Brazil Private Participation Program in Infrastructure


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Presentation on the Brazilian Program of Private Participation in Infrastructure, describing its main features and current problems.
The presentation was delivered to a trade mission to Brazil of the Government of Pennsylvania. São Paulo, April 9th 2013.

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Brazil Private Participation Program in Infrastructure

  1. 1. Brazil’s private participation in infrastructure program São Paulo, April 9th 2013 Mauricio Portugal Ribeiro
  2. 2. Sectors and arrangements Sector Arrangement Private participation at this point Steel,petrochemicals,mining Full privatizationof companiesthatwere notpartof Petrobrasgroup About100% Telecommunications,cargorailroads Privatizationof the GOCunderhard regulated concessioncontracts About100% Powerdistribution,gasdistribution Privatizationof GOCunderhard regulated concession contracts Powerismostlyprivate (thereare 6 small GOC,in a universe of almost60 companies) Gas distributionismostlyGOC Powergeneration(onlygreenfields) DFBOT Lessthan 2/5? Highways(mostlybrownfield) Concessioncontracts(Rehabilitationandexpasionof capacity) Main roadsof the country, about15% of paved roads Ports(underlandlordmodel) Lease agreementof publicportareas More than50% of the cargo inthe 6 biggestports Water supply,andsewage collection, treatmentanddisposal Several differentarrangements New concessioncontracts DFBOT of treatmentfacilities 8-9% of users Waste disposal New concessions/PPPs Nodata available
  3. 3. Brazil’s past with PPI Source: Banco Mundial e PPIAF, PPI Project Database. ( Access April 05th, 2013 0 10 20 30 40 50 60 70 Latin America and Brazil Investment+Revenues(U$ billion) LA without Brazil Brazil0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 Investment + Revenues in Projects by Primary Sector ( U$ million)
  4. 4. Brazil’s experience with PPI Fonte: Banco Mundial e PPIAF, PPI Project Database. ( Acesso em: 15/08/2008 99461 114112 111835 130 Concession Divestiture Greenfield project Management and lease contract Total Investmentin Projectsby Type and Primary Sector (US$ 0 5000 10000 15000 20000 25000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total Investment in Projects by PrimarySector (U$ million) Energy Telecom Transport Water and sewage
  5. 5. What investments Brazil intends to do using private participation Fonte: Banco Mundial e PPIAF, PPI Project Database. ( Acesso em: 15/08/2008
  6. 6. Stable legal framework • Started in the 90’s, with Federal and some states privatizations programs - National Plan on Privatizations • Constitutional Amendments (Federal and States) • Standards on concessions contracts and bidding procedures • Sector specific acts, which create the respective regulatory agencies, and established standards under which they operate • Judiciary decisions since the 90’s upheld privatizations contracts against some specific government entities desire to non-compliance • In 2003, change in the Government happened without any kind of nationalization or early termination of contracts • The formal power of the regulatory agencies was not affected by the change of the government but their actual independence and capacity were affected – perception of regulatory risk raised – Profile of commissioners – Time to nominate commissioners – Reductionof agencies financial and administrative independence • In the last years, the termination of oldest concession contracts revealed unexpected difficulties regarding the indemnification for non-amortized investments (power and water sectors)
  7. 7. 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 competitionin the market (exceptin the case of economic impossibility) – Yardstick regulation • Fosteredby the legal and contractual framework • Lack of adequate technical expertise • New contracts give extensive power to regulators and it is now seen as a risk by the private sector • Transferring risks, tariffs and economic equilibrium of contracts – Possibilityof transferring the responsibilityof designing,financing, constructing and operating assets – The legal framework allows any sort of risk allocation arrangements – In several sectors,evolved to contractual arrangements that focus on outputs – The law entitles private partners to economic equilibrium of the contracts, preservedby contract revisions – Judiciary has set precedents in cases that private partners asked courts to enforce their right to the financial equilibrium of the contract
  8. 8. 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 – 2004 PPP law allowed Government payments in under PPP contracts and established several fiscal controls (pay as you go system, debt control etc.) • Private sector investment, quality improvement and network expansion – Users are generally satisfied with the quality of privatized services – There were though complaints about high tariffs, specially with telecom and roads – In the 90’s, there was the expectation that all investments in infrastructure could be transferred to private sector – 2001 power shortage showed that coordination between private and public investments is key to the success of the investment program – Non-compliance of privatization contract by private sector was rare and episodic – CEMAR in 2002-2004 was the only case in which the Gov replaced the concessionaire because of non- compliance with contracts – 2007 Federal Government road auctions changed that – We are still trying to develop bidding and contract framework to avoid what happened in 2007
  9. 9. Main issues and challenges for the new projects • For Federal Government projects – Quality of feasibility studies – rush can deteriorate quality especially of demand and engineering studies – Alignment of returns/risk relation to international best practices – Enhance the capacity and independence of the regulators – Develop tools to limit regulatory risk – Develop bid design able to avoid or minimize “false compliance of contracts” or “winners course” – the bad legacy of 2007 road auctions • For subnational projects – Funding for the big urban transportation projects is still an issue – Promised transfers from the Federal Government have still a long way to go – Develop backstop facility for subnational government payments is still a challenge
  10. 10. Tel/Fax +55 213437-6997 + 5561 33211985 Brasília SRTVS 701conj.Dlote05blocoAsala416 Brasília/DF-Brasil -70340-907 Rio de Janeiro RuaViscondedePirajá,330sala507, Ipanema RiodeJaneiro/RJ–Brasil- 22410-000