Brazil: Presidential Provisional Measure No. 595/12 And Decrees No 7860/12 And No 7861/12 - New Regulatory Framework For The Ports Sector

Last Updated: 15 March 2013
Article by Thiago Sandim, Ana Cândida Sammarco and Talita Lamblem

Presidential Provisional Measure No. 595 and Decrees No. 7860 and No. 7861 (the "New Regulatory Framework for the Ports Sector") were published on December 7, 2012, regulating the operation of port activities and port facilities, as well as the activities developed by port operators. The New Regulatory Framework for the Ports Sector is part of the set of actions taken by the federal government in order to improve infrastructure and stimulate national growth, eliminating or reducing traditional bottlenecks of Brazilian infrastructure.

The publication of the New Regulatory Framework for the Port Sector is one of the steps in the Logistics Investment Program ("PIL") which intention is to stimulate investments and consequently modernize Brazilian infrastructure by stimulating competition among private companies interested in investing in the sector and strengthening the regulation so that it provides legal certainty to investors, making the sector more attractive to foreign investment.

With Provisional Measure No. 595/12, the federal government entirely revokes the old Ports Law and brings important innovations. One of the most important innovations is the possibility of operation of port terminals by private companies which in the previous legal framework was limited to operators with their own cargo. Investments in the ports sector may also be made indirectly by foreign companies, as there are no legal restrictions to their participation in this sector.

This is a relevant change, as it inserts private terminals in a wider context of competition. As noted in the past, the capacity of private terminals had to be substantially used by the operator's own cargoes, which, in practice, did not allow these terminals to compete with public ports and, ultimately, hindered the implementation of new terminals and corporate consolidation in the market.

For the reasons above, it is expected that this new legal framework will enable improvements to port infrastructure and higher levels of competition among agents.

Another important change respects the manner in which the next public tenders will be conducted. New port concessions and new terminal leases will no longer be awarded based on the highest value paid for the grant, but rather will be awarded based on the lowest price to be charged by the concessionaire or the lessee during the development of its activities.

The agents in this sector must heed the changes brought on by the new regulation and the effects of this regulation on them and their activities. The leases currently in force will continue to be in force until their established term.

However, the transfer authorization instruments and adhesion contracts executed under the previous legal framework shall be adapted, by initiative of the Brazilian Waterway Transport Agency, within one year of publication of the New Regulatory Framework for the Ports Sector. The main adjustment is related to the list of types of port facility operations located outside the organized port area, which currently is limited to private use of terminal; cargo transfer station; small-sized public port facility and tourism port facility.

According to information provided by President Dilma Rousseff, BRL 54.2 billion will be invested, at this stage of the PIL in the modernization of port facilities, with BRL 31 billion invested in new leases and private use terminals by 2015, and the remaining BRL 23.2 billion invested by 2017.

Moreover, BRL 6.4 billion from the resources of the Accelerated Growth Program will be invested in new land and waterway accesses. Bearing in mind the high costs currently incurred by companies due to the logistics necessary to transport their products to the ports, the connection between ports and rail, road and waterway modals will be another substantial incentive for private investment and for the improvement of national infrastructure.

It is estimated that such measures will have positive effects on the Brazilian economy between 2013 and 2014, as the improved and modern logistics will add value to the products used by industry domestically and even more for products to be exported, which, will be more competitive with lower logistics costs.

In essence the federal government seems to be trying to tackle infrastructure deficiencies consistently, by increasing access to the private sector and competition. This is one of the most important componentes of the so-called "Brazil cost" which increases the cost of production in the country and therefore makes it less competitive. However, it should be emphasized that, for now, all the announcements with respect to government investments are essentially a set of good intentions. This is because the investment ability of the Brazilian government traditionally finds obstacles in its own bureaucracy, with a negative impact on the government's agenda. In any case, the increased participation of private companiess will contribute to competition and dynamism of the market, which is expected to have positive impacts in this sector of the Brazilian economy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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