Project Finance Comparative Guide

• Published date: 28 September 2021
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Debt Capital Markets, Charges, Mortgages, Indemnities, Financial Services, Project Finance/PPP & PFI, Corporate and Company Law, Contracts and Commercial Law
• Law Firm: Moysés & Pires Sociedade de Advogados
• Author: Mr Rafael Viana Rangel de Paula and Marina Fochesato Cintra

1 Legal framework

1.1 Beyond general commercial and contract laws, what other specific laws and regulations govern project finance transactions in your jurisdiction?

The following laws and regulations are relevant in the project finance context:

• Law 8,666/1993 sets out rules on government procurement and contracts;
• Law 8,987/1995 determines the terms of the concession regime and consent to provide government services;
• Law 9,074/1995 sets out rules on the grant and extension of concessions and consents to provide government services;
• Law 11,079/2004 sets out general rules on government procurement and public-private partnership (PPP) engagements within the scope of public administration
• Law 12,712/2012 authorises the federal government to hold interest in funds to secure foreign exchange transactions or large-sized project financings
• Law 12,743/2012 governs Empresa de Planejamento e Logística SA (EPL);
• Law 14,987/2013 authorises the executive branch to perform credit transactions with Banco Nacional de Desenvolvimento Econ'mico e Socia (BNDES), Caixa Econ'mica Federal (CEF), Banco do Brasil, the Inter-American Development Bank and the International Bank for Reconstruction and Development, among other international financial institutions, development support agencies, national and international private banks and multilateral agencies to secure loans and funding;
• Decree 8,428/2015 implements the procedure to express interest for the filing of projects, surveys, investigations or studies by private law individuals or legal entities, to be used by the government
• Law 13,334/2016 establishes the Investment Partnership Programme (PPI);
• Law 11.529/2017 sets forth the terms on the interest held by the federal government in funds to support the organisation and development of concession projects and PPPs, among others; and
• Law 14,133/2021 governs government procurement and contracts.

1.2 Do any bilateral and/or multilateral international instruments have particular relevance for project finance transactions in your jurisdiction?

One of the main commercial instruments used in Brazil which allows for economic, trade and institutional development is the Mercosur Treaty, or the Southern Common Market Treaty - a far-reaching regional integration initiative which has its origins in the return to democracy and re-approximation of Latin American countries in the late 1980s. Founding member states include Brazil, Argentina, Paraguay and Uruguay - all signatory parties to the 1991 Asunción Treaty. The member states agreed on an integration model, with the central objectives of:

• establishing a common market for the free internal circulation of goods, services and production;
• establishing a common foreign trade tariff for other countries; and
• implementing a common trade policy.

1.3 Beyond normal governmental institutions, are there regulatory bodies that play a particular role in project finance in your jurisdiction? What powers do they have?

Special Office for the PPI (SPPI): Reporting to the Office of the President's Chief of Staff, the SPPI oversees, coordinates, reviews and supervises the PPI, and supports the necessary sectoral actions for its operation, enhancing and strengthening interaction between the state and private enterprise through partnership agreements for the development of public infrastructure and other denationalisation measures. Tied to the Ministry of Finance, the SSPI enjoys support from, and has partnerships with:

• the Ministry of Regional Development, the body in charge of urban-related issues;
• the National Confederation of Municipalities; and
• the National Mayors' Front.

Board of the PPI: This is comprised of:

• the president of Brazil;
• the minister of finance, the minister of infrastructure, mines and energy, the minister of the environment, and the minister of regional development;
• the president's chief of staff and members of the Government Office; and
• the chairpersons of BNDES, CEF and Banco do Brasil.

Among other things, the board:

• issues opinion on proposals submitted by competent bodies or entities in matters of interest of the PPI;
• oversees the performance of the PPI;
• defines priority services to enforce the PPP;
• regulates the execution of such contracts;
• authorises the commencement of the procurement process; and
• reviews the reports on contract performance.

Members of the board can attend meetings of ministers who are responsible for reviewing proposals, together with the highest-ranking officials of the regulatory bodies.

EPL: Tied to the Ministry of Infrastructure, this company provides services in relation to projects, studies and research concerning the development of infrastructure, logistics and transportation in Brazil.

1.4 What is the government's general approach to project finance in your jurisdiction? Is PFI/PPP a preferred model in your jurisdiction?

The federal government implemented the PPI to extend and strengthen the interaction between the state and private enterprise through the execution of partnership agreements and other denationalisation measures between direct (government bodies) and indirect government (independent agencies, government-owned companies, government-controlled private companies and government foundations), within the scope of the federal government, states, the federal district and municipalities. Development projects classified under the PPI are treated as national priority. The bodies, agencies and entities involved (eg, the Ministry of Regional Development, CEF, BNDES) enjoy support from international organisations and international cooperation and development agencies - such as the International Finance Corporation, the French Development Agency and the Inter-American Development Bank - in ensuring that all processes and actions necessary to organise, approve and develop projects take place efficiently and economically. The overarching aims are to:

• increase investment and employment opportunities;
• promote technological and industrial development according to the country's social and economic development targets;
• ensure the quality expansion of public infrastructure, with appropriate fees for all users;
• promote broad and fair competition in the establishment of partnerships and the provision of services;
• ensure the stability and legal safety of contracts, including a guarantee of minimum intervention in businesses and investments; and
• strengthen the regulatory role of the state and the independence of state regulatory bodies.

This model has been consolidated and adopted as the preferred model for the funding of infrastructure projects in Brazil.

2 Project finance market

2.1 How mature is the project finance market in your jurisdiction?

As project finance in Brazil is largely provided by government banks, the country does not have a project finance market as traditionally defined, where projects are financed exclusively by project cash flow and secured by the assets and receivables thereof.

Project finance in Brazil generally involves the funds of both investors and government, and requires additional bank or corporate guarantees (eg, pledges, fiduciary assignment of receivables, deposits into court).

Nonetheless, project finance is the best funding option for infrastructure projects in Brazil and affords significant protection, given the reduced availability of government funds.

As leading financing agents, Brazilian government banks - especially Banco Nacional de Desenvolvimento Econ'mico e Social (BNDES) and Caixa Econ'mica Federal - have deep expertise in extending loans for project finance in Brazil, which are generally offered to interested parties through specific and industry-related credit lines.

Additionally, the participation of private banks, pension funds and insurers (institutional investors), and of the capital markets, is increasing in this market, whether through the establishment of infrastructure funds or the promotion of the issue of bonds and other debt instruments.

Multilateral and support agencies - especially the International Finance Corporation, the Inter-American Development Bank, the Andean Development Corporation, the International Bank of Reconstruction and Development and the Japan Bank for International Cooperation are also relevant players in this market, especially in relation to the funding of infrastructure projects.

Brazil's project finance market thus continues to evolve and is becoming increasingly sophisticated. This should result in reduced obligations to provide additional securities and should broaden the scope of engagement.

2.2 On what types of project and in which industries is project finance typically utilised?

Project finance is largely used in Brazil to fund innovation and infrastructure projects, which generally involve substantial investments, long-term execution periods and the gradual return of the invested funds. The industries in which it is typically utilised include:

• energy;
• transportation (highways, railways, waterways and airways);
• aviation;
• ports;
• telecommunications;
• oil and gas;
• environment;
• defence;
• housing and education;
• criminal justice;
• urban mobility;
• public lighting; and
• basic sanitation.

2.3 What significant project financings have commenced or concluded in your jurisdiction over the last 12 months?

According to BNDES data, the top project financings organised in Brazil over the last 12 months were as follows (www.bndes.gov.br/wps/portal/site/home/transparencia/consulta-operacoes-bndes/maiores-clientes):

• UTE GNA II GERACAO DE ENERGIA SA (power): BRL 3.93 billion
• CONCESSIONARIA DE RODOVIAS PIRACICABA PANORAMA SA (transportation): BRL 3 billion
• MANTIQUEIRA TRANSMISSORA DE ENERGIA SA (power): BRL 2,763,868,000
• MARLIM AZUL ENERGIA SA (power): BRL 2,060,258,660
• COMPANHIA DE G'S DE SAO PAULO COMGAS (oil and gas): BRL 2 billion
• CHIMARR'O TRANSMISSORA DE ENERGIA SA (power): BRL 1.76 billion
• NOVO ESTADO TRANSMISSORA DE...