Brazil carries on with port concession auctions

Brazil carries on with port concession auctions

Project & Infrastructure Finance Economy & Policy Regulation Politics Brazil Coronavirus

The Brazilian government will stick to the schedule for port concession auctions in 2020, despite a sharp drop in economic activity and the cancellation of a tender last week due to the spread of the coronavirus.

The Investment Partnerships Program, or PPI, which oversees federal infrastructure concessions, is committed to the timeline for port terminal auctions this year "notwithstanding the changes in the dates of specific projects" and is still preparing new concessions for market, said a spokesperson from the Infrastructure Ministry.

Last week, however, the federal waterways transport agency ANTAQ cancelled the auction for a passenger terminal concession at the port in Fortaleza, the state capital of Ceará, due to the impact of coronavirus. ANTAQ had previously planned to award the 25-year, BRL1.6 million ($305,000) concession on March 27. It has not yet set a new date for the auction.

Maritime logistics companies around the world have been hard hit by the spread of COVID-19, the disease caused by the coronavirus. First, they took a blow from a sudden drop in the Chinese economy and then they suffered further losses as governments forced businesses to close and imposed containment measures to stop the spread of the virus.

In Brazil, meanwhile, total cargo handling in private and public ports declined more than 56% in the first quarter this year compared to the same period last year, according to figures from ANTAQ.

"The question is how to set a price for a new concession that is 25 years or 30 years when the bidder does not know what the demand will be. When you can't determine the price, going through an auction is just reckless because there is a very high chance that the winner will have bid based on an educated guess," said a government source familiar with the PPI's plans.

Weak growth in the manufacturing sector and predictions of a prolonged economic slump will also impact activity at Brazil's ports. A report published by Goldman Sachs on Wednesday showed that production stands 16.6% below a peak registered in May 2011 and remains around the same levels as 15 years ago, despite better-than-expected growth in 15 out of 26 industrial segments in Brazil.

"Going forward, we expect the long underperforming industrial sector to suffer the headwinds of a global and domestic recession due to the economic and social impact of the COVID-19 outbreak. Production and logistical disruptions to international industrial supply chains could also impact the domestic industrial base," Goldman Sachs said in the report.

Within the port sector, Nelson Luiz Carlini, founder of the local maritime consulting firm PORTO Assessoria e Consultoria, said the long lead time before concessions come to market and the profile of the bidders for large port projects mean they are likely to receive more resilient demand than smaller projects, such as the passenger terminal in Forteleza.

"Big companies have long-term projects and at this moment you can move quickly if you have the backing. The time it takes to arrange an auction, sign a contract and close is two to five years in Brazil, so they think differently," he said.

Nonetheless, international port terminal operators, particularly companies from Asia, may not rush to place bids in concession auctions in Brazil as they recover from the coronavirus outbreak, Carlini said.

"Japan, China and South Korea are in front of [the outbreak]. They have done their homework and they will be back, but I think they have other priorities than looking for investments anywhere else and particularly in Brazil at the moment," he said.

Looking to stick to the timeline, the Infrastructure Ministry sent feasibility studies last week to the federal audit court TCU for two concessions at the Port of Aratu-Candeias in Bahia and intends to send studies this week for a terminal at the Port of Santana in Amapá and another at the Port of Maceió in Alagoas. Total investments in the four port terminal concessions are expected to reach BRL468 million ($89.1 million) over the length of the contracts, the spokesperson said.

"Work is progressing towards the planned completion [of the timetable], with the expectation of holding the largest number of auctions possible in 2020," the spokesperson said. "The portfolio is full of opportunities for long-term investments in infrastructure in Brazil, which have attracted the attention of several national and foreign players."