Buenos Aires contentious concession cocktail

The formal launch of the Buenos Aires port tender for a single company to develop and operate one large container terminal facility is underway but not without controversy dogging its footsteps.

The government- backed plan foresees the creation of a single container terminal facility with an initial capacity of 1.4m teu per annum rising to 2.7m teu by 2030. The new terminal will feature an initial quay length of 900m, with this increasing, under a phase two development, to 1200m. The terminal area will cover 45 hectares.

This will follow the closure of the three existing container terminal concessions in Buenos Aires, Puerto Nuevo, which are set to expire in May next year – DP World’s Rio de la Plata (TRP) terminal, Hutchison’s BACTSSA facility and APM Terminals’ Terminal 4. All three existing operators are seen as strong candidate bidders for the new facility.

The idea of a single large facility – three into one effectively plus new capacity which can rise to nearly more than double the existing combined capacity of 1.4m teu per year is, on paper at least, potentially an attractive one with the incoming developer/operator having the prospect of being able to command a large market share.

The only remaining competition will be the Exolgan terminal in Dock Sud and the La Plata terminal of ICTSI located approximately 60km south of Buenos Aires.

Project challenges

However, the investment equation is not a straightforward one. There are significant questions to work through not the least of which is the ability of the proposed new facility to accept direct calls over the concession period of 50-years.

The port of Buenos Aires is located upstream in the River Plate (Rio de la Plata) estuary and is accessed by a 239km long channel which is subject to tolls and has draught and width constraints notably in the final kilometres where Canal Norte leads to Porto Nuevo and Canal Sur connects to Dock Sud. The width of these latter channels falls in the 60 – 80m range and draught is 9.75m.

The vessel size deployed along the South American East Coast has risen sharply following the opening of the new Panama Canal and with vessel cascading from the main east-west arterial trades. This trend is expected to continue with average ship size forecast to grow substantially from 7,700 teu in 2016 to 12,100 teu in 2025 – and of course with maximum vessel sizes rising all the time.

Channel deepening

There are plans to deepen the channel access to Buenos Aires, but it is already acknowledged that these will not cater for the largest vessels introduced into East Coast South America container trades. This suggests a progressive shift toward feeder port status for Buenos Aires over the lifetime of the concession, a lower revenue earning proposition.

This trend could be further accelerated by other ports called in the region presenting draught restrictions – pushing lines towards a hub and spoke strategy built on feedering. Nearby Santos, with deep draught access, is a hub candidate.

The toll charges likely to be levied on larger vessels – and the disincentive they represent to deploying larger vessels where possible are also a factor. There is a Net Registered Tonnage (NRT) element in the toll calculations – with larger vessels does this mean higher costs passed on to importers and importers?

Cargo owners have additionally voiced concerns over the concentration of container handling power that the new terminal offers and the associated likelihood of rising costs. The way out of this is regulation in the context of the concession agreement, but this is another potential area of challenge for terminal operators seeking to secure a healthy return on investment.

Yet another potential issue is automation – the Argentinean government recently imposed a 40% pay rise for stevedores on terminal operators following strike actions. It seems inevitable that at least in part the successful bidder will introduce automation into the terminal handling systems – what will the union reaction to such a proposal be?

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