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Brazilian Government to Finance $240 Million Dredging Project at Port of Santos

Latin America’s largest port is far from its deepest – a problem that has rankled the terminal operators and shipping companies that depend on it – but a massive new dredging contract should improve the situation in the years to come.

In December, Brazil’s Secretariat of Ports announced that the government will invest $1.6 billion dollars into the Port of Santos over the next 10 years, including about $240 million into a dredging project over the next few years. The announcement came weeks after the port’s newest container terminal, Brasil Terminal Portuario, was officially inaugurated and months after private terminal Embraport began operations.

In January, the Secretariat of Ports will tender a single large contract to dredge the Port of Santos’ entrance channels, berth access channels and 59 berths. In the past, dredging contracts at the massive port have been broken up into segments, and until recently, it was expected the next round of dredging would be sliced into two separate contracts, one paid for by Brazil’s federal government and the second by the local port authority. However, in December the Secretariat announced that the federal government will take responsibility for all the dredging and will contract the work to a single dredging contractor in a contract.

This decision was made in part because previous dredging contractors failed to deepen the port as much as they had been hired to do, explained José Newton Barbosa Gama, special advisor to Brazil’s Secretariat of Ports. The last dredging contractors hired to dredge the Port of Santos were supposed to deepen it to 15 meters (49 feet). They did so in much of the port, but crucially, the entrance channels have never been certified more than 13.2 meters (43 feet). Those few feet mean that ships forgo hundreds of containers. Because the dredging was split into multiple contracts, some parts of the port were dredged much deeper than others, creating a competitive imbalance between terminals.

“That, of course, was creating problems for the operating companies,” Newton said. “That’s why we decided to put it all under the (federal government’s) responsibility so we could speed up the whole process and we wouldn’t have one thing working and the other thing not.”

New Laws

The new contract will be written so that the contractor has three years to dredge every part of the port to 15 meters. At the end of three years, the government will conduct a bathymetric study to ensure this has been fully achieved, and if it has not, the contractor won’t be fully paid for its work. Once the 15 meters depth is achieved, the port will extend the contract and deepen its waterways to 16 meters (52.5 feet) and eventually to 17 meters (55.8 feet), Newton said. The material to be dredged is mostly sand and silt and will require suction hopper dredges, he said.

The government is able to create this kind of contract because of Brazil’s new ports law, which was passed in June 2013. Previously, Brazil’s ports had been operating under a restrictive regulatory structure that created a logistics bottleneck and did not encourage port expansion. The restructuring of the port regulations allows the government to reward efficiency in contracts, as opposed to simply trying to make or save as much money as possible.

Santos is the government’s first major investment since the new law has gone into effect. The port serves Brazil’s largest city, Sao Paolo, and counts among the busiest ports in the world. In 2012, it handled 104 million tons of cargo, including 14 million tons of sugar and 11 million tons of soy.

Next year’s figures will be even bigger than those, since two new large terminals have recently opened at Santos. After six years of construction, Brasil Terminal Portuario (BTP), was completed in March, but had to wait for its International Ship and Port Facility Security Certification in April, and an environmental permit in July. It received its first commercial vessel in August and was officially inaugurated in November. The 121-acre terminal has berths for three 9,200 TEU vessels and expects to handle 1.2 million TEU annually. The project is a joint venture between logistics companies APM Terminals and Terminal Investment Limited (TIL).

Meanwhile, the private terminal Embraport also opened in Santos this year. The terminal is a joint project of Odebrecht TransPort and DP World. Like BTP, it expects to handle about 1.2 million TEU annually. It has 653 meters (2,140 feet) of docks and 51 acres of yard area. It received its first commercial vessel, Mercosul Manaus, in July. The terminal will largely serve ships that are transiting between South America and the Far East. The project represents a $1 billion investment. A second phase of investment is planned that would expand the dock to 1,100 meters.

But these new terminals will not be able to work at their full capacity until more dredging is done. Both companies have expressed frustration at the slow progress in dredging.

Entrance Channel Dredging

Much of the problem is due to the heavily silted 25-kilometer access channel, which is divided into four segments, each of which serves different terminals. Sections 1 and 2 were dredged to 13.2 meters in the middle of 2013, and section 3, which serves Embraport, was only certified to 13.2 meters in December, according to Brazilian finance journal Valor Econômico. However, section 4, which serves BTP, Saboó and other terminals, has only been certified to 11.2 meters, and at least one terminal served by that section has lost a shipping line to a competitor because of the lack of depth.

Henry Robinson, the CEO of BTP, told Valor Econômico that his company cannot compete without a deeper entrance channel.

“For shipowners it is uneconomical to operate a vessel without benefit of the maximum capacity of loading,” Robinson said.

A BTP spokeswoman said that a portion of section 4 should be dredged by the end of January, which will have a big impact on the company’s competitiveness.

APM Terminals CEO Kim Fejfer participated in the inauguration event. In a November press release about the inauguration, Fejfer said the terminal is eager for the government to fulfill its infrastructure projects so the terminal can be used at a higher capacity.

“We look forward to seeing the government complete both the local access road and access channel dredging,” she stated. “Once finalized, these initiatives will help create the essential port and landside infrastructure necessary for Brazil to reach its ambitions.”

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