Private funds still scarce in Brazil infrastructure

By Brian Winter, Reuters

SAO PAULO–Construction projects related to Brazil’s World Cup, already well behind schedule, have run into another unexpected problem — financing. Of the US$14 billion that Brazil plans to spend on airports and other projects directly related to the Cup, more than 98.5 percent of the funds will likely come from public-sector sources, according to a report by the Tribunal de Contas da Uniao, the official accountability arm of the Brazilian government. That wasn’t always the plan. Ricardo Teixeira, the head of the official host committee, said as recently as 2009 that a majority of the funds should come from the private sector, according to media reports at the time. Other infrastructure projects not related to the World Cup have fared better, especially in the booming oil and gas sector. However, in riskier areas such as airports, seaports and railroads, some say the Brazilian government has yet to create guarantees and make regulatory changes that would attract more private capital. “In some areas, concrete opportunities just haven’t been structured for the private sector to invest,” said Jean-Marc Etlin, executive vice president at Itau BBA, a Brazilian investment bank. In Brasilia, officials say they are likely to continue to depend heavily on financing from the state-run BNDES development bank and other public-sector sources to build dams, highways and other big-ticket projects. “We just don’t see the conditions for a greater participation of the private sector at this time,” said Mauricio Muniz, a Planning Ministry official overseeing infrastructure projects. The big barrier, from the private sector’s perspective: BNDES is able to offer subsidized long-term loans at far lower interest rates than Brazilian banks. The benchmark lending rate in Brazil is 11.75 percent, one of the world’s highest among major countries, and is likely to rise further this year. Meanwhile, long-term financing is still a relatively new concept in a country where inflation was running at 2,500 percent fewer than two decades ago. BNDES President Luciano Coutinho has called the bank Brazil’s “only long-term lender.” The BNDES’s rapid expansion has stirred some concerns. It loaned more than US$96 billion in 2010, three times more than the World Bank. Some economists say the rapid credit growth helped push inflation to a six-year high last year. Coutinho himself has spoken of the need to scale down the BNDES’s operations over time to allow private banks more room. Yet the bank’s delinquency rate is an extremely low 0.15 percent, and many of its private-sector counterparts praise its lending standards and overall credit-worthiness. “Their monitoring of projects is extremely well done,” said Cassio Schmitt, who works on project finance for Banco Santander in Sao Paulo. He said the BNDES should eventually finance a smaller percentage of projects in Brazil, “but that reduction needs to be done very gradually.”