by: Rafael R. Garofano [1]

Brazil has infrastructure and logistics investment bottlenecks that are decisive for national and regional development. The port sector is strategic, since ports handle most of Brazil’s international trade. One of the biggest obstacles to the expansion of the national port sector lies in infrastructure deficiencies, which compromise the sector’s potential and hinder the growth of international trade.

Investment is more than necessary in port works and access routes; equipping national ports; drafts suitable for large vessels; larger berths specialized in cargo handling; mechanization and automation of cargo handling; and efficient control and information systems.

It is not uncommon for large vessels to be unable to berth at Brazilian ports due to insufficient depth at berths and maneuvering basins, or, if they can berth, for shipowners to be forced to load less than their capacity, raising freight prices and reducing the competitiveness of ports and products.

In view of this scenario, Provisional Measure No. 595 was issued in 2012 and converted into Law 12,815/2013. The stated aim of the measure was to make the port sector more attractive to private investment and thereby enable the modernization, expansion and establishment of new port terminals that would compete with one another.

The main novelty was allowing private terminals to also handle third-party cargo, eliminating the distinction between own cargo and third-party cargo for the purposes of operation by authorization holders. Under this new model, Private Use Terminals could be operated freely, with authorization from ANTAQ.

The main innovations of the new regulation include: (a) encouraging the expansion of the port network through greater openness to the operation of private ports, attracting new capital; (b) centralizing the powers conferred on the National Waterway Transportation Agency (ANTAQ); (c) promoting service efficiency by relaxing requirements for facilities located outside organized ports; (d) imposing greater control over prices and tariffs through ANTAQ regulation; (e) introducing network sharing in the port sector; (f) creating criteria for selecting concessionaires, lessees and authorization holders; (g) and creating an efficiency program for the Dock Companies.

In addition, the Ports Law provides that concessions and leases will be granted to legal entities demonstrating the greatest handling capacity at the lowest price (art. 6), with the possibility of holding the tender as an auction (art. 6, §1). The clear aim is to stimulate competition and link the selection criterion to an assessment of the bidders’ efficiency, as well as allowing greater control over the tariffs charged for operating port services or facilities, by setting maximum tariffs.

Despite the progress brought by the new regulatory framework (mainly in private use terminals), the fact is that, more than two years after the new Law was enacted, little has happened in terms of significant investment in public ports in the country. The situation of most port terminals remains critical, with insufficient capacity to meet the growing demand for imports, exports and cargo handling, as well as the need for investment in dredging, the purchase of new equipment and the modernization of logistics processes.

There are several reasons for the current paralysis of investment in Brazil’s public ports. At first glance, the reasons are not related to flaws in the sector’s new regulatory framework, but rather to the absence of planning and regulatory measures capable of making investment in the sector viable and secure.

In addition to factors common to almost all infrastructure sectors in Brazil, linked to the economic crisis, restricted access to credit from public banks, political instability and legal uncertainty, what stands out specifically in the port sector is the regulatory and planning insufficiency of the Federal Government bodies responsible for organizing the sector.

The Ports Secretariat and ANTAQ were not structured to perform the powers assigned to them by Law. There are not enough financial and human resources for sector planning, nor for regulating the activity. This is reflected in the delay in preparing the studies needed to hold tenders for approximately 159 (one hundred and fifty-nine) areas in public ports intended for lease, whose contracts have expired or will expire by 2019.

The tender notices were suspended by the Federal Court of Accounts mainly due to the lack of studies on the minimum level of efficiency to be required of Brazilian port terminals; lack of justification for the proposed tariffs; inconsistencies in estimating the value of investments; absence of operational parameters to support productivity indexes; and absence of studies proving the actual existence of competition in the ports to be tendered, in order to determine whether or not a tariff control system should be used in operating these ports, among other issues. The process was stalled from December 2013 and was only cleared on May 6, 2015 (Judgment 1,077/15). Although the TCU approved the model proposed by the government and considered all conditions met, the award criterion was changed to the highest concession fee — previously it was the greatest cargo handling and the lowest price for the service — which required a new review by the Court and new approval only on September 30, 2015.

The delay in holding the tenders for this first block of leases, however, highlights the fact that state planning and regulation in the sector are deficient and often insufficient. In addition to the delay and successive changes to the auction conditions, well-established regulatory practices, instruments and methods, such as regulatory impact analysis and analysis of competitive impact between and within ports, are still incipient. This is reflected in the lack of criteria in choosing the ports to be tendered for leases or in granting authorizations to operate private use terminals. The lack of planning often leads to authorizations for private use terminals next to organized ports, resulting in public infrastructure being used for private purposes, with diversion of demand and obsolescence of public port infrastructure. Nor is there any conclusive study taking into account competitive aspects among national ports at the “macro” level.

The (federal) Dock Companies, responsible for managing a large part of the public ports, are run down. They are highly dependent on Federal Government funds. The centralization of granting authority powers in the SEP and ANTAQ removed these companies’ autonomy to hold tenders, which, together with the lack of a sustainable tariff regime, further aggravated their “cash” problems. There is also a serious deficiency in management and expenditure control in these companies, with very low levels of productivity and technology in the ports they manage.

All this, combined with deficient port infrastructure; red tape and strikes, which interfere with cargo clearance; the lack of integration among the entities operating in the port area; and the need for port employees and administrators to change their habits and attitudes in order to respond more promptly to customer demands, results in the current negative scenario of the public port sector in Brazil.

In view of this scenario, it is not enough to promote debates — however serious — enabling broad discussion of these measures with sector specialists, which would certainly enrich and help these ideas mature. The point is that Brazil’s backwardness no longer leaves room for discussions without a deadline for action. We need to act quickly, taking current points of consensus as a starting point.

In this regard, some points of convergence can already be identified for improving the dynamics of planning, regulation and contracting in the Brazilian port sector. They are:

1. Effective “macro” planning of the sector: The National Port Logistics Plan (PNLP), the Federal Government’s instrument for strategic planning of the national port sector, needs to be expanded, improved and completed, with the aim of identifying the vocations of the various ports according to their respective areas of influence, defining short-, medium- and long-term scenarios with alternatives for intervention in infrastructure and management systems, ensuring the efficient allocation of resources by prioritizing investments and avoiding overlapping efforts.
2. More intensive regulation through the institutional strengthening of ANTAQ: Structuring ANTAQ is a fundamental measure for the development of the sector. Only with a strong, independent Regulatory Agency with adequate technical staff will it be possible to fulfill the institutional missions assigned to it by the New Ports Law.
3. Excellence in preparing implementation projects and feasibility studies: The State needs to be equipped, or partnerships need to be formed with entities, to carry out all the studies necessary for port lease or concession tender procedures before the instruments are sent to the TCU for prior review. Ideally, this expertise would be concentrated in a single entity responsible for carrying out these studies for organized ports, to ensure technical and methodological consistency in this work.
4. Measures to reduce regulatory asymmetry: The application of Law 12,815/2013 may give rise to different legal regimes for operating port infrastructure, which will end up competing with one another. This relationship needs to be balanced, or the extension of these contracts under the previous regime prevented, at the risk of frustrating the planning and regulatory measures described above. In addition, there is also an asymmetry between the legal regimes for operating public ports and private use terminals, which ends up making public ports less competitive than private terminals.
5. Standardizing procedures: There is a lack of clear rules governing the most important matters in the sector, from a clear definition of powers between the SEP and ANTAQ to the requirements and procedures for obtaining authorizations for private use terminals (TUPs), for example. It is important for there to be procedural rules on the matters within the SEP’s and ANTAQ’s remit, not least as a way of giving greater transparency, speed and scope for oversight of the acts performed by these bodies.
6. Environmental Zoning: Based on “macro” planning of the sector, once the real demand and the need to increase or readjust supply to meet that demand have been mapped, it would be possible to develop Environmental Zoning standards to guide the Licensing of each port area before the project is actually carried out (tender or authorization), so as to make public the most relevant conditions that must be met to allow the port system to be established or expanded in a given location.
7. Rescuing the Dock Companies: The new Ports Law already provides that the SEP will enter into target and business performance commitments with these Companies (Art. 64). It is possible to envisage management contracts to monitor targets and results in exchange for greater autonomy (delegating the status of “granting authority”, for example, as already provided for in the ports law). Alongside these measures, it is essential to ensure the economic sustainability of the tariffs charged by port authorities. Most Dock Companies do not have sustainable operations because the tariffs charged to operators are outdated or undersized.
8. Incentives for modernization: A complementary measure to improve the efficiency of organized ports would be effective support and coordination by the federal government for the development of programs such as the “paperless port” and the “foreign trade single window”.
9. Delegating public ports to the private sector: Concessions bring numerous advantages. Through concessions, the efficiency of public port management will certainly improve, with performance indexes linked to the concessionaire’s remuneration, allowing the State to concentrate its efforts and resources on regulation and oversight. The concession can be designed without implying the complete removal or abolition of the Dock Companies or Municipal or State Companies, adopting a model similar to that of the airport sector, where the Government holds a minority stake in the Special Purpose Companies responsible for operation.
10. Normative instruction for TCU oversight: One of the factors discouraging private investment is the lack of clear rules and the legal uncertainty surrounding contracts. It is therefore essential that the oversight exercised by internal and external control bodies over contracting has objective rules for assessing legality, respecting acts and contracts already entered into.

In short, there is no shortage of proposals for improving planning and regulation in the sector. What is lacking, however, are concrete initiatives. Despite their undeniable importance, the tenders for the first block of leases — especially the setbacks experienced while they were being structured — serve to alert us to the need to implement structural measures that can truly create the conditions for the effective development of the port sector in Brazil.

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[1] Attorney practicing Administrative and Regulatory Law, Public Procurement and Third Sector law. Partner at Giamundo Neto Advogados. Master’s degree in State Law from the University of São Paulo. Served as Legal Advisor in the Office of the Secretariat for Strategic Affairs of the Presidency of the Republic.