Lack of bidders forces Brazil to suspend US$2bn highway auction

The Brazilian government suspended the auction for the concession contract of the BR-381/MG highway in Minas Gerais state due to lack of interest.

The auction was scheduled for Friday and the deadline to submit offers ended on Tuesday without any being submitted. The information was provided by São Paulo stock exchange B3, where the auction would have been held.

The contract required the new concessionaire to invest around 10bn reais (US$2bn) over 30 years.

"The most recent highway auctions had few interested parties, which is a sign that perhaps the concession model used for highways is reaching a point of exhaustion," Paulo Dantas, an infrastructure and project finance specialist at law firm Castro Barros Advogados, told BNamericas.

"Not all highway concession contracts give investors a real view of the return on investment. Because of this I believe we’re approaching a time when the government will have to evaluate PPPs instead of concessions for federal highways, where the government shares the risks with the private sector operator," said Dantas.

PAST PROBLEMS

The 304km highway connecting state capital Belo Horizonte and Governador Valadares has failed to attract private firms before. Last year the government was forced to suspend an auction for BR-381 as high inflation and the inclusion of a section of the BR-262 highway reduced investor appetite.

The BR-262 stretch contained areas where improvement works represented elevated costs and high engineering complexity.

BR-381 has become known as the "highway of death" due a high number of accidents and improved safety was therefore a key part of the concession contract, as well as expanding traffic capacity.

The contractual works included widening of 134km, construction of 138km of additional lanes, 11km of side roads, 36 pedestrian crossings, 190 bus stops and 34 wildlife crossings.