Main features of Brazilian legal framework for privatizations, concessions and PPPs
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Transcript of Main features of Brazilian legal framework for privatizations, concessions and PPPs
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Brazilian Legal Framework for Private Participation in Infrastructure
Mauricio Portugal Ribeiro
Aug 2010
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Introduction
• Vast experience with PPI - Private Participation in Infrastructure and in the provision of services to the public and to the Government
Involved sectors such as steel, petrochemicals, power, telecommunications, highways, railroads, gas, and water supply
• Stable legal and institutional frameworkConstitutional Amendments
National Plan on Privatizations
Standards on concessions contracts and bidding procedures
Sector specific Acts, which creates the respective regulatory agencies, and establishes standards under which they operate
• Variety of contract arrangementsDivestitures/assets sales, BOT, DFBOT, Concessions, joint ventures (with public and private participation), franchises etc.
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Brazil’s past with PPI
Source: Banco Mundial e PPIAF, PPI Project Database. (http://ppi.worldbank.org) Acesso em: 15/08/2008 e Fundo Monetário internacional (FMI), World Economic Outlook Database: Nominal GDP list of countries. Abril de 2008. Dados para o ano de 2007.
Mundo 1990-2007Receitas + Investimentos
(Milhões/US$)
-50,000.00
100,000.00150,000.00200,000.00250,000.00300,000.00350,000.00400,000.00450,000.00500,000.00
LesteAsiático ePacífico
Europa eÁsia Central
AméricaLatina eCaribe
OrienteMédio eNorte da
África
SudesteAsiático
ÁfricaSubsariana
América Latina e Brasil 1990-2007Receitas + Investimentos
(Milhões/US$)
0
10000
20000
30000
40000
50000
60000
70000
80000
América Latina (restante)
Brasil
• From 1990 to 2007 more than U$ 1 trillion was generated with PPI – Private Participation in Infrastructure in the developing world
• Latin America and the Caribe was the region that has generated most revenues/investments from PPI (about U$ 450 billion)
• In the 90’s Brazil was the developing country who has generated most revenues/investments with PPI
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Brazil’s experience with PPI
Fonte: Banco Mundial e PPIAF, PPI Project Database. (http://ppi.worldbank.org) Acesso em: 15/08/2008
Brasil (Receitas + Investimentos)(Milhões/US$)
0
5000
10000
15000
20000
25000
30000
35000
Brownfield (Concession)
Divestiture
Greenfield Projects
Management and LeaseContract
• From 1996 to 2001, the Government has reduced its participation in several sectors in infrastructure
• Telecom and Railroads are now under the control of the private sector
• In the largest ports, the private terminals are responsible for more than 50% of the cargo movement
• More than 2/3 of the power distribution and more than 1/5 of the power generation are operated by the private sector
• In the road sector, some of the main roads are operated by the private sector (still less than 10% of the paved road network)
• In the water and sanitation sector, private participation is still very limited
Brasil 1990-2007
24896.01414%
110521.4660%
46377.4926%
74.90%
Brownfield (concessions)
Divestitures
Greenfield Projects
Management and LeaseContracts
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90’s Legal Framework for PPI
• Competition
For the market Contracts have to be awarded under competitive bidding procedures
In the market They should be awarded under arrangements that allow competition in the market (except in the case of economic impossibility)
Yardstick regulationFostered by the legal and contractual framework
Lack of adequate technical expertise
• Transferring risks, tariffs and economic equilibrium of contracts
Possibility of transferring the responsibility of designing, financing, constructing and operating assets
In several sectors, evolved to contractual arrangements that focus on outputs
The legal framework allows any sort of risk allocation arrangements
The law entitles private partners to economic equilibrium of the contracts, preserved by contract revisions
Judiciary has set precedents in cases that private partners asked courts to enforce their right to the financial equilibrium of the contract
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90’s Legal Framework for PPI
• Fiscal Issues
Privatizations proceeds were extensively used to extinguish debt
Reduced needs of investment outlays, lowering borrowing requirements
Specific legislative authorization was required to allow Government payments or guarantees to concessionaires or private partners
• Private sector investment, quality improvement and network expansion
Evidence that users are satisfied with the quality of the services
Complaints about high tariffs
Privatized companies and service providers were not able to match the desirable level of investment
Telecommunications and the transmission line sectors were exceptions
In some sectors, such as water supply and sanitation this was due to inadequate legal framework
Process of privatizations was limited to projects that were financially self-sustaining without Gov payments
Accounts for limited portions of the network in many sectors
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Challenges of a PPP Program in Brazil
• Improve the institutional framework to coordinate private and public investment
• Rebuild the Government capacity of sector planning and project development to public direct investment or private participation
• Expand private participation to sectors in which it is still limited
Award concessions, which need some sort of Government guarantee or payment to become financially viable (concessão patrocinada)
Implement a PFI-like program to bring private sector capabilities to improve the efficiency of the provision of services to the Government (concessões administrativas)
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Objectives and main features of the 2004 PPP law
• Linked the PPP contracts with the past experience with PPIBrazilian PPP law has several references to provisions of the concessions law and of the law that controls the Government contracts and biding proceduresProtect the powers of the sector planing, project develpment and regulatory agencies while creating specific agencies to run the PPP program
• Allowed Government payments in long term contracts with private sector
• Established mechanisms to enhance the Government credit profilea backstop facility to the Government payments (Fundo Garantidor de PPP) allow the Government to contract its credit enhancement from other entities such as multilateral organizations
• Improved the procuremment procedureMake it less formal while maintaining a formal bidding procedureHiring culture not compatible with competitive negotiation
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Objectives and main features of the 2004 PPP law
• Fiscal IssuesRequired that a proper affordability analysis is done before contracting PPPDefined limits on budget commitments with PPP (1% of Fiscal Net Revenues)
• Required payments to be based on service performancefostered the development of output based contracts fostered development of a proper connection between payment mechanism and performance indicators
• Conflict managementPossibility of financers step in rights (public sector step in was already allowed)Possibility of using arbitration
• Other institutional issues Project selection and development framework Regulatory agencies