Socalizing in Brazil

Felipe Jens, chief executive, Odebrecht Properties

Despite a significant increase in investments over the last 40 years, Brazil still faces major deficits in its infrastructure (and social infrastructure). Currently, the sectors of the economy that demand large amounts of investments are, among others: urban mobility, transportation, health, basic sanitation and education.

Since solving this problem will undoubtedly require lots of resources (and time) from public and private entities, PPPs offer a good alternative.

After 2004, with the enactment of the Federal Law 11.079/04, PPPs gained momentum and enabled the country to structure a number of projects that were economically unfeasible but of critical importance to the Brazilian society.

With the support of the private sector, which has expertise and capacity to structure and invest in such projects, PPPs have been helping Brazil to reduce its infrastructure deficit, especially in sectors such as transportation (including urban mobility) and basic sanitation.

However, other areas such as education, health and urban development (through urban operations) are expanding their investments through PPPs, very much aligned with the demands and aspirations of a large portion of our society (as demonstrated by recent mass protests in the country).

Even though today we have more PPPs than 10 years ago, the number still remains small. One of the reasons for this is that despite a robust regulation, some of the guarantees offered by the public partner to its contractual payment obligations still face some challenges. Solving such obstacles is crucial, as the mechanisms established will have to last and ensure for many years – sometimes decades – that the payment obligations will be made no matter what. In other Latin American countries, such as Peru, Colombia and Chile, a more robust guarantee structure has ensured the growth and development of PPPs.

Indeed most governments have good and acceptable assets to provide such guarantees.

However, it is essential that these guarantees be correctly structured and “bullet-proofed” for the long-term to enable investors and financiers to assume payment risks, which will serve the long-term finance of these PPP projects over the course of 20 to 30 years.

It is also important that the availability of public resources for PPPs be expanded, since government sources for this funding should be depleted over the coming years.

Among the various possibilities to expand such sources is to include funds from the National Education Development Fund (FNDE) for projects in this area or, for example, to make the Fund for Federal PPPs available to state and municipal PPP projects.

Another important aspect that would increase the capacity of the private sector to invest – and one that is already being considered – is a tax relief for PPPs. Today, 30% to 40% of the payments made to private partners returns to the government in the form of taxes, making these projects more expensive.

For the PPP program to function effectively, the needs and interests of the public, the private and the society as a whole must be balanced. The users must approve the quality of the services rendered by the private companies over the public assets. For this reason, PPP agreements establish strong quality targets that, if not met by the private party, could result in the termination of the PPPs (and fines) to the private company.

No doubt PPP is a very powerful instrument to improve public services, allowing Brazil to overcome its infrastructure (including social infrastructure) deficits. The local society demands and deserves it. With a few adjustments and a better understanding by the government and the society of PPPs, Brazil could benefit enormously from such an instrument.