PPPs in Brazil: a brief overview

Transcription

1 THE PPP X-CHANGE, The GOI-ADB PPP Workshop, January 2010 PPPs in Brazil: a brief overview Isaac Pinto Averbuch Program Director Mumbai - Jan/2010

2 About Brazil

3 Map of Brazil Brazil is located in Eastern portion of South America Its population is around 200 million people Its surface is around 8.5 million of km 2 GNP is around US$ 1.7 trillions

4 PPP s Legal Framework

5 PPP in Brazil: a narrow definition In many countries Almost any kind of long-term relationship between public and private sectors Joint ventures, leases, franchises, concessions, PFI (UK), privatization... In Brazil The term PPP refers to a special kind of concession PPP - a concession with user charges and/or government payments Concession user charges only PPP and concessions have similar economic structures

6 PPP Law (December 2004) Establishes general norms for PPP tenders and contracts within the Federal Government, States and Municipalities PPP is a concession contract: Sponsored Concession :User charges + direct payment from the public sector Ex.: road, railways, ports, sanitation Administrative Concession: Direct payment from the public sector only (no possibility for user charges) Ex: prisons

7 PPP Law: main provisions Contractors design (green-field), build, finance, operate, maintain and transfer (new bidding is required at the end of the contract term if no renewal is possible) Long term contracts (5 to 35 years) Only large contracts (over BRL 20 million, USD 11.4 million) Possibility of complementing user charges with government payments Government payments are due as service is delivered and based on performance indicators (output-based contracts) Government payments guaranteed by the PPP Guarantee Fund - FGP (to mitigate Government default risk)

8 PPP Law: main provisions The legislation addresses all these points: Selection of projects; The steps until the bidding and contract; Rules for the contracts (amount, term, clauses...); Follow up after the formal contract; Guarantees Division of risks Resolution of contracts Calling for proposals

9 PPP Law: main provisions The legislation addresses all these points: Fiscal restrictions; Possibility of arbitrage in disputes; Step in rights for financing institutions; Rebalancing of contracts; Updating of revenues Good degree of freedom for the entrepreneurs Rules for payment by the Government (output based) Reversion of investments by the end of contract

10 Impacts of PPP Law Results by now: Even with very few contracts, the PPP legislation and studies brought some good results for the Brazilian Government and society: The case of Seven Lots of Highways The modernization of irrigation projects

11 Federal Guarantee Fund

12 FGP - Federal PPP Guarantee Fund Main objectives Protect private partners against the contracting authority default risk Mitigate the political risk to the private partner Reduce projects costs for the contracting authority Guarantee only government payments Does not guarantee other contingent liabilities that may arise during the contract Does not guarantee State and Municipalities payments

13 FGP - Federal PPP Guarantee Fund Structure and Management FGP was established as a Trust Fund of public assets Trustee: Banco do Brasil (Federal government owned bank) For each PPP contract the FGP issues a guarantee letter In case of default, the FGP covers payment 45 days after it is due, or after 90 days if the public authority does not recognize the debt without a formal justification FGP is a private legal entity and its assets are separated from those of the Federal Government

14 FGP - Federal PPP Guarantee Fund Financial aspects Maximum of BRL 6 billion (USD 3.4 billion) in assets (legal limit) Assets eligible to be used: cash, public bonds, real estates and stocks Nowadays, the Federal government has around USD 360 million in assets committed with FGP No leverage is allowed (NPV of FGP guarantees must equal the NPV of its assets) The guarantee is provided free of charge to the private partner All FGP costs are paid by the Federal government

15 FGP - Federal PPP Guarantee Fund Fiscal aspects Government payment only and no leverage rules limits FGP s risk exposure The funding of FGP with government held stocks implies no fiscal impact according to our accounting standards (IMF 1986 manual) stocks are treated as non-financial assets no impact on Public Sector s below the line deficit

16 FGP - Federal PPP Guarantee Fund Fiscal aspects Government payments have a special treatment in the budgetary process as to limit the incentive of line Ministries to default on payment The legal ceiling of BRL 6 billion limits the use of FGP (not an issue in short-term) As sovereign risk perception is reduced and a history of payment compliance is consolidated, FGP may not be as important

17 Challenges and Perspectives

18 Challenges for PPPs To improve the general knowledge about the PPPs as a good public management tool; Excessive controls simplify the legislation To change the wrong perception of some important policy makers about the excessive complexity of PPPs, which take so long time to a project become real. Excessive expectations big frustrations For States and Municipalities, the accounting criteria for their public debts is an issue

19 Challenges for PPPs Lack of technical expertise (in private and public sectors) To implement, in concrete, the legal determinations about selection of projects consolidate the institutions; To improve the coordination among the Government agents involved in the PPP projects it means goals and procedures - as well the relationship with the control institutions To remove political resistances (legitimate or not) including the fear of the word private ;

20 What has being done? A patient work to conquer hearts and minds Trainning activities Creation of a Brazilian guideline for Value for Money calculation it will improve the technical level of debate Agreements with States and public institutions to develop pilot projects demonstration effect

21 Perspectives for Federal Government Datacenter for Banco do Brasil/Caixa (public building) Pontal Project (irrigation) Baixio do Irecê Project (irrigation) Geoestationary Satellite (communications) Headquarters of Eletronorte (public building) Public Digital Television Network Exploratory studies about the potential for PPPs of Federal real states

22 Perspectives for 2010 Cooperation with States Piauí Transcerrados Highway Bahia Logistic Plataform in Juazeiro (an inland city) Rio Grande do Norte Administrative Center Ceará Project is still in selection

23 States Projects Several States are developing their own projects autonomously: Bahia highway, hospital, sanitation Pernambuco bridge/highway, penitentiary Minas Gerais highway, penitentiary, administrative center São Paulo highway, subway line, water treatment Sergipe administrative center

24 Perspectives and Opportunities FIFA World Cup Olympic Games in Rio Possibilities in sport facilities and also in infrastructure works.

25 PONTAL PROJECT

26 Pontal Project Basic Informations Located in Petrolina, a pole of irrigated fruit production and exportation Total area 33,526 hectares 7,717 hectares of irrigable land Legal Reserve: already defined Balance is dry farm landing - sequeiro

27 Pontal Project Basic Informations Government pays (contraprestação) only for sunk investments in common infraestructure (canal, roads, lightning, etc). No subsidies for agriculture. Payment of contraprestação is guaranteed by FGP (Guarantee Fund of PPPs) Disputes will be decided by arbitration.

28 Pontal Project Basic Informations Common infrastructure: Government has already built a significant portion (about 70%) Water rights: maximum of 7,8 m 3 /second (main canal s capacity) Environmental License already issued Separate contracts: Common infrastructure (PPP concession for 25 years) Agribusiness (among Concessionaire and Anchor Company)

29 Pontal Project - Location

30 Pontal Project - Location Location and Distances of Main Brazilian Cities International Airport with a lane with 3 km length, which receives cargo aircrafts like Boeing 747. From Miami or Lisbon: about 8 hours flight

31 Map of the Project Infrastructure with water and power Infrastructure with water, no power Partial infrastructure, no water, no power Without infrastructure 31

32 Important part of infrastructure is ready

33 Atributions of the Private Sector Finish construction, operate and maintain common infrastructure Allocate land to private agribusiness Run crops on the land, with total freedom to choose the cultures.

34 What about the social demands? At least 25% of the irrigated land should be occupied by small farmers; integration of the small farmers is the most important criteria on the bidding process. Concessionaire / Anchor Company should provide technical and some financial assistance to the small farmers; Very atractive interest rates to finance the production; 20,000 new jobs (direct and indirect) are expected;

35 What about the social demands? Maximum area for the small producers: 20 ha; Private relationships among concessionaire, anchor company and small farmers; Free availability of 0,6 m 3 /s for social purposes in the non-irrigated area of the Project (supporting more than 300 families, already identified Government will take care of them); Concessionaire will select the small farmers.

36 How to keep the schedule? Concessionaire is paid mainly by occupation of land, not by just providing water; Occupation can be phased; land should be totally occupied in 6 years, at maximum; The quicker the land is occupied the higher will be the IRR of the concessionaire;

37 THANK YOU!!!