BRASILIA, (Reuters) – Brazil is sweetening terms for major infrastructure contracts to whet investor appetite and draw private capital and expertise needed to upgrade its deficient roads, railways and ports, the man in charge of planning the projects said on Tuesday.
Bernardo Figueiredo said Brazil needs to double its current level of investment in infrastructure to at least 80 billion reais ($39.2 billion) a year if it wants to resolve a transport crunch that has stymied the economy in recent years.
About half of that sum needs to come from private investors, Figueiredo, the head of government infrastructure agency EPL, told the Reuters Latin America Investment Summit.
Figueiredo said there was heavy interest from institutional investors in Europe and the United States during “road show” presentations that he gave earlier this year.
However, President Dilma Rousseff’s government has recently had to improve the targeted profitability of the projects. Many investors balked at the leftist leader’s effort to engineer a relatively low rate of return, part of her plan to reduce Brazil’s comparatively high profit margins in many industries.
Brazil recently raised the internal rate of return – a measure of profitability – for highway concessions from 5.5 to 7.2 percent previously.
Railway projects, including a planned Rio de Janeiro-Sao Paulo bullet train, will offer rates of return of between 7 and 7.5 percent compared to about 6.3 percent previously, Figueiredo said.
The higher returns may help ease investors’ concerns about doing business in a country with a promising economy, but a recent history of delays on big-ticket projects.
“The only risk that investors like to take is the risk of earning money; they dislike any other risks on principle,” said Figueiredo, an economist with 40 years experience in the transport industry.
