Medium-size consortium scoops US$180mn contract in Brazil

A consortium comprising two medium-sized Brazilian construction companies won the auction for an upgrade and maintenance contract for the BA-052 and BA-160 highways, in Brazil's northeast state of Bahia.

The consortium, formed by Paviservice and SVC Construções, will invest around 700mn reais (US$181mn) during the 20-year concession period.

Initially a short-term road update and maintenance contract, it is the first one that will evolve into a public-private partnership (PPP). To that end, the private partner should seek new financial sources to support a long-term project. In addition, remuneration will be based on performance, considering criteria defined in a single contract, according to the International Finance Corporation, IFC, which advised Bahia state during the auction process.

The project involves the upgrade and maintenance of 462km of Estrada do Feijão, as the BA-052 highway is commonly known, which connects Feira de Santana to Xique-Xique, and 85km of the BA-160 highway between Xique-Xique and Barra municipalities. It also includes building a bridge over the São Francisco River, linking Barra and Xique-Xique.

The project will benefit 18 cities and localities across Bahia state and optimize travel time of pedestrians, private and commercial vehicles. It will also improve travel security as the rafts currently used for moving between places will become less relevant.

Development bank BNDES, the Inter-American Development Bank (IDB) and the IFC collaborate in structuring the project and provide technical support.

The result of the auction highlighted the heightened importance medium-size construction companies assume in public projects, as major conglomerates face problems due to their involvement in corruption scandals such as Lava Jato.

"With this project, the state of Bahia is paving the way and helping to create new references for quality and efficiency for road concessions in Brazil," said Hector Gomez Ang, the head of IFC in Brazil.

"Innovation is key to attracting more resources and mid-sized participants to Brazil's infrastructure. New, well-structured models and projects will help bring more partnerships with the private sector, which plays a key role in mobilizing the huge investments needed for the infrastructure sector, particularly in the current transition period," he added.