The Brazilian government has announced a $26 billion incentive programme to overhaul and expand the country’s congested ports. In a bidding process that will begin next year, the government said it is counting on an ‘explosion’ of outside investment as it looks for private enterprise to step in and improve public services.

The long-awaited programme follows an announcement made back in June this year when the government launched a $66 billion stimulus package designed to improve inland transport infrastructure including road and railtrack networks.

What was left in doubt following that announcement was the crucial absence of a figure on ports investment, an area where the greater problems lay, according to Michel Donner, senior advisor at Drewry Maritime Advisors.

Speculation on investments in new terminal developments, revamped ports and expansions was ranging anywhere between $15 billion and $25 billion. The $25 billion figure now promises the beginnings of a solution to the recurrent problems of congestion that have been causing problems for carmakers.

The package consists of public investment in new port infrastructure projects including dredging programmes and improvements to landside access. It also includes reforms to the current legal and regulatory structure of the port industry as the government brings in more public-private partnerships.
The government will now favour tenders from the private sector that offer to move the highest volumes of cargo at the lowest rates to users, rather than those that offer to pay the biggest fees to the government.

Under the terms of the programme, private terminals will now be allowed to handle third party cargo while port authorities will be subject to management contracts with new procedures facilitating a more flexible procurement process.

“These six months of indecision have frozen many new project developments, on the grounds of heightened regulatory risks,” said Donner. “The concerns have been partly reduced, but not completely removed. However, the package (investments and reform) provides a new landscape for the whole sector, among others by facilitating the penetration by new players. The changes are likely to contribute to unlock the badly needed capacity expansion of the port system, and will bring up a host of new business opportunities for private investors, albeit possibly with lower profitability levels.”

As reported in October importers have been facing tight port capacity, onerous clearance procedures and increased customs duty.

The latest announcement appears address those problems at a time of volatile vehicle demand. It follows an automotive plan launched in October designed to regulate Brazil's incentive programme for technical innovation and production expansion, which will run until the end of December 2017 involving lower taxes on both locally produced and imported vehicles (read more here).

The ports targeted for modernization include Santos, which is Latin America’s largest port by value of goods moved and has three container terminals as well as a dedicated vehicle terminal that can handle 290,000 vehicles a year.

The ports of Paranagua and Suape are also included in the plans and are both dealing with increased vehicle flows. The port of Paranaguá handled 230,000 finished vehicles in 2011, which was 27% higher than in 2010, and Nissan continues to look for available capacity for both vehicle imports and parts destined for its production facility in the city of São José dos Pinhais. The port of Suape, meanwhile, took delivery of a record consignment of vehicles from General Motors and Volkswagen in October. The 2,200 vehicles were more than double the fortnightly average of 1,000 vehicles imported from both Argentina and Mexico (read more here).

One of a number of difficult issues outlined by maritime research and analyst firm Drewry concerns the number of expiring terminal contracts, numbering 98 in all. According to Drewry the operators were expecting contracts to be extended. However, for 55 of them, the government has decided that they should be re-tendered. The remaining 43 might be extended for 25 years, after negotiations involving commitments to carry out new investments and introduce additional capacity and efficiency gains.

Another issue highlighted by Drewry concerns the fact there will now be three different regimes for port operators: private terminals, concessions based on the highest offer, and concessions based on the lowest tariffs – a framework ripe with potential conflicts on the issue of the “level playing field” according to Drewry.