From streetlighting to schools: Brazil's PPP landscape

Brazil has over 1,000 PPP contracts currently in force and that figure could double rapidly with plenty of upcoming initiatives already at advanced stages of development.

Besides the existing contracts in effect, there are well over 1,500 others that have been announced and are currently in the modeling phase or even already in public consultation, meaning they could be awarded in the next few months, according to data compiled by specialist consultancy group Radar PPP, provided exclusively to BNamericas.

Streetlighting, solid waste handling, and water and sewage currently dominate the list of PPP contracts in force, but they look likely to gain greater traction in other sectors in the coming months and years.

Guilherme Naves, director and partner of Radar PPP, speaks with BNamericas about the outlook for PPPs in Brazil and the challenges that the local governments' growing interest in these contracts mean for market players.

BNamericas: What are the main challenges for Brazil to increase its PPP portfolio?

Naves: At the subnational level, states and municipalities have increasingly relied on support from [state-run banks] Caixa and BNDES to structure their PPP and concession projects. 

That said, one of the main challenges has turned out to be the limited capacity of the BNDES and Caixa teams to deal with the high demand from municipalities, inter-municipal consortiums and states for this type of support. 

Both banks' portfolios of projects are impressive, but demand is even greater. The solution, in my view, may be to seek alternative methods of support for project structuring, including the PMI, which had a period of predomination a few years ago.

[BNamericas note: The PMI, or expression of interest procedure, is an instrument that can be used by the local government to have individuals or legal entities present feasibility studies for a project with the aim of supporting the public administration with information for structuring concessions and PPPs]

BNamericas: Which sectors do you think have the greatest potential for expanding PPPs and why?

Naves: Traditional sectors such as streetlighting, parks, sanitation, solid waste, transport and urban mobility will continue to grow, but if I were to highlight the sectors in which we will see real transformations, I would bet on social infrastructure, particularly schools and health facilities, and on forestry concessions.

BNamericas: Recently, the federal government announced efforts to use the national treasury to provide guarantees to local governments for future PPP contracts. Is this already being done? Do you believe this will help the country see an increase in these contracts?

Naves: It is in force and will likely be incorporated into the contracts that are being modeled now. 

The issue of guarantees has always been highlighted as one of the main constraints for the PPP market to take off in Brazil. And it's true that there has never been any action as objective and with such transformative potential to address this issue as the package announced by the treasury, so I have reason to be optimistic and I expect an increase in PPP contracts across the country.

BNamericas: Do investors and operators who are interested in and participate in concession contracts have the same profile as those who are interested in PPPs? 

Naves: There are investors who are more averse to relying on the regularity of government payments to maintain healthy cash flows, so the subject of guarantees is very sensitive for them and they become more careful about PPPs. 

But, strictly speaking, the profiles are similar, in that it's the investors who handle long-term public-private projects. They usually end up differentiating themselves more because of their vocation for operating in a particular sector than in terms of the type of concession.