Brazil Faces Infrastructure Shortfalls

By Doug Gray, Senior Contributing Reporter

RIO DE JANEIRO, BRAZIL – Key infrastructure concessions continue to hang in the balance and face uncertain futures as the private sector tiptoes warily around large public projects covering the country’s roads, railways, airports and ports. As a precaution, the government has removed certain restrictions in a bid to stimulate greater competition in the forthcoming auction for Rio’s international airport.

Following a lack of interest in the concession to manage the Minas Gerais-Espírito Santo highway, the government has promised a major shake up of the system. A federal logistical planning company (EPL) was set up in 2012 to help prepare the ground for such auctions and make them more attractive to investors and quash fears such as the ‘Dnit risk’, named after the department blamed for failing to carry out essential roadworks.

“We are evaluating for those less attractive concessions whether to transform them into a PPP (Public-Private Partnership) or subvention concession,” said the head of the EPL, Bernardo Figueiredo.

Decades of under-investment by the country’s current operator Infraero have left major airports like Galeão chronically underdeveloped. The bureaucratic red tape involved in opening the simplest of services on the site meant there has never been a culture of competition and a huge, captive market has gone ignored.

It is from that market that the companies will look to turn huge profits given the vast sums that will be involved. When Airports South Africa (ACSA) won their 51 percent share of Guarulhos last year at a price of over R$16 billion, they also had to agree on an investment program worth over R$4 billion.

The removal of a law originally in place to prevent any company from operating more than one of the country’s airports, leaves the door open to winners of last year’s concessions for the Guarulhos and Viracopos airports in São Paulo as well as Brasília’s Juscelino Kubitschek International.

Galeão and Belo Horizonte’s Confins airport concessions were due to go under the hammer on October 31st but interested parties, including the UK’s Heathrow Limited, will now have to wait until November 22nd.

The state of the country’s airports has been a recurring question mark for FIFA ahead of the World Cup. With no train system to fall back on, many will be pushed beyond capacity and works have been delayed while the finer details of the concessions were hammered out in Brasília.

A bullet train from Rio to São Paulo has long been in discussion but as of yet has failed to get off the ground. The R$35 billion concession only attracted the interest of one company in August, causing it to be delayed for the third time and for at least one more year. A further R$20 billion investment would be needed from the National Development Bank (BNDES).

The wave of privatization measures and Public-Private Partnerships (PPPs) that have been tabled to help clear the country’s infrastructure bottleneck is still in its infancy, despite several well-established examples such as the Rio-Niteroí bridge and the Nova Dutra road from São Paulo to Rio. Even they, however, continue to drain public funds, as the government prepares R$2.2 billion worth of essential repairs to avoid an increase in tolls.