By Matthew Cowley and Paulo Winterstein
SAO PAULO--A huge bid for a contract to run Rio de Janeiro's
international airport drew gasps of surprise and disbelief from the
hundred or so participants crowded onto the trading floor of Sao
Paulo's stock exchange on Friday.
Brazilian engineering group Odebrecht and Singapore's Changi
Airport Group Ltd. offered 19 billion Brazilian reais ($8.3
billion) to the government for the right to run one of Brazil's
main gateway airports for the next 25 years. That was nearly four
times more than the minimum bid of 4.8 billion Brazilian reais, and
31% more than the second-place bidder. There were no follow-up bids
from the four other firms that were in contention for the airport,
Galeao.
The auction was a lift for the administration of President Dilma
Rousseff, which has been criticized for an interventionist approach
to the economy that has deterred some private-sector interest in
infrastructure concessions. The country's decades-old
transportation network is seen as a major bottleneck for faster
economic growth.
The government has tried to bring in the private sector to
accelerate investments in ports, airports, highways and other
areas, but hasn't always been successful. Earlier in the year it
wasn't able to sell some highway concessions, and last year it took
back some privatized stretches of railroad. More highways are up
for auction in the next couple of weeks.
Brazil's airport upgrade is crucial as traffic is expected to
soar in coming years. The airport in Rio, Brazil's second-largest,
handled 17.5 million passengers in 2012 and that is expected to
rise to 60 million in 2038, according to the government.
"We have today a great demonstration of confidence in the future
of Brazil," said Brazil Aviation Secretary Wellington Moreira
Franco, speaking to reporters after the auction. Mr. Franco
acknowledged criticism that the government has changed auction
rules many times, but said this reflects a willingness to learn
from past mistakes. It was a sentiment echoed by Changi Airport
International's chief executive, Lim Song.
"Brazil is fairly young in terms of privatizing its airports and
the government is trying to find the best mechanism," Mr. Lim told
reporters after the auction. The Changi Airport in Singapore is one
of the largest in Asia, and the city-state recently unveiled it
will build a fifth terminal there by the 2020s.
The bid for Rio by the Aeroportos do Futuro SA consortium
surpassed the 16.2 billion reais offered at an auction last year
for the country's busiest airport, Guarulhos, in Sao Paulo. At the
time, the government also handed over an airport in Brasilia and
another in Campinas, some 100 kilometers north of Sao Paulo.
The Changi Airport's chief executive pointed to the country's
expanding middle class as driving air traffic in the future. Rio
airport also stands to benefit from tourism, particularly as the
city will host the Summer Olympics in 2016, although the consortium
will only take over operations after next year's soccer World Cup.
Additionally, economic activity in Rio is expected to thrive as a
result of gargantuan oil fields discovered off the city's coast,
which will benefit air travel.
"We have great confidence in the potential for growth at the
airport," said Paulo Cesena, executive director of Odebrecht
TransPort. The large and isolated airport site means it can
comfortably expand to meet growing demand, he said.
Friday's auction also saw the government sell a concession
contract to operate for 30 years the Confins airport in the city of
Belo Horizonte, in Minas Gerais state, after a heated open-cry
battle that saw a group led by Brazilian infrastructure operator
CCR SA (CCRO3.BR) prevail over another consortium including
Construtora Queiroz Galvao SA and Spain's Ferrovial Aeropuertos
SA.
CCR and its partners in the AeroBrasil consortium, Switzerland's
Flughafen Zuerich AG (FHZN.EB, FLGZY) and Germany's FMG Flughafen
Munchen GmbH, won with a bid of 1.82 billion reais.
The move is part of Flughafen Zuerich's expansion strategy,
which is focused on Latin America and Brazil in particular, the
firm's chief financial officer, Daniel Schmucki, said Friday. He
shrugged off concerns about the recent dip in Brazil's economic
growth. The country has posted three years of subpar growth, and
2014 is also expected to be muted.
"One should not look too much into short-term cyclical downturn
or slowdown of growth," Mr. Schmucki said. "Within the time horizon
of 30 years we are extremely confident that Brazil will be one of
the main markets globally."
In addition to the money promised in the auction, which will be
paid out during the lifetime of the concession, the successful
bidders will have to hand over a fee equal to 5% of gross revenue
to the government every year.
Odebrecht and Changi will have to invest about 5.7 billion reais
in the Rio airport to provide a third runway, expand the aircraft
apron, a sort of parking lot for airplanes, as well as provide new
cargo storage areas and car parking facilities.
In Belo Horizonte, the winning bidders will have to invest an
estimated 3.5 billion reais to build a new terminal, a second
runway, and expand the apron. Confins is the fifth-largest airport
in Brazil, and passenger traffic is seen rising from 10.4 million
passengers in 2012 to 43 million by 2043.
The investments will be spread out over the lifetime of the
contract, depending on pre-established triggers, such as passenger
traffic. The groups won't take over the airports until after the
World Cup ends in July, and the first installment of payments won't
come until March of 2015.
The short-term improvements required by the government are not
complicated and shouldn't cause any difficulties, Odebrecht and CCR
said. Both groups will use their own capital on the projects as
well as accessing capital markets and subsidized financing that has
been promised by Brazil's national development bank, BNDES.
Write to Matthew Cowley at Matthew.Cowley@wsj.com and Paulo
Winterstein at Paulo.Winterstein@wsj.com