BRASILIA: Brazil plans to auction off 29 power plants to private operators on Oct. 30, a government official said, a move that is expected to bring the cash-strapped government about $4.4 billion.
The auction consists of existing plants where concession contracts are expiring, the Finance Ministry Secretary for Economic Affairs Paulo Correa told The Wall Street Journal. Current operators can also bid. The tender documents will be available from September 30 and the auction date may still change, he said.
The auction comes as Brazil is trying to revive its sluggish economy, which economists expect to shrink by more than 2% this year.
The slowdown is caused, in part, by low investment levels. In the past few years, the government tried unsuccessfully to stimulate private-sector players to upgrade the country’s depleted infrastructure. But potential bidders complained that conditions weren’t attractive and in the end there were few takers.
As President Dilma Rousseff began a second term in January, after winning re-election last year, she named banker Joaquim Levy finance minister and called on him to, among other things, spur investment by making infrastructure projects more attractive.
Earlier this year, the government launched a 198 billion reais package of projects including power plants, roads, railways, ports and airports. It wanted private-sector operators to build, expand and operate them. But little so far there has been little movement, as policy makers work on creating conditions to attract bidders.
“We are going to learn with this process,” Mr. Correa said.
The October auction will include 29 hydroelectric power plants, grouped in six blocks with total capacity of 6 gigawatts a bloc. The operator will have an estimated revenue of 3 billion reais a year for 30 years, with an internal return rate, a measure of a project’s profitability, starting at 9.04% a year, which Mr. Correa said is attractive.
The winner will offer the lowest sale price, plus a fixed grant. The government expects to pocket a total of 17 billion reais in grants to be paid 60% at the closing and 40% up to 180 days later.
Mr. Correa said that operators will be allowed to pass along to consumers added costs, such as those caused by a prolonged drought. In the past few years such price increases weren’t permitted.
The funds from the auction, Mr. Correa said, will make sure Brazil’s fragile fiscal situation “doesn’t get any worse.” Brazil is running a fast-growing budget deficit and this week lost its investment grade rating when Standard & Poor’s downgraded its sovereign debt to junk.
Mr. Correa said the downgrade shouldn’t have a big impact on the upcoming auctions.
Mr. Correa also said that a 300-mile stretch of a highway connecting the Southern states of Parana and Santa Catarina will be auction off in December. The winner will have to add lanes and other improvements. Details of the auction are still being discussed, he said.
Ports, airports and other highways are in the pipeline for next year, he said, adding that the government is still working on ways to make highways—which are rare in Brazil—more attractive for investors.
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