Brazil Will Sell Licenses for $66 Billion of Roads and Rails

Brazil Will Sell Licenses for $66 Billion of Roads and Rails
Inadequate road and rail infrastructure has limited the growth potential of Brazil’s economy. Photographer: Evaristo Sa/AFP via Getty Images

Brazil’s government will sell licenses to build and operate roads and railways requiring as much as 133 billion reais ($66 billion) in investments over 30 years to help boost growth in the world’s sixth-largest economy.

The government will sell licenses for private companies to operate 7,500 kilometers (4,660 miles) of roads and 10,000 kilometers of railways, Transport Minister Paulo Sergio Passos said during a ceremony in Brasilia today.

“Brazil is offering an extraordinary investment opportunity in an environment of economic and institutional stability,” President Dilma Rousseff said at the event.

Inadequate road and rail infrastructure has limited Brazil’s growth potential as the country prepares to host the 2014 World Cup soccer tournament and the 2016 Olympic Games. Rousseff said the new projects will help solve infrastructure challenges that stem from a decade without investment.

Brazil’s economy will grow 1.8 percent this year, according to the latest central bank survey, down from 2.7 percent last year and marking the second-slowest pace since 2003. The flagging economy caused tax revenue in June to fall from a year earlier for the first time since November 2010.

“Today we begin a new stage of the development model,” Rousseff said in her speech. At a press conference after the ceremony she said the measures will help the country grow at a steady 4.5 percent to 5 percent a year.

Investment Burden

Sharing the investment burden for railway projects with the government will make them more attractive to private companies, Luciana Nazar, director at Fitch Ratings Ltda.’s global infrastructure group, said.

“The railway investments are quite high and the internal rates of return for these projects are quite low,” Nazar said by telephone from Sao Paulo. “The only way to make it feasible is through the public-private partnerships.”

The program calls for 91 billion reais in investment for 10,000 kilometers of new railways, of which 56 billion reais will be disbursed over the first five years and the remainder over the following 25 years. To help reduce risk for investors, a government company will buy new railway capacity from contractors, thereby assuring demand.

Private contractors for highway concessions will channel 42 billion reais toward 7,500 kilometers, of which 23.5 billion will be spent over the first five years and 18.5 billion over the next 20. Projects include the implementation of multiple lanes for major arteries in several states. The bidder offering the lowest toll charge will win the road concession.

State development bank BNDES will provide as much as 80 percent financing for the projects, with interest set at 1.5 percent above the long-term investment rate for roads and 1 percent above that rate for railways.

Workers’ Party

“We are not selling off state assets to raise cash,” Rousseff said.

Rousseff’s Workers’ Party (PT) has historically been opposed to privatization measures. Her government is now amenable to privatization as a means to guarantee continued smooth development, said Igor Maresti, associate director in Fitch’s global infrastructure group, by telephone from Sao Paulo on Aug. 14.

“If you have to bring in private companies to share the risk and to bring expertise, they are willing to do that,” Maresti said.

The government will create a state company to administer and plan transport projects without operating any of them, Rousseff said.

Foreign companies will probably participate in the auctions given a lack of investment opportunities abroad, said Bernardo Figueiredo, head of the new Planning and Logistics Co., to reporters in Brasilia.

Ports and Airports

The government plans to announce concessions for ports and airports later this month, Rousseff said without providing further detail.

Brazil’s national aviation agency, Anac, auctioned the rights to operate the Guarulhos, Viracopos and Brasilia airports in February. The winning bidders have a 51 percent stake in the licenses while state-run airport operator Infraero retained a 49 percent stake in management of the airports.

The next auction will focus on the expansion and modernization of the Galeao airport in Rio de Janeiro, Confins airport in Minas Gerais state and Salvador airport in Bahia state, an official familiar with the plan said last month.

Concessions for the ports of Sao Luis, Belem, Santarem and Itacoatiara are to be included in the privatization program, Senator Katia Abreu, who heads the National Agriculture Confederation, said in an interview this month.

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