Content originally published by M&T Magazine.
As the main mode of transportation in the country, the Brazilian road network has long suffered from a lack of maintenance and a need for expansion.
Recently, the sector even glimpsed some progress with the allocation of approximately R$280 billion for transport infrastructure until 2026, within the scope of the new Growth Acceleration Program (PAC), of which R$185.8 billion will be applied directly to highways, encompassing public works, studies and concessions.
Of this amount, R$ 73 billion comes from public funds and R$ 112.8 billion from private investments.
According to the Ministry of Transport, in 2023 and the first half of 2024 alone, more than R$12 billion was invested in concession contracts managed by the National Land Transport Agency (ANTT), a volume destined for works to expand capacity and improve the road system.
“"With the contributions from the concessionaires, and adding the contractual optimizations being negotiated within the scope of the Federal Court of Accounts (TCU), the expectation is that investments will accelerate in the coming years, promoting income and job creation along the highway axes involved," the ministry states.
DEFICIT
This is a matter of economic survival for the country. According to Jean Paolo Simei e Silva, partner at the law firm Fonseca Brasil, road transport is vital for Brazil, especially in the distribution of agro-industrial production.
In 2022, more than 1.7 billion tons of goods were transported by road, highlighting its importance to the economy.
“"In many regions, the lack of alternative modes of transport increases dependence on roads," he says.
The lawyer points out that only 220,000 km of the country's approximately 1.7 million km of road network are paved.
“This number includes federal, state, and municipal highways, highlighting the large extent of roads that still require substantial improvements,” he comments. Data from DNIT (National Department of Transport Infrastructure) shows that the paved federal highways under its management and ANTT total approximately 65,400 km.
Considering both paved and unpaved roads (therefore excluding planned highways), the road network managed by DNIT and ANTT spans 73,200 km.
Of the total paved roads, 79% are managed by DNIT (51,900 km) and 21% are concession roads managed by ANTT (13,400 km).
According to Ane Elisa Perez, partner at the law firm Ane E. Perez Advogados, it is estimated that Brazil will need to invest approximately R$ 250 billion over the next decade to meet the demand for improvements and expansion of its road network.
With a focus on paving, widening road sections, and modernizing the network, the forecast reveals the level of deterioration that the transport system is facing.
“"The main bottlenecks include a lack of pavement on much of the road network, insufficient maintenance, delays in construction, and the need for road widening to meet the growth in freight transport," the lawyer lists.
The challenge is considerable, if not insurmountable. According to Marcus Quintella, director of FGV Transportes, the country needs to invest approximately 4% of GDP annually, uninterruptedly for 25 years, to meet these needs.
Only then can the logistics course become compatible with the size of the country. "But we don't have the projects or the conditions to attract these investments," the researcher acknowledges.
REBALANCING
The situation is critical, but it could be worse. For Simei e Silva, from Fonseca Brasil, Brazil's highway concession program played a "crucial role" during and after the pandemic, ensuring that private investments were maintained even in the face of a sharp drop in traffic.
“"The pandemic has generated a significant economic and financial imbalance for the concessionaires, due to the drop in toll revenue," he emphasizes.
“"But the federal government and the states have implemented contractual rebalancing mechanisms to mitigate these impacts."”
In the state of São Paulo, for example, an innovative measure was adopted with Resolution No. 19/23 of the Secretariat of Investment Partnerships (SPI), which created the concept of "precautionary rebalancing."“
This mechanism allowed for the preliminary recovery of up to 80% of the losses caused by the pandemic, ensuring that concessionaires could continue to invest and maintain essential services,” he explains.
The year with the greatest impact was 2020, which is why ANTT subsequently published the Resolution No. 5,954, Resolution No. 11,846 of November 4, 2021, establishing a methodology for calculating the impacts caused by the pandemic and restoring the economic and financial balance within the scope of road infrastructure concession contracts.
“"ANTT applied the methodology to the various concession contracts, with a specific focus on the shortfall in expected traffic for each concessionaire," the ministry highlights.
“"This applies to several different scenarios, depending on the region evaluated, and there are even contracts where there was no need for financial rebalancing."”
Concession contracts are also being modernized to include new technologies, such as the "free-flow" system (without toll gates), notes the lawyer from Fonseca Brasil, thus eliminating the need for physical toll plazas, improving traffic flow and reducing emissions.
The system is already being implemented on toll roads in São Paulo, and is expected to expand to other regions soon.
“The highway concession program has established itself as an effective tool for improving the country's infrastructure, attracting private investment, and ensuring the quality of highways, being a model praised by infrastructure sector experts,” notes Simei e Silva.
According to him, the new highway concession policy, launched in 2023, aims to attract greater private sector participation, improve the quality of highways, and ensure greater predictability for investors.
Among the innovations, he cites the lowest tariff with unlimited discounts and the "tariff tier, which allows tariff increases only after improvements have been delivered.".
According to Quintella from FGV, any concession project needs to be attractive, especially to the private sector.
“"The investor and the entrepreneur evaluate a concession project based on traffic demand studies," says the professor. "Therefore, the cash flow of the financial model is basically structured around this traffic projection."”
NEW POLICY
The general expectation is that the sector will advance in the coming years, based on some actions that have been taken.
According to the Ministry of Transport, the New Highway Concession Policy establishes guidelines for the New Concession Model that must be implemented in all technical, economic, and environmental feasibility studies for granting new concessions for federal highways.
Established through Ordinance No. 995, According to Law No. 17 of October 2023, the mechanism aims to specifically address the principle of tariff moderation.
However, the new policy also includes "the pursuit of sustainable contracts, from an economic and financial standpoint, with or without public counterparties, focusing on affordable toll rates and the execution of investments necessary to improve infrastructure," as the ministry emphasizes.
It also establishes standardization and modernization of contracts, promoting technological innovations, environmental sustainability, road safety and issues of public interest, in addition to reducing the regulatory burden.
“"Standardization allows for better communication and understanding of technical and regulatory aspects by users, investors, and the private sector," emphasizes the Ministry of Transport.
“"In this sense, the main guidelines are affordable tariffs, standardization of projects at the same stage, the possibility of public contributions when large-scale or highly complex investments are planned, optimization of resources, and environmental sustainability," says the ministry.
Criteria such as lower tariffs, incentives for discounts with provision for contributions starting from a determined limit (protecting the financial health of the concession), provision for the possibility of implementing free-flow (up to the 5th year of the concession), possibility of using earmarked resources for tariff moderation (when reclassifying) and a 30-year extension period for contractual rebalancing, among others, are also considered.
MESH
It is a well-known fact that highways managed by private companies are in significantly better condition than those under direct public management.
According to the National Confederation of Transport (CNT), 75% of the toll roads were classified as "good" or "excellent" in 2023, while only 27% of the federal and state highways under public management received the same classification.
“The concessionaires have managed to maintain high levels of service, including maintenance, modernization and safety, thanks to constant investments from toll fees,” says Simei e Silva, from the Fonseca Brasil office.
