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The government’s plan to simplify privatizations
The Brazilian Report . Oct 22, 2019
Photo: Cristino Martins/A-PA
One of the trademarks of the first year of the Jair Bolsonaro government has been its concerted push to encourage privatizations and public-service concessions, thus attracting more and more investment.
The administration’s latest move in this direction has been to submit a series of legislative proposals to the lower house to alter rules on public-service concessions and public-private partnerships—one of which is the creation of a new form of simplified concessions.
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<p>The model establishes a differentiated regime for concessions with a capital expenditure of less than BRL 50 million, allowing for simplified studies, online public consultations, and waiving the need for minimum grants or reference tariffs for auctions. The idea is to make it easier to carry out concessions for certain services, providing that there is competition.</p>
<p>The Infrastructure Development Secretary of the Economy Ministry, Diogo Mac Cord, said that for these concessions there will be no need for highly detailed studies, which are often expensive and time-consuming. There are tools in place to establish average prices and auction the services.</p>
<p>According to Mr. Mac Cord, the proposal of BRL 50 million is a minimum value, but it would be possible to increase this amount via amendments from lawmakers.</p>
<p>Another idea is to introduce so-called “adhesion contracts”—which are agreements that cannot be bargained—for services that already exist in a certain area and are replicated under the same conditions in other locations.</p>
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<h2>Removing PPP limits</h2>
<p>The government’s set of legislative changes to develop the partnerships sector was compiled into the Investment Partnership Program, or <a href="https://blog.houer.com.br/programa-de-parcerias-de-investimentos/">PPI</a>. According to department secretary Martha Seillier, the administration’s idea is to expand the possibilities for government bodies to sign contracts with the private sector.</p>
<p>Furthermore, the proposals seek to provide more security for investments. As part of the PPP Law, for instance, one of the government’s proposals is to scrap current limits on amounts and terms for this type of partnership, as well as removing the government’s obligation to request legislative approval for low return PPPs.</p>
<h2>Increasing gross revenue limits</h2>
<p>There is also a proposal to increase gross revenue limits for government bodies to pay PPP expenses, raising this level to 15 percent and discounting amounts to be substituted with public services paid directly by the government.</p>
<p>Today, dozens of cities and states are already reaching their gross revenue limits and are forced to choose which projects will be passed on to the private sector, due to a lack of space.</p>
<h2>Ancillary revenue</h2>
<p>Another proposal put forward involved altering the rules on ancillary revenue, scrapping the requirement that they necessarily had to be used to reduce tariffs.</p>
<p>According to Mr. Mac Cord, the idea is first to calculate a percentage of extraordinary revenue in the study and leave it up to the public service company. If they are below estimations, they lose. If they are above, they win.</p>
<p>The idea of this proposal is to encourage concessions to include changes in the services being offered, so that they may be adapted over time and used to calculate the value of future concessions, thus resulting in benefits to users.</p>
<p>According to Mr. Mac Cord, there is also a suggestion to allow public-service companies to draft contracts in U.S. Dollars, so that they can guarantee any other costs they may have in dollars. This would be a move to extend the possibilities of financing for concessions.
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