Recent developments

On 5 June 2013, Brazil's president sanctioned the new Ports Act (Law nº 12.815/2013) after a long debate in the Brazilian Congress. The original bill received more than 600 amendments by congressmen, and the president vetoed 13 items of the text approved by Congress. Congressmen may still overthrow the vetoes by means of further supermajority voting. The federal government intends to issue a decree to regulate the Ports Act in the following 15 days.

Implications for investors

The new Ports Act changes the regulatory framework of the industry. The main objective of the Act is to provide an open, friendly and predictable environment for private investment.

The government intends to start public bids in 159 areas, in four major rounds. The first one, with 52 terminals located in Sao Paulo (in the Santos area) and in the state of Pará, is scheduled to take place in October. The government expects to conclude all bid rounds by January 2014.

What the new rules envision

Centralized Institutional Framework

The new Ports Act has concentrated most powers into the federal government, represented by the Special Secretary of Ports (Secretaria Especial de Portos or “SEP”) and in the national agency of maritime transportation (Agência Nacional de Transportes Aquaviários or “ANTAQ”).

Conversely, the Ports Act has considerably reduced the powers and attributions of the local public entities in charge of each port, namely the Port Authority Councils (Conselho de Autoridade Portuária or “CAP”), the Port Authority (Administração Portuária), and the Manager of Temporary Port Workers (Órgão de Gestão de Mão-de-Obra do Trabalho Portuário or “OGMO”).

With the shift of powers from local port entities to federal/national bodies, one expects that the policies, regulations and public bid rounds involving the industry will become more consistent and dynamic.

Public Terminals: New Granting Rules

One may operate port facilities under two distinct regimes: by means of a concession or a lease, in the case of terminals located within organized public port areas ("public terminals"), or by means of an authorization, in the case of terminals located outside public port areas ("private terminals").

The granting of concessions or lease of public terminals will depend on prior public bidding process. The criteria to award winners will be a combination of cargo volume and lowest tariff.

Concessions/leases of public terminals will have a 25-year term. Extension of the initial term has not been defined.  The matter will likely be regulated by a presidential decree.

Existing concessions/leases granted after 1993 may be extended one time, upon governmental approval, if the original granting explicitly allowed such extension. Extensions will be subject to the approval of an investment plan proposed by the company.

The president has vetoed the rule added by the Congress under which concessions/licenses granted prior to 1993 would also be entitled to a term extension. This was one of the most controversial issues between the government and National Congress.

Dockworkers in Public Ports

Port labor is carried out by (i) workers with employment agreements with the port operator, and (ii) dockworkers not bound by employment agreements (temporary workers). Each port has a Manager of Temporary Port Work, or “OGMO,” which is in charge of maintaining the registration of dockworkers.

Those who operate in public ports shall request dockworkers solely from the relevant OGMO. Dockworkers, however, have no employment relationship with the port operator or with the OGMO.

Private Use Terminals - More Flexible Rules

Private terminals will be allowed to handle all types of cargo, including containers and other third-party cargo. The Ports Act has lifted restrictions of prior law on the handling of third-party cargo by private terminals.

Any interested party may request federal agency ANTAQ to carry out a public call (chamada pública, which is simpler and less formal than a public tender) for the selection and granting of private terminal authorizations. The selected party will execute a contract with ANTAQ for 25 years, extendable for equal periods indefinitely.

Private terminals are subject to lesser regulations than public terminals and assume risks related to their business. For instance, private terminals are not required to hire a labor force from OGMO, as it happens with public terminals.

President vs. Brazilian Congress: Most  Controversial issues

The most controversial matters that may still suffer changes include:

  • the concept of the Industrial Terminal proposed by Congress, which insists on imposing restrictions on handling third-party cargo. Such a proposal has been vetoed by the President;
  • prohibition of participation of maritime shipping companies in more than 5% of the equity of public or private terminals;
  • automatic extension of the concessions/leases signed after 1993;
  • possibility of extension of the concessions/leases prior to 1993; and
  • mandatory hiring of OGMO dockworkers for coastal navigation.

Conclusions

We expect that the new Ports Act will provide amore stable and friendly environment for the long-needed private investment in the industry. Even though the ongoing debate with the Congress may generate some adjustments in the rules, most of the framework is now set and will serve as a basis for the following public tenders.

Greenfield investors must keep up with new developments, such as the incoming presidential decree, the public tenders and the possible reaction of the Congress to the presidential vetoes.

Incumbent companies must assess the impacts of the Ports Act on their own operations, and which sense the new rules may affect competition in the market. Some critics of the new rules say that the Ports Act may put some incumbent companies at a disadvantage vis-à-vis the new entrants.