Spotlight: Brazil's key auctions in April

Brazil plans to hold five key auctions in April, with the most prominent contracts linked to highway concessions and the privatization of a hydroelectric company.

The auctions come as the government restricted the use of debenture issues, a mechanism originally developed to finance projects but which companies have increasingly relied on to pay auction fees. The restriction could negatively affect investor interest.

"Investors are concerned about the credit lines for major infrastructure projects. There are good opportunities, a stable regulatory environment and an [internal rate of return] compatible with the investments, but no prospect of obtaining financing lines compatible with the expected time and results of the projects,"  Alberto Sogayar, an infrastructure lawyer at Sogayar e Alcântara Advogados, told BNamericas.

The auctions include contracts for highway concessions, street lighting, water, and the privatization of the hydroelectric company EMAE.

All contracts will be offered on São Paulo's B3 stock exchange.

Highways 

On April 11, the government will auction the 8.8bn-real (US$1.76bn) concession for the 232km Belo Horizonte-Juiz de Fora stretch of highway BR-040 in Minas Gerais state.

The main works during the 30-year contract involve converting 164km into a divided highway, building 42km of additional lanes and 15km of side roads. The bidder offering the lowest toll rate for users will win the contract.

BR-040 crosses the states of Rio de Janeiro, Minas Gerais and Goiás, as well as Brasília and was operated by Concessionária BR-040, a subsidiary of infrastructure firm Invepar.

In 2019, highway regulator ANTT approved Invepar’s 2017 request to return the concession, claiming traffic projections made in 2013, when the contract was awarded, had failed to materialize. Companies are allowed to return concessions but the process is lengthy and can involve compensation. 

To attract interest in the new contract, the government divided the original concession into the Belo Horizonte-Juiz de Fora and the 482km Juiz de Fora-Rio de Janeiro stretches, as well as the 595km Rota dos Cristais link between Belo Horizonte and Cristalina in Goiás.

Meanwhile, São Paulo state will offer the concession for the Litoral Paulista coastal highway lot on April 16.

The 30-year concession for the 214km of highways will require investments of 4.3bn reais, mainly for adding lanes and improving access roads. The concession covers the SP-055, SP-088 and SP-098 highways.

"I evaluate these two contracts in a different way. BR-040 is an unknown, given the legal dispute between the former concessionaire and ANTT, in addition to the need to redo the pavement where cracks were detected, and the fact that it is one of the most dangerous, if not the most dangerous, in Brazil in terms of accidents. The investor will need to know in depth all the investments that need to be made and assess whether the expected return will be achieved," said Sogayar.

"Regarding the Litoral Paulista lot, there are two highways in good condition on the south coast, the Anchieta-Imigrantes system and Tamoios. I believe that the shareholders of both concessions will be very interested in winning the auction for this new highway lot, as this will allow them to benefit from logistics and, consequently, optimize results," added Sogayar.

Water and waste, street lighting

Ourinhos, a city in São Paulo state, will offer a concession contract for water and waste services on April 3. The city was planning to offer the contract on March 20, but did not unveil the reason for the postponement. All documents related to the tender can be found here.

Paraná state’s Foz do Iguaçu city will offer a streetlighting PPP contract on April 2. The documents can be accessed here.

Privatization 

São Paulo state is planning to privatize EMAE on April 19. EMAE is a publicly traded company, with the state holding a 39% controlling stake. 

The firm operates the Henry Borden, Porto Góes and Rasgão hydroelectric plants, as well as the Pirapora small hydro plant. It also operates the crossing service at three points of the Billings dam, which will be maintained free of charge by the new controller.