There are bids scheduled for five assets, which may draw R$22bn in construction works

08/25/2022

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In the final months of their terms, the federal and state governments are still trying to get infrastructure projects off the drawing board despite the difficulties in attracting investors – as became clear during last week’s auction of Congonhas, one of Brazil’s busiest airports, in São Paulo. For now, five assets are still scheduled to be auctioned later this year.

The main auction, scheduled for September, is that of Noroeste Paulista, a set of roads put on the block by the São Paulo state government with an estimated capital expenditure of R$10 billion. Two other state projects in the sector are scheduled for this year, in Rio Grande do Sul and Mato Grosso do Sul. Besides these, the Ceará government will launch next month two public-private partnerships (PPP) for basic sanitation.

The five contracts combined may total R$22 billion in new construction works if they materialize.

Since the end of last year, a combination of challenges has made it difficult to draw investors to infrastructure auctions. The situation is unlikely to change by the end of 2022. Rising interest rates, high inflation, global political uncertainties, elections in Brazil, and the oversupply of projects for a limited number of investors are cited as reasons by analysts.

Claudio Frischtak — Foto: Ana Paula Paiva/Valor

“The big challenge is in drawing new operators and new investment funds. Today, we are very much in the hands of the incumbents,” said Cláudio Frischtak, CEO of the consulting firm Inter. B. In his view, among the barriers to attracting new groups are issues that will not be solved in the short term, such as the loss of the country’s investment grade and public authorities’ anti-environmental rhetoric.

Despite the short deadline and the difficulty in finding interested investors, some other projects governments still plan to put on the block this year could attract bids, in the market’s view.

The privatization of the Port of São Sebastião, an asset that has drawn interest, could still be launched on time, said David Goldberg, a partner at consultancy Terrafirma. “It is a simpler project that requires few investments and has a low barrier to entry,” he said. The auction is being analyzed by the Federal Court of Accounts (TCU). The public spending watchdog could speed up the analysis if the rapporteur of the case confirms such understanding.

The new auction of the airport of São Gonçalo do Amarante (Rio Grande do Norte) may also be carried out this year, said Mr. Goldberg, who led part of the technical studies. He sees this one as a highly-anticipated project as well. “This asset is already ready. There aren’t many investments planned.”

In the highway sector, the Ministry of Infrastructure plans three more highway concessions in the fourth quarter. The first is BR-381, a federal road in Minas Gerais, which included another federal road before a haircut was put in place to simplify the contract. Investments should total R$5.5 billion. Analysts are skeptical of this bid, largely because of the tight deadline.

In addition, the federal administration and the Paraná state government plan to auction two sets of roads totaling R$15 billion in capital expenditure. Mr. Frischtak believes that the auctions may still be held on time, but strong opposition to the collection of tolls in the state could be an obstacle.

There is also a long list of relatively mature projects that will be postponed to 2023 – and therefore depend on the outcome of the elections. There are several examples in the road segment: the new auction of the BR-040 highway, four highway lots in Paraná, and the PPP of São Paulo’s beltway (north stretch), whose auction has been scheduled for January 2023.

Another important auction unlikely to be launched this year is the one for the privatization of the Santos Port Authority (SPA). The Ministry of Infrastructure still includes the project in its forecasts. Yet the Brazilian Development Bank (BNDES), which coordinated studies on the matter, and market analysts no longer see this possibility given the complexity of the contract and question marks about the model.

There is still uncertainty regarding the continuity of several concession projects pushed forward by states and the federal administration given the change of government in 2023.

However, the perception is that many plans will continue, and logistics assets have the greatest chance of surviving the government transition, said Marcos Ganut, a partner at Alvarez & Marsal. “There is a global scenario of demand for food. This will not change because it does not depend on local policies. Market and government will be interested because these construction works are also important job generators,” he said.

*By Taís Hirata — São Paulo

Source: Valor International

https://valorinternational.globo.com/