Sep 30, 2014

President Dilma's Infrastructure Vision Remains Unfinished

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

In 2012 the Brazilian President, Dilma Rousseff, announced with great fanfare her "Program for Investment in Logistics" which she claimed would bring in R$ 120 billion in private investments to upgrade Brazil's infrastructure. The goal was to auction off to private investors the right to obtain long term leases for the operation of existing ports, railroads, highways, and airports. Investors were also to be given the opportunity to bid on the construction of new infrastructure projects across the country.

With three months remaining in her first term (presidential elections will be held on October 5th), a portion of the highway auctions have been realized, but almost none of the railroad or port auctions have been completed. The only railroad project that may still get off the ground before the end of the year is East-West Railroad connecting central Mato Grosso with the existing North-South railroad in the neighboring state of Goias. The estimated cost of this 880 kilometer railroad is R$ 5.4 billion reals.

Most of these projects have been bogged down in the Brazilian court system and with bureaucratic wrangling. As a result, President Rousseff has announced that the majority of these projects will now be for the next government to handle – either during her second term or the first term of her main rival ex-senator Marina da Silva.

In hind sight the enormous size of the "Program for Investment in Logistics" was just too much to accomplish in a few years. In addition, the Brazilian judicial system is notoriously slow in deciding anything, much less something as large as the privatization of the country's entire infrastructure. Adding to the complexity of this effort is the fact that multiple companies might win the bidding on different operations at the biggest ports or railroads. It is this potential overlapping of responsibilities that has led to a lot of confusion and protracted court battles.

Imagine how hard it would be if the U.S. government decided to convert all the major highways in the country to toll roads operated by private companies and then all the railroads and ports in the country (assuming they are owned and operated by the state or federal government) would be divided into pieces to be parceled out to private companies as well. It is an absolutely mind boggling situation.