2023-12-26 16:04:39
Lula’s 1st year infrastructure auctions have low competition
The new government of President Luiz Inácio Lula da Silva (PT) ends its first year with a balance of 18 infrastructure auctions held. Most of them were marked by low competitiveness. Survey of Poder360 shows that 7 of them had a single bid and two planned bids ended up deserted (with no one interested).
Federal public tenders for highways, airports, port terminals, energy and oil were considered. Together, the projects total more than R$71 billion in contracted investments, a figure that is leveraged by the 2 lots of highways in Paraná and the billion-dollar transmission line auctions, which are the ones that had the most interested parties.
For experts heard by the Poder360, economic uncertainties and above all high interest rates were the main obstacles that limited investors’ appetite. Even with the recent drops in the Selic rate, the sector’s assessment is that the rate, still in 2 digits, is too high to provide a return for infrastructure projects, which require a large volume of investments.
It is a critical point, for example, for highway concessions. The government offered 3 lots of roads to the market during the year. There were 2 in Paraná, with the 1st being won by Pátria Investimentos after a dispute with the EPR Group; and the 2nd was won by EPR in a single bid. The BR-381/MG auction received no proposals.
“With high interest rates, projects become more challenging and players need to look more closely at costs. And those who already have contracts, as they have more expenses, reduce their interest in new projects”, says Natália Marcassa, CEO of MoveInfra, an association that brings together 6 large infrastructure groups in the country (CCR (BVMF:), EcoRodovias, Rumo ( BVMF:), Santos Brasil (BVMF:), Ultracargo and Hidrovias do Brasil (BVMF:)).
Contrary to what was customary in the Jair Bolsonaro (PL) government, there was no new round of concessions with several airports this year. Only one auction was held to rebid the São Gonçalo do Amarante (RN) terminal. This was the first airport to be granted in the country, under the Dilma Rousseff (PT) government, but the contract was returned by Argentina’s Inframérica. The new concessionaire, the Swiss company Zurich, will not need to make new investments, remaining only in charge of operating and maintaining the terminal.
In the port area, 10 terminals were offered to the market for lease: 1 did not attract interested parties and 9 were sold, with 5 of them only receiving one proposal. These projects generally require low investments and have shorter contracts.
“O capex [investimento] it is much higher on highways. While the concession project for a large airport can reach R$3 billion and a large port terminal requires R$1 billion – although most are in the range of up to R$200 million –, a highway concession starts at R$9 billion. So just because of its size, it is expected that it will not have many competitors due to the high investment capacity required”, says Marcassa.
In the oil area, the new cycles had different results. The bidding for exploratory blocks under the concession regime ended with 192 of the 602 blocks offered being sold. This is a high proportion for auctions of this kind, although many lots received only one bid.
The competition in pre-salt areas, which follow the sharing regime – normally more competitive – left something to be desired: only 1 of the 5 blocks were auctioned, by a single bid. After the auction, the ANP (National Petroleum, Natural Gas and Biofuels Agency) admitted that the concession model has currently proven to be more attractive.
PROJECTS CAN IMPROVE
Another fact highlighted by the low interest in most projects is risk. Marcassa cites the example of energy auctions. They were the only ones with a high level of competition in 2023. The two transmission line concession rounds held this year were the largest in history and were successful despite the gigantic lots, totaling R$37.4 billion in investments.
“It is a consolidated sector, with legal security and with projects with lower risks, because the revenue is included in the energy bill”, says the specialist. In general, in transmission auctions, the winners have 60 months to build the lines. To do this, they win 30-year contracts, remunerated by electricity tariffs. It’s a sure return.
Risk sharing is one of the points that can be improved in future concession projects. Natália Marcassa states that it was the high risk that led to the BR-381 auction being abandoned. “It’s a highway that has a lot of slope, that will require a lot of expropriations and that will require expensive work. It is not known exactly what level of capex will be needed to cover all of this. The project is good, but this risk needs to be further calibrated.”
She argues that solutions for threats on 3 fronts must be contractually foreseen: “Firstly, it is necessary to share the risk of demand, as happened during the pandemic when everyone stayed at home. Furthermore, you have to have this vision regarding the input costwhich today, for example, have very volatile prices, and for another increasingly critical risk, which is that of climate changes“.
Aline Klein, lawyer and infrastructure specialist at Vernalha Pereira, states that another point that can be modulated in the next concessions is the size of the lots. She states that many companies that have already committed to grandiose projects are left with their financial capacity compromised to compete in other large auctions.
“From the market’s point of view, this message is clear, that smaller lots are more attractive, including for large players. In addition to making new entrants viable. This will bring more competitiveness”, says Klein, who also highlights that many of the large infrastructure companies operate in various sectors, from transport to energy, for example.
OPTIMISTIC GOVERNMENT FOR 2024
Despite the 2023 results, the government has good expectations for next year’s auctions. In the road sector alone, the Ministry of Transport expects to hold 12 tenders totaling R$112 billion in investments.
To the Poder360, the ministry stated that the government has taken actions to bring the private sector closer together and maintain market interest in the projects developed. He cited a diagnosis made at the beginning of the year that showed stressed balance sheets and high financial leverage at concessionaires. It was based on these data that the government requested approval from the TCU (Federal Audit Court) to renegotiate these contracts and allow these companies to resume participation in auctions.
“With the development of the new road concessions policy developed by the ministry, it was possible to auction two lots of the Paraná road system. The two competitions incorporated some improvements to the new concessions policy, but still not enough to increase their attractiveness. The expectation for the next auctions is that the projects will have more changes incorporated, which should result in an increase in competitors”, he says in a note.
For 2024, one of the biggest bets is the BR-040/GO auction, a project that should already have changes. “This notice and contract will be in accordance with the TCU and will be standard, giving more predictability and security to investors”, states the ministry, which promises to continue carrying out roadshows around the world to attract international operators.
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