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The Guide to Infrastructure and Energy Investment - Third Edition

Brazilian Infrastructure and Energy under a New Mandate: The End of a Cycle and Perspectives Ahead

Introduction: the 2016–2017 retrospect

Introduction: 2018 and the end of a cycle

Not unlike in 2016 and 2017, when the first and second editions of this book were released, there is still a great need of further investments in Brazil to maintain, expand and upgrade its infrastructure and energy assets, and pave the way for sustained economic growth going forward.

In fact, because of the particularly low levels of government investment in infrastructure in the period from 2015 to 2018 (as part of the huge effort to control fiscal deficits), certain economists argue that the infrastructure gap has become even worse. According to the latter, total investments have been insufficient to make up for the ordinary depreciation and deterioration of existing infrastructure assets.2

The gradual economic recovery will put further pressure on the infrastructure gap. The reduction of this gap will depend on a combination of increased levels of government investment and, mainly, private investment, particularly coming from foreign investors.

However, 2018 poses a great level of political uncertainty that might cause hesitation in the short term.

2018 is an election year and the end of Michel Temer's presidency. By September 2018, at the time of writing, it was virtually impossible to predict who would be elected for the next four-year government mandate (2019–2022) among so many candidates.3 Even if one could make a correct guess about the successful candidate, it would be even more difficult to predict how the new president will perform and what kind of support he or she will obtain in a newly elected National Congress.

Despite all the turbulence and uncertainty, a good number of important projects and privatisation processes were completed within the period from September 2017 to September 2018, adding up to those completed in the previous year and showing much more progress than the period from 2015 to August of 2016 when President Dilma was still in power.

Political background

By the end of 2015, Brazil had experienced 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 an 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 quiet majority supporting the change and a noisy minority claiming that a coup d'état had taken place.

By that time, basic interest rates had exceeded record levels of 14 per cent per year (SELIC and CDI), inflation rates were reaching two digits 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 the presidency and his levels of popularity never reached even 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 the Car Wash scandal, when the JBS-controlling Batista brothers released, as part of their plea bargaining agreement, a tape recording with suspicious conversations between them and the President. This recording was later presented by Attorney General Janot against the President on the basis of a first criminal complaint, which could have suspended his mandate, if admitted, until a decision on the merits by the Supreme Court of Brazil (STF). On 2 August 2017, the House of Deputies declined to admit the complaint, but not without further political turbulence.

Despite new accusations, President Temer was able to resist impeachment attempts and complete his presidential term.

Nevertheless, leaving aside the criminal accusations and political turbulence, we must acknowledge the good economic progress made during the Temer presidency, in terms of overcoming the economical crisis and creating room for a slow but gradual recovery, approving relevant reforms and pro-business new legislation, and completing a good deal of concessions and privatisations.

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

Although 2018 presents great uncertainty as to who will succeed President Temer, and whether his or her ideology will be oriented to the right, centre or left, it appears that any new president will have to defend fiscal stability and recognise the importance of private investment, particularly in the infrastructure and energy segments.

Accomplishments

The 2.5 years of the Temer presidency (mid 2016 to December 2018) were a period of economic recovery and good progress in terms of infrastructure projects and legislation. Below, a summary of major 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 Partnership Programme (PPI), a framework under which projects of different regimes (common concessions, public–private partnerships, authorised projects, etc.) could be qualified, so as to receive special implementation priority from all relevant government authorities and to receive special assurances in terms of legal stability, relaxation of bureaucracy and other requisites for attracting the private sector.

As we will describe below, hundreds of brownfield and greenfield infrastructure or energy projects were either privatised or awarded under new concessions, as part of and benefiting from the PPI framework. The vast majority of these projects were taken over by foreign investors.

BNDES-subsidised loan policies and the Brazilian debt capital market

According to the new policies, the Brazilian Development Bank (BNDES) shall only make available a minority portion of the project financing needs of any given project, shall reduce the level of subsidies and shall be much more selective in terms of eligible projects.

This new policy offers much more room for, and will require stronger participation of, international lenders and institutional and other capital market investors through project bonds, especially infrastructure debentures.

Multilaterals, ECAs and international lenders have already increased their participation in the Brazilian market. Some of these players are developing new products such as loans denominated in or indexed to the Brazilian currency (reais), so as to insulate Brazilian borrowers from foreign exchange risk.

Thanks to the new policy, official statistics (CVM) reported approximately 320 debenture offerings in 2017, raising 95 billion reais in debt. From January to September 2018, these same statistics already showed 247 concluded debenture offerings, raising 97 billion reais in debt. These debt capital market figures have no precedent in previous years in Brazil.

This new scenario will also give private commercial banks experienced in the sector, such as Itaú, Bradesco and Santander, an important role. Though they cannot traditionally offer long-term financing, they will be called on to provide bridge loans or mini-perms and, most importantly, bank guarantees to back up infrastructure debentures until the project is completed, taking into account the unwillingness and inability of institutional or other capital market investors to assume the construction risk. These and other banks with capital market experience also have a fundamental role as underwriters of debt instruments such as debentures.

State-Owned Company Law

In June 2016, the State-Owned Company Law (Law 13,303 of 30 June 2016) (the SOC Law) was enacted to create a legal regime specifically tailored to those entities that is more flexible than public laws generally applicable to the public sector, but imposes certain public interest, governance and public bidding requirements not applicable to private companies either.

Law 13,448 for the devolution and re-bidding of railway, tollroads and airport concessions

Law 13,448 of 5 June 2017 permitted existing private concessionaires to voluntarily return their railway, tollroad or airport concessions in those instances where these concessionaires are no longer able to fulfil their performance obligations (e.g., sponsors implicated in the Car Wash investigations that are no longer able to access project financing), or because their concessions turn out to be economically unfeasible (for instance, owing to material deviations from the original assumptions and revenue projections).

By voluntarily returning their concessions, concessionaires will avoid early termination by default (forfeiture), and severe penalties arising from that, including a potential prohibition for the concessionaire and its affiliates to enter into new agreements with the public sector for a certain period of time.

Upon devolution, concessionaires will remain entitled to being fully indemnified for investments made and not amortised, through a calculation that may be submitted to an arbitral decision in case an indemnity amount cannot be mutually agreed.

Law 13,448 – renewal or extension of concessions

Law 13,448 also provided the basis for the renewal or extension of existing railway, tollroad or airport concessions, subject to the assumption by the concessionaire of further investments previously agreed with the granting authority.

Renewal may be agreed and formalised well in advance of the original contract maturity (early renewal), so that the concessionaire can better plan and implement its investments and financing needs.

Port terminal regulatory framework

Decree 9,048 was enacted in May 2017, to amend regulations of Law 12,815 of 2013 (in those aspects not detailed by the law).

Major changes included (1) making the maximum term of leased terminals in public ports more flexible (now up to 35 years, and renewable for another 35 years); (2) express authorisation for the substitution or expansion of the leased area within certain duly justified circumstances; (3) authorisation of revision in the schedule of investment; (4) authorisation of investment in the port common use infrastructure; (5) authorisation of expansion of private terminals beyond the former 25 per cent limit; and (6) authorisation of capacity expansion for private terminals regardless of prior consent from Brazil's national agency for water transport (ANTAQ). Nevertheless, a change in control of private terminal holders is now dependent on ANTAQ's prior approval.

Removal of Petrobras' mandatory operatorship in the pre-salt E&P blocks

Law 13,365 of 29 November 2016 removed Petrobras' mandatory role as operator and minimum 30 per cent stake in the pre-salt fields, although granting it a right of first refusal in that respect.

Advancement of Petrobras' divestment programme

Throughout 2016, 2017 and early 2018, Petrobras continued its divestment programme. Major assets already divested included the south pipeline network sold to Brookfield (US$5.2 billion), a relevant minority stake in Gaspetro and its gas local distribution companies portfolio sold to Mitsui (US$540 million), Carcará field sold to Statoil/Equinor (US$2.5 billion), oil fields, regasification and thermal plant capacity sold or shared in partnership with Total (US$2.2 billion), assets in Argentina sold to Pampa Energia (US$900 million) and 25 per cent of the Roncador field sold to Statoil/Equinor (US$2.9 billion).

At the time of writing, at least 10 other packages of assets had progressed to advanced phases of negotiation between Petrobras and private investors, although an injunction issued by Supreme Court Minister Lewandowski had temporarily suspended those processes. The general market perception was that such temporary legal obstacle should be removed by the end of 2018.

The TAG pipeline network (covering the north and north-east regions), certain north-east onshore fields and certain shallow water fields were among the most important and disputed assets.

Third round of airport privatisations

On 16 March 2017, another round of airport privatisations was concluded, with Porto Alegre, Florianopolis, Fortaleza and Salvador airports being awarded to three international groups – the French operator Vinci, the German Fraport and the Swiss Zurich – for a total bonus payment of 3.72 billion reais.

Unlike previous rounds awarding consortiums between local construction companies and medium-sized international operators, this 2017 round was particularly successful in that major international players were awarded. Unlike previous rounds, these private players were not forced to partner with state-owned company Infraero.

Other projects awarded under the PPI

Among other projects successfully awarded to the private sector under the PPI programme up to September 2018, and leaving aside those merely renewed or extended, we highlight:

  • 66 transmission line projects (auctioned on 24 April 2017, 15 December 2017 and 28 June 2018);
  • the privatisation of one power distributor (CELG – the distribution company of Goiás state, on 14 February 2017);
  • the privatisation of São Simão, Miranda, Volta Grande and Jaguara hydro powerplants formerly owned by CEMIG, with total capacity of 2,500MW;
  • awarding of E&P oil fields in pre-salt areas (production sharing regime) within the second, third and fourth ANP bidding rounds for pre-salt fields;
  • awarding of E&P oil fields other than pre-salt (oil concession regime) within the 14th and 15th ANP bidding rounds;
  • awarding of nine marginal onshore fields (concession regime) within the fourth ANP bidding round for marginal fields; and
  • seven port terminals (a grain terminal in Rio de Janeiro Port, two liquid fuel terminals in Santarém Port, Pará state, a GLP terminal in Miramar Port, Pará state, general cargo terminal in Itaqui Port, Maranhão state, a cellulose terminal and another for vehicles in the Paranaguá Port, Paraná state).

Constitutional amendment on government expenditure

On 15 December 2016, the Brazilian Congress enacted Constitutional Amendment 95, which imposed a 20-year limit on governmental expenditure for the federal administration. During that period, this expenditure cannot grow more than local inflation every year.

The amendment was well received as a strong commitment towards more austerity and fiscal responsibility.

Modernisation of labour laws

The federal government was successful in promoting and approving in Congress, Law 13,429 of 31 March 2017 and Law 13,467 of 13 July 2017, which made material changes to Brazilian labour legislation.

Law 13,429 provides more flexibility for companies to outsource any of their activities – whether incidental or within their core business – to third-party companies, including companies specialised in making their own employees available to outsourcing companies without creating an employment relationship between the outsourcing company and assigned employee.

Prior to the new law, companies were legally allowed to outsource incidental activities only. The core business of a company had to be performed by its own employees, under a formal employment relationship.

Law 13,467 introduced several other changes, including the possibility of collective agreements negotiated by unions and valid for a category of employees to contemplate rights and obligations differing from the standard provisions set forth in labour laws. The law also makes secondary and joint labour liability clearer for shareholders and companies within the same economic group.

Emergency regime for states in financial distress

Complementary Law 159 of 19 May 2017, introduced the fiscal recovery regime for states in financial distress.

According to the new law, eligible states may adhere to the recovery regime, in which case they will benefit from the suspension of their financing obligations to the federal government for up to three years. Certain limits and obligations under the Fiscal Responsibility Law will also be relaxed during that period.

To benefit from these considerations, the state shall implement measures to foster austerity and fiscal responsibility, such as abstaining from hiring additional public servants, refraining from granting further subsidies or tax benefits and committing to sell certain state-owned companies or assets.

By September 2017, the state of Rio de Janeiro was expected to be the first state to adhere to this regime, and has already agreed to privatise its water and sanitation company, CEDAE.

Reform of the basic sanitation legal framework

Provisional Measure 844 of 6 July 2018 was enacted to improve the basic sanitation legal framework, in an attempt to attract more private investment to this sector. As at 2018, almost half of the Brazilian population does not yet have access to sewage services.

The Provisional Measure, which still needs to be ratified and converted into law by Congress, removed legal obstacles for the privatisation of state-owned sanitation companies, such as the provision according to which all concession programme agreements entered into by such state-owned companies with municipalities without a prior bidding procedure would be terminated early in case of privatisation.

It also provided that municipalities will now need to consult the interest of private investors before entering into a direct agreement (without a competitive bidding procedure) with state-owned companies for sewage and water sanitation services. If there are interested private parties, a competitive procedure will take place.

The new legislation also required, in those areas classed as metropolitan regions, microregions or urban agglomerations (thus comprising two or more contiguous municipalities demanding coordinated shared services), the entering into of agreements or awarding of concessions by legal entities representing those areas and led by the relevant federative state.

Economic scenario

By September 2018, despite the political uncertainty, Brazil was already experiencing the recovery process and signs of a new growth cycle in its economy.

Indicators Dilma Temer
GPD growth
-3.6 per cent (2016)
-3.8 per cent (2015)

+1.5 per cent (2018/est.)
+1 per cent (2017)

Interest rates
(SELIC)

14.25 per cent
(31 August 2016)

6.5 per cent
(August 2018)
Inflation
9.28 per cent
(April 2015 – April 2016)

4.19 per cent
(August 2017 – August 2018)
Ibovespa Index
38,031
(22 January 2016)

75,124
(12 September 2017)
Country risk
532
(4 January 2016)

345
(31 August 2018)

Proposed constitutional and legislative reforms under discussion

It is unlikely that relevant new legislation will be approved during the final months of President Temer's mandate. However, important constitutional reforms and proposed legislation are on the agenda of most candidates for the presidency.

Social security reform

Despite his efforts and as a result of his low popularity and lack of support in Congress, President Temer failed to approve a social security reform.

Although there might be some divergence as to the final terms of such social security reform, virtually all candidates, whether left- or right-wing, seem to agree that a reform to the social security system is needed to reduce structural deficits and achieve self-sustainability in the long-term.

This is certainly the most important single measure to improve Brazilian accounts in the long-term, promote stability and raise market confidence in the future of the country. Without it, insolvency in public accounts will be inevitable in a few years.

Although there is recognition of the need of the reform, each interested group strongly opposes any change affecting it or what it considers to be its vested rights. The advancement of a balanced proposition for the social security reform will be highly dependent on the new President's ability to negotiate with congressmen and those groups of interest.

Political reform

The strong public dissatisfaction with politicians in general and the collapse of the side contribution model for political campaigns, indicate an urgent need for political reform.

Tax reform

Most candidates contemplate in their programmes some sort of tax reform aimed at simplifying the tax system, rebalancing the distribution of tax collections as among federative states or sharing the tax burden in a fairer manner demanding more from those who are able to pay and less from the poorer classes.

Despite the great benefits that such tax rationalisation could bring to the economy, a major tax reform seems very difficult to achieve, especially in times of low prosperity, as it would require a necessary alignment and agreement among municipalities and states in very different circumstances, as well as the federal government.

Other reforms

On top of major constitutional reforms above, there are several other initiatives, discussion of which may be resumed in the next presidential mandate. These include:

  • Judicial recovery and bankruptcy legislation. The Brazilian Judicial Recovery and Bankruptcy Law - Law 11,101 – was enacted in February 2005. With the benefit of lessons learned during a period of high insolvency, many proposals are being discussed for the improvement of its recovery and bankruptcy systems.
  • Regulatory agencies. A proposal setting forth rules of general application for regulatory agencies is under discussion, with the purpose of making these entities more efficient, autonomous and protected from undue political interference, while making a clear separation between its attributions and those of the direct administration.
  • Debureaucratisation. Many initiatives are being developed to further simplify and reduce the bureaucracy of the Brazilian government and business environment.

Infrastructure and energy perspectives ahead

In addition to the major reforms and proposals for legislation improvement, and without prejudice to all projects already implemented in the last years, the PPI infrastructure team put in place by President Temer will leave a legacy of approximately 100 projects selected as priorities and in different stages of implementation or awarding. Some of these projects were expected to be yet completed before the end of 2018.

Although modifications and delays may take place to a greater or lesser extent depending on who is elected as new president, most of the listed projects, predicated on privatisations and private concession initiatives, should still be implemented, considering that Brazil's fiscal situation leaves no viable alternative other than continuing reliance on the private investment.

Highlights of these PPI projects as well as some other relevant opportunities in the Brazilian infrastructure and energy sectors are presented below.

Airports

Bidding documentation for a new round of airport privatisation is nearly complete, and shall comprise the airports of Maceió – AL, João Pessoa – PB, Aracaju – SE, Juazeiro do Norte – CE, Campina Grande – PB, Recife – PE, Várzea Grande – MT, Sinop – MT, Alta Floresta – MT, Barra do Garças – MT, Vitória – ES and Macaé – RJ, divided in three blocks.

Privatisation of Eletrobras

Without prejudice to already approved divestment of certain assets of Eletrobras (distribution utilities accruing major losses and minority stakes in more than 100 generation or transmission projects), debate shall continue for the privatisation of Eletrobras altogether.

Actually, the privatisation of Eletrobras would require a prior restructuring so as to transfer Eletronuclear to the federal government directly, considering that it would be unconstitutional for a private entity to control, directly or indirectly, any nuclear power asset in Brazil.

Itaipu may also be excluded from its privatisation, considering that transfer of control to a private party may require amendments to the international treaties in place with Paraguay.

Although it is the intention of the federal government to privatise Eletrobras with all its other major assets such as Furnas, Chesf and Eletronorte, there is still major political debate on that issue.

According to the preliminary structure indicated by the Temer government, which may still be reformulated, privatisation would be implemented through a stock capitalisation of Eletrobras, so as to dilute the federal government to a minority position. Capitalised proceeds would then be used to reduce indebtedness and to pay a consideration to the federal government for the extension of Eletrobras' existing concessions.

Eletrobras privatisation could serve different positive purposes. It might be a solution for its financial distress, it could contribute favourably to the achievement of annual fiscal targets by the federal government, it could lead to a more functional and competitive power sector in Brazil, and would reinforce this government commitment towards offering a larger role for the private sector.

LNG thermal projects

New auctions suitable for gas thermal power are expected in the coming years. So far, at least two major LNG private projects have already been publicly announced.

A joint venture of EBrasil and Golar Power has incorporated Celse – Centrais Elétricas de Sergipe SA, with the purpose of developing and financing a 1.5MW gas-fired powerplant in Barra dos Coqueiros, Sergipe state, capable of being further expanded in the future. The powerplant has already won a long-term PPA in the captive market and has secured LNG long-term supply from ExxonMobil and Qatar Petroleum. Project finance was contracted with the IFC, IDB and a SERV (Swiss ECA) guaranteed debenture offering. Commercial operation is expected for 2020. The construction of the plant was entrusted to GE, under an EPC turnkey arrangement.

Imported LNG will be reconverted into gas by a floating regasification unit owned by Gollar and chartered to Celse.

Two other LNG projects are already being developed by GNA (a joint venture of Prumo, BP and Siemens), totalling almost 3,000MW and to achieve commercial operation by 2021 and 2023, respectively. Similar projects may follow these two ones, forming in the same area within Porto do Açu a larger cluster totalling up to 6,400MW.

The first 1,300MW project was made possible through a long-term PPA purchased, with ANEEL's approval, from Bolognesi Group, which had won the project in a previous governmental auction but was unable to develop it. The project needs to generate power as of 2021. LNG will be imported from BP. The second PPA was accomplished in the A-6 Auction, which took place on 20 December 2017.

Wind, solar and distributed energy projects

Wind projects have excelled in Brazil and become very efficient and competitive, when compared to other sources. Learning curve, gains of scale, local manufacturing and equipment upgrade have all contributed to that.

Solar projects are still far behind but are expanding gradually in Brazil. A first generation of projects has already been financed and is under construction.

Distributed generation initiatives (smaller generation projects sponsored by consumer units and aimed at injecting power directly into the distribution system for purposes of creating credits against future consumption bills) have been encouraged by recent legislation and are already attracting relevant investors.

Railways

The railway system in Brazil is still precarious and inconsistent with its territory and freight needs. By 2015, it had only 30,000km (23,000 in operation),4 as compared to 228,000 in the United States,5 two countries with approximately the same territory extension. Official plans announced in Lula's and Dilma's presidential mandates contemplated new projects under a reformulated unbundled model to add at least 11,000km to the system, but very little has progressed since.

Under the Temer government's PPI, the granting of new concessions for relevant segments of the North-South Railway (EF-151), the Grain Railway (Ferrogrão – EF-170) and the East-West Railway (Fiol – EF-334) was elected as a priority but could not be implemented. The traditional integrated model will be preserved (concessionaire being responsible for construction, operation and transportation services).

The Centre-West Integration Railway (EF – 354) and the North Segment of the São Paulo railway have also been subsequently included as priorities.

Tollroads

Brazil already has an extensive highway and tollroad system connecting its whole territory, but there is clear need for further extensions, duplications and general improvement of road conditions, which is expected to be achieved through new rounds of concessions taking place regularly at both federal and state levels.

Nine highway concessions were listed as priorities, including owing to the end of original concession periods, the re-bidding of the President Dutra BR-116/RJ/SP highway; of the segment BR-116/RJ from Além Paraíba/MG to Teresópolis/RJ connecting it to BR-040; and of segment BR-040 MG/RJ from Juiz de Fora (MG) to Rio de Janeiro.

Federal highways BR 364/RO/MT (800km) and BR-153/GO/TO (624.8km) were also included in the PPI programme. Both are important roads for the transportation of agricultural products. The second road was formerly awarded to Galvão Engenharia group, but the concession was terminated by default, owing to the incapacity of such company, which was strongly implicated in the Car Wash investigation, to perform its obligations.

Port terminals

In addition to the port terminals already awarded (or extended in favour of incumbent concessionaires), there are 11 remaining terminals listed as a priority under the PPI programme.

These include, among others, liquid fuel and liquid bulk terminals in Belém – PA, liquid bulk in Vila do Conde – PA, grain terminals in Paranaguá – PR, liquid bulk terminal in Vitoria – ES, fertilizer terminal in Itaqui – MA, and the privatisation of CODESA, the port authority in Vitoria Port (controlled by the federal government).

Public lighting

The federal government is also supporting municipalities to implement long-term PPPs for public lighting needs. As an example, BNDES was retained to support the municipalities of Teresina, the capital of Piaui state; and Porto Alegre, the capital of Rio Grande do Sul, and has subsequently engaged private consultants to structure and carry out the necessary preparatory studies for their public lighting PPP projects.

Comaer federal PPP project

In September 2018, the federal government officially launched a competitive bidding procedure for the launching of the first federal PPP project (other than a data centre contracted by Banco do Brasil and Caixa Economica in 2006).

The scope of such PPP is the provision, under a 25-year agreement (subject to another 10-year extension) to be executed with the Aeronautics Command of the Brazilian Air Force, of all communication services necessary for air traffic control in Brazil, as well as air surveillance of certain strategic areas, involving a contract value of up to 4.9 billion reais (1.3 billion reais of estimated capex).

According to the official schedule, bids must be submitted by 12 December 2018.

Other opportunities

Many other opportunities under the powers and attributions of the federal administration or of particular states and municipalities could also be mentioned here, including without limitation new oil and gas bidding rounds, mining projects, opportunities in urban mobility (subways, monorails, rapid bus systems and others in larger capitals), social infrastructure (public hospitals, public schools, housing projects, etc.) and municipal concessions (waste management services, cemeteries, public parks, convention centres, etc.).

Conclusions

Despite the political turbulence, scandals and criminal accusations that plagued it, President Temer's two-and-a-half-year mandate was reasonably productive in terms of discussions of major reforms, passing of new legislation, privatisation of certain governmental assets (e.g., Fortaleza, Salvador, Porto Alegre and Florianopolis airports) and awarding of concessions.

The fiscal austerity and the more business-friendly environment, among other accomplishments, have brought back some confidence into the market and reversed the deterioration of Brazilian macroeconomic indicators. Economic growth is still moderate, however, and is now affected by major political uncertainty as a result of the upcoming elections.

Operation Car Wash and other relevant investigations will continue for the foreseeable future. Institutional efforts to unearth and prosecute corruption will not stop and there is still a long list of politicians and private persons implicated who will also have to respond in Brazilian courts or otherwise make plea bargains and leniency agreements with the relevant authorities.

However, it seems that the Brazilian economy overall is capable of progressing on its gradual and steady recovery without major adverse impacts from further corruption findings or scandals, and it is certain that Brazil and the investor community will eventually benefit from cleaner and fairer business and government environments.

Assuming the newly elected President remains committed to the austerity and business-oriented measures initiated by Temer, a particularly favourable window for long-term investments in Brazil should materialise, notably in the infrastructure and energy sectors.

With the stability that is expected to follow the 2018 elections, a new growth cycle could create favourable conditions for accelerated economic development and business prosperity in Brazil.


Footnotes

1 José Virgílio Lopes Enei, Mauro Penteado and Ana Karina de Souza are partners at Machado, Meyer, Sendacz e Opice Advogados. The authors thank Antonio Corrêa Meyer, Fabio Falkenburger, Daniel Szyfman and Alberto Faro for their contributions to the chapter.

2 See www.valor.com.br/brasil/5713541/investimento-e-insuficiente-para-repor-depreciacao-do-capital. The article, published in Valor on 6 August 2018, quotes the economist Manoel Pires, from FGV.

3 The right-wing candidate Jair Bolsonaro was leading the polls for the 1st round, but not for the 2nd and final election round. Alckmin, Ciro Gomes, Marina Silva and Haddad all seemed to have chances.

5 Available at http://data.worldbank.org/indicator/IS.RRS.TOTL.KM?locations=US. Accessed on 8 September 2016.

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