Spotlight: Brazil's 2022 concessions agenda

Brazil will offer 153 infrastructure assets in 2022 with the hopes of bringing in nearly 390bn reais (US$69bn) in investments.

The plans will move ahead in an election year that could provide unwanted uncertainty. “The concessions agenda in the coming months is quite audacious and will be in a period marked by volatility both from a political and economic point of view,” Camila Affonso, a partner at infrastructure and investment consultancy Leggio Consultoria, tells BNamericas.

“But many of the assets to be offered already have well-known risks from the point of view of potential investors, a factor that will generate demand and competition during auctions.”

Elections will take place in October 2022, with polls so far indicating that the presidential elections will be contested by incumbent Jair Bolsonaro and former president Luiz Inácio Lula da Silva, who is the frontrunner. 

With the concessions agenda, the government aims to kick-start growth, also to bolster Bolsonaro's reelection chances. 

"Since the beginning of the Bolsonaro government, we have adopted a strategy to generate infrastructure investments through the private sector instead of the government," economy minister Paulo Guedes said while presenting next year’s infrastructure plans.

Before the presentation, Guedes met with other officials to define strategies for investment partnership program PPI. 

"If we consider all the concessions, auctions we've done from 2019 until now and count those planned for next year, we're talking about private investments in the infrastructure area of almost 100bn reais per year for the next 10 years. That is more than 10 times the annual budget the government has for the infrastructure sector," added Guedes. 

The government has auctioned 131 assets, receiving 148bn reais in fees and expected investments of 822bn reais. 

Focusing on private rather than public investment distinguishes the Bolsonaro administration from previous ones. 

Hence, private players are concerned that a potential return of Lula also implies the return of a public investment model in times of empty government coffers. 

“I think that if Lula wins, it will represent a very strong rupture in the concessions agenda that we have had in Brazil in recent years. I think that many advances in concessions can slow down,” Renato Sucupira, president of investment advisory BF Capital, told BNamericas. 

“For example, in the sanitation area, which is opening now, it is possible to see a turnaround in the offer of concessions and this applies to all segments, ports, highways, and others. I say this because looking at the history of [Lula’s Workers’ Party], it is not a political party with a history in favor of privatizations.”

Although business leaders welcome the concessions agenda, not all assess the drastic reduction in public infrastructure investment as positive.

"The good news is that the private sector is increasing investment in infrastructure projects. The bad news is that public investment continues to fall year after year and is likely to drop again in 2022," Venilton Tadini, president of infrastructure association Abdib, told BNamericas. 

"Even with the extensive PPP and concessions program carried out predominantly by the private sector, the need to overcome structural and historical bottlenecks has to be supported by an increase in public investment, especially in projects where the economic conditions inherent to the business itself do not yet exist," added Tadini. 

UPCOMING AUCTIONS 

Concessions will be offered in the airports, railways, highways, and ports segments. If the economy ministry approves, oil and gas, energy and mining assets will also be offered. 

AIRPORTS 

An auction for 16 airports, expected to generate investments of 8.8bn reais, is planned for the second half.

The 30-year concessions will be offered in three blocks, combining busy and less busy terminals. The airports include Congonhas in São Paulo and Santos Dumont in Rio de Janeiro, which are Brazil's second and third busiest airports in terms of domestic passengers.

The government also plans to reoffer the concessions of Viracopos and Natal airports.

The airport sector has been severely hit by the pandemic, as travel restrictions reduced passenger numbers. Yet, investors are still interested, because the government is lowering fees to compensate for some impacts. 

"We’re advising an international company that’s likely to make an offer in the new round of airport concessions in 2022. Even with the impact of the pandemic on the sector, the interest remains, as the government was very quick to guarantee support to concessionaires at a time of an unparalleled decline in demand," a high-ranking project finance executive at a major bank told BNamericas, requesting anonymity. 

PORTS 

Concessions for port operators of São Sebastião and Santos in São Paulo state, Espírito Santo state port operator Codesa, Codeba in Bahia state, and Itajaí in Santa Catarina will be offered.

The Santos concession is expected to attract investments of 16bn reais.

"Port privatization plans have been evaluated for a long time and I see it as positive, as it tends to unlock investments in the sector. For these assets, I see a mix in terms of investor interest, from terminal operators to dedicated investment funds to infrastructure assets. Geographically, I think Asian investors tend to look with great interest to port assets in Brazil," Duna Godmin Uribe, the commercial director at Pecém's port complex, told BNamericas. 

In addition, the government plans offering the lease of multiple other terminals. 

HIGHWAYS 

While the federal government plans auctioning at least eight highways, it is also supporting states to offer concessions.

The BR-381/BR-262 highway package will be auctioned on February 7, 2022. It involves projected capex of 7.37bn reais.

The main state concession involves projected capex of 44bn reais and is for six lots, covering 3,350 km in Paraná state. 

RAILWAYS 

The share of railways in the country's transport matrix is expected to increase through new concessions and early renewals of existing ones.

A highly anticipated concession involves the 933km Ferrogrão railway, with investments of 91.7bn reais, 25.2bn reais of capex and 66.5bn reais of opex.

Initially planned for the first quarter this year, the 69-year contract is now planned to be auctioned in 1Q22. But experts even doubt that date because of a competing railway project and environmental concerns.  

Ferrogrão would connect the grain-producing state of Mato Grosso and Miritituba port in the Amazon, crossing Pará state. 

NATIONAL PARKS 

The environment ministry published the tender notice for the 30-year concession of the Iguaçu national park, involving investments of 500mn reais in new infrastructure and 3bn reais for park operations.

And development bank BNDES signed a contract with local Chico Mendes biodiversity institute (ICMBio) to structure the concessions for 10 environmental conservation units.

MINING 

Auctioning mining rights is part of the PPI’s efforts to diversify mining production.

Mining rights for the Miriri phosphate project and the Cobre de Bom Jardim de Goiás copper deposit will be offered, in addition to Gipsita do Rio Cupari (gypsum), Calcário de Aveiro (limestone) both in Pará state, and Diamante de Santo Inácio (diamond) in Bahia state, among others. 

PRIVATIZATIONS 

The government will try to conclude in 2022 the privatization of power holding Eletrobras and the post office, Correios. 

Eletrobras’ privatization is considered key to provide financial flexility for the company to make investments in the next years. 

"I understand that its capitalization will give the company conditions to invest and grow more. Perhaps it will bring greater freedom of action that a private company has in relation to a state-owned company. It should gain more flexibility," Rui Chammas, the CEO of power transmission firm ISA CTEEP told BNamericas.