Brazilians go to the polls on October 3 to elect a new president.

Luiz Inácio Lula da Silva — or Lula as he is called — the country’s president since 2003 leaves off with an unprecedented 77% popular approval rating.

He is viewed as having elevated Brazil from its perennial status as a major emerging market with unrealized potential to a global powerhouse. Brazil now has the eighth largest GDP in the world, most recently having surpassed Spain in the GDP rankings.

Three candidates are vying to succeed Lula as president. They are Dilma Rousseff, Lula’s former chief of staff and a member of the governing Workers Party, José Serra, former governor of the state of São Paulo and a member of the Brazilian Social Democracy Party, the principal opposition party, and Marina Silva, former environmental minister in the Lula administration and currently a senator. Ms. Silva is the candidate of the smaller but active Green Party.

 Recognizing that they have big shoes to step into, all of the candidates have more or less voiced support for pursuing the general economic policies established by Lula.

However, there are some important differences of view among the candidates relating to Brazilian infrastructure development.

Rousseff, who is currently favored to win and is Lula’s handpicked successor, would stick closest to Lula’s infrastructure agenda. In written statements filed with the election commission, she said she plans to construct new hydroelectric plants, develop geographical centers of alternative energy plants (wind and solar), continue exploration of the massive so-called pre-salt oil and gas reserves off the coast of Brazil, create a Brazilian oil and petrochemical services industry and invest in the reconstruction of railroads, highways, subways, airports and shipping.

Serra has adopted the strategy of gently exposing some of the sector’s weaknesses and underachievement. He must walk a fine line because direct criticism of Lula’s achievements in infrastructure could undermine voter sympathies. He has adopted a “Brazil can do more” position, pointing to the fact that it is more expensive to transport one ton of soy from Mato Grosso, a state in the center west of Brazil, to a port in the southern state of Paraná than to transport a ton of soy from the same Brazilian port to China. His example exposes the magnitude of the persistent logistical bottlenecks within Brazil. But his general position on infrastructure development sounds very similar to Rousseff’s: “Should I win these elections, there will be construction sites all over this nation, as we’ve done in São Paulo. We need new roads, ports, airports, urban trains, subways.”

Serra and Rousseff part ways in two basic areas: the regulatory regime to be applied to the massive offshore pre-salt oil exploration and the planned rapid transit rail system. called the “TAV,” that would connect Rio de Janeiro and São Paulo.

Oil and Gas

Lula pushed for reforms in the Brazilian oil industry to prepare for a surge in exploration and development activity as the country pursues the pre-salt oil and gas discoveries. Proposed legislation that is currently in the final stages of approval would replace the current concession model with a production-sharing model similar to what is used in countries like Iran, Iraq, Norway and Saudi Arabia. The proposed legislation would grant Petrobras the exclusive right to operate (or subcontract the operation of) all pre-salt blocks, create a new holding company to manage the pre-salt projects and implement a new contract system that would give the federal government a share of the oil.

Rousseff supports moving to a production-sharing model and creating a new holding company on the basis that the scale of the reserves requires it.

Serra questions both the production-sharing model and the necessity of establishing a new company to manage the pre-salt projects, arguing that Petrobras and energy sector regulator, ANP, are already able to manage development of the pre-salt reserves. If elected, Serra would probably revisit some aspects of the proposed new development model.

To Serra, the proposed TAV is another mistake by the current administration that should be avoided. He believes that the TAV will benefit only a few thousand people daily by relieving congestion in the two busiest airports in the country, the Congonhas airport in São Paulo and the Santos Dumont airport in Rio de Janeiro. Serra believes that the proposed US$18.7 billion investment in the TAV could be better spent on improving subways and other mass transit in the big cities. He also questions the economic feasibility of the TAV project.

Rousseff calls his opposition to the TAV “small thinking.” In line with Lula’s aggressive growth policies, Rousseff believes that nothing prevents the government from spending on both the TAV and new subways.

Renewable Energy

Despite disagreement on offshore oil exploration and the TAV, Rousseff and Serra agree on one thing: with a GDP growing at 5% or more a year, Brazil will need 7,000 megawatts of additional electric generating capacity a year to meet demand. Hydroelectric projects account currently for 78% of generating capacity. New large-scale hydroelectric dams are under development in the Amazon region, but these projects are sensitive to water shortages and environmental restrictions. As a consequence, the country is putting more emphasis on renewable sources of energy.

The most viable alternative energy option (and the one considered most voter-friendly) is wind power, which experts say offers 305,000 megawatts of energy potential in Brazil.

Sugar cane-derived biomass by contrast offers only 15,000 megawatts of energy potential.

Solar energy development is still not significant at all in Brazil due to economic feasibility and is limited to small projects.

Brazil has currently only 794 megawatts of installed wind capacity, most of which has been developed through a pilot renewable energy program, Proinfa, that offers 20-year power purchase agreements with utilities. In December 2009, the first wind auction in Brazil attracted 13,000 megawatts of bids and led to contracts being signed for 1,800 of new capacity. Proinfa is responsible for another 300 megawatts of wind projects that are in construction; the projects are being built by Impsa and Enegias de Portugal.

Local content regulations have encouraged foreign manufacturers to invest in, or enter into joint ventures with, Brazilianbased turbine manufacturers.

Ibedrola Renovables was the first major wind player to develop a significant presence in Latin America, but a number of other large international developers have entered or are reported to be entering the market, often through joint ventures with locals.

By 2025, it is expected that Brazil will install 31,600 megawatts of wind capacity, making Brazil a major current and future market for wind power. Thus, although wind power is not at the center of political discussion in the current election, it remains very much a point interest for those focused on Brazil’s continued economic growth and related demand for energy.

Private Capital Needed

Who will win the election?

Polls taken just before the NewsWire went to press showed Rousseff with 41% of the vote, Serra next with 33% and Marina Silva, the Green Party candidate, trailing with 10%. Rousseff’s lead is a new development. Polls until now have shown Rousseff and Serra in a virtual tie. Rousseff’s recent surge is probably due to campaign help from Lula and to new economic forecasts that show the Brazilian economy growing at around a 7% annual rate.

However, the election is far from over.

The real campaign did not start until August 17 when all political parties received free television network time to explain their agendas.

The good news for project developers and lenders is that no matter who wins, Brazil can be expected to undertake unprecedented and massive infrastructure development in coming years.

Lula’s Growth Acceleration Program, in its second phase, foresees investments in infrastructure in the US$540 billion range between 2011 and 2014. After 2014, the plan is to invest approximately US$360 billion more in civil works, bringing total investment to an impressive $900 billion. The oil and gas sector alone, boosted by the exploration of the Brazilian pre-salt reserves, is expected to receive US$380 billion of investment in the next 10 years, according to the Ministry of Mines and Energy. The Brazilian Development Bank (BNDES), which has been the principal source of infrastructure funding in Brazil to date, estimates that Brazil will require more than US$175 billion in private capital during the next four years to fund new infrastructure development. That number may well be understated.