On August 15, 2012, the Brazilian federal government launched a new program intended to increase and modernize Brazil’s infrastructure and logistics channels. It did so in response to infrastructure bottlenecks (i.e., poor roads and deficient railroads and ports), which are adversely affecting the growth of the Brazilian economy. As its first step, the program for investments in logistics comprises the expenditure of R$133 billion (approximately US$66.5 billion) in the road and railroad sectors.
Roads. The concession program contemplates nine segments of federal roads, spread across eight Brazilian States, with incentives for toll reductions. Road investments are projected to reach R$23.5 billion (US$11.6 billion) in the first five years of the plan (when the main investments, such as additional lanes, marginal roads, pedestrian crossings, bridges and overpasses, have to be built), while over the next 20 years, investments will total R$18.5 billion (US$9.12 billion).
Railroads. The government also plans to grant 12 concessions for 10,000 km of railroads, involving R$91 billion (US$44.9 billion) in investments, with R$56 billion (US$27.6 billion) in the first five years and R$35 billion (US$17.3 billion) in the following 20 years. In the railroad sector, the government has proposed a public-private partnership (PPP) as the official concession model, and is expected to terminate its monopoly on the operation of railroads in Brazil and create mechanisms for reducing fares.
The second round of the program will comprise investments in ports and airports following the privatization of the international airports of São Paulo, Campinas and Brasília that took place in January 2012.
The Brazilian government is likely to become more reliant on the private sector as an essential partner in delivering infrastructure investments, launching public bids during the second half of 2012 and the first months of 2013 in order to allow concessions to be granted and construction works to begin in the second half of 2013.
Funding. The government also announced that special credit lines will be granted to the private sector by the Brazilian Development Bank (Banco Nacional de Desenvolvimento Econômico e Social).
It is expected that the new investments will increase the scale of public and private investment in transport infrastructure and promote the integration of roads, railways, ports and airports, reducing costs and increasing transport capacity, as well as promoting efficiency and increasing the competitiveness of the country.
For more information about the topics raised in this Legal Update, please contact George K. Miller at +1 212 506 2590 or Eduardo Alves Lima of Tauil & Chequer Advogados in association with Mayer Brown LLP at +55 11 2504 4238.
Observations in this update about Brazilian law are by Tauil & Chequer Advogados. They are not intended to provide legal advice to any entity; any entity considering the possibility of a transaction must seek advice tailored to its particular circumstances.