Brazil launches $26 billion drive to fix crowded ports

BRASILIA Thu Dec 6, 2012 4:45pm EST

Brazil's President Dilma Rousseff attends a ceremony for the announcement of a port investment program at the Planalto Palace December 6, 2012. REUTERS/Ueslei Marcelino

Brazil's President Dilma Rousseff attends a ceremony for the announcement of a port investment program at the Planalto Palace December 6, 2012.

Credit: Reuters/Ueslei Marcelino

BRASILIA (Reuters) - Brazil's government on Thursday unveiled a $26 billion public-private drive to modernize clogged sea ports, whose high costs and notorious delays are eroding the country's competitive edge as a major commodities exporter.

President Dilma Rousseff said she was counting on an "explosion" of private investment to supplement an unspecified amount of government funds. The $26-billion (54.2-billion-real) program extends efforts by to reduce the drag on economic growth of crowded highways, decaying bridges, a rickety electric grid and other over-stretched infrastructure.

Rousseff has increasingly turned to private companies to invest money and know-how to fix the problem.

According to the government, Brazil's 34 major ports are unprepared to deal with a potential quadrupling of port traffic to nearly a billion metric tons a year by 2030. Ports in Brazil's industrially developed southeast are working at near 100 percent capacity and those in the rest of the country are expected to be saturated by 2016.

"The problems that we have with roads, railways and ports are the things that create our infamous 'Brazil cost' which is probably the main thing keeping Brazil from realizing its economic potential," said Alvaro de Oliveira Jr, head of operations for Itaoca Terminal Maritimo, which is building a port to service offshore oil development in Espirito Santo state.

The government wants to reduce transport costs by 20 percent in coming years, according to the transport ministry.

LEADING WORLD EXPORTER

Despite its clogged ports, Brazil is the world's largest exporter of coffee, sugar, beef, orange juice and ethanol, the second largest exporter of soybeans and iron ore. Its oil industry, concentrated in offshore fields, could make the country one of the world's top four producers by 2020.

Ports handle 95 percent of Brazil's trade, Rousseff said.

As with her other programs, Rousseff is looking to private companies and investors to help provide the capital, expertise and agility that the government lacks.

To that end, she seeks to open bidding next year for the right to build and operate new ports and to install private terminals inside existing government dockyards.

In a major change, port licenses will be granted to the group that offers to charge the lowest handling cost for the greatest volume of cargo. Previously the rights were sold to the company willing to pay the government the most for port rights.

"We want to increase the efficiency of Brazilian ports with this partnership, which will make our exports more competitive and increase production," Rousseff said. "We want an explosion of investment through this partnership with the private sector."

The bulk of the investment would be made between 2014 and 2017, Ports Minister Leonidas Cristino said. To stimulate competition, both public and private groups will operate ports.

"Our initial read is that this package is positive and it is clear the government is keen on boosting global and local coastal trade, creating the right conditions for an economically sustainable future for Brazil," said Peter Gyde, Chief Executive of Maersk Line Brazil.

Denmark's Maersk Line is the world's largest shipping container carrier and has 15 percent of Latin America's container shipping market.

POWERFUL INTERESTS

Some remain skeptical the government will be able to realize its goals. Port modernization and improvement has been a major public issue for several decades.

The promotion of Brazil's top port official to a cabinet position during the 2003-2010 government of President Luiz Inacio Lula da Silva did little to speed up essential dredging, dock construction or port access work, said Nelson Carlini, chairman of Logistica Brasil, an investment fund which has invested more than 500 million reais ($240 million) in Brazilian private container terminals.

"Nothing will be done until those who profit from our bad ports, the unions and politicians who live off patronage, are forced to accept competition, and I don't think this government has the will to break that," Carlini said. "Lula tried for eight years and got nowhere, things actually slowed down."

The ports slated for modernization include Rio de Janeiro, Paranagua, Brazil's main soybean port, Porto Alegre Itaqui, Pecem, Suape and Santos.

Santos is the main port for Sao Paulo, South America's industrial heartland, and a leading sugar and coffee port. It is Latin America's largest port by value of goods moved.

Cristino said the government plans to build a new seaport in Manaus on the Amazon River to handle ocean-going ships. A new deep-water port is also planned for Espirito Santo, an oil-producing state and key export route for Brazil's interior.

He said contracts will be granted to dredge ports, starting at Santos, and the number of pilots to guide ships in and out of ports will be increased.

A lack of pilots has led to extremely high costs with some earning more than $1 million a year. Ships up to 5,000 metric tons displacement will be able to dock without pilots.

The port investment plan follows a 133 billion reais investment package the government announced earlier this year to improve its road network and expand a woefully-inadequate rail system in the continent-sized country.

Three major airports have been handed over to private management and more airport concessions are expected to be sold by year end.

(Additional reporting by Leonardo Goy and Jeb Blount; Editing by Peter Murphy, Andrew Hay and David Gregorio)

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