The Brazilian Government and Congress have a clear perception that the government funding alone is not sufficient for all the infra structure investments that are badly needed for a sustainable growth. Accordingly, the Government has been taking the necessary steps for the identification and structuring of new privatization projects, concessions or, whenever project financing is not available at the necessary levels for pure privatizations or concessions, public-private partnerships ("PPP").
In relation to PPPs, the Brazilian Government has been analysing for some time the international experience, which demonstrates the paramount importance of a proper and stable legal framework and the continuous operation of specialized and dedicated public sector advisory groups.
The legal framework for the Brazilian PPP programme is now in place, with considerable improvements in relation to the previous legal provisions on similar projects.
The Brazilian PPP is a form of concession and thus is subject to the Law on Concessions. However, PPP contracts differ from pure concession contracts because they necessarily involve a financial payment from the public sector partner to the private partner and are subject to Law 11079, approved on December 30, 2004 and related recent decrees.
In this respect, the Law on PPP clarifies that a specific legal provision of the Law on Concessions preventing the so-called "step-in-rights" does not apply to PPP and, as a result, there is now a legal authorisation for the PPP contracts to establish the conditions for the vehicle carrying out the PPP project to be transferred to its financiers in the event of financial distress, for the sake of the project continuity.
Another improvement of the Law on PPP is the provision for the creation of a guarantor fund to be established as a private entity separate from the Government, with authorisation for the Government to contribute up to R$6 billion as capitalisation of the guarantor fund. The Law on PPP also establishes that each PPP project will be allocated an individual part of the assets of the guarantor fund, with separate accounting, so as not to affect the collateral of any PPP project with any future difficulties of another.