, World Bank, 2007
Sources: CONAB, IBRAM, SIPOT/Eletrobrás, UNICA, press, World Bank 21
The Decree no. 6620 concluded the 17-year-long opening of the Port sector,
but did not go all the way to privatization
Creation of Special
Creation of the Department of Ports
Regulatory Agency (SEP) to hasten the
Port Law: modernization and
• Regulation and expansion of the sector
• Dissolves the state monopoly of operation controlling of the port
• Terminals: Public, private, and private with system
mixed use
• Concession of public terminals • Definition of “own cargo” General
• Setting up of Port Authority Councils (CAP), Concession
and Labour Management Body (OGMO) Plan (PGO)

Decree no. 6620:

• Creation of the Public
No. of workers at Dock Company of the Port with Private Port
State of São Paulo (CODESP) Authority, diversifying
the forms of
5270 participation of private
capital in the handling
2680 1993 1974
672
of third-party cargo

Extinction of 1996 1997 1998 1999 2000

Federal
constitution:
• The State is responsible
for exploiting the Port
activity, be it directly or by
means of authorization,
permission or concession
Portobras:
Situation until then:
• Ports managed by
Portobras, Dock
Companies and private
and state
concessionaires Source: Klien, R. - Terminais Portuários nos Portos Organizados, XXII Congresso
SOBENA 2008; ANTAQ ,www.antaq.gov.br>; Marchetti, D.S., Pastori, A. -
Dimensionamento do Potencial de Investimentos para o Setor Portuário, BNDES, 2006. 22
 Before the Decree no. 6620, the government had not defined its role (model)
in the expansion of ports. The role it wants to play now is usual for foreign-
commerce oriented countries

Given the pivotal importance of transport infrastructure in economic growth,

Play a strategist the government wants to play an orchestrating role for private
and planning investments, and foster those whose financial value was negative.
role

Need for rationalizing the use of terrestrial transport infrastructure.

Rationalization of The current government’s view is that the utilization of the transport capacity
existing may maximize well being of the population, rather than specific private
infrastructure interests.

Ports are natural monopolies because of their scope and of economies of

scale, which steers towards horizontal integration and the weakening of
Promotion of
market forces.
competition
Yet, shipping companies can control terminals and, through sabotage
establish monopolies in the logistics chain.

*Pallis, Athanasios A.; Notteboom, Theo E.; Langen, Peter W. de. “Concession Agreements and Market Entry in the Container Terminal Industry”, in Maritime
Economics & Logistics, 2008, 10 (209-228). 23
 All ports are to a certain degree a natural monopoly. Brazil chose a model
which allows the furthest advance towards privatization short of the Private
Port model, adopted in England and New Zealand
Service Landlord
Tool Port Private Port
Port Port

• Public infrastructure • Public infrastructure • Public infrastructure • 100% private

Charac- and equipments and equipments • Private equipments Master assets
• The state is the • State controls and under concession concession • Usually self-
teristics operator with handles equipment regulated market
government • Some private Public
employees services, including Port • The difference of the
stevedoring Authority Brazilian model is
the concession of
• The equipments and • Scope and scale • Intra-port
the areas (without
the stevedoring are economies competition • Investment and
infrastructure) to
Strengths responsibilities of • Intraterminal • Maintains public operational flexibility
Private Port
the same entity competition in some utility of area • The client is the
Authorities
• Public interest cases • Private investment focus
• The model seems to
• Greater efficiency of • Private resources
derive from the
labour,
supposed agility of
• Less flexibility • Conflicts of • Overcapacity risk the process as well • Risk of monopoly
Weak- • Little innovation responsibility • Little control of the as the maintenance • Profits in place of
nesses • Little efficiency • Similar to Service investments of projects underway public interesting,
• Investment depends Port including different
on availability of uses of land
public capital
Private
• Colombo (Sri Lanka); • Traditional French • Brazil, Netherlands Port • Great Britain and
Examples Nhava Sheva (Índia); ports; Chittagong New Zealand
Authority
other developing (Bangladesh)
countries
24
The Port Authority manages the port and legislate to some degree
CAP Sanitary
surveillance
Port Maritime
Federal policy
Authority authority

Environment Customs
• Responsible for the port management
agencies
• Services and rent contracts
• Tender Management
• Fulfillment of Concession rules
• It may be public (Federal, State or
Municipal) or private

Ship Port Road

Shipping Land
companies Ligths Pilotage Tariffs Utilities
access
Chanel Basic Area Infrastruc
Lines Break water Dregding Storages
control equipments functions ture

25
 The Brazilian experience is innovative. Nevertheless, the World Bank
assesses some critic characteristics

According to the World Bank...

The decision usually falls between the adoption of the Landlord Port
Master model or master concessions.
concession
The differences to the Privatized Ports model are:
• the assets return to the State after the end of the concession
“This type of contract
has rarely been used, period (although the winner pays for it);
but it is an option” • the concessionaires do not have responsibilities over some
structures like maritime safety, sanitary surveillance, etc …
“There are no
examples of effective Master Concession is the only form of incorporating all the assets that
implementation of
could not be tendered for on their own (jetty, local streets, etc.)
this type of BOT
master concession
type scheme” In a Master Concession the concessionaire will always have the liberty
of organizing its activities. Any regulation that restricts this freedom will
World Bank reduce the attractiveness of the model

The Master Concession demands less government efforts to

structure the tendering of terminals and service offers

Sources: Port Reform Toolkit 2nd ed. - World Bank, 2007 26

The new regulation will allow a coordination of the sector by the government,
setting standards for harmonic and efficient functioning and also driving
external resources where needed

Mater
Concession:
Public Port • Ports are viewed in a global context. Rationalization of logistics
infrastructure create value for the country
and Private
Port • Government has the prerogative to choose port capabilities,
Authority according to it’s granting plan, and the responsibility to adjust the
port to international standards
• In the chosen model Government participation can, for example
• Offer the land to the new port
• Construct infrastructure and dredge the channel
• Promote development of land access routes
• Control land speculation and others
• Government is responsible for marine safety and control,
environment and several other intricate necessities of the ports

27
Source: CEGN Analysis
This model was chosen in order not to halt ongoing implementation of
terminals, creating the figure of the Private Port Authority

Now bidding

Forms of
participation
Concession
(Tender)
? How will winning
proposal be
selected?
of private
investments Container Term.
in ports
• LLX
Not Authorized
Authorization
• Others
Not Authorized
• Navegantes  Authorized
• Embraport  Authorized
•Easier;
• Itapoá  Authorized
•No bidding; • Terminals claim they
•Less have sufficient “own
expensive op.; cargo” but are yet to
prove so
28
 The granting of Ports conciliates the interest of users, of markets as well as
SEP’s strategic interest with regards to sector development

Public port granting process

Winning
General granting Call for project Tendering of
Winning project proposal -
plan proposals winning project
Example
• Evaluation of • Region of interest • Preliminary project, • Full tendering • Selection based on
national demand • Cargo types Environmental document enclosing highest down
for port services license, Business plan requirements of payment for example
• Growth forecast
• Detection of • Judgment based on deadlines, • Monthly payment or
regional options market + technical investments, lump sum to Port’s
• Elaboration of the requirements + SEP’s performance, and so Fund
GGP1 strategy forth… • Contract covering
• Price cap or goals (of investments,
competition performance, terms,
etc), price tables,
etc…
SPECIAL Proposal
DEPARTMENT
Project 1
A
OF PORTS
Proposal
Project 2
B
Proposal
C Proposal
Project 3
B

1 GGP:
This is an example, and to be
General Granting Plan
Source: Special Department of Ports Analysis CEGN decided 29
 Some characteristics of concession contracts turn them more prone to
renegotiation. In this light, it is possible to focus efforts on factors which
bring about greater uncertainty to the investor

Percentage of contracts which were renegotiated, according to • World Bank: “The factors
different characteristics, for concessions in all sectors in LatAm that contributed to
renegotiations [of
concession contracts] in
Brazil include:
Greatest down
Selection – The absence of an
Lowest price 60.4% 11.0% payment to
criteria government independent regulatory
body,
Specified adhoc – The fact that regulation is
Regulation in the contract
39.7% 17.2% Specified by law
specified in every single
contract, rather than in a
Without pervading sector legislation,
Regulatory With regulatory
regulatory 60.9% 17.1% agents – The use of price caps as a
institutions agents
pricing policy,

Price Based on – And the adoption of “lowest

Price cap 38.1% 12.1% rate of return price” as a criteria for
regulation
adjudicating the concession.

Obbligations of Investment Performance • Renegotiations may be a

requirements
51.0% 24.0% requirements symptom of inadequate
concessionaire
planning and flaws in
regulation.
Source: “Price Caps, Efficiency Payoffs, and Infrastructure Contract Renegotiation in Latin America”, World Bank, 2003 30
 International cases of selection criteria employed in tendering processes for
terminals are an important driver for government decision (1/3)
Concession model and Selection criteria and aspects of Perception of the process and
examples tendering documents results achieved

• Landlord Port • Greatest throughput with best • Significant increases to throughput

• Concession of existents 7 technique and productivity. Between 1991 and
terminals (4 of conts.), in • Price cap stipulated by AP 95:
Buenos Aires 1993 • Minimum throughput guaranteed • Capacity.: 400 – 1,000 kTEU/y
Argentina • 3 Pto. Novo • Efficiency guaranteed • Import cost in conts.: 450 - 120
• 1 Dock Sud in 1993 • Previous manpower absorption/ restitution USD/TEU
• Problems: better conditions in Dock
Sud then Puerto Nuevo
• Bankruptcy of a op. at Puerto Nuevo
• Landlord Port • Lower tariff with higher payment • Raised 3x expected funds
• Concession of 3 • Minimum tariff (tiebreak by payment) • Positive evidences:
terminals, in 1999 • Performance targets • 5 biggest world players took
3 Ports • 1 at Valparaíso, • Premium service allowed part in tendering
Chile • 2 at San Antonio • Vert./Hor. integration restrained (Max. • Investments post-tendering
• Pto. San Vicente 40% participation for shipping or cargo and improved performance
owner; 15% for nearby terminal operator)
• Re-buy equipments at market price by the
concession end
• Landlord Port • Lower price with highter payment • 4 concessions were interested and 3
• Terminal concession to • Minimum price fixed at $69/TEU offered the minimum tariff
Callao 1.35 MTEU greenfield • Experience demand by throughput in in • At the tiebreak, the winner offered
• Construction of 2 berths other ports $144m (against $95.5m by 2nd and
Peru (1st stage) and 2 berths $50m by 3rd)
(2nd fase) • Liable to winner’s curse (according
to Athanasios et al)

Sources: Port Reform Toolkit 2nd Ed - World Bank; Estache, A., Carbajo, J.; Competing Private Ports – Lessons from Argentina. Viewpoint – Dec 1996 – World Bank; Private Sector and
Infrastructure, October 2000 - World Bank; Athanasios , A., Notteboom, T. E. Langen, P. W. de.; Concession Agreements and Market Entry in the Container Terminal Industry - Maritime
Economics & Logistics, 2008, 10 (209-228); Estache, A., Rus, G. de.; Privatización y Regulación de Infraestructuras de Transporte: una guía para reguladores – Banco Mundial, 2000; 31
Defilippi, E.; Intra-port Competition, Regulatory Challenges and the Concession of Callao Port – Maritime Economics & Logistics, 2004, 6 (279-311)
 International cases of selection criteria employed in tendering processes for
terminals are an important driver for government decision (2/3)
Concession model and Selection criteria and aspects of Perception of the process and
examples tendering documents results achieved

• Landlord Port • 4 criteria (Rotterdam)*: • Managed to attract world’s biggest

Rotterdam/ • Container terminals of • Financial proposal(40%) operators, even those which were
Antwerp Maasvlakte 2 (Netherl) • Business plan (25%) installed nearby
• Terminal of • Sustainability(20%) • The effort of granting terminals to
Netherlands
Deurganckdock (Belg) • Concept (15%) different operators was rendered
/ Belgium • Antwerp has a similar model pointless by the sector’s
consolidation
• Landlord Port • 3 criteria: • N/A
• Muelle Prat Wharf • Business plan (30%)
• Technique and operations (40%)
Barcelona • Financial proposal (30%)
Spain • Open tendering process, if their volume on
other ports achieves 500,000 TEU or more
yearly
• The concession of extra area for expansion
is guaranteed if 80% of occupation and 50%
of transshipment are reached within 2 years
• Privatized Ports • There are no tendering processes; • Intense competition among ports
• Some of them are Trust • Projects are granted authorization on the • The English system seems to be
United Ports, which are neither basis of local impact , environmental laws, approved by its users – there are
public or private security, and so forth no tough criticisms
Kingdom • Suffers from lack of centralized
planning role

Source: Pallis, Athanasios A.; Notteboom, Theo E.; Langen, Peter W. de. “Concession Agreements and Market Entry in the Container Terminal Industry”, in Maritime Economics & Logistics,
2008, 10 (209-228)
* Criteria definition: financial proposal (ability to earn beyond rents and port taxes), business plan (consortium network and ability to attract cargo), sustainability (region’s impact, modals 32
distribution and emission’s impact) and concept (port’s quality and efficiency)
 International cases of selection criteria employed in tendering processes for
terminals are an important driver for government decision (3/3)
Concession model and Selection criteria and aspects of Perception of the process and
examples tendering documents results achieved

• Landlord Port • Lowest tariff • The second lowest bidder alleged

Montevideo
• Container terminal in • The winning bid offered $67/cont (against fraud in the tendering process and
Uruguay Montevideo $82/cont of the second lowest bid) caused an inquisition

• Landlord Port • Greatest down payment • More than USD 160 M in private
• Cartagena, Santa Maria, • 20-year concession investments
Barranquilla, Tumaco e • Only one bidder for each tender • Improvement in indicators (93-01)
Colombia Buenaventura (exception: Buenaventura) • Time spent at the port from 1.5
• Law allows for new days to 1 day per ship
private ports • Handling rate: from 16 to 45 cont/h

• Landlord Port with BOT
• Rajiv Gandhi Container
Terminal (Cochin)
India
• Greatest share of revenue (with price • Originally, adopted a lowest tariff
cap) model which failed to promote
• Did not establish minimum throughputs investments and reduce prices
nor efficiency indices
• Altered to greatest share of revenue
• Under new model, the winning bid
offered 30% (against 10% of the
second), later renegotiated to 25%

• Landlord Port • Greatest down payment • Stimulated investments,

• Privatized 13 of its 20 • Initial down payment plus share of revenue increased productivity and
Turkey ports between 97 and • Restrictions regarding personnel, revenues
2003 investment goals, price cap during first 5 • No increases in throughput
years

*Pallis, Athanasios A.; Notteboom, Theo E.; Langen, Peter W. de. “Concession Agreements and Market Entry in the Container Terminal Industry”, in Maritime Economics & Logistics, 2008, 10
(209-228). Gunaydin, Hulya: Globalization and privatization of ports in Turkey. Government of India, 2007: Tariff setting and Bidding Parameters for PPP projects in Major Ports. Kent, Paul E.,
Hochstein, Anatoly: Port reform and privatization in conditions of limited competition: the experience in Colombia, Costa Rica and Nicaragua. Navarrete, Camilo. (2005): Managing Investment33
climate reforms: Colombian Ports Sector Reform Case Study
Port concession model is similar to that of the electrical sector, whereby the
entrepreneur may propose a tendering process. However, the proposal
document must be robust, avoiding delays observed at Jirau’s electrical works
The Jirau case

The initial Delays due to

Concession to
Project development investor will not
lowest tariff legal actions
exploit the activity

• The consortium Jirau • Aided by a slight • The winning consortium • Although caused by
Energia invested in the adjustment to the original must refund the whole legal contests, the
elaboration of both project, the Enersus project’s expenditures delays were justified by
preliminary project and consortium offered the bidding proposition’s
environmental lowest tariff and took the changes
licensing, and handed bidding
these to government

Sources: Energia Sustentavel do Brasil

<http://www.energiasustentaveldobrasil.com.
br>: Licença de Instalação do Canteiro de
Obras, 2008 ; Parecer do IBAMA sobre a
alteração do posicionamento da usina,
2008; Parecer 93/08/GAB da Advocacia
Geral da União, 2008; “Entenda a usina
Jirau”, 2008; “Furnas e Odebrecht serão
ressarcidas”, Blog do Brasiliense,
13/08/2008
<www.blogdobrasiliense.com.br>; “As lições
de Jirau”, Valor Online, 10/09/2008
<www.valor.com.br> 34
To choose the Bidding Model, the following criteria are considered in
evaluating the possibilities allowed by law

Service supply
with satisfactory
price and quality

Lowest total Greatest Greatest port

Best operational Greatest legal
transportation investors sector
performance stability
price attractivity sustainability

Models

Greatest down Greatest share of Greatest

Lowest tariff
payment to fund revenue to fund throughput

????

35
 The configuration of the terminal and its hinterland will determine the
resulting competition level. The smaller the complex, the more active the
regulatory agency must be in stimulating competition

Competition
level intra-
port

SIZE OF THE PORT COMPLEX

Need of
economic
regulation

Low competition
among ports effect
Great terminals
Several dissimilar Similar competitors
Size Single berth Single berth
berths berths

Regulation Total price Minimum and Minimum prices Anti trust

maximum prices

Competition Quay Quay + auxiliary Mixed operations

operations yard Induction of internal
competition
36
Sources: Port Reform Toolkit 2nd ed. - World Bank, 2007; CEGN Analysis
 Difficulties that need to be covered or set explicitly in the concession
contract FOR DISCUSSION

• PPP & General Concessions Plan (PGO)

SEP/ANTAQ • Form and winner of the concession
Regulatory framework • Legal Parity for operation from Port Authority
• Form and existence of price control and
Law; Provisional Act; insurance guarantee
Decree; ... • Rules for property x control x terminal duality
• Labor Management Body (OGMO) and role
of the Port Authority Council (CAP)
Specific rules of • Economic analysis and criteria for renewal
the bidding • List of controlled items and the price cap
• Operating performance
Each tender must
examine the • Contractual penalties
specificities of that Concession • Investment plan
region, cargo types contract • Form of supervision
and volumes

Authority • Forms of control and supervision

Port • Leases
Council? • Expansion plan

Sources: Estache, A., Rus, G. de.; Privatización y Regulación de Infraestructuras de Transporte: una guía para reguladores – World Banck, 2000; CEGN Analysis 37
Conclusions

• The Growth Acceleration Plan will reverse a condition of serious deficiencies in

logistics infrastructure, preparing Brazil for economic growth
• The Port Sector has received increasing attention from governors, and a
serious program for readjustment of infrastructure has been set in motion
• The participation of private enterprise in the development of the sector is
crucial, and is explicitly defined by the government with the new regulation. Only
under the new regulation will the private sector be able to participate
unequivocally in the general cargo segment
• The Brazilian model is daring with regards to privatization, if compared to global
practices
• Success in the granting process is not determined by the form in which the
winning bid is selected, but rather by the quality of the tendering process and of
the leasing contracts
• There are opportunities for investments with positive rates of return and the
world crisis should only postpone an inevitable revaluation of the Brazilian
potential

38
 THANK YOU FOR
YOUR ATTENTION
AND TIME

CEGN – Centro de Estudos em Gestão Naval

Ocean Engineering Department at the University of São Paulo
+55 11 3091 5340 – ext. 277/278

www.gestaonaval.org.br

39