Brazil Sets Tough Rules For Airport Concession

September 22, 2011

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Brazil's government will set out an ambitious timeline and maintain veto rights over public-private projects to expand the country's airports by the 2014 soccer World Cup, a senior official said.

Brazil announced in May that it would tap the private sector to help it update crowded airports in time for the big sporting event. The move was an ideological U-turn as it effectively would end a state monopoly running airports.

But the state-owned airport company Infraero, which currently runs most major airports, will hold a veto right over "strategic and relevant issues" in future joint ventures, Wagner Bittencourt, head of the civil aviation secretary, said late on Tuesday.

The proposal could put off private investors, who will hold a majority stake in the joint ventures but be required to agree with Infraero.

Infraero is widely seen as inefficient and investors have said they are wary of signing a concession contract with the agency, which was long run by the military.

Domestic air traffic in Brazil has been growing at double-digit rates and airports are frequently over-crowded.

A tender for rights to expand and operate the airport in the capital Brasilia, and the Guarulhos and Viracopos airports in Sao Paulo state will be held in December. Together the three airports require investments of BRR3 billion reais (USD$1.64 billion).

Regulations for the tender are to be announced by the end of this month, including partnership agreements and details on Infraero's veto rights, Bittencourt said.

"All balanced shareholder agreements are like this," said Bittencourt.

Investors, who will also have the option to build and operate hotels or restaurants at or near the airports, will be held to a tight schedule.

The three airports are due to be completed by the end of 2013, only months before the beginning of the World Cup. This means there is little room for the usual delays that shadow large infrastructure projects in Brazil.

The construction of hydroelectric dams and roads, for instance, are frequently held up by red tape or legal challenges in court.

Regulatory uncertainty and government meddling in state companies are other investor concerns.

Last week the government said all major infrastructure projects planned for the Cup would be ready on time, following reports this year by government watchdogs and FIFA, the world soccer body, warning of serious delays.

(Reuters)