Government wants to get “smart concessions” off the ground in 2025; understand how they work

The government of President Luiz Inácio Lula da Silva (PT) is preparing new steps to unlock the federal highway concessions agenda in 2025.

After investing in attracting new players for competitions, in changes in contract designs, modeling and products to favor the financing of infrastructure projects, the hot topic now is the so-called “smart concessions”.

In conversation with the InfoMoneythe executive secretary of the Ministry of Transport, George Santoro explained that this new modality should involve highways with lower traffic than those traditionally involved in auctions ─ and that they would probably involve higher tariffs if the known model were maintained.

“When I remove some requirements and simplify it for a highway that will have good signage, good maintenance and I do not make additional investments, such as duplication (which does not have the movement volume for that), I attract a smaller capital structure with a profile different from the traditional one”, he explained.

According to the secretary, the federal government should test the new model with “at least six projects” in the second half of 2025. The idea is that the design, dubbed “light concession” by minister Renan Filho (MDB), will have the format billing free flow (electronic) and lower tariff, due to reduced costs compared to requirements normally present in other auctions.

In this model, the concessionaire would aim to maintain good road conditions, without the obligation to invest in duplication. There would also be savings in expenses for towing and ambulance services. After a period of 10 years, the government would assess whether the section would be subject to a new concession.

“The idea is, with the new regulation of free flowit is fully implemented in it, which greatly reduces the operating costs of a concession. It can lead to a 15% to 20% reduction in costs ─ and capex as well”, explained Santoro.

The system free flow Payment for free passage works similarly to what already exists today with automatic payment at toll plazas, using electronic stickers, or “tags” offered by companies.

The idea is for drivers to use the highways without having to go through physical toll barriers, which can speed up traffic. As for concessionaires, there is an expectation of cost reduction in the future with structure and hiring of personnel to carry out collections, although today default and user education are challenges.

New models and actors

The model was presented together with the portfolio of large highway concession projects in the pipeline from government to large investment funds and global infrastructure operators during roadshow of the Ministry of Transport in Madrid (Spain) and London (United Kingdom).

On the old continent, the delegation led by Renan Filho says it has received concrete signs of interest from new operators in the upcoming competitions. The current administration’s bet is that a robust auction schedule could whet the appetite of foreign investors at a time of favorable liquidity and interesting return rates on Brazilian projects compared to international peers.

The federal government’s objective is to attract interest from the private sector in projects on smaller highways with the alternative concession design, in order to allow a more efficient allocation of scarce public resources in projects that do not really have the support of private capital.

Santoro has highlighted the importance of the role of the National Bank for Economic and Social Development (BNDES) in driving the country’s infrastructure project agenda. But he recognizes the increasing need to attract new actors from the private sector and enable the use of various instruments of financing.

In the case of larger highways, some of the bets are infrastructure debentures, and the Project Finance Non-Recourse (model in which the guarantees offered come from revenue generated in the project itself, reducing pressure on operators’ cash flow), recently used by CCR for works on the Presidente Dutra and Rio-Santos highways.

The government’s idea has been to bring to the competitions not only construction companies and concessionaires specialized in the operation of infrastructure projects, but also financial market agents, such as investment funds.

The expansion of players it is a strategy to support the bold auction agenda planned by the current administration. The government’s goal is to hold 35 highway auctions by the end of President Lula’s third term.

Spreadsheet

3rd quarter results

Access the secret InfoMoney spreadsheet for free to follow the balance sheet season. Click the link below to receive yours by email.

I WANT TO RECEIVE