“By means of rebidding, the concessionary becomes a true partner of the Public Administration”

In 2013 and 2014, the concession program implemented by the Federal Government (ports, airports, highways, etc.) focused strongly on generating revenue by obtaining large sums from permissions. At the time, there were still some positive predictions for the future of the economy and tremendous willingness, on the part of the private sector, to invest in infrastructure opportunities.

However, the economic downturn that followed affected the initial projections of these projects dramatically, rendering many of them unfeasible by affecting not only the payment of the permissions, but also the investments, considering the difficulty to obtain financing lines.

Traditionally, the solution offered by the Concession Law of 1995 would follow in the direction of expiration: the concessionary would take the blame for the crisis and could have his contract terminated, with severe penalties.

With the creation of rebidding, initially established by means Presidential Decree MP-752, and then converted into Federal Law 13,448, there is the effective acknowledgment that not always that which appears to be a breach of contract, is in fact one.

There are circumstances and contingencies which are beyond the control of the government; and even so much more beyond the control of the private sector and the concessionaires. Hence, we must recognize that they integrate the economic realm of the extraordinary. Therefore, it would not make sense to terminate the concession contract on grounds of expiration, keeping in mind that, in the case of rebidding, the contract ends by reason of noncompliance on the part of the concessionaire, since he has not failed to fulfill the contract voluntarily.

By means of rebidding, the concessionaire actually becomes a true partner of the Public Administration to assist in gathering information for the modeling of a new tender, at the same time that he has the opportunity to terminate his contractual relationship without being severely penalized by a situation that could never have been anticipated or foreseeable or considered as a normal business risk.

Clearly, therefore, the recent institute integrates the legislation to ease the joint effort between the Public Administration and the private sector to prioritize the management of public interest to the detriment of contractual disputes that only generate more liabilities and expenses for both sides and impede the economic development of the country.

“The recent amendment allows for a 50% cut in the monthly expenditure with PPP contracts since it has reduced the total minimum value of contracts”

Law no.13529, published in December 2017, fulfilled an old demand from the market and public bodies: it reduced the minimum value of Public Private Partnership contracts from 20 to 10 million Reals. There had always been a consensus that the original limit, kept unchanged since the law on PPP’s was published, hindered the adoption of the model, especially by small and medium-sized municipalities.

Now, with the reduction, there is an expectation that those smaller municipalities will be able to accommodate projects which will be more compatible with their budgetary, financial and infrastructure realities.

This should also ease the path for new models, considering another limitation: the annual indebtedness limit for the global PPP program of each federal state is 5% of the current net annual revenue. That is, the recent amendment allows for a 50% cut in the monthly expenditure with PPP contracts since it has reduced the total minimum value of contract.

Therefore, it should be possible to leverage projects of great relevance for small municipalities, especially in the sectors of water supply and sanitation, mainly for drainage; urban cleaning and waste management (which traditionally do not allow for a fee to be charged); public lighting, and investments in administrative management, such as schools, hospitals and public facilities.

Hence, the amendment of the minimum value of contracts should be welcome by the Public Administration and the market, which may even prepare studies adjusted to the reality municipalities with smaller budgets, but with great investment needs and offer such studies by means of a Procedure of Expressions of Interest (EOI).