Problems in the estimation of the cost of capital for highway operating contracts in Brazil: an application to the regulation of highway operating contracts

This paper discusses the setting of rates of return for highway operation concession contracts in Brazil, as applied to the case of the methodology of ANTT, the country's National Highway Transport Agency. The study demonstrates the inappropriateness of the current regulation, which is based on the internal rate of return concept rather than on the use of the opportunity cost of capital. Using data from the height of the international financial crisis (December of 2008), the study also shows the illogicality that ensues from using historical returns and prices to estimate fair rates of return, a common practice among all the concession contracts for the running of public services in Brazil. An alternative methodology is proposed, whose results are sensitive to the current circumstances of the capital market and which produced results coherent with the situation, such as it was at the time.

opportunity cost of capital; rate of return of public utility concessions; highway operating contracts; capital asset pricing model; expected return on the market

Departamento de Administração da Faculdade de Economia, Administração e Contabilidade da Universidade de São Paulo Avenida Professor Luciano Gualberto, 908, sala F184, 05508-900 São Paulo / SP Brasil, Tel./Fax 55 11 3818-4002 - São Paulo - SP - Brazil