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Concessions and PPPs in Brazil

Infraestrutura e Energia; Societário/M&A
Nordic Light (A joint Swedcham / NBCC publication)
By Bruno Werneck and Marilia Kotait

Brazilian legislation offers a safe environment to concessions and PPPs. Concessions Law (Federal Law n. 8,987/95) and PPPs Law (Federal Law n. 11,079/04) are in force for several years now, and inspired the creation of many State and Municipal laws. Since the first modern concessions that were executed back in the 90s in Brazil, related to the granting of telecommunications, power, and road services, today Brazil counts with more than 250 concession agreements - both common concessions and PPPs - in the Federal, State and Municipal levels.

The main difference between both types of concessions is the source of revenues. In common concessions, the only resource of revenues of the concessionaire are the tariffs payed by the final users, while PPPs involve the payment from the Granting Authority to the concessionaire, complementary to the collection of tariffs (sponsored concession) or completely (administrative concession).

In this sense, common concessions are selfsustainable, and PPPs are indicated both for the granting of services in which tariffs are not sufficient to cover the respective investment, costs and return of the Concessionaire, and for the granting of services where no tariffs are >collected.

The current scenario for concessions and PPPs in Brazil faces a very 

important moment. Firstly, the Investment Partnerships Program (“PPI”) was created by the Federal Government in 2016 as a legal plan to enhance
the infrastructure development in the country. The PPI projects are subject to guidelines contemplating long-term regulatory planning, greater legal stability and access to foreign investors. Initially, the Program comprised 22 concession projects, including airports, ports, roads, railways and power projects. Another 55 projects were just added to the list, including the privatization of
water and sewage companies and the auction of transmission lines.

PPI takes place in a scenario of a severe fiscal crisis affecting all levels of Government. Running out of investment resources, concessions and PPPs (together with other privatization models) are the only feasible option to Public Authorities. In view of that, new projects, not only under PPI, but also at the city level, are being developed for auction to private investors. Among those, PPPs for public lighting are becoming very popular, resulting in a much better service to the population and good returns for investors based on the large efficiencies of LED technology In addition, the car wash investigation left an empty space among the traditional infrastructure players in Brazil, and the Public Authorities understood they had to create a more attractive environment to foreign investors. In this sense, they changed the bidding requirements for new concessions, in order to allow new players to participate in the biddings, and initiatives related to the mitigation of the exchange rate risk are also being proposed, in order to enable the foreign financing of Brazilian projects, an old issue that was masked by BNDES’ practices in the past years.

The fiscal crisis faced by the Brazilian Government is setting the basis for many investment opportunities in the infrastructure sector in Brazil and a friendlier framework.

Written by Bruno Werneck and Marilia Kotait, specialists in infrastructure projects and M&A, Mattos Filho Advogados
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