Brazilian Public-Private Partnerships: Retrospect of Past Decades and New Trends Ahead

The infrastructure and energy markets in Brazil: public and private arrangements

The Brazilian federation and allocation of powers: public and private roles

Brazil is a federative republic formed by the federal government, 26 states and thousands of municipalities. Each of these federative entities have their own set of powers and attributions, divided among the executive, legislative and judicial powers, all as defined by the Federal Constitution,[1] which is the supreme law of the land.

Laws and regulations inconsistent with the Constitution may be set aside by the judicial system, on a case-by-case basis, or by the Supreme Court as a result of direct constitutionality claims producing effects to any and all parties.

The Constitution embraces the free initiative and, accordingly, attributes to the public sector a role in the performance of economic activities that is ancillary to that of private parties, and only where necessary to serve a relevant public interest or a national security purpose.

An exception is made for economic activities that qualify, according to relevant law, as public services, which are primary duties of the public sector and may only be delegated to private parties through concessions awarded as a result of a public bidding procedure.

Public services may fall within the attributions of the federal government, states or municipalities depending on whether they involve national, regional or local services, or whether they are associated with assets or monopolistic activities reserved for the federal government (e.g., oil and electricity activities including oil and gas reserves and hydropower potential) or other federative entities (e.g., local distribution of piped gas is a monopoly of federative states) in accordance with the provisions of the Constitution.

Prior to the mid-1990s, virtually all segments of infrastructure and energy were developed and operated directly and exclusively by the public sector. With the exhaustion of such model and the inability of the government to keep investing into these activities and maintaining related infrastructure, Brazil experienced massive waves of privatisation, through outright sale of state-owned entities, large concession initiatives in all public service segments or re-qualification of activities formerly treated as public services into regulated private activities.

Privatised entities or activities, as well as public services delegated to private parties, were then submitted to a new set of regulations, according to a broader or sector-specific legal framework and detailed rules enacted by the new regulatory agencies, created at the time with more financial and technical autonomy than traditional governmental bodies.

However, as a practical matter, the Brazilian government still maintains a strong level of intervention (by state-owned entities, concession contracts or regulation) in all infrastructure and energy segments, therefore maintaining a pivotal role in the planning, availability and quality of infrastructure and energy services to the market, with obvious and direct impacts on all other economic sectors.

Highlights of the infrastructure and energy markets in Brazil

Brazil is a continental country with a population of over 200 million people, most of whom live in urban areas, particularly in the main capitals. For instance, São Paulo, the most developed city in the country, is home to 12 million people in the city alone, and 21 million in the metropolitan area.[2]

While in 2011 it was the sixth largest economy in the world, it dropped to the ninth position in 2016 as a result of the severe political, fiscal and economic crisis initiated in 2014.[3]

It has a reasonably diversified economy, with a few world-class manufacturing industries (such as aircraft), a sizeable service sector (including some of the largest and strongest financial institutions in Latin America) and notable strengths in the production and export of agricultural and mining commodities.

These characteristics make Brazil heavily dependent on suitable infrastructure and reliable energy sources, whether to handle the logistical and energy needs of its manufacturing and commodity industries or to secure the basic needs of its population (including education, health, mobility, telecommunications, sanitation and energy).

Despite relevant public and private investments in infrastructure in the past two decades, Brazil has not yet developed a world-class infrastructure consistent with its needs or comparable to that of developed economies. This infrastructure bottleneck has a material adverse impact on Brazilian productivity, competitiveness and economic growth. On the other hand, it offers relevant investment opportunities for local and international players interested in the infrastructure and energy industries. Some examples are given below.

Toll roads

Brazil already has an extensive highway and toll road system connecting its whole territory, but there is a 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.[4]


By July 2016, only six airports had been privatised,[5] and the privatisation of four others had been approved and was being prepared for auctioning.[6] In addition to many other major airports to be privatised in subsequent rounds, Brazil has also announced plans for the privatisation or construction of hundreds of regional airports.


The railway system in Brazil is still precarious and inconsistent with its territory and freight needs. By 2015, it had only 30,000 kilometres (23,000 in operation),[7] compared with 228,000 in the United States,[8] – the two countries have approximately the same territory extension. Official plans announced in the presidential mandates of Lula and Rousseff contemplated new projects under a reformulated unbundled model to add at least 11,000 km to the system, but so far there has been little progress. Under Temer’s new government, the granting of concessions for relevant segments of the North-South Railway (EF-151), the Grain Railway (Ferrogrão – EF-170) and East-West Railway (Fiol – EF-334) was elected as a priority and scheduled for the end of 2017. The traditional integrated model will be preserved (the concessionaire being responsible for construction, operation and transportation services).


Despite the construction or full renovation of a handful of relevant new port terminals in the past decade, both private (e.g., Embraport, Portonave, Itapoa and Porto Açu, this last one still not fully completed in 2016) or in public ports (e.g., BTP in Santos) – handling containers, mining products, grains and fuel, among other products – the improvement of port capacity and related quality of services are still requisites for raising the competitiveness of Brazilian imports and exports. By 2016, more than 100 port terminals in several public ports along the Brazilian coast had or were about to have their lease terms expire without further renewals, thus requiring their bidding to a new round of investors, which will then undertake necessary additional investments to keep up with current service and efficiency needs. Some port terminals approaching the end of their original lease term are able to secure relevant renewals or extensions, subject to providing firm commitments in terms of new investments in improved efficiency and capacity expansion. Port terminals are within the attributions of the federal government, which mostly relies on[9] the Ministry of Transport and the independent regulatory agency ANTAQ (Brazil’s national water transportation agency). Despite the efforts of former president Dilma, until her impeachment in September 2016, she was unable to deliver such new round of bidding procedures other than for a few port terminals in Santos Port. Therefore, by the end of 2016, a vast majority of these public port terminals remained to be offered under a new bidding round for new local or foreign investors, without prejudice to the development or completion of new private terminals. The Santarém Fuel Terminal in the state of Pará and the Rio de Janeiro grain terminal are expected to be offered in the first bidding round within the Temer government’s mandate, scheduled for the first half of 2017.

Oil and gas production

After so much political debate and little progress on the Production Sharing Contract regime for pre-salt and other strategic areas, a new round of pre-salt exploration blocks[10] is expected for 2017, after the enactment of a law, being discussed in 2016, that proposes the removal of Petrobras’ mandatory role as operator.[11] After the 13th round of non pre-salt blocks offered under concession, which was completed in October 2013 with disappointing results, a 14th round should also be scheduled within President Temer’s residual mandate.[12] A fourth concession bid round for marginal fields in three sedimentary basins is also scheduled for 2017. In addition to these greenfield and marginal blocks, Petrobras will continue its divesture programme, which contemplates the sale of US$58 billion in assets, including US$15.1 billion throughout 2015 and 2016. Nonetheless, by June 2016, when Pedro Parente became the new CEO of Petrobras, only a fraction of such figures had been accomplished, meaning that the large majority of assets are yet to be sold.

Gas pipelines

Brazilian work on new gas transportation pipelines is still at an early stage of development. The sale of the pipeline network, currently in the hands of Petrobras, to independent players, is expected to bring more competitiveness to this market, also encouraging further new investments.[13] Pipeline capacity is clearly constrained and, accordingly, will need to expand quickly to handle the expected increase of gas production (from presalt and onshore areas), without prejudice to growing imports of LNG made possible by investments in new regasification plants.

Transmission lines

The vast extension of Brazilian territory, combined with the ever-growing demand for power (exceptions are made for short periods of decline in demand, mostly resulting in 2016 from major economical crisis), a great part of which is produced in remote areas where hydro reserves are available (such as the Amazon region), impose the need for constant investment in transmission lines, which is satisfied by periodical rounds of new concessions. This segment used to attract a lot of interest from investors, with its lower risk profile and potentially attractive returns.

Hydro-generation projects

After the completion of large hydro projects such as Belo Monte, Teles Pires, Jirau and Santo Antonio, the required expansion of Brazilian generation capacity still relies, to a certain degree, on the development of other major hydro projects, such as plants planned for the Tapajos River, despite the relevant environmental challenges. President Temer has announced hydro projects São Simão (MG/GO), Miranda (MG), Volta Grande (SP), Pery (SC) and Agro Trafo (TO) to be among the priorities to be granted to the private sector during his mandate. These are, without prejudice to small or medium-sized plants, still potentially available throughout the territory or in partnership with neighbour countries.

Renewable energy

With the growing efficiency of wind, biomass and solar generation projects in the Brazilian territory, these renewable sources should continue to provide a reasonable share in the expansion of the Brazilian power-generating capacity. Long-term power purchase agreement (PPA) auctions for the captive market, served by power distributors, are offered periodically, usually more than once a year and experience a high level of competition.

Gas-fired powerplants

Considering the growing scarcity and environmental challenges of large hydro projects, as well as the seasonability of renewable projects, the Brazilian power generation matrix will rely more and more on gas-fired powerplants. In 2016, some large projects are in the early stages of development, most of which are dependent on long-term PPAs not yet secured in the captive market auctions. Taking into account the unavailability of required volumes of gas from local production or imports from Bolivia, all these projects are based on LNG and existing or dedicated greenfield regasification plants. Petrobras’ divesture plans in respect of all its thermal plants should also be noted.

Water and sanitation projects

The degree of the Brazilian population covered by sanitation services and reliable water supply is still critical and will require massive investments in this sector for many decades ahead.[14] State-owned water and sanitation companies such as CEDAE in Rio de Janeiro state, CAERD in Rondonia and COSAMPA in Para are among the priorities for privatisation, subconcessions, public-private partnerships (PPPs) or other forms of delegation or outsourcing.

Main investment regimes in infrastructure

Infrastructure and energy projects may be implemented and delivered under different regimes, depending on their nature and in particular whether they legally qualify as public services, activities within the constitutional attribution of the Union or the states or regulated private activities.

Considering the different degrees of involvement of the public and private sectors, all these projects and activities may be referred to as PPPs in a broad sense.

However, as detailed below, PPPs, in a narrow sense, contemplate only those projects governed by Federal Law 11,079 of 2004, which are basically long-term concessions relying on some degree of financial support from the granting authority.

Allocation of risks and responsibilities as between the public and the private sector may vary substantially under these different regimes.

Public service concessions (common concessions)

Activities qualified as public services by the Federal Constitution or by applicable law (e.g., power distribution, waste collection, water supply, sewage services, metro transportation, etc.) can only be delegated to private parties through long-term concession agreements or exceptionally through permissions (which may be perceived as less stable, but without substantive differences in practice), in either case as a result of a formal public bidding procedure, as expressly set forth in Article 175 of the Brazilian Federal Constitution.

In those cases where the provision of public services may be rendered with proper quality and regularity, and required infrastructure investments can be timely implemented, all based solely on tariff payments made by consumers and end-users, public service concessions may be referred to as ‘common concessions’ and shall be governed by Federal Law 8,987 of 1995 (the Concession Law).

Demand risk, among others, is then fully assumed by the concessionaire except as adversely and materially affected by supervening and unforeseeable events (such as force majeure and change in laws), the risk of which had not been expressly assumed by the concessionaire under the respective concession agreement.

These unpredictable events may authorise the revision of the concession agreement to rebalance its economic terms, by way of, for instance, tariff increases, relief of investment or operational obligations otherwise attributable to the concessionaire, or extension of the original concession term.

Common concessions have been used to delegate most of the toll roads to the private sector, as well as railway segments, airports, public port terminals (although structured and named as leasing agreements according to sector-specific legislation, it is now undisputed that they also qualify as public services and must also comply with Concession Law) and transmission lines, among others.

The Federal Programme for Concession of Toll Roads has, alone, granted more than 11,000 kilometres of toll roads to private concessionaires. These are currently divided into 21 federal concessions in force.[15] These federal concessions are without prejudice to road concession programmes implemented by the states. The states of São Paulo, Paraná, Rio Grande do Sul and Bahia are among the ones with a larger number and extension of state road concessions.


On the other hand, public service concessions that are not self-sustainable solely by tariff collection, or revenues from associated projects, may be structured as PPPs, so as to count on financial support from the granting authority, pursuant to the provisions of Federal Law 11,079 of 2004.

PPPs may also be used for long-term services offered directly to the public administration, and which may not legally qualify as public services in a narrow and defined sense (because they are not so qualified under applicable laws and in essence because they are not offered to the collectivity). That is the case, for instance, for administrative centers – in other words, for facilities constructed and leased on a built-to-suit basis, and coupled with associated maintenance and facility management services, for the benefit of public bodies.

According to Brazilian law, there are two types of PPPs. The sponsored concessions, in which the public sector contributes to the remuneration of the private concessionaire on the top of and without prejudice to collection of tariffs from end-users, so as to assure overall economic viability to a project that would not be self-sustainable based solely on tariff collection, and the administrative concessions (e.g., shadow tolls, subways, etc.), in which the public sector is responsible for 100 per cent of the remuneration of the private sector (e.g., prisons and public hospitals) or where there is no public service or tariff collection involved (but potentially some other form of economic operation, e.g., soccer stadiums).

PPPs tend to reduce the demand (revenue) risk of a project, as they assure, by definition, a predictable stream of revenues payable by the public partner. On the other hand, PPPs increment political (governmental credit) risk, which is a particularly sensitive risk for a country like Brazil, with a track record of straight or disguised defaults (as opposed to England, where PPPs were originally conceived).

By August 2016, 93 PPP contracts had been executed after relevant bidding procedures, all but one granted by states or municipalities.[16]

Because of a not-publicly-recognised ideological aversion to PPPs, the federal government, under the Lula and Dilma mandates, executed one single PPP contract, and, even so, only because such PPP project was developed and granted by state-owned entities Banco do Brasil and Caixa Econômica Federal. This was the Datacenter Project in Brasilia.

Table 1: Distribution of PPP agreements executed among federal entities[18]

Federal entityPPP agreements executed
Federal government1
Federal district3

PPPs granted by states and municipalities included toll roads, subways, monorail and light transport vehicles, prisons, public hospitals, basic health centres, public schools, housing, administrative centres, public garages, facilities for rendering of ID services to citizens, public illumination, solid waste management, sewage and sanitation services, water treatment or supply, urban renovation, etc.

Table 2: Number of PPP agreements executed from 2006 to 2016[19]

PPP agreements executed3354123161317116

Structuring and modelling of PPPs and common concessions: feasibility studies

As compared to PPPs, common concessions have the advantage of not requiring long-term financial commitments from the public sector, thus not affecting scarce budgetary resources. Therefore, to the extent that public services may be delegated to the private sector, in an economically sustainable way, under the common concession regime, and so long as tariffs are kept in a politically and socially acceptable level, the common concession regime will be preferred and more suitable than a PPP.

That is why the execution of a PPP, and the undertaking of the public sector long-term financial support associated with it, require strong justification after detailed feasibility studies to demonstrate, among other requisites, that the PPP structure is the best alternative under the circumstances (a ‘value for money’ approach).

Feasibility studies are also required to confirm that the project is viable from economical, technical, legal and environmental perspectives, and to recommend the appropriate technical specifications for the project, performance indicators, risk allocation provisions, remuneration scheme, payment guarantees, bidding selection criteria and all other terms and conditions of the relevant concession agreement and bidding process.

Although, at the time of writing, 93 PPPs have been successfully bid and granted to the private sector since the enactment of the PPP Federal Law in December 2004, the total number of PPPs studied and discussed in this same period may have reached eight to 10 times that figure.[19],[20]

This unusually high mortality rate is not due to the lack of high demand for new PPP projects, or the financing availability or of private agents qualified and willing to undertake the job.

In reality, the mortality is mostly explained by the great difficulty that the public sector faces in completing, reviewing and satisfying itself with the required feasibility studies, to overcome the enormous bureaucracy and multiple levels of control throughout the implementation of the project (such as the auditing courts, public prosecutor office and environmental agencies), and ultimately to design (model) a PPP project that is sufficiently attractive to the private sector (in terms of both risk and return), while accomplishing the missions of the public sector with a suitable cost-benefit (value for money) equation.

Those studies that must necessarily precede, justify and model any PPP project could be conducted internally by the public sector (through PPP units or otherwise), but this is a rare approach due to the scarcity of specialised teams in the public administration, not overloaded with bureaucratic activities.

Another alternative would be for the public sector to retain specialised financial, legal and technical advisors (or a joint consortium) to carry out the studies in accordance with its instructions, but public authorities have traditionally interpreted our public bidding law (Law 8,666) as requiring a formal and lengthy bidding procedure for the selection of these advisors, demanding not less than six months to complete the process and frequently leading to the selection of advisors that are clearly not best suited to the job (excessive formalistic requirements may not allow the public sector to select the most qualified or experienced professionals, but rather the cheapest or most experienced in producing certificates and coping with the bureaucracy). Because of these inherent limitations, this approach is very rare in practice.

Coordination and delivery of required project studies are then sometimes delegated to state-owned entities or multilaterals with recognised expertise and with whom the public sector may contract directly and more expeditiously without a prior bidding procedure, such as the BNDES, IFC, World Bank and IDB. Although these entities have coordinated a handful of landmark PPP projects among the ones accomplished, they do not have unlimited resources and, accordingly, there are only so many projects that they are able to handle in a given period.

Conscious of such constraints, in 2008, eight financial institutions among the ones most active in the infrastructure market in Brazil created Estruturadora Brasileira de Projetos (EBP), a corporation with the sole purpose of serving as an additional alternative for the elaboration of feasibility studies for PPP and common concession projects. EBP was seen not only as a specialised entity but an independent one, because none of the financial institutions holding its shares would individually control EBP or have a relevant influence on the carrying out of its studies, and, moreover, these financial institutions committed not to participate in any bidding procedure for a project in which EBP had been involved. On top of that, EBP entered into a technical cooperation agreement with the BNDES, so as to carry out its studies in cooperation with the BNDES in alignment with its public development missions.

Nonetheless, after EBP had contributed to some of the most important PPP and common concession projects implemented since 2008 (including some federal toll roads, the Mineirão Soccer Stadium, the first two rounds of airport privatisations and the studies for the re-bidding of public port terminal leases), the Federal Auditing Court (Tribunal de Contas da União – TCU) concluded in 2015 that EBP, as an ordinary private corporation, could not be engaged directly by public entities and with exclusivity for the elaboration of PPP and concession studies, nor could it hold a cooperation agreement with the BNDES on terms that were not available to other interested parties.[21] The TCU admitted that EBP concluded its studies in progress, but determined that the cooperation agreement with the BNDES be terminated within one year from the date of the decision.

Recognising all limitations above, both the Concession Law and PPP Federal Law admitted that private entities may, at their own cost and risk, prepare and submit to the public sector solicited or unsolicited studies and related project propositions. Although under no obligation to accept such studies and propositions, in the event that public authorities decide, at their discretion, to use them, in total or in part, for implementing a given project, the authors of the studies and proposition will be entitled to a fair reimbursement of their elaboration costs, at least as a proportion to the relevant portion of the studies ultimately accepted and adopted, but only to the extent that the project is successfully bid and awarded to a private concessionaire. It will then be up to the concessionaire to directly reimburse the author’s cost.

Under the solicited approach, the public sector (e.g., a state, municipality or a state-owned entity) will release an expression of interest procedure (PMI), by means of which interested parties may express their interest in contributing to studies, in compliance with a set of guidelines and broad specifications. The public sector may then authorise all, a few or just one interested party to carry out the feasibility and modelling studies, subject to applicable regulations that may differ in each federative entity level.

The vast majority of studies carried out so far for PPP projects has been prepared under the PMI approach, thus contributing to the public sector, at no cost (other than that which is potentially reimbursable by the winning bidder), with studies that the public sector would not be able to prepare internally.

Although this relieves the necessity for large specialised teams in the public sector, it does not avoid the need for a top coordination team that is able to receive, review, adjust and accept the studies proposed by private parties, so that projects may be successfully implemented in a manner that is consistent with public interest but also attractive to the private concessionaire.[22]

Private economic activities subject to authorisation

Many activities in the infrastructure sector, not qualifying as public services and usually not involving scarce (exclusive) resources or natural monopolies, may be carried out by private agents with more flexibility. They may be conducted without the need for a concession or a prior public bidding procedure, subject only to sector-specific regulation and a non-discretionary authorisation, on the top of environmental and other legal requirements applicable to business activities in general.

That is the case, for instance, for thermal or renewable power generation projects, which can be developed by any interested party satisfying the legal requirements to obtain an authorisation as an independent power producer (IPP). The IPP may then negotiate a long-term PPA directly with large consumers, or compete with other generating projects in the periodical PPA auctions run by the federal government through the Brazilian Electricity Regulatory Agency and Energy Research Company. That is also the case for private port terminals, private airports, commercialisation of energy, non-bonded logistical centres or dry ports, industrial water treatment plants, certain telecommunication services, etc.

Mixed stock companies and other incorporated joint ventures

Several mixed stock companies have been created by federal, state or municipal law to develop certain infrastructure and other activities of relevant interest, either in competition with the private sector or in a monopolistic prerogative (resulting or not from a public service qualification) as an operational arm of the government.

Examples of mixed stock companies competing in the market are the generation subsidiaries or divisions of Cemig, Copel, CESP, Chesf, Eletronorte, Furnas and Eletrobras, as well as Banco do Brasil, in respect of its activities as a commercial bank, and Petrobras on most of its activities nowadays (oil exploration and production; oil refining; thermal generation, etc.). Examples of mixed stock companies carrying out monopolistic or public service activities are Eletronuclear, Petrobras in its capacity as mandatory operator of pre-salt (or, with respect to its exploration and production activities in general, prior to Law 9.478 of 1997, the Oil Law) and the São Paulo Metro.

Mixed capital companies enjoy some level of private participation, which imposes a private law regime in between that applicable to pure governmental entities on one side and that of the private sector on the other. However, they are still controlled by the government and, accordingly, required to follow some formal procedures for entering into contracts other than those directly related to their core business (e.g., sale of oil by Petrobras) or to select and retain permanent employees.

Law 13,303 of June 2016 (the SOE Law) was recently enacted to spell out the particularities of the hybrid legal regime applicable to mixed capital companies and other state owned entities (SOEs), including provisions on their corporate governance, appointment of managers, less formal public bidding procedures, regime of contracts, etc.

On the other hand, considering the convenience of granting public-private joint ventures in a competitive environment with equivalent flexibility to that of pure private entities, recent years have seen an increase in the number of private entities with a minority governmental participation (thus not attracting the hybrid legal regime of mixed capital companies or other SOEs).

For example, all companies incorporated to develop major hydroplants in the recent years – such as Belo Monte, Jirau or Santo Antônio – contemplate minority equity stakes for SOEs such as Eletrobras, Chesf, Furnas or Eletronorte. Airports operated by the private sector as a result of the first two rounds of airport privatisation contemplate a minority equity stake for Infraero.

The SOE Law does not apply directly to them, but requires the public sector to take into account certain governance rights and protections when undertaking a minority stake in a private entity.

Sector-specific legal frameworks

As indicated above, infrastructure activities are subject to different levels of regulation, in accordance with a multitude of sector-specific laws.

In addition to, or in association with, the most traditional legal regimes for developing infrastructure activities – such as common concessions, PPPs and non-discretionary authorisations – there are hybrid or alternative regimes such as:

  • concessions for the use of public assets (e.g., hydro projects);
  • concessions for the in rem right to use public land – CDRU (e.g., irrigation projects and Engenhão Soccer Stadium);
  • concession for transportation of natural gas (not qualified as a public service);
  • mining concessions, which are subject to a unique regime pursuant to the Mining Code;
  • oil and gas exploration and production concessions, which are also subject to a unique legal regime based on the Oil Law;
  • production sharing contracts in respect of pre-salt exploration and production blocks; and
  • tv and radio concessions, among other things.

A thorough assessment of sector-specific laws and regulations is, therefore, mandatory before a foreign investor may consummate a first-time investment in any infrastructure activity in Brazil.

Planning and investment programmes

Considering the central role still played by the public sector in the implementation, bidding and awarding or authorisation of infrastructure projects in Brazil, proper and long-term governmental planning is fundamental to set priorities, create conditions for a balanced and coordinated economical growth and to offer some predictability to the private sector.

Former Presidents Lula and Dilma launched successive Programmes for Accelerated Growth (PAC 1 and PAC 2)[23] as well as the Programme for Investments in Logistics (PIL),[24] contemplating different stages and sector-specific chapters.

Although many projects were successfully launched during their mandates, these projects have collectively never accomplished more than a small fraction of targets set out by these programmes. There is a wide perception that a relevant portion of these programmes was set up more as a marketing and political promotion, without concrete actions for its actual implementation.[25]

On the other hand, the still relevant portion of these programmes that was realistically expected to be accomplished but failed, did so mostly due to the inability of the government to overcome its own bureaucracy, to reach a reasonable level of support from major stakeholders, to satisfy multiple levels of controlling authorities and, ultimately, to keep up with the pace of implementation.

Project financing

Investments in infrastructure are capital intensive and highly dependent on available sources of project financing, due to the inability or inconvenience of players raising financing solely on their balance sheets (i.e., traditional corporate financing).

Throughout the past decade or so, the BNDES received additional funding from the Brazilian Treasury, and substantially increased the amounts of project financing for infrastructure projects in general, especially those within priority sectors and absorbing equipment satisfying minimum local content requirements (usually 60 per cent). The table below illustrates BNDEs disbursements from 2007 to June 2016:

Table 3: Evolution of BNDES disbursements from 2007 to 2016[27]

 200720082009201020112012201320142015June 2016
BNDES disbursements (billion reais)64.990.9136.4168.4138.9156.0190.4187.8135.940.1

Because the BNDES has traditionally offered the most subsidised source of financing (with base interest rates calculated pursuant to an official long-term interest rate reasonably below market rates such as Selic or CDI), projects did not suffer from lack of financing, but market-oriented sources of financing had little room to develop.

As a consequence, project developers have been more focused on satisfying BNDES requirements – such as providing acceptable parent, bank or insurance guarantees until project completion (the BNDES has never accepted a pure non-recourse project finance other than for the operation phase) – rather than looking for alternative sources, unless BNDES financing is not made available for one reason or another.

In those limited circumstances where BNDES financing is not available (for instance, non-compliance with minimum local content; funding not required for new capex investments such as payment of granting fees or refinancing of investments made beyond the look-back period covered by the BNDES), or otherwise not suitable for the project (projects with dollar revenues capable of seeking international financing), project developers have made major efforts to find other sources.

These other sources may include international financing, mainly from multilaterals, mezzanine or subordinated finance from private equity funds, other governmental sources of local and subsidised funds such as Banco do Nordeste, Caixa Econômica Federal, Banco do Brasil and FI-FGTS, and project bonds accessing capital markets mostly in the form of infrastructure debentures.

Table 4: Sources of Long Term Financing from 2010 to 2015[28]

 BNDES onlendingBNDES direct financingCapital marketsCommerical banksOthers

Trends ahead

The project financing market in Brazil

Subsidised costs absorbed over time by the government to secure continuous funding to the BNDES and other state-owned financial institutions (loan remuneration below the government cost of raising public debt), as a predominant source of project financing, have ultimately caused a material adverse effect contributing to the fiscal and economical crisis that erupted in Brazil as of 2015.[28]

As a result, the federal government and the BNDES have announced a radical change in their subsidised financing policies as of 2015,[29] with an intensification of such change in the Temer government. From now on, the BNDES will only make available a minority portion of the project financing needs of any given project, will reduce the level of subsidies and will be much more selective in terms of eligible projects.

Such new policy will offer more room for, and will require stronger participation of, international lenders and institutional and other capital market investors through project bonds, especially infrastructure debentures.[30]

This new scenario will also offer an important role for private commercial banks experienced in the sector, such as Itaú, Bradesco and Santander, who traditionally cannot offer long-term financing, but will be called on to provide bridge loans and, most importantly, bank guarantees to back up infrastructure debentures until relevant project completion is achieved, taking into account the unwillingness and inability of institutional or other capital market investors to assume construction risk.

One could inquire as to whether capital market investors will be willing to provide long-term financing in the volumes no longer provided by the BNDES. That has not been the case so far. Volumes of infrastructure debenture financing accomplished since this modality of project bond received favourable tax treatment pursuant to Law 12,431 of June 2011, and are still very modest as compared to BNDES financing as illustrated in Table 4 above. In this regard, as of September 2016, 56 issuances of infrastructure debentures have been made, in a total of approximately 16.5 billion reais. Most of these project bonds were issued within the energy sector (31 issuances) and land transportation sector (19 issuances).[31] As compared to BNDES disbursements in the same period, the issuance of these project bonds represents less than 3 per cent of the amount financed by the bank.

However, that has been the case in a context where no alternative source of financing could compete with BNDES' cheap funding, and there were plenty of BNDES funds available. Insofar as the BNDES is no longer an option for a large number of projects, or even for the entire debt needs of those eligible ones, project developers will have to resort to a much greater extent to capital markets and will have to pay interests at market levels, that is, treasury bond interests (SELIC or IPCA plus a predetermined real interest rate) added to a reasonable premium in connection with infrastructure project risk.

This also means that the government will need to set up minimum tariffs, granting fees or PPP financial support at levels that will be able to absorb these incremental financing costs, while controlling authorities will need to understand and become comfortable with such new reality. This translates into a more realistic – less subsidised – tariff policy, which should, at the end of the day, help the government to rebalance its fiscal budget and reduce market interest rates gradually, hopefully bringing back the economy to a virtuous cycle and growth mode.

More than ever, the government will need to be efficient and selective when setting priorities for the pipeline of new infrastructure projects.

The PPI (Programme for Investment Partnerships)

On the first day of its interim mandate, President Temer enacted Provisional Measure 727 of 7 May 2016, subsequently converted into Law 13,334 of 13 September 2016 (the PPI Law), creating the 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 and, moreover, to absorb the attributions formerly resting on the PPP Federal Committee, the National Council for Transport Policy Integration and the National Committee for Privatisation.

The PPI Committee is formed by the Head of the PPI Secretary (Moreira Franco being the first nominee), the Head Minister for the Cabinet (Casa Civil), Minister of Finance, Minister of Planning, Minister of Transportation, Minister of Environment and the CEOs of the BNDES and Caixa Econômica Federal. The President presides over the meetings of the Committee.

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 relevant public entities and authorities to manage project implementation and to serve as its focal point; the launching of bidding procedures only after a previous environmental licence has been issued (or otherwise with clear directives for its obtainment); conducting such bidding and awarding procedures with full transparency (with additional English versions of the main documents), opportunity for comments and sufficient time allowed for submission of bids by investors (a 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 at allocating risks to the parties that are able to absorb and manage them most efficiently, so as to minimise the need for future contractual revisions.

The PPI has also attempted to address the difficulties experienced by the public sector to carry out feasibility and modelling studies as required for the implementation of common concessions and PPPs, as explained above.

Although the PPI kept the PMI regime and other traditional alternatives, it authorised the BNDES to create and make investments, alongside other public budgetary contributions, into a special purpose fund vehicle – with legal personality, private law nature and assets of its own – to be managed by the BNDES itself (the FAEP).

States, municipalities and public entities in general will be authorised to engage the FAEP fund directly, without the need of any prior bidding procedure, so that FAEP may lead, coordinate and provide upfront funding to the elaboration of feasibility and modelling studies as necessary to implement common concessions, PPPs and other projects, by means of public bidding procedures to the private sector.

In turn, the FAEP fund, as managed and represented by the BNDES, will be able to select and retain appropriate advisors, from all required expertises, in accordance with the legal requirements for public procurement as set forth in the applicable laws.

Although these requirements have not yet been tested, it is reasonable to assume that the FAEP fund, having a nature equivalent to that of a company controlled by the public sector, might resort to the simplified bidding procedure set forth in the recent SOE Law (Law 13,303), or even retain notoriously experienced advisors with full exemption from a formal bidding procedures as contemplated therein, as opposed to running a full-blown and prohibitively time-consuming bidding procedure pursuant to Law 8,666 (the Public Bidding Law).

The FAEP may offer a helpful and expeditious alternative for the public sector to implement projects more efficiently.


At the time of writing, the Temer presidency had just been confirmed, with the conclusion of Dilma’s impeachment process.

It is too early to make high probability forecasts, but, with the removal of the political uncertainty and transition into a more market-friendly approach as indicated by Temer’s political party’s (PMDB) ‘Bridge to the Future’ programme, the general perception of economic experts in Brazil is that the recovery from economical crisis has begun. Although the recovery should be a gradual and lengthy process, market confidence is slowly returning.

New BNDES policies, the PPI and the FAEP, seem positive steps in the direction of recovery.

However, full recovery and true economic growth still seem dependent on further sustainable efforts, including structural reforms in tax, labour, social security and political areas, among others, which have been delayed for too long now.


  1. The Brazilian Federal Constitution was enacted on 15 October 1988. By July 2016, it had been partially altered by 92 constitutional amendments and six special (revision) amendments.
  2. Information collected on Instituto Brasileiro de Geografia e Estatística – IBGE website at: Accessed on 8 September 2016.
  3. Pursuant to the data collected by the World Bank, Brazil’s growth rate has decelerated steadily since the beginning of this decade, from an average annual growth of 4.5 per cent between 2006 and 2010 to 2.1 per cent between 2011 and 2014. The GDP contracted by 3.8 per cent in 2015. Further information is available on the World Bank website at Accessed on 8 September 2016.
  4. A new bidding round comprising segments of BR 364/365 between the states of Goiás and Minas Gerais and of BR 101/116/290/386 within Rio Grande do Sul State has been announced as a priority for 2017.
  5. Galeão (Rio de Janeiro, RJ), Viracopos (Campinas, SP), Guarulhos (São Paulo, SP), Juscelino Kubitschek (Brasília, DF), São Gonçalo do Amarante (Natal, RN) and Confins (Belo Horizonte, MG).
  6. CE Fortaleza, SC Florianópolis, RS Porto Alegre, BA Salvador. The bid notice is expected to be published by the end of 2016, and an auction to occur in the first half of 2017.
  7. Information available on the Brazilian National Inland Transportation Agency (ANTT) website at: Accessed on 8 September 2016.
  8. Available at Accessed on 8 September 2016.
  9. The former Secretaria Especial de Portos (Special Port Secretary: SEP) lost its status as an independent ministry and was absorbed into the Ministry of Transport in May 2016, as part of President Temer’s effort to reduce ministries and public expenditures.
  10. Up to 20 blocks adjacent to four production fields: Tartaruga Mestiça, Sapinhoá and Carcará Fields operated by Petrobras, and Gato do Mato Field, operated by Shell.
  11. After approval in the Senate on 7 July 2016, Petrobras’ Pre-Salt Exploration Special Committee at the Lower House approved Bill 4567/2016, which removes Petrobras’ mandatory role as operator of the Production Sharing Contract. The Bill is currently under discussion in the Lower House, and is expected to be voted in the near future.
  12. Also expected for 2017, it may comprise 10 basins, including onshore, shallow waters and deep waters. Local content requirements are expected to be mitigated.
  13. In this sense, by 8 September 2016, Petrobras completed the negotiations with Brookfield Asset Management Inc to sell a natural gas distribution pipeline. Further details are available at Accessed on 8 September 2016.
  14. In June 2016, only 82.5 per cent of the Brazilian citizens had access to treated water and 48.6 per cent to sewage. Data collected from Instituto Trata Brasil website at Accessed on 8 September 2016. Pursuant to the National Sanitation System, around 58 per cent of the existing municipalities in Brazil do not have any type of sewage collection or treatment services in place.
  15. Information available on the Brazilian National Inland Transportation Agency (ANTT) at Accessed on 8 September 2016.
  16. Information collected by Radar PPP as of 26 August 2016. According to the same source, currently there are four PPP agreements to be executed by competent authorities and winners of the respective bidding process and 14 tenders in process, which may result in the execution of additional agreements in the next months.
  17. Radar PPP, August 2016.
  18. Idem.
  19. According to a study jointly conducted by IFC, BNDES and IDB in 2015, which exemplifies such trend, ‘in relation to projects deemed as PPPs, from 163 studies initiated between 2010 and 2014, only 46 (20 per cent) reached the stage of public consultation (the first stage of public procurement), 34 (21 per cent) resulted in published call for tenders, and 22 (14 per cent) were successfully tendered’. Armando Castelar Pinheiro et al. Estruturação de projetos de PPP e concessão no Brasil: diagnóstico do modelo brasileiro e propostas de aperfeiçoamento. São Paulo: IFC, 2015, p. 30. Available on BNDES website at
  20. Considering not only PPP projects, from 438 solicited approaches published between 2010 and August, 2016, only 39 (9 per cent) were successfully tendered. The information contained herein was collected by Radar PPP.
  21. Procedure No. TC 012.687/2013-8 was filed by congressman Augusto Rodrigues Coutinho de Melo in the form of a complaint. The plaintiff alleged that Ordinance 38/2013, issued by the Special Port Secretary, which authorised the hiring of EBP was irregular, and claimed the suspension of said act. In summary, the plaintiff sustained, among other topics (1) that EBP was favoured, since, for example, it participated in meetings with the Ministry of Local Affairs even before it had been retained to render the services and public calls were released; (2) that the hiring of the services required a prior bidding procedure; (3) lack of motivation for the amounts due as compensation for the studies conducted by EBP; and (4) that the public authority could not delegate to a third party the drafting of the auction notice or agreement.
  22. The high mortality of projects conducted mainly through PMI, verified in the past year, has called attention to the challenges and main fragilities of the structuring and modeling process of PPPs and common concessions. In this regard, the study jointly conducted by IFC, IDB and the BNDES already mentioned suggests ‘... high transaction costs and ... informational asymmetries and misalignment of interests between the public and private parties’. As a result, ‘possibly, an important cause to the high mortality rates of PMIs is that in practice this mechanism does not reduce transactional costs from public managers’ (Op cit., p. 30). The main challenges faced by the model are also pointed out and investigated: Tarcila E Jordão, Eduardo Reis, 'A Experiência brasileira de MIPs e PMIS: três dilemas da aproximação público-privada na concepção de projetos.' In: Marçal Justen Filho, Rafael Wallbach Schwind (Orgs), 'Parcerias público-privadas: reflexões sobre os 10 anos da lei n. 11.079/2004.' São Paulo: Revista dos Tribunais, 2015.
  23. PAC 1, a strategic investment programme, was launched on 2007 by former President Lula and aimed at promoting the planning and execution of strategic infrastructure projects, in logistics, energy and social and urban infrastructure to foster sustainable economic growth. In 2011, the second phase of the project was launched, and similarly to PAC 1, its main focus was to promote investments in key sectors, organised under initiatives such as Better Cities (urban infrastructure), Bringing Citizenship to the Community (safety and social inclusion), My House, My Life (housing), Water and Light for All (sanitation and access to electricity), Energy (renewable energy, oil and gas) and Transportation (highways, railways, airports). Further information may be found on the Ministry of Planning website at Accessed on 8 September 2016.
  24. Similarly to PAC 1 and 2, PIL was a programme launched in August 2012 by the federal government targeted specifically at projects in the logistics sector. Additional information may be accessed on the Ministry of Transportation website at Accessed on 8 September 2016.
  25. As an illustration, a detailed study conducted by Instituto Trata Brasil monitored the implementation of 337 sanitation and sewage projects planned under PAC from 2009 to 2014. According to the data collected, the projects represent an investment of 20,08 billion reais, of which 5.44 billion reais (25.8 per cent) were to be financed by the federal budget, 12.14 billion reais (57.6 per cent) were to be financed by Caixa Economica Federal and the remaining 3.5 billion reais (16.6 per cent) were to be financed with resources from the BNDES. Of a total of 337 projects, the study identified that only 29 per cent of the projects had actually been concluded, 52 per cent had been in a poor condition, 20 per cent had stalled, 15 per cent had not been initiated and only 15 per cent of the projects had been executed in accordance with its respective timelines. The complete data collected by the institute may be accessed on the Instituto Trata Brasil website at
  26. Further information with respect to disbursements may be accessed on the BNDES official website at Accessed on 8 September 2016.
  27. Boletim ANBIMA, May 2016.
  28. The exhaustion of the long-term financing model highly dependent on the BNDES has been long awaited. In this regard we make reference to ENEI, José Virgílio Lopes. Financiamento das Parcerias Público-Privadas: experiências e lições nos primeiros 10 anos de vigência da Lei 11.079/2004. In: Augusto Dal Pozzo, Rafael Valim, Bruno Aurélio, André Luiz Freire. (Org.). Parcerias Público-Privadas: teoria geral e aplicação nos setores de infraestrutura. 1ed. São Paulo: Fórum, 2014, Vol. 1, p. 123.
  29. In the midst of a political and economic turmoil, in June 2015 the federal government recognised the need to shrink the participation of the BNDES in long-term financing to infrastructure projects and announced new limits and conditions for BNDES financings at the same time it launched a new phase of PIL. Historically, PAC 1 and 2 and PIL have been highly dependent on fininacing from state-owned banks. Up to 2011, BNDES financed 503 projects within PAC, providing loans, that represented 55 per cent of the total investments involved in said projects. Available at Accessed on 8 September 2016.
  30. By reducing the offer of subsidised rates, it is expected that sponsors are going to seek a significant portion of their resources needs in the financial market. In order to induce such practice, in 2015 the BNDES and the Ministry of Planning announced that the higher the proportion financed through the capital markets, the greater the proportion of resources that the BNDES would be willing to provide under subsidised rates. In this regard, we make reference to a piece of news released on the Ministry of Planning website, available at Accessed on 9 September 2016.
  31. Detailed information of the issuance of project bonds may be accessed on the Brazilian Association of Capital and Financial Markets (ANBIMA) website on Accessed on 8 September 2016.

Unlock unlimited access to all Latin Lawyer content