Brazil
Q&A

Santos port authority 'is now ready for privatization'

Bnamericas Published: Wednesday, March 23, 2022
Santos port authority 'is now ready for privatization'

The Brazilian government will offer concessions for various infrastructure assets in the coming months and one of the most eagerly awaited is Santos port, the busiest in Latin America. 

Santos port is likely to be auctioned off in the fourth quarter of this year and the 35-year contract is expected to generate investments of around 16bn reais (US$3.23bn).

The concession model also involves the privatization of Santos port authority (SPA), the state-run operator of the port.

Marcus Mingoni, the CFO of SPA, talked with BNamericas about the company's outlook for this year and the expectations for the auction.

BNamericas: What are SPA's expectations for profits and revenues in 2022?

Mingoni: We expect new records in profit, revenues and in the volume of cargo handling in 2022.

The port infrastructure is in good condition and 2022 has already started strongly. Our profit projection this year is 500mn reais [US$102mn]. With that, it will be the third consecutive year of record earnings.

BNamericas: What are the main drivers for the optimistic expectations for this year's results?

Mingoni: In terms of revenues, we expect to be benefited by an increase in the agricultural harvest this year, after the second half of 2021 when there was a reduction in the corn and sugar harvests. 

We've been working on improving management and efficiency as well, in addition to some contractual renewals for the use of ports. This will benefit our revenues.

We haven't had any tariff review since 2018, but in April of this year we'll have a review [tariffs applied to terminals will increase by 13%], which will be positive for our revenue.

We have a cost control strategy with this expectation of increased revenue, which this year will likely be a rise of around 20% compared with 2021.

BNamericas: When do you believe that we'll have a situation closer to normal regarding global logistics chains and how does the current challenging scenario of global logistics impact port activity in Brazil?

Mingoni: The imbalances in the supply chains started because of the effects of the pandemic and it's difficult to make predictions about when the situation will improve. The logistics situation is challenging.

But looking at our Santos operation, we've had record years during the pandemic.

As a whole, we saw that the port sector showed very strong resilience. Agribusiness in Brazil continues to be a very strong element for the segment, in addition to the fact that we have a diversified list of exports and imports.

Other positive news was also the fact that the operators of our terminals also invested in productivity.

This conjunction of factors helped us navigate well through these challenging times. But as I mentioned, the issue of the [Ukraine] war is currently causing imbalances in logistics chains and we will need more time to see global logistics become more balanced.

BNamericas: What's the current status of SPA in a year in which the company will go through a privatization process?

Mingoni: SPA is now ready for privatization. We're in very strong financial position. We have a very strong financial liquidity index in the company. We're a company with practically no liabilities with banks.

In addition, we have an appropriately sized company. When the current management of the company took over, there were 1,400 employees, today we have 900 employees and an ongoing voluntary layoffs plan that will likely result in further reductions of employees.

From the point of view of financial balance, accounting practices, the company is ready for privatization.

BNamericas: What's the profile of the investor who is looking at the concession?

Mingoni: We've seen a lot of interest, Santos is the jewel in the crown of the national logistics chain and is the largest port in Latin America.

Before Santos, we will have the Codesa concession auction and this will be a test for what will happen with Santos.

We've already had some roadshows held by the government with potential investors and we saw that Santos aroused the interest of lots of participants, both local and international investors.

Among these interested parties, there are investment funds, pension funds, logistic operators and even port authorities from other countries. It's likely that in the auction for Santos port we'll see the participation of consortia and not companies on their own.

BNamericas: How do you see Santos Port's operations in the future?

Mingoni: Today, around 60% of the port's revenue comes from tariffs and 40% from leases, which are terminal rentals. It's expected that this revenue from leasing will grow, because the area of the port has increased.

BNamericas: How does the current inflation pressure around the world affect port activity in Brazil?

Mingoni: There are two aspects to be evaluated. The first is that our activity is directly linked to companies' logistical costs. The beauty of the concession model that the government wants to implement is precisely in this detail. The concession model isn't aimed at increasing tariffs, but rather at favoring tariff reductions, without neglecting investments.

Now, on the other hand, the inflation pressure around the world, which started during the pandemic and has now been aggravated by the war, has impacts on all companies' operations. This is a challenge, where every company will have to learn to do more with less.

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