Brazil has bright expectations for the launch of its national PPP programme, although such expectations suffered a setback recently. The long-anticipated signing of the contracts for federal roads BR-116 and BR-324, the inaugural Federal PPP schemes in Brazil, was delayed again by the country’s national audit office.
Luckily for the PPP professional, all the news is not so bleak. Although the federal government has been ham-fisted in its attempts to get its long-stalled programme off the ground, two states are blazing a trail. São Paulo and Minas Gerais, the first and third most economically important in the country, have already signed off on their first projects and are working on a number of others.
At the federal level, though, PPP projects have been all talk and no action since a law to allow them was introduced about three years ago. There is a split at the heart of president Luiz Inácio Lula da Silva’s government, between those who see infrastructure as a sacrosanct role of the state and those who want the private sector’s involvement, say consultants.
There may be progress during the president’s second mandate, which started last year. With much fanfare, Mr Lula da Silva announced after his election that infrastructure would lie at the heart of his agenda for the next four years with his programme to speed up economic growth, PAC. Moreover, his decision to appoint the no-nonsense Dilma Rousseff as his chief-of-staff means that heads are likely to get banged together to unlock projects.
What is unclear, however, is where Ms Rousseff stands on private sector participation. Early in the year, she called for a review of some existing road concessions, which she described as being too generous to the private sector. Unsurprisingly, that unsettled private sector contractors.
Most states have followed the example of the government: while paying lip-service to PPPs, few have put their money where their mouth is. São Paulo and Minas Gerais are the honourable exceptions.
São Paulo gave the official green light to its first PPP project in November. The development of Line 4 of São Paulo city underground rail network, a 12.8 kilometre (km) stretch in the west of the city, will entail the private sector taking control of buying and maintaining train stock, and maintaining platforms, while the state handles the building of the line, track and tunnel, says Tomás Bruginski de Paula, director of the Companhia Paulista de Parcerias (CPP), a unit in the state government’s finance ministry. The private sector will be responsible for the purchase of 29 trains and systems at a cost of about $340m. Revenues will come from passenger fares and there are government fail-safes if the projected fares fall short of expectations, he says.
Future projects in São Paulo state include one that will increase by 50% the capacity of a water treatment system that supplies 15% of the capital’s water, managed by state-owned Sabesp. Mr Bruginski says he expects that 300m reais ($160m) in private sector investments will be needed. A PPP-funded train link between the cities of São Paulo and the large, nearby town of Guarulhos with a spur to the capital’s international airport is also envisaged.
The state of Minas Gerais contracted its first PPP in December. The contract covers improvements to a 372km stretch of state road MG-050. Equipav, which won the bid, will spend 645m reais over 25 years, according to Luis Antônio Athayde, sub-secretary of international relations in the economic development department of the state government. Minas Gerais has already drafted detailed plans for PPPs to cover the building and maintenance of prisons. The campus of the state university (UEMG) and basic sanitation are also being actively considered, says Mr Athayde.
The federal government’s inability to get its PPP programme moving speaks volumes about the philosophical divides at the heart of the government in Brasilia and the glacial nature of federal politics. Nimbler states are showing that if progress comes, investors do have appetite for PPPs in Brazil.
