Brazil looks to public-private consortiums to help improve infrastructure problems

As Brazil gets set to host the World Cup in 2014 and the Olympics in 2016, it is looking to pick up its pace to improve its infrastructure quandary. However, much like the rest of the world, Brazil has experienced an economic slowdown and is facing domestic pressure to keep government spending in check.

As such, Brazil’s government is hoping to utilize public-private consortiums to improve its infrastructure. While the auctioning of road projects has not yet proven successful, its auctioning of airports seems to have achieved success with its state-run management company, Infraero retaining a 49% stake in each project.

For example, in 2012, a group of Brazilian companies, Invepar and OAS along with South Africa’s ACSA won the concession to overhaul the country’s largest airport, Sao Paulo’s international airport, Guarulhos, with a bid of $7bn. Brazil’s Triunfo Participacoes and France’s Egis Airport Operation also won the concession to expand Viracopos airport in Campinas outside Sao Paulo with a bid of $1.7bn and Brazil’s Engevix and Argentina’s Corporacion America won the concession for a new airport terminal in the capital of Brasilia with a bid of $2.0bn.

In its latest attempt to improve airport infrastructure, Brazil has recently awarded Singapore’s Changi Airport Group and its Brazilian concession partner, Odebrecht, with one of the largest bids to date of $8.3bn to run the country’s second-largest airport, Rio de Janeiro’s Galeo international airport. Changi and Odebrect plan to invest an additional $2.5bn over the next 25 years to add 26 new gates to Rio’s airport and expand its cargo storage.

Meanwhile, the government awarded operators of airports in Zurich and Munich, along with Brazil’s CCR group rights to the hub airport in the country’s mining city of Belo Horizonte for $789m. Plans are underway for a new terminal and landing strip.

Besides the anticipated easing of overcrowding in its airports, it is hoped that air cargo will also improve. According to World Bank data, Brazil’s total air freight tonnage declined 8.1% from 2011 to 2012. Indeed, according to The Loadstar, Invepar-ACSA states that air cargo will be key to the success of its concession to operate Brazil’s largest airport, Guarulhos. In 2012, the airport handled about one-third of Brazil’s total cargo volumes. The operator plans to increase capacity at the airport from 334,000 tonnes in 2012 to 556,000 tonnes by 2017.

Brazil’s airports should hopefully get the much needed improvements to help improve the country’s global competitiveness as well as its economy. However, its road and rail network connecting these airports to cities and other locations are still in need of improvements. Because of the lack of interest in its attempt to auction road and rail projects, perhaps the government should think of alternative ways to finance these projects?