Successful market engagement delivers boost for Brazil’s ports sector

Click here to view the Brazil Ministry of Infrastructure's corresponding press release in Portuguese.

To promote the country’s participation in the more than 80% of world trade which is carried by sea[1], the Global Infrastructure Hub (GI Hub) has delivered Brazil’s Ministry of Infrastructure a market sounding report to optimise its Port Privatisation Program.

The report, which is the first time the GI Hub has collaborated bilaterally on an existing infrastructure program, presents the outcomes of a structured dialogue between the public and private sectors in advance of the envisaged sale and long-term concession contracts for four port authorities: CODESA (port authority for Espirito Santo), Santos Port Authority, Organized Ports of São Sebastião and Itajaí.

This early market consultation report provides the public authority with an opportunity to cross-check its thinking with that of private sector specialists, including contractors, lenders, and equity investors. It is a mechanism for the private sector to deliver feedback on how the packaging and scope of the program could be developed to maximise private sector participation and improve competition, which ultimately benefits the public through increased government revenue and long-term productivity gains in the operation of ports.

Research has shown that private port operation has improved Latin America and the Caribbean’s competitiveness through increases in efficiency and productivity in cargo management[2], and data from the World Bank shows private sector participation and port competition is correlated with higher levels of operational and economic performance, and better maintained ports[3].

The challenges of engaging the private sector in ports are not only in selecting the best private party and bid, but also optimising the structure for dividing the risks and responsibilities between the public and private party. The market sounding as part of the transaction preparation creates awareness of potential bidders leading to increased competitive powers and understanding the private sector perspective to the deal.

The findings of the market sounding report consist of four key areas:

• Brazilian Market & Macro-Economic Setting – including sentiment about Brazil as a market for investments, use of mechanisms to hedge exchange rate fluctuations and inflation, general market appetite towards investments in the port sector.
• Commercial & Financial Project Context - including sentiment about the use of variable fees to hedge volume, exchange and inflation risks, and the currency of port Master Plans.
• Contractual & Institutional Setting - including sentiment about having the government as contractual counterparty of lease agreements with operators after the privatisation, which types of bidders will be eligible for each port privatisation, intra-port versus inter-port level playing field.
• Procedural - including sentiment on sale procedure and level of dialogue with the government in concession arrangements and the role of technical, operational and investment plans as potential selection criteria in addition to the price component.

Delivered in conjunction with consultants MTBS and their legal subcontractor Veirano Advogados, the report’s completion is an important step for the GI Hub in its Country Engagement Program with Brazil to deliver improved long-term outcomes regarding infrastructure capabilities in policy, planning and implementation.

Production of the market sounding report involved close collaboration with the Special Secretariat of the Investment Partnerships Program of the Ministry of Economy, the National Secretariat of Waterways and Ports of the Ministry of Infrastructure, and the National Development Bank (BNDES) which is the implementation agency who will use the report to better structure the privatisation program.