MercoPress. South Atlantic News Agency

Brazil opens ports to private investment hoping to ease bottlenecks strangling exports growth

Tens of vessels waiting to berth and load while kilometers of trucks are delayed from delivering their cargoes

Brazil’s Congress approved legislation that opens up state-owned ports to private investment and lifts restrictions on the building of private ports in a bid to eliminate serious bottlenecks strangling the country’s export growth. The Brazilian Association of Infrastructure and Basic Industries praised the approval of the bill and anticipate investment of 25bn dollars.

The reform bill, which may yet change if President Dilma Rousseff decides to veto parts of it, is an effort to make Brazil’s clogged, costly and badly managed ports more efficient. That, backers believe, can help restore robust growth to Brazil’s once-booming economy. However, negotiations over the bill set off a pitched battle between supporters and those who benefit from the status quo. While labour unions opposed the bill because it would loosen their grip on work contracts, port contractors, suppliers and other interest groups resisted changes to existing port business.

The bill’s passage was a hard-won victory for Rousseff, who negotiated with coalition partners and opposition parties to clinch approval just hours before a midnight deadline that would have killed the proposal.

Her 18-party coalition split over the controversial bill and so modified her original proposal that Rousseff is expected to veto at least parts of it. One change, for instance, eliminated an important provision that would have centralized control of ports with the federal government, wresting management authority from powerful state administrations.

“This is not the final version, but it’s an advance,” said Nelson Carlini, chairman of Logística Brasil, a company that runs several port terminals and plans to build new ones.

Like other businesspeople with their eye on the sector, Carlini is pleased the bill revokes restrictions on private investments.

The legislation eliminates a rule that restricted the operations of private companies at terminals in public ports to the handling of their own cargo and did not allow them to move third-party goods. The restrictions, private operators say discouraged new investments.

The government in recent years has increasingly turned to private investors for money and technology to upgrade Brazil’s crowded highways, decaying bridges, rickety electric grid and other over-stretched infrastructure.

But outside investment in ports has been more difficult until now because of legal barriers. For Rousseff, an overhaul of 20-year-old port regulations is an essential step to move ahead with a 26 billion dollars public-private investment drive to modernize gateways for Brazil’s crucial commodity exports.

Ports convey 95% of Brazil’s foreign commerce and as such are vital for a country that in recent decades became the world’s biggest exporter of coffee, sugar, beef, orange juice and ethanol.

Brazil’s 34 major ports, the government says, are unprepared to handle a potential quadrupling of traffic to nearly a billion tonnes a year by 2030. Ports in Brazil’s industrially developed southeast are working at near 100% capacity and those in the rest of the country are expected to be saturated by 2016. Brazilian port terminals also charge some of the world’s highest prices to move goods. Some of the high cost stems from labour agreements, but red tape, taxes and lack of competition between terminals are also to blame.

ABDIB praised the approval of the reform bill and anticipated that once promulgated it could unleash up to 25bn in private investment into the country’s ports. The key points welcomed by ABDIB include the relaxation of rules which have hitherto prevented private terminals handling third party cargo; and a switch in focus for the selection criteria of future terminal concessions, which will be awarded to operators guaranteeing the lowest handling charges to carriers and shippers, rather than those who paid the highest sums to the state, as had previously been the case.

“With the end of the distinction between owned and third-party cargo, private entrepreneurs are to have the right to request authorization to construct, at their own risk, new terminals to any load [cargo] type, contributing to the flow of transport and foreign trade, as well as reducing costs by increasing competition and productivity,” ABDIB said in a statement.

The need for reform of Brazil’s ports has been graphically demonstrated this year, with congestion at its main gateways hitting record levels. According to Drewry Maritime Research, its major ports have been plagued by heavy bottlenecks in terms of both shipping and truck traffic, partially caused by the seasonal spike in agricultural exports and partially by wildcat industrial action staged by dockworker unions opposed to the reform package.

“March and April 2013 witnessed a spectacular all-time high in the seasonal congestion, bottlenecks and queues both in the maritime and the land-side accesses to ports that are recurring realities in some of the main Brazilian ports like Paranagua and Santos. For example, up to 80 idle vessels have been counted on a given day at Santos anchorage, waiting for berths, while at the same time 10-12 km long truck queues paralyzed the road access to the urban, industrial and port areas on both banks of the port,” it said.