The Federal Government of Brazil, through the Ministry of Infrastructure (Secretaria Nacional de Portos e Transportes Aquaviários) and the National Water Transport Agency (ANTAQ) awarded multiple terminal concession tenders during the past years. 2022’s tenders will even increase compared to the high number of processes during 2020 and 2021. What are the implications and consequences?.

The Brazilian port sector regulatory framework

The Brazilian port system is structured into two main categories: Public Ports Terminals and Private Use Terminals (TUP). On the one hand, Public Port Terminals are facilities located inside the public port perimeter and can be operated by public operators or private operators under lease agreements for a period of 25 to 35 years, in line with the Landlord port management model. On the other hand, TUPs are private terminals outside public port perimeter.

From the side of private operators, TUPs usually involve higher investments and risks due to their greenfield nature; however, their development has limited regulations and operational restrictions to facilitate their investment. In contrast, the concession or lease of public terminals involves generally lower risks, since they are located on existing ports where businesses are established and infrastructures usually are in place.

Figure 1. Regulatory framework of the Brazilian Port Sector
Source: ALG

From 2019 and in line with the established Investment Partnership Program (PPI), the Federal Government of Brazil is following a strong concession and privatization program for the infrastructure sector, including ports. Several factors lead to the establishment of this ambitious program:

• The concessions of several terminals operated under the Landlord model are about to expire, requiring their renewal.
• Terminal privatizations generally result in an increase of the operational efficiency, since private operators are better positioned to invest and to efficiently serve the needs of importers and exporters, to attract cargo and to compete with other operators, in the same port or in neighbouring ports. Private parties are specialist in the market and therefore bring dynamism, modernize and improve the level of service.
• The Covid-19 pandemic is an additional factor to promote this strong concession program, which is expected to function as a strategy to attract investments from the private sector that reinforce public revenues, generate employment and favour the recovery of the crisis.
• The increase in cargo throughput through Brazilian ports over the past years brings significant business opportunities to private terminals operators willing to enter the Brazilian market or to reinforce their competitive position in the country.

Recent and future terminal auctions

In 2020, 9 terminal concession tenders were awarded along the Brazilian coastline (5 liquid bulk-, 3 general cargo- and 1 Ro-Ro-terminals). In 2021, this number increased to 12 auctioned terminals, with dedicated uses for agribulk, mineral bulk, liquid bulk or general cargo.

Figure 2. Terminal concessions awarded in 2020 and 2021 in Brazil
Source: ANTAQ – ALG

This upward trend in terminal concessions will reach a peak in 2022, in which 19 terminal auctions are expected to be launched. These terminals are located in the ports of Vila do Conde, Itaquí, Mucuripe, Suape, Maceió, Salvador, Ilhéus, Rio de Janeiro, Santos, Paranaguá and Rio Grande. The expected total investments by the private terminal operators amount to approx. 1.05 billion USD. The terminal which will require a higher CapEx will be a greenfield container terminal in Santos (approx. 387 million USD).

Figure 3. Terminal concessions auctions to be launched in 2022 in Brazil
Source: ANTAQ – ALG

Figure 4. Expected investment costs for 2022 terminal concessions
Source: Ministry of Infrastructure, ALG

Typical structure and timeline of Brazilian port tenders

Concessions in Brazil present a common structure. They start with the tender process phase which lasts from 1 to 2 years, in which the Government carries out a feasibility study as a basis for the assessment of the private side. After the award of the concession, the process is followed by a construction period of approx. 2 years which leads to the exploitation period of generally 25 years. This concession period could be extended up to 35 years.

The tender process is, in turn, characterized by several milestones. Firstly, the feasibility study (EVTEA) is developed by the Government, and is generally structured into several topics: market and demand, engineering, operational, financial, and environmental. The process is followed by a public hearing set up by the Government, in which the interested parties can have access to the project information and can provide suggestions. This consultation lasts around 30 days. Subsequently, the study is updated (if necessary), and submitted to the TCU (Federal Court of Accounts), whose final approval is required. Usually, TCU’s approval takes up to 2 months, so the tender can be eventually published through a public notice. Finally, the auction usually takes place around 45-70 days after the tender is published.

It is important to note that bidders shall be attentive to the TCU approval date for potential terminal concession opportunities, from which the tender process is accelerated and from when their own feasibility studies and business plans shall initiate.

Figure 5. Typical time schedule for terminal concessions in Brazil
Source: ANTAQ, ALG

Brazilian bid documents include some minimum investment requirements, such as on equipment, infrastructure, storage facilities/capacity or dredging. In some cases, minimum productivities, maximum tariffs or minimum traffic are also required.

Nevertheless, the selection criteria is uniquely based on the improvement of the defined upfront fee. Demonstration of the technical solvency is required, as well as the presentation of a list of administrative documents, while no technical, commercial or financial studies need to be presented. Therefore, a detailed business plan including the previous specific studies are recommended to be carried out by the bidders in order to determine and adjust the upfront payment to be offered.

ALG counts with extensive experience and knowledge of the Brazilian ports and logistics market, through our local and international pool of consultants, as well as a vast experience in the development of commercial and technical due diligences in the sector. If you would like our team to provide you with additional insights or require our assistance to investigate potential business opportunities for your company, please contact us at:

 

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About the authors
Guilherme Esmanhoto is Partner and Head of Sao Paulo Office. gesmanhoto@alg-global.com
Ibai Erdozain is Principal and Head of Ports in LAC. ierdozain@alg-global.com
Ignacio Rodriguez de la Rua is Engagement Manager of Ports in LAC. irodriguezrua@alg-global.com
Alejandra Ares is Consultant of Ports in LAC. aares@alg-global.com
For more insights, please check www.alg-global.com