Legal certainty the cornerstone of Brazil’s infrastructure sector as concessions drive opportunities

Two of the most active sectors in Brazil in recent years in terms of investments and new projects have been infrastructure and mining. 

However, the proliferation of projects and investments, while generating opportunities, also brings risks.

Eduardo Carvalhaes, partner in public law and regulation at law firm Lefosse, and Beatriz Ghosn, counsel in public law and regulation at the company, talk to BNamericas about the opportunities and challenges in these two key sectors of the Brazilian economy.

BNamericas: What is your overall view of the current business environment in Brazil's infrastructure sector?

Carvalhaes: The infrastructure deficit in Brazil continues to be significant, which means there are several crucial and sizeable projects that will need to be implemented throughout the next several years in the various infrastructure sectors in the country. 

This means that opportunities for investors will continue to be a reality, for those that are already present in the country and those who are still considering making their first investment in the jurisdiction.

Certain risk factors that used to be more significant in the past have been mitigated in the last decade – e.g., environmental licensing, collateral, project finance – and the federal, state and local governments have been fostering national and foreign investment.

In order to provide the much-needed stability for the long-term investments that are a characteristic of the infrastructure sector, the government needs to continue to ensure adequate conditions for the regulatory agencies to fulfill their tasks, by providing them with the necessary funding and autonomy – i.e., not interfering with technical decisions and appointing officials that have the necessary technical background to occupy the highest ranks of these agencies – moving forward with the structuring of these projects and making sure there is funding available for the capex required.

BNamericas: In relation to the infrastructure sector, where do you see the most business being generated this year and why?

Carvalhaes: In a country the size of Brazil, logistics is always crucial, so road concessions, port terminal projects and railroads are markets with important projects to be implemented. 

For example, there are already 15 auctions planned for 2025 involving road concessions. 

For the states and local governments, PPPs for schools and administration centers for public administration projects in the pipeline are expected to be auctioned in 2025. 

Also, there are several datacenter projects already being implemented and others planned to start this year, so digital infrastructure is another trend for 2025 in Brazil. 

Finally, water and sewerage projects are crucial to Brazil’s development and there are bold universalization goals to be fulfilled, so it is clear this sector will have a very busy 2025.

BNamericas: What are the main factors behind the existing disputes regarding infrastructure contracts today?

Carvalhaes: Most of the disputes related to infrastructure contracts arise from the division of risks and economic rebalancing of these contracts.

BNamericas: Which infrastructure areas do you think will face more disputes in the medium term and why?

Carvalhaes: Due to the large amount of new projects being announced on a daily basis, energy price fluctuations, the discussions on the regulatory framework and environmental licensing, datacenters could potentially be a sector with more disputes.

BNamericas: What are the most important regulations that you believe should be implemented in Brazil this year to improve the business environment in the infrastructure sector?

Carvalhaes: The tax reform being implemented is certainly a significant landmark across the various infrastructure markets. 

The way the government deals with the impacts of the changes in taxes in the existing contracts will be crucial for the legal certainty and maintenance of these contracts.

BNamericas: Could you tell us a little about Lefosse’s role in the mining sector?

Carvalhaes: We were pioneers in the local legal market in forming a truly multidisciplinary and comprehensive team for the essential topics of the mining industry. 

Our mining team brings together experienced and recognized professionals in various practices, all integrated for true and effective dedication, understanding and monitoring of the sector from all perspectives.

Lefosse’s mining team has focused dedication and extensive experience in the sector, serving clients in all practice areas required throughout the life of their business, including corporate, M&A and capital markets, compliance, corporate criminal, competition, project development and financing, banking, ESG, environmental, tax, real estate and dispute resolution.

Our firm specializes in providing comprehensive legal services to some of the largest mining companies in the country, including Vale, Sigma Lithium, Anglo American, Kinross, Samarco, Lundin Mining, Aura and Glencore, among others.

In recent years, we have achieved historic deal records and worked on M&A transactions in the mining sector exceeding 17bn reais [US$23bn), occupying first place in M&A transactions in this industry in the last three years [according to the TTR ranking].

BNamericas: Which areas of mining have you seen generating most interest from investors?

Ghosn: In Brazil, the mining segments that have attracted the most interest from investors in recent years are predominantly focused on iron ore and gold. Iron ore continues to be a key driver for the country’s mining industry, with Brazil being one of the world’s largest producers and exporters of this commodity. 

Gold has also seen a surge in interest, especially as a safe-haven asset in times of economic uncertainty, making it a popular choice for both domestic and international investors.

In addition to iron ore and gold, there has been growing interest from investors in Brazil's strategic minerals segment, particularly lithium, nickel and rare earth elements. 

These minerals are critical for the development of technologies such as electric vehicles, batteries and renewable energy systems, which has led to increased global demand. 

As Brazil possesses substantial reserves of lithium and nickel, the country is seen as a potential key player in the global supply chain for these critical resources.

We believe that the country’s rich mineral resources, coupled with improving regulatory frameworks and investments in infrastructure, have created a favorable environment for mining projects, making it a promising destination for inflowing capital in the coming years.

BNamericas: What are the main risks that a private investor should consider regarding the mining sector today?

Ghosn: One of the most inherent risks in mining projects is the possibility that the exploration may not result in a commercially viable operation.

Despite significant investments in exploration and development, there is always the risk that a deposit may not be as rich or accessible as initially anticipated, making it unprofitable to extract. 

Factors such as unexpected geological conditions, technical challenges and high operational costs can undermine the feasibility of a project.

Another significant risk is related to environmental and social issues. Brazil has strict environmental laws, and failure to adhere to these regulations can result in fines, sanctions or even the suspension of operations. 

Additionally, conflicts with local communities and indigenous groups over land rights or the impact of mining activities can lead to disruptions and reputational damage.

Lastly, the fluctuating global demand for key minerals, such as iron ore or copper, and the volatility of commodity prices can lead to financial uncertainty, making it important for investors to monitor global market trends closely.