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New Brazilian Port Regulations to Open Up Dredging

For decades, Brazil’s government has not invested in the maintenance dredging of its harbors. That may change under new regulations.

For decades, Brazil’s government has not invested in the maintenance dredging of its harbors. That may change under new regulations.

As Brazil’s vast changes to its port regulations begin to shake out, it’s becoming clear that there will be sundry and sizable crumbs for the Brazilian and international dredging industries.

For two decades, Brazil’s ports have been operating under a restrictive regulatory structure, which prohibited private ports from handling cargo that wasn’t their own. Also, port licenses were granted to the company willing to compensate the government most—rather than to the company with the most ability and motivation to expand. The government was not investing in maintenance dredging at its public ports, just spot dredging for expansion or emergency purposes.

All of this combined to provoke a logistics bottleneck that infl ated the cost of trading with Brazil and threatened the country’s long-term economic prospects. Many of Brazil’s ports are already at capacity, and the rest are anticipated to reach that point within fi ve years. None are prepared to handle the estimated quadrupled port traffi c expected by 2030.

Everyone agreed that something needed to change, but exactly what those changes should be was the subject of hot debate, especially after Brazil’s President Dilma Rousseff proposed massive investment and specifi c legislation at the end of last year. That legislation evolved rapidly over the fi rst several months of this year, and various versions were backed or panned by the many stakeholders involved. Dockworkers stood up against versions they saw as potentially harming their earning potential or job stability, as did terminal operators. Right up until the deadline of its approval, it wasn’t clear whether the new law would pass through Brazil’s fractious National Congress. However, the proposal finally got the votes it needed on May 6, and it was offi cially made law on June 28.

Because of the way the regulation evolved over the course of several months, it took a while for ports, dredging companies, and even government regulators to pin down exactly how the final version of the new regulation would be implemented. But it’s clear that the new law creates major incentives for private and public port expansion across the country and for the first time, provides for the maintenance of public ports—both of which represent a boon for the dredging industry.

For the first time in decades, the country’s public ports will hire companies to conduct maintenance dredging, explained José Newton Barbosa Gama, special advisor to Brazil’s Secretariat of Ports. Until now, each port had only been dredged when it was specifi cally needed for expansion. With the new law, the maintenance dredging of the country’s ports will be bid out in single-concessionaire, 10-year contracts. Some of the larger ports will have their own maintenance contracts, while the smaller ports will be bundled into regional contracts. The dredging companies that win the contracts will maintain entrance channels, turning basins and other main waterways through the port, while individual port authorities will take responsibility from the access channels to the individual terminals, Newton said.

All of this work will be contracted out to private dredging companies because Brazil no longer has its own fl eet of dredges, Newton said. The Secretariat of Ports is currently writing up those maintenance contracts, and they should be out to bid by the end of the year, Newton said.

Changes in the regulation of private ports are also likely to bring big business to dredging companies. Until the new law went into effect, private ports were only legally allowed to handle their own cargo. For example, a terminal run by a commodities trader was prohibited from handling cargo from other companies or other industries. With the new changes in law, private ports are allowed to build containers and other terminals, which means expanded facilities and more dredging. The plans must be approved by the federal government, and already the Secretariat of Ports is receiving dozens of requests for permit approvals for expansion.

The government is also changing the way it chooses the companies that operate terminals on public land in a way that will certainly produce more dredging. Brazil’s public ports operate on the landlord-lease port model, where contracts to develop and operate terminals are auctioned off. But now, rather than choosing the company that offers the greatest compensation, the government will be selecting the company that has the greatest capacity to expand and invest.

In August, the Brazilian Ports ministry unveiled two blocs of new terminal leases at public ports that will be auctioned off. The fi rst, which will be auctioned on November 25, includes 31 projects split between the Port of Santos—Latin America’s largest port—and ports in the northern state of Para. A second bloc will auction leases in several other parts of the country, including Espirito Santo and Rondonia, according to a story by Port Finance International. Reuters reported that more than 100 other terminal leases will be auctioned off in early 2014.

Of the first bloc of 31 projects, 11 are grain, fertilizer, cellulose and liquid bulk terminals at the Port of Santos, and it is expected to be built for $1.4 billion in private investment, adding 27 million tons to Santos’s annual shipping capacity of 105 million tons, Port Finance International reported.

The other 20 projects in the fi rst bloc are dispersed over fi ve ports in the northern state of Para and will roughly double the region’s annual shipping capacity of 22 million tons of cargo. The $1.6 billion in private investment will go towards new grain terminals in the ports of Outeiro and Santarem, a new liquid bulk terminal in Vila do Conde, new container handling equipment in Belem and other improvements in Miramar.

The second bloc would expand Brazil’s annual capacity by another 35.6 million tons, and will draw $2.2 billion in investment for 12 new terminals and two terminal extensions. The investments will construct a mineral export terminal in Espirito Santo, new petroleum terminals in the North region, and improvements to grain handling in the interior state of Rondonia, Port Finance International reported.

It’s clear that these changes and expansions mean much more dredging for Brazil than it has seen in past decades. However, exactly who will profit most from the changes is not yet clear.

Paulo Rodriguez, general director of Brazilian dredging company Terpasa Serviços Técnicos de Dragagem Ltda., said that overall, the changes are probably better news for the biggest international dredging companies than they are for small or medium-sized companies like his.

From the perspective of a medium-sized company, “the bad news” is that “the fi ve European and Chinese biggest dredging contractor companies will catch the $3.8 billion Reales ($1.6 billion USD) in maintenance dredging contracts, with no chance for local or smaller companies, even for surveying and monitoring environment jobs, because it is all included in the main contract.”

But that said, there’s likely to be lots of other work available for smaller companies with the expansion of both private and public terminals.

“At this moment there are already more than 60 private companies asking for a permit for new private terminals,” he said. “I predict a lot of opportunities to enlarge, deepen or create new channels and basins to access these terminals.”

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