Does BNDES plan increase risk for US$53bn infra program?

An excessive dependence on government guarantees could pose risks for Brazilian infrastructure projects amidst the country's political and economic crisis, according to ratings agency Fitch.

Brazil's finance ministry and national development bank BNDES have put together a stimulus plan to boost infrastructure investments via concessions and public-private partnerships.

The plan may make the country's 198bn-real (US$53.8bn) logistics infrastructure program PIL - announced last year - more dependent on the federal government.

PIL projects stand a better chance if they rely less on subsidies and government guarantees, according to Fitch.

Besides the so-called Lava Jato corruption probe hindering international investors from finding reputable local partners, Fitch is also concerned that toll roads will see weak traffic performance over the next 12 months – and sluggish growth in the airport sector is also expected beyond 2016.

On the other hand, the finance ministry's plan does make certain infrastructure projects with lower internal rates of return more feasible.

Recent changes such as raising tariff ceilings, lowering minimum concession fees and allowing project companies to prepay or refinance infrastructure bonds, could all help relieve the financial strain in infrastructure projects, Fitch said.

STIMULUS PLAN

As part of the plan, BNDES has risen its ceiling on the maximum financing it offers for transportation infrastructure projects. For waterway and railway projects, the cap has been lifted to 80% from 70%, for ports to 70% from 50%, and for airports and highways to 40% from 30%.

Interest is set at the long-term TJLP interest rate of 7.5%, much lower than the Selic benchmark interest rate of 14.25%.

Also, to support the federal government's infrastructure fund which is currently undercapitalized, the finance ministry is planning to use US$500mn worth of government property as a guarantee for a credit line. Another US$500mn is expected to be raised from the private sector.