How Rio Grande do Sul state is paving the way for US$2.9bn infra investments

The government of Brazil’s Rio Grande do Sul state intends to move forward with a list of concessions, PPPs and privatizations in the second half of this year, which are together expected to generate investments of around 16bn reais (US$2.9bn). 

The administration is working to pave the way for the privatization of state-run water utility Corsan and will also offer concessions for various certain highways, in addition to other projects for which PPP contracts will be up for grabs. 

Along with the contracts to boost infrastructure, the government is also looking to attract offshore wind power generation and green hydrogen projects to the state.

BNamericas speaks to Artur Lemos Júnior, chief of staff of the Rio Grande do Sul government, about the state’s plans as it looks to bring in investors. 

BNamericas: Why did the Rio Grande do Sul state government decide to suspend the process to privatize Corsan?

Lemos: The question of the need to privatize Corsan had already been debated and approved [earlier this year] by the state legislative assembly. After this approval, we chose to create a privatization model for Corsan similar to that created by the federal government for Eletrobras, which was through an offering of shares.

In our model, the idea was to sell a majority stake in the company in an IPO, while the government would retain a minority stake.

This model was then subject to some questions from the state control bodies regarding measures of transparency and the equity equivalence of the company that needed to be answered in time so that a share offering could take place quickly.

We realized that this IPO format generated a lot of questions, which would take a long time to resolve, so, because of that, we decided to suspend this process and adopt a new model.

BNamericas: What is the new model planned for Corsan?

Lemos: Now the intention of the state government is to sell 100% of the company. It will be a privatization carried out through an auction.

We’re currently working on structuring this project and by the end of the year we should have all the detailed documents on how the privatization will take place.

As we’ve already carried out due diligence work at the company to conduct the IPO process, this process will be facilitated, but we will still hire specialized offices to help us prepare the public notice. It’s still possible that this privatization will happen this year.

BNamericas: In addition to Corsan, what is the agenda for privatizations, PPPs and concessions planned by the government of Rio Grande do Sul for the rest of 2022?

Lemos: On July 29 we will have the auction for our energy generation company CEEE-G, which is a company entirely focused on renewable energy.

In August, we will advance with the concessions for the Caracol and Tainhas forest parks, in addition to the Turvo state park in Derrubadas municipality.

We’re also working to advance and hold an auction for the public-private partnership (PPP) for the construction of the new prison in the city of Erechim in the second half of the year.

We should also have the auction for the concession of block 2 of highways in the state and we also want to carry out the PPP to revitalize the Cais Mauá area.

BNamericas: What is the projected volume of investments that will be generated with all these planned PPPs, privatizations and concessions?

Lemos: All of these projects combined will generate investments of more than 16bn reais in the state.

BNamericas: The state government has also announced projects related to offshore wind energy. Could you tell me any more about those initiatives?

Lemos: We know that projects linked to offshore wind energy are very long-term projects, but we have to prepare the scenario to attract investments.

In Rio Grande do Sul we have constant winds and we have ample conditions to have transmission lines for extensive development of renewable energies.

We have the capacity to transform Porto do Rio Grande into an industrial hub for this segment, to serve for the assembly of equipment and logistics for materials to supply the sector. We have shipyards capable of being large hubs to assemble equipment for this industry.

BNamericas: Are there also initiatives to carry out green hydrogen projects?

Lemos: We hired McKinsey to conduct a study regarding the potential of Rio Grande do Sul to attract investments and projects in the area of green hydrogen.

We already know that Rio Grande do Sul has both demand to meet in the domestic market and can also be a state that will meet demand for green hydrogen in some European countries. We have two large lagoons in the state that can support the green hydrogen plants to be installed.

BNamericas: Has the state government been working to guarantee funding for all the projects you mention?

Lemos: With respect to the PPPs and concessions I mentioned, most of these projects were structured by BNDES, which must also provide most of the financing for the projects.

With regard to projects linked to the offshore wind and green hydrogen sectors, we’re working with regional development bank BRDE, as this institution has financing capacity, and we may even seek external financing when these projects begin to advance.

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