September 13, 2016 / 4:37 PM / 2 years ago

UPDATE 2-Brazil launches massive privatization plan to rescue economy

(New throughout, adds details, comments)

By Leonardo Goy

BRASILIA, Sept 13 (Reuters) - Brazil’s new government on Tuesday launched a sweeping plan to auction off licenses to operate oil and gas, electricity and infrastructure projects in an attempt to boost investment and pull the economy out of the deepest recession in eight decades.

The government will sell operating licenses by March for airports in the cities of Porto Alegre, Salvador, Florianópolis and Fortaleza. It also plans to sell rights to operate federal roads in the center-west and southern regions later next year.

President Michel Temer is selling assets and pushing for a series of austerity steps to narrow a record budget deficit and control debt that cost the country its investment-grade rating and marred investor confidence in the once-booming economy. He has vowed to shift away from the interventionist economic policies of his predecessor, Dilma Rousseff.

“We need to open up to the private sector because the state cannot do everything,” Temer told ministers in a meeting to discuss the plan dubbed “Project Growth.”

Rousseff, a leftist in her second term as president, was ousted by the Senate in August for breaking budget rules.

Wellington Moreira Franco, Temer’s point man for boosting private sector involvement in revamping Brazil’s deteriorated infrastructure, said the concessions will offer “realistic” rates of return and have guaranteed long-term financing from state banks or raised on capital markets through bond sales.

“We will restore confidence by expanding the legal security for investors,” Moreira Franco said.

The program includes the concession of already built railway as well as the long-delayed auction of rights in oil fields and hydroelectric dams in the first and second half of 2017.

The government hopes to raise interest in tapping Brazil’s vast offshore oil reserves in the sub-salt region with legislation that abolishes the obligation that state-run oil company Petrobras have a 30 percent stake in all new developments.

The state company that manages airports, Infraero, will not be involved in the new airport concessions, and investors who build railways will also be allowed to operate them, unlike previous concessions that failed to get off the ground.

The Temer administration will also privatize six power distributors owned by state-run power holding company Eletrobras in the north and northeastern regions next year, and sell the Rio de Janeiro state water and sewage company Cedae in 2018.

Mining concessions that will be opened to private companies include phosphate, copper, lead, zinc and coal deposits.

The head of Brazil’s national development bank, BNDES, Maria Silvia Bastos, said the state lender will be able to provide 15-year finance with low long-term interest rates for up to 40 percent of airport and road concessions that must have at least a 20 percent equity stake by investors.

The BNDES can subscribe up to 50 percent of bond issues in each project, she said.

The Temer government aims to raise $24 billion from the concessions program, with $11 billion alone coming from the oil and gas sector.

Temer said in a Twitter message that the infrastructure plan will be presented to investors when he visits New York next week to address the United Nations General Assembly. (Writing by Alonso Soto and Anthony Boadle; Editing by Steve Orlofsky and David Gregorio)

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