Brazil economy: Quick View – Government sweetens terms on infrastructure concessions

Event

At the São Paulo launch of an international roadshow on February 5th to highlight Brazil’s attractiveness as an investment destination as part of attempts to lure up to US$460bn investment in infrastructure before 2015, the finance minister, Guido Mantega, announced more favourable conditions for infrastructure concessions.

Analysis

The announcement came a few days after the transport minister was forced to postpone the auction of two major highway concessions when three companies pulled out over the terms, including government projections on traffic flows, which they found to be over-optimistic.

On the basis that Brazil’s interest rates have fallen recently – the benchmark Selic policy rate stands at a historic low of 7.25% – the government has been arguing that real rates of return on infrastructure concessions should be of the order of 6-7%. But companies have found this to be unattractive, particularly given elevated project-related risks in Brazil, including the at times thorny process of securing environmental licences.

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