Brazil again turning to private sector to undertake key infrastructure projects

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,” Brazilian lawyer Júlia Rodrigues Coimbra, of Machado Meyer Advogados, said recently at the Brazil-South Africa Trade and Investment: Legal Aspects conference at the Johannesburg Chamber of Commerce and Industry. 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.

During the 1990s, Brazilian privatisations included steel companies, mining group CVRD (today, Vale), aeronautical company Embraer, power generating companies, telecommunications companies and the federal railway network. These privatisations were paralleled by the breaking up of State-owned monopolies to stimulate competition in key sectors of the economy. Between 1990 and 2002, government privatised 165 companies.

However, privatisations largely petered out during the administration of President Luís Inácio Lula da Silva (2003 to 2011). In 2009, there were still 47 federal-owned businesses (including banks, but the best-known was and is the national oil company, Petrobras) and 49 companies owned by the states (also including banks). His successor, Dilma Rousseff (2012 to 2016) did concession some airports. Rousseff was impeached last year and her successor, Michel Temer, is also 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.

“Brazil has 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 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 participations (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 for 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 in the hydropower generation, transmission, highways, railways and airports sectors.

Authorisations are “unilateral administrative acts by which 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 financial support from the “granting authority”. Examples are urban railways, such as metro systems, and sanitation works and systems.