Brazil has made an ideological U-turn to give private firms a new role in fixing its crowded airports in time for hosting the World Cup and the Olympics but it has not yet convinced investors it will play by the rules.
The government said last week it will grant private companies concessions to build and operate five major passenger terminals, effectively ending a state monopoly in running airports. Until now, private companies have participated only in building terminals, not operating them.
The policy change follows concerns that Brazil’s airports, already strained by a surge in domestic passenger numbers in recent years, will not be able to cope with up to 1 million visitors expected for the World Cup soccer tournament in 2014, Reuters reports.
The World Cup, hosted by 12 Brazilian cities, and the Olympic Games in Rio de Janeiro two years later are driving billions of dollars worth of infrastructure upgrades as Brazil prepares to showcase its economic rise.
But stadiums and other projects already face delays in a country troubled by excessive red tape and legal battles.
Regulatory uncertainty, stretched financial resources, and caution over the government’s heavy hand in public works projects have entrepreneurs wary about airports.
“Time is short. We need clear rules of the game fast,” said Paulo Godoy, head of private infrastructure association Abdib.
In only a few months, the government must draft new regulation, secure financial resources, and sort conflicting tasks between half a dozen government agencies, such as the airport authority Infraero and the aviation regulator ANAC.
“There’s no financial or tariff model yet, these are complex issues that involve a lot of players,” said one government source involved in the negotiations, adding that last week’s announcement was “political”.
“The actual plan isn’t ready yet,” he said.
The uncertainty surrounding Brazil’s airports reflects a broader ambiguity regarding private investment and industry regulators in a government that includes market-friendly centrists as well as leftists favouring state-led development.
“They’re clearly struggling between the predominant leftist ideology and the need to attract private capital,” said Jose Luiz Lins, head of the industry regulators association ABAR.
“There’s no regulatory culture in Brazil. We’re perplexed at the lack of preparation regarding airports.”
The government has repeatedly put off a bidding process for a high-speed railway linking Sao Paulo and Rio de Janeiro, and its meddling in the management of iron ore producer Vale (VALE5.SA) (VALE.N) has also raised investor concerns.
Brazil promised to improve airports, stadiums and other infrastructure as a condition of holding the World Cup.
Domestic air traffic has been growing at double-digit rates and airports frequently resemble bee hives, with irate passengers elbowing their way through crammed hallways.
President Dilma Rousseff, who took office on January 1, has pursued pragmatic economic and foreign policies but also at times wielded a heavy hand, particularly in natural resource sectors such as mining and oil.
The newly created position of secretary for aviation, which is supposed to be coordinating the process, is only partially staffed and still lacks proper facilities.
The airport authority Infraero is widely seen as inefficient and investors are wary of signing a concession contract with the agency, which was long run by the military.
“There are more questions than answers. “I’m not going to put up those kind of resources without financial guarantees,” said an executive with one of the interested construction companies, who requested anonymity.
Investors are particularly concerned how private operators will compete with Infraero, which will be able to offer cheaper rates to airlines using its older terminals.
The government is considering using fast-track legislation to avoid potential deadlocks with government budget watchdogs and environmental agencies, which have delayed numerous public works projects.
Such a move would likely outrage opposition leaders concerned with potential corruption and it could lead to lengthy legal battles.
If time runs out, Brazil may have to opt for makeshift terminals that are easier and cheaper to build but which don’t last long and lack facilities such as stores and restaurants.
“It would be a lost opportunity but we may have to opt for a temporary solution,” said Godoy.
“It’s likely that we won’t get the level of excellency that we desire,” Godoy said.