December 8, 2016

Completion of Highway BR-163 in Brazil Delayed even Further

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

Even though there is a deficit of infrastructure in Brazil, completing new infrastructure projects in Brazil is never quick or easy. A prime example is highway BR-163, which is often referred to as the "Soybean Highway." This highway runs the entire length north to south through the state of Mato Grosso, which is the largest grain producing state in Brazil. Approximately 60% of the grain production in the state is transported along this highway.

BR-163 is currently a 2-lane highway full of pot holes and in very poor condition. The highway is scheduled to be improved in two phases. The first phase is for the highway to be extended and asphalted all the way from northern Mato Grosso north to the Amazon River where numerous barging facilities are being constructed. The completion of this phase is already years behind schedule and it is not expected to be completed until sometime late in 2017. There are still approximately 180 kilometers of the 1000 kilometers extension that have not been completed. As part of the process, BR-163 will also be converted into a toll road with the tolls paying for the improvements.

The problem is that the work was bid in sections by various construction companies and some of the winning bidders underestimated the scope of the project and they do not have the wherewithal to complete the project. Several of these companies have declared bankruptcy and are currently under court supervised reorganization, which is a very slow process in Brazil. New bids to complete the work cannot be submitted until the current judicial proceeding are completed.

The second phase of the improvement project is the widening of the highway from its present 2-lanes to a 4-lane limited access highway from the northern Mato Grosso city of Sinop to the southern border with the state of Mato Grosso do Sul.

The company that won the bid to do the widening and then to operate the toll road, was Obedrecht, one of Brazil's largest construction companies. They won the bid to widen the 850 kilometers of highway in 2013 and it was scheduled for completion in 2018. The company's has since indicated that they will not be able to fulfill the contract and they are looking for additional investors to aid them in the project.

It has been reported that three potential investors are in negotiations with the company. The new investors will have at least a 50% controlling interest in the project and maybe even 100% depending on negotiations. Obdebrecht has indicated that work on the project will proceed while negotiations are ongoing and that toll rates will not be impacted.

This far, the company has completed the widening of the southernmost 117 kilometers and they have started to collect tolls. The project is being financed by the Brazilian National Development Bank (BNDES). Up to this point, R$ 1.6 billion has been invested in the project. The company has indicated that they will not be able to meet the 2018 completion date, but no new timeframe has been established.