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The extension of the concession period for the privatization of the Port of Santos may not bring advantages. The Federal Government is evaluating the possibility of extending it from 35 to 50 years, however, this measure may not bring many benefits for the investor and for the provision of port terminal services.
Last Tuesday (12/07), it was announced that there was an increase in the concession period in the process that will lead to the privatization of Companhia Docas do Porto de Santos, and that this will not bring so many advantages. The decision taken is not encouraging for investors or for the provision of terminal services port the society.
High investment will have to be made in the Port of Santos for the privatization to be completed
In this sense, the issue of the investment obligation provided for in the contract was evaluated, which has a CAPEX of R$ 17 billion, a high value to be considered. Thus, as there is no change in the type of contract, even in a longer period of 50 years, the investor will most likely not make new investments with 10 or 15 years left for the contract to expire, as there will be no time to appreciate them, that is, to extract the results, so that there is no return.
This is because investments in infrastructure assets are made in the long term, over 20 years. As for the Port of Santos, it is interesting that it has shorter renovations so that more investments can be made. However, for the investor, the increase in terms also does not necessarily bring benefits, as economic forecasts become less and less affirmative in such long time horizons.
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“Two funds told us that the ideal would be to have a longer term. Let's go back to the drawing board and see if it makes sense for the country. We have a reference of 30, 35 years, which would be a good period, because you can ask for renewal for the same period, and reach 70 [years]. With 50, I'll go up to a hundred”, said Marcelo Sampaio, Minister of Infrastructure.
Before acquiring the port terminal, an economic feasibility analysis must be carried out by interested parties
Thus, when taking over an asset such as the Port of Santos, it is necessary to bear in mind that it will be necessary to calculate whether the financial investment will be viable, requiring demand planning, inflation, exchange rate, among other economic indicators. And the longer the term, the less assertive the projections are.
On the other hand, it is worth considering that, after the depreciation of investments determined in the contract, the concessionaire will have a longer period of time with higher margins and will also be able to resort to the economic rebalancing mechanism also provided for in the contract if the current economic scenario is very modified.
When a study was carried out on the experience of Australia, which also increased the term of some contracts to 50 years, for example, it was found that the extension of the period did not bring advantages.
Furthermore, it is important that this type of decision be supported by mathematical studies of the financial model so that the meeting point between the longest possible term for the investor and the shortest feasible term for the Port of Santos is reached. In this way, the most balanced balance point for both sides will be found.
However, Marcelo, Minister of Infrastructure, says that he remains focused on carrying out the expansion and that the government plans to carry out the concession of the Port of Santos until the end of November and beginning of September: “In a way, we have a challenging semester for political issues, there will be elections, but I believe we can keep [the deadlines] by being active with a long-term view. I've been in the ministry for 15 years, and concessions have been made for years, by several different governments”, he projected.
