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10/01/2018 - Artesp

Two Italian groups compete for the operation of the Northern Section of the North Beltway in the São Paulo Stock Exchange; Ecorodovias wins the bid with a 90.97% premium; This concession will bring more than USD 802 million to São Paulo State, in Brazil

With a 90.97% premium over the minimum bid, Ecorodovias Infraestrutura e Logística Ltda. Win today’s bid for the concession for the Northern Section of the Mário Covas Ring Road (SP 021) - the largest ring road in Brazil. The bidding auction held today at B3, the São Paulo Stock Exchange, opens the country’s concessions agenda for 2018 with an important result for São Paulo State. The 30-year concession stipulates investments of around USD 179.5 million for the Northern Section. As it is a concession that focuses on operational services, more than double that amount – or about USD 370 million - will be invested by the concessionaire in maintaining the 47.6 km of the Northern Section, following the high operational standards under the São Paulo State Government Highway Concessions Program. With today's bid, the Northern Section concession adds up to more than USD 802 million in resources for the State of São Paulo.

"The result of the Northern Section concession, and the two concessions successfully auctioned last year, demonstrates the competence and credibility of the São Paulo State Government in managing projects which attract private capital and the necessary investments for the socio-economic development of the State," says Giovanni Pengue Filho, General Director of the São Paulo State Public Transport Regulatory Agency (Artesp). Last year, the São Paulo government concluded the Mid-West Highway and Road of the Shoes concessions, yielding premiums of 131% and 438% respectively. Autostrate Concessões e Participações Brasil was the second bidder in today’s auction, with an offer of about USD 160 million, with a 12% premium over the minimum required amount of nearly USD 143 million.

The substantial offer made by Ecorodovias reaffirms the interest of the Italian group Gavio to expand their participation in the São Paulo roads concession program. Ecorodovias is already a partner of the São Paulo State in the Anchieta-Imigrantes (SP 150/SP 160) and Ayrton Senna-Carvalho Pinto (SP 070) concessions. Ecorodovias had also placed the second best offers in the bidding auctions of the first two lots, which took place in 2017.

“We are pleased to see that important players, which are already operating in the road sector in Brazil with competence and commitment, are taking part in the program’s competitive process. This demonstrates the market accepted very well the renovation we have implemented in the roads concession model that was so far being operated in the country,” comments Pengue Filho.

The results of the concession bid for the Northern Section of the North Beltway are the following:

Minimum bid for the concession fee: BRL 462,367,014.00 (about USD 143 million)

Winning bidder: Ecorodovias (controlled by Gavio Group)

Concession fee offer: BRL 883,000,000 (about USD 273 million), with a 90.97% premium

2nd bidder: Autostrade Concessões e Participações Brasil (controlled by Atlantia)

Concession fee offer: BRL 517,851,056.00 (about USD 160 million), with a 12% premium

Within the next few weeks, the Comissão Especial de Licitação (or Special Bidding Committee, in English) will analyze the guarantees presented by Ecorodovias, as well as the documents related to the elegibility and technical qualification of the bidder.

The Northern Section is the last segment of the ring road and will have 47.6 kilometers of highway, forming an essential connection between Brazil's largest port - Santos - and its largest airport, Guarulhos. Altogether, the four stretches of the North Beltway total 180 kilometers (including the access roads), with the Western Section being operated by CCR Rodoanel and the Southern and Eastern Sections being operated by SPMar. Artesp estimates that the operation of the Northern Section will create 815 direct and indirect jobs.

Benefits to users

The concession allows a series of innovations in order to offer users the kinds of services available on the best highways in the world. The concessionaire will equip the Northern Section with Wi-Fi throughout the entire network, providing users with information about the system, such as updates on the traffic and weather conditions and lane closures. For added safety and increased traffic flow, the roads will be fully monitored by smart cameras. In addition, the Northern Section of the ring road will be fully illuminated along its more than 47 kilometers - in an investment that is included in the concession agreement.

The concessionaire may also adopt flexible tariffs, with lower prices at off-peak times, for example. This practice, besides saving users' money, could contribute decisively to improved traffic flows, withdrawing a considerable number of vehicles at peak times, getting them to use the highway at off-peak times. In addition, there will be a 5% discount on the toll for users who opt for electronic payment.

The concessionaire will also be required to synchronize all the data from its intelligent monitoring systems with the Artesp Information Control Center for inspection and improvement of the Accident Reduction Program for São Paulo highways. The concessionaire will implement a traffic monitoring system with data collection on volume, speed and weight per axle, with sensors that operate even with vehicles in motion. Digital systems will also be installed for the Agency to manage and monitor projects and roadworks on the Northern Section. An online portal will be created to register complaints and requests from society that will be analyzed by Artesp.

There is a package of regulations to maintain the high standard of service and lane maintenance that ensures that the 18 best highways in the country are in the State of São Paulo according to the latest survey by the National Transport Confederation.

New Concessions in São Paulo

The concession for the Northern Section of the North Beltway is the third bidding process for the Fourth Stage of the São Paulo State Government Highway Concession Program, which has already raised USD 54 billion to operate the 7,900 km of highways managed by concessionaires in São Paulo. These investments result in safety (a 62% reduction in the death rate since 2010) and comfort for users.

For this new phase of roads concessions, initiated last year with the support of the International Finance Corporation (IFC) - a member of the World Bank - and international consultancies, the São Paulo State Government has brought introduced contractual innovations that have been a national benchmark in bidding processes.

Especially for the Northern Section concession, a liquidity guarantee mechanism was developed, establishing that 28% of the fixed concession will only be released along with the Operation License for the first segment of the Northern Section, when the concessionaire will effectively begin its activities on the highway. The remaining balance, 72%, will be released in December 2019, minus any amounts referring to economic and financial rebalancing. Liquidity was also increased with a forecast to retain 12 months of variable concession that, for the first time, will be 15% and may be used for any rebalancing required.

As in all concessions for this stage, the Northern Section also has a sophisticated mechanism of exchange rate protection, developed by the teams in the São Paulo program, which reduces the risks to investors funding in foreign currency. The bids also included the possibility of signing a tripartite agreement between the granting authority, the concessionaire and the financier, with step rules so that the financier can take over administration, even if temporarily, in situations of contractual default by the concessionaire, in addition to the norms for their possible substitution and clear criteria for compensation of the parties. These are measures that have improved the financing conditions for the project.

Another important practice in this new round of concessions was the reduction of technical qualification requirements with the possibility of qualified subcontracting. This criterion made possible, for example, the participation of an investment fund in the São Paulo concessions - in the case of Pátria Investimentos (via Fundo III de Infraestrutura), which in March last year bought the Mid-West highway Lot. The concession also provides for regular revisions every four years for the readjustment of investment plans, insurance plans, guarantees and performance indicators. The aim is to align the contract with the real needs of society.

About Artesp

The São Paulo State Public Transport Regulatory Agency (Artesp) regulates and supervises the São Paulo State program for road concessions, airport concessions and intercity public passenger transportation in the State of São Paulo. The Agency's activities comprise 7,900 kilometers of highways administered by 22 concessionaires, in addition to more than one thousand inter-municipal lines of public passenger transport and the concession of five regional airports.

ARTESP - Assessoria de Imprensa
(11) 3465-2104 / 2105 / 2364