Federal Law No. 11079, 2004 [PPP LAW] instituted the general rules for bidding and contracting of Public-Private Partnerships (PPPs) within the realm of public administration. This is an important volley in the Brazilian government efforts to develop funding and management alternatives for public works in furtherance of the bidding system instituted by the Federal Law No. 8666, 1993 [Brazilian BIDDING LAW] and to reduce the state presence in the Brazilian economy.
Firstly introduced in the Anglo-Saxon world as an alternative to privatization and to the former system, under which the government administration was responsible for ownership, maintenance and operation of assets of public interest, PPPs are now a widespread concept in many countries, operate as an arrangement between the public authorities and the private sector for the performance of large-sized works and utility services, by means of sponsored or administrative concessions, sharing the venture risks and primarily counting on private funding.
The bill of the PPP LAW as “an indispensable alternative for economic growth in view of Brazil’s critical needs on the social and economic fronts, to be addressed by a positive cooperation between the public and private sectors” and it was passed by the Congress at a fast pace. This serves as a good measure of the urgency and importance that the Federal Government has attached to this matte, certainly in response to the pressure brought to bear by state governments, notably the States of Minas Gerais and São Paulo, in addition to the private initiative, but may also give a false impression that the issue has not been sufficiently discussed by the Brazilian Legislative.
The driving force behind this expeditious congressional passage of the draft bill into PPP LAW was probably the well-known critical shortage of public funds to sponsor infrastructure works and utility services and to meet the demand resulting from the country’s announced economic growth spurt. This shortage of public funds, coupled with the private sector’s lack of interest in taking over such works and services under the traditional concession system, may help explain why infrastructure investments have come to a near halt.
Contrary to the fears of a supposed lack of in-depth discussions over this issue, justice should be done to the numerous debates among the political forces and civil society concerning the most controversial points underlying the PPPs, notably in relation to:
(a) Bidding procedures; the origin of public funds to make up the Public-Private Partnership Guarantee Fund under Article 16 of PPP LAW;
(b) The priority given to settlement of financial obligations under PPPs;
(c) The role of Special Purpose Companies in the venture;
(d) The limitations imposed by Federal Law No. 101, 2000 [FISCAL RESPONSIBILITY LAW]; and
(e) The possibility of adopting arbitration as an alternative dispute resolution mechanism for PPPs.
The introduction of legal mechanisms of such a magnitude conceivably arouses a number of doubts and questions. However, approval of PPPs has undoubtedly represented a great victory for the Lula da Silva’s Administration, especially by offering a wide array of possibilities for the presence of private concerns in key sectors of the Brazilian economy, the reason why the great expectations and discussions over the role of PPPs in Brazil are far justifiable.
In fact, according to data published by the Ministry of Planning, Budget and Management, based on the Government’s Multiyear Plan, it has been estimated that investments equalling 21.7% of Brazil’s Gross Domestic Product will be required to resume and sustain the country’s economic growth (Source: www.planejamento.gov.br). The studies conducted to prepare the Government’s Multiyear Plan, which is aimed at resuming economic growth and has as its greatest challenge to expand investments and exports without hindering the commitment of increasing domestic consumption, evidence the Government’s need of tools that can help it overcome the obstacles to economic growth.
To achieve its purpose, the Federal Government prepared a portfolio containing projects that should be developed with the participation of the private sector. Investments needs were estimated at approximately hundreds of billions of US Dollars in the transportation (railways, highways and ports), irrigation and water resources areas in the country’s five major regions (www.planejamento.gov.br).