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Port of Santos privatization process frozen on request from the Brazilian Audits Court

Santos is the largest and most dynamic port of Brazil and South America

Posted on December 21, 2022

Three ministers from Brazil’s Federal Court of Audits TCU asked last Friday for a reassessment of the privatization process of the Port of Santos administration. The issue should be put back into the discussion in 45 days. The rapporteur, Minister Bruno Dantas, suggested giving preference to the privatization of smaller ports before addressing Santos.

Ministers Walton Alencar, Benjamin Zymler, and Vital do Rêgo stressed that there are points pending clarification. Among them is whether it is actually necessary to privatize the Santos Port Authority, which has been successfully profitable recently. Other issues are linked to a sound competition of the process and the construction of a tunnel connecting the two banks of the maritime complex.

With expected investments of some Brazilian Reais, 20.3 billion, (5,35 Reais to the US dollar), the privatization of the SPA was one of Bolsonaro’s administration’s primary goals. The current model suggests transferring the port authority control over to the private sector and concession of the port structures for 35 years.

Minister Bruno Dantas stressed that it would be recommendable that the Ministry of Infrastructure to “implements the privatization of other small-sized port authorities whose relevant and complexity are comparatively smaller, with regular risk assessments and monitoring strategies to enhance the current regulatory model and gather experience before proceeding with the privatization of the Organized Port of Santos.”

Dantas argues that a strong verticality of operations is a national-interest issue. The minister warns that there is a risk of prominent players abusing their dominant positions in the long run, making all other ports in the region to struggle for survival.

Thus, he ordered the Ministry of Infrastructure and the National Waterway Transportation Agency (Antaq) to include in the contract “a robust regulation to prevent the practice of vertical integration from turning into market concentration and abusive practices that harm free competition and national interests.”

He also argued that such regulation should take into account the possibility of banning companies under corporate control identified by the Administrative Council for Economic Defense (Cade) from submitting bids unless the auction fails to arouse the interests of other groups.

As for the construction of the tunnel between Santos and Guarujá, Dantas stressed that it would represent a development opportunity. He expressed his conviction that the current proposed model of having the future manager of the Port of Santos build and operate the tunnel is the best option.

“If we do two separate projects … once the construction of the tunnel starts, port activities will have to be interrupted and, evidently, a private player will not allow that to happen to give space to another private actor’s job,” highlighted the minister.

See below the track record of container exports from the Port of Santos compared to imports in the period between Jan 2019 and Oct 2022, according to the DataLiner market intelligence service.

The Ministry of Infrastructure commented that “the ongoing projects follow normal procedures of structuring, analysis, or elaboration of public notices until further instructions by the government-elect transition team. For example, privatizing the Port of Santos is one of the projects being discussed.”

The governmental body also stressed that “the transition is running smoothly, transparently, and without damage to the technical works of the Ministry, which has always treated this process as a state policy and not a government policy.”

The procedure leading up to the privatization of the Port of Santos began three years ago, with the expectation of having the call for bids published, and the auction finalized by the end of 2022, which did not occur. The victory of Lula da Silva, who had already positioned himself against the project, and the various requests for changes made during the process made fulfilling the plan difficult.

According to information from the government transition team, the president-elect wants more time to evaluate the privatization model. His understanding is that it would be possible to seek other alternatives, such as authorizing private players to execute specific port services, such as conducting maintenance and deeper dredging without privatizing the port’s administration.

Having time to analyze the effects of the first privatization of a public port authority in Brazil, i.e., the Codesa privatization, is another point of interest of the future Lula administration. The state company that managed the ports of Vitória and Barra do Riacho was bid this year for R$ 106 million by the investment fund Shelf 119 Multiestratégia from the manager Quadra Capital.

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