Brazil’s transportation infrastructure has accelerated in the 2000s, but some areas of logistics were better than others during such period. There were successful concessions in highways and railways, segment in which the construction of new sections are still a promise.
According to experts, the concessions to the private sector could have been developed more rapidly. Now, at the beginning of President Dilma Rousseff’s second government, the plan is to rush the concessions program. The initiative aims at attracting investors as well as allowing the betterment of the Brazilian logistics infrastructure, still deficient, opening up space for the rebound of the country’s economic growth in the future.
The numbers of investment in perspective for the transport infrastructure sector are promising. They point out that Brazil, by its size and scale, has conditions of attracting national and foreign investors.
The investments in logistics, considering highways, railways, ports, and airports, can reach up to R$ 177.1 billion between 2015 and 2018, estimates the Brazilian Development Bank (BNDES). The projection considers public and private investments, new and already hired projects, which can or cannot be financed by the bank.
“There’s a great demand”, the Minister of Finance, Joaquim Levy, recently said while asked whether there is potential to raise the private investments in Brazil’s infrastructure. He stated that, in the last five years, the private sector invested about US$200 billions in infrastructure in areas, such as energy, communication, and logistics, excluding oil and gas. Levy commented on the issue in the United States, where he talked last month with investors about measures that the government is adopting to expand investments. With such spirit, the government plans to launch a new program of concessions this month.
Consultants and specialists understand, on the other hand, that, for the investment in the sector to be successful, long term planning and stable regulatory models that assure the investors’ trust are necessary. “In the last 10, 15 years, Brazil registered important development in different infrastructure sectors”, says Cheryl Hanway, executive of the International Finance Corporation (IFC), responsible for Brazil’s infrastructure. The IFC is the World Bank unit (IBRD) for the private sector funding. She says that one of the highlights was the highway sector.
There are, today, in Brazil, almost 60 highway concessions with around 20 thousand kilometers of extension managed by the private sector. In April, the government auctioned the Rio–Niterói bridge and obtained toll negative goodwill of 36.67%. There was private investment also in airports, said Cheryl.
It was an interesting period, according to her, for native and foreign investors. “Brazil has the scale of the market, which makes it particularly interesting for private investors.” In the ports, even though there is a new 2013 law, there are still uncertainties, and the railroads are a challenging sector, she said. She believes, though, that these sectors have potential to attract new investors.
In the recent past, the opportunities announced by the government did not signify, in their majority, new expansions of infrastructure. In 2012, the government launched the Logistics Investment Program (PIL). “It was a very broad program to be executed in such short period of time,” admitted the government’s source. With the exception of a group of bids for highways, the PIL did not go much further.
The program predicted investments of R$133 billions in highways and railways. Only in terms of railways, it estimated 10 thousand kilometers divided into 12 lots, which would be executed within a new model that separates the construction of the operation with the demands of the Valec state company. With the fiscal adjustment, however, the government may not implement this model as it was imagined.
Paulo Fernando Fleury, CEO of the ILOS Supply Chain, said that one of the problems was the long discussion about the Internal Rate of Return (IRR) of the concessions in which the sectors of the government wanted to limit the investors’ profitability. “The government has learned a lot,” he affirmed. Today, the government seems to recognize that the success of the concessions rely on the balance between the guarantee of low rates, remuneration of the investment, as well as guarantee of minimum volume of investments in the concessions. “If the fee (tolls) is low, the concessioner invests little in order to guarantee remuneration”, says a government technician.
There were also auctions of airports, deemed to have been a success by some specialists, but questioned by others. Cláudio Frischtak, from Inter B. Consultoria, understands that in such auctions the government exposed the public sector, through Infraero, the “dozens of billions of reais” in obligations in the next years that should be absorbed by the private sector. He said that Brazil has invested very little and badly in transportation, something like 0.8% of the Gross Domestic Product (GDP) every year.
“The country would have to invest three times more. Now the result is brought about in issues”. The consequence is the high logistic costs. “The investment could have been better and executed with a much lower cost to the Treasure.” Frischtak evaluated, however, that the government has a vision about what is needed to be done. “There is an agenda that is not trivial because it is necessary to correct errors.”
In order to accelerate investments in infrastructure within ambitious concession programs such as the Brazilian one imposes challenges. One of those challenges is related to the number of projects that need to be structured. And the project elaboration is admittedly an issue of the public sector. So as to solve this problem, the government has been encouraging the private sector to make project viability studies through the PMI (Procedimento de Manifestação de Interesse or Declaration of Interest Procedure).
Last month, the Ministry of Transportation extended to June the delivery of the technical studies that will support the new concessions of four federal highway sections to be offered at auctions. The Ministry stated that Brazil has been keeping itself within the five countries that mostly attract direct foreign investment, with an average of US$ 60 billion an year on the general economy. “For these reasons, the government has been increasingly trying to extend the participation of the private sector through the PMI concessions and consultations programs”, affirmed the Ministry. In the railroad sector, PMIs were set to six sectors.
Another important element for the success of the concessions is exactly the financing guarantee, which becomes more challenging on the current scenario of the fiscal adjustment.
The Ministry of Transportation claimed in the statement that it realigned guidelines which establish the continuity of the construction work and the endeavors already started by the government. “The ongoing work will not be stopped.” The railroads were quoted as examples of constructions that occupy 2,677km, reaching South-North Railroad, East-West Integration (FIOL) and the Transnordestina. In 2014, after 25 years waiting for conclusion, the government inaugurated the 855km length of North-South connecting Palmas (Tocantins state) to Anápolis (Goiás state).
In 2014, the Ministry said to have invested R$ 18.7 billion, and completed: “There is the perspective for 2015 for a portion of the value to be contained due to fiscal adjustment, leading to the reallocation and ranking of the actions estimated to 2015.”
In the fiscal adjustment scenario, private capital and other funding sources will be important to finance infrastructure. The BNDES (Banco Nacional do Desenvolvimento – Development National Bank), major financier in the sector, will have a different role from the one registered in recent years, when it extended loans based on the Long Term Interest Rate (TJLP). Now, it shall act complementing the private capital. Within this structure the issue of debentures by companies that receive from the bank in TJLP becomes relevant. “We want to be part of the funding and not the only source,” said Cleverson Aroeira, head of the department of transportation and logistics from BNDES. “The presence of operators and private investors in the concessions is healthy because it improves the quality of the projects.”
In 2014, BNDES disbursed R$ 11.4 billion in logistics, 6% of the R$ 187 billion cleared from the bank. If BNDES reduces size, the tendency is that priority areas like transportation and logistics, urban mobility, energy and innovation gain relative participation in the total disburse. The prospect is that the disbursements for logistics increase on a yearly average of 16.3%, from 2015 to 2017, reaching between R$ 15 billion and R$ 18 billion at the end of this period.
IFC believes that BNDES will continue to be an important actor for infrastructure. “In the long term, our project aims to have Brazil accessing private sources of local financing and, eventually, will also have to access foreign investors, for its infrastructure program is large and includes a lot of new projects. Additionally, the country still maintains a limited rate for internal savings, so it will need external resources for its infrastructure program”, says Héctor Gomez, director of IFC in Brazil.
IFC owns in Brazil a banking book from which the disbursements added up to US$ 4.32 billion in 2014’s fiscal year, terminated on June 30 last year. From the total, approximately US$ 1,3 is related to infrastructure projects, including fundings and participations in companies. The numbers do not include mineral oil, gas and telecommunications.
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