Modernising Brazil’s maritime infrastructure

In issue 25, we reported on developments in the Brazilian waterborne transportation system. These changes were made in an attempt to make Brazil more efficient and competitive in international and domestic markets following enactment of the so-called Modernisation of Ports law. Now Cristina Araujo, of Araujo Zaratin Danielides Advogados, looks at a new development driving investment in the country’s maritime sector

DURING the past year - ten years on from modernisation of the ports law - government, public and private agencies, and maritime/logistics-related unions, have been jointly analysing possible solutions to some difficult issues facing the country. Among other things, they have looked at the Brazilian fleet, and at infrastructural investment in ports, harbours, railways and logistical support services.

Congress has already approved a bill granting public and private enterprises permission to renew and further explore infrastructural services. In accordance with Brazilian legislative procedure, the bill has now been sent to the senate for discussion and approval. The private sector has meanwhile been busy putting pressure on government to have the bill approved this year.

The bill has adopted some guidelines from the English public/private enterprise system. The main complaint on the part of the Brazilian private sector is a lack of clear rules establishing the terms and conditions governing the partnership between government and private companies. The private sector says more guidance is needed on financing. For example, is it to be public or private money? Guarantees must be given in relation to fulfilling the project. There must be government commitment to pay the amounts indicated at the start of the project, and the budget must be approved by the government to allow payment of the money involved in each project.

Senators are now busy discussing a wide range of issues related to the public/private enterprises bill. A strong argument has been put forward for creating a consortium of public/private companies. But the government is adamant that it cannot enter into a commercial agreement and form a new enterprise with the private sector. For this reason, approval is unlikely in the near future.

Problems and issues related to infrastructural projects have become hot issues. Despite the best efforts of the private sector to go ahead and submit the necessary rules for approval, Brazil is only too aware that it has to find a solution which will return its maritime infrastructure to a competitive footing.

The news regarding plans to revitalise the Brazilian fleet, meanwhile, are further progressed. Research by consultants and private interests has shown how, following the cessation in 1975 of major investment in the maritime industries by the government, especially in the vessel construction sector, the country’s ships and shipyards, lacking either government or private sector investment, have became old and uncompetitive.

Now, as part of its plan to create a modern and competitive maritime industry which can compete in the international marketplace, Brazil has recognised the need to invest in its fleet.

In July this year, the government drafted a new rule, Law 10.893, which sets out its support for renewal of the Brazilian fleet and the country’s shipbuilding industry, and approves special conditions for investors and for partnerships between foreign and Brazilian companies.

Enactment of this rule has facilitated the construction and renewal of a number of vessels, using financing from the Brazilian Development Bank (BNDES). The so-called Merchant Navy Fund, which has been developed over a number of years on the basis of charges levied on shipowners and consignees for renewal of the Brazilian fleet, formed the basis of the financing. Enactment of Law 10.893 made it possible, for the first time, to use the funds in this way.

The BNDES has used the fund to help shipyards build new vessels, despite criticism in some quarters concerning the ‘guarantee rule’ and other conditions pertaining to entitlement to use the fund.

This year has seen a growth in vessel orders by shipowners and transport private sector transport operators. The biggest order for new vessels using BNDES finance has come from Transpetro, a logistics company controlled by Petrobras SA, the Brazilian oil company. So far, 22 vessels have been ordered from Brazilian shipyards, and it is understood that in the near future new orders will be placed for a total of 42 vessels for delivery by 2015.

Recent developments mean that new opportunities have been created in Brazilian shipyards for the construction of all types of vessels, including containerships and grain carriers.

The Brazilian media is making continued references to the construction and repair of vessels in Brazil and to the need to modernise the Brazilian fleet. A number of trade missions are also coming to Brazil - most recently, one from Norway, this month - to explore the opportunities which the enactment of Law 10.893 has created for overseas companies to invest as partners or shareholders in Brazilian shipyards.

It may be slow by comparison with many other maritime nations, but Brazil is making a genuine effort to modernise its transportation infrastructure and fleet.