“Allowing for private parties to carry out the search for the investments needed strengthens the ties of partnerships between the public and private sectors”

These days, several studies demonstrate the need to increase investment in infrastructure in the country, given the common sense that lack of adequate infrastructure is one of the barriers to national development. The search for solutions is hindered by the ongoing financial crisis and the consequent absence of public resources intended for the sectors lacking in infrastructure. One of the sectors cited every day as an example where such investments should be made is the basic sanitation sector.

Government-owned companies at the state level engaged in basic sanitation have tested a system of hiring originated under Private Law to leverage investments in works necessary for the continuity of the sector’s development, without this requiring the costing and commitment of resources in the short term: the lease of assets.

The borrowing of the asset lease system into the public contracting sector has the potential to allow the Administration to schedule, monthly, after receiving the asset, to pay the private partner. There is no commitment to the treasury in the short term and the installments can be diluted along several years.

The private sector is then obliged to finance, including through all project finance techniques, the construction of the asset, and is responsible for both the financing and construction risks. On the other hand, the private party will not have to worry about managing the risk of operating the asset and will not be even subject to the risk of demand variation, since the revenue will be guaranteed monthly from the delivery of the asset for operation by the Government. In addition, it is clear that the private party will unquestionably count on the incentive to deliver the works to the public authority in the shortest possible time.

Although some controlling agencies have already endorsed such an unusual contracting method, it is clear that the absence of normative regulations may hinder their use by the Public Authorities. It is also worth mentioning that a correct modeling of contracts for the lease of assets must guarantee the quality of the works that will be leased to the public authority and, as to the private party, this latter may count on the easy enforcement of occasional defaulted amounts owed by the Administration.

The legal rules on the lease of assets can allow even the governmental entities to hire through this method and to have the possibility of constructing public works by paying for them only after it starts operating. Even if this may bind the state budget for a few years, the installments will be lower than the payments made during a contract under conventional means.

As the lease of assets transfers the operation of the asset to the Public Authority, unlike concessions (common, administrative, sponsored), it is a means of contracting that, if duly regulated, will have the potential to be used for the construction of works for such sectors as education and health. Also, it should be mentioned that leasing assets is a method that can be used to create infrastructure in greenfield projects, especially when future demand is difficult to assess, as for example with the railroad industry.

Allowing for private parties to carry out the search for the investments needed for the national development to be promoted by the Public Authority strengthens the ties of partnerships between the public and private sectors, which has been sought to overcome the obstacles imposed by the absence of public resources and by the current financial crisis.

“Competition within the market for the choice of the best project has the potential to bring benefits to the Brazilian State”

In order “to ensure national development”, which was elevated to the level of a fundamental goal of the Federative Republic of Brazil by the constitution, the Brazilian State must invest in the country’s infrastructure, in particular in the areas of economic infrastructure (telecommunications, sanitation, roads, transportation, etc.), as defined by the World Bank.

The Federal Constitution distributes the responsibility for the development and exploitation of different infrastructure areas among the federal entities. The legal means for the exploitation of infrastructure range from administrative contracts, governed by the general law of tenders, to concession contracts – common, administrative or sponsored concessions – the last two juridically referred to as public-private partnership contracts.

Regarding the modeling of concession projects, the country’s legal framework allows private individuals, specialists in each of the infrastructure branches, to submit their projects to the Public Administration, according to the provisions of Art. 21 of the Law on Concessions, art. 31 of Law No. 9.074/95 and Art. 3 of the Law on PPP’s.

These legal instruments are regulated, at the federal level, by Decree no. 8,428, dated April 2, 2015, which disciplined the procedure called “Expressions of Interest” (EOI), by means of which private individuals can be, and have been, invited to provide infrastructure projects in various sectors of the economy.

Yet, the Federal Decree offers the possibility for companies to present an infrastructure project to the public sector by means of a Private Expression of Interest. If the project is of interest by the Public Administration, it may give rise to an EOI, which will make it possible for the administration to receive projects to improve, preserve or create infrastructure. The EOI’s around the country show that the Public Administration has been opening up to the possibility of receiving projects drawn up by the infrastructure market itself.

Competition within the market for the choice of the best project has the potential to bring benefits to the Brazilian State, since the private individuals will have to show to the public administration what public necessity will be met by completing the project at hand and, more importantly, what the most appropriate means to achieve the goal to develop or improve that infrastructure is.

It is important to emphasize that modeling an infrastructure project must combine knowledge and practice in several areas, including the legal one. Those responsible for the legal modeling must, at least, do research on the legal framework regarding the infrastructure project that they intend to build, establish parameters for the concession contract, allocate the concession risks between the public and the private parties, and structure guarantees that keep the project running, in order to attract the attention of the private market and financiers.

The general guidelines outlined above show that the Brazilian legal framework, as a result of the various problems that the infrastructure sector has faced with unfeasible projects, continually fosters the Brazilian State to fulfill its constitutional mission to promote national development.