• Road and airport concessions first, to showcase stability
  • Transpetro, Infraero could be put up for sale next year

Brazil’s Acting President Michel Temer will prioritize infrastructure concessions this year as a way to showcase an improving political environment and rule of law, before offering stakes in state companies in 2017.

Several highways and airports are almost ready to be put up for tender. Such deals are less controversial than those involving strategic assets, like units of oil company Petroleo Brasileiro SA, according to a Temer aide who participates in key policy discussions. Temer’s team is also identifying regulatory improvements needed to pave the way for asset sales, said the aide, who asked not to be named because the information isn’t public.

Amid the impeachment trial of President Dilma Rousseff and the worst economic recession in over a century, the Temer administration will need more time to structure asset sales and reassure investors wary of years of market volatility and a heavy government hand in the economy, the aide said.

Among the assets that may head for the auction block are Petrobras’s oil and gas unit Transpetro, as well as state airport operator Empresa Brasileira de Infra-Estrutura Aeroportuaria, or Infraero. The company’s stake in recently auctioned airports, including Sao Paulo’s Guarulhos, could be spun off separately, according to the government aide.

The main goal of the privatizations is to shrink a growing public debt and downsize government to make room for private sector participation. Finance Minister Henrique Meirelles has said that slowing public debt growth is one of the administration’s main priorities.

Privatization is still considered a political taboo by many legislators in a country that has been ruled by the leftist Worker’s Party for more than 13 years. Given that Temer still relies on senators to confirm him in office by impeaching Rousseff, his administration must tread lightly in pushing unpopular measures in Congress, another senior government official said.

The government is still analyzing whether it will sell just a minority stake or a controlling share of power utility Furnas Centrais Eletricas SA and BR Distribuidora, a unit of Petrobras, the official said.

Eletrobras subsidiaries Eletrosul Centrais Eletricas SA, known as Eletrosul, and Cia Hidro Eletrica do Sao Francisco, known as Chesf, are also candidates for divestment.

Some members of Temer’s administration also support the idea of selling the government participation in Itaipu Binacional, a hydroelectric owned by Brazil and Paraguay, although the proposal is in the very initial stages, the official said.

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