Last week, on 13 September, Brazil enacted Law No. 13.334/2016 (the “IPP Law”), creating a new Investment Partnership Programme (the “Programme”), which aims to increase and strengthen the role of the private sector in infrastructure projects.
The IPP Law focuses on facilitating the early stages in the planning and development of infrastructure projects. By putting in place centralised monitoring mechanisms, the IPP Law is intended to improve coordination between the different governmental authorities that are typically involved in infrastructure projects. The IPP Law tackles one of the most crippling features of infrastructure in Brazil, namely the design of an attractive project that can be successfully tendered.
A centralised and joined up approach: The IPP Law creates two bodies to promote implementation of the Programme: (i) the Investment Partnership Council (the “Council”), to assist the Brazilian President in his decision-making concerning projects and to monitor their development; and (ii) the Investment Partnership Programme Secretariat, to assist competent authorities (at national as well as local level) in getting their infrastructure projects included in the Programme.
The federal government has pledged R$30 billion to support the long term financing of projects, of which R$18 billion will be provided by the Brazilian National Development Bank (BNDES), through the subscription of debentures and traditional loan financing. Funding will also be provided by other state-controlled banks and investment funds.
Once included in the Programme, a selected infrastructure project is to be treated as a national priority. The IPP Law establishes that all entities involved are to work together efficiently to deliver all licenses, approvals and permits that are required in order to allow the development of the projects. In particular, the public audit and environmental authorities will analyse tender documents before they are published.
This collaboration is intended to avoid the delays that have often arisen in the obtaining of licences and authorisations for a range of public bodies with different functions and interests.
Structuring Investment Partnerships: The IPP Law expressly authorises the BNDES to create and participate in a fund known as “FAEP” (“Fundo de Apoio a Estruturação de Parcerias”). Both public and private sectors can invest in the FAEP, which will be managed by the BNDES.
The purpose of this fund is to finance and procure professional services for Brazilian governmental authorities, to assist in the structuring of Investment Partnerships. These services may be subcontracted from third party specialists in accordance with applicable public procurement rules, and may be remunerated from project revenues.
No Change to Public Procurement Laws: The IPP Law does not amend the main laws relating to the procurement of construction works, concessions or public private partnerships. In fact, the IPP Law is intended to operate at an earlier stage, i.e. during the preparation of the tender documents. The aim is to reduce and harmonise government intervention in the design of infrastructure projects and to make those projects more attractive to the private sector. For example, tender documents will be published in English as well as in Portuguese, to encourage the participation of foreign investors. The IPP Executive Secretary, Moreira Franco, is keen to show that Brazil is open to foreign investment in infrastructure and is due to travel to China, London, India and Japan to promote these investment opportunities.
Eligible Projects: The IPP Law states that the Programme may include both current and future federal and local infrastructure projects. The first official list of federal infrastructure projects to join the Programme will follow the enactment of secondary legislation.
The Programme is expected to kick off early next year with at least 34 projects in a wide range of infrastructure, including highways, railways, ports, energy production and distribution, water and sewage facilities.
The Government took advantage of the announcement of the IPP Law to outline some of its immediate priorities for infrastructure development, including the tender of concessions for four airports (Porto Alegre, Salvador, Florianópolis and Fortaleza) and port terminals in Santarém and Rio de Janeiro. These projects had already been announced, but will now benefit from preferential financing and inclusion in the Programme.
Policy Statement versus Practical Effects: These recent developments should have positive implications not just for the construction and engineering sectors, but also for Brazil’s economy as a whole, which has been suffering from a serious infrastructure deficit and sorely needs new investment to lift it out of a protracted recession.
The IPP Law indicates a change in the federal government’s attitude to the participation of the private sector in infrastructure projects and the role of the government in creating an attractive investment climate. However, the infrastructure market will not immediately see the full potential of this policy shift. Although the IPP Law provides for the creation of the Council, the Secretariat and the FAEP, the way they are to function and interact on a daily basis will only be defined in secondary legislation. It will take some time to build these new institutions and to recover confidence in the Brazilian infrastructure market, which has promised so much and delivered so little in the recent past.
Whilst the enactment of the IPP Law marks an important step in attracting infrastructure investment in Brazil, it cannot be viewed as a concluded action. Much work lies ahead and we will have to keep track of future developments, which it is hoped will now quickly put Brazil’s infrastructure development back on track.