The Guide to Infrastructure and Energy Investment Second Edition

Brazilian Public–Private Partnerships: The 2016–2017 Retrospect and Positive Perspectives Ahead

Introduction: the 2016–2017 retrospect

As in 2016, when the first edition of this book was released, there is still a massive need for further investments in Brazil to expand and upgrade its infrastructure and energy utilities, paving the way for sustained economic growth going forward.

Most investments are expected to come from foreign investors and yet there are relevant challenges to be overcome.

In terms of individual projects and particular opportunities, many developments have happened in the last year, in the context of major changes in the political and economic arenas.

By the end of 2015, Brazil was experiencing the peak of an unprecedented economic and political crisis that would continue for some time and have an adverse impact on the Brazilian GDP of approximately 7.3 per cent, when combining the reduction in 2015 and 2016.

On 31 August 2016, the impeachment process of former President Dilma Rousseff was concluded, after a year of political unrest. Then vice and interim President Michel Temer took over, on an effective basis, as the new President of a country politically divided between a slight majority supporting the change and a noisy minority claiming that a coup d’etat had taken place.

By that time, basic interest rates had exceeded record levels of 14 per cent per annum (SELIC and CDI), inflation rates were reaching double figures and getting out of control for the first time since the implementation of the Real Plan in 1994, unemployment rates were increasing continuously, governmental indebtedness was skyrocketing and, not surprisingly, the business community was very reluctant to make new investments.

President Temer was never seen as the ideal president. Unlike former Presidents Lula or Dilma, he did not receive any actual votes for presidency and his levels of popularity have never reached a medium ground (e.g., 50 per cent). His party, PMDB, was already involved in corruption investigations and scandals by the time he took over.

In May 2017, President Temer was himself dragged into Car Wash scandals, when the Batista brothers controlling JBS released, as part of their plea bargaining agreement, a tape recording with suspicious conversations between them and Temer. This recording was later the basis of the first criminal complaint presented by Attorney General Janot against the President, which could have suspended his mandate, if admitted, until a decision on the merits by the Supreme Court of Brazil. On 2 August 2017, the House of Deputies declined to admit the complaint, but not without further political turbulence.

By the end of October 2017, when this chapter was written, it was still too early to conclude whether President Temer would resist further attacks and accusations until the end of his mandate on 31 December 2018. Nonetheless, a second criminal complaint against President Temer was presented by Attorney General Janot in September 2017. Just like the original one, Congress did not authorise the complaint to move forward. Around that time, Mrs Raquel Dodge took over as the new Attorney General with a more moderate position.

Nevertheless, aside from the unresolved criminal accusations and political turbulence, we must acknowledge the good progress made by President Temer throughout his mandate so far, in terms of reversing the economic crisis, proposing major structural reforms and setting up an ambitious but realistic agenda for infrastructure and energy investments through concessions or outright privatisations.

This progress was achieved with a much more business-friendly environment, open dialogue with both domestic and international investors, and relevant efforts towards economic austerity and fiscal responsibility.

Accomplishments

PPI

On the first day of his interim mandate, President Temer enacted the Provisional Measure 727, of 7 May 2016, subsequently converted into Law 13,334 of 13 September 2016 (the PPI Law), creating the Investment Partnerships Programme (PPI), a framework under which projects of different regimes (common concessions, PPPs, authorised projects, etc.) could be qualified, so as to receive special implementation priority from all relevant governmental authorities and to receive special assurances in terms of legal stability, relaxation of bureaucracy and other requisites for attracting the private sector.

The PPI Law created the PPI Committee, with powers to recommend to the President the inclusion of projects in the PPI Programme (thus benefiting from a special priority status), to monitor the implementation of these projects, to propose further legislation or regulation to relevant authorities.

The first resolution of the PPI Committee was enacted on 13 September 2016, outlining relevant guidance for the implementation of projects within the PPI Programme. Guidance included, for instance, the appointment of an individual from the relevant public entities and authorities to manage project implementation and to serve as its focal point; the launching of bidding procedures only after the previous environmental licence has been issued (or otherwise with clear directives for its obtainment); conducting such bidding and awarding procedures with full transparency (main documents available in English versions as well); opportunity for comments and sufficient time allowed for submission of bids by investors (minimum of 100 days); concession agreements shall contemplate clear targets, minimum service levels, variable remuneration where applicable; and concession agreements shall contain clear and objective risk allocation provisions, which shall aim to allocate risks to the parties that are able to absorb and manage them most efficiently, so as to minimise the need for future contractual revisions.

BNDES was granted a special role in supporting the PPI. In many instances, BNDES has been trusted with the modelling and strategic studies that are necessary to carry out the bidding, privatisation and concession awarding of projects qualified in the PPI, including those presented by states and municipalities. In order to carry out those studies, BNDES usually selects and retains qualified private advisers.

Adjustments to BNDES-subsidised loan policies

According to the new policies already in place, BNDES shall make available only a minority portion of project financing needs of any given project, shall reduce the level of subsidies[2] and shall be much more selective in terms of eligible projects.

Such new

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