Brazil
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Brazil doubles its bets on infrastructure projects

Bnamericas Published: Friday, May 22, 2020
Brazil doubles its bets on infrastructure projects

Engulfed in health, economic and political crises, Brazil is betting on infrastructure projects to provide a turning point and recover its prestige among investors. 

As part of this initiative, the federal government is tapping the expertise of state-run development bank BNDES to establish the best format for each project in the existing pipeline of concessions and privatizations, which will be offered to investors when the worst phase of the COVID-19 pandemic is overcome.

Faced with major fiscal restrictions, which will likely escalate after the wave of benefits and tax breaks offered during the pandemic, the participation of private sector investors will be fundamental to Brazil's hopes of an economic recovery. 

"At this moment, all efforts of the government are concentrated on health issues, but I have no doubt that after the pandemic the need to invest more in infrastructure projects will be even more urgent and with fiscal restrictions, investments in the form of public private partnerships (PPPs) will likely gain even more importance," Adil Marghub, IFC´s Latin America head for the area of infrastructure and energy told BNamericas.

The government has been engaged in a concessions and privatizations agenda since President Jair Bolsonaro took office in January 2019. However, the combination of the COVID-19 outbreak and various controversies surrounding the president, which has given rise to tensions with congress and state governors, have threatened to erode investor appetite. 

In a bid to allay such doubts, the infrastructure ministry and BNDES are making a joint effort to restructure projects to make them more attractive to investors. 

"After the pandemic, our infrastructure agenda will become more important than ever. Well-modeled projects will be fundamental to our agenda of resumption," Gustavo Montezano, head of BNDES, said during a webcast after being questioned by BNamericas.

As part of this plan, BNDES will provide all technical studies to structure highway concessions and also the widely expected privatization of Santos port, which handles 28% of Brazil's cargo trade and is South America's busiest. 

According to infrastructure minister Tarcisio de Freitas, the concessions agenda in the short term is also centered on railway projects. 

"Today, we signed an agreement with the audit court [TCU] to extend the concession contract of Malha Paulista railway, with [logistic firm] Rumo. Just this extension will generate a revenue in the form of grants of 2.9bn reais (US$508mn)," said Freitas, during the same webcast.

These auctions form part of the federal program (PPI) to offer 45 airports, 24 ports, 1,800 km of railways and 19,000km of highways over the next two years, for which the Bolsonaro administration expects to garner nearly 234bn reais in private investments.

"Various analysts ask us if our pipeline is too big in a period of pandemic. What I feel about that, when I talk with global investors, is that there is an appetite for these projects because major investors only invest if a project is large," said Montezano, underlining that BNDES will provide financing in local currency for international investors interested in those projects. 

WHERE INVESTMENTS WILL COME FROM 

Given the diverse crises faced by Brazil and also the challenging scenario seen across the globe, the participation of multiple players – including banks, investment funds and operators – will be key to the government's plans to attract private capital.  

"All multilateral institutions, including IFC, will have a very strong role to play in the region, and likely to expand what they provide in the region, in both sides, providing funding and also working as advisors," said Marghub.

The Brazilian government believes that with the low level of interest rates across the globe, the return of its projects for investors will be a key element to attract not only operators in respective infrastructure segments, but also global pension funds along with sovereign wealth funds. 

"I see no changes in our agenda of concessions of infrastructure projects. We are in contact with global investors and even amid the pandemic, we have a strong indication that there is interest in our concession agenda," said Freitas.

 

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