The Brazilian state of Minas Gerais state yesterday kicked off the country’s first ever public-private partnership (PPP), granting a $1 billion concession for a highway project.
The 370 km road will link Belo Horizonte and Sao Sebastio de Paraiso on the border of Minas Gerais and Sao Paulo , economically Brazil ’s two most important states.
Equipav, a consortium of five companies, won the bidding against four other consortia. The 25-year concession has been granted on condition that $315 million is invested.
This is the first highway project on which a concession has been granted, from a long list that Brazil slated for development by public-private partnerships (PPPs) from 2004.
It is also the first project launched under the recently-enacted PPP law in Brazil which is designed to improve regulatory framework and reform the concession regime.
“This is extremely important. This is a boost for PPP programmes for highways,” Luiz Antonio Athayde, undersecretary for international affairs with the Minas Gerais state government and executive director of the state PPP program, told Emerging Markets. “It shows there can be coexistence between the state and the market.”
The concession award sets a precedent by getting road-building underway, he said. “Everywhere that PPPs are done, 60-70% of the value of the projects are in highways,” Athayde said.
Equipav’s new business director Jose Roberto Ometto, said: “This is a great step for PPP [in Brazil ].”
The multilateral institutions and regional governments are desperately finding ways to plug the funding gap and attract private investment which has dropped dramatically since the 1990s.
Brazil ’s public spending on infrastructure is just 2% of GDP, and less than a quarter of the main highways in Brazil are classified as good, according to the World Bank.
But the market is far from satisfied with the reform measures, said Christian Stracke, a senior analyst on emerging markets strategy at CreditSights. “When the new PPP law came, the markets found the same impediments ... it is still expensive to finance property rights and there are many existing laws that run contrary to the spirit of the PPP law.”
Stracke foresees the same financing risks with toll roads, despite the new laws: “The problem with roads in particular is if, how and when you can get paid.”
Highway concessions have had a chequered past in Latin America , to say the least. In Mexico , many of the ambitious toll roads projects vastly underperformed; two of the country’s leading construction firms required a multi-billion-dollar bail-out. This month, president Felipe Calderon announced the government would put another $1.5 billion in to a highway rescue scheme.