General frameworki Types of public-private partnership
A PPP is a mechanism under which the government hires a supplier of services to implement a relevant infrastructure project, which in turn commits to make investments pursuant to the agreement and is granted the right to operate the project throughout the long-term agreement.
There are two types of PPP concessions in Brazil. The first is the sponsored concession, whereby the private concessionaire, pursuant to the PPP agreement, receives fees from users of the services supplied and the agreed payments from the public partner.
The second type is the administrative concession, whereby the government is the direct or indirect beneficiary of the service to be provided by the private partner. In this case, payment is made exclusively by the government.
In both of the above cases, the concessionaire is allowed to explore ancillary activities to the concession or associated projects. This permission increases the concessionaires' revenues and the investors' interest in PPP projects. However, a portion of the additional revenue earned by the concessionaire on the provision of ancillary services must be shared with the granting authority or with service users.
The method of payment for ancillary services must be determined in the PPP agreement and the granting authority may elect to discount its share of payments on the payment it is obliged to the concessionaire or it might retain its share on the tariffs to be paid by users.
PPPs are largely useful for the government; they permit contracting for construction, management and provision of services with better payment methods and, as a result, they attract the interest of private investors who might introduce new methods and technologies. The government manifestation of interest, for instance, looks to PPPs when investments in key areas are needed but public funds or public expertise are lacking.ii The authorities
PPPs may be executed in Brazil by the government, including special funds, agencies, state-owned companies, mixed public-private corporations and all other entities that are directly or indirectly controlled by the Brazilian federal government, the states, the federal district and municipalities.
At the federal level, the PPP Management Committee has jurisdiction to set priorities for services to be performed under a PPP model. The Management Committee is responsible for the coordination of such projects and is composed of members from the Ministry of Planning, Budget and Management, which is subordinated to the Ministry of Treasury and the Brazilian Presidency.
The Federal PPP Project Unit, which is responsible for outlining the technical, economic and financial aspects of federal projects and for undertaking feasibility studies, is part of the Ministry of Planning.
Additionally, other government branches at the federal level may develop their own projects and have powers to stipulate procedures for the execution of agreements and authorise the commencement of competitive bidding processes as well as approve bidding documents.
As an alternative to boosting PPP projects, the federal government has recently created the IPP to boost infrastructure in the country. The plan stipulates conditions for attraction of investments in infrastructure projects and creates an environment for greater integration between the public and private sectors.
The projects developed under the programme, by choice of the President, are subject to guidelines and extensive, long-term regulatory planning and rules regarding guarantees of the project, providing greater legal stability to the concessionaire. For instance, Federal Law No. 13,334 requires federal authorities to create long-term policy frameworks prior to the execution of PPP agreements to align contractual matters and public planning. To advise the President as to which projects should be included in the programme and the guidelines for planning and regulating these initiatives, Federal Law No. 13,334 created the Programme Board. It is composed of the IPP's Executive Secretary, the Ministry of Interior, the Ministry of Finance, the Ministry of Planning, Development and Management, the Ministry of Transport, Ports and Civil Aviation, the Ministry for the Environment, and the presidents of two federal state-owned development banks (Banco Nacional do Desenvolvimento Econômico e Social and Caixa Econômica Federal).
Although the federal government has not yet made use of the Federal PPP Law, the federal Management Committee model has been followed by some states.
The states of São Paulo, Minas Gerais, Bahia and Pernambuco have all developed relevant PPP programmes with the execution of projects in different sectors, such as underground transportation, roads, stadia, public health and sanitation. Those states rely on the Management Committee, PPP units and state-owned companies or funds granting state guarantees in favour of concessionaires.
São Paulo State Law No. 11,688 of 2004, further regulated by State Decree No. 48,867/2007, created São Paulo's PPP Unit, which is responsible for its PPP projects. Since 2004, São Paulo has executed the following projects under PPP agreements:
- Urban Railway Line 4 (2006): operation and maintenance of underground Line 4 in São Paulo.
- Alto Tietê Water Sanitation System (2008): operation, maintenance and expansion of water and wastewater infrastructure related to Alto Tietê Water Production System.
- Maintenance work for trains of the Urban Railway Line 8 (2010): work and services necessary for the maintenance and repair of trains operating in the urban railway Line 8 in the city of São Paulo.
- São Lourenço Water Sanitation System (2013): operation, maintenance and expansion of water and wastewater infrastructure related to São Lourenço Water Production System.
- Medicine Manufacturing Plant in Américo Brasiliense (2013): work, management and operation of a plant to manufacture medicine in the city of Américo Brasiliense, as well as manufacturing and sale of medical products to the state of São Paulo's public health system.
- Urban Railway Line 6 (2013): construction, operation, maintenance and management of underground transportation Line 6 in the city of São Paulo.
- Urban Railway Line 18 (2014): construction, operation, maintenance and management of underground transportation Line 18 in the city of São Paulo.
- Hospital installations (2014): work, maintenance and management of hospital installations throughout the state of São Paulo. Additionally, the concessionaire must provide all non-medical services necessary for the operation of the hospitals (i.e., patient admission, management of patient schedules).
- Tamoios Highway (2014): work, maintenance and expansion of the State Highway Tamoios, which connects the northern coastline cities of Caraguatatuba and São Sebastião to the state's countryside.
- Housing for low-income citizens (2015): work and services necessary to provide housing to low income citizens in the city of São Paulo.
- Integrated Metropolitan System of Santo's Coastline (2015): concession of passenger multimodal transportation services (bus, light railway and minivans) connecting São Paulo's south coastline cities of Bertioga, Cubatão, Guarujá, Itanhaém, Mongaguá, Peruíbe, Praia Grande, São Vicente and Santos.
In the state of Minas Gerais, Law No. 14,868 of 2003, further regulated by State Decree No. 43,102/2003, created Minas Gerais' PPP Unit. Since 2003, Minas Gerais has executed the following projects under PPP agreements:
- State Highway MG-050 (2007): work, maintenance and expansion of the State Highway MG-050 (Jatuaba–São Sebastião do Paraíso).
- Minas Gerais' Prison Complex (2009): construction, maintenance, operation and management of a prison complex that includes a number of incarceration units throughout the state.
- Governador Magalhães Pinto (Mineirão) Stadium (2010): works, maintenance, operation and management of Mineirão Stadium.
- Integrated Unit of Services (UAI) Phase I (2010): implementation, management, operation and maintenance of the state's UAIs, a place where Minas Gerais state provides a number of essential services to local citizens (i.e., issuance of official documents) in the cities of Betim, Governador Valadares, Juiz De Fora, Montes Claros, Uberlândia and Varginha.
- Integrated Unit for Services to the General Public Phase II (2013): implementation, management, operation and maintenance of the state's UAIs in 23 cities within the state.
- Water and wastewater infrastructure in Rio Manso Sanitation System (2013): operation, maintenance and expansion of water and wastewater infrastructure in the Rio Manso Sanitation System, which supplies water for consumers at the Metropolitan Region of Belo Horizonte.
- Integrated Unit for Services to the General Public Phase III (2014): implementation, management, operation and maintenance of the state's UAI at Praça Sete in the city of Belo Horizonte.
- Solid Waste Sanitation Services (2014): provision of sanitation services, including the collection, treatment and final disposition of solid waste in the Metropolitan Region of Belo Horizonte.
- Regional Airport Presidente Itamar Franco (2014): concession of the state's regional airport located in the city of Guianá, including the provision of recovery work, maintenance and management of airport infrastructure.
- Wastewater Sanitation System of Divinópolis (2015): operation, maintenance and expansion of the wastewater infrastructure in the city of Divinópolis.
In the State of Bahia, Law No. 9,290 of 2004, further regulated by State Decree No. 9,322/2005, created Bahia's PPP Unit. Since 2004, Bahia has executed the following projects under PPP agreements:
- Jaguaribe wastewater system (2006): operation, maintenance and expansion of the wastewater infrastructure of System Jaguaribe, including the work and operation of the infrastructure necessary to allow the disposition of wastewater generated in the city of Salvador.
- Octávio Mangabeira Stadium (Fonte Nova Arena) (2010): work, maintenance, operation and management of Fonte Nova Arena.
- Salvador's Suburb Hospital (HS) (2010): construction, operation and management of Salvador's HS, including provision of medical services to patients.
- Salvador – Lauro de Freitas Underground (2013): work, maintenance and management of an urban railway system connecting the cities of Salvador and Lauro de Freitas.
- Operation of Couto Maia Institute Hospital Unit (2013): provision of construction work, maintenance and management of the Couto Maia hospital complex in Salvador. Additionally, the concessionaire is responsible for providing all non-medical services necessary for the operation of the hospital complex (i.e., patient admission, management of patient schedules).
- Imaging diagnosis (2015): operation and management of Bahia's Imaging Diagnosis Centre and provision of ancillary services to hospital units including imaging diagnosis as part of patient care initiatives encompassing the provision of radiology, mammography, tomography and magnetic resonance tests.
- Road BA-052 – Estrada do Feijão (2018): operation, maintenance nad update of State Road BA-052.
Finally, in the state of Pernambuco, Law No. 12,765 of 2005, further regulated by State Decree No. 35,378 of 2005, created Pernambuco's PPP Unit. Since 2005, Pernambuco has executed the following PPP agreements:
- Access Bridge and Highway System of Praia do Paiva (2006): work, maintenance and operation of the access bridge and highway system connecting the Industrial Complex of Suape and Pernambuco's northern coastline.
- Water supply and wastewater sanitation services (2013): water supply and wastewater sanitation services in the metropolitan region of Recife. The scope of services includes construction and maintenance services necessary for the expansion of Recife's water sanitation infrastructure.
- Operation of a Prison System in Itaquitinga (2009): construction, maintenance, operation and management of a Pernambuco's Prison Complex in the City of Itaquitinga.
- Pernambuco's Multi-use Arena (2010): construction, maintenance, operation and management of Pernambuco's multi-use arena. However, the last two projects were terminated.
Generally, the following rules must be observed in PPP agreements:
- the government may not delegate its regulatory and jurisdictional activities, or its exercise of police powers and other inherently public activities;
- the parties must stipulate fiscal responsibility in the PPP agreement;
- the parties must show transparency in their procedures and decisions;
- the parties must objectively allocate the risks that may arise during the performance of the granted services; and
- the financial sustainability and socio-economic advantages of a PPP project must be taken into account.
In addition, there are three main limitations on the use of PPPs:
- the amount of the contract must exceed 10 million reais as per Law No. 13,529/2017, recently published by the federal government;
- the term of the contract may not be less than five years or more than 35 years, including any applicable extension. The term must also be compatible with the repayment of the investment made; and
- the PPP may not result in agreements with the sole purpose of hiring labour, supplying installation equipment or implementing public work projects.
The execution of a PPP agreement must also be preceded by a competitive bidding procedure and the commencement of the project is conditioned to the following:
- authorisation from the relevant authority accompanied by a technical report demonstrating the convenience and timing of the partnership and the reasons that justify the choice of a PPP (the value-for-money test);
- preparation of a financial impact estimation in the years in which the PPP agreement will be in force;
- preparation of an estimate containing the inflow of necessary public funds to perform the obligations undertaken by the government during the term of the agreement; and
- the inclusion of the scope of the PPP in the government multi-annual plan.
Bidding and award procedure
A competitive bidding process must precede the execution of a PPP. Before the commencement of the competitive bidding, drafts of the invitation to bid and agreement to public consultation must be published in the official press, newspapers of general circulation and electronic media. This notice must stipulate the purpose for the bidding process, the identification of the scope of the project, the length of the contract and its estimated value. The notice must also stipulate a period of at least 30 days for comments, and at least seven days must elapse between the time the comments expire and the date of the official publication to bid.
The enactment of the notice of competitive bidding might also be subject to prior environmental permit or the issuance of directives for the environmental licensing of the project, depending on the scope of the contract.i Expressions of interest
PPP projects in Brazil may be drawn up directly by the government or in collaboration with a private party. A private investor may take part in the preparation of the request for proposals issued at the behest of the granting authority or the authority may grant private investors an authorisation to conduct feasibility studies for a PPP not proposed by the government.
A manifestation of interest or an unsolicited proposal is used for obtaining feasibility studies on specific public work projects. It is a tool employed by major public and private entities, and it seeks to encourage private parties to participate in the organisation of infrastructure projects. At the federal level, Decree No. 8,428 of 2015 governs expressions of interest.
Manifestations of interest may be prepared by public or private entities (such as companies under government control) and they make it possible to obtain from private-sector partners certain technical, legal and economic information regarding proposed infrastructure projects. Public authorities may also request additional studies to obtain a higher level of expertise from private partners.ii Requests for proposals and unsolicited proposals
Unsolicited proposals precede the request for proposals. It begins with a formal request by any interested party to the government seeking to assess the feasibility of a specific PPP project. The government will review the request, and in the case of approval, publish a notice or announce its intention via digital media.
The government's notice will include the purpose of the solicited proposal and it must include:
- an announcement of the government's intention to receive proposals from interested private parties;
- the procurement of studies into the technical, financial, economic, environmental and legal viability of a project;
- an invitation for contributions that investigate methods and systems for implementing the project;
- demonstration of cost reduction when the proposed PPP model is compared with other models, which must be conducted by the granting authority;
- demonstration that the proposed project conforms to the most appropriate model; and
- preparation of feasibility studies concerning the project.
The public notice introducing the request for proposals must also indicate the scope of the project and specify the nature of the relationship between the public and private entities. The notice must establish the term during which interested parties will have to undertake research about the proposed project, as well as guidelines governing the use of this procedure by the government entity.iii Evaluation and grant
The competitive bidding process for execution of PPP agreements may include a qualification stage under which bidders not able to reach a minimal standard will not be allowed to participate in subsequent stages.
Additionally, the government must either award the concession to the bidder with the lowest cost to the government or the bidder with the best proposal, when considering both the criteria above and the best technical skills available, according to a weighting system established in the invitation to bid.
The bidding documents must also state the manner in which bidders must present their proposals. Bidders might be required to provide written proposals in sealed envelopes, or written proposals followed by an invitation to bid. The latter must always be prepared inversely to the grading order of the written proposals. The invitation to bid cannot limit the number of proposals to be offered by the bidders. Nevertheless, the bidding document may limit the number of invited bidders to those whose written proposals have not exceeded 20 per cent of the amount set forth in the best proposal previously put forward.
Competitive bidding documents may also establish the reversal in the order of qualification and awarding stages, in which case once the stage of grading of offers has ended, the envelope containing the qualification documents of the highest-graded bidder must be opened to determine whether the conditions established in the invitation to bid have been met. The bidder will be declared after it has been determined that its bid meets the requirements set forth in the invitation to bid.