Costly Band-Aid For Business Environment Ignores Fundamental Concerns
BMI View : Brazil's failure to launch highway concessions illustrates one of our principal concerns with the government's new plans to entice private investors into infrastructure investment. At the core of the issue is that the rewards are not high enough to warrant the growing array of risks facing international investors in Brazil infrastructure sector. In order to address the problem the government should tackle the underlying risk factors; however, it is instead upping the reward s , illustrating a continued policy of throwing money at the country's infrastructure problems whilst ignoring the root causes.
The failure of two highway concessions in Brazil highlights our concerns for the country's wider concession programme. Two major concessions fell through in January 2012 when three companies pulled out, citing government projections for traffic growth as too optimistic, according to Reuters.
In an effort to overcome these difficulties the Finance Minister Guido Mantega announced a number of changes to concessions to sweeten the deal. The concession period is to be extended from 25 years to 30 years, better financing terms will be offered, with state-owned banks to provide bridge loans at a lower interest rate, the financing period will be extended from 20 to 25 years and crucially, a rate of return in excess of 10% will be promised, versus the 6% estimated return currently.
|Sweetening The Deal Neglects The Real Problems|
|Brazil Project Finance Ratings|