Consolidation for port of Buenos Aires

The port authority of Argentina’s capital city, Buenos Aires, has launched an international tender for the concession of the city’s port – the largest in the country and one of the largest in South America – which will reshape its current structure with an estimated investment of a total of $1.9bn and lay the foundations for its future competitiveness.

“The modernisation of our port is going to double its loading capacity, boost regional connectivity and further increase cost transparency,” Gonzalo Mórtola, head of Argentina’s port administration, said in a note on May 28. “This project is a major stepping stone in the development of Argentina and its regional economies.”

The port, which currently consists of five terminals operated by three private operators whose concessions expire in May 2020, will be simplified and handed to the single private concessionaire that wins the bidding process. The winning concessionaire will be responsible for developing, over different stages, a new container terminal, a public terminal and a cruise terminal.

Improving efficiency

Compulsory investment in the first 10 years of the 35-year concession amounts to $760m for the private operator, and another $300m for the public authority. Over the whole concession period, private investment is estimated to reach $1370m and public investment $540m.

“Ports are very much dependent on economies of scale, and the current set-up of the port of Buenos Aires with five terminals and three operators does support competition, but overall efficiency is sub-optimal,” says Reinout Polders, manager at Rotterdam-based MTBS, an advisory firm focusing on the maritime and transport sectors.

“The decision to move to one, big integrated operator is a sensible one. What’s also very important is the regulation of the new concessionaire to prevent a monopoly situation where the new operator enjoys a lot of freedom of tariff,” he added. “There are other ports in Argentina [so] the port of Buenos Aires will never have a true monopoly, but it will always have a predominant position. It’s then important to ensure it brings economies of scale, but doesn’t increase costs for customers.”

The port authority of Buenos Aires launched the tender in late May 2019 and the bids should be opened in October, for a final decision to be taken by May 2020, when the existing concessions expire. If the consolidation project has met with the consensus of the industry as a necessary step to modernise a port whose first design traces back to the early 20th century, the final outcome of the bidding process will also depend on the country’s political environment as the country is holding general elections on October 27.

“I’m quite sure bidders will be focused on understanding the political scene around it and depending on the actual chances that a change in government might occur, people will make their decision,” says Mr Polders.

Election-dependent

Argentina’s incumbent president, Mauricio Macri, who has led a round of reforms since taking office in December 2015 and opened up the country to foreign capital, remains the favourite candidate in October 2019’s elections, according to early surveys, although his margin of victory is narrowing. His re-election will guarantee the continuity of the project, whereas the scenario under a new president may be more uncertain. Mr Mórtola believes the project will not be affected either way.

“The guarantee for this is that there is a state policy [for the development of the port of Buenos Aires] that goes beyond this or that government, as happens, for example, in Chile with mining or in Spain with their port system,” he says.