What to expect from this month's Brazilian highway auctions

This month’s major highway auctions, involving a combined 13.5bn reais (US$2.69bn), will show if Brazil's efforts to attract foreign investors paid off.

Low interest in previous auctions led the government to initiate international roadshows, introducing new concession contracts and mechanisms for foreign exchange protection.

The auction for the 8.8bn-real concession for the 232km Belo Horizonte-Juiz de Fora stretch of highway BR-040 in Minas Gerais state is planned for April 11.

"The BR-040 is a challenging contract. [The auction] has already been attempted at another time, and there is uncertainty in the market about its economic viability despite its great importance from a logistical point of view," Paulo Dantas, a specialist in infrastructure and project financing at Castro Barros Advogados, told BNamericas. 

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 may 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.

“The BR-040 contract requires a significant dose of investment and the return is still uncertain, whether due to demand or economic fluctuations. The project has been readjusted and the expectation is that there will be bids, but I don't believe in various proposals,” said Dantas.

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.

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

The 30-year contract 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.

"In the case of the Litoral Paulista lot auction, we will likely have interesting proposals, but I don't believe in fierce competition for the contract despite it being a [road section] with very intense demand and very significant growth potential. It's necessary to take into account the situation of highway concessionaires already operating in Brazil, which are selective in terms of new contracts and the difficulty of new bidders entering the segment," said Dantas.