Brazil: Rebalance Of Port Lease Agreements – New Rules

In the brink of an important round of bids for port terminals in the cities of Santos and Belém - the first to take place after the enactment of the new port law - , the Brazilian National Agency of Waterway Transportation (ANTAQ) has issued Resolution Nº 3.093-ANTAQ, of October 8, 2013.

Through Resolution 3093, ANTAQ has submitted to the public review the draft rules regarding the lease of port terminals and the rebalance of economic and financial conditions of existing lease agreements. Our intent is to throw some light on the latter.

Brazilian Federal Constitution provides that in the case of agreements between private entities and the government the former has the right to maintain the original "economic and financial balance" of the agreement. Such principle is detailed by the applicable law.

The maintenance of the "economic and financial balance" means that although the government has the legal power and authority to unilaterally amend an agreement it has entered into with a private entity to conform it to the public interest, or the economics of such agreements may change as a result of the governmental action or failure to act, or even in the case of events outside the control of either party, the private entity cannot be required to incur a loss due to such amendment, action or failure to act or event.

Resolution 3,093 has revoked the previous one that use to deal with the same subjects.

While there are many differences between them, the following aspect is among one of the most relevant and subject to debate.

Pursuant to Article 9 of the draft rules, lessees will only be authorized to require an economic and financial rebalance of the lease agreement in the event risks expressly undertook by the government in the lease agreement materialize. This means that if a risk was not expressly contemplated in the agreement - even if it materially and negatively impacts the economics of the contract -, and undertook by the governmental entity party to the agreement, lessees will not be authorized to require rebalance of the agreement.

While this may sound reasonable at first sight, one of the practical effects is that lessees will probably need to raise their fees to prevent financial difficulties resulting from unexpected problems that are not dealt with in the lease agreements. The point is that port lease agreement are long term arrangements twenty, twenty-five years and it is unlikely that those drafting the agreement will be able to preview what may affect those agreements in such a long term.

Items usually not contemplated in those agreements, such as accumulated inflation during the term of the lease and its effects, the development of new technologies and its incorporation into the port facilities should, from now one, be included in the document as items authorizing the rebalance of the economic and financial conditions as such aspects will possibly be relevant and will affect the agreement in the long run.

In the next article we will deal with other aspects of the proposed regulation.


Footnotes

1 According to ANTAQ the aggregate areas in Santos, which is in the most important Brazilian port, embody approximately 320,600 square meters, of which approximately 236,000m2 in the Saboó area and approximately 84,600m2 in the Conceiçãozinha area.

2 Law 12,815 of June 5, 2013

3 Federal Constitution, Article 37, sub item XXI.

4 Law 8,666/ 93 establishes in its Article 58, item I, Paragraphs 1 and 2 that the government has the legal right to unilaterally modify the agreements it has entered into with private entities and that the latter have the right to the maintenance of the financial and economic balance of the agreement.

5 The right to unilaterally amend the agreement results from the understanding that the government has to observe and put into effect the "public interest", as viewed by the government. So, whenever the agreement needs to be changed to conform to the public interest, the government has the legal authority to modify it.

6 Resolution ANTAQ 2.367, of January 31, 2012.

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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