It’s going on two years since Thomas Putter, the former chief executive of Allianz Capital Partners, warned a roomful of conference attendees that the shift towards more user-paid infrastructure – of which private investment is very much a part – amounted to nothing less than “social dynamite”.
Well, it took a while, but the fuse is finally detonating. For a very forceful example, look no further than what’s happening in Brazil, one of the world’s most promising emerging infrastructure markets.
It may be hard to remember, now that the shopping list of grievances has grown exponentially, but infrastructure is at the root of the Brazilian protests that have brought one million people to the streets since early June.
In fact, demonstrations first erupted in Sao Paulo over a very familiar theme: fare increases. Specifically, proposed increases to the bus and subway fares that the authorities tried to point out – valiantly and in vain – were well below inflation, which is currently hovering at circa 6.5 percent.
As hundreds of thousands took to the streets in Brazil’s major cities, the multi-billion dollar cost of hosting the 2014 World Cup and the 2016 Olympics quickly became a target of public anger.
“This is a communal cry saying: We’re not satisfied!,” one protester complained to the Associated Press. “We need better education, hospitals and security, not billions spent on the World Cup,” another added.
In short, Brazilians are not happy about their government’s infrastructure plans and they are making themselves heard very loudly and clearly.
So what consequences can/will this have for your average infrastructure investor? Well, changes to existing contracts, for a start.
Going back to Sao Paulo, the government announced a freeze in toll road rates through to July 2014, in a move that will directly affect 19 road concessions.
Governor Geraldo Alckmin did his best to present his decision as legitimately independent of the protests. But it’s hard not to be sceptical about the timing. At the very least, it won’t hurt the governor’s street credibility to freeze road tolls alongside bus and subway fares.
Abertis, which last year went large on Brazilian roads, detailed in a regulatory filing the impact of that decision. At the moment, it will be somewhat muted, considering the authorities will help to economically rebalance the affected concessions. A little governmental sleight of hand then, alleviating pressure on the user front, whilst keeping investors happy at the same time.
However, one can almost sense Abertis’ trepidation when it wrote that “the initiative by the state of proposing compensation measures highlights the strength of the regulatory framework in Brazil”. Abertis and others in its position will certainly be hoping that strength doesn’t waver, because that’s precisely what’s at stake here once citizens start making angry demands of politicians.
More importantly, though, what Brazil shows is that it’s high time to put the user front and centre in the infrastructure debate. Discussions have, for too long, focused on capex and opex and financing and tenors, with users relegated to a “oh yeah, them” position.
Well, the ‘them’ are making themselves heard – and the only way to make sure the infrastructure debate remains sustainable for investors is to take the ‘social’ out of dynamite and put it into privatisation.
*To find out where social privatisation is being seen as the answer, check back on this space next week or take a look at our July/August magazine issue.