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Public Private Partnerships Fiscal Issues in Brazil

MINISTÉRIO DO PLANEJAMENTO. Seminário de Intercâmbio Regional Aspectos Técnicos de los Proyectos para las Asociaciones Público-Privadas. Public Private Partnerships Fiscal Issues in Brazil. Cuernavaca, Mx, 26/11/2008. MINISTÉRIO DO PLANEJAMENTO. ASSESSORIA ECONÔMICA - ASSEC.

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Public Private Partnerships Fiscal Issues in Brazil

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  1. MINISTÉRIO DO PLANEJAMENTO Seminário de Intercâmbio Regional Aspectos Técnicos de los Proyectos para las Asociaciones Público-Privadas Public Private Partnerships Fiscal Issues in Brazil Cuernavaca, Mx, 26/11/2008

  2. MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC Institutional Framework Law 11.079 Projects

  3. MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC PPPs on Brazilian Legal Framework Concessions 8.987/95 9.074/95 PPP 11.079/04 e Law of Public Licitations 8.666/93 PPP Law 11.079/04 Sustainable projects Independent Revenue Generation Capacity Partially sustainable projects by means of public resources Traditional projects of public investments and public procurement

  4. MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC PPP definition in Brazil • Concessão patrocinada (Sponsored Concession) • Common concession of public services • Origin of revenue: tariff + public payments • Concessão administrativa (Administrative Concession) • Direct or indirect services to the Public Administration • Public services • Economic activities not listed as public services • Origin of revenue: public payments

  5. MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC Who Is Involved in the Decision (Federal level) • CGP – PPP Council, composed of: • Ministry of Finance • Ministry of Planning, Budget and Management; • Ministry of Presidency • Fiscal controls • National Treasury • Tribunal de Contas da União (Federal Auditing Office) • Modelling • Ministry that sponsors the project (budget) • PPP task force of the Ministry of Planning, Budget and Finance

  6. MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC Institutional Framework Law 11.079 Projects

  7. MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC PPP’s Law Main Caracteristics • Project development, construction, financing, operation by the private sector and transfer of assets, at the end of the contract, to the public sector; • Law is valid for the Public Administration, public foundations, special public funds, state owned enterprises and other entities controled directly or indirectly by federal, state or municipal governments; • Minimum amount: R$ 20 million (around US$ 9,1 million); • Contract duration: between 5 and 35 years; • The object of the contract can´t be solely hiring people, equipament acquisition or construction of facilities; • Public payments conditioned on the availability of the service; • Although the law subsidises itself in many points in the Concession Law, they don´t co-habitate in the bidding process.

  8. MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC PPP’s Law Main Caracteristics (cont.) • Resources from public payments come from the budget of the ministry directly involved, or from the budget of the independent state owned enterprise (it´s not “added”); • Public payments cannot be delayed (is immune to the National Treasury´s “scissor”); • Main fiscal control at the federal level: • Limit of 1% of previous annual “current liquid revenue*” with public payments of PPPs, for the federal government (more or less R$ 4,0 billion in 2008 – US$ 1,82 billion); • Sponsored concessions where more than 70% of revenues comes from public payments depends on authorization from the Congress. • Step-in Rights * Revenue from taxes, government financial assets and dividends from state owned companies less compulsory transfers and pensions.

  9. MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC PPP’s Law Main Caracteristics (cont.) • Public payments garanteed by the PPPs Fund of Garantees (FGP); • FGP – Fundo Garantidor de PPPs • Begins in feb/2006 with assets of R$ 3,15 billion (= US$ 1,43 billion) in stocks (Petrobrás, Vale, Banco do Brasil, etc); • Rules don´t allow leveraging of obligations (the ration between abligations and assets must be equal or less than 1); • Allows garantees to be constituted under various juridical instruments; • Fund is operated by Banco do Brasil, not the government; • As garantees can also be used bank garantees, insurance, public revenue segregation, garantees from multilateral institutions, etc.

  10. Compliance with Fiscal Responsability Law • Estimation of future obligations for the next 10 years; • The estimations must be accomodated in the government budgetary law (looking ahead 4 years); • The rules regarding the consolidation of PPP’s financial compromises as public debt were stated by the National Treasury; • The rule states that if a contract of PPP incur in risk of demand or construction or availability, it must be treated as debt; • That’s not a problem for the Federal Government, but some states and municipalities don’t have margin for new debt assumptions; • SOE are part of the 1% limit, even if they have an independent budget.

  11. MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC State and Municipal Level • States and municipalities have their own law, which must follow the general guidelines of the federal law; • They have also their own fiscal autonomy, according to the Constitution; • Federal government has constitutional compulsory transfers to states and municipalities; • But, there are the non-compulsory transfers... • States and municipalities that surpass the 1% limit of their own “current liquid revenue” are blocked from receiving non-compulsory transfers; • Actually, the states of São Paulo, Minas Gerais and Bahia are the ones that have the most advanced PPP programs.

  12. MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC Institutional Framework Law 11.079 Projects

  13. MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC Projeto BR 116/324 • Concession to rehabilitate, operate, maintain and make capacity improvements in 680km of a logistical corridor in the Northeast of Brazil; • Cross subsidy between the two roads; • BR-324: around 20.000 VPD (70% light vehicles), BR 116: around 5.000 VPD (20% light vehicles); BR - 324 BR - 116

  14. MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC Projeto BR 116 - Modeling • Estimated investment around R$ 1,1 billion (around US$ 500 million), throughout the concession period of 15 years; • Fixed base toll fare of R$ 0,035/km (or US$ 0,016/km); • Dualization of 84km of lanes dependent on service levels; • Road upgrading works: • Initial emergency recovery (first 6 months);rehabilitation and third lanes (first 5 yeras); • Routine periodic maintenance; • Dualization; • Operation services: • Toll collection; • Traffic monitoring and control; • Mechanical and medical assistance to road user

  15. MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC Project BR 116/324 – What Happened? • Project turned into a pure concession; • Many innovations colliding with the 2nd auction of public federal roads. Ex: • Participation of foreign investors; • Allowance of non engineering participants and subprocurement; • New toll scheme (end of heavy truck subsidy); • The “service” approach; • Dualization based on service levels; • Project near sustainability combined with low toll fares (R$ 0,035/km or US$ 0,016/km);

  16. MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC Pontal Project • Irrigation project located in Petrolina, PE, in the Valley of the São Francisco River; • Total area of 33.000 hectares, of which 7.717 irrigated; • 40% of the infra-structure already built by the public sector; • Region already exports, annually, US$ 100 million in fruits; • Logistical chain prepared for exports; • Project is part of the PAC.

  17. MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC Projeto Pontal - Modeling • Water availability of 7,8 m3/sec; • Individual contracts for the operation of infra-structure and agribusiness, but they are awarded to the same consortium or individual winner that must be an agribusiness operator; • Bid evaluation focus on integration of small farmers that are chosen by the agricultural operator; • Tariff to end user based on amount of irrigated land and water delivered; • Term of 25 years and public payments set for the auction at a maximum of R$ 208 million (R$ 113 million on PV or US$ 50 million) during that period on a scale given by the government; • Expectation of 20.000 jobs created.

  18. MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC Pontal Project – Public Payments • Public payments conditioned on: • 10% on availability; • 40% on land occupation; • 50% on performance, after the land is fully occupied.

  19. MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC Financing in Brazil and the Credit Crunch • BNDES is the main source of financing for infrastructure projects in Brazil (US$ 30 billion disbursed in 2007); • Normally, concessions have pre-approved lines of credit of 70% of the value of the investment; • In less developed regions, this amount may be up to 80%; • Addionally, pension funds in adition to SOEs may have up to 80% (90% in less developed regions) of the value of the investment in PPP projects, either through equity or debt; • The FI-FGTS is another option, a fund of US$ 7,7 billion that can provide up to 85% of participation, either through equity or debt in infrastructure projects in selected areas (Transport – except for airports –, sanitation and electricity). • Finally, there are Constitutional Development Funds for the North, Northeast and Center-East Regions.

  20. Thank You. Fernando Pimentel Ministério do Planejamento, Orçamento e Gestão Tel: +55 61 3249-4070/4593 Fax: + 55 61 3321-8084 E-mail: fernando.pimentel@planejamento.gov.br

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