Brazil's upcoming infrastructure auctions: PPPs and concessions galore

The Brazilian government plans to move forward with at least six more auctions of concessions and PPPs this year, while also structuring new contracts. 

The contracts to be offered include ones for highways, sanitation and waterways. 

At the same time, the government is drawing up regulations to provide more legal security to private sector players.

Marcus Cavalcanti, head of the federal government’s investment partnerships program (PPI), talks with BNamericas about the plans.

BNamericas: What are the next auctions planned by the federal government?

Cavalcanti: We have six more scheduled auctions that are supported by the federal government and that will take place by the end of this year.

Next week, in August, we will have the auction for the concession of the BR-381 highway in Minas Gerais state, comprising the stretch between the cities of Belo Horizonte and Governador Valadares.

On September 4 we will have the auction for the sanitation concession contract for Sergipe state.

On September 20, we will hold the auction for the streetlighting PPP contract for six municipalities in Paraná state, through the intermunicipal consortium for regional development [Conder], comprising the cities of Irati, Fernandes Pinheiro, Inácio Martins, Rebouças, Mallet and Teixeira Soares.

Furthermore, the second energy transmission auction of 2024 will take place on September 27.

The auction for the concession of BR-040 highway, between Cristalina, Goáis and Belo Horizonte, Minas Gerais, the so-called Rota dos Cristais, will take place on September 26, while the auction for the concession of BR-262 in Minas Gerais, the Rota of Zebu, will be on October 31.

These are the auctions already confirmed for this year.

BNamericas: Could we see other contracts inserted in this pipeline?

Cavalcanti: We’re working with Pará state on modeling the sanitation concession contract for that state and this work is well advanced.

In Pernambuco state, we’re working on two projects, one is the sanitation concession contract in the state and the other is a PPP contract for the construction of a dam that will meet future water demand of the metropolitan region of Recife.

Also, in Rio Grande do Norte state, we’re developing a public-private partnership for sewage collection and treatment services in 48 municipalities.

At the same time, we’re working together with [regulator] Antaq, on concession contracts for waterways.

The most advanced process in this segment is the modeling of the concession for the Madeira river waterway, which is a process that will soon be sent to the public hearing phase. We also have two other waterways in the more advanced modeling process, which is the concession for the Paraná river and Lagoa Mirim waterways.

This is the first time that Brazil is carrying out studies to model waterway concessions.

BNamericas: Regarding waterway concessions, have details of the contracts been decided, such as the tariff model?

Cavalcanti: The model for the Madeira river waterway, which comprises the stretch between Porto Velho and the mouth of the river, which flows into the Amazon, has already been resolved. As in our models the tariffs are very cheap, we’re going to use money from a fund created with the privatization of [power firm] Eletrobras to cover this.

The Paraguay-Paraná waterway is a stretch where iron ore is transported from a mine in Corumbá, with almost 10Mt of iron ore transported per year and this could double with the concession of the waterway.

Of course [waterway concessions] are new models and always generate doubts, as happened for example in the past, when the highway concession process began and people started paying tolls on the roads and at the beginning there was a lot of doubt, but from the moment improvements were noticed on the highways, resistance receded.

In the case of the Madeira river concession, our models outline that tariffs will only start to be charged after the dredging has been carried out. The contract will also stipulate that the company responsible has a permanent dredger on that river.

This waterway concession plan will mean progress for Brazil, as we have examples of how important waterways are in Europe and the United States. We have to value this.

BNamericas: Given so many auctions, how can Brazil attract more competition to the next ones, especially given the fact that some recent auctions saw little competition?

Cavalcanti: We’re still paying a price because of the breaking up of Brazilian companies, especially those companies linked to the areas of construction and infrastructure.

Many companies suffered from past contracts that were stressed and that is why we’ve discussed a lot the restructuring, reviewing some past contracts, so that these groups can regain some appetite for new contracts.

In addition, we’re also working with [development bank] BNDES on structuring a credit guarantee fund to be used for concession contracts and PPPs. This will help with financing.

At the beginning of this year, we also saw the approval of the regulation of infrastructure debentures and now the ministries are publishing the rules for the use of these debentures in each of their areas. With debentures it’s possible to attract new capital for projects without investors being partners in the projects.

With these efforts, we’ve already noticed a growing interest from different groups in future auctions.

BNamericas: Are there any specific examples of this growing interest?

Cavalcanti: The immersed tunnel project connecting the municipalities of Santos and Guarujá has attracted the interest of several international groups. Chinese and European investors are actively looking at this project.

In recent contracts we’ve also seen funds from Saudi Arabia working together with Brazilian companies, that is, there are already signs of an increase in interest from international investors in infrastructure assets in Brazil.

BNamericas: What are the most urgent regulatory measures needed in the federal government's vision for the infrastructure area?

Cavalcanti: We have two priority agendas in regulatory terms.

One of the agendas is the advancement of the concessions law in congress, where there is a bill authored by lawmaker Arnaldo Jardim, with which we want to modernize and provide more legal security to concession contracts and PPPs.

Another important agenda is a discussion in the senate to regulate environmental licensing by the union [the federal government]. 

Today the states have better defined rules but not the union.

What we want to do is to provide greater security so that investors are not exposed to the risk of suspension of environmental licensing due to future questioning by prosecutors or NGOs. We don’t want to make environmental rules more flexible but to have a clearer scenario.

When I go to roadshows with international investors to present Brazil's project portfolio, investors always ask me how long it takes to obtain environmental licenses in Brazil. I want to be able to answer this accurately.