10/22/2015 14h52

Change in public-private partnerships tries to attract foreign capital

Valor International

The Finance Ministry wants foreign companies to always be accepted in bidding for infrastructure projects and even lead consortia in public-private partnerships (PPPs).

The Financial Ministry also plans to end the existing qualification rules for such companies, such as evidence that they have performed large projects in Brazil, proof of liquidity ratios, minimum equity and presentation of balance sheet, in order to ensure the participation of more companies in the bidding processes carried out in the country.

The government will also be forbidden to change public rates unilaterally. If it wants to charge more for a rate in the middle of the contract, the government will have to take the case to an arbitration court — which works faster than Justice — and the company will be compensated for any losses in rate changes. This way the Finance Ministry intends to attract more investors for projects in Brazil.

These rules are part of the “PPP More” program and will manage public-private partnerships in the upcoming concessions for infrastructure projects. They are included in the 38 articles of the draft bill that was prepared by lawyers at the request of the Ministry of Finance.

The draft to which Valor PRO, the real-time news service of Valor, had access is the 18th version of the bill PPP More, and was drafted by Professor Carlos Ari Sundfeld. It establishes the creation of a board consisting of seven members to manage the PPP More program, by which the federal government intends to encourage private-sector partnerships with the federal, state and municipal governments. There will be three ministers from the government — Finance, Chief of Staff and Planning — and four directors who will be appointed by the president of the Republic for four-year terms.

The board members cannot have direct or indirect ties with companies, organizations or professionals who may be hired for the new concession regime that the government is formulating. Finance Minister Joaquim Levy will formally chair the PPP More’s board, so it will be up to him to propose resolutions for the implementation of the program, which then must be approved by the full body.

The board will receive proposals from companies and define what the “strategic national” projects will be. The program will consider under this condition projects capable of producing "significant impact on national development" and whose viability depends on joint development measures from more than one agency or entity of the federal government or of other entities of the Federation, especially for the improvement of public infrastructure.

Companies also have to indicate how they will achieve the results to implement the works and the government will only accept projects in which the economic benefits are higher than costs.

Once the company’s proposal is accepted, the PPP More’s board will call government agencies involved in the project and open a public consultation, giving 90 days to receive third-party suggestions. Companies and sector organizations that oppose the proposal may challenge it and the board may initiate proceedings to change it, if it agrees with the claims that it needs to be changed. After this stage, the proposal will be forwarded to the recognition decree issue of public utility and the qualification of the project as of strategic national interest. This decree will be signed by the president. If it’s a state government’s project, the governor will sign it; and if it’s municipal one, the mayor will do so. After this recognition, there will be the authorization for the federal government to sign the contract.

In the contract between the company and the government, the potential development measures to be adopted by public bodies will be specified, as well as the norms to be applied and the required procedures for the execution of works. The obligations of public agencies and private companies will be described with terms and conditions for their implementation, as well as the consequences for not performing the projects, in addition to the guarantees given to the parties.

"Under no circumstances, the adjustment and revision of rates, prices, considerations or contributions, or their payment and collection, will be linked to uncertain factors or formulas, undetermined or dependent on the discretion of a party," says the draft of the PPP More program. "The public contracting party may not, for reasons of public interest, prevent, delay or unilaterally reduce the charges or the adjustment of rates or prices by the contracted party, except with the prior approval of an arbitration court, in a decision whose validity will always be linked to the monthly compensation in cash for the loss of revenue."

The draft also prohibits bids to be chosen based on technical and price criteria.

The Ministry of Finance intends to create a new state company — the National Public Structuring Company — to enable these projects, organize bidding documents and funding models. With this company, the government will not need to use the Public Procurement Law (No. 8,666) to hire projects. The state company will be based in Brasília and will be managed by a board of directors and an executive board.

Members of the board of directors will be the same ones of the PPP More’s board. As for the executive board, it will be made up of "persons of unblemished reputation and remarkable competence, appointed and removed by the board of directors." There will also be a structuring head, who will be the consortium manager and discuss possible compensation to companies.

In the case of bids with little competition, the Administrative Council for Economic Defense (Cade) will be consulted and may call participants to improve their proposals.