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TCU’s Normative Instruction No. 81/2018 (NI 81/18) – New rules relating to TCU’s procedures for inspecting privatizations by the federal government

4Jul2018Jul4,2018
Administrative Law

The Federal Court of Auditors (Tribunal de Contas da União – “TCU”) recently issued Normative Instruction No. 81/2018 (“NI No. 81/18”), which amends the procedures to be adopted by the TCU in its analysis and inspection of privatizations carried out by the federal government. NI No. 81/18 specifically regulates the privatization of state owned companies, concessions and permissions in relation to of public services, Public-Private Partnerships and authorizations in respect of economic activities reserved to, or monopolized by, the government. 

Below, we analyze the main aspects of NI No. 81/18, including its application and relevant procedures to be adopted in relation to privatizations:

Legal framework and effectiveness

NI No. 81/18, which is already in effect, revokes Normative Instructions Nos. 27/98, 46/04 and 52/07, but does not establish rules for a transitional phase. NI 81/18 establishes the TCU’s competence to enact new rules for audit procedures, based on the following legal provisions: article 3 of Law No. 8,443/1994; articles 2 and 18 of Law No. 9,491/1997; articles 5 and 6 of Law No.  13,334/2016 and article 11 of Law No. 13,448/2017.

Scope

Pursuant to NI No. 81/18, TCU may audit privatizations carried out by the federal government, including:

  • Privatization of state owned companies in general;

  • Concessions and permissions in respect of public services;

  • Public-Private Partnerships - “PPPs”;

  • Authorizations in relation to economic activities reserved to or monopolized by the government.

Authorizations resulting from bid procedures and sub-concessions of public services (Law No. 8,987/2015) also fall within the rules established in NI No. 81/18. However, the provisions stipulated by NI No. 81/18 are not applicable to the exploitation of dry-ports by private parties.

Main changes and deadlines: 

The three main changes provided by NI No. 81/18 are, as follows:

End of the five stages of audit. Prior to the approval of NI No. 81/18, TCU audited privatization proceedings in 5 stages. NI No. 81/18 amends this model in order to simplify the procedure. Under the new model, a privatization planning statement must be provided within 150 days as of the expected date of the publication of the bid notice. After the submission of such statement, the authority conducting the privatization must provide all relevant documents (preliminary studies, proposal, and bid notice) within 90 days of the publication of the bid notice.

New deadlines and rules for the renewal or extension of concessions. The necessary documentation for renewing or extending concessions must be submitted to TCU within 150 days of the expected date of the execution of the relevant contracts or amendments that formalize such renewals or extensions. Such documents must include a brief description of the object of the concession, its economic conditions and location, as well as the schedule for the extension or renewal of the concession and a draft of the amendment to the contract. Normative acts that grant the concession must also be submitted to TCU.

Obligation to present a comprehensive risk matrix: TCU requires the submission of a risk matrix in relation to the privatization, with a view to providing guidance as to the methodology for the audit, according to materiality, relevance, opportunity and risk criteria.

IN No. 81/18  establishes 75 days for the analysis and approval of privatizations by the TCU and such period will only commence upon its receipt of all the necessary documentation. Delays in the submission of the documents to TCU will cause the period for TCU’s analysis to be suspended. In complex cases, such period may be extended.

What should the planning statement include? 

The privatization planning statement, which must be sent within 150 days of the publication of the bid notice, must include a description of the object of the privatization, an estimate of the amount to be invested, its relevance, the location of the undertaking and its corresponding bid schedule.

Furthermore, for all privatizations, the parties involved must provide TCU with feasibility studies, the draft of the bid notice and its respective annexes, the draft contract, a list of their obligations, and the result of public consultations and hearings, if available, as well as an extensive list of documents, among which we highlight the following:

  • Competent decision of the authorized party to commence the bid procedure;

  • Object, area of exploitation and period of the contract or administrative act;

  • Electronic documents and charts relating to the economic-financial evaluation of the project;

  • Estimate of the operational revenues of the project;

  • List of the work and required investments to be carried out by the private party during the execution of the project;

  • Definition of the methodology to be used in order to assess the economic-financial balance of the concession or permission in its first round of revision and the form of adjustment, as well as the justification for the adoption of such method;

  • Definition of the method to be adopted for restoring the economic-financial balance of the contract;

  • Description of the methodology to be used in order to assess and measure the quality of the services provided by the private party, including indexes and periods involved;

  • Copy of the environmental license, guidelines for obtaining the environmental license for the project, or the conditions determined by the relevant environmental authority to obtain such license, based on sector regulations, whenever the object of the bid so requires;

  • List of measures to mitigate and/or compensate for potential environmental impacts;

  • Study containing a thorough description of all the elements included in the risk matrix of the undertaking, explaining the allocation of each risk to the respective parties to the contract to be executed. 

TCU may also request additional documents if relevant to its analysis. NI No. 81/18 also requires other specific documents to be provided when the privatization involves a state owned company or a PPP.

Waiver and lack of feasibility of bid procedures for concessions and permissions in relation to public services

The rules in NI No. 81/18 are applicable to concessions or permissions to provide public services even when a bid procedure is waived or not feasible. In such cases, a document containing the reasons for the waiver or non-feasibility of the bid procedure is required.


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