MINISTÉRIO DO PLANEJAMENTO

Public Private Partnerships

Fiscal Issues in Brazil

MINISTÉRIO DO PLANEJAMENTO

Cuernavaca, Mx, 26/11/2008

Seminário de Intercâmbio RegionalAspectos Técnicos de los Proyectos para las

Asociaciones Público-Privadas

MINISTÉRIO DO PLANEJAMENTOMINISTÉRIO DO PLANEJAMENTOASSESSORIA ECONÔMICA - ASSEC

Institutional Framework

Law 11.079

Projects

MINISTÉRIO DO PLANEJAMENTOMINISTÉRIO DO PLANEJAMENTOASSESSORIA ECONÔMICA - ASSEC

PPPs on Brazilian Legal Framework

PPP

Law 11.079/0

4

Concessions

8.987/959.074/95

PPP

11.079/04

e

Law of Public Licitations

8.666/93

Sustainable projects

Traditional projects of public investments and public

procurement

Partially sustainable projects by means of

public resources

Inde

pend

ent R

even

ue

Gener

ation

Cap

acity

MINISTÉRIO DO PLANEJAMENTOMINISTÉRIO DO PLANEJAMENTOASSESSORIA 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

MINISTÉRIO DO PLANEJAMENTOMINISTÉRIO DO PLANEJAMENTOASSESSORIA ECONÔMICA - ASSEC

Who Is Involved in the Decision (Federal level)

CGP – PPP Council, composed of:Ministry of FinanceMinistry of Planning, Budget and Management;Ministry of Presidency

Fiscal controlsNational TreasuryTribunal de Contas da União (Federal Auditing Office)

ModellingMinistry that sponsors the project (budget)PPP task force of the Ministry of Planning, Budget and Finance

MINISTÉRIO DO PLANEJAMENTOMINISTÉRIO DO PLANEJAMENTOASSESSORIA ECONÔMICA - ASSEC

Law 11.079

Institutional Framework

Projects

MINISTÉRIO DO PLANEJAMENTOMINISTÉRIO DO PLANEJAMENTOASSESSORIA ECONÔMICA - ASSEC

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.

PPP’s Law Main Caracteristics

MINISTÉRIO DO PLANEJAMENTOMINISTÉRIO DO PLANEJAMENTOASSESSORIA 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.

MINISTÉRIO DO PLANEJAMENTOMINISTÉRIO DO PLANEJAMENTOASSESSORIA ECONÔMICA - ASSEC

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.

PPP’s Law Main Caracteristics (cont.)

MINISTÉRIO DO PLANEJAMENTO

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.

Compliance with Fiscal Responsability Law

MINISTÉRIO DO PLANEJAMENTOMINISTÉRIO DO PLANEJAMENTOASSESSORIA 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.

MINISTÉRIO DO PLANEJAMENTOMINISTÉRIO DO PLANEJAMENTOASSESSORIA ECONÔMICA - ASSEC

Projects

Institutional Framework

Law 11.079

MINISTÉRIO DO PLANEJAMENTOMINISTÉRIO DO PLANEJAMENTOASSESSORIA ECONÔMICA - ASSEC

Projeto BR 116/324

BR - 324

BR - 116

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);

MINISTÉRIO DO PLANEJAMENTOMINISTÉRIO DO PLANEJAMENTOASSESSORIA 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

MINISTÉRIO DO PLANEJAMENTOMINISTÉRIO DO PLANEJAMENTOASSESSORIA 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);

MINISTÉRIO DO PLANEJAMENTOMINISTÉRIO DO PLANEJAMENTOASSESSORIA 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.

MINISTÉRIO DO PLANEJAMENTOMINISTÉRIO DO PLANEJAMENTOASSESSORIA 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.

MINISTÉRIO DO PLANEJAMENTOMINISTÉRIO DO PLANEJAMENTOASSESSORIA 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.

MINISTÉRIO DO PLANEJAMENTOMINISTÉRIO DO PLANEJAMENTOASSESSORIA 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.

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