How Brazil is reforming a public fund to finance broadband expansion

After years of discussions, Brazil’s new law on the universal fund for telecommunications services (Fust) was finally approved by congress to free up its resources to be invested in broadband projects and new technologies.

Previously, Fust by law could only be used to finance the expansion of fixed telephony, which was considered a priority when the fund was created in the late 1990s.

Fust's purpose is to finance telecom services in regions with low population density, low income or lack of adequate infrastructure, areas that do not offer a viable return for investments by private sector companies.

Telecom companies, which finance the fund with part of their revenues, welcomed the new law. However, much remains to be done.

“Discussions around Fust continue, mainly with regard to the effective release of its resources in the federal budget,” a source at the communications ministry, which is in charge of connectivity policies, told BNamericas.

The new law was not published in the official gazette until the end of March after congress overturned presidential vetoes to the bill.

With the overruling of the vetoes, the obligation to connect all public schools by 2024 and to ensure that the fund's resources are invested in areas with a low human development index (HDI) is reinstated.

“We believe that the direct investment of Fust resources will contribute to the potential, in the short term, for digital transformation in the country through the expansion of connectivity to the most needy populations and regions," the president of Conexis, the association of Brazil’s largest private telecom operators, Marcos Ferrari, said in a statement.

By overturning the vetoes, congress also allowed for half of Fust's resources to be used in the non-reimbursable modality, that is without loans.

There is also the reimbursable format, in which financial agents, such as development bank BNDES and the financing entity for studies and projects (Finep), use Fust for credit operations to finance telecommunications projects.

The law also provides for the creation of a special guarantee fund. The idea is that small internet service providers, which lack assets to offer as a guarantee for financing, can have the support of Fust to access credit lines.

BLOCKED RESOURCES

However, the use of Fust remains stalled.

Approved at the end of March in congress, the federal budget for 2021 earmarked 2.07bn reais (US$363mn) for the communications ministry, compared with the 2.02bn reais proposed by the government in its initial proposal.

But contrary to what the ministry – and the telecom industry – expected, the nearly 900mn reais destined for Fust this year were put in a "contingency reserve" in the ministry's budget.

It is not uncommon for the government to rubber stamp budget resources, especially public funds, as a "contingency reserve" to help hit the fiscal target and avoid breaching the public spending limit.

But this means Fust can now only be used in urgent and unforeseen cases and upon the approval of extraordinary credit by congress. Communications minister Fábio Fario (pictured) lobbied to avoid that.

The federal budget has not yet been signed into law by President Jair Bolsonaro, who is being advised to veto the text partially or in full after lawmakers made changes deemed fiscally irresponsible by the economy ministry.

Congress can ultimately pass new laws on the federal budget, if necessary, although Fust is unlikely to be unblocked in a year of budget tightening due to the pandemic.

In other words, Fust's modernization advanced a little, but not so much.