Brazil: Act No. 12,815/13 – New Port Regulatory Framework – Conversion Of Provisional Measure No. 595/12

Further to our Newsletter of December 2012, this is to bring to your attention that the Brazilian Government formally announced that Act No. 12,815/13 ("Act 12,815/13") has reached its last step of Executive analysis and has been released by President Dilma Roussef. Act 12,815/13 stems from the conversion of Provisional Measure No. 595/12 ("MP 595/12") into law and, as such, is now part of the statutory bodies of law that regulate port activities in Brazil.

Act 12,815/13 faced intense legislative analysis, under which its original text – as conceived by the task force formed by President Roussef to craft the new legal framework – received over 645 proposed amendments while being processed before both the House of Representatives and Senate. It was also subject to 13 straight vetoes from President Roussef.

The main changes introduced by Act 12,815/13 can be summarized as follows:

Organized Ports and Leased Terminals

Act 12,815/13 excludes the express possibility of the partial granting of the operation and management of Organized Ports (public ports ran by state-owned companies or private concession holders), and establishes the new criteria for public bids for new concessions and lease agreements of public terminals. The main features of the new rule are, in a nutshell, the highest capacity of the operation (having volumes of cargo as the key reference), the lowest tariff to the end consumer or the shortest handling time at the dock (an important tool to unlock the current logistic bottleneck around the Brazilian coast and waterways).

All the bidding procedures, invitations and tenders will now, by the delegation of powers from the Government, be assigned either to the state-owned companies that run the public ports or, in some cases, and subject to formal delegation agreements, to the states or to the municipalities where such public ports are located.

Act 12,815/13 has also introduced some ancillary new features to the Brazilian port system:

  • At the request of the concession holder, the Government may authorize the expansion of a leased area to any contiguous area, so long as (i) such area falls within the boundaries of the predefined area of the public port (public ports in Brazil have a "map" approved by Decree with the firm contours of its boundaries); and, (ii) if such expansion of the concession results in improvements to the efficiency of the port activities and increases capacity; and
  • The current 25-year concessions can apply for renewal for another term of 25 years as of now, regardless of how many years have elapsed since the commencement of the first period of the concession. Such extension is conditioned to the presentation, by the concession holder, of a new business plan for the additional term, with firm commitment from its shareholders to bring new investment to the concession. This new plan for the second round of 25 years will undergo Governmental analysis and will be subject to the Government scrutiny and discretion.

Private Terminals ("TUPs")

This is the most significant change in the statutes and regulation that govern port activities in Brazil. The new Act is unlocking the port segment and creating the figure of the private port operator in the country. Before the enactment of the new body of law, private terminals could only be operated in Brazil as part of the chain of a given industrial activity. To reap the benefit of unused port capacity, the former law and regulation allowed owners of private terminals to move cargo from third parties, so long as such volumes were clearly ancillary to the main cargo (i.e., the cargo produced by the owner of the private terminal or its corporate group).

This road block has been the center of the discussions in the sector in the last 10 years in Brazil, igniting a fierce debate on whether the port activity was an activity of public nature – and, therefore, subject to exclusive concession by the Government – or whether it was an activity of private nature, subject to mere regulation and limited control by the Government and its bodies.

Act 12,815/13 gives a new shape to the system, works to untie the bottleneck of Brazilian logistics and attracts new entrants to this market.

In short, the so-called TUPs carry the following features:

  • They can move cargo from any party at any volume regardless of ownership and industrial origin;
  • From now on, they can only be built outside the pre defined area of the public port;
  • Developers will apply before the National Waterway Transport Agency ("ANTAQ") to obtain an authorization to operate a TUP, indicating in their requests the key characteristics of the such ventures (i.e., location, nature of the cargo and volumes);
  • Upon receiving the application, ANTAQ will give publicity to it and will announce to the market the characteristics of such venture;
  • After the publicity is given, and upon the existence of similar projects in the same area to handle the same type of cargo, the Government will start a selection process to define, observing the policies of the Government for the segment and its logistics planning, the project that will receive authorization. To reach its final decision, the Government will use the same criteria put in place for public ports' concessions, such as capacity, lowest tariff, fastest handling time of cargo;
  • Once selection is made, the new entrant will then execute a standard agreement with the Government setting out the features of the operation and the duration of such authorization;
  • The agreement will have a term of 25 years, which may be extended for successive periods, providing the port activity and the necessary investments for the expansion and modernization of the port installations are maintained;
  • Unlike in the public ports and leased terminals regimes, property and investments made by the authorization holder will not be treated as reversible assets and, as such, will not become property of the Government at the end of the authorized operational period;
  • The TUP authorization holders may do the direct hiring of manpower without the need to go through the Manpower Management Body (the "OGMO", an entity controlled by the workers unions). The use of manpower brokered by the OGMO will be optional to TUPs; and
  • Current TUP authorization holders will have one year to adjust their former agreements signed with the Government to the new framework of Act 12,815/13. Once adjustment is done and a new agreement is executed and delivered, then the TPU authorization holder is released to move any cargo at such terminal, despite its property and industrial origin, and will be no longer bound to the restrictions and proportions of the old legal framework.

This outline describes the main changes that are laying a new foundation for the sector and opening the system to new investments and massive creation of logistics options around the Brazilian coast and waterways. These features and legal mechanics will be further detailed and regulated via Decree, resolutions and ordinances from the Governmental agencies and bodies. In addition to that, it is relevant mentioning that the vetoes presented by President Roussef are still pending another round of analysis before the Brazilian Congress and, as such, they can still be turned down by both houses.

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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