MINISTÉRIO DO PLANEJAMENTO Public Private Partnerships Fiscal Issues in Brazil MINISTÉRIO DO PLANEJAMENTO Cuernavaca, Mx, 26/11/2008 Seminário de Intercâmbio Regional Aspectos Técnicos de los Proyectos para las Asociaciones Público-Privadas

MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC Institutional Framework Law Projects

MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC PPPs on Brazilian Legal Framework PPP Law /04 Concessions 8.987/ /95 PPP /04 e Law of Public Licitations 8.666/93 Sustainable projects Traditional projects of public investments and public procurement Partially sustainable projects by means of public resources Independent Revenue Generation Capacity

MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC PPP definition in Brazil  Concessão patrocinada (Sponsored Concession)  Common concession of public services  Origin of revenue: tariff + public payments  Concessão administrativa (Administrative Concession)  Direct or indirect services to the Public Administration –Public services –Economic activities not listed as public services  Origin of revenue: public payments

MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC Who Is Involved in the Decision (Federal level)  CGP – PPP Council, composed of:  Ministry of Finance  Ministry of Planning, Budget and Management;  Ministry of Presidency  Fiscal controls  National Treasury  Tribunal de Contas da União (Federal Auditing Office)  Modelling  Ministry that sponsors the project (budget)  PPP task force of the Ministry of Planning, Budget and Finance

MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC Law Institutional Framework Projects

MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC  Project development, construction, financing, operation by the private sector and transfer of assets, at the end of the contract, to the public sector;  Law is valid for the Public Administration, public foundations, special public funds, state owned enterprises and other entities controled directly or indirectly by federal, state or municipal governments;  Minimum amount: R$ 20 million (around US$ 9,1 million);  Contract duration: between 5 and 35 years;  The object of the contract can´t be solely hiring people, equipament acquisition or construction of facilities;  Public payments conditioned on the availability of the service;  Although the law subsidises itself in many points in the Concession Law, they don´t co-habitate in the bidding process. PPP’s Law Main Caracteristics

MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC PPP’s Law Main Caracteristics (cont.)  Resources from public payments come from the budget of the ministry directly involved, or from the budget of the independent state owned enterprise (it´s not “added”);  Public payments cannot be delayed (is immune to the National Treasury´s “scissor”);  Main fiscal control at the federal level:  Limit of 1% of previous annual “current liquid revenue*” with public payments of PPPs, for the federal government (more or less R$ 4,0 billion in 2008 – US$ 1,82 billion);  Sponsored concessions where more than 70% of revenues comes from public payments depends on authorization from the Congress.  Step-in Rights * Revenue from taxes, government financial assets and dividends from state owned companies less compulsory transfers and pensions.

MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC  Public payments garanteed by the PPPs Fund of Garantees (FGP);  FGP – Fundo Garantidor de PPPs  Begins in feb/2006 with assets of R$ 3,15 billion (= US$ 1,43 billion) in stocks (Petrobrás, Vale, Banco do Brasil, etc);  Rules don´t allow leveraging of obligations (the ration between abligations and assets must be equal or less than 1);  Allows garantees to be constituted under various juridical instruments;  Fund is operated by Banco do Brasil, not the government;  As garantees can also be used bank garantees, insurance, public revenue segregation, garantees from multilateral institutions, etc. PPP’s Law Main Caracteristics (cont.)

MINISTÉRIO DO PLANEJAMENTO  Estimation of future obligations for the next 10 years;  The estimations must be accomodated in the government budgetary law (looking ahead 4 years);  The rules regarding the consolidation of PPP’s financial compromises as public debt were stated by the National Treasury;  The rule states that if a contract of PPP incur in risk of demand or construction or availability, it must be treated as debt;  That’s not a problem for the Federal Government, but some states and municipalities don’t have margin for new debt assumptions;  SOE are part of the 1% limit, even if they have an independent budget. Compliance with Fiscal Responsability Law

MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC State and Municipal Level  States and municipalities have their own law, which must follow the general guidelines of the federal law;  They have also their own fiscal autonomy, according to the Constitution;  Federal government has constitutional compulsory transfers to states and municipalities;  But, there are the non-compulsory transfers...  States and municipalities that surpass the 1% limit of their own “current liquid revenue” are blocked from receiving non-compulsory transfers;  Actually, the states of São Paulo, Minas Gerais and Bahia are the ones that have the most advanced PPP programs.

MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC Projects Institutional Framework Law

MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC Projeto BR 116/324 BR BR  Concession to rehabilitate, operate, maintain and make capacity improvements in 680km of a logistical corridor in the Northeast of Brazil;  Cross subsidy between the two roads;  BR-324: around VPD (70% light vehicles), BR 116: around VPD (20% light vehicles);

MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC Projeto BR Modeling  Estimated investment around R$ 1,1 billion (around US$ 500 million), throughout the concession period of 15 years;  Fixed base toll fare of R$ 0,035/km (or US$ 0,016/km);  Dualization of 84km of lanes dependent on service levels;  Road upgrading works:  Initial emergency recovery (first 6 months);rehabilitation and third lanes (first 5 yeras);  Routine periodic maintenance;  Dualization;  Operation services:  Toll collection;  Traffic monitoring and control;  Mechanical and medical assistance to road user

MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC Project BR 116/324 – What Happened?  Project turned into a pure concession;  Many innovations colliding with the 2nd auction of public federal roads. Ex:  Participation of foreign investors;  Allowance of non engineering participants and subprocurement;  New toll scheme (end of heavy truck subsidy);  The “service” approach;  Dualization based on service levels;  Project near sustainability combined with low toll fares (R$ 0,035/km or US$ 0,016/km);

MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC Pontal Project  Irrigation project located in Petrolina, PE, in the Valley of the São Francisco River;  Total area of hectares, of which irrigated;  40% of the infra-structure already built by the public sector;  Region already exports, annually, US$ 100 million in fruits;  Logistical chain prepared for exports;  Project is part of the PAC.

MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC Projeto Pontal - Modeling  Water availability of 7,8 m 3 /sec;  Individual contracts for the operation of infra-structure and agribusiness, but they are awarded to the same consortium or individual winner that must be an agribusiness operator;  Bid evaluation focus on integration of small farmers that are chosen by the agricultural operator;  Tariff to end user based on amount of irrigated land and water delivered;  Term of 25 years and public payments set for the auction at a maximum of R$ 208 million (R$ 113 million on PV or US$ 50 million) during that period on a scale given by the government;  Expectation of jobs created.

MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC Pontal Project – Public Payments  Public payments conditioned on:  10% on availability;  40% on land occupation;  50% on performance, after the land is fully occupied.

MINISTÉRIO DO PLANEJAMENTO ASSESSORIA ECONÔMICA - ASSEC Financing in Brazil and the Credit Crunch  BNDES is the main source of financing for infrastructure projects in Brazil (US$ 30 billion disbursed in 2007);  Normally, concessions have pre-approved lines of credit of 70% of the value of the investment;  In less developed regions, this amount may be up to 80%;  Addionally, pension funds in adition to SOEs may have up to 80% (90% in less developed regions) of the value of the investment in PPP projects, either through equity or debt;  The FI-FGTS is another option, a fund of US$ 7,7 billion that can provide up to 85% of participation, either through equity or debt in infrastructure projects in selected areas (Transport – except for airports –, sanitation and electricity).  Finally, there are Constitutional Development Funds for the North, Northeast and Center-East Regions.

Thank You. Fernando Pimentel Ministério do Planejamento, Orçamento e Gestão Tel: /4593 Fax: