Brazil turns to private company to build and maintain roads

After years of hesitation, and more than one false start, on October 9th Brazil's government finally held an auction in which private companies bid for the right to improve and maintain 2,600km (1,600 miles) of roads.

OHL, a Spanish company that won five out of the seven contracts on offer, expects to invest 3 billion-4 billion reais ($1.6 billion-$2.2 billion) over the next five years on toll roads running from São Paulo north to Belo Horizonte and south to Curitiba and Florianópolis.

The winning bidders were those who offered to charge the lowest tolls over the 25-year life of the contracts.

This investment is overdue, says the Economist. While exports have been booming, Brazil has not built much in the way of roads, ports or airport runways for the past 15 years. High commodity prices have masked some of the impact of these shortcomings on the economy. Some companies have found ways around the problem: CVRD, a giant mining firm, has its own railway and port. Even so, the congestion means Brazil is poorer than it ought to be.

Earlier this year, president Luiz Inácio Lula da Silva unveiled an ambitious plan to increase public investment in infrastructure over the next three years. So far the money promised has not materialised:

The federal government will spend no more than 0.9 per cent of gross domestic product (GDP) on public investment this year, reckons Alexandre Bassoli, an economist at HSBC Brazil.

Unless that figure rises to at least 1.5 per cent, he adds, Brazil can expect electricity rationing to return (it suffered this in 2001) shortly after 2010.

Public-sector pensions, by comparison, gobble up 11 per cent of GDP.

The private sector could build more of what is needed, given the chance, says the Economist.

Source: Highway to somewhere: The private sector revs up its bulldozers, Economist, October 18, 2007.

For text: http://www.economist.com/world/la/displaystory.cfm?story_id=9989154

For more on Privatization Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=37

FMF Policy Bulletin/ 30 October 2007

Publish date: 07 November 2007
Views: 383

Brazil, Privatisation, News

The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation. This article may be republished without prior consent but with acknowledgement to the author.

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