Spotlight: The boom in Brazilian highway concessions

The total length of Brazilian highways under concession looks set to more than double in the next five years, thanks largely to the improvement of regulations covering the sector, among other factors.

A total of 26,700km of highways in Brazil are currently operated under concession contracts signed with private sector firms and that figure is expected to rise by another 30,000km, according to highway concessionaire association ABCR.

By comparison, the association previously projected that the combined length of highway concessions would increase by 26,000-27,000km.

"I would say that we currently have the best team of all time at [highway regulator] ANTT, with openness to dialogue, and technical and pragmatic vision in the search for solutions for any type of contractual issue. We could export the regulations that we have in the highway sector in Brazil," said ABCR head Marco Aurélio Barcelos during an association event on Wednesday.

Highways concessionaires are planning to increase their investments in the coming years due to the extensive list of projects assumed by firms in recent years and considering the new contracts to be taken on, according to Barcelos.

The capex of highway operators in Brazil reached 9.5bn reais (US$1.91bn) in 2022, up from 6.8bn reais in 2021. ABCR forecasts that the segment will see 108bn reais in investments over the next 10 years.

The ABCR president also underlined the importance of these investments by private sector firms at a time when the federal government is also trying to raise public investment in infrastructure.

"Public investment is always important and welcome, but history shows that public investment is not sustainable, as it is always reviewed year after year due to government budgetary constraints," Barcelos.

In the coming years, the road sector will be one of the infrastructure areas in Brazil with the greatest potential to attract investments, along with the sanitation industry.

"Anyone who wants to invest in infrastructure in Brazil has to look at the road sector. We have robust regulation that isn't quite as consolidated yet in other sectors, such as in sanitation for example," said Barcelos.

However, the federal government's plans to increase public investment in infrastructure, combined with the work being done by private sector companies, could generate some bottlenecks.

"We have a good problem at the moment, which is an accumulation of planned investment from the public and private sectors, but it's a problem that we have to address. Do we have a basic industry, a chain of supplies, engineering companies that will be sufficient to cope with the requirements of the projects?," he added.

PROJECTS

The most advanced highway concession projects, expected to be offered later this year, include roads in Paraná state, along with the concessions of the BR-040 and BR-381 highways.

Earlier this month, Paraná state and the federal government agreed to advance with a 50bn-real package of highway concessions, the first two lots of which involve investments of 19bn reais.

The federal government was included in the talks because 65% of the package involves federal highways.

There are six lots in the package with roads covering a total of 3,300km and connecting Paranaguá port, the city of Curitiba, 29 other municipalities, the state’s west and north, and the Amizade bridge on the border with Paraguay. This package is one of the biggest in the pipeline and entails construction of new lanes, bridges and other works.

The notice for the first two lots will be published on May 16 and the auctions for each contract are pencilled in for August 24 and September 16, but those dates could still change.

Meanwhile, a concession is planned to be launched for BR-040, which connects the city of Rio de Janeiro and Minas Gerais capital Belo Horizonte, while another involves BR-381, running between Belo Horizonte and Governador Valadares in Minas Gerais state.

NEW ENTRANTS

This pipeline of concessions could attract new players to the highway sector. 

"We are evaluating with interest all the highway auctions that will take place in the coming quarters and we have seen that there are other companies interested in these assets as well, including companies that are not yet present in the sector in Brazil," said Marcello Guidotti, CEO of highway operator Ecorodovias Infraestrutura e Logística during a conference call with analysts. 

Despite pointing this out, the executive declined to mention the names of any potential new entrants to the sector.