Climate change creates new challenges for transportation

Climate change became a concrete concern for the transportation sector in 2023, the year in which several extreme events affected roads, ports, and waterways. The issue is already appearing in the debate on new projects, the rebalancing of contracts following disasters, and insurance contracts for works and concessions.

Today, Brazil is facing two climatic events that affect the sector. At one end of the country, the northern region is suffering from a severe drought that has caused exceptional restrictions on river navigation and jeopardized domestic routes. At the other end of the country, heavy rains and flooding have affected ports and roads in the south. Earlier this year, another series of storms on the north coast of São Paulo also blocked highways.

“These events are going to happen more and more. In infrastructure, we are starting to look more at the adaptation measures needed to cope with them. Another point is how to finance the investments, which are high and unlikely to be covered by user fees alone,” said Natália Marcassa, president of MoveInfra, an organization that brings together CCR, Ecorodovias, Santos Brasil, Ultracargo, Rumo, and Hidrovias do Brasil.

Governments are under pressure to respond, both in the short and long term. This year alone, the Ministry of Transportation said its budget for emergency work is expected to reach R$800 million due to interventions to clear rain-affected roads and rebuild structures in the Amazon, among other repairs. The 2024 budget may also include an amount for these works, said executive secretary George Santoro.

“It will be necessary to plan structures that are more resistant to more extreme climatic events. There is a discussion at Dnit [National Department of Transportation Infrastructure], and we are taking it to the concessions. We know that the risks are going to escalate, but we don’t know yet to what extent,” he said.

In the case of the BR-381 concession in Minas Gerais, which is scheduled to be auctioned in November, geological risks are already specifically addressed in the contract. On one section, the government will assume all the risks, and on the others, there will be a sharing with the company in case of damage. “In most projects, we look for shared risk between the concessionaire and the government,” said Mr. Santoro.

In São Paulo, after the disasters on the north coast, the state government began to study a road concession for the region that would include, in addition to the operation of the road, hillside management, investments in macro-drainage, and environmental services. In addition to the engineering and costing challenges, one difficulty in modeling is how to allocate risks in the contract due to the unpredictability associated with climatic events, the São Paulo Department of Investment Partnerships said in a statement.

Road and rail projects are expected to require more and more work to address the issue, such as investments in slopes to prevent landslides, drainage, and the construction of higher bridges to cope with rising river levels, said Ms. Marcassa.

In the port sector, which is also increasingly affected, Antaq (the National Waterways Authority) has carried out a series of studies and brochures to help ports adopt measures to mitigate the effects of wind, heavy rain, and rising sea levels, among other things. The measures include strengthening port structures, flood protection, and more frequent dredging. In practice, however, the implementation of these measures is still in its infancy.

When asked about the issue, the Ministry of Ports and Airports said that in addition to Antaq’s efforts, it is preparing a diagnosis of the situation and plans to include “port infrastructure adaptation projects” in the new PAC (Growth Acceleration Program), as well as technologies to “increase waterway safety and monitor the access channel, minimizing its closure and making operations safer.”

State-owned Infra S.A., which works on structuring concessions and PPPs, said it has sought to include climate resilience measures in the studies, with “detailed risk assessments” and “project adaptations to environmental challenges.” The idea is to bring forward and price in as many of the necessary interventions as possible.

The increase in climate events also raises new concerns for the private sector. For groups with existing contracts, one question is whether damage and additional work can be subject to economic and financial rebalancing.

“Some situations are more obvious, but not always. For example, flooding due to drainage problems outside the facility when the city’s infrastructure can’t handle it. Who pays for the investment? These discussions must be addressed,” said Ms. Marcassa.

The ANTT (National Land Transportation Agency) said that in concessions, “the management of extraordinary events is a shared responsibility between the granting authority and the concessionaire.”

Another concern for the sector is the difficulty of obtaining insurance for the works and civil liability of the concession, which, according to the companies, has worsened.

“Climate change is starting to have an impact on the insurance market. It’s the main concern in our interactions with insurers. We are already seeing an increase in prices and a reduction in the number of players participating, due to the fear that the concessions will have a large exposure,” said Marco Aurélio Barcelos, president of the ABCR (Brazilian Association of Highway Concessionaires).

Among insurers, the issue is worrying, but the perception is different. In the industrial insurance segment, climate change is indeed the main issue today, said Fábio Silva, president of the Engineering Risks Commission at FenSeg (National Federation of General Insurance). However, he said that the increase in prices has nothing to do with this, but rather with the hardening of the global insurance market due to the macroeconomic scenario. “There is concern about the issue and an increase in the frequency of events and the volume of funds involved. But I still don’t see the market being constrained by that.”

Also in civil liability insurance, the assessment is that the rise in prices and the reduction in supply are not motivated by climatic events, but by problems with claims. According to Fábio Barreto, president of the FenSeg commission for the sector, the problem is that dealers often take claims to court, even when the companies’ responsibility is clear. This creates a large backlog of claims and drives companies out of the sector.

Source: Valor Internacional

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