Brazil’s inaugural waterway concessions draw interest, spark concerns

The Brazilian government is gearing up to launch its inaugural series of waterway concessions, with the most developed project situated on the Madeira River, poised for launch within the year. Further evaluations are ongoing for the Paraguay River, Lagoa Mirim in Rio Grande do Sul, and additional exploratory efforts for the Tapajós, Tocantins, and the mouth of the Amazon River, aiming for a minimum investment of R$4 billion.

Infrastructure analysts highlight uncertainties such as an underdeveloped regulatory framework and climate risks. Yet, both government and industry stakeholders recognize significant interest in the forthcoming auctions and underscore the necessity of these concessions to cultivate the nation’s waterway infrastructure.

“Brazil was slow to recognize the importance of waterway infrastructure. Currently, what we have can hardly be considered real waterways; they’re more akin to dirt roads that become impassable when it rains. True waterways should allow for unimpeded passage, whether they are at full capacity or not, without the current restrictions that disrupt operations during dry periods. True waterways are a necessity,” emphasizes Eduardo Nery, managing director of the National Waterway Transportation Agency (ANTAQ).

The goal of these concessions is to ensure continuous dredging, installation of signaling, and measurement instruments to secure logistic flows—capabilities that are currently lacking and thus impede the model’s effectiveness. Increasing climate risk is an additional factor. “With climate-related events growing more severe and frequent, our preparedness is crucial. These concessions are designed to mitigate these risks effectively.”

The Madeira River concession, structured by Infra S.A., is the most advanced of the planned initiatives. It involves a 12-year contract with R$109 million allocated for investments and R$480 million for operating expenses over its duration.

“The funding will be used for signaling, maintaining the depth, and traffic management, including data collection and bathymetry. In some areas, rocks will be removed. Additionally, the concessionaire will be responsible for maintaining passenger terminals,” explains Cristiano Della Giustina, a director at the state-owned company conducting the studies.

This project benefits from a solid load demand and secured financing to subsidize the contract, structured as a Public-Private Partnership (PPP). Financial backing will include public contributions from allocations made in the Eletrobras (Brazil’s main power utility) Law, which explicitly earmarked funds for enhancing navigation on the Madeira River. “We expect to finalize approval for the Madeira concession at the next meeting of the CGPAL [Pro-Legal Amazon Steering Committee], which oversees the funds stipulated in the law,” states Dino Antunes, national secretary for waterways.

Despite these plans, there is resistance from businesses that utilize the river for cargo transport due to the impending tariffs. “It’s a natural reaction; any new concession in a sector tends to initially provoke apprehension among users,” Mr. Antunes remarks. He adds that prior to public consultations, the government intends to engage with the community to highlight the waterway’s benefits and clarify that passengers and smaller vessels will not be subject to fees.

The secretary expressed a desire to publish the notice for the Madeira River concession this year, though the timeline remains flexible. “The essential aspect is ensuring the process is thorough, aligning it well with societal and political stakeholders,” he noted.

Infra S.A. is actively progressing on other waterway projects as well. According to Mr. Giustina, the first should have studies completed in October. Updates are also being made for Lagoa Mirim, influenced by recent heavy rainfall in the region, which has impacted the water levels.

Moreover, the government recently engaged the Brazilian Development Bank (BNDES) to initiate the modeling of two additional concessions: the Tocantins River waterway from Belém to Peixes in Tocantins and the Tapajós waterway in Pará. Plans are also in motion for a concession at the Barra Norte waterway, located at the mouth of the Amazon River.

Interest from the market is expected to be high, particularly among logistics operators, such as Hidrovias do Brasil, dredging companies, and cargo owners, predominantly in the grain and ore sectors. João Acácio Oliveira Neto, president of DTA Engenharia, a dredging company, confirmed their interest in the Madeira, Lagoa Mirim, and Paraguay projects: “We are very interested and plan to participate.” Hidrovias do Brasil has yet to issue a statement.

Mr. Nery has noted a diverse range of investor interest in the Madeira project. “Investment funds, construction companies, and even rural producers considering collaborative ventures. This project has a broad appeal.”

Sector analysts acknowledge the interest from various parties but have raised concerns, particularly regarding the regulatory framework. “Like the airline industry before it, the waterways sector must evolve its regulatory framework. Currently, technical regulations are managed by the Navy, which lacks an economic perspective. This area of governance needs enhancement,” explained Natália Marcassa, president of Moveinfra, a consortium of infrastructure firms.

Ms. Marcassa also emphasized the need for clearer governance regarding water use concessions, which are regulated by the National Water Agency (ANA). “During a drought, it’s critical to define who has priority, as this directly impacts revenue streams. Currently, power generation holds the priority, but clarity is needed for those holding concessions,” she added.

“It’s always challenging to establish pioneering frameworks. Creating a robust regulatory and contractual framework is crucial, and addressing how to manage climate risks is particularly complex,” remarked Marcos Pinto, managing partner at A&M (Alvarez & Marsal) Infra.

Mr. Nery highlights the importance of addressing the challenges in contract modeling, noting that ANTAQ is actively engaging with the Navy and ANA to resolve these issues. “One of the Navy’s challenges has been the absence of regular hydrographic surveys. With the enhanced data availability that the concession guarantees, this issue should be alleviated. We are also working with ANA to explore the feasibility of issuing a usage certificate to ensure a minimum flow for the concessionaire,” he explains.

Luiz Soggia, director at A&M Infra, points out that the economic and financial viability of waterway projects is a critical concern. “Globally, waterway projects are typically subsidized due to the high initial investments required and the relatively low fees that can be levied to keep the service competitive. Without subsidies, these projects tend to focus more on maintenance than on enhancements,” he states.

Casemiro Tércio Carvalho, a partner at 4 Infra, argues for the necessity of concessions to advance waterway infrastructure. “Investing public funds in dredging, beaconing, and lock maintenance without recuperating costs doesn’t make sense. Providing a certain level of service to those navigating the waters justifies charging fees. It’s feasible to implement a social tariff for local populations and find subsidy mechanisms to make projects financially viable. The numbers do add up,” he asserts.

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