Public-Private Partnership Stories Brazil: Bahia Federal Highways Photo © IFC IFC and BNDES, the Brazilian development bank, served as lead advisors to the Bra- zilian Ministry of Planning and the National Transport Agency (ANTT) for an inno- vative concession to expand, rehabilitate, operate, and maintain 667 km of federal roads in the state of Bahia in northeast Brazil. The concession was signed in October 2009. The project was awarded to the Rodobahia consortium, a partnership of Spain’s Isolux Corsan and Brazil’s Engevix and Encalso. The 25-year concession will improve a 554km section of BR116 that runs from Bahia’s border with the Minas Gerais state in the south to BR324, and a 113km section of BR324 that connects BR116 at its intersection in Feira de Santana to Salvador and the Port of Aratu. In addition, the project will rehabilitate sections of two state roads, BA526 and BA528, which provide access to Aratu. The project is expected to generate an estimated $615 million in investments. This series provides an overview of public-private partnership stories in various infrastructure sectors, where IFC was the lead advisor. This is the first joint IFC—BNDES project under a cooperation IFC Advisory Services in agreement signed in 2005. The partnership with BNDES enables Public-Private Partnerships 2121 Pennsylvania Ave. NW IFC to leverage local expertise in infrastructure project financing. Washington D.C. 20433 ifc.org/ppp BACKGROUND BIDDING Since the 1980s, Brazil has seen a decline in the level of Two bidders were prequalified and Rodobahia consortium, a public investments in infrastructure, resulting in a significant partnership of Spain’s Isolux Corsan and Brazil’s Engevix and deterioration of public assets. The Brazilian government Encalso, won the 25-year concession. recognized that modern, well-maintained roads are key to The Rodobahia consortium requested a toll rate of R$2.21 ($1.24) sustained economic growth and made a commitment to for a two-axis vehicle, 21 percent lower than the maximum asking accelerate the development of infrastructure to improve the price of R$2.80 ($1.57). country’s competitiveness. Annually, over 1.2 billion people travel on Brazil’s highways. Toll collections will begin after the concessionaire makes the initial priority rehabilitation investments and will be indexed In the road sector, this led to the launching of two concession annually for inflation. Certain sections of the roads will be programs by ANTT. The BR116/BR324 concession introduces expanded to two lanes if specific traffic thresholds are reached. a new contractual structure that is expected to become a model for future federal and state road transactions. The concession will benefit thousands of people who use the roads for long distance travel as well as for local commutes to The project is also the first road concession developed by the jobs, schools, hospitals, and other services. federal government in the Northeast region, Brazil’s poorest area. Both roads are heavily traveled—on average, 20,000 vehicles a day The project will also improve access to the Port of Aratu and travel on BR324 and 5,000 a day on BR116. In 2009, more than contribute to greater social, economic, and regional cohesion 100 people died in accidents on the roads. by integrating the northeast and southern regions. IFC’S ROLE Initially, the government engaged IFC and BNDES to work with the Ministry of Planning to structure and implement the project as a public-private partnership. As market conditions in Brazil EXPECTED POST-TENDER RESULTS improved and international and national companies expressed strong interest in competing, the project was structured as a • Increased economic resilience and broader develop- pure concession financed by toll revenues. ment throughout the region, including expanded trade. IFC’s mandate included carrying out technical, legal, environmental, and financial due diligence for the project; • Reliable access to long distance traffic markets, analyzing its financial feasibility; recommending an appropriate hospitals, schools, and other services. structure; preparing bidding documents; and identifying • New links between geographically isolated areas, potential investors and operators. resulting in stronger regional cohesion. TRANSACTION STRUCTURE • An estimated $615 million in investments to The transaction structure consisted of a 25-year concession to significantly improve road conditions in the state. expand, rehabilitate, maintain, and operate a sections of BR116 • Improved road safety as a result of better traffic and BR324, with financing from revenues collected from seven signals, reconstructed side lanes, and other safety new toll stations (five on BR116 and two on BR324). The measures. project was structured as a performance-based contract with the concessionaire responsible for meeting various road-condition • Performance-based concession model for future and operational performance standards at different stages of the federal and state road transactions. project. This approach favors users whose main interests are safety, comfort, reduced travel time, and lower vehicle operating costs. 01/2010 The auction model developed for this project was used by the government to auction seven other federal road concessions. The model’s bidding process promoted international participation in Brazilian road concessions, resulting in strong international interest.