EcoRodovias Infraestrutura e Logística S.A. (ECOR3) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. Welcome to EcoRodovias presentation on Nova Raposo Lot. With us today are Marcello Guidotti, CEO of EcoRodovias; Andrea Fernandes, Corporate Finance Officer; Giacomo Baroni, Business Development Officer; and Fabio Trugillo, Planning Officer. Be advised that this presentation is being recorded. [Operator Instructions] The slides of this presentation will be available on the company's Investor Relations website, ri.ecorodovias.com.br. After the presentation, the replay will be available on the website. Before proceeding, let me mention that forward-looking statements that might be made during this presentation relative to Ecorodovias business prospects, projections, operating and financial targets are based on the beliefs and assumptions of the company's management as well as on information currently available. They involve risks, uncertainties and assumptions as they refer to future events, and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors may affect Ecorodovias' future performance and lead to results that differ materially from those expressed in such forward-looking statements. Now I would like to hand the floor over to the company's executives. Mr. Marcello Guidotti and Mr. Giacomo Baroni, who will comment on the Nova Raposo Lot. Please go ahead, sirs.

Thank you. Good afternoon. Thank you for participating in this last minute call. I'm here with Andrea, the Investor Relations Officer; Fabio, our Planning Officer; and Giacomo Baroni, new business development as well as [ Mayara ], who is in his team. He will be making the presentation. Of course, Giacomo coordinates all the studies regarding new businesses. He coordinates more than 100 people considering engineering teams, demand, research teams and he spent almost 9 months working on this asset. So he will be making the presentation a little technical getting into some detail. But myself and Andrea will be here in the end to answer your questions and clearing your doubt. So let's move ahead. I know it's getting late. So without further ado, Giacomo, go ahead.

Good afternoon, good evening. Thank you for joining us. What we will present very quickly is an overview of the project, which you probably know about and the assumptions that we adopted in our study. As Marcello Guidotti said, we have been developing this study since the time of the public consultation that began in March of this year. So almost 9 months of in-depth studies of a Nova lot that is very important, a lot that is well known. And it started with [indiscernible] in one of the first privatization of São Paulo that started in 1998. And with Rota Sorocabana, it led to this big concession. So we will manage 2 highways, 2 of the most important accesses to the city of São Paulo, the capital. Castelo Branco high [indiscernible] including the urban section, which connects to the Western ring belt or ring route to the [indiscernible] and also by ViaOeste. So it crosses a number of companies which have their headquarters along that highway as well as Raposo Tavares, SP-270, in the stretch between the city of Cotia in São Paulo. Also connecting Cotia to [indiscernible]. So as you probably know, and as you can imagine, this is characterized by a high flow of commuters. But it is also the most important export corridors. Castelo Branco has all the cargo traffic coming from Mato Grosso do Sul and the countryside of São Paulo, bringing all the cargo to the point of centers in the city of São Paulo. This is a 30-year concession period, only 2 kilometers, of which 41 kilometers from the former [indiscernible]. It is the Castelo Branco stretch highlighted in the map. It has three toll houses [indiscernible] and of course, well, this -- in the new concession, we will be responsible for more than 70% of the revenue. So a revenue that comes from a toll stretch, is well-known as 3 toll plazas, as I mentioned. These in the beginning of year 3 will be converted into free flow entries and little by little, we'll install another -- we'll have -- in the end, 14 countries with a unidirectional tolling in [indiscernible], in Osasco, we have a unique direction charging. This will be replaced by one single gantry maintaining the same flow of collection. And then we can see the numbers of the government, BRL 8 billion in CapEx and BRL 3.1 billion in OpEx. We'll mention the assumptions that we had in our project, the project internal rate of return of 9.41% and met a slight sound cut. On the slide, what we want to show is all the mechanisms and innovations in this concession agreement in showing the solidity of the project. Some people claim it's a risky and a project with a lot of criticality. But it's the opposite. Here, we show you how robustness it is and the risk mitigation, which was included in this construction agreement. The first point, again, it's going to be a fully free flow section, which will improve traffic. In the highways, we do have congestion points, particularly in peak hours. Having a free flow entry will alleviate the traffic congestion, which is absolutely positive. It will improve traffic fluidity. And then we have a demand the traffic risk. We have revenue in real terms. So we want to protect ourselves against a traffic risk. And we have entries asymmetric mechanism because the granting authority ensures a minimum band at the government study, which was used to structure the whole project. And this is used as a reference, and there is a downside just 2%, which will trigger a minimum band. Above that, 100% of the traffic risk will be taken on by the grantor. And if we have upside, 8% above the government study, that will be shared with the concessionaire on the revenue to the [indiscernible] power. And this share side, this share is 50%, 50%. So we have a trader for the downside and trader for the upside. Downside, 100% sharing. Upside, we have sharing of 50%. If we have a [indiscernible] of the minimum range, we have compensation by the government paid annually. If we exceed the upper limit, the compensations of the government will work differently. It becomes almost like a debt of the rentor, which is paid every 4 years. Another important point. We were speaking about free flow. The big question is, what about evasion? Ivasions are guaranteed almost 100% by the government. Everything uses 95% will be rebalanced. If the user -- if the evading user is fraudulent, if they are covering the license plate or traveling without a license plate, in this case, fraudulent users will be 100% rebalanced. Of course, it is gantries area of our equipment. There will be no rebalancing. But of course, this is being tested at Oreste when we have free flow, and this is not happening in 95% of -- again, evading users will be rebalanced, and this kind of evasion then will be mitigated. Another important point in risk mitigations is that people speak a lot about these works in urban sections in Nova Raposo lot. People talk about these expropriation. And here in the concession agreement, there's a mechanism foreseen, which is very well structured. The government, If we exceed by 10%, the value estimated by the government, BRL 839 million [indiscernible] will work out between 110% and 140%. There will be gantries 80% rebalance of the delta above 140%. The government will rebalance 95% of these extra costs. In the case of expropriation extra costs, this will be calculated annually and paid annually. Another important point, which is actually being applied in other agreements. In the last 5, 6 years, this has begun, something which is very important in this kind of highway. If in the future, given the high volume of traffic in some section, if there is a problem in the level of service., this is calculated in a level of service. In other words, when the traffic comes to a standstill, the concessionaire has entries obligation to propose to do granting power works to expand capacity. It could be one additional lane in the frontage roads or in the main roads. And all of these will be rebalanced. So we'll be able to continue to expand to the capacity of these highways to, of course, accommodate more traffic. And to conclude all of these risk mitigations. These mitigations on these possible eventual compensations have payment liquidity insured because we will be using escrow accounts, including the concession fees that we pay or variable fee that will be paid along the life of the contract, which is 5% on the tariff and ancillary revenues. All of this will be deposited in escrow accounts of the government. The government will not be able to access the funds. The funds will remain in the escrow accounts to ensure these compensations. Such is a solid agreement with a double guarantee and Giacomo, based on history of traffic of more than 25 years, we know about this asset. It is very well known. In addition, we have a number of risk mitigation mechanisms mitigating the full risk of the business. On the next slide, we'll speak a little about the operational characteristics of this concession. Here, we can see the section and the traffic flow that can be generated in the same highway. We have a number of cities around it. Of course, the red end to São Paulo. But we have important cities, logistics, commercial, industrial hubs Barueri, Osasco, Itapevi. The whole flow along also Raposo Tavares until we get to Cotia and to get to Embu das Artes. Of course, before I mentioned only the 2 main highways the [indiscernible] but of course, it's a smaller part. But also important is the SP029, which will have duplications in the stretch between Cotia and Embu das Artes. We will -- the duplication, and this will serve as entries alternative to [indiscernible] because it is somewhat saturated. And with the duplication, the traffic will be improved between Castelo Branco, Raposo Tavares until we get to Regis Bittencourt. As Marcello mentioned, this is a traffic flow that is well known, more than 25 years of history. Two highways that connect very important corridors getting to Marginal Pinheiros in São Paulo and the Rodoanel or the beltway. And we have the behavior of these toll plazas, Barueri, Osasco, Tapevi's resilient traffic. About 65% of the revenue will come from light vehicles. We have important volumes. If you've been in these highways, you know the importance in the size of the toll plazas in Barueri and Osasco. On Raposo Tavares highway, we will have entries important flow expressed in AADT, annual average daily traffic. In equivalent [indiscernible], practically every axle pays 1 toll, 1 toll for every car and then increasing to trucks. And depending on the trucks, of course, we multiply the tolls. For heavy vehicles, we have a very heterogeneous array of heavyweight vehicles running on these highways. Some vehicles originate from some of the companies along these highways and as I mentioned, the final point of destination is the port of São Paulo. Here, we can see how we'll open the toll plazas losses initially. We will take over the toll plazas of VOS. There are 3 toll plazas. All 3 are unidirectional, one in Osasco, one in Barueri. They have the same toll plaza separated by Rodoanel. So we have one in Osasco, one in Barueri and Itapevi charges Castello Branco. In the flow, unfortunately, we are having sound cuts. Please bear with us. Well, Itapevi charges vehicles flowing towards the country side. And here, we have our assumptions of traffic as studies compared with what the government calculated. Our traffic compared to the government's initial traffic, it is about 12% higher, less than 5% of the difference starts with the 2024 traffic. It is important to mention, since we estimate -- we estimated a starting point compared to the government's initial traffic. Like we said, we have access to a database of tolled traffic, which is very high. We got the total data of these 3 toll plazas. So we used to -- as a starting point in the last 12 months of tolling in these 3 toll plazas, while the government, of course, have to prepare these studies quite in advance to give some time for the public consultation for people to bid and they use the actual toll data from January 2022 to December 2022. The same government said it that in the date, that the data was not reflecting tolling of the suspended axles because starting on October 1, 2023, VOS in these 3 plazas, just like in the rest, study charging for suspended axles of loaded trucks. We know the drivers law exempted suspended axles for those drugs without cargo. The ones with cargo should pay. That separation between empty and full trucks changed. And this is a technology that all concessionaires in Brazil are applying. The VOS is applying it in October 5, 2023. So after that, with the automatic inspection and they were able to identify the vehicles and were loaded in with suspended axles. That gives us a difference of about 2%. The rest of the difference refers to data of 2022 projected forward. Data of 2023 counts projected forward. We did 3 counts between July, August, September, October. Three counts to have as updated data as possible. In the last 3 to 4 years, this traffic in the section between Osasco and Barueri has been growing almost 4% a year in the stretch closer to Barueri almost 5% in the studies. Their projections were a little below that. And that's why we have a difference in the starting point. Our starting point is solid, very well calculated. And then projection based on these behavior of data and based on the full lending, we take into account the effect of so charging in the different points. The government projected a CAGR of 1.1%, our is 1.6%, slightly higher, but way below compared to the historic behavior of these highways. As Marcello mentioned, we have more than 20 years of track record of traffic consistently in the past year, traffic always grew by around 3%, 4% per annum. Of course, there was a decrease during the COVID pandemic, but we saw robust growth. So the highway of course, becomes saturated but we have the possibility of increasing capacity. There would be one additional upside that we did not include in our calculations of this study. But when needed, most likely will do it. And also, the fact that we'll have free flow gantries, this will help us in case of saturation, and we can have variable fees. This is a highway that does not have peak traffic, it has constantly high levels of service, but there are tracks to reach to Marginal Pinheiros. So we'll have the free flow fees to perhaps increase the capacity. Of course, we have this traffic 4.5% above government expectations. And of course, we'll have the demand sharing mechanism. We will return a part of this surplus traffic. Again, this return is not a onetime off. This value will be paid every 4 years, starting on year '20. Our flow and then the CAGR, of course, will -- the CAGR will be reduced over the year. And this difference of 12%, we'll be considering the whole 30 years of concession. And what is the difference in traffic? About 12% comparing the government's estimates and ours. And of course, this upside will be more towards the end of the agreement. I will speak about other operating assumptions, CapEx and OpEx. All of the works expected aim to expand capacity. We're considering additional lanes in the Castello Branco section, SP280, between Tapevi and Araçariguama. It would be a full lane. We are also considering additional lanes and frontage road between Cotia and São Paulo. These works are important because these audit conditions precedent for us to open the 5 toll plazas on Raposo Tavares. And here, when we think about potential concerns about the schedule of these works, these capacity expansion works will start from year 4 onwards. So this is important, so you understand the cash flow. It's very important to note this. The major works start from year 4 onward. They will give us the possibility of doing executive projects. We already have functional projects quite advanced for these works. But all of the process is still obtain a degree of public utility to carry out these appropriations. Of course, this involves a long time, 3 years to start these works. This is also important when we speak about fundability and we'll have more than 5 kilometers of duplications in the SP029 close to Cotia. And another important work, a new connection between Cotia, Embu das Artes. And we have the rural roads. This will be a greenfield section. And here, it is important to highlight that it is greenfield because this makes a difference. In works such as these, where we have improved the results value engineering, everything calculated by our advisers and engineers will make a difference. But it's just one additional lane. Of course, the impact in the CapEx is lower. But when we have a Greenfield project, then value engineering makes a difference. And the government that is a functional project of the government made available to the bidders is nonbinding. We studied all of the alternatives. And we have some alternate projects that will allow for savings in our CapEx. A savings of about 10%. So we have a CapEx already 10% below the government. And this is quite normal in such assets. This remains of the [indiscernible] asset where CapEx was more an expansion CapEx, almost a Greenfield, pure engineering. Unlike assets of many, many kilometers where we have a lot of drainage and sometimes, some underestimated amounts by the granting authority. Sometimes, we have the problems related to distance of transport. It's a different logic. Here, the rationale is one of engineering productivity impact. Here, value engineering brings us upsides and solutions. And since the functional projects are nonbinding, here we have the [indiscernible] a solution, the work cost of 40% less than planned because we had a different route. This meets the concession agreement, the safety and environmental requirements. So this reduction in CapEx is the result of all fees. And then getting to Marginal Pinheiros. We have a number of bypasses that will allow access to both sites of Marginal Pinheiros improving the flow of arrival in the city of São Paulo. So CapEx, 10% lower compared to government estimates as a result of a value engineering upside. A good part located on the Embu-Cotia section. And we spoke about expropriations and possible extra costs that have been rebalanced. But like I said, this is a CapEx to maintain capacity, widen capacity starting in year 4, ending in year 7. This is important because it gives us broad time to carry out all of the activities that are necessary to get the authorizations with no risk of delays. And some of these works will include the gantries. Please remember that revenue will be collected since the start, and it accounts for practically 70% of the full revenue of this project. Another important point is once we complete the cycle of investments and works, the cost of maintenance, maintenance CapEx to replace equipment, which is the CapEx that we start having from year 9 onward, that CapEx represents less than 1% per unit. So a CapEx that is concentrated on year 4 to 7 and our maintenance CapEx, which is relatively low. Well, this means that the highway has a lot of light vehicle traffic light vehicles, consume a lot less of the pavement of the highway. And of course, it's a small stretch, although it has many lanes. And this will allow us to have a good fundability of the project. So let me just speak a little about OpEx. In OpEx, we have to highlight our assumption. The OpEx is about 20% below the government number. And that is mainly due to synergies that we will develop in terms of the personnel, of the [indiscernible] which is in São Paulo, one, which is relatively close to Ecovias dos Imigrantes. And we have big economies of scale in shared services. All of this centralized services that will be provided by the EcoRodovias Group had a marginal cost. And also, the operational console center, it is all centralized Ecovias [indiscernible]. All of them will be operated in one single place with very strong synergies. And of course, this asset will start to be operated centrally. So the 20% OpEx is quite a normal level. By consolidating, we see that as we operate the highways, the synergies are even greater. One important example is that own traffic validation cost, what we call CCA Collection Center. The synergies that we have because we already have free flow in the neuro estate. Well, we have 1 eventually but very soon, we are going to have the 10 top losses replaced by gantries. We will have a CCA ready to receive a challenge of very intense traffic at several after gantries. This will allow us to reduce the number of people working in those areas. And of course, we have the insurance cost, which we quoted below the government cost. So our OpEx would be around 20% per annum. And the last slide, we'll see the result of the projected cash flow of the concessionaire. Again, we have the grant to be funded in the beginning until year 4 of the concession. We will not have any CapEx. Since the beginning, we'll have the revenue. As I said, 70% of the projects toll revenue starts from the beginning, the Castello Branco, existing toll plazas or when we cover gantries. And this is a flow which allows us to fund practically the full CapEx of the project -- of the 3-year CapEx. We'll have a bridge loan, three years until we get to year 4 when we start having the widening CapEx. And in the end, don't have a long-term funding and funding that will be the first between year 4 and year 7. In [indiscernible], we already have firm commitment of banks for the payment of the concession fees. As of year 9, we'll have all of the gantries as free flow gantries. So we have full line. And as we saw in the previous slide, we will have gantries important CapEx reduction as of year 9, the maintenance CapEx is minimum and you can clearly see it in the chart, the difference between cash flow and EBITDA. And EBITDA cash conversion, which is very -- we also worked on optimizing depreciation flow. If you want to try and simulate government projections comparing those 2 hours, we optimized the depreciation of flow. So we did it based on revenue compared to traffic. Of course, it is always based on traffic, just like in the rest of the group, we optimize it by revenue. And this allows us to have important reductions in taxes to be paid in the first years, which releases cash flow in the initial years of the agreement. Year 9 onward, when they complete all of the CapEx and full tolling in addition to dividend payout, the concession agreement also allows us to reduce capital to speak about some financial assumptions. Like I said, CapEx concentrated in the beginning is 47%and then a small maintenance CapEx. Our IRR will be close to 10%. We'll have about BRL 750 million in equity, a little less than BRL 50 million at the beginning of the agreement. This is a condition precedent for the signing of the agreement for the BRL 135 million during agreement signing in March of the next year when we will pay the concession piece. And the rest, about BRL 600 million in nominal terms will be injected as an agreement requirement in year 7, along the disbursement of the long-term funding. About BRL 6 billion of long-term debt with about $700 million of equity to be dispersed, mainly between year 4 and year 7. This gives us an IRR of 16% in dividend discount model and an NPV that is very good. I think that this is the last slide. Of course was rather technical, and Giacomo knows the project really well. He got into a lot of detail. But now we would like to open the Q&A session. It's almost 8:00 p.m. So let's start the questions, please.

[Operator Instructions] First question by Lucas Marquiori with BTG Pactual.

I have 2 questions. The first one is related with the final part of the explanation by Giacomo. The BRL 750 billion in equity that you have to inject, do these include the concession fees? I'd like to know whether you can fund the payment of the concession fees as well or if you have to have BRL 2.1 billion upfront. And my second question in the CapEx projection, you say that until year 4, there's no relevant CapEx. And the fund was in years of the project. I'd like to combine the projection of use of the project with a consolidated leverage of Ecorodovias. What would be the net debt over EBITDA ratio was 3.3% in Q3 and this is hitting the ceiling of leverage for 2025, '26. Will this ratio change? We just want to get a sense of the cap of the net debt-over-EBITDA ratio given the new project. Thank you.

Thank you, Lucas. The BRL 750 million are sufficient for the project in its first years, including the payment of the concession fees. As Giacomo explained, the project is a cash cow. So it is self-funding in the concession fees will be paid in this way. The EBITDA of BRL 750 million plus the bridge loan for the brand, we will release CapEx in year 4 for the big ones. You had a second question, you can convert year 1, March of '25. It starts in April. It starts in April, May. That's -- and the big works -- major works will start in 2028, '29 or 2030. That's what the last year, [indiscernible] will be reducing work in volume. So this fits quite well the profile of Ecorodovias. Net debt over EBITDA ratio given the strong cash generation of the project will not be greatly impacted. It might be slightly increased for a little while. It won't drop quickly. But in 2023 -- in 2030, 2022, it will start impacting it will have no impact on the consolidated number.

Next question by Victor Mizusaki with Bradesco BBI.

Congratulations on the project. We have 2 questions on our end. The first, a follow-up of Lucas' question. Now we have another repos, you have Eco. Eco101, considering these 2 concessions. Do you think there's still room in the balance sheet given the pipeline? Or should we consider that this cycle of additions of new concessions to the portfolio with the Raposo Lot is ended? And my second question is about the project itself, the grant itself. For the concession fees, you already have funding for that? Or do you need to go to market to get funding for the concession fees.

So we already have the funding. For the full concession fees, we don't need to go to market. And that was the second question. And the first question, the investment cycle is ended. Well, we took entries important stride in our portfolio. This is a concession that we will be adding a lot of Ecorodovias, and we have to pay a lot of attention to other opportunities. But for now, the cycle will close here. And Eco101 is already in our flows. And if the bidding is successful, it will be renewed Eco101 that will generate a lot more cash and will support our consolidated net debt over EBITDA ratio. The way it is, it's been a problem for us, but Eco101 comes to help. Of course, this project will be challenging us, but we are doing quite well. We have a solid portfolio with Eco101 will be sorted out, Ecosul is coming to entries end, too. And of course, we'll maintain a healthy portfolio. And we want to play safe. Ecorodovias, I can assure you, we have some peace of mind for a while. We'll bring in-house our objectives, we'll sort Eco101 and will wait a reasonable time frame for new opportunities.

Next question from Gabriel Rezende with Itaú BBA.

Guidotti, Andrea, Baroni and the IR team, I just have a follow-up question on the point that you mentioned about the funding lines that are guaranteed. Could you elaborate on the cost of the funding? We see the credit market quite abundant, but you could elaborate, it would help us in our modeling. And it became clear that the CapEx flow has a peak exactly when Ecorodovias is starting a deceleration of CapEx in the other assets and deleveraging of the company. But I would like to stress this point that with this project in new CapEx curve, we continue to see no immediate need to access the capital markets? Or are you considering to eventually have a partnership or sale of asset to offset this additional cash flow in this grant with this new project?

Regarding the funding, the bridge loan funding, yes, we have a firm commitment for the full need. It's a 3-year bridge loan. It has not been dispersed yet. We still have to disburse this financing. The concession fees will be paid only upon agreement signing in March of 2025. So we have a firm guarantee from banks for this issuance at the cost mentioned. And regarding the CapEx flow. The CapEx cycle of this concession increases and accelerates when the CapEx of the current portfolio starts decelerating and it's getting close to their investment cycle. So we'll have 3, 4 years with another BRL 15 billion of CapEx. In other words, it will be in the state of execution that will be quite advanced for this lot. And then we'll have a CapEx cycle of 3 years. So it's quite balanced. So for that reason, we don't see the need for a follow-on. Regarding the question of having equity for recycling assets Again, we recently mentioned that, yes, we are always pursuing and considering this possibility. We have several assets, 11 plus this new Nova Raposo Lot, will be 12. And of course, we need to deleverage the company. The strategy will continue. We've made this decision. We are working, we are looking into this. And the work continues regardless was independent of the success in this auction. In 2025, we want to have entries asset recycling strategy. In all equity operations, we have challenges. We don't know exactly what the design will be, the size of this. But this is more we do, and we do not have a follow-on considered for the short term.

Next question from Filipe Nielsen with Citi.

Congratulations on winning the concession. I have 2 questions. One, I'd like to hear from you because you talked about the assumptions of the project, but thinking about the auction dynamic and the competitive dynamic, we see Sorocabana, which had entries agreement, which was structured in a similar way, but it had very different risks. It was much more competitive. In this one, perhaps you were more separate from the bid of the competition. So if I have to understand your rationale for getting a lot of leverage in terms of comparing your assumptions with those of your competitors. If you could elaborate on that, it would be appreciated. And I would like to understand the CapEx a little more. In that curve that you showed of the percentages, are you considering expropriation costs because I remember that in the invitation to bid, there was a high cost in year 1. And if I'm not mistaken, in year 5 because of expropriations, perhaps you are considering this cost more diluted over time. So could you share a little bit more on this with us?

Let's start with the second question and then in turn, we will also answer this. Yes, we include the expropriation CapEx, particularly in what concerns the Raposo Tavares between Barueri and São Paulo. So this is being included. This CapEx of expropriation, about BRL 900 million is concentrated between year 4 and year 7. And then there are some minor appropriations in the prior years, but this curve considers 100% of the CapEx ex appropriations, wage technology, everything. In the first question, the difference in our bid compared to the competitors, it's very hard to compare our bid with the second placed. Ecorodovias makes its own calculations. We set our internal return rate. So [ bid ] was different. The CapEx was higher with a different curve less concentrated, higher CapEx, but a less concentrated one and this reduces our funding capacity. This CapEx for this project, as Giacomo explained, is very much concentrated, but then it stops and we have a strong cash generation, which allows for a much higher leverage. And this is the difference. These are assets with almost identical metrics in terms of OpEx, revenue and EBITDA. But in terms of flow, they are very different. With some upsides as Giacomo mentioned regarding depreciation curve, which made this auction being a much higher fundability and profitability. We normally don't check the differences compared to the second place. It doesn't really help us. I've seen a little bit of everything in the last 20 years. I've seen bids of all types. But Ecorodovias is consistent. I always ask the analysts who study the asset in depth, and I ask our people to study the asset in depth and do all the calculations in. And that's full stop.

Comparing with Sorocabana, it is hard. And as Marcello said, it's hard to assess the assumptions of the other bidders. An important point is that in both auctions, we have the same IRR, about 60% dividend model. And the other one, our CapEx assumption was about 10% above a government number. We can get the value engineering result. The CapEx was more standard. We identified some differences. It was the positive was 10% higher than the CapEx by the government. In our case, in the Greenfield stretch, we managed to get better, more efficient solutions that led to these BRL 800 million less. And the difference of CapEx comparing the 2 projects. For these are 2 projects, we practically have the same revenue and same EBITDA. This Sorocabana revenue in years 4 to 7 is naturally higher because we already have all of the tolls, the plazas. But in the overall, revenues will grow a little less than Sorocabana initially, but the cash conversion, the maintenance CapEx which we will have in Sorocabana, the maintenance CapEx have maintenance campus until year '20. And these are limitations to fundability. When you structure financing in your financial model, you project your EBITDA CapEx operating flow. You have your debt service and you see the fundability of the project. But in this case, we could accommodate more debt because of this different CapEx assumption. And in the 2 projects, we have about BRL 2 billion difference in CapEx in our projections. And that led to the same internal rate of return in both bid. Of course, we don't know the assumptions of the other bidders. I mentioned the case of Eco onto the works charged or the costs were 40% lower and that involved tunnels, overpasses and other things that could be replaced by other alternatives. So it was not a matter of volume distance or cost of material. It was purely engineering and the projects. And when you compare both projects, thinking that Sorocabana is safer, less risks for us when a analyze the 2 projects, honestly, this concession project has risk mitigation mechanisms, which are very robust. The main concern, which could be expropriation, it is guaranteed in a double way. Extra costs and eventual savings belong to the concessionaire but starting from year 4 onwards. Another project, has major works starting in year 1, you have to rush to get the licenses. Not here. We have 3 years to do everything that is needed, so this is not a riskier project on the contrary. It is a project with a traffic volume that has been there for 20 years and very well-known sections and stretches in the state of São Paulo. It is a project we truly believe in.

Next question from Alberto Valerio with UBS.

Guidotti, Giacomo, Andrea, I have 2 questions left. Perhaps you could remind us of the Eco covenant in terms of net debt over EBITDA? And one curiosity, we had some auctions this year. They were not as competitive as the last 2, Sorocabana and Nova Raposo. Paraná, in Minas Gerais, we had auctions. So what is it that makes these assets more attractive? Should we expect this kind of competition looking forward? Or were these different for whatever reason?

Thank you, Alberto. The quality of the studies, the quality of the project, the risk mitigation, the quality of the information, the NPV, they are all higher and that's why it was so attractive. These are almost unique assets. They cannot compare their assets in the state of São Paulo. So of course, yes, there was competition and competition of the big players, the ones that are consolidated in the market, the ones that operate and have been operating complex operations for a long time. We operate Ecovias as Ecovias and have a lot we experienced that shows that the market settles down and the mainstream operators and the new entrants, well, they tend to bid. We knew this was an attractive asset. If in the future, similar assets arise for bid, of course, we will have competition. But this is a very safe product. And we have a track record of traffic of more than 20 years. We studied this project at length and the information was available, which makes these assets which are rebids, more attractive in a Greenfield project where we don't have a track record of traffic. And regarding the covenants, we don't have a covenant. We have a covenant in terms of concessions and services, [ 475 ] with some adjustments according to the flow of the new concessions. So this is a very easy component.

Next question from Pedro Bruno with XP.

Actually, I have 2 questions. The first is just to confirm the expropriation. You mentioned that there is a mitigation or a volume of BRL 840 million, and then Giacomo mentioned, something goes to BRL 900 million. If I'm not mistaken, please correct me if I'm wrong. You mentioned in the project studies, a volume of BRL 1.8 billion in expropriations. And if this is the case, why is it that you're mitigating BRL 849 million and not for all the rest? Shouldn't this additional amount be considered at the same type of expropriation risk? That's my first question. Second question about second mitigation you showed regarding widening works, which I understand is an opportunity. That's what I want to confirm. So this winning works that are planned for, but they are not in the project, and they would be rebalanced. And I think that this would be what an amendment to the agreement, and I'd like to know what the return would be. And would this be included in the IRR that you mentioned? Thank you very much.

Regarding the expropriations. You are correct regarding the total number of expropriations. Indeed, what is being protected by the government are those expropriations between Cotia and São Paulo and the Raposo Tavares. Why? Because these are expropriations in urban sections, in urban stretches and that involves more complexity. So it is really important that we protect these expropriations. All the rest of the expropriations are in rural stretches concentrated between Cotia and Embu das Artes, where we have that new road connecting Cotia and Embu das Artes, replacing the old Cotia road. This will include expropriations, but it is a rural area. And we did a lot of value engineering and we have alternatives in the route. So these are expropriations, which are much less complex. And then there are others along the Castelo Branco stretch. And in the Castelo Branco stretch, rural area. And it happened removing towards Sorocabana. But his a much less complex expropriations. They have been analyzed. I have no doubt regarding the price of the land. There is no margin of error or delays. Of course, this is entries important probably another BRL 800 million, but those risks are needed to be mitigated are the ones in the urban area. The other question about capacity expansion works, which are not foreseen in the concession agreement, but that in the future can happen to maintain level of service. These works will be rebalanced if the grantor approves them. But since the agreement was structured in this way, if we need the works to maintain the level of service, the granting authority will authorize. It could be an additional lane in express runway or we're an additional lane in frontage roads. And of course, this will allow for capacity increase and capacity increase means increased traffic. We are not currently considering these works. We are projecting a more conservative traffic and the traffic volumes in Castelo Branco, that's the one that is getting closer saturation in peak hours. But we are considering a more conservative flow so we won't achieve maximum capacity. But if we do achieve maximum capacity or close to it, we'll expand capacity. And if we expand capacity, automatically, we'll have additional traffic. And this can happen in the last 10 years of the agreement. It could be an additional work, it can be rebalanced by the government with a higher tariff, extension of term or payment in cash using the funds of those escrow accounts that I explained. So in addition to have a rebalancing, depending on the rebalanced internal rate, it can be an upside, an upside would be increase in capacity, increased traffic. We are not including in our base case a 1.6% of load but I mentioned we'll be close to maximum capacity in peak hours.

The question-and-answer session is now closed. We would like to give the floor to Ms. Andrea Fernandes of the company's closing remarks.

Well, I would like to thank you all for participating in this call. Myself and the Investor Relations team are available, if you have any further questions. Thank you very much. I'm sorry, we went a little beyond the time allotted, but it was really important that we bring you the update on this project. Thank you very much. Good night to all.

The presentation on Ecorodovias Nova Raposo Lot is now closed. Thank you for your participation, and have a good night. [Statements in English on this transcript were spoken by an interpreter present on the live call.]