The state government of Rio de Janeiro tried to align the election calendar with the renewal of the natural gas concession contract with the Spanish giant Naturgy , which expires in 2027.

Governor Cláudio Castro (PL) was counting on the renewal fee, which could generate at least R$ 1 billion for the government coffers, to alleviate the projected deficit of R$ 18.9 billion for 2026 and also use the renewal as a showcase for his Senate candidacy.

Another strong argument pushed the Rio de Janeiro state government towards renewal: the estimate that, in the event of a new bidding process, the state would need to compensate Naturgy with at least R$ 7.2 billion, due to an unamortized asset base related to the two concessions held by the Spanish company under its operation, CEG (which serves 19 municipalities in the Rio metropolitan area) and CEG-RJ, which provides services to 24 municipalities in the interior.

However, the analysis of the procedures for the extension was suspended at the beginning of the month by Agenersa, the state regulatory body, after questions from the State Court of Auditors (TCE-RJ) regarding the legality of the contract renewal.

The process ended up generating a political crisis, with the opening of a Parliamentary Commission of Inquiry (CPI) in the Legislative Assembly of the State of Rio de Janeiro (Alerj) last week to investigate the piped gas distribution service in the state and the renewal (or re-bidding) process of the concessions.

The final blow came with the conclusion of a study commissioned from the Getúlio Vargas Foundation (FGV), indicating that holding a new bidding process offers advantages over renewing the concession.

Even with the multi-billion dollar compensation payment to the two Naturgy concessionaires, FGV concluded that a new bidding process would open up opportunities to modernize contractual and regulatory instruments, which could translate into future gains in operational efficiency and even more competitive tariffs.

With no other options, the Rio de Janeiro state government tried to make lemonade out of lemons, announcing a new bidding process as if it were a strictly technical decision.

“We are conducting a thorough and transparent process; the model is being built on solid foundations, guaranteeing legal certainty, predictability, and a focus on efficiency,” stated the Chief of Staff, Nicola Miccione, who is leading the process. “The objective is to structure a concession that stimulates investment and promotes greater competitiveness in the sector.”

The expectation is that the new bidding process will be completed within seven to twelve months. Part of the concession fee collected from the new concessionaire, however, will have to be used to offset the amounts to be compensated to Naturgy. Theoretically, the current concessionaire could participate in the new bidding process.

The Spanish giant, present in 20 countries, took over the gas concession in Rio de Janeiro in 1997. Since then, it has renewed 98% of the gas pipeline and tripled the length of the network, which now spans more than 6,000 kilometers. Together, the two concessions account for the highest level of penetration in the country's residential piped gas market, at 17%.

Part of the R$11 billion invested over these 29 years was used to connect approximately 300 industries to the gas network and create a broad distribution network for CNG (Compressed Natural Gas) – an alternative fuel to gasoline and ethanol, used in motor vehicles to reduce costs and pollution. Today, the 750 gas stations offering CNG in Naturgy's concession area represent 44% of those existing in the country.

Public interest

Julia Mota, a partner at the law firm Murayama Affonso Ferreira e Mota Advogados, states that the discussion regarding the re-bidding of gas concessions in Rio de Janeiro should be approached from the perspective of public interest.

According to her, gas distribution is an essential service provided under a natural network monopoly—there is no competition in the infrastructure itself, but rather in its management. Therefore, any decision must prioritize continuity and security of supply, affordable tariffs, network expansion, and regulatory stability to guarantee long-term investments.

“Both renewal and re-bidding can incorporate new goals for expansion, technological modernization, and integration of sources, such as biomethane,” says Mota. “The difference lies in the model: re-bidding requires a more sophisticated legal and economic-financial structure, especially in the treatment of reversible assets, indemnities, and tariff rules.”

Mota notes that recent experiences in other states show that there are different possible paths to modernizing gas concessions. In Mato Grosso do Sul, the early extension of MSGás was structured with new investment and expansion targets, accompanied by control mechanisms and public consultation, seeking to provide predictability to the investment cycle.

In Minas Gerais, Gasmig has made progress in integrating biomethane and updating its regulatory compliance without needing to change concessionaires, using regulatory instruments to adapt the contract to the sector's new demands.

"These examples indicate that both renewal and re-bidding can be successful, provided they are accompanied by solid governance, clear goals, and legal certainty," says Mota.

From an economic standpoint, the new bidding process may be viable, but it involves significant costs and risks. These include the risk premium embedded in the bids, the possibility of a temporary slowdown in investments, operational transition costs, and the multi-billion dollar compensation for assets that have not yet been amortized.

"The future concessionaire would, as a rule, take over the existing network — it wouldn't make sense to build another one — which makes the value of these assets a central element in balancing the bidding process," says Mota.

Given this, the government needs to compare, based on technical data and present value, two scenarios: renewal with reinforced targets and greater regulatory control, or re-bidding with a new contract and a new incentive structure.

The study prepared by FGV indicates potential interest in the concession's assets, especially from established operators and local investment funds, as well as possible gains from a new tariff structure, which reinforced the Rio de Janeiro state government's decision to re-tender the concession.

"The decision rests with the state Executive branch, but it must be properly justified, supported by applicable legislation, and underpinned by criteria of economic efficiency and effective delivery of public policy," says Mota.