Legal issues and framework of a PPP Public Private Partnerships program. Competion, financial equilibrium, risk sharing, fiscal issues, and project development are relevant issues. The presentation closes with the main legal challenges to be faced when developing a new PPP program.

1. Legal Aspects of a PPP Program
Challenges Arising out of the Brazilian Experience
Mauricio Portugal Ribeiro
Primer Seminario del Cluster de Alianzas Público-Privadas
(APP) de FOMIN
Washington DC, October 2008
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2. Introduction
• Vast experience with PPI - Private Participation in Infrastructure and in
the provision of services to the public and to the Government
Involved sectors such as steel, petrochemicals, power, telecommunications,
highways, railroads, gas, and water supply
• Stable legal and institutional framework
Constitutional Amendments
National Plan on Privatizations
Standards on concessions contracts and bidding procedures
Sector specific Acts, which creates the respective regulatory agencies, and
establishes standards under which they operate
• Variety of contract arrangements
Divestitures/assets sales, BOT, DFBOT, Concessions, joint ventures (with public
and private participation), franchises etc.
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3. Brazil’s past with PPI
• From 1990 to 2007 more than U$ 1 trillion was
generated with PPI – Private Participation in
Infrastructure in the developing world
• Latin America and the Caribe was the region
that has generated most revenues/investments
from PPI (about U$ 450 billion)
• In the 90’s Brazil was the developing country
who has generated most revenues/investments
with PPI
Mundo 1990-2007 América Latina e Brasil 1990-2007
Receitas + Investimentos Receitas + Investimentos
(Milhões/US$) (Milhões/US$)
80000
500,000.00
450,000.00 70000
400,000.00
350,000.00 60000
300,000.00 50000
250,000.00 América Latina (restante)
200,000.00 40000
Brasil
150,000.00 30000
100,000.00
50,000.00 20000
-
10000
Leste Europa e América Oriente Sudeste África
Asiático e Ásia Central Latina e Médio e Asiático Subsariana 0
Pacífico Caribe Norte da
90
92
94
96
98
00
02
04
06
África
19
19
19
19
19
20
20
20
20
Source: Banco Mundial e PPIAF, PPI Project Database. (http://ppi.worldbank.org) Acesso em: 15/08/2008 e Fundo Monetário internacional (FMI), World
Economic Outlook Database: Nominal GDP list of countries. Abril de 2008. Dados para o ano de 2007. 3

4. Brazil’s experience with PPI
• From 1996 to 2001, the Government has reduced its participation in several sectors in infrastructure
• Telecom and Railroads are now under the control of the private sector
• In the largest ports, the private terminals are responsible for more than 50% of the cargo movement
• More than 2/3 of the power distribution and more than 1/5 of the power generation are operated by
the private sector
• In the road sector, some of the main roads are operated by the private sector (still less than 10% of
the paved road network)
• In the water and sanitation sector, private participation is still very limited
Brasil (Receitas + Investimentos) Brasil 1990-2007
(Milhões/US$)
35000 74.9
24896.014
0%
30000 46377.49 14%
Brownfield (Concession) 26%
Brownfield (concessions)
25000
Divestiture
20000 Divestitures
15000 Greenfield Projects
Greenfield Projects
10000 Management and Lease
Management and Lease
Contract
5000 Contracts
110521.46
0 60%
94
95
96
97
98
99
00
01
02
03
04
05
06
07
19
19
19
19
19
19
20
20
20
20
20
20
20
20
Fonte: Banco Mundial e PPIAF, PPI Project Database. (http://ppi.worldbank.org) Acesso em: 15/08/2008
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5. 90’s Legal Framework for PPI
• Competition • Transferring risks, tariffs and
economic equilibrium of contracts
For the market
Possibility of transferring the responsibility of
Contracts have to be awarded under designing, financing, constructing and
competitive bidding procedures operating assets
In the market In several sectors, evolved to contractual
They should be awarded under arrangements that focus on outputs
arrangements that allow competition in
the market (except in the case of The legal framework allows any sort of risk
economic impossibility) allocation arrangements
Yardstick regulation The law entitles private partners to economic
equilibrium of the contracts, preserved by
Fostered by the legal and contractual
contract revisions
framework
Lack of adequate technical expertise
Judiciary has set precedents in cases that
private partners asked courts to enforce their
right to the financial equilibrium of the contract
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6. 90’s Legal Framework for PPI
• Private sector investment, quality • Fiscal Issues
improvement and network expansion
Privatizations proceeds were extensively used to
extinguish debt
Evidence that users are satisfied with the quality of the
services Reduced needs of investment outlays, lowering
borrowing requirements
Complaints about high tariffs
Specific legislative authorization was required to
Privatized companies and service providers were not allow Government payments or guarantees to
able to match the desirable level of investment concessionaires or private partners
Telecommunications and the transmission line sectors
were exceptions
In some sectors, such as water supply and sanitation this
was due to inadequate legal framework
Process of privatizations was limited to projects that
were financially self-sustaining without Gov payments
Accounts for limited portions of the network in many
sectors
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7. Challenges of a PPP Program in
Brazil
• Improve the institutional framework to coordinate private and public
investment
• Rebuild the Government capacity of sector planning and project
development to public direct investment or private participation
• Expand private participation to sectors in which it is still limited
Award concessions, which need some sort of Government guarantee or
payment to become financially viable (concessão patrocinada)
Implement a PFI-like program to bring private sector capabilities to improve
the efficiency of the provision of services to the Government (concessões
administrativas)
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8. Objectives and main features of
the 2004 PPP law
• Linked the PPP contracts with the past experience with PPI
Brazilian PPP law has several references to provisions of the concessions law and of
the law that controls the Government contracts and biding procedures
Protect the powers of the sector planing, project develpment and regulatory agencies
while creating specific agencies to run the PPP program
• Allowed Government payments in long term contracts with private sector
• Established mechanisms to enhance the Government credit profile
a backstop facility to the Government payments (Fundo Garantidor de PPP)
allow the Government to contract its credit enhancement from other entities such as
multilateral organizations
• Improved the procuremment procedure
Make it less formal while maintaining a formal bidding procedure
Hiring culture not compatible with competitive negotiation
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9. Objectives and main features of
the 2004 PPP law
• Fiscal Issues
Required that a proper affordability analysis is done before contracting PPP
Defined limits on budget commitments with PPP (1% of Fiscal Net Revenues)
• Required payments to be based on service performance
fostered the development of output based contracts
fostered development of a proper connection between payment mechanism and
performance indicators
• Conflict management
Possibility of financers step in rights (public sector step in was already allowed)
Possibility of using arbitration
• Other institutional issues
Project selection and development framework
Regulatory agencies
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10. Conclusion
• In Civil Law Jurisdictions, statutory changes are generally not only required but also desirable
To provide a stable framework in which the contracts will be developed and regulated
To foster/initiate the standardization of contracts and procedures
• New legal framework should be based on the past experience of the country specially if it has done
PPI
Analysis of what work and what did not work
Be careful that local culture/aspects sometimes convert international best practices in bad local practices
Unsolicited proposals
Competitive negotiations
Experience on PPI should be threated as a scarce resource in the Government
Remember that the bigger the change, more time will be needed to adapt to it and to consolidate best practices on
the construction and interpretation of the law
• Create or enhance the existent agencies
To select and develop projects
To regulate contracts and oversee the PPP/PPI program
Focus on creating Government technical capacity
• Focus on model projects
First projects really important to create a standard
Chose an easy sector
Review local experience in the sector
Combine with international experience
Having model projects reduce the transactions costs for the next projects
Enhances the quality of the project documentation, contract and biding documents
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11. Contact
Thanks!
Mauricio Portugal Ribeiro
Senior Investment Officer
Head of Infrastructure Advisory Services for Brazil
mribeiro@ifc.org
55 21 2525 5866
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