Presentation on the Brazilian Program of Private Participation in Infrastructure, describing its main features and current problems. The presentation was delivered to a trade mission to Brazil of the Government of Pennsylvania. São Paulo, April 9th 2013.

1. Brazil’s private
participation in
infrastructure program
São Paulo, April 9th 2013
Mauricio Portugal Ribeiro

2. Sectors and arrangements
Sector Arrangement Private participation at this point
Steel,petrochemicals,mining Full privatizationof companiesthatwere notpartof
Petrobrasgroup
About100%
Telecommunications,cargorailroads Privatizationof the GOCunderhard regulated
concessioncontracts
About100%
Powerdistribution,gasdistribution Privatizationof GOCunderhard regulated concession
contracts
Powerismostlyprivate (thereare 6 small GOC,in
a universe of almost60 companies)
Gas distributionismostlyGOC
Powergeneration(onlygreenfields) DFBOT Lessthan 2/5?
Highways(mostlybrownfield) Concessioncontracts(Rehabilitationandexpasionof
capacity)
Main roadsof the country, about15% of paved
roads
Ports(underlandlordmodel) Lease agreementof publicportareas More than50% of the cargo inthe 6 biggestports
Water supply,andsewage collection,
treatmentanddisposal
Several differentarrangements
New concessioncontracts
DFBOT of treatmentfacilities
8-9% of users
Waste disposal New concessions/PPPs Nodata available

3. Brazil’s past with PPI
Source: Banco Mundial e PPIAF, PPI Project Database. (http://ppi.worldbank.org) Access April 05th, 2013
0
10
20
30
40
50
60
70
Latin America and Brazil
Investment+Revenues(U$ billion)
LA without Brazil
Brazil0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
Investment + Revenues in Projects by Primary
Sector ( U$ million)

4. Brazil’s experience with PPI
Fonte: Banco Mundial e PPIAF, PPI Project Database. (http://ppi.worldbank.org) Acesso em: 15/08/2008
99461
114112
111835
130 Concession
Divestiture
Greenfield project
Management and
lease contract
Total Investmentin Projectsby Type and Primary Sector (US$
0
5000
10000
15000
20000
25000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Total Investment in Projects by PrimarySector (U$ million)
Energy
Telecom
Transport
Water and sewage

5. What investments Brazil intends to
do using private participation
Fonte: Banco Mundial e PPIAF, PPI Project Database. (http://ppi.worldbank.org) Acesso em: 15/08/2008

6. Stable legal framework
• Started in the 90’s, with Federal and some states privatizations programs - National Plan on
Privatizations
• Constitutional Amendments (Federal and States)
• Standards on concessions contracts and bidding procedures
• Sector specific acts, which create the respective regulatory agencies, and established
standards under which they operate
• Judiciary decisions since the 90’s upheld privatizations contracts against some specific
government entities desire to non-compliance
• In 2003, change in the Government happened without any kind of nationalization or early
termination of contracts
• The formal power of the regulatory agencies was not affected by the change of the
government but their actual independence and capacity were affected – perception of
regulatory risk raised
– Profile of commissioners
– Time to nominate commissioners
– Reductionof agencies financial and administrative independence
• In the last years, the termination of oldest concession contracts revealed unexpected
difficulties regarding the indemnification for non-amortized investments (power and water
sectors)

7. Framework for PPI
• Competition
– For the market
• Contracts have to be awarded under
competitive bidding procedures
– In the market
• They should be awarded under
arrangements that allow competitionin
the market (exceptin the case of
economic impossibility)
– Yardstick regulation
• Fosteredby the legal and contractual
framework
• Lack of adequate technical expertise
• New contracts give extensive power to
regulators and it is now seen as a risk by
the private sector
• Transferring risks, tariffs and
economic equilibrium of contracts
– Possibilityof transferring the responsibilityof
designing,financing, constructing and
operating assets
– The legal framework allows any sort of risk
allocation arrangements
– In several sectors,evolved to contractual
arrangements that focus on outputs
– The law entitles private partners to economic
equilibrium of the contracts, preservedby
contract revisions
– Judiciary has set precedents in cases that
private partners asked courts to enforce their
right to the financial equilibrium of the contract

8. Framework for PPI
• Fiscal Issues
– Privatizations proceeds were extensively used to
extinguish debt
– Reduced needs of investment outlays, lowering
borrowing requirements
– Specific legislative authorization was required to
allow Government payments or guarantees to
concessionaires or private partners
– 2004 PPP law allowed Government payments in
under PPP contracts and established several fiscal
controls (pay as you go system, debt control etc.)
• Private sector investment, quality
improvement and network
expansion
– Users are generally satisfied with the quality of privatized
services
– There were though complaints about high tariffs, specially
with telecom and roads
– In the 90’s, there was the expectation that all investments in
infrastructure could be transferred to private sector
– 2001 power shortage showed that coordination
between private and public investments is key to the
success of the investment program
– Non-compliance of privatization contract by private sector
was rare and episodic
– CEMAR in 2002-2004 was the only case in which the
Gov replaced the concessionaire because of non-
compliance with contracts
– 2007 Federal Government road auctions changed that
– We are still trying to develop bidding and contract
framework to avoid what happened in 2007

9. Main issues and challenges for the
new projects
• For Federal Government projects
– Quality of feasibility studies – rush can deteriorate quality especially of demand and
engineering studies
– Alignment of returns/risk relation to international best practices
– Enhance the capacity and independence of the regulators
– Develop tools to limit regulatory risk
– Develop bid design able to avoid or minimize “false compliance of contracts” or
“winners course” – the bad legacy of 2007 road auctions
• For subnational projects
– Funding for the big urban transportation projects is still an issue
– Promised transfers from the Federal Government have still a long way to go
– Develop backstop facility for subnational government payments is still a challenge

10. Tel/Fax +55 213437-6997
+ 5561 33211985
atendimento@prnp.com.br
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