Bidding for São Paulo highways marks new era in road concessions
An investment fund is bidding for a highway concession for the first time. Analysis of the documentation will be completed by February 24
The new highway concession model launched by the São Paulo State Government has already produced good results in the auction that started today. Ecorodovias Infraestrutura e Logística S.A. and Pátria Infraestrutura III - an investment fund - today delivered their bids for the Centro Oeste Paulista concession, It is the first time that an investment fund has bid for a highway concession in Brazil.Pátria Investimentos is a partner of Blackstone, one of the world's largest funds, in Brazil.
"We are delighted with the result, both because of the unprecedented diversification of bidders and the confidence shown in São Paulo. A willingness to pay almost R$ 1 billion to the State for the rights, even given the adverse scenario Brazil still faces and the difficulties of financing is a great incentive for us to continue to encourage partnerships in the State," says Giovanni Pengue Filho, Director-General of ARTESP. He stresses that in addition to the rights, the project involves an investment of R$ 2.1 billion in the first eight years of the contract and a total of R$ 3.9 billion over the 30 years of the concession. The State's road concessions, considering only the two projects currently being bid for, surpass the investment value of four federal airports together (R$ 9 billion compared with R$ 6.5 billion).
Today's result proves the decision taken in 2015 to seek new bidders, both operators and financiers, in other sectors and other countries was the right one. Financing problems and institutional issues do indeed still hinder active participation by the local market. However, the bid by Pátria Investimentos, representing the American fund Blackstone in Brazil, which had never bid fore highway concessions in the country before, and the great effort by Italy's Gavio Group, which having acquired the Ecorodovias Group wants to expand its base in São Paulo, demonstrate how right the State government has been in its effort.
Support by the IFC, linked to the World Bank, was essential, introducing best practices from the international market, seeking new partners, and collaborating in the adaptation of the bidding documents to global standards. São Paulo State contracts are no longer restricted to Brazilian players and are able to compete with other infrastructure projects seeking funding in various parts of the world because they offer more security and leadership for investors: a tripartite agreement, an exchange protection mechanism, data room and all the information in Portuguese and English, more time for proposals to be presented, more transparency in monitoring, and compensation in the event of cancellation. The economic and political stability of the State also mitigated risk, as did the guaranteed transition of concessionaires, the IFC's 30% share of debentures, and the international validation of the legal, demand and environmental risk.
It is also worth noting that in recent years quite a few projects have not reached the bidding phase, or ended without any bids being made. In the case of concessions whose auctions involved large rights payments, only one in six concessions put up for auction attached more than one bidder.
For São Paulo this is a new phase, with an even clearer risk matrix, with set rules and deadlines for rebalancing, more transparency for users and for the financiers: changes that are here to stay, which will attract even more serious competitors for the next auction and which will certainly stimulate good partners to work with the government of São Paulo to make public services even better.
"Our expectations for the next auction - Calçados Highway - with envelopes to be delivered on April 25, is even more positive. Some international groups that have only managed to get resources and funding together in recent weeks have expressed a strong interest in the next auction," says Giovanni.
The next steps - In the upcoming days the São Paulo State Transport Agency (ARTESP) will analyze the guarantees offered in the documentation by the bidders, and will announce the result on 02/24 at the BM&FBOVESPA. The public proposal opening session (the first tranche plus the premium) will also be held at the BM&FBOVESPA, at a date to be announced in due time, after analysis of the proposal guarantees presented by the bidders, according to the legal bidding procedure. If there is a difference of less than 5% between the proposals, an auction will be held on the same day with incremental bids of at least R$ 4 million.
The winner will be responsible for managing 570 km of São Paulo state roads for the next 30 years. The selection criteria will be the largest rights payment - to be paid to the State of São Paulo, considering the value of the first installment to be R$ 397 million (as of March 2016). The second installment to be paid one year after the signing of the contract is fixed at R$ 397 million (as of March 2016). The investments to be made in the highways total R$ 3.9 billion.
There follows further information about the Centro Oeste Paulista highway concession.
Centro Oeste Paulista Highway (Florínea-Igarapava)
570 kilometers of highway in the regions of Araraquara, Barretos, Bauru, Franca, Marília and Ribeirão Preto. The bid notice was published on 11/5/2016 and the proposals were delivered today at the BM&FBOVESPA. Sections of seven highways form part of the network: SP 266, SP 294, SP 322, SP 328, SP 330, SP 333 and SP 351.The estimated investment is R$ 3.9 billion over the 30 years of the concession, with about R$ 1 billion being in major expansion, R$ 1.8 billion in highway maintenance, and R$ 516 million in equipment and systems, and other investments.
Calçados Highway (Itaporanga - Franca)
The concession for another lot of São Paulo State highways is also underway. The “Calçados Highway” project comprises 720 kilometers of ten highway sections: SP-255, SP-249, SP-257, SP-281, SP-304, SP-318, SP-328, SP-330, SP-334 and SP-345.The network runs through 35 municipalities in Bauru, Franca, Itapeva, Ribeirão Preto, Sorocaba and the Center region. The bid notice was published on December 22 and the deadline for proposals is April 25, 2017.
The project comprises R$ 5 billion in investment over the 30 years of the concession, R$ 2.1 billion being invested in the first eight years. Of the total, R$ 1 billion is for major expansion of the road network, R$ 2.4 billion is for repair and maintenance.