Brazil Announces ‘Project Growth’ Privatization Program

By Lise Alves, Senior Contributing Reporter

RIO DE JANEIRO, BRAZIL – Brazilian President Michel Temer announced earlier this week plans to privatize some of the nation’s airports, federal highways and rail lines, sewage systems, energy distributors and sell off gas and oil fields and state-controlled companies.

With the plan, dubbed Projeto Crescer (Project Growth), the Brazilian government hopes to obtain resources and share with the private sector some of the responsibility of constructing and managing the country’s infrastructure system.

“We will increasingly show that the government cannot do everything. We need to have the presence of the private sector as a promoter of development and a producer of jobs in the country,” said President Temer while announcing the project.

The first tasks to be conducted are selling off concession rights to the airports of Porto Alegre, Salvador, Florianópolis, Fortaleza, in the first quarter of next year.

In 2017 the concession of several federal highways and rail lines are expected to be auctioned off, including the North-South railway which passes through the states of São Paulo, Minas Gerais, Goias and Tocantins. In the energy distribution sector the federal government plans to privatize companies in the states of Amazonas, Acre, Alagoas, Piaui and Rondonia.

In all there will be 25 projects in transport, energy and sanitation sectors. Four concession projects are also expected in the mining sector. One of the changes in auctions to be held by the federal government is that from now on the bidding call and rules will be published in both English and Portuguese to attract foreign investments into the country.

To attract these much-sought-after foreign investors, executive secretary of the Investment Partnership Program (IPP), Moreira Franco, said the concessions will have maximum technical accuracy, with only those projects with the effective capacity to generate returns to society and investors being offered.

“There will be no replacement of arithmetic by ideology. Return rates and tariffs will be based on technical studies, not the will of President, minister or whomever,” said the official.

According to Moreira Franco, all contracts from now on will have clear indicators. Performance result clauses should set the quality of service as a central goal of the concession. Investors will know what targets will have to be achieved and how they will be measured.

Moreira Franco also emphasized that only those projects with environmental feasibility proven, or which have prior environmental licensing or guidelines for obtaining licenses issued, will be granted.

The announcement was well received by the Brazilian private sector, which now hopes to start to grow after two very difficult economic years. Industry associations, however, emphasize the need for changes in the Brazilian economic system so as to make investments more attractive to the private sector.

“The measures to encourage the expansion of private sector participation in the long-term infrastructure projects, are very well received, but need to count on a faster reduction of interest rates,” stated the Brazilian Association of Infrastructure and Basic Industries (ABDIB) in a press release.

“Similarly, exchange rate stability is essential for foreign investment. Otherwise, the contribution of debentures resources and the inflow of foreign investments for new projects will be exceptions rather than the rule,” warned the association.