Public Private Partnerships In Brazil - The First Experiences*

The Brazilian program of projects under the Public-Private Partnership (PPP) Law, which was enacted in December 2004, has not quite been able to take off yet. Several reasons - including the political stir caused by president's Lula reelection late in 2006 - have caused the federal program to be postponed many times. Most importantly, there appear to have been a general underestimate of the time that these complex projects may take. Thus, although the country announced at the start of the program more than two dozens projects, at the federal level none has officially started, and only two seem likely to be initiated in the upcoming months. Yet, the 2004 statute is expected to be one of the greatest tools for fresh investment in the Brazilian extremely deficient infrastructure sector allowing the continuing growth of the country's record exports.

Brazil is not, however, a stranger to public-private partnerships - they did exist prior to the enactment of the specific statute. Several chief projects were developed such as the US$ 2.1 billion Bolivia-Brazil natural Gas Pipeline whose success is now so challenged by Evo Morales stubbornness in respecting and honoring the take-or-pay contract with Brazil.

That is the most troubling risk for private investors in partnerships of such long term projects - the rotation of governments and their capacity and willingness to honor terms and conditions of commitments of previous - and many times rival - authorities.

Surprisingly, however, the PPP projects have started at full-fledge speed in certain Brazilian states, namely S„o Paulo, Bahia and Minas Gerais.

S„o Paulo was definitely the pioneer with Line 4 of the Subway in its capital city megalopolis. The project was not free of controversy - the main claim likening the partnership to a disguised privatization. All along 2006, the unions publicly fought the project fearing loss of their jobs or the reduction of their salaries. They obtained injunctions against the execution and initiation of the contract - to no avail. The S„o Paulo courts ordered the program to continue. The winning consortium, CCR, known as a competent combination of Brazil's largest and most traditional engineering companies, will be responsible for supplying, installing, operating and maintaining approximately 30 trains that will run through nine stations on the new subway line in the city. The PPP underlying contract will be for 30 years and CCR's compensation will consist of fares...