New Article: The Brazilian High Speed Rail Program

Please check out my new article about private investments in transport infrastructure in Brazil, published today in TFI-News.

This is the second out of four articles I'll be authoring about private investments the Brazilian transport infrastructure to be published in TFI-News. In my first article, I had the opportunity to discuss the newly Brazilian Program for Investments in Logistics (PIL) and road concessions in Brazil.

In this second article, I bring valuable information about the Brazilian High-Speed Rail (HSR) Program for international players of the rail industry in order to assist them in their decision-making process. All information contained in this article was extracted from official documents publicly available. Due to space limitations, this material entails just the most relevant data and information unveiled by Brazilian regulators. A deeper legal study about HSR regulations in Brazil; public procurement and/or auction procedures will be available upon request.

The third and forth articles will address respectively airports and ports concessions in Brazil and the opportunities these concessions bring along to foreign investors. These are expected to be published in November and December, 2012.

I hope you all enjoy reading my materials.

Kind regards,

Mauricio Jayme e Silva


New Article: Brazilian Infrastructure: Challenges & Opportunities for International Investors

Check out my new article "Brazilian Infrastructure: Challenges & Opportunities for International Investors" published by TFI-News at


Here is more information about TFI-News.

TFI-News is owned by UK based MarketMaker Media which is a news and events provider within the project and infrastructure finance sector and was launched in early 2009.

The company was formed by Paul Haley who has over ten years of experience within the project finance industry. After gaining a BA (Hons) in economics from Manchester Metropolitan University Paul's first role within the project finance industry was developing the International Project Finance Association (IPFA) which was launched in 1998 and was managing director up to 2003. At IPFA Paul developed the association into a large member supported organisation which represented the industry on major issues such as Basel II and pushed for contract standardization within the emerging PPP industry.

Paul then co-founded one of the first online infrastructure finance news providers, Infra-News and P3-Americas, which he built up into an international news, events and media company. Paul was joint managing director and oversaw the development of a number of international conferences which became regular annual industry "must attend" events including the European Infrastructure Finance Forum and the US PPP Infrastructure Finance Forum which were attended by over 300 people each year. The news websites became one of the leading providers of accurate and timely news on global PPP and infrastructure acquisitions.After leaving Infra-News, in early 2009 Paul launched TFI-News to profile key P3 transactions and dealmakers within the global privately financed transportation sectors. Taking an innovative approach, TFI-News is the first infrastructure news provider to deliver its content through video and conduct interviews on camera publishing video interviews online - P3TV. As media platforms and modes of delivering content develop and merge, video interviewing is at the forefront of media publishing.


Brazilian High-Speed Railroads: New CFB draft for HSR concession is now available. Public hearings to take place in Sep '12

Please follow the link below for accessing the documents listed below and others. All documents are in Portuguese. The Brazilian regulator (ANTT) did not post English versions of these documents on its website. Please contact me at jaymesilva3@gmail.com for more info:
  • Call of Public Hearing No. 126/2012 (PH 126);
  • PH 126 Procedures;
  • Summary Table;
  • Technical and Economic Feasibility Studies;
  • Draft of the CFB;
  • Draft of the Concession Contract and Schedules;
  • Minimal Conditions for TOT;
  • Draft of Business Plan;
  • Terms and Conditions of Project Financing;
  • Pre-Qualifying Documents;
  • Qualifying Documents;
  • Draft of M&A of Incorporation;
  • Draf of Shareholders Agreement;
  • Auction Procedures;


Airports: Airport infrastructure package to also boost regional aviation

The Brazilian government is studying extending subsidies for airline companies willing to offer new scheduled flights connecting small cities in the countryside. The measure could join the infrastructure package President Dilma Rousseff intends to announce in the beginning of September. At the Palácio do Planalto, seat of the Brazilian executive branch, the idea is trying to announce the package on September 5th, including measures to lower electricity prices.

For airports, Ms. Rousseff put chief minister of the Secretariat of Civil Aviation, Wagner Bittencourt, to reach out directly to at least four European operators to gauge the real interest in a concession model where Infraero would be kept as majority partner. Mr. Bittencourt now has the mission of talking to the four giants of the business: German firm Fraport (responsible for Frankfurt), British-based BAA (Heathrow), Dutch firm Schipol (Amsterdam) and French firm Aéroports de Paris (Charles de Gaulle).

The minister’s mission is explaining in details that new model. Valor has learned that several foreign companies have already told Brazilian engineering firms they partnered with in the last wave of airport privatizations they are not interested in participating as junior partners.

Ms. Rousseff also prefers the public-private partnership (PPPs) model for the new airport concessions, strengthening the role of Infraero, but she still hasn't issued a final decision on the issue. The main target of PPPs is improving airport management, but a new measure may be necessary to really unlock stalled infrastructure projects.

Since Infraero is state-owned, the only way to accelerate the expansion of airport terminals is exempting the company from the usual invitation for bids process, according to government officials closely monitoring the issue. Two state-owned firms, Petrobras and Eletrobras, already enjoy that status and are exempt from following government rules for public works.

Both companies are supervised by the Federal Audit Court (TCU), but don't need to follow Law 8,666/93 (for invitation for bids) to buy equipment. Petrobras has been able to do that since the second half of the 1990s, when the state monopoly on oil exploration was broken.

Eletrobras won that exemption in 2009, arguing it needed to be faster when buying big equipment for the new wave of plants planned for the Amazon and abroad. Now government experts suggest Infraero follow the same path in case it obtains majority stake in the new concessions.

President Rousseff is working on three different efforts for airport concessions. All measures are planned to be announced on September 5th, according to a schedule proposed by her aides. Besides concessions, the president is also expected to sign a decree authorizing the construction of private airports exclusively destined for general aviation, with the possibility of private capital commercially exploiting them. Private interests in Brazil are currently allowed to build landing strips for jets but cannot charge for their use.

The third effort involves a plan to stimulate regional aviation. The goal is increasing the number of municipalities served by commercial flights to around 210 from the current 130, with investments of up to R$4 billion in three years. The government's idea initially was to focus all efforts on expanding airport infrastructure. This involves from relatively simple measures like buying fire-extinguishing equipment and X-ray machines to terminal construction and improvements to landing strips.

A new ingredient was added to the regional aviation plan: The return of subsidies for routes between cities where low income blocks development of potential demand. That kind of subsidy was widely used in the 1970s and 1980s.

The government still doesn't have a precise estimate of how much the initiative would cost, but expects investment to reach between R$100 million and R$200 million. To decide who gets the subsidy and how much, officials propose an invitation for bids: The airline that requests less subsidies to create new route between small municipalities wins.

Unaware of the existence of such government discussions, airline Trip – which recently announced a merger with Azul – said it's against subsidies to stimulate regional flights, its main focus. “There are more adequate tools,” says controlling shareholder José Mário Capriolo. “If public money is being used, it's best to cut taxes than offer subsidies,” Mr. Caprioli says, adding lower airport fees and sales-tax ICMS on fuels could be more effective.

Source: Valor Economico S.A.


São Paulo officials prepare new round of state road concessions

The São Paulo state government is seeking a way of lowering toll prices at its state roads – a target of criticism from some candidates in electoral campaigns – and also preparing a new round of big infrastructure concessions to the private sector, similar to the federal government's new package.

At the top of the list are 32 airports, among them those of Ribeirão Preto and President Prudente, already saturated and needing investments to expand capacity. “We're preparing new concessions,” São Paulo's secretary of Transportation Saulo de Castro Abreu Filho told Valor, adding there will be news regarding state invitation for bids on infrastructure projects until the end of the year.

The São Paulo package also intends to offer new state roads to the private sector and public-private partnerships (PPPs) allowed by Executive Order 575, published last week, which changed the way federal taxes are collected on those projects. The order transfers taxes to further ahead in the concession contract, from the early stages on which they were formerly charged, when government money is granted for construction or asset purchases on a PPP-type venture.

Those taxes can increase the price of a PPP by “up to 30%,” according to Governor Geraldo Alckmin, from center-right party PSDB. With the changes, the path is cleared to launch an invitation for bids involving Line-6-Orange of the São Paulo subway, which already has attracted projects from three engineering firms – Odebrecht, Queiroz Galvão and Galvão-Somague Engenharia. The projects are being analyzed by the World Bank, which has a cooperation agreement with the state government, and construction will be undertaken according to the PPP model.

Mr. Alckmin also cited two other “possible” PPPs: Line 18-Bronze (a monorail linking the municipalities of São Bernardo do Campo to station Tamanduateí, in downtown São Paulo) and the São Paulo-Jundiaí Express, a train linking both cities with no intermediary stops.

The São Paulo governor avoided mentioning the package of federal concessions as a political fight between PSDB, which controls the state, and governing party PT (Worker's Party). Showing no discomfort with all the party fighting over privatizations, the governor avoided any comparisons to PSDB governments and applauded President Dilma Rousseff's initiative.

“Some issues are no longer object of ideological struggle to become consensus. This is a sign of maturity. Past governments were the financing agents and executives of everything. The modern government's role is to plan, regulate, supervise,” Mr. Alckmin said after the announcement of new federal concessions Wednesday at the Palácio do Planalto, seat of the Brazilian presidency.

Besides a package with new projects, the São Paulo government will also touch on a sensitive issue – high tolls – for current highway concessions. “We're reviewing contracts,” said the Transportation secretary, which joined Mr. Alckmin in Wednesday's event in Brasília.

Without anticipating which solutions are being considered, Mr. Abreu didn't dismiss the possibility of expanding the deadline of current contracts already extended in 2006 and set to start expiring in 2022. The average São Paulo toll is R$12.76 per 100 kilometers traveled, according to a study from the Institute of Applied Economic Research (Ipea). That's Brazil's second-highest toll average after Rio de Janeiro's roads, and is 41% more than the national average.

The problem is caused basically by two facts: Those roads were auctioned in the 1990s, when the country was considered riskier and private interests demanded higher returns, and auctions were based on initial payments, in which how much the government would be paid was the winning criteria, not the lower toll.

Mr. Abreu said the São Paulo government already negotiated with Ecovias the construction of a new stretch of the Anchieta Highway, in the municipality of Cubatão, for around R$300 million. For that project, which was not included in the original project, the government agreed on a return rate of 9%. The original road had return rates closer to 21%, according to the secretary. “Today, I would lower that rate further, to 7.5% to 8%, or to 6.5%, if I had BNDES financing.”

Other additional construction not included in the contracts were negotiated at the Anhanguera highway (operated by the CCR group) and Colinas Highway (by the Bertin group), according to Mr. Abreu. Besides finding ways to lower tariffs for current contracts, the secretary also said the São Paulo government's intention is offering more highways to the private sector in the following months. The secretary expressed optimism that construction of Ferroanel, a cargo railroad encircling São Paulo announced by the federal government, saying state officials completely support the project.

By Daniel Rittner

From Valor Economico S.A.

Read more:



Brazil unveils $65BI Program for Investments in Logistics.

President Dilma Rousseff announced last August 15, 2012 the Program for Investments in Logistics (PIL), which intends to transfer billions in state assets to private investors through long term concessions. For its first stage, PIL forecasts investments of R$133BI (around $65BI) in roads and railroads. Airports, ports and waterways will follow in the subsequent PIL stages.

The first $65BI will be split between greenfield railroad tracks ($45BI) and the expansion of highway lanes ($20BI). Off this first $65BI, $40BI shall be invested in the next 5 years and $25$ in the following 25 years.

With PIL, the Brazilian government aimes the integration of the Brazilian commodity transportation system as Brazil is one of the world's largest commodity producers but has poor logistics to transport farm products from the bread basket states to the ports or to distribute throughout the country.

Roads Concessions

  • Concessions will be awarded to the bidding consortium that offers the lowest toll fare. Tolls shall start to be charged upon conclusion of 10% of the project.
  • Financing Conditions
    • Interest: TJLP (long-term interest rate) + up to 1.5%
    • Grace Period: up to 3 years
    • Amortization: up to 20 years
    • DFL: 65%-80%
Railroads Concessions

The most important PIL feature in terms of railroads lays on the break-up of the Brazilian government railroads monopoly, which means that more than one company will be allowed to operate the same railroad system, which will drop tariffs down and certainly replace the Brazilian railroad system as a logistic alternative.
  • P3 model for construction, operation and maintenance of the greenfield railroads;
  • VALEC (a public-held company) buys the transportation full capacity;
  • VALEC auctions the transportation full capacity to independent operators, concessionaires and/or own-cargo operators aiming tariff modicity for end users;
  • Financing Conditions:
    • Interest: TJLP + up to 1%
    • Grace Period: up to 5 years
    • Amortization: up to 25 years
    • DFL: 65%-80%


Oil & Gas: Brazil announces US$ 1.5BI program to finance innovation projects on the Brazilian oil & gas supply chain.


The Brazilian Government launched Inova Petro Program (IPP) last August 13, 2012. IPP is a US$1.5BI joint initiative from Petrobras, the Brazilian National Bank (BNDES) and the Brazilian Innovation Funding Agency (FINEP) to fund innovation projects on the Brazilian oil & gas supply chain, especially on R&D, engineering, and innovative products, services, technologies and/or processes for the oil & gas supply chain. First RFP is expected to be available on September, 2012.


IPP funds will be available from September 2012 on to Brazilian companies holding US$8MI plus Gross Operating Revenues (GOR), individually or in association with other Brazilian or foreign company. Brazilian companies holding less than US$8MI GOR might still apply for IPP funds if associated with other Brazilian or foreign company that meets the GOR requirement.

In case of association among Brazilian and foreign companies (JV's, consortia and alike), or of Brazilian companies controlled by foreign companies, IPP shall require the innovative technology to be transferred to the Brazilian company.

Main Areas

IPP funds are expected to be available until 2017 for innovative technologies applied to the following main areas:

  • Oil & Gas Field Technology - new technologies to be applied to support platform and vessel operations;
  • Oil & Gas Subsea Technology -  new technologies to be applied to support subsea operations;
  • Oil & Gas Offshore Technology - new technologies to be applied to support offshore operations.
Main Features

  • Projects shall be carried out exclusively in Brazil and be adherent to the Main Areas;
  • Transfer and/or incorporation of technology shall not be funded by IPP;
  • Minimal project funding: US$500.000.00;
  • IPP shall fund up to 90% of the minimal project funding;
  • Top maturity: 5 years.
Funding Mechanisms
  • Credit Agreement;
  • Private Equity Investment;
  • Economic Subventions.
Technical and Finance Monitoring

BNDES and FINEP will conduct follow-up inspections according to their internal procedures. Petrobras will provide with technical support in order to mitigate technical risks of the projects.


Infrastructure: Brazilian new P3 regulation to grant tax relief to private partners and facilitate access to P3 Guarantee Fund

As the 2014 World Cup and 2016 Olympic Games approach, the Brazilian Government is accelerating much needed improvements to statutory Public-Private Partnership (P3) regulations in order to provide a better and more attractive framework for private investments in infrastructure projects.

The latest one was the Provisional Measure No. 575 of August 7, 2012 (PM 575) enacted to amend the Brazilian P3 Act (Law No. 11.079/04) - P3 Act - in three critical areas for infrastructure financing operations through P3: (i) public financial contributions/subsidies to the private partner; (ii) access to the P3 Guarantee Fund; (iii) inter-governmental guarantee/funding.

Below are major aspects brought by PM 575 for the purpose of attracting private investiments to infrastructure projects in Brazil.

  • Public financial contributions/subsidies to private partners
PM 575 added Section 2, 3 and 4 to Article 6 of the P3 Act to authorize the public partner to offer financial contribution to the private partner for construction or acquisition of reverting property, in accordance with applicable regulation. This new contribution mounts up to the already existing financial contributions to be provided by public partner to the private investor such as cash payments, assignments of tax credits or other government rights of payment.

On top of adding this new public financing mechanism, PM 575 authorizes the private partner to make it tax deductible. In this sense, the private partner is now allowed to exclude the equivalent to this contribution from (i) the net profit for the end of calculation corporate income tax (IRPJ); and (ii) the calculation basis of the social contribution on profits (CSLL) and social contribution on revenues (PIS/PASEP and COFINS).

However, it is worthy noting that these deductions shall be added to the calculation basis of the respective taxes once the costs relating to the construction or acquisition of the property reverted to the public partner are incurred, including by means of depreciation or termination of the partnership.

  • Access to the P3 Guarantee Fund
PM 575 amended Sections 4 and 5 and included Sections 9 to 13 to Article 18 of the P3 Act to facilitate access to guarantees from the P3 Guarantee Fund.

Firstly, Section 4 now allows the P3 Guarantee Fund to offer products available in the insurance market to private partners in addition to those already allowed by Section 1 (pledges, mortgages and alike).

Secondly, the deadlines to access the P3 Guarantee Fund are now more favorable to private partner seeking payment from the public partner as follow below:
    • 15 days from the maturity date of an outstanding invoice relating to a specific credit;
    • 45 days from the maturity date of an outstanding invoice, provided that there is no formal rejection by the public partner within 40 days from the maturity date of such invoice;
Lastly, the P3 Guarantee Fund is now legally obligated to pay accepted but unpaid invoices.

  • Inter-governmental guarantee/funding
PM 575 amended Article 28 of the P3 Act to increase the limit for expenditures with PPPs for States, Federal District, and Municipalities from 3% to 5% of their current net revenue in order to obtain guarantees or voluntary transfer from the federal government.

Even though private investors were longing for such provisions since 2004 - when the P3 Act was enacted - it is still unclear if these provisions will trigger the foreign investment flow in infrastructure projects in the intensity that Brazil desperately needs to host two major sports events such as the 2014 World Cup and the 2016 Olimpic Games.

Even if it will, there is still a cloudy horizon in terms of the feasibility of the time schedule for such infrastructure projects to become operational.

This might come out to be just a great medicine for a patient already in critical conditions.


Smart Grid: ANEEL regulates electronic meters

The board of the National Agency of Electrical Energy (ANEEL) adopted at its 29th Ordinary Public Meeting, on August 7, the resolution that regulates the basic requirements for the electronic power measurement systems of consuming units of Group B (residential, rural and other classes, except for low income and public lighting).

The expectation is that the Agency's decision will provide a number of benefits to energy consumers - such as creating the conditions for spreading the micro generation distributed, i.e., the possibility for consumers to also act as small generators of alternative energy sources. Besides this, other benefits that electronic measurement should provide consumers with are the more efficient use of energy, since the consumer will have more information about the profile, the possibility of remote service by the utility; the best network monitoring by distributor, due to the consumer-utility communication flow; the reduction of technical and non-technical losses; and the offer of new services to consumers.

The power meters are an important step towards the deployment of smart grids in Brazil. The concept of a smart grid is the infrastructure that integrates equipment and communication networks to the power supply system - which, according to the chief draftsman of the process, André Pepitone da Nobrega, will transform the existing power grid in a true "electric power-based internet", combining electron and information transport. The director stressed that the factors that prompted the regulator to consider the deployment of smart grids in Brazil were the need to improve the quality in low voltage service, as well as to reduce losses in the power supply and operating costs.

With the new regulation, the distributors will have 18 months to offer consumers electronic meters. ANEEL's proposal establishes two types of meters. One of them, to be installed at no cost, will be provided in case the user joins the white rate mode - where the rate varies according to time slots of consumption. The other model, a more complete one, will provide access to specific information about individual service, and installation may be charged by the distributor. In both cases, the installation of the meter will occur at the request of the consumer.

The proposed regulation of minimum requirements for electronic meters was discussed at Public Hearing 43/2010, which collected contributions from society between October 1, 2010 , and January 28, 2011, and had an onsite session held in Brasilia on January 26, 2011. At the end of this period, ANEEL received 212 contributions from 57 players, with suggestions of consumers, distributors, industries, sector associations and other segments of society. During the onsite session, 19 demonstrations were held, with submission of comments and contributions. The draft resolution and other documents relating to the subject can be found on the Agency’s website (www.aneel.gov.br), on the link hearings/consultations/forum.

Source: ANEEL


CLEAN ENERGY: ANEEL call stimulates biogas generation projects

The Call for Strategic R&D Project no. 014/2012 to deal with “Technical and commercial arrangements for the insertion of biogas electric energy generation from residues and liquid effluents in the Brazilian energy grid" was published in Official Federal Gazette of 7/26. This initiative, approved last July 24th 2012 by the Brazilian Electricity Regulatory Agency (ANEEL) collegiate board, aims at contributing toward treatment of residues and liquid effluents in the country, as well as enabling technological development, increasing electricity supply security and the diversification of the energy grid.

ANEEL’s Strategic R&D considers themes of national interest and of great importance to the electric sector, involving great complexity in scientific or technological terms and low attractiveness for investment as an isolated or individual strategy. Furthermore, future projects should demand joint and coordinated efforts by several companies and executing entities and major financial resources. That is the case of biogas generation. According to ANEEL internal studies, more than 95% of the energy recovery of residue in Brazil is concentrated in the sugar and alcohol sector, based on the burning of bagasse, and the paper sector, through the use of black liquor. Among the biomass thermoelectric plants in operation, practically 1% is from biomass (19 plants, totaling little more than 77 installed megawatts). Successful experiences in Germany permit supposing significant gains in the energy balance when considering the portion of materials that could be recycled before being sent to landfills.

The National Solid Waste Law (Law no. 12.305/2010) stipulates that, starting 2014, only residues without economic feasibility for recovery should be deposited in landfills. The law also determines that open-air landfills and controlled landfills must be closed. According to the National Basic Sanitation Survey (2008), only 28% of waste final disposal units are classified as landfills – that is, 72% of all final disposals would be inappropriate.

According to the National Information System on Sanitation (2009), only 37.9% of the sewage generated in the country is treated. The water and sewage sector represents 2.6% of electricity consumption in the entire country, according to the National Energy Balance (BEM) of 2008, and this is one of the reasons why the National Energy Efficiency Plan (PNEF 2010-2030) elected the sanitation sector as a priority.

The following timetable for project execution becomes valid starting on 7/26:

Demonstration of interest by Companies in executing the project: 15 days

Disclosure of those Companies interested in executing the project for ANEEL: 5 days

Sending of the project proposal to ANEEL: 90 days

Disclosure of the proposal’s initial evaluation result by ANEEL: 60 days

Demonstration of interest in executing the project: 10 days

Deadline for beginning project execution: 180 days

Termination of project execution: 36 months

Source: ANEEL


Clean Energy: Brazilian Development Bank approves credit of US$200 mi for five wind farms in Brazil's Northeast

The board of directors of the Brazilian Development Bank (BNDES) approved US$200 million in financing for the construction of five wind farms in Brazil's Northeast. The funds will also finance the respective associated transmission systems. The farms will have an installed capacity of 138 MW. 

The projects, both winners of the Alternative Sources Auction in 2010, are part of the Growth Acceleration Program (PAC). The Bank will participate with 67.8% of total investments, US$ 300 million, an amount expected to create 1,800 direct and indirect jobs during construction.

The investments in Brazil’s wind energy sector reached US$ 3 billion last year, of which US$ 2 billion was financed by BNDES. The projects represent an increase of 1,160 MW in Brazil’s energy grid, with 38 wind farms.

The project supported by the BNDES will contribute to reducing greenhouse gas emissions, as well as diversifying Brazil’s energy grid with renewable sources. It will also complement the hydroelectric generation, avoiding the reliance on power plants during periods when water levels are lower, besides the bonus of geographically diversifying farms, spread over six municipalities in two states with different wind regimes. 


INFRASTRUCTURE - Brazilian Infrastructure in Numbers

Brazilian Infrastructure in Numbers
1. Growth in Mapped Investments in Infrastructure 2011-2014


US$ Billion


% p.y.
Electric Energy




Highway Transportation



Source: BNDES. Perspectiva de Investimentos em Infraestrutura. Visão do Desenvolvimento nº 92. 
2. Composition of Brazilian Investment in Infrastructure

∑ 01-07
∑ 08-11
Public Direct Investment

Govt. Held Entities

Private Companies

Investment/GDP (%)
Source: Brazilian Institute for Applied Economic Research. www.ipea.gov.br
3. Comparing Infrastructure Investments among Developing Countries

                                            CHINA                           INDIA                                BRAZIL

Source: World Bank: Transformation Through Infrastructure. www.worldbank.org
Mauricio Jayme e Silva. Pontíficia Universidade Católica de São Paulo (PUC-SP) Law School (J.D., 2000). Universidade de São Paulo Law School (LL.M., 2011). Visiting Scholar at Columbia Law School (2011-2012). E: mjayme@law.columbia.edu.  P. 201-563-0516. T. @MauricioJayme. B. www.direitoeinfraestrutura.blogspot.com

INFRASTRUCTURE - An overview about Brazilian regulations about Public Private Partnership (P3)

Public-Private Partnership (P3) in Brazil
Public-Private Partnerships (P3) are a type of public investment in which the Government engages a private party for the rendering of public services
 or the rendering of a service to the State itself, demanding, in any case, a high investment and a horizon of long-term investment amortization. Whereas the Brazilian Constitution sets forth that public services shall be rendered by the State directly or by means of concession to be granted to private entities by means of a public bidding procedure, a P3 contract shall be preceded by a bid to select the concessionaire.
P3s as defined by Federal Law N. 11,079 (P3 Law) were created with the purpose of attracting a post-1996 wave of private investments for projects of high social interest, especially in the infrastructure sector which, under regular conditions, would not be economically feasible or would be assigned to the State action, depending upon very scarce budgetary availabilities. In order to enhance P3‘s economical attractiveness P3 Law allows the consideration by the public partner in addition to fees/tariffs collected from end users, the remuneration to the private partner varying in accordance to the achieved results, the sharing of gains from refinancing with the Government, the transfer of control of the SPE to its lenders for the continuity service, and the pledges from the public partner directly to the SPE’s lenders.
P3’s Modalities
P3 Law provides two modalities of P3 as follows:
  • Sponsored Concession - the P3’s purpose is the rendering of a public service by a private partner directly to end users, in which a portion of concessionaire’s remuneration results from fee and/or tariff revenues charged from its users and another portion results from payment subsidiaries paid directly by the Government; and
  • Administrative Concession - the P3’s purpose is the rendering of services by the private partner to the Public Administration, as direct or indirect user, to the society in general, or to a community that cannot be individualized or subject to fee and/or tariff collection (e.g., prisons). Accordingly, remuneration is derived solely from governmental payments to the concessionaire.
Guarantees for P3’s Concessionaires
Acknowledging the financial risks assumed by private parties, P3 Law created special guarantees to extend the favorable conditions for developing infrastructure projects in Brazil. In this light, P3 Law establishes that RFP’s must specify guarantees of the consideration by the Government to the private partner among the following: earmarking of revenues, special funds, performance bond, guarantees by international financial or non-Government-held institutions, guarantee fund or State-owned company created for this purpose, or other guarantees provided by law, i.e., the P3 Guarantee Fund  (FGP) created by the Brazilian federal government. All these guarantees mount up to those regularly available in other public contracts and reflect a willingness to overcome traditional impediments to the full satisfaction of the concessionaire credits.
Mauricio Jayme e Silva. Pontíficia Universidade Católica de São Paulo (PUC-SP) Law School (J.D., 2000). Universidade de São Paulo Law School (LL.M., 2011). Visiting Scholar at Columbia Law School (2011-2012). E: mjayme@law.columbia.edu
P. 201-563-0516. T. @MauricioJayme. B. www.direitoeinfraestrutura.blogspot.com 


INFRASTRUCTURE - Public Financing in Brazil - An overview about BNDES

Public Financing of Infrastructure Projects - The Brazilian Development Bank - BNDES
The Brazilian Development Bank (BNDES) is the main financial support vehicle in Brazil for investments in all economic sectors. In terms of investment in infrastructure the role played by BNDES is even more significant since all long-term financial structures for infrastructure-related projects are backed up by BNDES.
The two most import BNDES financial mechanisms for infrastructure projects are Financing and Securities’ Subscription.
  • Financing
    • BNDES may finance investment projects, isolated acquisition of new machinery and equipment, export of machinery, Brazilian equipment and services, and acquisitions of goods and production inputs. Financing modalities are divided into products, according to the aim of the undertaking. The infrastructure-related products are the following:
      • BNDES Finem: Minimum of R$10 million (≈ US$6 million) financing for carry-out, expansion or modernization of infrastructure projects related to: electric energy, alternative-source energy, oil & natural gas, logistics, and telecommunications.
      • BNDES Project Finance: earmarked for financial structuring of investment projects and contractually supported by the cash flow of the projects.
        • General Requirements:
          • Borrower must be a Special Purpose Entity (SPE) created specifically to carry out the project.
          • Expected cash flow must cover the loans.
          • Revenues must be earmarked or conceded to the lenders.
          • Yearly-Projected DSCR
          •  of the project’s operational stage must be at least 1.3. It may be 1.2 if IRR
          •  = 8% per year minimum.
          • Shareholder’s own capital = 20% of the total investment.
          • Operational agreement must forbid loans among SPE and shareholders, and regulate financial operations among SPE and shareholders.
  • Securities’ Subscription:
    • BNDES may participate as a subscriber of securities – i.e., shares, debentures, convertible debentures, subscription bonds, options and other derivatives products, in addition to participation in asset-backed (receivables) investment funds (FIDC) – in publicly-listed companies, in public or private issuances, or in companies that may join the capitals market in the short or medium term, through a private issuance.
Mauricio Jayme e Silva. Pontíficia Universidade Católica de São Paulo (PUC-SP) Law School (J.D., 2000). Universidade de São Paulo Law School (LL.M., 2011). Visiting Scholar at Columbia Law School (2011-2012). E: mjayme@law.columbia.edu.  P. 201-563-0516. T. @MauricioJayme. B. www.direitoeinfraestrutura.blogspot.com

INFRASTRUCTURE - Tax benefits for Private Investment in Brazilian Infrastructure Projects

Private Financing of Infrastructure Projects

Aiming private funds to finance new infrastructure projects in key areas such as logistics and mass public transportation, urban mobility, energy, telecommunications, sewage, and irrigation, the Brazilian Government issued new regulations regarding Infrastructure Investment Funds (IIF). In this light, the Brazilian Government offered tax benefits and exemptions  for national and foreign IIF investors and extended these tax incentives to reach debentures issued by Special Purpose Entities (SPE) that are created to carry out infrastructure projects.
The main features of these stimuli package are the following:
  • IIF–Debentures
    • At least 85% of IIFDebentures’ net equity must be invested in SPE’s debentures issued by 12.31.2015.
    • Exemption of Income Tax for:
      • Individuals.
      • Foreign corporations, except from tax havens.
    • 15% Income Tax for:
      • Brazilian corporations.
  • IIF–Securities
    • At least 90% of IIFSecurities’ net equity must be invested in SPE’s shares, subscription bonds, debentures, convertible debentures, options and other derivative products.
    • Exemption of Income Tax:
      • Individuals. 
      • Foreign corporations.
    • 15% Income Tax for:
      • Brazilian corporations.
  • Debentures
    • Issued by SPEs created to carry out infrastructure projects
    • Exemption of Income Tax:
      • Individuals.
      • Foreign corporations, if debentures were subject of public offer.
    • 15% Income Tax:
      • National corporations.
Mauricio Jayme e Silva. Pontíficia Universidade Católica de São Paulo (PUC-SP) Law School (J.D., 2000). Universidade de São Paulo Law School (LL.M., 2011). Visiting Scholar at Columbia Law School (2011-2012). E: mjayme@law.columbia.edu P. 201-563-0516. T. @MauricioJayme.