Brazil stepping up efforts to attract foreign infrastructure investment

Given the increasing urgency for Brazil to speed up infrastructure projects, the government and congress have joined forces to attract more foreign investment.

A special lower house commission is evaluating a series of measures to update public-private partnership and concession models, including the creation of hedging instruments to be offered to international players.

“We're working on a measure to reduce the forex risks for investors, this will be one of the main priorities of our project,” lawmaker Arnaldo Jardim, the rapporteur of a bill under discussion in the lower house, told BNamericas.

Jardim said one option being considered is to create a fund to hedge a portion of concession payments. 

Although the government has an extensive pipeline of infrastructure projects, when it comes to PPPs and concessions the exchange rate is considered one of the biggest risks for global investors.

“For international investors, the exchange rate variation is a key element, mitigating risks on this front is crucial and likely to attract more international investors for Brazilian infrastructure projects, especially in the current scenario where in most parts of the world there are negative interest rates for investors and they are keen to find new opportunities,” said Pablo Sorj, a lawyer specializing in infrastructure at prominent law firm Mattos Filho, Veiga Filho, Jr Quiroga. 

OTHER STEPS

Lawmakers are also considering other changes to regulations in order to provide legal security for investors and reduce bureaucracy.

According to Jardim, one of the proposals is to eliminate the possibility of infrastructure concessionaires filing for bankruptcy protection.

“Under bankruptcy protection, the process ... is too slow and users suffer from the lack of investments in better services and all stakeholders suffer with delays. Our idea is to create a mechanism to find quick solutions for concessionaires in difficulty which could be the re-tendering of a project or even the direct sale of a concession,” said Jardim.

The lawmaker said the final draft of the proposal to change the framework is likely to be completed by the end of October and will be discussed and voted on in the lower house in November.

The participation of international private sector players in infrastructure is seen as critical, as federal and local governments face severe spending restrictions after years of weak or negative economic growth.

According to a recent study by IDB, to end the infrastructure investment shortfall, Brazil needs to invest an average of US$110bn per year until 2040.

“The Brazilian infrastructure market will generate immense opportunities for equity and debt investors, construction companies, and financial markets. To take full advantage of these opportunities, the country should continue building institutional capacity for identifying, prioritizing, structuring, implementing, and monitoring PPP projects and concessions,” IDB said.

MORE TRANSPARENCY

Separately, the main infrastructure players in Brazil are taking steps to increase transparency in relations with public officials.

This week marks the launch of a self-regulation institute for the infrastructure sector, comprising 22 local construction companies, think thanks and the World Bank's IFC.

The institute will work to improve transparency and governance and combat fraud and corruption in contracts between the private and public sectors.

“This is a very serious initiative and will contribute to avoid mistakes seen in the past,” Hector Gomez Ang, outgoing IFC head in Brazil, told BNamericas.

The move comes as major construction groups still face the impact of the massive Lava Jato corruption probe, which started in 2014.