Brazil's Federal Audit Court (TCU) on Monday voted six to three to recommend that operators of existing container terminals at the Santos port be barred from participating in the first phase of bidding for a planned mega terminal, citing concerns over market concentration.
The decision deals a blow to companies such as Danish shipping group Maersk, MSC and others already operating container terminals in Latin America's largest port, as these companies will only be able to enter a second phase of the auction if the first does not attract valid bids.
The two-phase model, proposed by port regulator Antaq and challenged by Maersk in court, could benefit new entrants from Asia or even companies belonging to the JBS JBS.N meatpacking group, which entered the shipping sector last year as operator of a container terminal in Santa Catarina.
The Brazilian government expects the winner of the Tecon 10 auction to invest nearly 6 billion reais ($1.11 billion) over 25 years, and boost container handling capacity at Santos by 50%, minimizing logistical bottlenecks.
"Accepting the proposal to hold the auction in two phases increases the chance of an independent operator entering (the port) and reduces the risk that a single operator controls the terminal," said Augusto Nardes, a member of the TCU court.
In a statement, Maersk said the TCU's decision disregards technical studies done by different Brazilian government agencies, adding it "significantly reduces the project's potential in Latin America's largest port."
Philippines-based International Container Terminal Services, operator of 33 container handling terminals in various countries, welcomed the TCU's decision.
"This is a traditional and well-known model in the infrastructure sector, which encourages the effective entry of a new player into the Port of Santos," it said in a statement.
But the TCU's recommendation, which allows for the auction to be scheduled by the Ministry of Ports, was not unanimous.
Benjamin Zymler, a member of the court, defended an alternative model whereby the winner, if already an operator at Santos, would be forced to divest assets.
Barring current operators from the first phase of the auction could breach the principle of competition in the bidding process, said Cristina Machado, a public prosecutor at the TCU.
(Reuters - Additional reporting by Luciana Magalhães; Writing by Ana Mano; Editing by Himani Sarkar)