That was the assessment of the Ports Minister, Edinho Araújo, upon obtaining approval for the tender of the country’s first public port leases under its new ports law (Law 12.815/2013) at the end of last month.  That law is no longer so new, having been enacted in June 2013.  However, the original draft tender documents for use of terminals in public ports were widely criticised and subject to investigation by the Federal Accounts Tribunal (Tribunal de Contas da Uniao - TCU), which detected various deficiencies.

Eventually the federal government agreed to implement most of the TCU’s recommendations, allowing for the recent approval of tenders for Block 1 of its concession programme, consisting of 29 areas within Santos, Brazil’s biggest port and in the fast-growing northern state of Pará.  Tender rules were published on 26 October for the auction of two terminals for cellulose and one grain terminal in Ponta da Praia, Santos and one grain terminal in Vila do Conde, Barcarena (Pará), which will occur on 9 December 2015.

The commencement of bidding for new public port terminals is certainly significant.  Delays and lack of capacity in Brazilian ports have been identified as major constraints to the economic development of the country. These port auctions form part of the Brazilian government’s ambitious Logistics Investment Programme (PIL), which announced planned infrastructure investments of R$198.4bn (£33.6bn) in roads, railways, ports and airports. It is hoped that these tenders will attract private investment, while reducing logistical costs for Brazil’s industry and agriculture.

It was this need to expand and modernize the Brazilian port system, and make it more efficient, which led to the enactment of the new ports law in 2013. This law established a new regulatory framework for the Brazilian port sector which aims to encourage investment, provide greater flexibility and increase competition in the sector.

Even before the new law, Brazil distinguished between public ports and private terminals.  The former are administered by federal or state port authorities, and the right to use areas within those ports for handling and storage of cargo is granted by public tender.  Private terminals, on the other hand, are developed and owned by private entities and were previously restricted to handling the goods of those entities.

This restriction was removed by the new ports law and private terminals are now permitted to handle third party cargo.  In fact, they are required to allow third party access, on conditions that may be imposed by the regulator, ANTAQ.  New private ports require authorisation from ANTAQ, which must be preceded by a public consultation, in which any competing projects will be considered.  This regime has proven popular, and more than 30 private use terminals have been authorised since the new law, with estimated investments of R$10.4bn (£1.76bn).  A further 42 terminals have been qualified or are being assessed, with additional estimated investments of R$22bn (£3.73bn).

On the other hand, until now, no public port leases have been granted under the new regime, due to the controversy concerning the terms of the grant, and also the impact of the new law on existing concession holders.  Now that this roadblock seems to have been removed, it is hoped that the backlog of terminals awaiting leases can be dealt with quickly.

Following the tender of the first four areas, already announced, another four areas from Block 1, in Santos and Outeiro, Belem (Pará) will be auctioned in January 2016.  In addition to the 29 areas in Block 1, the government plans a further three phases, with total investments of nearly R$15bn (£2.5bn).  Tenders for Block 2 are expected to begin in 2016 and may offer up to 39 further areas in Paranaguá and Antonina (Paraná), Salvador and Aratu (Bahia) and São Sebastião (São Paulo).

The leases on offer are for a 25-year period, which may be renewed for a further 25 years.  The ports law initially envisaged that the leases would be granted to the bidder offering the highest handling capacity, lowest tariff for the port user or fastest handling times.  However, as the Brazilian government’s finances have deteriorated of late, its priorities have changed, and these contracts will now be awarded to the bidder offering the highest up-front payment for the rights. 

This change has prompted some concerns that this ports investment programme will not have the desired effect of reducing logistics costs.  On the other hand, if it creates sufficient competition between terminals, market pressures should have this effect, while allowing port users to decide whether to prioritise cost, speed, reliability or other factors.

For this reason, these recent announcements should be welcomed as an important first step in an essential overhaul of Brazilian public ports.  At a time when the Brazilian Real is relatively devalued, these tenders may represent attractive opportunities for international investors, particularly considering the pent-up demand.  On the other hand, much still remains to be done to ensure a competitive market for cargo transportation in Brazil, which will boost the competitiveness of its export industries.