Odebrecht Wins Auction for Brazil BR-163 Highway Concession

Brazil today auctioned one of its main roadways for soy transport, marking another advance for President Dilma Rousseff’s program to improve logistics and boost growth in the world’s second-largest emerging market.

Odebrecht SA won the auction by offering a toll of 2.638 reais ($1.15) per 100 kilometers, a 52 percent discount from the set maximum. The company will operate 851 kilometers (529 miles) of road in Mato Grosso state for 30 years and agreed to invest 4.6 billion reais.

Rousseff is betting that infrastructure concessions will draw investment, speed products to market, and revive the flagging economy. The program has suffered repeated revisions and false starts, including a delay of one road auction and another that lured no bidders. The award today follows an auction last week in which an Odebrecht-led group landed Brazil’s second biggest airport with a bid nearly four times the minimum.

“It doesn’t mean that everything is solved, but at least it shows that with friendly conditions and fostering competition, you get the best outcome, which is aggressive bids, lower prices and most of all a successful auction,” Carlos Kawall, chief economist at Banco J. Safra SA, said by phone from Sao Paulo. “Let’s hope we keep going this way.”

Unpaved Roads

Of Brazil’s 70,860 kilometers (44,039 miles) of federal highway, 18 percent are unpaved, according to the national department of transport infrastructure. Its highways rank 120th among 148 nations in the World Economic Forum’s latest Global Competitiveness Report, below neighboring Argentina, Bolivia and Guyana. Brazil’s road conditions add an average 25 percent to transporters’ operational costs, according to the National Transport Confederation.

Such bottlenecks hamper economic growth. Brazil’s gross domestic product grew 0.9 percent in 2012 and 2.7 percent in 2011, down from 7.5 percent in 2010. Analysts surveyed by the central bank forecast 2.5 percent expansion this year and 2.1 percent next year.

Standard & Poor’s in June placed Brazil’s sovereign rating on negative outlook, citing weak growth. Rousseff will end her term next year with the slowest four-year expansion since 1990, according to the latest central bank survey of economists.

The government earlier this year raised the maximum rate of return for road concessions to 7.2 percent from 5.5 percent after a planned January auction proved unattractive and was postponed. Finance Minister Guido Mantega has made several trips abroad to convince investors of Brazil’s appeal.

Growth Potential

“Instead of studying the road’s demand, we studied the logistics of the region,” Renato Mello, Odebrecht Transport’s director of roadways, told reporters in Sao Paulo. “We concluded that the growth potential is higher in Mato Grosso than in the rest of Brazil.”

About 20 million tons of grains are transported on the BR-163 annually, according to land transport regulator ANTT.

The government established a maximum price of 5.5 reais per 100 kilometers for the BR-163 highway auction. Seven groups submitted bids, including CCR SA, which last week won the concession for the Confins airport in Belo Horizonte with a bid of 1.82 billion reais.

Brazil last week also sold the rights to operate the country’s second-busiest airport, in Rio de Janeiro, to a group led by Odebrecht and including Singapore airport operator Changi Airport Group. The group bid 19 billion reais.

Libra

The government in October awarded Libra, the country’s largest oil discovery, to a group including state-run Petroleo Brasileiro SA, Royal Dutch Shell Plc, and Total SA. The bid involved a 15 billion-reais signing fee.

In September, an auction of the BR-262 highway in Espirito Santo and Minas Gerais states drew no bidders. On the same day, the nine-company Consorcio Planalto group won a contract for the BR-050 highway by offering a 42.4 percent discount off the maximum toll price.

Brazil on Dec. 17 will auction the 847-kilometer continuation of the BR-163 highway into Mato Grosso do Sul. On Dec. 4, the government will auction a concession that spans three highways: BR-060, BR-153 and BR-262.

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