How Brazil is getting ready to auction waterway, port contracts

Brazil is planning to launch waterway auctions next year.

Boosting waterway transport is part of efforts to diversify the logistics matrix, which is dominated by roads.

Authorities are evaluating whether the contracts are best offered as concessions or PPPs. At the same time, port concession auctions continue apace.

Eduardo Nery, the head of waterways regulator Antaq, talks to BNamericas about the plans in both segments.

BNamericas: What is the best model for attracting private sector participants to government waterways auctions: concessions or PPPs?

Nery: In our view, this will have to be an assessment on a case-by-case basis, where in some cases the most appropriate model will be concession, but in others, government support is necessary, more in line with the PPP format.

There are two more advanced projects in terms of waterway contracts to be offered, which are the Madeira river waterway [between Porto Velho in Rondônia state and Itacoatiara in Amazonas] and the Paraguay river waterway [in Mato Grosso and Mato Grosso do Sul].

We already have a consolidated volume of cargo for these two waterways and the contracts may advance without any government contribution, since they can be sustained with a rate policy.

Contracts for waterways without a consolidated volume of cargo can be supported with government contributions, for example, via the fund created with the resources from the privatization of [electric power company] Eletrobras.

BNamericas: So concessions rather than PPPs are more likely to be offered for the Maderia and Paraguay river waterways?

Nery: Yes. These two waterway contracts are viable without the participation of government investments.

But as I said, there are particularities in this segment, which is why it requires a case-by-case assessment.

For example, [infrastructure department] DNIT is implementing the navigation channel for the Lagoa Mirim waterway, which we also know as the Brazil-Uruguay waterway, meaning that investment is being done before we draw up and offer the contract so that this investment does not have to be made by the future operator.

So, each waterway has its own particularities and we evaluate it on a case-by-case basis.

BNamericas: When are auctions for waterway contracts expected?

Nery: It is entirely possible to have at least two auctions next year, one for the Madeira river waterway and the other for the Paraguay river.

We will likely launch the public consultation process to formulate the tender notice for these two projects by the end of this year, and one of these could be offered during the first half of next year.

BNamericas: What other waterway contracts are being planned?

Nery: Four other waterway contracts are being evaluated in addition to the two mentioned.

We intend to start the public consultation process for the Brazil-Uruguay waterway this year and want to hold public hearings for three other contracts next year, which are the Barra Norte waterway, the Tocantins river waterway and the Tapajos river waterway. 

The Tocantins and Tapajos waterway contracts are being modeled by BNDES and the other four projects by Infra S.A.

BNamericas: And what are the plans for port terminal auctions?

Nery: Brazil will offer six lease contracts for port terminals by the end of this year.

These contracts will be offered in two auctions, planned to take place between October and December, and three port terminals will be offered at each auction.

The main terminals to be offered will be PAR14 and PAR15, at Paranaguá port in Paraná state and the ITG02 terminal, which is the iron ore terminal at Itaguaí port in Rio de Janeiro.

These three terminals together will generate investments of 4.5 billion reais (US$810 million), of which 1.5bn reais will be invested in terminals PAR14 and PAR15 and 3bn reais in ITG02.

In addition, we will also auction smaller terminals such as VDC29 in Vila de Conde in Pará state and terminals at Santana port [in Amapá state].

BNamericas: What do you have planned for the terminals at Santos port, which is the largest in Brazil?

Nery: The STS08 terminal for liquid bulk should go through a public consultation process that will be opened later this year.

Regarding the STS10 terminal, the model is still under evaluation by the ports and airports ministry.

BNamericas: Several regulatory agencies in Brazil have complained about the lack of structure. What is Antaq's current scenario?

Nery: We have been operating with a staff deficit of around 25%, which is the difference in the number of employees we should have according to the law compared to what we actually have in terms of staff.

In the coming months, we’ll likely add 30 public servants to our workforce and the idea is that year after year we add 30 to 40 servants to reduce the staff deficit.

Antaq consumes little of the government budget compared to the return generated.

Antaq's annual budget is 53mn reais. This is a very low amount if we compare it to all the investments that the regulator's work generates, as I mentioned in relation to this entire portfolio of planned auctions with great benefit to the public administration and the economy.

BNamericas: Is Brazil incorporating risks linked to extreme weather events into contracts in the ports and waterways sectors?

Nery: Without a doubt, we are contemplating some aspects.

We are introducing risk-sharing mechanisms into contracts with future concessionaires. 

Since we do not have a historical series to predict accurately everything that will happen from now on, what we have done is to incorporate the worst possible risk scenarios into contracts so that up to that point there is risk sharing and from then on, from a more extreme point, the concessionaire would have direct access to requests for contractual rebalancing.

This is the way we found to share the risks and not reduce the attractiveness of auctions.

Furthermore, following the example of what the transport ministry has done by setting aside 1% of highway concession contracts for climate risk mitigation projects, we are also considering bringing such mechanisms to our sector.

Extreme weather events are a reality. The challenge now is to better predict the intensity of these events.