Business talking.

Private-public partnerships (Parcerias Público-Privadas)


The Public-Private Partnership (PPP) has become an important administrative
instrument for providing high quality public services for the population in a
number of countries. Most countries have decided to adopt PPP due to the
lack of budgetary resources needed to meet the growing demand from the
population for more public services. Accordingly, it has been observed that,
in addition to the advantage of enabling the services to be made available
sooner, there have also been advantages such as the gains in design,
construction, operation and management efficiency that these types of
contracts provide for the public administration.
The main, and longest, experience with PPP is in Great Britain, where the
first PPPs were contracted in 1992. Today, there are more than 900 PPPs contracted,
with a total value over £60 billion. A number of countries have followed
this example and are adopting PPPs. Following this trend, Law 11,079/04
(Federal PPP Law) was enacted in Brazil. In addition, various Brazilian
states (such as Minas Gerais, Santa Catarina, São Paulo, Goiás, Rio Grande
do Sul, Bahia, Ceará, Sergipe, Pernambuco, Distrito Federal and Rio de
Janeiro) have also issued their own state level PPP laws, which are very
similar to the Federal PPP Law.
In general terms, PPPs are a sponsored or administrative type of
concession agreement. A sponsored concession consists of the
concession of public services that involve, in addition to the tariff charged
from the end users, a subsidy from the public partner to the private
partner. An administrative concession consists of a contract for providing
services where the public partner is the direct or indirect user of the
public service.
The main characteristics and innovations of the Federal PPP Law are:
• Contracts are effective for more than five years and less than thirty
five years.
• Prohibition of contracts for values lower than R$ 20 million and whose sole
objective is the supply of labor, the supply and installation of equipment or
the execution of the public works – i.e. the contract must necessarily include
operating the service.
• Sharing of risks between the public and private partners.
• Establishment of objective criteria for assessing the performance of the
private partner and payment according to results.
• Mechanisms and guarantees for the financers to reduce the financing risks.

Possibility of using arbitration to resolve conflicts.
• Provision of guarantees for the payment of a consideration by the public
administrator.
• Provision of contracting the PPP through a competitive bidding process.
The Federal PPP Law has introduced several innovations to Brazilian
administrative contracts, which may substantially improve the quality of the
public administration projects in the eyes of the investors and the private
financiers. This allows the application of internationally accepted PPP
principles, which assures better quality in the public services for the users in a
continuous, long term manner.
Since the Federal PPP Law was enacted on December 30, 2004, several PPP
projects have been contracted in Brazil. By 2007, six PPP contracts, with total
investment adding up to more than US$ 1.2 billion, had been signed in the
road and water sectors:
• São Paulo State Metro Line 4 PPP (2006)
• Bahia State Sewage Treatment PPP (2006)
• Pernambuco State Paiva Urban Acess PPP (2006)
• Minas Gerais State MG-050 Highway PPP (2007)
• Rio Claro Municipality Sewage Treatment PPP (2007)
• Rio das Ostras Municipality Sewage Treatment PPP (2007)
Several other PPPs are being structured in the road, water, rail, airport, prison,
sport and leisure, public buildings and education sectors of Brazil and should
be tendered and finalized in the near future.