Brazil: privatization of ports rekindles discussion on privatization in Lula’s government

About two months after President Luiz Inácio Lula da Silva (PT) took office, the Federal Audit Court made an essential move on privatizations in the country: it authorized the privatization of the ports of São Sebastião, on the northern coast of the state of São Paulo, and Itajaí, in Santa Catarina.

The authority made changes to the proposals, such as the exclusion from the call for tenders of the requirement to charge a monitoring fee and a linked account to receive the revenue from the sale of the ports, as well as establishing the need for updated competition studies.

At the beginning of the Lula administration, the TCU’s referral was symbolic, as it left in the hands of the federal government the decision to follow through on the port privatization agenda of the Bolsonaro administration.

The approval of the privatization of the Port of São Sebastião by the TCU puts the decision to proceed with the procedures in the hands of the Ministry of Ports and Airports (Photo internet reproduction)

Despite President Lula’s forceful position against the privatization of significant state assets such as Petrobras, the Post Office, and the Empresa Brasil de Comunicações (EBC), the understanding of both the government itself and industry experts is that the ports branch should be looked at differently.

In interviews, the Minister of Ports and Airports, Márcio França, has made it clear that there is room for concessions for certain port services, a position reinforced in an official response to Gazeta do Povo.

“The current administration will analyze all processes, even those already approved by the Federal Audit Court (TCU). In public ports, important services can be granted, such as dredging, signaling, and operation of the terminals themselves, as has been done for years,” said the special communications office of the Ministry of Ports and Airports.

The ministry emphasized, however, that “the port authorities will not be controlled by companies or even state-owned companies from other countries.”

For Luiz Chrysostomo de Oliveira Filho, director of Casa das Garças, who has participated in more than 40 privatizations, including as coordinator of this process at Telebrás, the Lula government will be “as pragmatic as needed”.

For the analysis, he considers that in 2011, in the Dilma government, for example, the privatization of airports in the country began.

“I see with great concern the political discourse of strengthening the state in the management of companies, but we are simultaneously surprised by a certain pragmatism that was a past characteristic of the Lula government. A government that created the legislation of Public Private Partnerships and privatized, even if in a bad model,” he says.

PORTS IN THE STATE OF SÃO PAULO

The Port of São Sebastião is managed by the Companhia Docas de São Sebastião (CDSS), of the São Paulo state government, through a delegation contract that expires in 2032 and can be extended for another 25 years.

According to the State Secretariat of Environment, Infrastructure, and Logistics (Semil), “the local government intends to work on the privatization of the Port, from dialogues with the Federal Government.”

For Sérgio de Aquino, president of the National Federation of Port Operations (Fenop), “there is a very high probability that this process of port privatization will continue because the state government, which holds the delegation, defends this thesis.”

It is worth noting that the case of the Port of São Sebastião is different from the Port of Itajaí since the municipality, which holds the delegation of the port, is against privatization.

Information from the National Agency for Waterway Transport (Antaq) indicates that the bidding process for the concession of the Port of São Sebastião foresees a 25-year contract at a value of R$237.4 million and investments of R$3.26 million.

The expectation is a capacity of 56 million tonnes in 2060, an average annual growth of 0.3% annually.

The minimum concession value proposed is R$33.3 million, to be paid in a single installment.

After the changes stipulated by the TCU, Antaq is waiting for the adjustments from the Ministry of Ports and Airports to define the calls for tender and open the bidding.

“The minister was pondering both sides, and we don’t know yet if the privatization of the dock companies will continue. The fact of having this movement of the TCU ends up bringing the issue,” says Patricia Gravina, head of the Special Advisory for Concessions of the National Agency of Waterway Transport (Antaq).

Gravina assesses that the TCU’s decision regarding the privatization of the two ports can impact the Court’s decisions about the Port of Santos, which is awaiting the body’s position after requests for examination by ministers at the end of last year.

“Probably these decisions that occurred in these two ports should have repercussions in the Port of Santos, but we cannot rule out changes since the Port of Santos has unique characteristics,” says Gravina.

Antaq approved the Port of Santos public concession process, considered the largest in Latin America, in September last year, with a stipulated period of 35 years and the possibility of extension for another five years.

The forecast was R$6.3 billion in new investments, of which R$2.1 billion for port infrastructure and R$4.2 billion for an interconnection tunnel between Santos and Guarujá.

DIALOGUE BETWEEN TARCÍSIO DE FREITAS AND LULA

The recent approach of the governor of São Paulo, Tarcísio de Freitas, of the Republican Party, with President Lula, of the rival PT, in the tragedy caused by the rains in São Sebastião, is seen as positive for the progress of the agendas of interest to the state.

Although the two have already held four formal meetings, the public demonstrations with hugs and cordial words intensify the expectation that agreements will be reached.

“This partnership that we are making here is a good picture for our country,” said Lula next to Tarcísio in São Sebastião. “I know which party Tarcísio contested the elections with. See what a beautiful and simple thing we are together. The election is over, he must govern the state of São Paulo, and I have to govern the country.”

Behind this harmony is Tarcísio’s Secretary of Government, Gilberto Kassab, from the PSD, the party that holds three ministries for Lula.

As Tarcísio’s right-hand man, Kassab is already seen as the state’s de facto governor, and his intense capacity for political articulation should facilitate the progress of joint agendas with the federal government, such as the Port of Santos.

Besides the port, the São Paulo government is discussing the creation of a fund for the construction of a tunnel connecting the cities of Santos and Guarujá.

At the beginning of the year, Minister Márcio França indicated the possibility that resources from the Santos Port Authority, administrator of the Port, could finance the works together with the federal government, estimated at R$3 billion.

“I met with Kassab, I arranged to talk with Tarcisio, and who knows, maybe we’ll go to Santos and show him the definition; it would be excellent for Brazil to show that we can walk together independently of ideological positions when public interest is overlapping,” França said at the time in an interview with CBN São Paulo.

“It can be done with the resources of the docks and the federal government,” he said, not ruling out the help of the state and municipal governments.

In a meeting, last week between Finance Minister Fernando Haddad and seven governors, the chief executive of São Paulo presented agendas such as the concession of the Port of Santos and the construction of the tunnel between Santos and Guarujá, in addition to more funds for health, renegotiation of hospital liabilities with federal banks, and investments in trains and subways.

INTERNATIONAL MODEL AS AN ALTERNATIVE TO THE PRIVATIZATION OF PORTS

In the analysis of Sergio de Aquino, president of Fenop, Brazil would need to change the legislation to implement the private model of public property more efficiently with the format called Landlord.

This is a modality in which the government owns the port area and takes care of the administration and port services, while the private initiative leases areas, installs terminals, and operates cargoes.

“Our legislation does not follow this model, so we have publicly-owned ports with serious problems over the years. There is a need to recover and ensure the competitiveness of public ports vis-à-vis private ones,” says Aquino.

Among the main obstacles in the sector, cited by him, is the ports’ lack of administrative and financial autonomy since the administration is centralized in the federal government and not in the states and municipalities.

In addition, the companies lack corporate governance, since the Port Authority Council (CAP), existing under previous legislation, is no longer deliberative and became only consultative after Provisional Measure 2595, issued in 2013 by the government of Dilma Rousseff.

And also the excessive partisan political interference in the appointments of port managers.

PRIVATIZATION OF PORTS IN THE PREVIOUS ADMINISTRATION

Jair Bolsonaro’s government was a staunch supporter of privatization and, in 2021, held the largest auctions in history in the highway sector.

The period was represented by the then Minister of Infrastructure, Tarcísio de Freitas, the current governor of São Paulo, giving energetic hammering on the wooden counter of the B3, which marked the government’s enthusiasm for the agenda.

Data from the Brazilian stock exchange show that 32 auctions were held in 2021, with 102 public assets being sold or granted to the private sector for R$90 billion in investments.

Last year there were R$85 billion in investments.

The expectation within B3 itself is that in this and the next few years, there will be changes in the auction compositions since the Federal Government has fewer assets than before, and the prioritization of the State as the conductor of the economy is a declared policy of the Lula government.

However, there is an expectation for specific cases, such as participation auctioned by the BNDES or sales conducted by states and municipalities.

Despite the large numbers, some concession models for private enterprise carried out during the Bolsonaro government are questioned, as is the case of the Port of Vitória, auctioned last year and previously managed by the public company Companhia Docas do Espírito Santo (Codesa).

In an unprecedented model in the country structured by BNDES, there was a process of privatization of ports, in which the investment fund Shelf 119 Multiestratégia of the Quadra Capital management company, represented by Necton Investimentos, bought the right to explore the port for 50 years and, simultaneously, the right to privatize, with the purchase of Codesa by the fund.

“The previous government chose this path of privatization and privatization of ports. In the Brazilian system, the public port has problems that need to be solved, but some ports that have partially achieved the Landlord model have achieved better results, such as the Port of Paranaguá, in Paraná; Suape, in Pernambuco; and Itaqui, in Maranhão,” says Aquino, from Fenop.

“The federal government handed them over to the state government, and just because they are being managed locally, they already show better results,” he says.

“Within this logic, the fact that the process concerning the port of Santos has been interrupted even by the TCU allows an opportunity to rediscuss this issue,” he concluded.

PORT ASSETS IN THE PIPELINE

At the National Agency of Waterway Transport (Antaq), three leasing projects are being analyzed for public notice, among them MAC11, with an estimated value of R$28.8 million; MAC11A, of R$46.4 million; and MAC12, of R$37.5 million, in Alagoas, which are very strategic fuel terminals from the regional point of view, with a concession period of 25 years.

There is also POA01, in Rio Grande do Sul, estimated at R$17 million and a 10-year term, and TMP, in Ceará, a passenger terminal worth R$3.1 million, for 25 years.

Besides, the airport concession projects were awaiting the TCU and now depend on the Ministry of Ports and Airports, such as the Port of Santos, São Sebastião, and Itajaí.

And there are still assets with the possibility of attracting private investment waiting to be forwarded to Antaq, such as an access channel from Paranaguá and the Galheta channel, on the border of Uruguay with Rio Grande do Sul, an important project for the geopolitical plans of integration with Latin America of the Lula government.

With information from Gazeta do Povo