The Program of Investment Partnerships sets off a new stage for the implementation of infrastructure projects with the participation of the private sector in Brazil. New decision instances and a new workflow for the validation of projects have been created, signaling a different approach of the Federal Government in relation to short-, medium- and long-term investment policies. As a result, a stable ambiance for business opportunities between Government and the private initiative is being created, with dialogue, fair competition and maximum legal certainty in agreements.
One of the Program’s major concerns is fostering new investors to actively participate in the infrastructure market in the country. For this reason it is necessary to create effective opportunities for national and foreign companies to participate in the Program, which shall be obtained by means of:
a. Transparent communication with investors and financial institutions;
b. Longer terms for the bidding procedures, so that investors can accurately assess the project characteristics and complexities;
c. Elimination of bureaucratic and unnecessary requirements for the auctions.
With those initiatives, the PPI projects’ information might be processed and appropriately understood by the interested parties, and the participation of new bidders shall be stimulated.
Another purpose of the Program is to disseminate better practices and improve the contractual and institutional mechanisms designed to evaluate the quality of the services and to rationally allocate the risks between the parties in each agreement.
Within a new atmosphere of transparency and competitiveness, more investments and employments are expected, as well as the increase of the economic development and of the quality of the services delivered to Brazilian population.
The New Investment Partnerships
PPI legislation treats all contractual modalities that involve intensive and long-term investments to a unique name: “investment partnerships”.
In accordance with the PPI rules, partnership agreements are: the common concession, the sponsored concession and the administrative concession, the public service permission, the concession of public assets and the leasehold of public assets. In addition to these, privatization measures may also integrate the PPI.
The Bidding Procedure
The signing of an investment partnership in Brazil is conditioned to a bidding procedure. Through the bidding, any interested parties, on equal conditions, may prove their abilities to execute the project and offer their commercial proposals.
The Government invites the interested parties by means of a public notice containing the rules to be observed by the participants, including the required documents and proposals. The public notice includes several technical attachments as well as the agreement draft, which mentions the rules to be respected by the partners.
The Previous Modeling Studies
When an investment partnership is put out for bid, intensive previous studies are made on its technical, environmental, legal and economic-financial feasibility.
It is fundamental that any interested investor carefully reads the public notice conditions and its attachments, with especial attention to the services provision conditions and the risk matrix included in the agreement draft. It is also important that each bidder executes its own studies in order to prepare a realistic proposal for the project.
The Execution and Supervision of Investment Partnerships
Investment partnerships are long-term agreements. They last for 20 to 30 years on average. The Government and the private partner shall build up a permanent dialogue during that period, and the quality of the services shall be constantly monitored. In some sectors (such as transportation, energy and telecommunication), the inspection of such agreements is made by a regulatory agency, which is an independent body in charge of the discussions concerning the execution of partnerships, with no political influence.
Non-compliance with a partnership agreement is a severe failure subject to penalties. It is important that the private agent understands that any delay, as well as the low quality of services and the non-compliance with the investments schedule shall motivate the imposition of severe fines and even the termination of the agreement.
The New Governance of the Federal Government Partnerships
There are some ways to structure an investment partnership with the Federal Government. In order integrate the PPI, though, a proposition from any interested Ministry should be preliminarily studied and then submitted to the consideration of the PPI Council, with the support of the Secretariat of the PPI.
If the proposition is approved by the Council, the project modeling studies may be put forward, and the Ministry may adopt one of the following alternatives:
a. use its own internal structure;
b. hire technical services from third parties;
c. enter into an agreement with the Supporting Fund to Partnerships Structuring (FAEP) for the provision of specialized technical services.
Private agents may also voluntarily contribute to the project structuring stage. This may occur at a preliminary phase, by means of presentation of proposals and ideas to the Ministries or through an Expression of Interest Procedure (PMI) started by any Ministry, when the interested agent will be able to prepare studies to be further assessed by the Government.
The PPI Secretariat shall always support the ministries in the conducting of proposals and studies. The Secretariat also serves as one of the major entrance doors for national and international investors, gathering information about projects and about the Federal Government’s policies for investments. It may also forward eventual requirements and manifestations from interested parties to the competent agencies.
Through Resolution No. 001 of September 13th, 2016, the PPI Council has deliberated that all Federal Administration bodies should adopt a series of new general guidelines and strategies for the execution of investment partnerships, strengthening the idea of a new governance on the theme. The aim is to optimize procedures and foster competition with the active participation of private parties and public agencies.
Infrastructure projects demand large amounts of resources that generally need to be financed for long terms. In a concession or PPP, the contractor creates a specific purpose vehicle (SPV), segregating the assets of the project from the balance of the related stockholders.
Agreements also impose a minimum volume of stockholders’ equity in the SPVs, and the remaining funds are usually obtained through bank loans or in the capital market (e.g. debentures). One of the major financing banks for infrastructure projects in Brazil is BNDES, which offers financing lines for projects (BNDES Project Finance) and for different infrastructure modals (BNDES Finem Infrastructure)
The conditions, rates and the amount of resources made available by BNDES and other financing banks depend upon each project’s features, as well as each investor’s credit rating, and shall be individually negotiated by the interested parties.
The risks related to the pre-completion phase of the project are usually covered by guarantees, which are also required through the operational phase of the agreement, when the debt starts to be repaid. The partnership agreement lists the types of guarantees (bank, insurance policy, real assets) admitted for each project in order to address those risks.
For privatizations, special financing lines may be offered for the payment of grants, whose conditions and terms should be also included in the bidding documents.
A good financial structuring is essential to ensure that the partner is capable of executing all the required investments in an infrastructure project, as well as to keep a high level of services provision to the citizens.
Go to Projects
Partnerships Already Signed
Some of the most important concessions in the Federal level in Brazil may be accessed in the SEAE (Economic Accompaniment Secreatariat) Infrastructure Bulletin. See below :
Articles about Infrastructure, Economic and Regulatory Issues
See some articles about infrastructure issues in Brazil (*).
IDB (Inter-American Development Bank) – Infrastructure Investment in Brazil – PPP and Consortium Urban Operations)
IDB – Brazilian Experiences and Challenges for the Strengthening of Public-Private Alliances for Development
(*) The articles cited herein at liability of its authors and do not necessarily reflect the Government’s opinions or the Investments Partnerships Program’s opinions