Mato Grosso do Sul concession draws no bids, but the federal government still expects interest in upcoming tenders

The lack of bids in the auction for the Rota da Celulose highway concession in Mato Grosso do Sul is the result of a context of many tenders in the sector, also competing for market attention, and of certain risks identified in the project, according to analysts and representatives of companies and governments.

The auction, which was scheduled for this Friday (6), is not expected to take place, since no group showed up for the submission of proposals, scheduled for the morning of this Monday (2).

According to Eliane Detoni, Mato Grosso do Sul’s special secretary for strategic partnerships, the team will seek to revise the project to attract bidders. “We will seek to understand with the market the reasons why there were no bidders for the project. This year saw a wide range of infrastructure projects on offer (…) This competition between projects may have been one of the factors that contributed to the lack of interest. We will reassess what can be refined in the project to improve engagement with potential bidders and then set a new schedule to bring the asset to market,” she said.

The highway sector is experiencing a flood of highway auctions this year-end, with projects already scheduled for 2025 as well. Last week, the São Paulo state government awarded the Nova Raposo concession, and the federal government has three other highway contract tenders scheduled for December, one of them also in the Center-West region. In addition, in recent days, the Mato Grosso government launched six more highway lots, which will be auctioned early next year.

The Rota da Celulose project is considered large, with 870 km of state and federal roads and about BRL 6 billion in planned investments, with works such as the widening of 116 km of roads. Operating costs of BRL 3 billion were also estimated for the 30-year contract.

The project is a partnership between the Mato Grosso do Sul government and the federal government, but regulation of the concession was assigned to the state regulatory agency.

One factor already identified as a problem was the structuring of “free flow” (a new electronic toll system without toll booths). The project provides that this form of toll collection, still innovative in the country, will be adopted for 100% of the operation. The perception is that the risk matrix on this issue was not clear, which created uncertainty.

Another problem pointed out by interested groups was the cost estimates for the works, which were allegedly underestimated in the feasibility studies. In requests for clarification sent by the companies, one group pointed out that “the unit values considered in the capex [investment], especially for widening works, additional lanes and shoulders, are significantly below those used in recent federal concessions” and said that underestimating costs makes the project unsustainable.

In the requests for clarification sent by the private sector, another concern that emerged related to the economic and financial rebalancing process, due to fears of interference by the state government in the process.

One of the contract clauses considered problematic provides that the State must approve the regulator’s technical opinions in rebalancing proceedings. In one of the requests for clarification submitted by an interested party, the company stated that the procedure, as set out in the tender notice, would weaken the regulatory agency institutionally and slow down the process. After criticism, some of the clauses were changed in recent days.

For Camillo Fraga, partner at consulting firm Houer, the lack of bids is the result of the large number of auctions, the project’s investment profile and the country’s macroeconomic scenario. “The project concentrates a large amount of ‘capex’ at the beginning, which required players with excellent financial capacity. And then there is the opportunity cost. Brazil is going through a unique moment in terms of the number of auctions, so companies will assess where it is worth investing.”

Rodrigo Bertoccelli, partner at Giamundo Neto Advogados, also stresses that, in a scenario with a wide range of auctions, companies have become more selective. “It is a project with a significant investment that competes with other highway concessions being structured. The market weighs the advantages of one contract against others.”

João Paulo Pessoa, partner at Toledo Marchetti Advogados, also highlighted the accumulation of tenders. “This year-end has been rich in concession opportunities. Once a group wins a project, it needs to reassess the ones that come next.”

Despite the lack of bids for Rota da Celulose, the federal government still expects the next auctions scheduled for this year-end to attract interest. Sources say several groups are signaling that they will take part in the tenders. Next week, on the 12th, the concessions for Paraná Lot 3 and the so-called Rota Verde in Goiás are due to be auctioned. On the 19th, the tender for Paraná Lot 6 is scheduled; it is considered challenging, but is also being studied by interested parties.

Originally published by Valor (in Portuguese).