Brazil is re-emphasising privatisations

With the country slowly emerging from its worst recession in decades, with federal government spending now frozen, in real terms, by law, for the next 20 years, Brazil is again looking to the private sector to undertake or help undertake key infrastructure projects. Up to the mid-1990s nearly all infrastructural activities were carried out by State entities, at federal, state and municipal levels.

"[But] then there was a massive wave of privatisations," reported Brazilian lawyer Júlia Rodrigues Coimbra (from Machado Meyer Advogados) at the Brazil-South Africa Trade and Investment: Legal Aspects conference at the Johannesburg Chamber of Commerce and Industry on Tuesday. These privatisations were made possible by the 1988 Federal Constitution and by enabling and regulating legislation passed in 1993, 1995 (two pieces of legislation) and 2004. These were complemented, where required, by sector-specific laws.

However, privatisations largely petered out during the administrations of President Luís Inácio Lula da Silva (2003-2011), although his successor, Dilma Rousseff (2012-2016) did concession some airports. Rousseff was impeached last year and her successor, Michel Temer, is again emphasising privatisations.

Areas in which the Temer administration is seeking private investment include sanitation, energy, highways (toll roads), new railways, and more airports. Many State Governments are also seeking private investment in infrastructure, particularly sanitation and highways. "Brazil needs foreign investment," affirmed Coimbra.

"We [Brazil] have a new law about the Investment Partnership Programme," she pointed out. "The purpose is to relax bureaucratic processes and make investment more attractive to foreign investors." One key provision is that all bidding documents must be issued in English as well as in Portuguese.

There are three main ways by which the private sector can participate in the delivery of public infrastructure and public services. These are concessions, "authorisations" and public/private partnerships (PPPs).

"We have a traditional concession, which is basically a long-term agreement [between a public agency and a private entity]," she explained. This requires an open bidding process. "Basically, the private party will be responsible for all investments ... and operating that activity. The private entity will have to rely on tariffs collected from the public. Most of the business risk will be transferred to the private entity." Examples of such arrangements are found in the hydropower generation, transmission, highways, railways and airports sectors.

Authorisations are "unilateral administrative acts by which the government delegates to a private party the exploitation of an activity." Examples would be the authorisation of private ports or private airports.

"Public service concessions that are not sustainable solely by tariff collection, or from revenues from associated projects, may be structured as PPPs," elucidated Coimbra. These are projects that need the financial support from the "granting authority". Examples are urban railways, such as Metro systems, and sanitation works and systems.