<html> <head><style type ="text/css">body { font-family: "Bloomberg Prop Unicode I", Verdana, sans-serif; font-size:125%; letter-spacing: -0.3pt; color: #FF9F0F; background-color: #000000; text-align: left; } p {line-height: 1.25em; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" );} h1, h2, h3 { text-align: left; font-weight: normal; color: #FFFFFF; } h1 { font-size: 130%; } h2 { font-size: 115%; } h3 { font-size: 100%; } #bb-style { font-size: 90%; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" ); } b, strong { font-weight: bold; } i, em { color: #FEC54A; } pre { font-family: "Andale Mono", "Monaco", "Lucida Console"; letter-spacing: -0.3pt; line-height: 1.25em; } table { border: 0; font-size: 90%; width: 100%; margin-left: auto; margin-right: auto; } td, tr { text-align: left; } td.numeric { text-align: right; } a:link { color:#53B2F5; text-decoration: none; } a:visited {color:#53B2F5} a:active {color:#53B2F5} a:hover {color:#53B2F5} </style> </head> <body> <p>By Dom Phillips</p> <p>Brazil’s airports are bursting at the seams. In 2011, about 180 million passengers traveled through the 66 airports run by the government aviation body, Infraero -- 24 million more than in 2010.</p> <p>This is partly because air travel is no longer a luxury reserved just for the upper classes: More Brazilians are flying than ever before. Data Popular, a market research company, estimates that 7 million lower-income Brazilians took their first flight last year.</p> <p>The result is queues, delays, poor services and overcrowding in airports. And this is before the inevitable millions of foreign passengers who will travel to Brazil for the 2014 World Cup.</p> <p>In preparation, Infraero solicited bids for private companies to help them run three of Brazil’s busiest airports in Sao Paulo, Campinas and Brasilia for 20 years. The competition was followed with interest. On Feb. 6, when the winning bids were opened at the Sao Paulo stock exchange, there were surprises in store.</p> <p>Not only were the three winners relatively small players in terms of international airport operations, they also paid a high price. To run 51 percent of the three airports with Infraero, they collectively spent a cool R$24.5 billion ($14.24 billion) -- 347 percent above what was expected.</p> <p>Celso Ming, an economics journalist for the Estado de Sao Paulo newspaper and a TV pundit, was quick to celebrate the new public-private partnerships. He <a href="http://blogs.estadao.com.br/celso-ming/2012/02/06/o-impacto-deste-leilao/">wrote</a> on his blog:</p> <blockquote><p>The principal factor in this success is that it has definitely demonstrated that the transfer of management of important public services to the private sector is the only way to guarantee rapid advances in the infrastructure of Brazil.</p></blockquote> <p>The consortium Invepar paid R$16.2 billion ($9.41 billion) for Sao Paulo’s Guarulhos, Brazil’s busiest airport, which moved 29.9 million passengers in 2011. This was R$4 billion ($2.32 billion) more than the second-highest bid. Invepar is made up of pension funds from state-run energy company Petrobras and the Banco do Brasil, in addition to South African airport operator ACSA. Much of the financing for Guarulhos will come from Brazil’s development bank, BNDES.</p> <p>The Brazilian company Trinfu and the French company Egis were part of the consortium that got Viracopos airport in Campinas for R$3.8 billion ($2.19 billion). Located just an hour from Sao Paulo, Viracopos is increasingly absorbing the traffic Guarulhos can’t handle. And Argentina’s Corporacion America made up part of the consortium that won Brasilia airport for R$4.5 billion ($2.60 billion).</p> <p>Soon after the Feb. 6 announcement, Brazil's commentators began to air their doubts about the winning consortia.</p> <p>In her Feb. 7 blog for the <a href="http://oglobo.globo.com/economia/miriam/posts/2012/02/07/ha-muito-estado-nos-aeroportos-privatizados-430410.asp">O Globo</a> newspaper, economics journalist and TV and radio commentator Miriam Leitao voiced concerns. She wrote:</p> <blockquote><p>Specialists are a little worried. They think that they are groups who don’t have the experience and the critical mass to assume such big commitments. Those who do have more (weight and experience) were scared to arrive at those prices – they made high offers, but less than the winners.</p></blockquote> <p>In a video published on the business newspaper Valor's website on Feb. 7, Brasilia reporter Daniel Rittner criticized the process. "A success, or just an exaggeration? The story of the winning companies in the bidding is relatively problematic.” He noted that none of the big four Brazilian construction companies -– Odebrecht, Camargo Correa, Queiroz Galvao or Andrade Gutierrez -- were among the winners. Rittner continued:</p> <blockquote><p>They have vast experience in the construction of airports in Brazil and the exterior. Other known companies, of international renown, who operate airports in Frankfurt, Paris, Zurich and Singapore, also were left out. The winners were consortiums made up of medium-sized companies allied to operators little known in the international scenario.</p></blockquote> <p>The consortium that won Viracopos airport in Campinas, Rittner said, is questionable. Trinfu, for instance, lost its concession in 2009 to run the Ayrton Senna highway in Sao Paulo. And Egis runs “periphery airports” in African countries like Gabon, Cote d'Ivoire and the Congo.</p> <p>The Feb. 10 edition of <a href="http://www.istoe.com.br/reportagens/190241_O+CAOS+VAI+ACABAR+?pathImagens=&amp;path=&amp;actualArea=internalPage">ISTOE magazine</a> reported that ACSA, part of the Invepar consortium that will help run Guarulhos airport, had a good record in running airports in South Africa. However, it also reported, along with Valor, that Corporacion America, which will help run Brasilia airport, had to renegotiate contracts on a network of 33 Argentinean airports.</p> <p>Rittner also said in his Feb. 7 video that government studies on future cash flow at Guarulhos are estimated to be approximately R$17 billion. The winning consortium paid R$16.2 billion -- giving very little room for maneuver:</p> <blockquote><p>The question from here on is whether the government is going to act sufficiently to supervise the investments of the new concessionaries -- or if we can expect requests for financial equilibrium of the contracts, extensions of the deadline, or failures in meeting the schedules.</p></blockquote> <p>Brazil’s <a href="http://www.senado.gov.br/noticias/leilao-de-aeroportos-comissao-quer-explicacoes-sobre-os-investimentos-necessarios.aspx">Senate Commission on Infrastructure Services</a> said it will invite aviation authorities to explain the bidding process for the Guarulhos, Viracopos and Brasilia airports. Senator Francisco Dornelles said he considered it "important that it is explained to the commission how it will be possible to reach the quality of service desired with the resources that will be left after the payment to the government."</p> <p>Even Brazil’s President Dilma Rousseff was concerned, the Folha de Sao Paulo newspaper reported. The Feb. 12 article “Winners of the Auction Worry Dilma” said:</p> <blockquote><p>There are doubts if the future operators have the capacity to meet the commitments demanded in the bidding. The biggest worry falls on Viracopos and Brasilia...the president wanted the winning consortia to include heavyweights in international airport administration, to bring experience and pass it on to Infraero.</p></blockquote> <p>Valor also noticed <a href="http://clippingmp.planejamento.gov.br/cadastros/noticias/2012/2/7/dilma-rousseff-acompanha-o-leilao-em-tempo-real-e-evita-comemorar">the President’s reluctance</a> to celebrate. A Feb. 7 article quoted the president as saying, “You know what the government is like: it makes a stage and has to make other stages. Now, it has to make this (other stages) happen. In other words, efficient administration in the three airports."</p> <p>But at least <a href="http://oglobo.globo.com/economia/miriam/posts/2012/02/07/ha-muito-estado-nos-aeroportos-privatizados-430410.asp">O Globo</a> ’s Miriam Leitao found some sunshine in the clouds of concern. She wrote:</p> <blockquote><p>The PT [Partido dos Trabalhadores, Brazil’s ruling Workers Party], who demonized privatizations, now did one. There are good indications, for example, with the idea that the groups will have to pay part to a fund which will invest in the country’s unprofitable airports. This could work out.</p></blockquote> <p>Valor <a href="http://forum.contatoradar.com.br/index.php/topic/85025-anac-quer-so-grandes-em-leilao-de-aeroportos/">reported</a> on Feb. 15 that there are three more airports expected to be run by public-private partnerships: Galeao, Rio de Janeiro’s international airport; Confins in Belo Horizonte; and Manaus. And there are signs that the government will more closely control the next set of bids: Anac, Brazil’s national aviation agency, for instance, wants to require that winning operators operate at least one terminal that moves at least 10 million passengers a year.</p> <p>Opposition politicians remembered how vehemently PT had attacked privatizations carried out during the government of former President Fernando Henrique Cardoso, from the centrist PSDB (Partido da Social Democracia Brasileira, Brazilian Social Democratic Party). During his reign from 1995-2002, state companies like minerals giant Vale were privatized.</p> <p>Cardoso supporters, and there are many in the country’s financial hub of Sao Paulo, argue that Brazil’s economic success owes much to the difficult decisions he took; the PT simply steered the country down the same course.</p> <p>Cardoso remained sanguine. <a href="http://minasempauta.wordpress.com/2012/02/09/privatizacao-leva-a-duelo-verbal-entre-tucanos-e-petistas/">Quoted in</a> Valor Feb. 9, he said that President Rousseff had demystified “the demon of privatization” and said there was no risk of renationalization. “These are ghosts because Brazil is more mature.”</p> <p>(Dom Phillips is the Sao Paulo correspondent for World View. The opinions expressed are his own.)</p> <p>To contact the writer of this blog post: Dom Phillips at domphillips23@gmail.com.</p> <p>To contact the editor responsible for this blog post: Katherine Brown at kbrown114@bloomberg.net.</p> </body> </html>