2024 highway concession auctions may yield R$72bn in investments
Dec, 27, 2023 Posted by Gabriel MalheirosWeek 202347
After a year that was marked by low interest by the private sector in road concession tenders, the market expects 2024 with more successful auctions. New highway concessions slated for next year could result in R$72 billion in investments. The federal government has 13 planned projects — although there is skepticism on whether the schedule is feasible. The São Paulo government has also scheduled for April an auction for its lot of highways known as “Lote Litoral Paulista”.
The biggest challenge for governments will be attracting the private sector, which has proven difficult in recent months, according to specialists. In November, the federal government canceled the auction concession of the BR-381 highway, in Minas Gerais, due to a lack of interested parties. In the other two federal projects offered in 2023, competition was low: Lot 1 in Paraná had two proposals, and Lot 2, had only one.
However, the government is already working to increase the attractiveness of new concessions by reviewing the risk matrix, the pricing of construction works, and the rate of return on projects, said Viviane Esse, national secretary for land transport at the Ministry of Transport.
In the case of BR-381, she said six groups studied the concession, but big challenges related to the project—especially engineering risks in a stretch of a mountain range—led all of them to refrain from submitting proposals. Now, the team will discuss with the public spending watchdog TCU greater risk sharing, which the public spending watchdog initially denied.
“With these alterations, in addition to pricing and IRR [internal rate of return] corrections, we will the make project suitable. The best thing is to have a greater number of competitors in the auction. Any asymmetry is corrected by discount”, she said.
The goal of having 13 auctions carried out by the federal government in 2024 is seen as very ambitious by the market, but the program is still considered positive. The first tender, according to Ms. Esse, is expected to take place in April, for the BR-040 highway, connecting the cities of Belo Horizonte and Juiz de Fora, in the state of Minas Gerais. Also in April, the state PPP auction for the Litoral Paulista Lot concession is scheduled.
According to Marco Aurélio Barcelos, president of ABCR (Brazilian Association of Highway Concessionaires), two factors were crucial for the low interest in the last auctions: low rates of return and the assessment that the projects’ investment values were underestimated, given the pricing system for construction work, which is considered to be outdated. “The returns are currently unattractive, it is hard for a foreign investor to decide to come to Brazil at such rates,” he said.
In the opinion of Marcos Ganut, managing partner at A&M (Alvarez & Marsal) Infra, there should not be any large surge of new entrants in 2024. He expects the 2023 scenario will persist, with the expansion of new groups and a specific entry of investors. “There shouldn’t be any surprises, but I don’t believe we will have empty auctions. The BR-381 auction is not a parameter, there is a willingness in the market for these projects.”
More conventional concessionaires, such as CCR and Ecorodovias, that dominated large auctions in recent years, hit the brakes in 2023. According to analysts, companies continue to study auctions, but they have been conservative.
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