With slow pace of auctions, governments and regulatory agencies seek ways to bring construction works forward
10/12/2022
The infrastructure industry is coming to the end of this administration without an effective solution for problematic concessions of the past. The main alternative for these contracts is to hold new auctions, a path chosen for at least 10 of them. However, in face of delays and divergences, regulatory agencies, companies, and governments are proposing new alternatives to unlock the planned investments and construction works.
In recent weeks, an unprecedented agreement between Novonor (formerly known as Odebrecht) and Mato Grosso’s state government has emerged as a potential model. The company sold its BR-163 concession, Rota do Oeste, to the state-owned company MT Par, which will invest R$1.2 billion in construction works and take over the operation for at least three years. After this period, the state will be able to sell the contract, and Novonor will be blocked from taking part in the auction.
The arrangement, which was approved by the Federal Court of Accounts (TCU), a public spending watchdog, provides for changes in the contract – such as the extension of the term, the renegotiation of the construction schedule, and changes in the risk matrix – in addition to potential cancellation of regulatory liabilities.
The agreement was signed on Tuesday and has been moving the market. The government of Espírito Santo, for example, approached the National Land Transportation Agency (ANTT) to try and understand the model and analyze whether it would be possible to do the same with BR-101, a federal highway. Eco101, Ecorodovias’s concession in the state, is among those that asked to return a contract, which is likely to be auctioned. “If it fits our situation, this is a proposal the state government wants to study,” said Ricardo Pessanha, the state’s secretary of innovation and development, in a note.
Other groups are also analyzing this solution for transactions between private-sector companies. The challenge is in getting the green light to change the terms. This is a more complex path and will possibly require complementary regulation, which is under discussion.
In the TCU vote on Rota do Oeste, rapporteur Bruno Dantas highlighted the peculiarity of the case and said that the model could not be automatically replicated.
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Rafael Vitale — Foto: Ricardo Botelho/MInfra
Rafael Vitale, ANTT’s managing director, said that the use of the Rota do Oeste solution for deals between private-sector companies would require adjustments, but might be feasible. The regulator started to study the proposal of a new arrangement, which would allow the sale of the concessions, combined with the renegotiation of the contract, through an auction.
“We could redesign the contract, change the risk matrix, and halt regulatory liabilities until the execution of the construction works. But this would not be done for a particular company. A public call would be made, to see who would like to take over the concession under these terms. And, for this, requirements would be put in place. This way, I keep this impersonal, avoiding a negotiation without transparency between two private-sector companies,” he said.
Mr. Vitale said that the possibilities are still being studied and that ANTT does not intend to do anything “on the spur of the moment.”
According to one source, who spoke on condition of anonymity, the prevailing assessment within TCU is that, for the Rota do Oeste arrangement to be applied to deals between private-sector companies, the federal government would have to make new regulations. This source thinks that is important to ensure that the mechanism does not create the wrong incentives – for example, by opening a window for successive transfers as a strategy to eliminate regulatory liabilities.
The fact that alternatives are being studied does not mean that a new auction will be unfeasible. Today there are at least 10 underway: six highways, three airports, and one railroad.
Most of these failed concessions were granted during the Rousseff administration, at a time of great optimism in relation to Brazil’s growth. With the economic crisis and the Car Wash corruption scandals, companies found themselves without access to credit, and assets suffered declines in demand. At the same time, they had investment obligations, concessions, and multibillion debts to pay.
The law of new auctions came into effect in 2017 to provide a solution to projects that had become unsustainable. The model provides for the amicable return of the contracts, so that the federal government can hold a new auction. Until then, the operator continues to do the maintenance. At the end of the process, the company leaves and is compensated for the unamortized investments.
The process was regulated in 2019. Many companies joined since then, but so far no contract was returned for the government to hold a new auction. Analysts point out as problems the slowness of the process, doubts about how to calculate compensation, and uncertainties in the face of conflicts with old operators.
Mr. Vitale, with ANTT, said there is a learning curve to be overcome, but that the process tends to consolidate after the first cases.
In the view of the National Civil Aviation Agency (ANAC), there are two paths for problematic airport concessions: new auctions of old contracts; and the early disbursement of fixed concession payments at a discount, said Tiago Pereira, the regulator’s director.
The latter option was created in a 2020 law. The idea is to improve the financial situation of the concessionaires, especially the older ones, which need to pay annual fixed concession grants – these high disbursements have been a major problem in the airport sector. Early payments mean substantial discounts. In some cases, the net present value drops 50%, said Mr. Pereira.
In the more problematic contracts, the solution is to hold a new auction, he said. The most advanced process is that of the airport of São Gonçalo do Amarante (Rio Grande do Norte), which is being returned by Inframérica.
This could become the first asset to complete the process, which is in the final stage of analysis by the TCU. ANAC plans to launch the auction later this year. In a note, Inframérica said it “has fulfilled all the legal requirements and believes that the new auction will be launched soon.”
Another case, more complex, is the airport of Viracopos. The concessionaire, which was under judicial reorganization, joined the plan as a last resort to avoid being declared bankrupt. However, the company questions the government’s plan to pay only the uncontroversial part of the compensation before the transfer of the asset. The second part, which would be defined after the arbitration decision, would be paid with “precatórios” – securities that represent debt from the loss of a court dispute.
In parallel, Viracopos’s shareholders will try to convince the government to undo the devolution agreement, under the argument that the new auction does not bring advantages.
Lawyers believe that the ideal solution for the concessions depends on each case. Lucas Sant’Anna, a partner at Machado Meyer, holding new auctions is the main path. He defends measures to unlock the process. The first is for the agencies to calculate the compensation more quickly. The second is for the government to ensure that the compensation will be paid immediately, after the arbitration, and not via “precatórios”.
Rodrigo Campos, with law firm Porto Lauand Advogados, believes that the possibility of holding a new auction will be used once in a while. For him, the most advanced projects, such as the São Gonçalo do Amarante airport and Invepar’s highway Via040, will be successful.
Massami Uyeda Junior, a partner at law firm Arap, Nishi & Uyeda Advogados, is skeptical about holding new auctions. For him, the most interesting solution is to replicate the Rota do Oeste case for transactions between private-sector companies. “When you look at TCU’s arguments, none of them are linked to the fact that the transfer is to a state-owned company,” he said.
*By Taís Hirata — São Paulo
Source: Valor International