On September 13th, Brazil′s President Michel Temer announced the main guidelines and projects of the Investment Partnership Program (“IPP”), which aims at the promotion of partnerships with the private sector.
Its main objective is the development of new partnerships with international investors in major infrastructure projects in Brazil, to be accomplished through concession agreements and privatizations.
The IPP Board also announced the guidelines which the Partnership Program is based upon:
- Technical rigor of the procedure, with focus on quality of services;
- Regulation, supervision and effective monitoring by the relevant regulatory agencies;
- Public request for proposals shall be held after public consultation and analysis of the Federal Audit Court – TCU, to mitigate risks and bring legal certainty to the procedure;
- Publication of request for proposals in English and Portuguese, to attract foreign investors (the government already published in English an Overview of the IPP and the IPP′s Map);
- An extended deadline of 100 days between the launch of the request for proposals and the delivery of bids, to facilitate the participation of foreign investors;
- Requirement of prior environmental license or to be obtained before bidding a project, to avoid risks due to licensing issues;
- Long-term financing at the beginning of the concessions; and
- Alternative solutions to the existing partnerships will be subject to public consultation.
It should be noted that the risk distribution shall be foreseen in the request for proposals, and it will consider, at least, the identification, evaluation and allocation of risks to the party which could better manage them, in order to minimize future extraordinary contractual reviews. The technical, economic and social-environmental viability studies (Estudos de Viabilidade Técnica, Econômica e Sócio-ambiental – “EVTEAs”), will be submitted to public consultation prior to their submission to the Federal Court of Accounts (TCU).
BASIC FACTS
Region: Brazil
Industry: Infrastructure
Time: Federal Auctions on the first semester of 2017 up to the first semester of 2017
Project volume: n/a
In each project, the request for proposals and the draft agreements shall contain specific rules setting forth mechanisms that discourage delays or non-compliance with the schedule.
The Funding of IPP Projects
The government banks participating in the IPP, such as the National Bank for Economic and Social Development (“BNDES”), which is a member of the IPP Board, the Caixa Econômica Federal (“CEF”) and Banco do Brasil (“BB”) have announced their intention to make it possible for investors to obtain long-term financing prior to commencement of construction, and to develop models based on bank guarantees as collateral for the financing during the construction phase.
- All projects must have at least 20% of its shares owned by private investors, and the BNDES may subscribe up to 50% of the debentures to be issued, together with the FI-FGTS and the CEF.
- With the gradual replacement of TJLP (low interest rate) by long-term notes called debentures, which could be bought by banks and then sold in the secondary market, TJLP-financing portion should not exceed 40% to 50% of the project, and the remaining funds would be raised with the issuance of debentures.
Estimated timetable of projects by sector
- Ports
RFP estimate: December, 2016
Auction estimate: May, 2017 - Mining and Energy
RFP estimate: second semester of 2016 and first semester of 2017
Auction estimate: second semester of 2016, first and second semester of 2017 - Railways
RFP estimate: first semester of 2017
Auction estimate: first semester of 2017 - Roads
RFP estimate: first semester of 2017
Auction estimate: second semester of 2017 - Water Treatment Stations
RFP estimate: second semester of 2017
Auction estimate: first semester of 2018
