Brazil seeks PPP advantage
- From: Vol 5, Issue 2 (February 2004)
- Category: General
- Region: Americas
- Country: Brazil
- Related Companies: American Water Works, Fortis, Northumbrian Water, Ondeo/Suez, United Water, US Filter and Veolia Environnement (formerly Vivendi Environnement)
As a guest you can read up to 3 full articles before a subscription is required.
You can read a further 2 articles for free.
Brazil's public private partnership bill has been tailored to attract investors. It looks like becoming law soon.
Brazil’s congressional bill governing public private partnerships was held up by last-minute negotiations as GWI went to press, but it is widely expected to be affirmed by congress shortly.
A vote on the proposal had been scheduled for 11 February, but the all-party commission examining the bill agreed to postpone voting it through until the week beginning 16 February to enable it to discuss a number of suggested alterations to the bill’s text. The issues include: deciding if payment for PPP contracts will have precedence over other government contracts; how the new law will fit in with Brazil’s rigid rules (Law of Fiscal Responsibility) governing the level of debt municipalities and states may incur: and lastly, what the role of Brazil’s water regulatory body (ANA – Agencia Nacional de Aguas) will be in relation to PPPs.
The commission’s next meeting is scheduled for 17 February. If the final draft is voted through then the bill will probably be presented to the floor of the house the following day. Brazilian press coverage suggests there is a consensus favouring the bill’s rapid passage and no significant alterations will be made.
The law includes provisions such as:
● Public tenders for private participation in the partnerships.
● PPPs will last up to 30 years and will repay investment made.
● Contracts will be subject to penalties and compensation for compliance failures and will include conditions for cancellation and calculations of how profits are shared.
Private investment will be guaranteed by the federal government, which will use a special fund from its own budget as well as from the eventual sale of state company shares and assets.
The PPP bill is receiving government backing to pave its way into law. Deputy Paulo Bernardo of the governing Workers’ Party (PT), who is responsible for guiding the bill through Congress, had a meeting this month to discuss the bill with Antonio Palocci (finance minister), Guido Mantegna (planning minister), Joao Paulo Cunha, leader for the government party in Congress and Aldo Rebelo, who co-ordinates government congressional business with other parties.
At this meeting, Bernardo reached agreement with the government to only rescind PPP contracts by the passing of a specific congressional law or by the payment of a previously agreed indemnity.
Another point of discussion was how much debt Brazil’s individual states and municipalities should be allowed to take on in long-term projects such as PPPs. Brazil has a law (LRF – Fiscal Responsibility Law) restricting the amount of debt to encourage responsible public expenditure and avoid a common practice of leaving repayment for successor governments.
Public authorities involved in PPPs must show there will not be any negative impact on their ability to repay existing debts. It is also expected the bill will include a clause whereby Brazil’s Congress examines PPPs on a six-monthly basis. If the bill is voted in then it will be considered by Senate. If Senate suggests no amendments, as hoped, then it will be passed for presidential ratification.
Planning minister Mantegna is optimistic that the congressional consensus will ensure a smooth passage for the bill and points out that major states controlled by the opposition, São Paulo and Minas Gerais, are vigorously pursuing PPPs.
Mantegna is confident Brazil’s wealthy state company pension funds will provide large amounts of capital for PPP projects. He estimates the funds will have between 5% and 10% available, worth between R.5 to R billion (US = R.9).
The pension funds themselves say there is less than that amount available for PPPs. Banco do Brasil’s pension fund, BB Previ, estimates all the state pension funds potentially used in PPPs are not more than between R billion and R billion.
Petros, the pension fund of state oil giant Petrobras, says it will take part in PPPs if there is a larger return than on Brazilian government bonds. This is currently around 9.5% after discounting inflation.
“We are sure the profitability of government bonds will fall”, said Mantegna. This was the consequence of continuing base interest rate cuts. Mantegna told the Brazilian press that he understands infrastructure PPPs usually yield between 12% and 15%, but could earn as much as 20%. He believes the PPP investor guarantee fund is a uniquely Brazilian selling point, which is not offered in other countries.