'In 2024 we will set a new record in highway capex'

Brazil's highway segment looks set to be the busiest in the infrastructure industry in terms of attracting private sector investment in the coming years, alongside the sanitation sector. 

Nonetheless, challenges remain to be overcome in this segment, which is of fundamental importance to the country's development due to Brazil's longstanding reliance on road transportation.

Marco Aurélio de Barcelos, president of the Brazilian association of highway concessionaires, ABCR, speaks to BNamericas about the scenario for the foreseeable future.

BNamericas: What are the expectations for the schedule of highway concession auctions this year?

Barcelos: The transport ministry has said that it's working with a scenario of holding 13 bidding processes for concessions this year.

I think a figure closer to nine auctions is more likely than 13, bearing in mind that one bidding process has already taken place this year for a federal highway contract. So, we expect eight more auctions for federal highways this year.

We acknowledge that the transport ministry has made great efforts to turn its plans into reality. There has been a great commitment from the government to implement not only the auction schedule this year, but also for the coming years.

The success of the concessions agenda is extremely important for the country's economic development, for generating jobs and attracting capital. With all these auctions in progress, at some point we will improve the state of our highways greatly.

BNamericas: Why do you think there are risks for the realization of 13 auctions this year, as projected by the government?

Barcelos: We still need to ascertain the market's capacity to undertake all the new contracts that will be offered by the government.

We need to determine whether there are indeed enough agents to undertake all the contracts and planned projects.

The positive news is that in recent auctions, we have witnessed new entrants into the sector. However, I still see this as a question that needs to be addressed: Are there enough new agents in the market?

BNamericas: What is the estimated investment in highways under private sector management for this year? 

Barcelos: It's challenging to provide an exact figure for investments. Last year, in capex alone, companies in the sector injected 12bn reais [US$2.3bn] into the highways, marking a record amount for a year since we began conducting our surveys in 2010.

I can assert that although I don't have an exact number, in 2024, we will set a new record in highway capex. This is because, in addition to existing contracts, there are investments gaining momentum from recently awarded contracts, as exemplified by highway lots in the state of Paraná.

BNamericas: What about the participation of the public sector?

Barcelos: Apart from the recent entry of new players into the sector, I have a positive view of the government's efforts to enhance project appeal by introducing a more sophisticated risk matrix and initiating discussions to increase the WACC [Weighted Average Cost of Capital] of the projects.

However, we still face other challenges, particularly those related to environmental licensing of projects.

Numerous projects in the sector hinge on authorization from environmental agencies, and we need expedited procedures; otherwise, this poses risks to investments outlined in concession contracts.

BNamericas: Are cost pressures, which have persisted since the beginning of the pandemic, still a concern for the sector?

Barcelos: The sector continues to feel the impact of these pressures, primarily affecting concession contracts signed before the pandemic. This is because the contracts were inked in a pre-pandemic scenario, where input prices were different, and today, these prices are substantially higher.

But we're starting to see positive signs, as [land transport regulator] ANTT has recognized the possibility of rebalancing contracts.

In late April, we engaged in discussions with ANTT regarding this matter. However, it's important to note that cost pressure not only affects federal highway contracts but also contracts with state governments, which also necessitates deliberation.

BNamericas: How challenging is the financing scenario?

Barcelos: Global interest rates remain elevated, requiring an increase in the WACC of local projects; otherwise, there's insufficient appeal for investors.

Nevertheless, we've observed that [development bank] BNDES is receptive to financing the sector, and infrastructure debentures are becoming increasingly popular as a financing instrument.

BNamericas: What new risks do you see ahead?

Barcelos: It's a good time to mention the events unfolding in Rio Grande do Sul [a state that is grappling with unprecedented floods].

This prompts questions about the effects of extreme weather events on the sector. Now more than ever, we have to consider the resilience of our contracts in the face of such events, which are becoming increasingly frequent. This is a critical consideration that demands attention when formulating new contracts.