ACCESSING INTERNATIONAL MARKETS BRAZIL OPPORTUNITIES FOR UK-BASED COMPANIES IN THE PORTS SECTOR

Transcription

1 ACCESSING INTERNATIONAL MARKETS BRAZIL OPPORTUNITIES FOR UK-BASED COMPANIES IN THE PORTS SECTOR

2 Front cover images: bottom left and right copyright of DP World

3 CONTENTS 1. Executive Summary 1 2. Introduction Scope and Methodology About the Author 3 3. A Brief Overview of Brazil Geography An Economic Overview The Political Structure 7 4. The Ports Sector in Brazil An Overview of the Ports Sector The PAC Programme and Port Investment Bulk Materials and Liquids Port Projects for the World Cup 2014 and the Olympic Games The Regulatory Framework for Ports Overview Regulation and the Impact on the Sector Details of Selected Ports Background Santos Port Suape Port Recife Port Itajaí Port and Portonave The Ports of Rio de Janeiro The New Superports of Açu and Sudeste The Port of Itapoá Doing Business in Brazil Introduction Establishing a Business Presence Business Negotiations and Contracts Business Opportunities Market Overview Market Opportunities Conclusions 34 Appendix A Scoping Mission Programme 35 Appendix B Useful Contact Details 42 Brazil - Opportunities for UK-based Companies in the Ports Sector

4 1 EXECUTIVE SUMMARY Brazil has emerged from a period high inflation and slow economic growth to become one of the dynamic economies of the 21st century. Ranked 8th in the world by GDP, their GDP is more than double that of any other South or Central American country. FDI has played an important role in Brazil s development attracted by the large and growing domestic market and the liberalisation of the economy, but also responding to export demand for Brazil s metals minerals, agribusiness, oil and petrochemicals with growing markets in China and the Far East. The country received a boost with the award of the World Cup for 2014 and the Olympic Games for Rio de Janeiro in 2016, but has to deliver significant infrastructure projects for these events to be successful. The previous Government launched an ambitious Growth Acceleration Programme (PAC) embracing a social programme with investment in infrastructure funded by the private and public sector. The current Government are continuing with the next phase of this programme termed PAC-2 which again invests heavily in infrastructure. The ports sector had historically suffered serious under-investment which was hampering Brazil s economic growth, and the PAC-1 and PAC-2 programmes have gone some way to improving port infrastructure. This report outlines areas of ongoing investment based on a fact-finding mission and detailed internet research. The majority of multi-use ports are retained within the public sector with many of the terminals concessioned to the private sector, typically under 25 year concessions renewable for a further 25 years. There are a number of Brazilian and foreign interests involved in these activities, with considerable expansion and modernisation planned to meet growing demand. At Suape Port in the northeast of Brazil, the Masterplan has been developed for major expansion of the port and associated industrial complex. The overall Masterplan of the Port Regulator, ANTAQ states that 19 new public sector ports will be required to meet demand, and that these will generally be operated under concession contracts. Many companies operate private terminals primarily for the export of their own products and materials, and more new terminals are being built. Current regulations covering the development of new private ports are complex and considered by many in the industry to be restrictive. Further details are included in this report. There are however two major private port developments currently progressing; Embraport close to the port of Santos, and Açu Superport north of Rio de Janeiro. Embrabort, with major shareholders Odebrecht and DP World, will primarily handle containers and ethanol. The Açu Superport is a major development by Brazilian conglomerate EBX that will become a major export route to China and will include processing and production industries in the associated industrial complex. A further major private sector port near Santos is planned but there are a number of environmental hurdles to be overcome. 1

5 Brazil has a shortage of appropriate skills to meet the ambitious targets that need to be met over the next few years and in 2008 the major mining company Vale reported that there was a shortage of geologists and engineers in ports, railways and mines that was impacting developments. Brazil has little recent experience of developing new ports and terminals, and British companies have an excellent international reputation in this area. The demands of infrastructure investment across the sectors is also resulting in a shortage of project management skills. The oil and gas sector is expanding rapidly with recent offshore finds, creating demand for products and services in the exploration and exploitation of the finds. 1 Major companies that are operating in Brazil may provide supply chain opportunities. In the oil and gas sector, Petrobras is the major player with BG Group, Shell, Exxon and BP also very active, often in partnership with Petrobras. Vale, the largest mining company in Brazil invests heavily in its terminal network and is planning to build a major new terminal in the north of Brazil to ship iron ore. BHP Billiton is also active in the market. The Brazilian conglomerate EBX is developing two major port projects near to Rio de Janeiro, and companies such as DP World and APM Terminals are also investing heavily. There are a number of barriers to easy entry into the Brazilian market. Language constraints, employment conditions, tax regimes and general regulatory constraints all need to be fully researched and specialist advice sought. Building relationships is important in Brazil, and if a local representative or agent is not employed, then provision must be made for regular visits to the country before a contract is likely to be secured. However, Brazil seems certain to remain a dynamic and growing economy that will be unable to fully meet the demands for products and professional services from its own resources in the port and other sectors in the short to medium term and this will provide opportunities for those who commit to the market. UK Trade and Investment can assist companies to investigate the market and seek business partners or clients through the Overseas Market Introduction Service. 2

6 2 Introduction 2.1 Scope and Methodology This report, to explore the market opportunities for UK companies in the Ports Sector in Brazil, was undertaken by British Expertise on behalf of UK Trade & Investment Ports Sector Team. The project was undertaken by David Howell of dmh Consultancy Ltd; current Chairman of British Expertise. The report gives an overview of the geographic, economic and political characteristics of Brazil and focuses on issues relating to port operation and development based on a Scoping Mission to Brazil and detailed internet research. Internet research was initially undertaken in order to obtain an overview of the market and to help focus on key areas of potential opportunity. This was followed by a focussed fact-finding mission developed in conjunction with UK Trade & Investment s Transport Sector Team in Brazil. Meetings were held with regulators, public and private port operators, Brazilian conglomerates, and trade bodies. A schedule of the meetings held is given in Appendix A. Meetings were held in São Paulo, Santos, Recife, Suape and Rio de Janeiro, and information was also obtained on the port at Itajaí via a video link. The author was accompanied on the mission by Cathy Hodge of Port Finance International and Damon O Brien of URS Scott Wilson and by Guillaume Lucci of Halcrow and Richard Hawkins of Clyde and Co for part of the mission only. Following the visit, further internet research was undertaken to explore in greater depth certain of the issues raised during the meetings, and this report draws on the three strands of research described above. The author would like to thank the staff of UK Trade & Investment at the British Consulate Generals in São Paulo and Rio de Janeiro, and the British Trade Office in Recife for making the detailed arrangements for the visit programme and for additional information on local market conditions. 2.2 About the Author David Howell has 40 years experience in the construction sector and has maintained his interest in international markets throughout his career. He has served at senior management level with a major UK consultancy, he was responsible for the establishment of a number of offices in Western Europe and the emerging markets of Central and Eastern Europe and was involved with the integration of a significant acquisition in the USA. He has been involved in the management of consultancy projects and in business development in Europe, the Middle East and Far East. David is a Chartered Engineer and Fellow of the Institution of Civil Engineers and a member of their International Policy Committee. He is currently Chairman of the trade association British Expertise. Through his company dmh Consultancy Ltd, he has undertaken a number of assignments to assess and report on the market potential in various countries, and has led a number of construction and ports sector missions overseas. He was author of the UKTI Construction Sector reports on Brazil and Mexico. 3

7 A Brief Overview of Brazil 3.1 Geography With a land mass of approximately 8.5m sq km, Brazil is almost 40 times the size of Great Britain, and equivalent to 90% of the land mass of the USA. Brazil s population was estimated to be 194 million in 2009 and is growing at approximately 1% per year. This ranks Brazil as the 5 th largest country by population (and the 5 th by land mass) in the world. Brazil is by far the largest of the South American countries, and it shares a border with all countries of South America except Chile and Ecuador. There are 26 states and the Federal District of Brasilia. The capital was moved from Rio de Janeiro when Brasilia was built in the 1950 s and the capital is now the 4 th largest city in Brazil with a population of around 2.5m. The metropolitan area of São Paulo has a population of over 19m and covers an area of 8,000sqkm placing it in the top 3 metropolitan areas in the Americas alongside New York and Mexico City. The State of São Paulo has a population of over 40m (two thirds of the population of the UK) and six of the States have populations over 10m. Only three of the twenty six States have populations below 1m. Brazil is the only country in South America where the national language is Portuguese. 3 The country is rich in natural resources including bauxite, gold, iron ore, manganese, nickel, phosphates, platinum, tin, uranium, oil and timber, and these products form Brazil s main exports which are generally transported by sea. Brazil is developing its oil and gas resources, and is now investing heavily in offshore exploration, but it still relies on imports of natural gas from Bolivia. 4

8 3 Brazil is divided into five regions for demographic and statistical purposes only, and the regions are neither political nor administrative areas for the country. They are illustrated in the map below, and a brief description of each region is also given: Regions of Brazil The largest region is the sparsely populated North, which is approximately 45% of the land mass and includes the Amazon basin with vast areas of rainforest. The poorest and driest region is the Northeast which occupies around 30% of the land mass. The third largest city in Brazil, Salvador, is situated in Bahia State and the major port and industrial complex of Suape is in Pernambuco State, both in the Northeast region. The Central West region contains the Cerrado, the large tropical savannah part of which is used for soybean production and other agricultural purposes, and the Federal Capital of Brasilia is located in this region. The South and Southeast are the wealthier districts, with the Southeast representing over 50% of the country s GDP. The major cities of São Paulo and Rio de Janeiro are both in the Southeast, and the region has the headquarters of most large multinational companies that have a presence in the country. The South region is only 7% of the land mass, but the region has a higher income level due to the industrial and agricultural activity. 3.2 An Economic Overview According to the CIA World-Factbook, Brazil s GDP is the 8 th largest in the world and only approximately 10% below that of the UK. GDP per capita, however, is only 30% of that of the UK due to the great disparity in income levels between rich and poor, and the population size. The Government are seeking to address the problems of poverty. Brazil s GDP is more than double that of any other 5

9 South or Central American country, and the State of São Paulo contributes more that a third of Brazil s total GDP. Brazil had been plagued with high inflation during the 1980 s and early 1990 s and this had deterred foreign direct investment. However, over the past decade, FDI has played an important role in Brazil s economic development attracted by the very large and growing, domestic market and the liberalisation of the economy. Significant investments are also being made into developing the extraction of metals, minerals and oil and gas, much of which goes for export via an expanding network of ports and terminals. Brazil is now the world s 4 th largest car manufacturer having overtaken Germany in the first half of 2010, and in June 2010, Fiat sold more cars in Brazil than in Italy. Brazil is a key exporter of a number of materials and products as can be seen from the table below: 3 Material/Product Produced Corn Soybean meal Sugar Pork Beef Leather and fur Footwear Aluminium Steel Iron Ore World Ranking as Exporter 2 nd 2 nd 1 st 4 th 1 st 4 th 5 th 6 th 10 th 1 st Brazil s economy withstood the worldwide downturn relatively well, and after contracting in 2008 and the first quarter of 2009, the economy became the first of the Latin American countries, and one of the earliest G-20 economies to recover in the second quarter of the year. Brazil s Finance Ministry projects a 5% growth in GDP in 2011, but there are fears that the economy will overheat. In 2010 inflation hit almost 6%; the highest rate for six years, and the trend is continuing. However, whilst inflation is running at 6%, the cost of borrowing is running at around 25% rising to over 30% for consumer lending. It is reported that Brazil s risk management infrastructure is weak and that pressures on banks due to losses on consumer lending could lead to a serious financial situation similar to that experienced in the US. Spending by the Federal Government more than doubled during the presidency of Luiz Inácio Lula da Silva driven in part by the PAC (Growth Acceleration Programme) which was designed to stimulate investment in infrastructure by the private sector with support from the public sector. Whilst the programme was very successful in helping Brazil to address the problems of global recession, continuation of the measures is claimed to have led to an overheating of the economy with rising interest rates and the risk of further increases in inflation. 6

10 3 Updating Brazil s outdated infrastructure was the key driver for the PAC programme, and prior to the elections in 2010, the President announced Phase 2 of the programme for valued at US$526bn, with projections for a further US$346bn to follow. Over 10% was allocated to transportation projects including port development. In February 2011, cuts of around $30bn to the Budget were announced by the Finance Minister who stated that spending on infrastructure and social programmes would not be affected. Fitch have raised the foreign debt rating one level to BBB from BBB- putting the rating on a par with Mexico and Thailand. The improvement is a reflection that there are signs of fiscal restraint by the administration of the new president. 3.3 The Political Structure Brazil was under military rule from 1964 to 1985, and the first President to be elected by a fully democratic process was in The President is elected for a four-year term and may stand for re-election for one further term in office. The former President, Luiz Inácio Lula da Silva, was elected in October 2002 and secured a second term in office in 2006 that ran until Elections were held in October 2010 when no clear majority was obtained, and Dina Rousseff, the candidate supported by the out-going president secured a majority in the second round held in November. With the exception of certain key regulatory appointments, the Executive Cabinet is selected by the President. The new President has stated that she intends to follow the broad economic and social policies of her predecessor. The legislative branch of Government is the National Congress which is made up of the Senate and the Chamber of Deputies. Each State elects three Senators who serve for an eight-year term Elections are on a two thirds, one third basis every four years. Senators are elected on a first past the post system. The Chamber of Deputies is elected on a proportional representation basis in accordance with the votes for each party. The number of Deputies varied depending on the size of the State within maximum and minimum limits. The key political parties in Brazil include the Workers Party (PT), the Party of the Brazilian Democratic Movement (PMDB), the Brazilian Social Democratic Party (PSDB) and the Democrats (DEM) The President is a members of the Workers Party. There are indications that the new President intends to continue to exert influence over major Brazilian companies to support certain policy decisions. The Chief Executive of the major mining company Vale has been ousted after refusing to change the company s commercial strategy and implement more labour intensive activities, and the energy company Petrobras has been encouraged to make investments to satisfy government economic policy rather than on purely commercial grounds. There are some concerns that this policy could discourage some future investments into Brazil. 7

11 The Ports Sector in Brazil 4.1 An Overview of the Ports Sector Brazil has a coastline of 8,500km running from north of the equator to below the 30 th parallel in the south. In 2009, there were 37 public ports (including both seaports and river ports) and 128 private terminals. The Federal Special Ports Secretariat is responsible for 34 of the public ports with 18 administered by State or municipal governments, and 16 (in 7 States) operated by the public-owned Companhia Docas. Three public ports are operated under private concessions. Only 14,000km from a potential 27,000km of inland waterways are navigable at the present time, and there are 20 river ports. The map below shows the locations of the key ports with public sector involvement; there are a growing number of private sector terminals generally handling specific products or private operations within the public ports which operate under concession contracts. As will be discussed later, there are some major difficulties in developing private sector general trading ports although there are some operating examples and plans for further projects including a major new development north of Rio de Janeiro. 4 The principal public ports of Brazil 8

12 4 In 2009, Brazil saw a marked downturn in both exports and imports of around 20%, but there was a significant recovery in 2010, with further growth projected for The top-ranking ports for tonnage handled in 2009 were: Ponta da Madeira 87.7 million tonnes (private iron-ore port close to Itaguaí) Tubarão 83.8 million tonnes (private port close to Vitória) Almirante Barroso 49.5 million tonnes (primarily oil, close to São Sebastião) Santos 75.6 million tonnes Itaguaí (Sepetiba) 49.8 million tonnes (close to Rio de Janeiro) Paranaguá 30.6 million tonnes Several of these ports and terminals specialize in the shipment of a single commodity, with Ponta da Madeira and Tubarão handling mineral ores and Paranaguá focussing primarily on the shipment of soybean. The port of Santos handles significant volumes of all forms of cargo and is the front-runner for general cargos and container traffic. Value-added goods are generally shipped by container, and the value of shipments from Santos was approximately US40bn in 2009; almost three times that from the second ranked port Vitória. The table below shows the ranking of the top 10 Brazilian ports for both general cargo and container traffic by quantity shipped in 2009 and the percentage change from 2008: Rank General Cargo Container Teus Port Change Port Change 1 Santos 28,514,754 32,675, % Santos 2,255,862 2,677, % 2 Paranaguá 9,452,718 9,799, % Paranaguá 630, , % 3 TUP Portocel 8,354,553 7,602, % Rio Grande 629, , % 4 Rio Grande 6,949,047 6,770, % Portonave/Navegantes 398, , % 5 Praia Mole 6,351,728 6,795, % Rio de Janeiro 350, , % 6 Rio de Janeiro 5,438,530 6,436, % Salvador 244, , % 7 Portonave/Navegantes 4,155,507 n/a - Suape 242, , % 8 Vitoria 3,757,212 5,077, % Vitoria 209, , % 9 Itaguai/Sepetiba 3,381,702 4,155, % Itaguai/Sepetiba 206, , % 10 Suape 3,317,609 3,950, % Itajai 195, , % Top 10 79,673,360 75,661, % Top 10 5,363,183 6,333, % Other 22,337,755 39,752, % Other 744, , % TOTAL 102,011, ,413, % Total Brazil 6,107,988 7,018, % TUP - Private use Terminal (Terminal Usado Privado). Source: Agência Nacional de Transportes Aquaviários - ANTAQ, Anuários Estatísticos Portuários and 2009 Most of the container traffic (84% of TEUs handled) is located in the south and south east regions of the country, with the State of São Paulo accounting for 37%, Santa Catarina 13% and Parana and Rio Grande do Sul 10% each. 9

13 Approximately 90% of Brazil s exports are carried by sea, and with a 50% increase in exports anticipated by the Brazilian Government between 2011 and 2016, additional facilities will be required together with improved operational efficiencies and better infrastructure provision to serve the ports. Brazil s key import and export markets are USA, Europe, China and Argentina, but other Asian markets are growing in importance for exports. The expansion of Brazil s overseas trade is being hampered by insufficient ports and terminals, operational constraints and poor infrastructure for access to many ports. Prior to the PAC (growth acceleration) programme, there had been a serious underinvestment in the sector with only around 8% of infrastructure spend allocated to ports. 4 Oil and gas production are gaining in importance for Brazil and there are plans to spend US$225bn over the next five years on doubling capacity for oil production and export. By 2020, the state-run oil company Petrobras expects to have doubled production from the current 2.7m bpd to 5.4m bpd. Brazil has been importing significant quantities of natural gas from Bolivia, but since a peak in 2008, there has been a move to reduce dependency on imports with an increase in home grown production. The current uncertainty within the Middle East region will no doubt lead to increased confidence in the potential to further exploit resources. Brazil is a growing destination for cruise ships, and additional cruise terminals are being constructed for the World Cup 2014 and Olympic Games There are a number of private sector terminal operators in Brazil that focus primarily on exporting raw material to overseas markets from the owner s own production and this is a continuing growth market as Brazil exploits its mineral and agricultural wealth. The Brazilian conglomerate Vale, for example, controls over 80% of iron ore production in the country, and has interests in other mining and product areas in Brazil and elsewhere, and is continuing to expand activities. 4.2 The PAC Programme and Port Investment The first phase of the PAC Growth Acceleration Plan ( ) allocated approaching US$2bn to the ports sector to cover dredging and improvement to port infrastructure and land access. Under the programme, a national port dredging programme was created, and dredging works approaching US$1bn are scheduled to be mostly completed by mid 2011, involving the dredging of almost 80m tonnes from access canals and berths at 18 ports. The largest dredging project was at the Port of Rio Grande in the state of Rio Grande do Sul where the dredging of a 17km canal will allow Panamex vessels to berth for the first time. Ports in the southern part of the country will require regular maintenance dredging once or twice a year whilst those further north require maintenance only once every two to three years. When the dredging programme is completed, it is estimated that it will increase port capacity by up to 30%. The channel to the Port of Santos was also dredged from 13m to 15m under the PAC-1 programme. 10

14 4 The first PAC programme also included approximately US$1bn for improvement of port infrastructure and land access at 10 ports and under the PAC-2 programme, a further expenditure of US$3bn is anticipated on dredging, port infrastructure, port logistics and passenger terminals for the World Cup The map on the next page shows the key projects that will be undertaken under the PAC-2 programme, and includes various projects covering port logistics. Port Projects for PAC-2 Private sector investment is an important part of the development programme and the Brazilian Government is continuing with the programme of offering concessions within the public ports. The leasing of public terminals by concessions has been ongoing since 1995, and the table below shows the key ports where this has occurred. Whilst this leads to investment by the private sector, there remain a number of operational issues that still need to be addressed in order to maximise the efficiency of port operations. 11 Major Public Ports Leasing Year Started Terminal Expiration Date 1995 Libra Terminals T Libra Terminals T Tecon Rio Grande Santos Brazil Paranaguá Vitória Sepetiba Tecon Salvador Itajaí Vila do Conde Imbituba 2033

15 The U.S. Trade and Development Agency are funding a study by Unisys called Brazil s Intelligent Cargo and Intelligent Network Port Logistics Chain project. This project will assess how enhanced business processes, technologies and best practices can be used to improve the security and efficiency of the country s port and logistics operations. The project represents a first step towards creating a single window for the sharing of data across Brazil s logistics chains. 4 Major investments into terminals continuing and in January 2011 it was announced that Advent International, the American based private equity company, intended to acquire 50% of the share capital for the container port at Paranaguá for US$500m. Currently ranked as the second largest container port in Brazil, the proposal is to invest in a third berth and new equipment so that the capacity can be more than doubled to 1.2mTEUs. This is but one example of ongoing investment into terminals operated by the private sector within the public ports. In the Amazon Region, the Special Ports Ministry have recently fast-tracked a project for the design and engineering of a new 500,000 TEUs container port and bulk cargo facility at the river port of Porto Novo de Manaus and a preferred bidder was due to be announced in January. The short listed companies for the US$200m project were APM Terminals, Groupo Libra and an Italian consortium. A separate tender will be held for the operation of the proposed terminal under a 25 year concession, and if a different company wins, then the winner of the first phase will be compensated. A major development at Santos is the Embraport project to construct a new private mixed-use container and bulk liquids terminal on a greenfield site. The first phase of the new terminal will handle 2m tonnes of liquid bulk per year and 1.2m TEUs from containers. The IDB announced in December 2010 that a loan of US$100m had been granted for the project coupled with a US$300m loan from commercial banks. DP World and Odebrecht have acquired a majority stake in Embraport and will be the operator and constructor respectively for the project. The table below shows the current major mixed use private terminals and the time taken to bring the project to fruition: Mixed Used Private Terminals Portonave Itapoá Embraport Year started Environmental authorization Authorisation from ANTAQ Construction started Operation started Another major private mixed-use development but not shown in the table above is the Açu Superport in the north of the state of Rio de Janeiro. When completed, it is claimed that this US$2.7bn project will be one of the largest ports in the world and will open up a major shipping route to China. Further details on the project are given in Section

16 4 Development of private terminals to service the needs of companies wishing to export their own cargos has been ongoing for a number of years but the regulations become complex when cargos from mixed sources are to be shipped from privately developed ports. An outline of the regulatory framework is given in Section 5, but evidence suggests that there remains a lack of clarity. 4.3 Bulk Materials and Liquids Brazil is a major exporter of a number of bulk materials including iron ore, soybean, ethanol and oil and gas products which are exported by sea. China is a growing market for Brazil s natural resources, and new port facilities are being built to meet the demand. Brazil is second to the USA in the production of soybean, and in 2010, exports were expected to reach 30m tonnes; approximately 50% of total production. Around 60% of the export is destined for China, where total demand is said to be 50m tonnes. The country is one of the most important world producers of iron ore, and the Brazilian mining company Vale is reported to have set a production target of 522m tonnes by 2015; up from the current production of 311m tonnes. The company is reportedly looking to develop a new private terminal in Curuca in the northern state of Pará for the purpose of exporting iron ore as this would be much closer to the Carajas mines than the existing port facilities. In 2010, Vale invested almost US$13bn and this trend is set to continue. According to the Oil and Gas Journal, Brazil has over 14bn barrels of proven oil reserves and recent finds could double this figure. The oilfields are located offshore from the Southeast regional states as shown on the map below. Location of Brazil s oilfields and exploration 13

17 Domestic demand is increasing, but as further discoveries come on stream, exports of oil and petroleum products will increase, and massive on-shore storage facilities will be required. 4 The port of Açu currently being developed, expects that the export of iron ore will be the largest revenue generator followed by oil shipments. Other ports and terminals in the Southeast region will benefit from the increased oil production, and demand will increase for transportation and storage of oil and petrochemical products. Increased oil production has led to expansion of the activities in support industries, and in both the northern and southern ports there are increased facilities for building offshore platforms and modules, tankers and support vessels. 4.4 Port Projects for the World Cup 2014 and the Olympic Games 2016 Major infrastructure investments are ongoing for the World Cup and investments in port infrastructure are estimated at approximately US$450m coming from both the public and private sectors. It is reported that projects are generally running behind schedule although some conversion work at Recife Port has progressed and cruise ships can now be received. The table below shows the allocated projects for 2014 World Cup in the ports sector all of which involve the development of passenger ferry terminals. Port Investment for World Cup 2014 Port Estimated Investment US$m Description of Projects Salvador 21 Adoption of warehouse for passenger ferry terminal Recife 13 Adoption of warehouse and construction of 7 new areas for passenger ferry terminal and port upgrading Natal 32 Adoption of refrigeration shed for passenger ferry terminal and port upgrading Mucuripe 64 Construction of passenger ferry terminal and general upgrading Santos 76 Alignment of piers and improvements to internal access roads within the port Rio de Janeiro 190 Deployment of 3 piers for passenger ferry terminal Manaus 54 Adoption of 2 warehouses as a passenger ferry terminal and development of covered walkways Total 450 The Olympic Games in Rio de Janeiro in 2016 will also generate more opportunities and plans for the massive redevelopment of Rio s central port region are progressing. The Porto Maravilha or Marvellous Port project involves the redevelopment of a 3km by 1km area of rundown waterfront close to the central business district. The US$2bn project will include redevelopment of the waterfront and the introduction of residential, commercial, leisure and retail facilities. 14

18 5 The Regulatory Framework for Ports 5.1 Overview The regulations covering the ownership and operation of ports have evolved over the last 20 years but there remain concerns at the lack of clarity in certain of the regulations relating to private operations. Whilst the Government has moved towards a liberalisation in the sector, there remain significant constraints on the ways that private ports can operate. The regulations are complex, and this report can only give an overview of some of the key concerns identified from the scoping visit and further internet research. Many of the activities in the public ports are now undertaken by the private sector under concession contracts. The current regulations permit an initial concession of 25 years with the option to extend for a further 25 years. Regulations have been eased to make it easier for foreign companies to play a major role in the various concessions. However, a number of activities are still regulated by the state in the public ports including the restriction requiring the use of registered port labour. Private terminals have been constructed for many years but there are complex issues surrounding the definition of own and mixed cargos. In addition, there have been various regulations that restrict the rights of an owner to develop an approved terminal without going to public tender. Some of these issues are now being addressed, but there appear to still be some concerns within the industry. 5.2 Regulation and the Impact on the Sector The Ports Law, passed in 1993, started a modernisation process for the Brazilian ports and allowed concessioning of public terminals to the private sector. The law also allowed the development of private terminals that were defined as follows: Private terminal own cargo Private terminal- mixed cargo (relating to handling of own and third party cargo) Private terminal tourism (passengers) Private terminal transhipment In 2001, a new law was passed that created the National Agency for Waterway Transportation (ANTAQ). The agency was created to regulate and supervise waterway transportation and port services and to authorise private terminals. The initial legislation permitted private owners to develop their own terminals once approval had been gained from ANTAQ, but subsequent legislation tightened the regulations on private terminals by sharper definition of regulations on the handling of mixed cargos, and introduced a requirement that even the development of private terminals should be open to tender regulated by ANTAQ. A private port developer could therefore find that having undertaken all the studies and development work, the contract was won by a third party. Despite compensation arrangements, this process could be a barrier to the development of private ports. 15

19 The recent legislation is not retrospective, and the developments at Portonave, Itapoá and Embraport should not be impacted although further development of these facilities could be subject to the new laws. The imposition of a fine by ANTAQ of US$200k on the private port of Portonave (adjacent to the public port of Itajai) is reported to have caused some concerns amongst investors in private port developments. The fine was imposed as it was claimed that the port was contravening the regulations for mixed cargos and was not handling sufficient of its own cargo. Such actions demonstrate the sensitivities the authorities have with private port operations. 5 The table below shows the relationship between ANTAQ, the regulator, and the various government and private sector organisations. FED. GOV Executive Power ANTAQ Regulation Inspection Regulation/ Inspection/ Authorization Secretariat of Ports Port Authority Brazilian Waterway Infrastructure Private Terminals Shipping Companies Administrative Delegation Administrative Delegation Ministry of Transport The Port Authorities may be administered by the appropriate State or Municipal governments or be run by the Federal government. Itajaí is reported to be the only significant port run by a local municipality. APTM, the Brazilian Association of Port Terminals, have concerns that the new government will not continue with the necessary reforms to the ports sector, and they will be lobbying to continue to open up the sector to encourage development. The Association has a good working relationship with ANTAQ, but has different objectives and wishes to see a reduction in the regulation and differentiation between operations in public and private ports. The requirements to use union labour within the organised port and the restrictions that this imposes are considered to be very detrimental to efficiency within the public ports. ANTAQ and the Special Secretary of Ports have drawn up a Masterplan for 19 new public ports to be developed in Brazil. The ports will be regulated by the public sector, but will be built and operated under concession agreements without any requirements to handle their own cargo. 16

20 6 Details of Selected Ports in Brazil 6.1 Background The Scoping Mission to Brazil included visits to the regulator ANTAQ, the Brazilian Association of Port Terminals, contractors and various organisations associated with certain key ports in order to gain a greater understanding of the current activities and future development plans. Visits were made to the major ports of Santos and Suape and to the port of Recife. Meetings were also held to discuss the development of the new superport of Açu, north of Rio de Janeiro, the development of the old port at Rio and the port of Itají in the south. A video conference was also held with representatives of Portonave; the private terminal adjacent to Itají Port. The descriptions given below give an overview of these ports and are indicative of the activity in the sector. There are many other major ports around the coast of Brazil where significant investments are also being made. 6.2 Santos Port The Port of Santos is the largest port in Brazil and is relatively close to the major industrial and commercial hub of São Paulo. The state of São Paulo accounts for approximately half of the country s GDP, and the port is therefore a very important conduit for both imports and exports. Road and rail connections to the port have been improving but there remain problems of congestion around the entrances to the port with poor local connections to the highway network. Santos Port Barnabé-Bagres proposals Embraport development Entrance to Port Santos Port is essentially a public port managed by Codesp (Companhia Docas do Estado de São Paulo) which is a body controlled by the federal government. The port is located on both banks of the estuary, and recent dredging has increased the depth of the main channel to 15m. The port has built up over the years and has reached capacity within the currently defined port area. 17

21 The authorities intend to extend the boundaries of the port to allow for further growth. A major development outside the port boundary is the private sector development of Embraport located as shown on the photograph on the previous page. Major shareholders in this project are DP World and Odebrecht together with the Brazilian trading company Coimex, and as already mentioned, the project has secured loans from IDB and commercial banks. The project consists of the concept, design, financing, construction, operation and maintenance of a private port terminal that will handle both containers and liquid bulk (primarily ethanol) and the terminal will move third party traffic as well as the owner s own cargo. It includes a 1,100m quay, 250m mooring pier for liquid bulk cargo, storage site of 600,000sq m for the storage of containers, a 100,000 cubic metres tanking park, the necessary pipeline system, administrative buildings (including customs facilities) and a bonded warehouse. When completed, the port will represent the largest private port facility in Brazil with a capacity of up to 1.2m TEUs containers and 5m cu m of liquid bulk handling capacity. The total project cost is expected to be in the region of US$1bn with completion projected for It will have taken over 15 years to take the project from inception to completion. 6 Privatisation of container terminals in Santos Port has already taken place under concession contracts let for 25 years. The company Santos Brazil is now the largest container operator in Brazil, and Tecon Santos handled almost 50% of the container traffic passing through Santos Port. The terminal is structured to handle Super post-panamex vessels. APM Terminals is also developing a new 3-berth container terminal at Santos in a joint venture agreement with British company Terminal Investments Ltd, and IFC announced in March 2011 that a syndicated loan of US$680m had been approved. It is projected that container traffic at the port will increase from approximately 3m TEUs in 2009 to 9m TEUs by A further major port development is proposed at Barnabé-Bagres close to the Embraport development. This proposal is for the development of an area of 6m sq m to include facilities for dry bulk, liquid bulk, containers and a large industrial park. The projected cost is over US$2bn and there are major environmental hurdles to be overcome before the development can proceed. Approximately US$500m is also to be spent on improving road access to the port and other infrastructure improvements are also required. Recent new oil finds in the waters off Santos are likely to lead to a growing demand for further expansion of the facilities to handle oil tankers. Whilst Santos is considered by some to be a port without further potential for expansion, it is evident that there will be a significant number of new projects over the coming years, and that the requirements for the supporting infrastructure will continue to grow. Expansion of the area of the port can only be achieved by new greenfield developments such as Embraport or Barnabé-Bagres since most of the existing port area is encircled by the surrounding communities limiting the potential for expansion and allowing only regeneration of existing areas. 18

22 6 6.3 Suape Port The Port of Suape is in the state of Pernambuco in the Northeast of Brazil near to the city of Recife and claims the title best (public) port in the country. The port forms part of a major integrated complex comprising the port, industrial and administrative areas together with environmentally protected areas. The complex has an area of 140 sq km with the potential for extension for a further 135 sq km. The objective has been to create a mixed industrial complex that can utilise the resources of a major hub port, and the proposals contained in the approved Masterplan for the period to 2030 prepared by Planave SA and Projetec supported by the Port of Rotterdam are shown in the plan below: Suape Complex Masterplan The complex was started more than 30 years ago to replace the port of Recife and now has around 100 companies that are operating with a further 35 in various stages of implementing projects. The port is strategically located, being the closest major Brazilian port to the important European markets, and also benefits from deeper water than most other ports. After dredging, a channel of 18m can readily be achieved. Despite these advantages, port development was initially very slow, and indeed, the whole state of Pernambuco was reported to have a growth rate below that of neighbouring states. It is reported that three times as much investment was made into the port between 2007 and 2010, as had been made in the last thirty years, helped to a large extent by the Suape Global project described below. In 2008, the Suape Global project was formed by the State Agencies of Pernambuco including the State Government and Federal University in order to create a new industrial complex based on the existing opportunities but targeting the growth areas in oil and gas development, shipbuilding and the building of offshore platforms. It is reported that major investments have already been committed by 20 companies. New projects under construction in the port complex include the Abreu e Lima oil refinery, where Petrobras has a 60% stake, the Suape Petrochemical Plant, again with a major stake by Petrobras, and the Atlantico Sul shipyard which is building ships for Petrobras. 19

23 Two other consortia are said to be proposing shipyards; Portuguese owned MPG shipyards who propose to build offshore modules and wind turbines, and a Spanish consortium who wish to repair oil tankers and build ships. Investment in these projects alone will be more than US$1.5bn. 6 Within the industrial port, areas have been zoned for development of key products, and these are shown below. The first container terminal was privatised with the support of IFC in 2001 and is operated by International Container Terminal Services from the Philippines. This terminal has recently been expanded, and the port authorities plan to let development of a further terminal under another concession contract. To Ship Building Yards Dry Bulk Terminal Bulk Liquids Terminal Container Terminals Railway Terminal The approved Masterplan and Business Plan envisage development and expansion in the following areas of activity: distribution centres, consolidating Pernambuco as a regional logistics centre Construction Materials 20

24 6 Further progress on new projects was reported in February 2011, with the announcement that tenders for three new terminals had been issued including the terminal for the Transnordestina Railway and a terminal for Petrobras. Three further projects are reported under negotiation including a sugar terminal with a capacity of 140,000 tonnes to be built by ED & F Man. A 25 year concession agreement has also been signed with the Australian packaging company Amcor for a 30,000sq m area at the port, and many other investments are reported to be in the pipeline. Road and rail links to the port are being improved and are seen as an essential part of the future development of the port and industrial complex. Many improvements are already taking place with funding from the PAC programme, but further investments will be needed. Education is also seen as an essential area for growth as the expanding port and industrial complex require skills not currently available in the numbers required to meet demand. Dramatic growth at the port is being planned, with container traffic forecast to grow from a current value of approximately 300,000TEUs to 1.5m TEU per year by 2030 and bulk liquid tonnage increasing fivefold over the same period. Similar growth rates are anticipated in other areas. 6.4 Recife Port The urban Port of Recife started to decline as Suape Port developed, and has had little investment for some years, as funds have been diverted to residential and commercial development within the town. Many cargos including container traffic have been lost to other ports, and activity has reduced by over 50% but the decision was taken within the last four years to retain the port and to make some investments. It is intended to continue to handle cargos such as sugar and agricultural products and chemicals and fertilizers, but that petroleum products will not be handled for environmental reasons. The port is quite well integrated into the town, and the aim is to better exploit the area for touristic as well as industrial and commercial operations. A project to revitalise the port area is being undertaken with some PAC funding, and a disused historic warehouse has already been converted to receive passengers from cruise ships. Further similar projects are planned. It is intended to hand back the west end of the port to the Municipality so that the area can develop as a tourism centre with restaurants, craft shops and other facilities. There are plans to convert the petroleum products area to house fishing vessels as part of the regeneration. Recife and the surrounding area are popular with cruise passengers, but recent action by the immigration authorities at the port has caused concern with major cruise operators. In January, fines were imposed on all crew who did not hold a Seafarer s Identity Document under the International Labour Organisation 1958 Convention. Since the Philippines are not a signatory to this convention, Filipino crew have not been obliged to hold such a certificate and no action had previously been taken by the port authorities. Whilst the issue has no doubt been resolved, it is another example of how changed interpretation of regulations can suddenly lead to uncertainty in the business community. 21