February 12, 2013

Brazil to Privatize Ports, Airports, Railroads, Energy, Highways

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

As part of its plan to improve the logistics and infrastructure of the country, the Brazilian government initiated a plan last December to privatize 158 ports in the country. This includes ocean ports and inland river ports that are already operational as well as new ports that have not yet been built. The goal is to have all the ports privatized by the end of May, but most people feel that cannot be accomplished until well into the second semester of 2013, if not later. The government has tried this in the past, but over the last five years, they have only privatized eight or nine ports.

In the past, in order for a company to obtain permission to operate a port, they had to demonstrate that they had enough of their own cargo to keep the port operating at capacity. Under the new legislation passed in December, the company can contract cargo from third parties in order to meet the required volume of cargo. This is expected to open up the bidding process to a multitude of new companies.

Individual companies will be allowed to operate the port activities, but the federal government will retain ownership of the infrastructure leading into and out of the ports. Labor unions at the ports have opposed this process and are threatening work stoppages unless their concerns over wages and work rules are addressed.

In addition to ports, President Rousseff has indicated her desire to do something similar with the nation's airports, railroads, federal highways, and energy production. For some facilities, the companies will be the outright owner of the facility, as in the case with railroads. For other facilities such as airports and energy generation, the companies would be allowed to operate the facility while the government retains ownership.

The privatization of the federal highway system is already under way with companies obtaining permission to operate individual segments of the highways. These roads are being turned into toll roads with the companies required to meet the minimum standards of maintenance set by the government. The government sets the amount of the toll and the company obtains the right to operate the highway for a set number of years, generally twenty to twenty five years.

This entire process has been met with mixed reactions on the part of the agricultural community. Certainly, they would like to have better roads and infrastructure, but privatization of these facilities will increase the cost of using them. Since their tax dollars were used to operate the facilities in the past, they would like to see their tax burden lowered in compensation for the increased costs.