Bring on the investors

The hopes of the finance minister Guido Mantega to unleash the economy in the second half are placed in a 136-page spiral notebook. It is there that are listed the infrastructure projects that will be offered to the private sector. The document is always with the minister in his meetings with investors, either construction businessmen, directors of foreign funds or equipment suppliers. If they have good demand, the businesses will move the economy, starting a virtuous circle in which the improvement of logistics will encourage investment in the productive sector, thus reducing costs and increasing the competitiveness of the country.

“The concessions will unlock the economy,” says Horácio Lafer Piva, board member of Klabin. That is what the minister count on to change the mood that dominated the markets in recent months. “The auctions will start to be made this year, and the works next year, when we can grow from 3.5% to 4%,” Mantega said to DINHEIRO. The Development Minister Fernando Pimentel also relies on the success of concessions to boost the economy. “They will change the perception of entrepreneurs and encourage new investments,” said Minister to DINHEIRO. Opportunities abound. Only in the transport sector, the government should hire projects worth $78.12 billion.

In 2014 and 2015, two more lots of $54.25 billion will be offered to the private sector each year, dramatically changing the Brazilian scenario (read schedule below). “This will virtually eliminate the infrastructure deficit,” says Bernardo Figueiredo, CEO of Empresa de Planejamento e Logística (EPL). Also in August, the government will promote auctions for the construction of hydroelectric plants and other energy sources. From September, the road concessions begin. “The success of the road auctions will have positive impact on the logistics chain,” says Paulo Cesena, CEO of Odebrecht Transport, an arm of the construction company that operates in urban mobility. In the following months, it will be the turn of the railroads, ports and airports. Odebrecht will repeat the partnership with investors from Singapore to compete for the air terminals of Confins, in the city of Belo Horizonte, and Galeão, in the city of Rio de Janeiro. The government also plans to grant 270 regional airports. The crown jewel, which has guaranteed interest among major oil companies, will be the auction of the Libra oilfield, in Rio de Janeiro, the first in the pre-salt. The signing bonus, which will be paid this year, is $6.51 billion, but it is the investment in exploration and production that will move the shipping and tanker equipment industries.

The private interest for these investments has always been high, but the government’s insistence on pressing the return rates resulted in an arm wrestling. In charge by President Dilma Rousseff to achieve a proposal that is attractive to business – after all, it is the contention that reduces the price of the work or service –, Mantega says investors were satisfied after he raised the internal rate of return (IRR). In the case of highways, the project’s IRR increased from 5.5% to 7.2%, and in the railroads the return reaches 8.5% in less attractive sectors. “The government always thinks everyone is crying,” says a businessman who closely monitors the process of concessions. “In fact, investors want an IRR that corresponds to the risks. That’s all.” Minister Mantega demonstrates belief in the success of the auctions. 

 “All the major construction companies say they will participate,” he says, remembering the ‘good reception’ of foreigners during a road show in New York, back in February. To the minister, there is no crisis of confidence. The proof, he says, is the record volume of foreign investments in the first half of this year. But this perception is not unanimous on the market. Humberto Gargiulo, CEO of Upside, consulting company that assists participants in auctions, notes that interest in concessions greatly diminished in recent months. “There is a very large volume of projects to the amount of interested investors,” he says. The CEO of Insper, Claudio Haddad, has a similar opinion. “But investors want to make money. If they see good opportunities, they will come,” says the economist.

The lawyer Fernando Marcondes, infrastructure specialist for the law firm L.O.Baptista-SVMFA and president of the Brazilian Institute of Construction Law, estimates that there are an environment of insecurity surrounding concessions. “The rules are not clear,” he says. He complains about the lack of dialogue between the government and the private sector. More optimistically, the businessman Pedro Luiz Passos, co-CEO of Natura, believes that the government is in the right direction. “We desperately need to increase the rate of investment in the country to create a new growth vector,” said Passos, who also heads the Institute for Industrial Development (Iedi). The chance of the government turn the tide of the economy is put on the table, and the strategy is outlined in the spiral notebook of the minister Mantega.