Brazil

Pablo Sorj and Marina Anselmo Schneider

Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados

  1. 1.How common is project finance in your jurisdiction? In what sectors is project financing most common?

    Project finance is becoming increasingly common in Brazil, with banks and law firms establishing dedicated teams to handle project finance transactions. According to the Brazilian Financial and Capital Markets Association (ANBIMA), 41 projects raised US$13.5 billion in 2010.

    Project finance is used in a number of sectors in Brazil. In 2010, according to ANBIMA, transactions in the power sector represented 36.1 per cent of the total volume of financing, followed by transport and logistics then oil and gas, with 30 per cent and 27 per cent, respectively. Calculated by the number of projects, power ranked first with 66.7 per cent of all projects disbursed in 2010. Within the power sector, wind projects accounted for 42.9 per cent of the total number of projects, which clearly indicates the growing importance of this renewable energy source. Large thermoelectric power plants, such as the 360MW Itaqui power plant and the 360mw Pecem II power plant also obtained multi-source financing in 2010.

    It is common knowledge that Brazil’s infrastructure is overstretched. The Brazilian government has been very proactive on the infrastructure front over the last few years, but a lot is still to be done. Hosting the 2014 Football World Cup and the 2016 Olympics puts additional pressure on the government to upgrade the current infrastructure, especially airports and transports systems. This huge need for infrastructure-related investments should lead to even higher levels of project finance in the coming years.

  2. 2.What kinds of institutions typically act as sponsors and lenders in your jurisdiction? Why?

    The Brazilian Development Bank (BNDES) continues to play a key role in long-term financing in Brazil. In 2010, BNDES’s total disbursements reached 168,4 billion reais, which highlights the size and importance of BNDES in the Brazilian economy.

    Other institutions that typically act as project finance lenders include local development banks, such as Banco do Nordeste do Brasil (BNB), the InterAmerican Development Bank, export credit agencies, receivables investment funds (FDIC) that invest in infrastructure receivables, Brazilian government controlled banks and funds, such as Banco do Brasil, Caixa Econômica Federal and FI-FGTS (an investment fund of the public pension fund FGTS), and some Brazilian and international commercial banks.

    Typical sponsors in Brazil for project finance include project companies, investment arms of construction groups, oil and gas service providers and private equity funds with an infrastructure investment focus.

    Chinese investments in infrastructure are increasing every year. China became the main trade partner of Brazil in 2009 and, in 2010, the biggest foreign direct investor in the country. Relevant transactions include Wuhan Iron and Steel Co’s US$5 billion investment in a steel mill in Rio de Janeiro and Sinochem Corp’s US$3 billion acquisition from Statoil of a 40 per cent interest in the Peregrino field offshore of Brazil.

  3. 3.What structures are most common?

    The structure depends on the type of asset and sector. Projects that require a concession from the government resemble a build-own-operate-transfer (BOOT) structure, while projects that do not require a concession are usually structured as build-own-operate (BOO). The number of public-private partnerships (PPPs) has increased in recent years, and they are expected to become an increasingly common structure.

  4. 4.Does local law require that the project company be organised under the laws of your jurisdiction? What is the typical legal form of a project company and why? Does local law require that any of the project company’s equity be held by local investors?

    As a general rule, project companies should be incorporated in Brazil. Pursuant to article 1,134 of the Brazilian Civil Code, a foreign company needs an authorisation from the federal government to operate in Brazil.

    Typically, sponsors form a Sociedade Anônima, which is similar to a corporation. Although both the Sociedade Anônima and the Limitada, which is similar to a limited liability company, provide for limited liability for the sponsors, the former is more suitable for projects as it allows greater flexibility in terms of financing and corporate governance. Under Brazilian law, all corporate forms are subject to veil piercing in certain circumstances; for example, in cases of deviation from the company’s purpose (such as abuse of trust and misappropriation) and mixing the assets of the partners and the entity.

    Except for certain specific sectors and industries, foreign investors can hold all the equity of the project company. Sectors where foreign ownership is restricted include nuclear energy, domestic airline companies, health services, media companies, border and rural property.

  5. 5.Please describe the foreign investment regime in your jurisdiction.

    Generally, foreign capital enjoys the same legal treatment as domestic capital. Notwithstanding the above, foreign capital must be duly registered with the Brazilian Central Bank’s Information System (Sisbacen). Sisbacen’s Electronic Statement Registration (RDE) system provides for the collection of data identifying the parties involved and stating the nature of any transactions involving foreign capital.

    Under Brazilian law, there are two major types of investments that nonresident investors (NRIs) may carry out that are, respectively, regulated by (i) Law 4,131, of 3 September 1962 (Law 4,131) and (ii) Resolution 2,689 of the Brazilian Monetary Council (CMN), dated 20 January 2000 (Resolution 2,689). Law 4,131 and Resolution 2,689 have different requirements and exceptions that have to be taken into consideration depending on the nature of the foreign investment.

    Law 4,131 regulates direct equity investments in Brazilian companies or through the establishment of a branch of a foreign company (provided prior authorisation is obtained from the federal government in the case of the latter). Except as regards the establishment of a branch, NRIs directly investing in the equity of Brazilian companies (4,131 Investors) do not need any specific authorisation to make such an investment.

    Resolution 2,689 regulates investments made in the Brazilian financial and capital markets. NRIs registered under the mechanisms provided by Resolution 2,689 can invest in the local financial and capital markets (2,689 Investors). In general, 2,689 Investors have access to the same investment opportunities in the financial and capital markets as Brazilian residents.

    For the purposes of making investments under Resolution 2,689, investors must be registered with the Brazilian Securities and Exchange Commission (CVM) and comply with the requirements listed in the resolution.

    Despite the equal treatment principle described above, NRIs investing in the local capital markets may enjoy a more favourable tax treatment. In an attempt to boost investments in infrastructure, legislators enacted Law 12,431 dated 27 June 2011, which established that earnings by NRIs resulting from investments in publicly traded bonds and securities issued by non-financial Brazilian corporations for the purpose of financing projects (and acquired on or after 1 January 2011), will benefit from zero withholding tax. Please see question 8 for some conditions regarding this tax benefit.

  6. 6.Are there any restrictions on payments abroad or repatriation of capital by foreign investors?

    As explained in more detail in question 5 above, foreign capital is subject to registration before the Brazilian Central Bank. As a general rule, once duly registered, there are no restrictions on payments abroad, or on repatriation of capital by foreign investors. Some remittances, however, may be subject to withholding taxes.

  7. 7.Is it permissible for a project company to maintain offshore foreign currency accounts?

    Individuals and legal entities resident, domiciled or with headquarters in Brazil may keep offshore foreign accounts. Additionally, national law provides that export companies may hold the whole amount of export sales proceeds in offshore accounts, provided these amounts are used to meet export companies’ obligations and not to grant loans of any nature.

    As for project companies engaged in the exploration, production, processing and transportation of oil and gas, and also for those involved in the generation and transmission of electricity, a national regulation allows for the establishment of foreign currency-denominated bank accounts in Brazil. Such accounts are to be used for deposits in foreign currency equivalent to BRL of sales proceeds of oil, gas or electricity (after taxes and other expenses), and these sums may be invested offshore, in accordance with the applicable regulation.

  8. 8.What recent measures has your government implemented to make projects in your jurisdiction more attractive to foreign investors? Has this involved making government or other local sources of co-financing more available for projects?

    Brazilian legislators enacted Law 12,431 on 27 June 2011 (Law 12,431) that establishes a set of tax incentives for foreign investments in, inter alia, infrastructure, intensive economic production and research.

    Pursuant to Law 12,431, there are two types of investments available to NRIs that are eligible to benefit from a zero withholding tax (WHT). They relate to:

    • earnings resulting from investments in publicly traded securities acquired on or after 1 January 2011 and issued by non-financial Brazilian corporations for the purpose of financing investments; and

    • earnings resulting from investments in publicly-traded project bonds issued by special purpose vehicles (and acquired on or after 1 January 2011) with the intent to develop infrastructure projects deemed federal priorities, as regulated by Decree 7,603, of 9 November 2011.

    The law sets out some conditions in relation to the tax benefit: the securities must be indexed to prefixed interest rates linked to certain inflation indexes and the investments must meet the following requirements:

    • NRIs may not be deemed resident in low tax jurisdictions (namely, jurisdictions that do not tax income or that tax it at a rate lower than 20 per cent);

    • the average term shall be greater than four years;

    • the issuer may not repurchase securities within the first two years after issuance;

    • the buyer may not resell the securities;

    • coupon payment intervals of at least 180 days;

    • trading may take place only on regulated markets; and

    • there must be in place a simplified procedure demonstrating the allocation of resources in investment projects.

    Brazilian entities that invest in such securities will also benefit from a reduced WHT, but at a 15 per cent rate.

    Law 12,431 extends this beneficial tax treatment also to earnings obtained through specific investment funds exclusively held by foreign investors and who invest at least 98 per cent of the fund’s assets in publicly traded bonds and securities issued by non-financial corporations for the purpose of financing investment projects.

    Also in connection with funding through investment funds, withholding tax is reduced to zero in the case of income obtained by NRIs or Brazilian individuals in specific investment funds regulated by CVM (investing at least 85 per cent in project bonds) or in investment funds investing at least 95 per cent in those specific investment funds regulated by CVM.

    Moreover, the law also implemented tax benefits for shareholders of infrastructure investment funds in Brazil (FIP-IE). Accordingly, capital gain realised by individuals on the disposal of FIP-IE shares, whether traded or not in the stock market, is also subject to zero WHT. In contrast, capital gain realised by corporate entities on the disposal of those shares remains subject to 15 per cent WHT.

  9. 9.Will any of the financing or project agreements need to be registered or filed with any government authority or otherwise need to comply with local formalities to be valid or enforceable? Even if not necessary for enforceability, is there any special advantage in complying with local formalities?

    In general terms, except for documents creating a security interest (for which please see the questions regarding collateral security below), there is no requirement that financing or project agreements be registered with any government authority to be valid and enforceable in Brazil. It is not unusual, however, for lenders, such as the Brazilian Development Bank, to require that the loan agreement be registered before the Registry of Deeds and Documents in Brazil in order to give notice to third parties.

    Any documents in a foreign language to be admitted before Brazilian courts or any other Brazilian public authority, will have to be translated into Portuguese by a public sworn translator. Additionally, if the documents are executed outside Brazil, the signatures of the parties to these documents must be notarised by a public notary licensed as such under the law of the jurisdiction where the signing takes place, and the signature of such a public notary must be authenticated by a consular official of Brazil. These documents must then be registered with the competent Registry of Deeds and Documents in Brazil.

  10. 10.Are there any advantages in having the project company issue promissory notes that are governed by local law in addition to the credit agreement governed by New York?

    Yes, promissory notes issued under and governed by Brazilian law may allow lenders to execute them through expedited procedures as well as circumvent the validation process of foreign judgments, which may be a lengthy process in Brazil.

  11. 11.Must any agreements be governed by local law?

    Under Brazilian law, there is no restriction as to the governing law of the financing or project; however, Brazilian law is widely used for project documents (such as the construction contract, supply agreement, offtake agreement, etc.) and finance documents with Brazilian lenders. Agreements with government authorities and documents providing for the creation of security interests over property located in Brazil may need to be governed by Brazilian law.

    Foreign lenders typically request New York law as the governing law for the financing documents and documents concerning any collateral located outside Brazil, such as offshore accounts.

  12. 12.May a collateral agent act as the sole secured party for the benefit of a group of lenders whose composition may change from time to time?

    As a general rule, security must be granted in favour of all lenders. However, lenders may appoint a collateral agent to act on their behalf as an attorney-infact. The power of attorney must clearly state the matters entrusted and the scope of the authority.

  13. 13.May a security interest be granted with respect to all of a project company’s assets? Are any types of property considered personal in nature or ‘of public interest’ such that granting a security interest therein would not be permissible?

    As a general rule, it is not possible in Brazil to grant a global security interest over all of a project company’s assets (a so-called ‘enterprise charge’).

    Brazilian law stipulates certain formalities for a project company to grant security interest over its assets, which may include equity interests, real estate, equipment, machinery, rights (including IP rights) and receivables.

    For after-acquired property, depending on the nature of the asset, security documents will contain an obligation for the parties to amend the security document in order to include the acquired property as collateral.

    Some assets in Brazil, such as those deemed essential for the rendering of a public service, may not be subject to liens or attachments. Also, the transfer of control of certain regulated companies or the assignment of concession or authorisation may require the prior notification or consent of the competent authority.

  14. 14.What costs are associated with registering collateral security interests in your jurisdiction? Are such costs determined with respect to the obligations secured or the approximate value of the property?

    Costs associated with notarising or registering collateral security depend on the type of security granted and the state in which the collateral is registered. Usually, the fees vary according to the value of the secured obligations and the number of pages and parties to the document.

  15. 15.Does your jurisdiction require lenders to stipulate the value of their collateral security in the relevant security documents? If so, what happens if at the time of foreclosure the property is worth more? Must such amount be stated in local currency even if the financing is in a foreign currency? If so, what protections may be implemented against devaluation of the local currency?

    It is not necessary to stipulate the value of the collateral in the relevant security document. However, Brazilian law requires some information regarding the secured obligations: the amount of the debt, the secured obligation’s estimated value or its maximum value; the repayment date and the interest rate, if any.

  16. 16.Does each item of collateral need to be individually identified in the security document to grant a valid security interest in that item? Or would a general description of the types of collateral covered be sufficient?

    Yes. Brazilian law requires the collateral to be individually identified in the security documents. Nevertheless, a pledge on a fluctuating pool of assets is also possible, provided that the assets can be identified.

  17. 17.How do lenders satisfy themselves with respect to the absence of other liens on their collateral? Are liens centrally recorded or searchable? May contractors file mechanic liens? If so, are lien waivers enforceable?

    Confirming the absence of other liens on a given collateral can be a challenging exercise as liens are not centrally recorded and they are not searchable through the internet. It is necessary to search for liens in the Registry of Deeds and Documents and in the Real Estate Registry Office which has jurisdiction over the company’s assets in order to confirm the absence of liens on the borrower’s assets.

    Certain assets require specific registrations (in the case of a pledge over shares, an appropriate annotation in the company’s corporate books). In such cases, it is also possible to confirm the absence of other liens by reviewing the applicable registration.

    Brazilian law does not specifically provide for mechanic liens used to secure a payment obligation. However, the Brazilian Civil Code provides that creditors whose claims arise from the supply of materials, funds or services in connection with an insolvent entity’s construction shall enjoy special privilege in an insolvency or bankruptcy scenario and will therefore receive their debt in accordance with the statutory payment order established by Brazilian bankruptcy law (see question 19).

    In a collection or foreclosure proceeding outside of a liquidation scenario, the creditor (contractor) does not hold any sort of title or collateral over the materials supplied to the construction and, therefore, will not be able to attach or seize those materials through a lawsuit filed against the debtor. Title insurance is still developing in Brazil.

  18. 18.What steps must a lender take to foreclose on a collateral security interest in your jurisdiction? How does a beneficiary of a guarantee provided by a local entity or granted under local law enforce such guarantee? Are any self-help remedies available? Is a public or private sale permissible or required? Is a judicial sale necessary? May lenders participate as buyers in any such sale, including by bidding the debt owed by the project company to them in lieu of cash? May any such sale be for foreign currency? Is foreclosure on a pledge of the ownership interests of the project company more efficient and less time-consuming than a foreclosure on individual assets of the project company?

    The steps a lender must take to foreclose on a collateral security interest in Brazil depend on a number of factors. First, it is important to determine whether the lender has an executory non-judicial title that enables it to initiate an expedited foreclosure proceeding. Otherwise, the lender will have to file a collection lawsuit to obtain a final ruling, which will constitute a judicial title and will enable it to foreclose on a debtor’s assets in the liquidation stage of the lawsuit. Second, the nature of the asset – movable or immovable – will necessitate particular steps and formalities. Third, the type of collateral and the provisions laid out in the agreement may also play a role when foreclosing on a collateral security interest. It is worth noting that, in specific circumstances, the courts may grant freezing or restraining orders, as well as injunctive reliefs. The entire process may take months or even years.

    Self-help remedies are not available in Brazil and, except in very limited circumstances, the lender may not keep the collateral in satisfaction of the debt. In certain cases, depending on the nature of the asset, a private sale is permissible and the mechanics of such a sale are usually set forth in the security document. The court supervised sale is conducted through a public auction and the bids are presented in local currency (Brazilian reais). Lenders may participate as buyers in any such sale.

  19. 19.What creditors would enjoy a higher statutory priority with respect to the collateral security than the lenders?

    Pursuant to Brazilian bankruptcy law, creditors are classified according to the nature of the debt owed. In this capacity, amounts raised in liquidation proceedings must be used to pay the debts of the bankrupt company. The following debts rank higher than secured lenders:

    • post-bankruptcy debts, including:

    • the judicial administrator’s fees and labour claims for services rendered after the declaration of the bankruptcy;

    • ‘fresh funds’ provided to the bankruptcy estate by creditors;

    • expenses related to the liquidation proceedings and sales of assets;

    • court costs relating to unsuccessful lawsuits and proceedings involving the bankruptcy estate;

    • obligations taken on during a judicial recovery (pursuant to Brazilian bankruptcy law) or after the bankruptcy declaration, and applicable taxes; and

    • labour claims in general (up to a maximum amount equal to 150 times the minimum wage per employee), including indemnification for workplace accidents.

    In addition to the order of payments described above, Brazilian bankruptcy law provides that labour claims relating strictly to wages due within the three-month period prior to the bankruptcy decree shall be paid as soon as there is available cash, each such payment being limited, in each case, to a maximum amount equal to five times the minimum wage per employee.

  20. 20.Would the lenders incur any liabilities upon foreclosure relating to project assets?

    In the absence of fraud, generally, lenders are not responsible for any of the company’s liabilities arising from foreclosure.

  21. 21.What legal restrictions exist with respect to the operation of the project post-foreclosure by the lenders or their designee?

    In general terms, there are no legal restrictions with respect to ownership or operation of the project post-foreclosure by the lenders or their designee, but please refer to the answer to question 4 for limitations on foreign ownership. Project companies in regulated sectors may require specific authorisations for a change of ownership.

  22. 22.Would the agreement by a project company’s equity holders to make capital contributions to the project company be enforceable by the lenders in bankruptcy proceedings of the project company?

    There is a lack of judicial precedents regarding the enforceability of equity support agreements in general. The agreement by a project company’s equity holders to make capital contributions to the project company should be enforceable by the lenders in a bankruptcy proceeding of the project company. Whether the funds will flow directly to the lenders will depend, among other things, on how the agreement was drafted, and the structure in place.

  23. 23.Can a project company organised under local laws validly submit to the jurisdiction of a foreign court?

    Except in connection with certain matters under which a Brazilian court would have concurrent or exclusive jurisdiction, a project company organised under Brazilian law can validly submit to the jurisdiction of a foreign court or international arbitration. Notwithstanding the above, in order to enforce any foreign judicial resolution or arbitration award in Brazil various procedural requirements and formalities will have to be satisfied.

  24. 24.Is service of process by mail recognised in your jurisdiction or would the project company need to appoint a process agent?

    As a general rule, Brazilian law sets forth that service of process shall be carried out in one of the following ways:

    • preferably by mail;

    • by a court official who shall serve the relevant party in person at the place of his or her domicile; or

    • by public notice published in the Official Gazette under specific conditions, such as in the event service of process by mail or court official fails.

    Nonetheless, Brazilian law provides that service of process specifically related to expedited foreclosure lawsuits must be performed by a court official.

  25. 25.Are foreign judgments and arbitral awards enforceable in your jurisdiction? If so, does any process of ratification or additional review need to be carried out in the local court system as a condition to such enforcement? Do sovereign or quasi-sovereign entities have the capacity to arbitrate as a matter of local law?

    Foreign judgments and arbitral awards are enforceable in Brazil, but must comply with certain requirements and formalities. The agreement in question must state that a foreign court or arbitration process is competent to resolve any disputes that may arise from it. The judgment made by a foreign court or arbitral award will be enforceable in the Brazilian courts without re-examination of the merits if previously confirmed by the Brazilian Superior Court. For this confirmation the following criteria must be met:

    • all formalities required for the decision’s enforceability under the laws of the country where it was issued must be fulfilled;

    • the decision may not be subject to appeal;

    • the decision must be authenticated by a Brazilian consulate in the country in which it was issued and beaccompanied by a sworn translation in the Portuguese language; and

    • the decision must be in accordance with Brazilian national sovereignty, public policy and morality.

  26. 26.Is subordination of debt recognised under the law of your jurisdiction?

    Taking into consideration the legal characteristics of contractual subordination of debt (namely, private law agreements entered into in good faith by legitimate creditors – and not contrary to the public order), we have good legal grounds to believe that a Brazilian bankruptcy court would recognise the payment order set out in an intercreditor agreement. However, there are no precedents to date on the recognition of these agreements by Brazilian bankruptcy courts.

    Nevertheless, it is worth noting that even if a bankruptcy court decides to disregard an intercreditor agreement for the purposes of ranking and paying debts, it would still be possible to carry out the objectives stated therein. Accordingly, since the proceeds would most likely be released by the bankruptcy court directly to the administrative paying agent under the structure, the agent would still be able to distribute the funds among the creditors according to the subordination provisions.

  27. 27.Are there laws in your jurisdiction that regulate how tariffs payable to a service provider must be calculated? If so, please describe briefly.

    Yes, there are regulations that govern the tariffs payable for the provision of certain services that have been transferred to the private sector through a concession or PPP, such as utilities and toll roads. As these services are deemed essential to the public, the general rule is that the tariffs shall be reasonable and accessible while providing a return on the investment for the private party.

  28. 28.Do environmental, tax or other liabilities relating to the project extend beyond the project company to the direct or indirect owners of the project company or to the lenders?

    The general rule is that the direct or indirect owners of the project company are not liable for obligations relating to the project. However, all Brazilian corporate forms may be vulnerable to the ‘piercing of the corporate veil’ in certain circumstances (for which please refer to the answer to question 4).

    There has been a lot of discussion in Brazil regarding whether lenders should be held liable for environmental liabilities of the project company, based on the argument that lenders exercise an influence over the project company and should, therefore, monitor the company’s compliance with environmental legislation.

  29. 29.Are there any limitations with respect to importation of equipment or materials to be used in the project?

    There are tax incentives in relation to the importation of equipment and materials. They depend on the specifics of each project and are granted on a case-by-case basis.

  30. 30.What land issues might there be in connection with a project financing in your jurisdiction? Are there any restrictions on foreigners’ ownership of land or natural resources? How difficult is it to obtain rights of way?

    The Brazilian Mining Code allows mining companies to obtain ‘easements’ over property where mines are to be located, as well as on bordering and neighbouring properties. The companies pay indemnifications to landowners prior to securing easement rights over the areas. Ordnance No. 1 of 1983 allows easements to be granted over areas covered by other mining rights.

    According to new developments on the interpretation of Law 5,709, dated 11 October 1971, that regulates the acquisition and leasing of rural land by foreigners resident in the country or by foreign companies duly operating in Brazil, there are some restrictions that must be taken into consideration by foreigners intending to acquire rural land in Brazil. As such, prior authorization is required and the following limitations, inter alia, shall apply:

    • rural land must be used for agricultural, cattle-raising, industrial or colonization projects, and projects must be approved in advance by the Brazilian authorities. Further, such project must be related to the buyer’s activities;

    • the total area of rural land owned or leased by foreigners may not exceed one quarter of each respective municipality; and

    • the sum of the areas held by foreigners of the same nationality (including Brazilian companies under foreign ownership) may not exceed 40 per cent of the area mentioned above within each municipality.

    Additionally, it is important to note that foreigners may be mortgagees of rural lands; however, enforcement of their rights over the property is subject to prior authorization from the National Institute for Colonization and Agrarian Reform (INCRA).

    Moreover, the acquisition and creation of liens over areas considered essential to national security, such as rural land located within a range of up to 150 km of the border must be previously authorised by the country’s National Security Council.

  31. 31.Please describe any other relevant legal considerations relating to project finance in your jurisdiction.

    BNDES usually relies on its own form of loan agreement for project finance deals, which poses additional challenges in multi-source financing with foreign lenders that are used to foreign standards for loan and project documentation.

    Certain contractual arrangements, such as those establishing step-in rights and the conditional assignments of project contracts may be difficult to enforce as they are not widely used in Brazil.

    Among the government measures related to the upcoming sporting events, it is worth mentioning the creation of a special public procurement regime, which aims to simplify bidding procedures for the government procurement of goods, services and works.

  32. 32.Has specific PPP-enabling legislation been passed in your jurisdiction? If so, and if applicable, has it been passed at the federal, state or municipal level and is it sector-specific?

    The Brazilian Federal Constitution states that public services may be rendered either directly by the public administration or by means of assignment of such rights and obligations to private parties, under either long term concession agreements or public-private partnerships (PPPs). PPPs are regulated by Federal Law 11,079, of 30 December 2004 (the Federal PPP Act). The Federal PPP Act establishes that the states and municipalities may also enact their own PPP laws to govern state or municipal PPPs. The states of São Paulo, Rio de Janeiro and Minas Gerais, for example, have already enacted their own state PPP Acts (São Paulo State Law 11,688, of 19 May 2004, Rio de Janeiro State Law 5,068, of 10 July 2007 and Minas Gerais State Law 14,868, of 16 December 2003).

  33. 33.What legal limitations, if any, are there on PPP transactions? Are there any limitations on the contracting power of the state, the state’s ability to incur long-term fiscal obligations, or the extent to which certain government functions may be performed by the private sector?

    Any PPP agreement shall be preceded by public bids. Legal requirements for a PPP under Federal Law 11,079/04 include:

    • the term of the agreement will be between five and 35 years;

    • the value of the contract will be not less than 20 million reais; and

    • the purpose of the PPP will be the rendering of public services.

    Additionally, PPP agreements must also observe the limitations set forth in Law 8,666, of 21 June 1993, and Law 8,987, of 13 February 1995, as well as the regulations relating to the indebtedness of public entities.

  34. 34.What are the most significant PPP transactions that have been completed to date?

    Among the most significant transactions that have been structured or completed to date are:

    • urban renewal – Porto Maravilha, in the City of Rio de Janeiro (municipal level);

    • metro – line 4 of the São Paulo Metro (state level);

    • water and sewage – Rio das Ostras (municipal level);

    • road concession – MG 050 (state level);

    • prison – Itaquitinga Integrate Ressocialization Center PE (state level);

    • hospital – Hospital do Suburbio – BA (state level); and

    • irrigation – Pontal/PE Irrigation Project (state level).

    The World Cup and the Olympics are driving new PPP projects in sports infrastructure (for example, the Mineirão and Fonte Nova stadiums) and transportation systems.

  35. 35.What do you see as the primary impediments and drivers, both legal and commercial, to the development of PPP in your jurisdiction?

    The main driver to the development of PPP in Brazil is the urgent need for private investment in critical infrastructure areas. The two major sporting events that will take place in Brazil over the next few years place additional pressure on the development of the required infrastructure.

    Besides the political and ideological obstacles that PPPs face in certain regions, other challenges include:

    • the long timeframe needed to structure and approve a PPP project;

    • the lack of experience of and coordination between public entities and agencies;

    • the financial capacity of public entities;

    • difficulties in structuring the guarantees for the payment by the public sector entity; and

    • risk sharing.

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