Public Law, Project Finance and Regulatory

How a legal battle could impact Brazil’s airport concession plans

Brazil’s airport segment is facing major challenges to recover from the COVID-19 pandemic and a legal dispute has added risk to concession plans for two of the largest airports in the country.

The legal battle involves the international airport of Manaus, the Amazonas state capital, and it could raise doubts over the success of upcoming airport auctions, Paulo Dantas, a lawyer specialized in infrastructure and project finance at law firm Castro Barros Advogados, told BNamericas.

The government plans to offer a new batch of airport concessions next year, including Congonhas in São Paulo and Santos Dumont in Rio de Janeiro.

Increased legal risk

In April, the government auctioned concessions for 22 airport terminals in three blocks, mixing more and less profitable ones. Manaus is the busiest of those in the northern block, which also included Tabatinga, Tefé, Porto Velho, Boa Vista, Rio Branco and Cruzeiro do Sul. France’s Vinci Airports won the block with a bid of 420mn reais (US$82.7mn), paying a premium of 770% over the minimum price.

SB Porto Seco, a Brazilian consortium for storage and cargo handling operations at the Manaus airport, is seeking to have it excluded from the concession package, claiming it signed a 10-year contract in 2018 with federal airport authority Infraero to administer the airport.

Shortly after the auction, a local court ruled in favor of SB Porto Seco by excluding the airport from the package and only a few days later, supreme court head Luiz Fux overruled this decision.

SB Porto Seco has launched an appeal against Fux’s ruling and this action is worrying the government as it risks reducing investor appetite for the airport auctions that will be held next year.

“This dispute is bad and may raise some doubts about the next round of concessions, especially since two of the largest airports in the country will be included in this round, Congonhas and Santos Dumont, where there is a great potential for disputes involving the companies that currently administer the commercial areas of these airports,” said Dantas.

Through the attorney general’s office (AGU), the government has sent a report to the supreme court showing that any modification of April’s auction results could reduce the fees generated by future auctions due to increased legal uncertainty, government sources speaking on the condition of anonymity told BNamericas.

“This should serve as a warning to the government in that it should resolve any disputes before launching the [auction] notice for the other airports,” Dantas said.

In the seventh concession round next year, the government’s plan is to offer 16 airports, divided into three blocks, with an estimated combined capex of 5.28bn reais, according to the government’s investment partnerships program PPI.