Brazil Awards USD$14 Bln Airport Upgrades

February 6, 2012

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Brazil took a significant step on Monday toward upgrading its notoriously bad infrastructure, by awarding USD$14 billion in private contracts for improvements at three key airports to accommodate rising passenger traffic and prepare for the 2014 World Cup.

The concessions, awarded to large Brazilian contractors in association with international airport operators, are viewed as a small but hopeful sign that the government of President Dilma Rousseff is beginning to take a more market-based approach to logjams that for decades have hindered investments in Brazil's overburdened infrastructure.

Under the arrangement, the consortiums paid a combined BRR24.5 billion reais (USD$14.21 billion) - much more than expected - for the right to build and operate new terminals at two airports in São Paulo state and the main airport in Brasília, the capital.

They will operate the terminals in conjunction with Infraero, the state agency that currently runs the airports. Brazilian officials have touted the arrangement as a hybrid that will allow for greater participation of private capital without formally being a privatisation - which would be heresy to many activists in Rousseff's left-leaning Workers' Party.

Monday's auction, held on the floor of a packed São Paulo stock exchange, attracted strong interest from 11 consortia whose bids greatly surpassed minimums set by the government for the proposals. Outside, demonstrators from public-sector unions protested a move they fear could eliminate long-protected jobs and benefits for workers at Infraero.

Brazilian companies Invepar and OAS along with South Africa's ACSA won the concession to overhaul the busiest and most valuable of the three airports, Guarulhos, which is São Paulo's primary international gateway. The consortium won with a bid of BRR16.2 billion reais - nearly five times the minimum value set by the government.

Brazil's Triunfo Participações and France's Egis Airport Operation won the concession to expand Viracopos airport, also near São Paulo, with a bid of BRR3.8 billion reais.

Brazil's Engevix and Argentina's Corporación America won the concession for a new airport terminal in Brasília with a bid of BRR4.5 billion reais.

The size of the bids raised doubts among some investors worried about the eventual return on the investments.

Triunfo shares dropped nearly 4 percent after securing the Viracopos concession while Ecorodovias and CCR Rodovias, two companies that lost out in the auction, rose 5.7 percent and 1.9 percent, respectively.


Economists have long criticised the drag that poor infrastructure has on Brazil, Latin America's largest economy and its biggest and most populous country.

Despite economic growth that averaged over 4 percent for most of the past decade, roads, ports, factories, and other facilities have suffered crippling delays that raise production and distribution costs. That, in turn, worsens Brazil's long struggle against high inflation.

Brazil's growth has led to a surge in air travel, with millions from the country's emerging middle class taking to the skies. Passenger traffic has more than doubled over the past decade, according to government figures, making Brazil one of the most promising aviation markets in the world.

While that has fuelled heady growth for a crop of ambitious new airlines such as Gol and Azul, many carriers now complain that future growth will not be possible without significant airport expansion.

For passengers, the constraints translate into long lines and delays. At Guarulhos, for instance, travellers must endure notoriously long queues at airline counters, in bathrooms, and even in the parking lot outside, where drivers park on curbs and atop medians because of a dearth of space.

The headaches are prompting the government to scramble for solutions as it looks ahead to major sporting events that will put Brazil in the global spotlight. Officials from FIFA, soccer's governing body, have already questioned Brazil's preparations for the World Cup - just over two years away - in terms of airports, stadia, hotel rooms, and other facilities necessary to accommodate the crush of visitors.

Brazil will also host the Olympic Games in 2016.

For Rousseff, now in her second year in office, the decision to grant the concessions is a reversal of the long-standing policy of her party and that of her predecessor and mentor, Luiz Inácio Lula da Silva. Lula, under whom Rousseff served as a minister and chief of staff, opposed efforts during his two terms to allow private partners to manage Brazilian airports.

Rousseff, however, has proven more flexible as her administration seeks to appease the demands of Brazil's fast-growing consumer class. Because her electoral base consists of the tens of millions of working-class Brazilians empowered by the recent growth, the expectations of those voters are evolving as they look for better public services.

Still, the structure of the airport contracts, which retain a 49 percent stake for a state agency in the new operating companies, suggest that the government is unwilling to pursue blanket privatisations like those of a centrist administration in the 1990s. Back then, the government sold off electricity, communications, mining, oil, and other state-owned companies.