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The next chapter for Brazil’s Santos port

Posted on August 24, 2022

One of the largest ports in Latin America, Santos port in São Paulo state, is getting closer to having its administration handed over to the private sector.

The process is now very advanced. After a series of projects and analyses, a federal government decree issued at the end of July formally included the Santos Port Authority (SPA) in the government’s privatization program, which in practice authorizes development bank BNDES to go ahead with the sale.

BNDES announced on Tuesday that it has scheduled a public hearing for September 6 to present the terms of SPA’s privatization process and the general bidding rules.

The federal government believes it can hold the auction before the end of the year, prior to the end of President Jair Bolsonaro’s term.

SPA is also dealing with a controversial bidding process for a new terminal, STS 10, with which it hopes to increase the port’s operating capacity with initiatives to increase productivity and efficiency using technology, including a private 5G network.

BNamericas speaks to Fernando Biral, CEO of SPA, about the ongoing process to privatize the port authority and growing innovation in the port sector.

The interview was conducted on the sidelines of Inova Portos, a tech and innovation event focused on the port segment, held this week in Santos.

BNamericas: Do you believe that SPA’s privatization is still feasible this year, as is expected by the government? If the process goes into 2023, is there any risk that the sale won’t take place with a possible change of government?

Biral: The national secretariat [of ports and water transportation] is coordinating this effort and has been working hard to hold the auction this year. It is possible, yes, but it’s a challenge. We see a commitment to have the process completed by the end of the year. The government has been fiercely committed to achieving that.

If it’s pushed back to next year … well, I think this is a State [rather than a government] issue.

I don’t see how to move forward with the investments that have to be made by the port authority, and with the entire management by the port authority itself, without privatization. It would really be ideal for us to have this process completed, whoever comes in as the next government.

BNamericas: So you don’t believe SPA could end up being removed from the [private partnerships investment program] PPI, for example?

Biral: We’re working with the [ports] secretariat. Now we have this program that we hope will be maintained because it’s a technical program. It’s hard to speculate what might happen at the moment.

We’re working to get it out this year. Nobody is working with the possibility of doing it [the privatization] later.

BNamericas: Given the demands and complexities of managing a port like Santos, do you think it would be more attractive for a consortium to take over SPA or an individual company? And have there been visits from investors wanting to find out about the asset?

Biral: We see great interest from investors. SPA is already very well-known, we have 55 terminals and several investment funds we relate with, for example as part of the [investors’ event] SPA Day that we hold.

We know that there’s a movement towards the formation of consortia, on the one hand, while there are also companies considering bidding alone, in partnership with investment funds.

Overall, these players are waiting for the tender documentation to be published in order to intensify their analysis. We know there’s a lot of interest, a lot of companies saying they will participate.

BNamericas: What are the profiles of these companies?

Biral: There’s a set of investors linked to the terminals. Their interest is to maintain or improve the service level [of the port operation]. These players understand that if they participate they can guarantee that good service will be provided and that their operations can continue peacefully.

The state-owned company is not very easy to deal with. For these companies, these terminals, it would be very interesting to participate in a consortium.

We also see infrastructure investment funds interested in the asset. We also have other companies in the sector, which don’t operate in Santos, that are interested in becoming a port authority. And we also have companies that already work with concessions.

BNamericas: Do you see the macro scenario making the situation more favorable for a competitive auction? One of the latest infrastructure tenders held in the country, comprising the block of airports that included the Congonhas São Paulo airport, had a limited turnout, with only one bidder.

Biral: The scenario, at least in terms of infrastructure, looks very good. There are a lot of concessions that have already been carried out, a lot of contracted investment. There’s a lot being developed for the next two or three years at least. The sector is very attractive for investors who like this profile of assets.

The issue of Congonhas, which had a single bidder [and winner, the Spanish group Aena], I think that was more because of the changes made to the auction model in recent months. Congonhas ended up being tendered along with several other smaller regional airports, with a lot of investment to be made in these other airports as well. As a result, the number of interested parties was reduced.

But, in general, the class of the infrastructure portfolio that has been tendered and auctioned opens up room for investors seeking very attractive returns. There are still assets to be transferred [to the private sector]. The scenario for infrastructure in general is quite positive.

BNamericas: Some entities and presidential candidates advocate the recreation of the ministry of development, industry and foreign trade (MDIC). What is your view of that?

Biral: We have a great deal of interaction with the ministry of infrastructure. At the moment industry and trade is under the ministry of economy, which also took over development, planning.

Some argue that there should be more ministries, others that there should be fewer. The advantage of the current model is that there’s very clear coordination. A very clear line that permeates all these areas that depend on economic guidelines.

I don’t see demand from businesspeople for the return of the industry ministry. They’re much more interested in knowing whether there will be a tax reform, if they will have adequate infrastructure, if they will have competitive energy.

Incentives for incentives … we’re already past that. The government is no longer able to provide incentives, the private market is already over-served in the supply of credit, in capital market instruments. What’s necessary is for the country to have competitiveness.

The agenda is much more focused on reforms, which have to be completed. We didn’t make progress on the tax reform. This is on the macro front. On the micro front, we’ve made important strides, there’s been a lot of change, tax-cutting in general.

BNamericas: What are the perspectives for the tender for the STS 10 terminal? Do you think Maersk and MSC should be left out?

[Editor’s note: Cade‘s general superintendence identified problems of market concentration in the auction as the tender could increase the market share of the two international groups in the port.

The presence of Maersk and MSC in the tender is also challenged by Brazilian port terminal association (ABTP), which claims there will be a potential increase in freight prices. The entity also argues that the concentration of large economic groups controlling container ships, terminals and land transport threatens free competition]

Biral: STS 10 is absolutely necessary for Santos. We must hold this auction to expand the port’s capacity. Today, it is at 5.3 [million TEUs], and the movement this year should end at 4.9. It has to be expanded, we can’t keep putting it off.

The issue involving Maersk and MSC is something that is being addressed by [antitrust body] Cade, by the competitiveness secretariat, etc. What is key is to encourage competition. Stimulating competition will lead to lower box rate prices, etc. Even though today, unlike in the past, we’ve had a reduction in the box rate, which already makes it quite competitive. I don’t see much more room for reduction.

But there will be an analysis of the participation of these companies. The most important thing for us is to have competition. The more companies that compete the better for us. Looking ahead, we’re seeing huge demand coming. Santos is becoming a hub port, there’s a very high demand for cabotage …. We believe that this new capability will be absorbed very quickly.

Unlike in the past, when we had two container terminals being opened at the same time, leading to oversupply, this time is different. It’s not the case now. We’re talking about an offer that will meet growing demand, demand that’s increasing exponentially.

BNamericas: You mentioned cabotage. What have been the impacts of the new legislation on port operations?

Biral: We’re seeing cabotage ramping up. No wonder we see movement in other ports for the opening of new terminals, with various expansion plans in place.

In the port of Suape, which we visited recently, part of the Estaleiro Atlântico Sul area will be transformed into a new terminal.

The market is already anticipating an increase in cabotage, especially on longer routes – São Paulo to Recife, São Paulo to Manaus, to the south of the country, to the La Plata basin …. There are several routes that, in a short space of time, will tend to consolidate for cabotage. We see it as having enormous growth potential.

BNamericas: Let’s talk about innovation. You mentioned the port of Suape and, in that same state [Pernambuco] we have the [innovation and startups tech park] Porto Digital, which has consolidated into an interesting structure of interaction between the port and startups, incubators. Even though Santos has a new technological park, still under development, do you see a similar structure as being necessary for the city?

Biral: I do. They have a much more efficient ecosystem there at Porto Digital. It’s a benchmark in Brazil. We’ve already talked to the Santos municipal government about it. I believe something similar would need to be implemented here.

It will encourage innovation and the development of technological solutions that, in the case of Santos, due to the city’s port vocation, will inevitably be geared towards the industry. And what’s more, with the potential to develop local solutions that can be internationalized.

It’s essential for us to have this effort [in Santos], an effort that encompasses several players, not just the port authority, so that we can replicate this digital ecosystem here.

It’s also a path for the development of skilled jobs in the region. If we manage to create this ecosystem, we believe we can take a big leap.

BNamericas: What is the challenge of bringing innovation to the port, considering that the port authority manages different private terminals, perhaps with different interests?

Biral: Innovation is a competitive differentiator. We will always deal with a company focused on innovating and on maintaining the advantage it has achieved. That’s part of it.

What I see as important is the authority to create an ecosystem for this innovation to occur naturally, with benefits for those who initially develop it, but also enabling this process for other players.

In an environment where there are several companies innovating, we end up having “pollination” of ideas. At one time or another, the innovation of one ends up spreading to others.

For the port, it is important to be the “first mover”, the one who comes out ahead. We’re in a competitive battle today, not only with our neighbors, but with the whole world.

BNamericas: You mentioned “first mover”, but in private networks, Santos wasn’t the precursor. Recently, the port of Paranaguá [in Paraná] announced what it claims to be the first private 4G LTE network in a port in Brazil. Do you consider that Santos is late in this process?

Biral: Right now we’re in the process of enabling a 5G private network [at Santos port].

The goal is to have our own network, our own spectrum band, which will operate in the entire port, for all companies to use. This is important for us also to avoid interference [with the public cellular network and other spectrum bands].


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