Brazil at a Crossroad: Without Money and Unwilling to Privatize Roads

    Brazilian road BR 163 links Cuiabá to Santarém

    Brazilian road BR 163 links Cuiabá to Santarém

    Brazilian highways are the main routes of access to all four corners of the
    country. Both for passenger transport and for cargo delivery. And of the total
    highway grid – over 1.7 million kilometers – just 188,000 are paved, a large
    part of which in awful conditions.

    According to the most recent highway study by the National Confederation of Transport (CNT), in 2006, of the 84,382 kilometers analyzed, over half (54.5%) was in regular, bad or awful conditions.


    To fix these holes and increase the efficiency of highways, in a government without funds to cover maintenance costs, the solution is private companies, be it through public-private partnerships (PPPs), or through concessions, in which highways support themselves, through the establishment of tolls.


    Ever since the sector privatizations began, in 1996, just 9,850 kilometers of highways have been passed on to the private initiative. This figure includes federal, state (the majority) and municipal stretches of highways. Now the Federal Government is getting ready to announce the second lot of federal highways, which includes important routes for the turnover of the Brazilian economy.


    Among these highways is Fernão Dias, which connects the southeastern Brazilian capitals of São Paulo and Belo Horizonte (respectively the capitals of the states of São Paulo and Minas Gerais), and Régis Bittencourt, which connects São Paulo to Curitiba, the capital of the southern Brazilian state of Paraná. In all, there will be over 2,600 kilometers of concessions.


    “It is little in terms of extension, but they are strategic stretches, which will grant greater consistency of the highway grid that is already under concession and to business between the countries of the Mercosur (the Common Market of the South, a customs union between Brazil, Argentina, Uruguay, and Paraguay),” explained Moacyr Servilha Duarte, president of the Brazilian Association of Highway Concessionaires (ABCR), which includes 37 concession holders who operate in seven Brazilian states.


    According to the organization, investment over these ten years of concession has totaled 11.9 billion Brazilian reais (US$ 6.4 billion) and taxes collected totaled 3.4 billion reais (US$ 1.8 billion).


    The companies that run highways have concessions for an average of 20 years. In the beginning, the concession companies were made up of large construction companies. Little by little, though, other kinds of companies, like banks, started operating in the area. Today, the concessionaries are more professional.


    “That is because managing highways is more than investing in infrastructure. It is providing services,” explained Luiz Afonso dos Santos Senna, a transportation professor at the Federal University of Rio Grande do Sul (UFRGS) and author of the book “Self-sustained highways – The challenge of the 21st century”.


    The largest group in the sector, the Highway Concession Company (CCR), still has among its shareholders construction giants Andrade Gutierrez and Camargo Corrêa. But the group has already consolidated itself as a company whose main business is the administration of highways. As there are no restrictions to foreign investment, there is participation of foreign investors in these groups.


    This is also the case with CCR, which has the Portuguese Brisa group as one of its shareholders. The Spanish OHL group, in turn, manages four highways in the interior of São Paulo. A giant in the field, OHL is present in 17 countries and manages concessions in other sectors apart from highways, some in Arab countries like Jordan, Saudi Arabia, Algeria and Morocco.


    According to professor Luiz Afonso, the concept of self-sustained highways is growing all around the world. In the United States, there is a boom in infrastructure concessions. In Great Britain and Germany the private initiative is also taking care of highways. In this context, in the same way as there are foreign groups operating in Brazil, Brazilian groups are also eyeing these tenders. In general, companies seek the most appropriate environments.


    “At the time of choosing a good deal, investors analyze a series of factors, among them the legal and political security of the country, the volume of traffic on the stretches to be privatized and the internal rate of return (percentage of investor profit),” explained Moacyr, from the ABCR.


    Each company offers the percentage it finds more adequate according to the level of investment. However, the federal government has given signs that it wants to close this rate at 8.95% for the second lot of concessions.


    “In reality, this rate accompanies the economy in general. In the beginning, it reached 18%. If it is lower today, that is because it is more in agreement with the current moment. But this is a natural process. The government defining a process inhibits the liberty of the sector,” stated Luiz Afonso.


    Excessively low rates and delays in liberating the tenders – in the Lula government there have been six years without highway tenders – may frighten away investors, be they domestic or foreign.


    The Price of Holes Free


    Another factor that weighs in the decisions of investors is acceptance of the population regarding tolls. In Brazil, people agree that highways administered by private companies, which always have tolls, are the best for travelling.


    But for a large part, the price paid is too high. According to company Caramuru, one of the largest grain processors in the country, the price of highway tolls increases freight. The company usually crosses tolls in the states of São Paulo, Paraná and Rio de Janeiro.


    According to the logistics coordinator in the group, Alexandre Spegiorin, increases in tolls have been above inflation. “The Anchieta-Imigrantes system, for example, has risen from 4.40 reais (US$ 2.38) to 15.40 reais (US$ 8.31) per axel in ten years, 250%, whereas the Broad Consumer Price Index (IPCA), measured by the Brazilian Institute for Geography and Statistics (IBGE), grew 88.61% in the period,” he justifies.


    Tolls increase freight costs by 5% for distribution on the domestic market and by 11% for export, according to calculations by the companies. For those living off deliveries, as is the case with driver Romeu Da Ross, tolls are also heavy on their pockets.


    Being cheap or expensive, explains professor Luiz Afonso, depends on what the concessionary has agreed to offer. If the company is going to duplicate the highway or just keep the stretch in good conditions, the end price for the user is different.


    However, to the economics professor at the Federal University of Paraná, Eugênio Stefanello, the cost of highways is reducing the Brazilian competitiveness. However, ponders the professor, it is not tolls that are high, but the Brazilian income that is low.


    “The cost of tolls in Brazil is relatively expensive if we consider the average income of the population and the development of the country,” he justifies.


    Moacyr, from ABCR, agrees and adds: “Freight is very low. Due to unemployment, there are many truck drivers working for any price. But the cost of circulating on bad highways is much higher.”


    To justify his position, the ABCR president recalls a study by the Federal University of Rio de Janeiro (UFRJ) which shows that a 25 ton truck spends 2.24 Brazilian reais (US$ 1.21) per kilometer when running on a highway without maintenance and 1.60 reais (US$ 0.86) on a highway in good conditions.


    Expensive of not, the fact is that highways that are self-sustained may be a good solution for the winding routes of Brazil. “If the government had money to expand this grid and maintain it, there would be no need for tolls or concessions. But it does not, so the private initiative is the solution,” defends Luiz Afonso.


    “The fact of the matter is that private participation in infrastructure is still at its very early stages in Brazil. There is still much to be explored. But, for this, the government needs to stop wasting time. Planning the future of highways is something strategic for the growth of the country,” finished of the professor.


    Living Off the Road


    With almost 30 years in the profession, truck driver Romeu Da Ross, 63 years of age, has good knowledge of the reality of Brazilian highways, through which 63% of cargo in the country moves. His faithful road companion, a five axel Volvo, transports from grain to ironworks products, construction material and cotton lint.


    The route that separates the small city of Três de Maio, in the interior of the southernmost Brazilian state of Rio Grande do Sul, and the destination of the cargo transported is normally long, dangerous and slow. “Most of the highways are bad and dangerous. So I never travel at night,” he explains.


    His trips almost always have stops in Santa Catarina and Paraná (both also states in the South) and São Paulo, in the Southeast, from where Romeu has already transported large volumes of cargo to the North and Northeast of Brazil. “While travelling from São Paulo to Fortaleza (in the Northeast), for example, you take from five to six days to cover a distance of 3,400 kilometers,” he explains.


    Having been on so many trips, Romeu speaks knowledgeably about the conditions of Brazilian highways. “The best roads are certainly the ones with tolls. The problem is that the tolls are very expensive. To travel between São Paulo and Santos (a distance of 77 kilometers), a truck like mine pays 77 reais (US$ 41.60)”, he explains.


    “I am not against tolls being charged, but this exaggeration is not necessary,” stated the truck driver. According to him, on some stretches the price of tolls almost equals the cost of fuel. “From São Paulo to Campinas, for example, I cross two tolls that cost 27.50 reais each. And I don’t spend 50 liters of oil to get there,” he compares.


    Anba – www.anba.com.br

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