How to understand_legal_aspects_on_doing_infrastructure_business_in_brazil

How to understand LEGAL ASPECTS on doing INFRASTRUCTURE BUSINESS in Brazil

American Chamber of Commerce for Brazil AMCHAMInternational Affairs Department

Brazil, 2010

INFRASTRUCTURE

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The timing could not be more favorable to launch How to understand legal aspects on doing infrastructure business in Brazil: a rising economy, investors from all over the world coming to Brazil and several announcements of new infrastructure works so necessary to ensure Brazils sustainable long-term growth. In fact, the country lives an unprecedented moment for its development. Surrounded by huge investment promises such as the pre-salt oil layer, the 2014 World Cup and the 2016 Olympics, Brazil attracts the worlds attention to itself. But the higher the mountain, the harder its climbing. This is why it is a great pleasure to get together with the American Chamber of Commerce for this venture. There are so many important questions to be approached, so many players to work with and several challenges to be overcome. And this is our purpose on offering to you this volume: to make the way a little smoother and to engender better business opportunities on the infrastructure related fields.

Gabriel Rico, Executive Director AMCHAM Brazil

Antonio Corra Meyer, Partner Machado, Meyer, Sendacz e Opice Advogados

The American Chamber of Commerce for Brazil, being the largest Amcham outside the United States is constantly serving its members by building bridges for Brazilian businesses worldwide. Our foreign investment attraction efforts have also been a key leading point for Amcham. The How To Series is part of this initiative; with the support of some of our corpo-rate members we are putting together strategic information on the most various aspects of doing business in Brazil. Over the last year the Brazilian economy has clearly demonstrated an outstanding economic performance. The countrys business environment as well as for-eign investment numbers are also very positive. The International Monetary Fund estimates that crisis apart; the Brazilian economy should grow on a 3.5% basis. It is now more than ever, a strategic time for businesses opportunities in Brazil, we welcome you and hope that the information you are about to read serves you best.

How to understand LEGAL ASPECTS on doing INFRASTRUCTURE BUSINESS in Brazil

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OvErvIEW .......................................................................................................................6

rEgUlATOry FrAMEWOrkS .........................................................................................7

PrIvATE InvESTMEnT AnD PUBlIC InCEnTIvES PUBlIC-PrIvATE PArTnErSHIPS ..23

InFrASTrUCTUrE FInAnCIng ....................................................................................25

WOrlD CUP AnD THE OlyMPIC gAMES ....................................................................31

ABOUT OUr SPOnSOr ................................................................................................35

How to understand LEGAL ASPECTS on doing INFRASTRUCTURE BUSINESS in Brazil6

OVERVIEW

Brazil is currently experiencing a major leap in the

infrastructure business since the 1970s. In 2009, US$

64 billion were invested in infrastructure projects lo-

cated in different areas of the country and this number

is foreseen to double by 2011. Within the next 10

years, total investments in the infrastructure sector are

expected to reach the expressive amount of US$ 1 tril-

lion1 and Brazil may become the fourth biggest con-

struction site in the world. The historical shortage of

infrastructure investments in Brazil over the last years

is in course of change. Private capital is more than

welcome. It is necessary.

The energy sector is deemed to be one of the most

advanced in Brazil and is currently drawing a lot of

attention since its development is essential to support

economic growth. Although the sector has already

received major public and private investments over

the last years, there are opportunities for further proj-

ects, especially those related to the clean energy in-

dustry, such as ethanol, wind power projects and re-

newable energy sources in general.

The transportation sector is also on the top of the list of

Brazilian governmental priorities. new ports, road and

1 According to lCA Consultoria, as made available in re-vista Exame no. 966, Editora Abril, dated April 21, 2010, page 27.

railroads are being projected and built to enhance

Brazilian logistics facilities, including the ambitious

project for the construction of a high speed train

which shall connect two of the largest cities in the

country (rio de Janeiro and So Paulo). These invest-

ments are highly important, but they are only the be-

ginning when compared to Brazils need and poten-

tial for infrastructure.

Furthermore, the sanitation and airport sectors in Bra-

zil are in dire need of development, as they are very

much behind schedule in comparison with interna-

tional standards and other infrastructure sectors.

The Brazilian government has also taken a stand to

promote growth and development through invest-

ment and economic policies brought by its growth

Acceleration Program (Programa de Acelerao do

Crescimento PAC). This initiative is expected to

considerably increase the number of public conces-

sions and public-private partnerships (PPP) and,

therefore, allow the participation of foreign and na-

tional private players in a large range of relevant in-

frastructure projects.

The 2014 FIFA World Cup and the 2016 Olympic

games also bring opportunities for investing in the

infrastructure business. These events present a great

challenge as well as an unique opportunity of

INFRASTRUCTURE 7

REGULATORY FRAMEWORKS

improving the general infrastructure facilities in the

main cities, including stadiums, hotels and sub-

ways. The Brazilian national Development Bank

(Banco Nacional de Desenvolvimento - BnDES)

is expected to be one of the main financing sources

for the World Cup.

Our analysis encompasses the following sectors: (i)

Electric Energy; (ii) Highways; (iii) Ports; (iv) Mining;

(v) Aviation; (vi) Oil and gas; (vii) Maritime law; and

(viii) Public-Private Partnerships. We have also in-

cluded a few extra topics on Infrastructure Financing,

the World Cup and the Olympic games.

Electric Energy Industry

The Brazilian power industry includes the activities of

generation, transmission distribution, and trading of

energy. The electric power industry is currently regu-

lated by law no. 10,848/04. The main aspects intro-

duced by this law were the creation of two power

trading environments: (i) a regulated contracting mar-

ket, and (ii) a free contracting market; the introduc-

tion of restrictions on distribution companies activi-

ties to ensure that they operate exclusively in public

utility distribution services; the requirement that dis-

tribution companies purchase electricity through long

term reliable contracts sufficient to meet 100% of

their demands.

Agencies And governmentAl Authorities

The Brazilian electricity framework contemplates the

following governmental bodies and agencies: (a) the

Ministry of Mines and Energy (Ministrio de Minas e

Energia - MME), which acts on behalf of the Brazil-

ian government and sets forth the main policies and

regulations for the electricity industry; (b) the Brazil-

ian Electricity regulatory Agency (Agncia Nacional

de Energia Eltrica - AnEEl) that is responsible for

the regulation of the Brazilian electric sector, the im-

position of penalties and the issuance of the regula-

tory framework under MMEs policies; (c) the nation-

al Power System Operator (Operador Nacional do

Sistema - OnS), that is responsible for the coordi-

nation and operation of the Brazilian interconnected

transmission grid, the whole transmission and gen-


eration centralized dispatch; and (d) the Wholesale

Energy Commercialization Chamber (Cmara de Co-

mercializao de Energia Eltrica - CCEE) that is

responsible for (i) registering the relevant data related

to all power purchase agreements; (ii) accounting for

and organizing the sales of electricity in the spot

market; (iii) carrying out electric power auctions in

the regulated contracting market, and (iv) imposing

penalties for the lack of physical or contractual guar-

antees in compliance with electricity sale obligations

under AnEEls rules.

Power industry Activities regulAted And Free contrActing mArkets

The purchases and sales of electricity are carried out

in two different market segments: (i) the regulated

contracting market, where distribution companies

are obliged to acquire the electricity required to meet

100% of the expected demand for the following 5

years in their concession areas through public auc-

tions; and (ii) the free contracting market, a free deal-

ing environment where generators trade their outputs

with sellers and free consumers.

regulAted contrActing mArket

In the regulated contracting market, distribution com-

panies purchase power to meet their projected supply

needs for distribution to their captive consumers, as

the distribution companies can purchase power from

generators in auctions coordinated by AnEEl and de-

ployed by CCEE. Also, the power purchases are gener-

ally carried out under two types of bilateral contracts:

(i) output contracts, used by hydroelectric plants and

(ii) capacity contracts, used by thermoelectric power

plants (including co-generation units).

The regulated contracting market guidelines define

how distribution companies must comply with the

obligation to meet all market demands, in particular

through power auctions. The MME is responsible for

defining the volume of electricity to be purchased in

the regulated contracting market, as well as a list of

the generation projects authorized to participate in

the auctions in each year.

Power Auctions under the regulAted contrActing environment

There are generally six types of auctions (i) A-3 (to con-

tract power output or capacity to be delivered 3 years

ahead of the auction year); (ii) A-5 (to contract power

output or capacity to be delivered 5 years ahead of the

INFRASTRUCTURE 9

auction year); (iii) renewable sources auctions (auc-

tions carried out to contract power generated exclu-

sively from alternative sources of power); (iv) reserve

energy auctions; (v) A-1(to contract power output or

capacity to be delivered 1 year ahead the auction

year); and (vi) adjustment auctions.

recently, the Federal government is granting bene-

fits and incentives to stimulate the development of

alternative electricity sources, such as wind and bio-

mass projects and Small Hydroelectric Projects -

SHP2, in order to diversify the national energy matrix

and assure the annual consumption demand in Bra-

zil. In addition to that, MME is continually promot-

ing auctions for the contracting of energy produced

from renewable sources.

energy regulAtory chArges

There are different charges applicable to the distribu-

tion, transmission and generation activities, such as

the (i) global reversal reserve - rgr, (ii) Payment for

the Use of Public Assets, (iii) Fuel Consumption Ac-

count, (iv) Electricity Utility Services Inspection Fee,

2 According to the AnEEls resolution n 652, dated De-cember, 2003, SHP shall be defined as all hydro generating unit, meant for independent production or self-production, with total potency between 1,000 kW to 30,000 kW and reservoir area not bigger than 3 km (square kilometer).

(v) research and Development fees (r&D) and (vi)

Tariffs and Charges on the Use of Distribution and

Transmission Systems.

By means of those charges the holders of conces-

sions, licensees and authorizations are required to

make monthly contributions to support and pro-

mote (i) the competitiveness in the power produced

from alternative sources; (ii) the universal supply of

electricity services; and (iii) diversification of tech-

nology, among others.

Highway Concessions

FederAl highwAy concessions

The Brazilian highway concessions program started

in the mid nineties, after the enactment of law no.

8,666/93, which sets forth the general rules for the

bidding processes and engagements between public

administration and private initiative and law 8,987/95

which governs concessions for public services.

Based on these laws, during 1993 and 1994, the Fed-

eral government, represented by the national road-

way Department (Departamento Nacional de Estra-

das e Rodagem DnEr), currently replaced by the

national Transportation Infrastructure Department

(Departamento Nacional de Infra-Estrutura de Trans-


portes DnIT), carried out a public bid consisting of

four federal highways and one bridge, including rio-

niteri Bridge and the Presidente Dutra Highway, which

connects the cities of So Paulo and rio de Janeiro.

Following these initial steps, law no. 9,277/96 au-

thorized the Federal government to delegate, by

means of a concession agreement, the management

and operation of other Federal highways to the States,

Municipalities and to the Federal District.

resPonsible FederAl Agencies And governmentAl Authorities

In this context, law no. 10,233/01 initiated the pro-

cess of improving the Brazilian transportation sys-

tem, by creating the following regulatory authorities:

(A) the national Transportation Policies Integration

Council (Conselho Nacional de Integrao de Polti-

cas de Transporte COnIT), a public entity re-

sponsible for establishing the national integration of

the different forms of transportation of people and

goods in accordance with (i) national, local and ur-

ban development policies; (ii) rules related to envi-

ronment and safety of population; and (iii) guide-

lines for physical integration and others features

relating the highways systems; (B) the national

ground Transportation Agency (Agncia Nacional

dos Transportes Terrestres AnTT), a federal regu-

latory agency responsible, for the implementation of

COnIT policies, with authority to regulate and su-

pervise the rendering of highway transportation ser-

vices, as well as to execute and manage the conces-

sion contracts within its area of performance; and

(C) DnIT, a Federal regulatory agency responsible

for supervising the operation, maintenance, restora-

tion or replacement, capacity conformity and ex-

pansion of the road system by means of building

new ways and terminals.

stAte highwAy concessions

Within each member State, regulatory agencies were

created in order to regulate and supervise the con-

cessions subject to the jurisdiction of the States; those

concessions basically involved highways built to

connect points of interest within a State, but exclud-

ing Interstate highways, since these are under the ju-

risdiction of the Federal government, but note that

some Federal highways have been delegated to the

States, which may then grant concessions for their

operation to private parties.

As previously mentioned, with the enactment of law

no. 9,277/96, the States received authorization from

the Federal government to grant and supervise spe-

cific fragments of Federal highways located within

the State to the private initiative.

INFRASTRUCTURE 11

stAte Agencies

In rio de Janeiro, the government created the Agn-

cia Reguladora de Servios Pblicos concedidos do

Estado do Rio de Janeiro ASEP/rJ, in 1997. In

2002, the government of So Paulo created the

Agncia Reguladora de Servios Pblicos Delegados

de Transporte do Estado de So Paulo ArTESP.

ArTESP is a regulatory agency responsible for the

regulation and supervision of public transportation

services performed by private entities, within the

scope of the Transportation State Secretary (Secretaria

de Estado dos Transportes). This Secretary is respon-

sible for the coordination of the States means of

transportation and for the organization and operation

of the transportation systems owned by the State.

To date, various States, including Bahia, Pernam-

buco, Esprito Santo, Minas gerais, Paran and

So Paulo have highways operated and maintained

by private entities. The concessions are regulated

in each State by the respective transportation de-

partment or regulatory agency.

municiPAl highwAy concessions

Municipal highway concessions are generally more

limited than those concessions which are comprised

by the Federal and State concession programs, once

they are restricted to fragments located within the

sphere of the Municipality.

nevertheless, Municipal governments may also

choose to privatize their highways (e.g linha Amarela

in the City of rio de Janeiro). The Municipality is, in

this case, responsible for the organization and coor-

dination of the bidding procedure, besides taking all

necessary measures for its implementation and for-

malization, without involving the AnTT or the agen-

cy of the respective State.

Ports

Up to the early nineties, ports in Brazil were operated

by the Federal government, through its government-

controlled entity, Portobrs Empresa Brasileira de Por-

tos S.A., and its subsidiary, the so-called Companhias

Docas, created to be in charge of concentrating and

carrying out all port activities in Brazil, as a govern-

mental monopoly.

As a result of a crisis experienced in the eighties, gov-

ernmental monopolies over infrastructure activities,

including in the port sector, had to be gradually eased

so that the private sector could contribute with the

required investments. In the port industry, the num-

ber of private ports gradually increased, no longer


merely associated with the need of specific infrastruc-

ture but also due to the inability of the government to

provide adequate port capacity and services.

leAse Agreements And AuthorizAtions

In order to regulate this new reality and to attract

further private investments under a more suitable

and stable legal framework, law no. 8,630/93 was

enacted, assuring to any private party the right to

construct, reform, expand, improve, lease and oper-

ate port terminals, by means of: (i) lease agreements

(Contrato de Arrendamento), to be entered into with

the Federal government or with a government-ap-

pointed concessionaire, after a mandatory public

bidding procedure, when the port terminal is located

within an organized port area; or (ii) an authorization

from the competent authority currently the national

Water Transportation Agency (Agncia Nacional de

Transportes Aquavirios) AnTAQ, with respect to

private terminals located outside the organized port

area or within the organized port area, that is the port

terminal area, to the extent that the interested party

holds legal rights to use the relevant land.

PrivAte terminAls

law no. 8,630 made the distinction between ex-

clusive-use private terminals (terminais privativos

de uso exclusivo) intended only for handling of

cargo owned by the operator itself and mixed-use

private terminals (terminais privativos de uso misto)

intended for handling of third party cargo as well

as own cargo.

regulAtory Agency

law no. 10,233, of 2001, created AnTAQ and set

forth a new legal framework for transportation activi-

ties in Brazil, introducing certain adjustments spe-

cifically applicable to the port sector, as regulated by

law no. 8,630, which nonetheless remained in full

force, subject to the specific adjustments implement-

ed by law no. 10,233.

To regulate and detail the requirements for granting of

a private terminal authorization (for both exclusive-use

and mixed-use terminals), AnTAQ enacted resolution

no. 517, of October 18, 2005, which was replaced by

AnTAQ resolution no. 1,660, of April 8, 2010.

INFRASTRUCTURE 13

decree no. 6,620 And AntAQ resolution no. 1,660

As a result of new policies, under Decree no. 6,620,

authorizations for the exploitation of mixed-use pri-

vate terminals became more limited, due to restric-

tions imposed to the handling of third party cargo,

which may only be handled by the authorization hold-

er as a subsidiary and occasional activity. Additionally,

the third party cargo must be of the same nature and

have the same moving and storage characteristics of

the authorization holders own cargo.

newly issued AnTAQ resolution no. 1,660 also

provides for more stringent criteria of own cargo

requirements.

Mining

All mineral resources located in the national territory

constitute ownership detached from the surface and

belong to the Brazilian Union, according to the Brazil-

ian Constitution. Mining companies incorporated un-

der Brazilian law, headquartered and managed in Bra-

zil may retain the ownership of certain mineral

products resulting from their efforts towards produc-

tion of mineral resources after being duly authorized

by the responsible authorities. A participation in the

results of the mining activities is also conferred to the

surface areas landowner or possessor.

governmentAl Authorities

The responsible authorities entitled by law to rule on

mining specific matters are (i) the Ministry of Mines

and Energy (Ministrio de Minas e Energia - MME),

which is responsible for coordinating and formulat-

ing the Brazilian public policies with respect to min-

eral resources and energy production and (ii) the

national Department of Mineral Production (Depar-

tamento Nacional de Produo Mineral - DnPM),

an entity empowered to follow-up, analyze and dis-

seminate the performance of the Brazilian and inter-

national mineral economy, among other actions ac-

cording to the mining legislation.

The Brazilian Mining Code (Decree-law no. 227/67,

as amended) sets out the legal framework applicable

for exploitation and trade of mineral resources. Pres-

ently, mining activities may only be carried out after

obtaining due MME/DnPMs approval (e.g. explora-

tion permit, mining concession, licensing3, mine

3 In the licensing regime, it is possible to perform mining activities of specific minerals, upon registry and licensing before DNPM, without the previous performance of ex-ploitation/research works in the area. These specific min-erals (such as sand for civil construction and clay, among others) may also be exploited by the standard regime of mining concession.


manifest4, as applicable)5.

exPlorAtion Permit And mining concessions

The DnPM grants an exploration permit (for work re-

lated to the definition of the resources, evaluation

and determination of the production feasibility) to an

interested party for a maximum period of 3 years,

renewable for 1 to 3 years upon due justification.

Upon completion of the geological exploration

works at the site, the interested party shall submit a

4 The mine manifest is a title that represents domain over the actual mine and not only over the mining right. The mine manifest is a regime set forth by the legislation that preceded the Brazilian Mining Code. As a result, mines granted under a mine manifest regime are subject to all fiscal and tax leg-islation as the mining concession but not to the penalty of forfeiture, applicable to mining concessions only. As a real estate property, a mine under the mine manifest regime may be sold, mortgaged, leased or transferred under the terms of the Brazilian Civil Code of 2002.5 It is important to point out the differences of mining rights and mining titles: (i) mining right is every right related to exploitation, mining easements and every right registered with the DnPM; and (ii) mining title is the instrument grant-ed by the competent authority duly published in the Offi-cial gazette in order to permit the exploitation of a certain area, such as mining concessions, exploration permits and mine manifests.

final exploration report to the DnPMs evaluation

and approval. Should the approved geological ex-

ploration report reveal the existence of economically

exploitable mineral deposits, the interested party

shall have 1 year, as from the DnPMs approval, to

require a mining concession.

The relevant mining concession request shall be sup-

ported by an economic exploitation plan (Plano de

Aproveitamento Econmico PAE), a document

informing the DnPM how the party intends to ex-

ploit the mine. The PAE shall be subject to the

DnPMs review and approval. Once the mining con-

cession is granted, its titleholder shall have the right

to exploit the mine in accordance with the PAE. The

titleholder shall further issue a yearly exploitation re-

port (Relatrio Anual de Lavra) by March 15th.

Forfeiture of a mining concession may be applied in

four extreme situations: (i) proven evidence of aban-

donment or shut down of mining activities; (ii) recur-

rent infringement of the starting and re-starting dates

for mining activities, despite previous sanctions

(warnings or fines); (iii) recurrent refusal to comply

with the DnPM inspections instructions; and (iv)

abusive mining or extraction of a mineral sub-

stance not included in the mining concession, inde-

pendent of admonishment or fine. The mining con-

cession may also be revoked at the Federal Unions

INFRASTRUCTURE 15

discretion in case economically valuable nuclear

mineral reserves with a higher economic value than

that of the mineral substance in the mining conces-

sion are found. In this case, the titleholder is ensured

fair compensation for the investment.

cFem

States, Municipalities and the Federal Union are en-

titled to a share of the results of exploitation of min-

eral resources in their respective territory by means

of a financial compensation called compensao

financeira pela explorao de recursos minerais

(CFEM). The CFEM assessable basis is the net rev-

enue6 resulting from the sale of the mineral product

(total sales less taxation, transportation and insur-

ance expenses) after the last stage of the coring,

cleaning or pelletizing process, as applicable. The

applicable rate varies according to the mineral

product, as defined by the DnPM.

6 According to the DnPM, for CFEM calculation purposes, the net revenue is the value of the sale of the mineral product, deducted the taxes (ICMS, PIS, COFInS), which levies on the commercialization, as well as the transporta-tion and insurance costs (original wording: Entende-se por faturamento lquido o valor da venda do produto min-eral, deduzindo-se os tributos (ICMS, PIS, COFInS), que incidem na comercializao, como tambm as despesas com transporte e seguro).

leAse And Assignment oF the mining rights

Mining rights may be transferred to third parties, pro-

vided that (i) the transferee fulfils the qualification

requirements established by the DnPM, and (ii) there

is prior consent by the DnPM. It is worth noting that

exploration permits may be transferred whereas ex-

ploration permit requests may not.

Aviation

Brazilian civil aviation is regulated by Brazilian law

and international public and private law. The entity

responsible for regulation and supervision of the

civil aviation sector is the national Civil Aviation

Agency (Agncia Nacional de Aviao Civil -

AnAC), directly subordinated to the Brazilian

Ministry of Defense.

The exploitation of air navigation, airspace and air-

port infrastructure activities, which may be delegated

under concession, permit or authorization regimes,

is within the Federal governments powers according

to section 21, XII of the Brazilian Constitution.

The Brazilian Aeronautic Code (law no. 7,565/86,

the Cdigo Brasileiro de Aeronutica - CBA) regu-

lates activities related to air navigation performed by

the private sector (under permit, concession or au-


thorization regimes), as well as activities related to

the airport infrastructure sector.

Furthermore, Brazil has ratified certain international

treaties related to the aviation sector, such as the

1944 Chicago, 1948 geneva and the 1962 rome

Conventions. As of this date, Brazil has not yet rati-

fied the Cape Town Convention7.

AnAc

As the regulatory agency responsible for the aviation

sector in Brazil, AnAC concentrates many responsi-

bilities, such as: (i) granting concessions and authori-

zations to the exploitation of public air services; (ii)

regulating flight schedules in airports; (iii) managing

the Brazilian Aeronautic registry (rAB); (iv) repre-

senting the Brazilian government in conventions and

international treaties related to aviation; and (v) issu-

ing resolutions regarding civil aviation in Brazil.

7 The Cape Town Convention is an international treaty which intends to standardize transactions involving movable prop-erty, particularly aircraft and aircraft engines.

registrAtion oF AircrAFt

The rAB is the Brazilian aircraft register and is regulated

by the CBA and resolutions issued by AnAC. It is re-

sponsible for the issuance of certificates of registration,

airworthiness and nationality, the registration and dereg-

istration of aircraft and registration of liens over aircraft

(mortgages, fiduciary sale and other encumbrances).

Enrollment with the rAB grants the aircraft Brazilian

nationality and can only be performed in the name of

Brazilian individuals or companies or foreign individ-

uals with legal address in Brazil. Also, a provisional

registration of the aircraft can be made in the name of

the exploiter, user or lessee with the consent of the

owner in case the aircrafts title is held by a foreign

entity and its operation is transferred to a Brazilian en-

tity under a lease agreement or similar arrangement.

Such provisional registration will further identify the

aircrafts owner. Brazilian nationality and registration

marks will be cancelled upon deregistration of the

aircraft, which require the express consent of the

owner and of the beneficiary of any lien registered

with respect to the aircraft.

INFRASTRUCTURE 17

The registered owner (or the registered operator if dif-

ferent from the owner) will be primarily responsible

for civil liabilities inherent to the operation of rAB-

registered aircraft, including third party liabilities.

Air services

Air services in Brazil can be private or public. Private

air services are those services performed without any

sort of remuneration for the exclusive benefit of the

operator of the aircraft. Public air services, on their

turn, are defined as air transportation of passengers,

cargo or mail, either regular (scheduled) or non-reg-

ular, domestic or international, as well as other spe-

cialized air services as defined in the CBA.

regular public air services depend on concession by

AnAC. Concessionaires are eligible if: (i) their head

offices are located in Brazil; (ii) at least 80% of their

voting capital is held by Brazilians8; and (iii) they are

managed exclusively by Brazilians.

Such restrictions are applicable to companies that

will operate domestic flights in Brazil; they are not

applicable to non Brazilian companies that will carry

8 Bill of law no. 6,716/09 purports to increase the foreign participation in the voting capital to 49%. Such Bill of law is undergoing legislative proceedings to be voted by the Brazil-ian congress.

out international regular public air transportation. In

order to operate in Brazil, such companies must be

designated by the government of their respective

country and obtain authorization from the Brazilian

government, through AnAC, to perform and operate

their services in Brazil.

non-regular public air services (such as air-taxi ser-

vices) also require the Federal governments authori-

zation and may be granted to Brazilian companies

that fulfill the requirements for regular public air ser-

vices outlined above.

AirPort inFrAstructure

The Brazilian government is responsible for the man-

agement and operation of Brazilian airports; such ac-

tivities may be delegated to the private sector by

means of a concession or authorization. The Brazilian

main airports are currently being operated by Infraero,

a government company created with the purpose of

building, managing and operating airports in Brazil.


Oil and Gas

The original wording of section 177, 1st paragraph

of the Brazilian Federal Constitution contemplated

a monopolistic regime for the benefit of the Federal

Union on the exploration, production, refining, im-

port, export and transportation of hydrocarbons.

Such framework prevented the transfer, assignment

or granting of crude oil and natural gas to any pri-

vate companies. Petrobras, a partially state owned

company controlled by the Federal government

and with shares traded in the stock markets, con-

ducted the monopolistic activities on behalf of the

Federal government.

The regulatory breakthrough that allowed major in-

ternational investment in the oil industry was the

enactment of Constitutional Amendment no. 9 of

1995, which eased the oil and gas monopoly in

Brazil. Two years later, law no. 9,478/97 (the Oil

and gas law) was passed regulating such amend-

ment to the Constitution. One of the major mile-

stones of the oil and gas law was to set forth the

granting instruments (concession agreements) and

respective bidding regime (bidding rounds by the

Agncia Nacional de Petrleo, Gs Natural e Bio-

combustveis AnP the AnP rounds). Such

new legal framework allowed privately-owned

companies to carry out exploration and production

activities and own and dispose of hydrocarbons

once extracted from the soil, although maintaining

the Federal monopoly over hydrocarbons activities.


The Oil & gas law also rearranged the public author-

ities in charge of regulating and inspecting hydrocar-

bons activities, mainly the national Council on Energy

Policy (Conselho nacional de Poltica Energtica

CnPE), a council of ministers in charge of planning

and coordinating the national energy policy, and the

national Petroleum, natural gas and Biofuels Agency

- AnP, a regulatory body of the Federal government

linked to the Ministry for Mines and Energy.

AnPs key function is to regulate the oil, natural

gas and biofuels activities in Brazil and to imple-

ment the policies ruled by CnPE. Among AnPs

mandate, the following roles may be highlighted:

(i) to conduct bidding rounds and concession

agreements for the exploration, development and

production of oil blocks; (ii) to regulate oil and

gas transportation and marketing activities; and

(iii) to ensure the supply of fuel to the national

market under contingency conditions.

INFRASTRUCTURE 19

uPstreAm Activities

Both IOCs9 and Petrobras, the Brazilian nOC10, may

explore and produce hydrocarbons by means of en-

tering into concession agreements (as a result of a

winner bid, for both onshore and offshore blocks)

under AnPs rounds. The bidding rounds have typi-

cally been driven by a combination of three major

criteria: (i) signing bonus (upfront payment), (ii) mini-

mum work program commitment and (iii) local con-

tent (percentage of services contracted with entities

incorporated in Brazil).

As compensation for the right to explore the blocks,

the concessionaires shall pay certain government

takes (signing bonus, royalties, special participations

and land occupation fee) and taxes.

Following the discoveries in 2007 of a major cluster

of oil and gas in the so-called pre-salt area located in

the offshore Santos Basin (Pr-Sal), President lulas

administration felt the need of modifying the up-

stream legal regime in Brazil.

9 International Oil Companies, which, according to the Fed-eral Constitution and the Oil & gas law, may participate by creating companies incorporated under the laws of Brazil (although they can be wholly owned by foreign entities).10 national Oil Company.

At the present moment11, there are four bills of law

pre-approved by the Brazilian House of representa-

tives (Cmara dos Deputados) awaiting approval

from the Brazilian Senate (Senado Federal) and fur-

ther sanction from the President. The proposed

amendments, if approved, would (a) insert the pro-

duction sharing regime as the granting instrument for

Pr-Sal and strategic areas, (b) create a new wholly

state-owned company in charge of representing the

interest of the Federal Union in the production shar-

ing contracts, and (c) approve the capitalization of

Petrobras, among other changes.

downstreAm Activities

AnP is also in charge of regulating and inspecting

downstream activities. The natural gas industry is also

regulated by recently enacted law no.11, 909/09

(the gas law).

The gas law, which still lacks further regulation, sets

forth rules for the transportation of natural gas through

pipelines, deemed as public interest activities to be

carried out by Brazilian entities under a concession

regime, following a public bidding process carried

out by AnP. Exceptionally, when associated with an

11 This section of the Doing Business report was lastly up-dated on May 18, 2010.


international treaty, the transport of gas through pipe-

lines shall be governed by the authorization regime.

Pipelines classified as gas evacuation pipelines shall

remain to be regulated under the upstream granting

instrument regime, and thus are not subject to man-

datory third party access and a specific gas transpor-

tation concession contract. On the other hand, trans-

portation pipelines shall allow third party access,

subject to grace periods and other conditions set

forth under the gas law.

Furthermore, the gas law refers to other activities

regulated by the AnP and subject to authorization

regime, such as the import, export, storage, process-

ing, treatment, liquefaction, re-gasification and sale

of natural gas.

Finally, it is relevant to note that the Brazilian Federal

Constitution grants the States the exclusive right to

exploit local distribution of piped natural gas. In that

sense, States Authorities have an important role on

regulating local gas distribution activities.

Admiralty Law (Maritime Law) Admiralty law (also referred to as maritime law) is

governed by sparse legislation under Brazilian law.

nonetheless, the second part of the Brazilian Com-

mercial Code (BCC) regulates the maritime trade of

goods by force of Section 2,045 of the Brazilian Civ-

il Code. law no. 9.432/97 regulates maritime trans-

portation matters.

tyPes oF nAvigAtion

According to Brazilian law, there are five types of

navigation, as follows: (i) maritime support (apoio

martimo), related to the support of vessels and facili-

ties located in national territorial waters and econom-

ic zones, used to perform minerals and hydrocarbons

prospecting activities; (ii) port support (apoio por-

turio), related to the support of vessels and port fa-

cilities located in the port area; (iii) cabotage (cabota-

gem); related to the domestic navigation between

ports or points within the Brazilian territory; (iv) inter-

nal navigation (navegao interior) related to naviga-

tion through the inland highways, regardless of being

domestic or international route; (v) and long course

navigation (navegao de longo curso), related to

navigation between Brazilian and foreigners ports.

INFRASTRUCTURE 21


There are four main regulatory bodies which moni-

tor and supervise the Maritime Industry. The first one

is the national Agency of Waterway Transportation

(Agncia Nacional de Transportes Aquavirios -

AnTAQ), under the Ministry of Transportation.

AnTAQs purpose is to regulate, supervise and in-

spect the activities linked to services related to wa-

terway transportation and port and waterway infra-

structure exploration.

Amongst its roles is to grant authorizations allowing

companies to operate as a Brazilian navigation com-

pany. To obtain such authorization, one must meet

certain legal, technical and financial-economic re-

quirements established by AnTAQ, which vary ac-

cording to the chosen type of navigation.

The second and third bodies are the Maritime Tribu-

nal (Tribunal Martimo) and the Captaincy of Ports

(Capitania dos Portos). Both are governmental bodies

responsible for maritime property registration. The

vessel acquires its nationality and flag through its

registry. The maritime property registration is regu-

lated by law no. 7,652/88, which establishes the

requirements for obtaining the registy.

The fourth body is the Directorship of Ports and Coasts

(Diretoria de Portos e Costas - DPC), an administra-

tive division of the navy Command, which acts as a

complementary regulatory body alongside AnTAQ.

DPCs main attribution consists on elaborating admin-

istrative rules called norms of Maritime Authority

(nOrMAM), which specifically regulate several is-

sues related to navigation security guidelines and pol-

icy. DPC is also entitled to create measures to decrease

pollution produced by vessels and platforms.

mAritime registry

In order to operate a vessel, one needs the maritime

registry, the vessel operator registry and AnTAQs au-

thorization. There is also one additional registry,

named Special Brazilian register (rEB), which is

optional. It is governed by Decree no. 2,256/97 and

it applies to Brazilian vessels or to foreign vessels

chartered by demise to Brazilian navigation compa-

nies. Its purpose is to enable fiscal benefits concern-

ing construction, modernization and repairs, as well

as benefits related to insurance and reinsurance,

crew, fuel prices and working agreements.

chArters

regarding vessel charters, there are three types of

charters in Brazil: (i) voyage Charter, which relates to

term of the charter lasting only one journey; (ii) Time

Charter Party, where the charters duration lasts a time


defined on the contract; and (iii) Charter By Demise,

where the charterer has the right of using and con-

trolling the vessel, for a set period, including the right

to designate the crew and its commander, but having

liabilities under its operation.

As a general rule, charters shall only be performed by

Brazilian companies, with the usage of Brazilian

ships (exception is made for the long course type of

navigation). nonetheless, there are exceptions such

as an instrument known as Circularization.

Circularization is a procedure used when a compa-

ny needs a specific vessel for a specific activity. The

general conditions to use a foreign vessel charters

are (i) the inexistence or unavailability of an ade-

quate Brazilian vessel, (ii) public interest, and (iii)

charter of a maximum of 36 months, when substitut-

ing a vessel that is currently under construction in a

Brazilian shipyard, as long as the vessel to be char-

tered does not surpass the double of the total ton-

nage of the vessel under construction. Fulfilled such

conditions, the Brazilian company shall, extraordi-

narily, charter a foreign vessel. Once this process is

carried out, AnTAQ shall issue the Charter Authori-

zation Certificate. On the other hand, if there is a

Brazilian vessel adequate for the desired activity, the

Brazilian navigation company that owns it can block

the charter requirement, and offer its vessel.

Funds

The Fund of the Merchant Marine (Fundo da Marinha

Mercante - FMM) is a fund created by the Federal

government, governed by law no. 10,893/04. It was

created with the purpose of improving the develop-

ment of the Brazilian naval industry and fleet. Since

its creation, it has financed projects for the most di-

versified naval areas, comprising activities that vary

from fishing to the oil and gas industry.

Another important fund is the guarantee Fund for

naval Construction (Fundo Garantidor da Construo

Naval) governed by law no. 11,786/08. Its purpose

is to cover the credit risk and the performance risk of

the construction of a vessel on a Brazilian shipyard. It

can either guarantee the credit taken from a financial

agent or the performance of the shipyard responsible

for the construction of the vessel.

INFRASTRUCTURE 23

PRIVATE INVESTMENTS AND PUBLIC INCENTIVES PUBLIC-PRIVATE PARTNERSHIP

Public-Private Partnerships (PPP) are a type of pub-

lic investment in which the government engages a

private party for the rendering of a public service or

the rendering of a service to the State itself, demand-

ing, in any case, a high investment and a horizon of

long-term investment amortization.

In a broad sense, public-private partnerships consist

of any collaboration between the public sector and

private parties in support of the performance of cer-

tain enterprises, comprehending various instru-

ments, such as public work bids, public service

concessions, concessions for the use of public as-

sets, permission, authorization for the exercise of

regulated activities, administrative contracts in gen-

eral, consortium involving agents of the public ad-

ministration and private parties, mixed-capital cor-

porations, among others.

Public-private partnerships as defined by Federal

law n. 11.079, dated 12.30.2004 (PPP law),

were created with the purpose of attracting a new

wave of private investments for projects of high so-

cial interest, especially in the infrastructure sector,

which, under normal conditions, would not be

economically feasible or would be assigned to

State action, depending upon very scarce budget-

ary availabilities. PPPs are, therefore, an answer to

the limitations verified in traditional investment re-

gimes by means of collaboration of the State and

private parties (concessions, permissions, authori-

zations and public works bids).

Sponsored and Administrative Concessions

The PPP law, applicable not only to the Federal pub-

lic administration, but also to the State and Munici-

pal administrations, has provided two modalities of

PPP, as follows:

(a) Sponsored Concession the PPPs purpose is the

rendering of a public service by a private partner di-

rectly to final customers, in which a portion of con-

cessionaires remuneration results from tariff revenues

charged from its customers, and another portion re-

sults from payment subsidiaries paid directly by the

government; and

(b) Administrative Concession the PPP has as pur-

pose the rendering of services by the private partner to

the Public administration, as direct or indirect user, to

the society in general, or to a community that cannot

be individualized or subject to tariff collection (e.g.

prisons). Accordingly, remuneration is derived solely

from governmental payments to the concessionaire.


The Brazilian Federal Constitution (Section 175) sets

forth that public services shall be rendered by the

State directly or by means of concession to be grant-

ed to private entities by means of a public bidding

procedure. Therefore, a PPP contract shall be pre-

ceded by a bid to select the concessionaire.

Comparison with Common Concessions

Differently from traditional investment and regimes

of collaboration between State and private parties,

the PPP presents the following main features: (i) re-

muneration of the private sector (partially or totally)

assumed or guaranteed by the State; (ii) long-term

relationship, and (iii) remuneration subject to prop-

er performance.

Risk Mitigation

This possibility of the government performing pay-

ments to a concessionaire under PPP contracts miti-

gates, totally or partially, risks related to tariff, de-

mand and market, which are sometimes crucial to

confer economic feasibility to a certain project under

the private parties perspective, especially under a

project finance regime, though due to such configu-

ration other risks may be aggregated (government

credit risk, political risk etc).

INFRASTRUCTURE 25

INFRASTRUCTURE FINANCING

Financing Sources

the FinAncing oF the brAziliAn inFrAstructure sector

Brazil has experienced its longest growth cycle over

the past decades. The 2007/2008 crisis has slowed

this growth, but also caused the Federal government

to launch a series of initiatives, special programs and

legislative changes to stimulate the economy. Exam-

ples include the special program for the acceleration

of the economy, the PAC, created in 2007, whereby

investments of more than r$500 billion were envi-

sioned for selected and crucial infrastructure projects

(including highways, railways, power plants and

ports). In 2010, the Federal government launched

PAC 2, which estimates investments of approximately

r$ 1,5 trillion (including some of the r$500 billion

of PAC still pending) in the upcoming years.

The historical lack of investments in infrastructure,

combined with their need to sustain the continued

growth of the Brazilian economy, has created various

business opportunities for private investment, most of

them related to PAC/PAC 2 qualified projects. new

major opportunities are also likely to be seen in the

near future as Brazil will host the two highest profile

sporting events of the world, the FIFA World Cup in

2014 and the Olympic games in 2016.

Transactions in the Brazilian infrastructure sector are

traditionally financed by Brazilian governmental

banks and agencies, multilaterals, foreign govern-

ment owned banks, export credit agencies and major

private banks. In the past, the capital markets were

only occasionally accessed to finance and refinance

infrastructure transactions. nowadays, due to the

creation of certain regulatory and tax incentives, the

capital markets are more and more often seen as fea-

sible alternatives to finance these transactions.

brAziliAn governmentAl bAnks

The continued flow of financing for the Brazilian

infrastructure sector has been historically main-

tained by the Federal government, acting through

its banks. Banco Nacional de Desenvolvimento

Econmico e Social BnDES is certainly the

most notable example of that.

BnDES played and continues to play an important

role in the financing of virtually all of the most im-

portant Brazilian infrastructure projects, securing the

availability of special credit lines for them. Examples

include the credit lines opened for the World Cup

and the Olympics and for the financing of the Santo

Antnio, Jirau and Belo Monte hydroelectric power

plants and the high speed train linking the cities of

So Paulo and rio de Janeiro.


Other important government owned banks, which pro-

vide financing for projects in their areas of interest, in-

clude Banco do Brasil - BB, Caixa Econmica Federal

- CEF, Banco do Nordeste do Brasil BnB (the

northeast development bank), and Banco da Amaznia

BASA (the amazon development bank).

In the recent years, legislation was passed to allow

funds sitting in the FgTS the mandatory social secu-

rity fund for all employees in Brazil to be invested in

infrastructure, through the so called FI-FgTS The

FgTS Infrastructure Fund. FI-FgTS has rapidly be-

come one of the most active players in the Brazilian

market, investing in opportunities in a variety of infra-

structure sectors, investing both in debt and equity

infrastructure sectors12.

multilAterAls, Foreign governmentAl bAnks And ecAs

The Inter-American Development Bank IDB and the

International Finance Corporation IFC have a strong

and longstanding tradition to finance infrastructure trans-

actions in Brazil, both in the public and private sector.

These banks participated in the financing of the first

project finance deals back in the nineties and contin-

12 Up to 2010, FI-FgTS has made almost 20 billion reais in investments.

ue to play an active role nowadays. Corporacion An-

dina de Fomento CAF also appears as a viable

source of financing, especially after the entry of Bra-

zil as its shareholder. Foreign banks typically partici-

pate in the transactions involving these entities, by

providing the necessary funding for their B loans.

Foreign governmental Banks and Export Credit Agen-

cies, like the Japan Bank for International Coopera-

tion JBIC, kfW, U.S. Ex-Im Bank, nIB, Finnvera,

Bank of China, are always considered when interests

of companies of their countries are involved.

The income tax over the interest of these loans is gen-

erally exempted, making them attractive from an

economic point of view. These loans, however, are

normally made in foreign currency, bringing to the

equation considerations regarding the foreign ex-

change risk and the cost to eventually mitigate it.

PrivAte bAnks

Currently, not only international private banks par-

ticipate in major infrastructure projects in Brazil,

but also several local financial institutions. Brazil-

ian financial institutions showed their financial

strength during the 2007/2008 crisis, putting to test

the regulatory structure of the Brazilian banking in-

dustry. A variety of debt instruments allow private

INFRASTRUCTURE 27

banks to carry out transactions expeditiously. Pri-

vate banks typically participate in major infrastruc-

ture deals through syndicates.

Securities / Guarantees in Financing Transactions

Financing transactions granted by Brazilian and foreign

creditors involving Brazilian infrastructure projects

usually contemplate a security package comprising

both guarantees (rendered by a parent company or in-

dividual that participates or holds interest in the project

company) and securities (over the respective rights, as-

sets, real estate and receivables of the project).

Under Brazilian law, there are a few types of securi-

ties that could be implemented in the design of the

security package related to financing transactions. Ir-

respective of the type of security adopted, under such

financing transactions, the security package usually

include real estate, shares/quotas of Brazilian com-

panies, credit rights against Brazilian financial insti-

tutions, emerging rights arising out of concessions

and authorizations granted by public bodies and au-

thorities, and receivables, rights and credit rights aris-

ing out of the relevant project contracts.

The types of securities that are usually adopted by

creditors under such transactions include: (i) fiduciary

assignment or sale of rights, assets, receivables or real

estate; (ii) pledge of rights, assets and receivables; and

(iii) mortgage over real estate located in Brazil.

Pursuant to Brazilian law, there are a few require-

ments that should be complied with in order for cer-

tain types of securities to be effective against third

parties. Such requirements include the registration

of the respective security documents with the com-

petent public registry, i.e., the respective real Estate

registry (in case of real estate), or the respective

registry of Titles and Documents (in case of rights,

assets and credit rights). In certain situations, the re-

spective counterparties of the debtor of the financ-

ing/grantor of the security (including financial insti-

tutions and counterparties to the project contracts)

may also have to approve, acknowledge or be noti-

fied of the creation of the respective security over

the respective rights and credits.

Fund Raising in Capital Markets

Companies may participate as sponsors in certain

transactions structured in the form of Project Finance,

obtaining funds in the market through securities and

structured operations.

This may include obtaining funds in the market

through the following securities: (i) Debntures


(bonds), (ii) Fundos de Investimento em Direitos

Creditrios (credit receivable investment funds), (iii)

Certificados de Recebveis Imobilirios (certificates

of real estate receivables).

debentures (bonds)13

Debentures are debt securities issued by both Bra-

zilian publicly-traded and non-publicly traded cor-

porations. Debentures may be non-convertible,

convertible or exchangeable into shares; unsecured,

guaranteed by another legal entity or secured by a

floating charge or any other type of security interest;

and senior or subordinated.

Debt instruments are regulated by Sections 52 et seq.

of the Corporations Act (law no. 6.404 of 1976 (the

Corporation Act). Debenture is a security issued by

13 Pension funds may participate as sponsors in certain transactions structured in the form of Project Finance. Ac-cording to Brazilian laws, pension funds are entities incor-porated under the form of foundations or non-profit associa-tions. According to the Brazilian Central Bank resolution no. 3846/2010 (resolution) applicable to private pension funds in Brazil, they are allowed to invest in debentures is-sued by Brazilian corporations, observed certain require-ments. For instance, investment of a Private pension fund in debentures of a special purpose company is deemed to be a variable-income investment classified under Section 19, III of the referred resolution.

corporations, representing a fraction of debt. Each

debenture offers bondholders the same rights to

claim against the issuing company, those rights es-

tablished in the Debenture Deed of Issue.

These bonds may be privately or publicly offered.

The private offering does not need to be registered

with the Brazilian Securities Exchange Commission

(the CvM), although such commission may need

to be informed.

The public offering corresponds to a process of rais-

ing funds from public investors, and it shall be sub-

ject to the capital markets regulation. The public of-

fering of debentures must occur in accordance with

CvM Instruction 400 of December 29, 2003, as re-

cently amended by CvM Instruction 482, (CvM In-

struction 400); in such case the offering shall be

registered with CvM.

In case the public offering is distributed with limited

efforts to qualified investors, with the intermediation of

financial institutions (members of the distribution sys-

tem of securities), then such offering shall be regulated

by CvM Instruction 476 of January 2009 (CvM In-

struction 476). CvM Instruction 476 was considered

as an important step to the simplification of securities

offerings in Brazil. The referred instruction facilitates

companies to access capital market, providing flexibil-

INFRASTRUCTURE 29

ity and cost efficiency to raise funds in shorter timing

than normally required for such public offering.

credit receivAble investment Funds - Fundos de investimento em direitos creditrios - Fidc

A FIDC transaction is a financing vehicle for Brazilian

companies by means of securitization of receivables,

regulated through resolution 2,907, of november 29,

2001, enacted by the Monetary nacional Council

(Conselho Monetrio Nacional CMn) and CvM

Instruction 356, enacted by the CvM, as amended by

CvM Instructions 393, 435, 442, 446 and 458 (CvM

Instruction 356).

A company holding a credit receivable resulting from a

commercial, or financial, or industrial or real estate

transactions (Originator) assigns its credit to an invest-

ment fund (FIDC) that will pay for the credit in cash with

funds originated from the underwriting of quotas in the

FIDC. The FIDC will then become the creditor of the

receivables, which will be collected by a custodian.

certiFicAtes oF reAl estAte receivAbles certiFicAdos de recebveis imobilirios cri

Brazilian current legislation, in particular to law

no. 9,514, dated november 20, 1997, defines CrI

as nominal instruments of credit, issued exclusive-

ly by securitization companies, that may be freely

negotiated as securities, creating a payment prom-

ise in cash to the holder of the security and that

are attached to real estate receivables. Such real

estate receivables are sold to securitization com-

panies by mortgage companies, constructors and

financial institutions.

The CrIs must be publicly distributed. The CvM in-

struction 414, as amended by CvM Instructions

443, 446, 480 (CvM Instruction 414) rules the

public offering for the CrI registration. In order to

negotiate real estate credits, securitization compa-

nies must be duly registered with the CvM. Once

such entities have been registered, they may pro-

ceed with the public distribution of the CrIs.


Public distribution of CrI does not require the inter-

mediation of a financial institution, in case the value

of such distribution is lower than r$ 30.000.000,00

(thirty millions reais) or provided that such distribution

complies with provisions set forth in item I and II of

paragraph 4 of Section 5 of ICvM Instruction 41414.

14 According to such provisions: (i) the CrI have as target group companies exclusively members of the same eco-nomic group, and their respective directors and controlling shareholders, being forbidden the negotiation of CrI in the secondary market, or (ii) the CrIs have nominal value equal or higher than r$ 1 million and the offer is destined to sub-scription of not more than 20 investors.

INFRASTRUCTURE 31

WORLD CUP AND THE OLYMPIC GAMES

Infrastructure Works Urban and Architectural Projects

The 2014 FIFA World Cup and the 2016 Olympic

games will require significant investments in each

of the Brazilian cities which will host the games, as

required by the Fdration Internationale de Foot-

ball Association FIFA and by the International

Olympics Committee.

Investments will include: (i) development and improve-

ment of public transportation facilities (including air-

ports, trains and bus systems), especially the municipal

transportation system; (ii) construction and improve-

ment of hotel infrastructure; and (iii) improvement of

urban infrastructure including hospitals, basic water

and sewage sanitation system, public security.

Although some of the financial resources required for

the World Cup will come from the Brazilian Soccer

Federation (Confederao Brasileira de Futebol

CBF), the three political divisions in Brazil (the host

cities, the States where the host cities are located and

the Federal government) joined efforts to collect re-

sources for financing the required construction and

infrastructure works.

One example of this joint effort is the PAC, which

among others shall be used to enforce the commit-

ment of the host cities, the states and the Federal

government. This program aims at investing r$ 11.48

billion in 47 different projects to speed up urban mo-

bility in the host cities through the implementation of

infrastructure projects focused on the circulation of

vehicles and pedestrians.

As part of the action plan adopted by the Federal

government in connection with the games, by means

of the Presidential Decree no. 7,034/09, the Federal

government created a website named 2014 CUP

(Copa 2014). The website contains all the acts and

expenditures adopted by the public administration in

connection with the games.

With regards to financing sources available for the

public sector in relation to investments in infrastruc-

ture for the games, according to the Transparency

gateway, the two main financing institutions are

BnDES and the Federal Savings and loans Bank

(Caixa Econmica Federal CEF).

BnDES created a financing source named ProCopa

Turismo, that has the goal of granting credit facilities of

up to r$ 1 billion for construction and improvement of

the hotel infrastructure. This program has different cat-

egories of credit facilities for (i) standard hotels, (ii) en-

ergy efficient hotels and (iii) sustainable hotels, each of

which has different payment terms and interest rates.


The Federal government also created a program

named national Tourism Development Program (Pro-

grama Nacional do Desenvolvimento do Turismo

Prodetur). Differently from the ProCopa Turismo,

which is a specific program for hotels, the Prodetur

resources may be used in any infrastructure works in

the host cities, as well as in marketing actions.

Although the States where the host cities are located

and the host cities themselves are already negotiating

with potential private investors, most of them still do

not have any specific program, or laws for the games.

In this sense, the structures of public-private partner-

ship and public concessions and their respective

laws may be used for this purpose.

notwithstanding, the Municipality of So Paulo re-

cently enacted a specific legal instrument for the re-

qualification of the infrastructure of the city by the

urbanization and/or re-urbanization of a specific

area. law no. 14,917/2009 created the figure of the

urban concession which is an administrative contract

executed by the city and a private partner after a bid-

ding process for the purposes of carrying out urban

works of public interest in which the risks related to

the performance of the contract are assumed only by

the private investor. It is important to note that in

consideration for assuming the risks of the urban

concession, the private investor receives all the fees

related to the exploration of the properties. In order

to promote an urban concession, the city of So Pau-

lo needs to justify the necessity of such intervention

as well as to declare how this intervention will change

the urbanization of the city.

In closing, there is a considerable amount of financ-

ing options for the games and also some specific

programs to support those investments with the pur-

pose of attracting private capital - including that of

foreign investors - to infrastructure projects in con-

nection with the 2014 FIFA World Cup and the 2016

Olympic games.

Stadiums

The 2014 World Cup and the 2016 Olympic games

represent a great opportunity for long-term planning

in the infrastructure sector, especially for the 12 host

cities. For the success of such events, the host cities

will need to receive expressive investments in order

to enhance their general infrastructure.

Among the areas that shall receive expressive invest-

ments, the stadiums are probably the most important.

It is known that all Brazilian stadiums will need direct

investments to accomplish the standards defined by

FIFA and by the International Olympics Committee.

In order to carry out such required modifications in

INFRASTRUCTURE 33

the arenas, the amount of investments should reach

approximately 600 million in some cases.

investment models

Different investment models will be used for the ren-

ovation and construction of stadiums and multi-use

arenas. The models chosen by the host cities vary

from private investment by football clubs that own

the stadiums, passing through the model of public-

private partnership PPP, to direct investment of the

government through public biddings to select the

company that will construct the arena.

The investment model adopted by most of the host

cities is the public-private partnership. That is the case

of Salvadors Estdio da Fonte nova, natals Arena das

Dunas, Belo Horizontes Complexo Esportivo Minei-

ro, Fortalezas Castelo and, finally, recifes Arena

So loureno da Mata. Inspired on the British Project

Finance Initiative, this model was tailored with the

purpose of attracting a new wave of private invest-

ments in projects of elevated social interest which

would not be economically feasible otherwise.

Another three of the 12 host cities have private are-

nas: So Paulos Estdio do Morumbi, Cutibas Arena

da Baixada and Porto Alegres Beira-rio. It is most

probable that those stadiums will only receive invest-

ments of their owners. leading the race is Atltico

Paranaense (owner of Cutibas Arena da Baixada)

with 80% of the stadiums space already adapted to

the international standards. Still in the first time, So

Paulo Futebol Clube and Sport Club Internacionals

stadiums (owners of So Paulos Estdio do Morumbi

and Porto Alegres Beira-rio, respectively) are now

receiving the first touch-ups to comply with the re-

quirements established by FIFA.

The government of all the other host cities (Manauss

Arena da Amaznia, rio de Janeiros Estdio do Ma-

racan, Braslias Man garrincha and Cuiabs ver-

do) decided to use public resources in the construc-

tion or renovation of the stadiums, contracting a

private party to execute the works throughout a bid-

ding process. In principle, these stadiums should also

be operated by governmental entities.

Independently of the investment model adopted, it

is paramount to point out that all the projects will

reckon on significant and good financing resources.

Aware of such opportunity, the BnDES along with

other pension funds are stepping forward to finance

the planned projects.


FinAncing sources

One of the main financing sources for the World Cup

is the program BnDES ProCopa Arenas that has the

perspective of finance up to 75%, with a limit of r$

400 million for each of the stadiums. This program

will be in force until 2011 and the amortization pe-

riod will end after 180 months, included in this cal-

culation the grace period of 36 months.

The final cost of the financing will depend of the type

of financial support chosen by the investor. The BnDES

support for this program may be direct, indirect or

mixed. The direct type is performed directly with

BnDES or by means of an attorney-in-fact (the presen-

tation of a letter of inquiry is required), the indirect

model is that performed by means of an accredited fi-

nancial institution, which may be non-automatic (in

this model the letter of inquiry is also required) and the

mixed one combines the two previous formats. Conse-

quently, such program is structured as to be used in the

different types of investments, which include opera-

tions with the private initiative, public entities, public-

private partnerships and concessions. Other institutions

are also studying specific sources of financing for the

arenas. It is the case of the Banco do nordeste BnB.

Another incentive planned by the government is the

exemption of the tax for the distribution of goods and

services (Imposto sobre Circulao de Mercadorias e

Servios ICMS), equivalent to the American sales

tax, for the construction and renovation of the arenas

of the World Cup.

With various institutions interested in financing the

arenas and different investment models, Brazil is

ready to embrace the opportunity to move the neces-

sary arena and infrastructure projects ahead and both

public and private entities are looking forward to par-

ticipating in this process.

INFRASTRUCTURE 35

Four decades of decisive performance on the Brazilian Legal Scene

Founded in 1972, Machado, Meyer, Sendacz e Opice

Advogados is one of Brazils most renowned and re-

spected legal firms. Operating harmoniously in all

areas of the law, the firm offers legal assistance to

both Brazilian and international clients, including

large corporations in the most varied sectors of activi-

ties, financial institutions and government bodies.

In the last decade alone, Machado Meyer was elected

three times Law Firm of the Year in Brazil by the re-

nowned British publication, the International Finan-

cial law review. According to the also British Cham-

bers and Partners, in the same period, the firm appeared

as the Law Firm of the Year, this time in all of latin

America. Since the launch of the Brazilian annual

Anlise Advocacia 500, in 2006, the firm has appeared

year after year as one of Brazils most admired.

With offices in So Paulo, rio de Janeiro, Braslia,

Belo Horizonte, Porto Alegre, Salvador and new

york, Machado Meyer has around 300 lawyers. It is

an office with global reach and has close ties with

the principal legal firms of the United States, Europe,

latin America and Asia.

Pioneering and leadership are the hallmarks of Macha-

do Meyer. The firm has been involved in the main

events forging the countrys new economy. In the

1980s, for example, it took part in the re-negotiation

of Brazils foreign debt. In 1990, Machado Meyer took

a decisive role in the recuperation of innumerable fi-

nancial institutions within the scope of PrOEr (na-

tional Program for restructuration and Strengthening

of the Financial System). In the same decade, it took

an active part in various privatisation processes, in

sectors such as mining and telecommunications.

The office continues to be a protagonist in the Bra-

zilian economic scene. Today, it participates actively

in the consolidation of the countrys capital markets,

in the internationalisation processes of Brazilian

companies, in the mergers and acquisitions that

have taken place in Brazil and in large infrastructure

projects. At the same time as being involved in large-

scale operations, Machado Meyer also provides le-

gal assistance to its clients on a daily basis. As a re-

sult of decades of work in the countrys principal

business affairs, our lawyers are trained to take deci-

sions that are intelligent, quick and secure; always in

accordance with the highest ethical, technical and

quality standards.

ABOUT OUR SPONSOR


mAchAdo meyer inFrAstructure PArtners

Antonio de Souza Corra Meyer

Tel.: +55 11 3150-7030Email: [email protected]

Jos Ribeiro do Prado Jnior

Tel.: +55 11 3150-7177 Email: [email protected]

Jos Virglio Lopes Enei

Tel.: +55 11 3150-7041 Email: [email protected]

Jos Samurai Saiani


Ana Karina Esteves de Souza


Silvia Rajsfeld Fiszman


INFRASTRUCTURE 37

So Paulo

Head Office

Av. Brigadeiro Faria lima, 3144 - 11 andar - CEP 01451-000 - Jardim Paulistano - So Paulo-SP - Brasil

Tel.: +55 11 3150-7000 - Fax: +55 11 3150-7071

Email: [email protected]

Escritrio Administrativo

rua da Consolao, 247 - 10 Andar - CEP 01301-903 - So Paulo-SP - Brasil

Tel.: +55 11 3236-2600 - Fax: +55 11 3236-2669


Rio de Janeiro - Unidade RB I

Centro Empresarial Internacional rio - Av. rio Branco, 1 - 9 andar - Bloco B - CEP 20090-003 - rio de Janeiro-rJ - Brasil

Tel.: +55 21 2253-9141 - Fax: +55 21 2253-6143


Salvador

rua Agnelo Brito, 90 - 5 andar - CEP 40210-245 - Salvador-BA - Brasil

Tel.: +55 71 3339-1400 - Fax: +55 71 3337-0441


Porto Alegre

Av. Dom Pedro II, 1351 - cj. 601 - CEP 90550-143 - Porto Alegre-rS - Brasil

Tel.: +55 51 2104-8000 - Fax: +55 51 2104-8028


Belo Horizonte

Avenida Brasil, 1.666 - Sala 601 - CEP 30140-003

Funcionrios - Belo Horizonte-Mg - Brasil

Tel.: +55 31 3194-1700 - Fax: +55 31 3194-1718



Braslia

Ed. Corporate Financial Center - SCn, Quadra 2 - Bloco A - 9 andar - Sala 904 A - CEP 70712-900 - Braslia-DF - Brasil

Tel.: +55 61 2104-5550 - Fax: +55 61 2104-5580


New York

110 East 55th Street, 10th Floor - CEP 10022 - new york-ny - USA

Tel.: +1 212 784-8802 - Fax: +1 212 758-1028


INFRASTRUCTURE 39

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