Road Concessions: Private sector wants road concessions, but if returns improve

Private sector wants road concessions, but if returns improve

By Fábio Pupo | São Paulo

Infrastructure-concession companies have begun to run around the country collecting data on the nine roads to be auctioned by the government later this year. Industry officials say there are private-sector companies interested in most of the ventures, but sustain that its success depends on the improvement of the projects, now under revision by the federal agencies.

The companies interested in the auctions claim they need to have access to estimates of the total amount of capital that will be needed for building the roads, as well as regarding the running traffic in the future.  These parameters are essential for forecasting financial return on the long run.

Valor has learned that the federal government took the companies claims into account, particularly about the tight budget, and reconsidered, for the first time, ordering Estruturadora Brasileira de Projetos (the agency responsible for the projects) a review about the seven roadways recently included in the privatization process.

Pending analysis results, the government may raise the maximum value allowed for toll rates. It may allow also relocating the toll plazas, something that may also help maximizing returns.

These changes may address the main demand of the companies involved: increase the rate of return, today at the 5.5% per year level. So far, the government was addressing changes only in financing conditions – something that affects only stockholders’ rate of return, leveraged with borrowed money, and seen as more volatile by analysts. According to the government this rate will be around 9% to 15% per year.

Companies worry more about toll rates in this stage since schedules are tight. Huge investments will be needed, particularly for doubling the number of lanes of the roadways already in the first five years of contract. This was the rule that worried companies the most, since they don’t forecast such a strong demand growth to justify investment in this timeframe. 

The government insists in the rule of doubling lanes in five years based on the idea that investments must precede demand to avoid bottlenecks in the future. Furthermore, Brasilia sees infrastructure as the very dynamo that will induce development. Moreover, those investments are seen as highly important to increase GDP growth in the next few years. 

In the companies’ view, however, the tight budget will increase capital costs. Furthermore, government figures are underestimated, executives say, by what they call “superficial studies” for the concessions.  Accordingly, the companies asked revisions regarding estimates of revenues.

Despite complains, industry analysts believe that there will be interested parties in all projects, but some recognize that only a few will receive most of the financial effort. Some groups will concentrate on only two or three projects. 

Roads that had been handed over to the private sector earlier will also attract the attention of those groups. This is the case of BR-040, which despite having its auction postponed, still attracts Triunfo Participações e Investimentos (TPI), which is also interested in two other lots. EcoRodovias, controlled by CR Almeida, will study two projects, at most. Invepar (controlled by OAS, and pension funds Previ, Funcef and Petros) will also give priority to roadways that “make sense” for the company.

Odebrecht TransPort is analyzing all ventures, as well as CCR, which, however, will end up concentrating only on a few. Arteris (formerly OHL Brasil) will also “take a look” at all projects. But even if it will take part of the auction, it may not have the same aggressiveness it showed in the past, thanks to its large portfolio of projects currently ongoing. Foreigners, such as Isolux Corsán, were also attracted. Although the auctions should be highly disputed, no one yet is certain that all lots will find buyers.

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