Giuseppe Giamundo Neto and Fernanda Leoni

The debate on the privatization of state-owned companies is very present in Brazilian daily life and, from time to time, gains additional momentum depending on the interests at stake. In recent months, the discussion gaining ground concerns the privatization of the São Paulo State Basic Sanitation Company (Sabesp), but other large state-owned companies have already been at the center of the same debate, such as the recent moves involving Eletrobras, TAG and Companhia Docas do Espírito Santo.

Although the debate on the general effects of privatization in Brazil is relevant, this article focuses on a more practical question: once the privatization of a state-owned company is formalized, what happens to existing contracts? That is, can contracts entered into under the influence of Public Law rules be maintained, or must they be terminated [1].

Contributing to the answer to these questions involves some preliminary issues. The first is to define what we mean when we use the word “privatization”. Second, it is important to discuss the legal framework governing the contracts in question — whether subject to Federal Law 8,666/1993 or Federal Law 13,303/2016. Finally, it is necessary to assess the position of the state-owned company in the contract analyzed, that is, whether it is the contracting party or the contractor.

On the first point, we use the classification proposed by Mância and Menegat, who adopt the term “de-publicization” for cases “in which ownership of State assets and/or activities is transferred to the private sector, redefining the limits of action of the public and private sectors” [2]. Among the different de-publicization techniques, we deal here with the sale of equity interests, in which the State sells the shares/quotas it holds to the private sector, turning the state-owned company [3] into a legal entity governed entirely by Private Law rules.

Regarding the contractual regime, although the State-Owned Companies Law was enacted more than six years ago, the transition rules, the duration of contracts (especially those entered into for a specific scope) and the adaptation time required mean that many state-owned companies still hold contracts governed by the General Law on Public Procurement and Administrative Contracts. Accordingly, it is common for some state-owned companies, even today, to have contracts in force governed both by Law 13,303/2016 and by Law 8,666/1993.

Under Law 8,666/1993, there is no major difference between the regime for contracts entered into by state-owned companies providing public services and that applicable to any other body or entity of the direct public administration. The contracts of these state-owned companies were subject to the influence of Public Law, with flexibility allowed only for state-owned companies engaged in economic activities. In this sense, at least in the case of state-owned companies providing public services, it can be said that the instrument governing relations with third parties was, as a rule, an administrative contract in the strict sense [4].

With the publication of Law 13,303/2016, a more flexible regime was sought, in which contracts entered into by state-owned companies would generally be Private Law contracts, without exorbitant clauses [5]. Indeed, the law does not, strictly speaking, establish exorbitant clauses in favor of state-owned companies, although a few special-regime conditions remain, prompting the creation of a specific category of “contracts typical of state-owned companies” [6].

Finally, the position of the state-owned company in the contract may also affect the analysis, either because any exorbitant clauses will only be present when the state-owned company is the contracting party, or because there are mechanisms that allow direct contracting solely by virtue of these companies’ status as entities belonging to the public administration [7].

With these various issues set out, the interconnection of the topics helps outline some different scenarios and conclusions, depending on the state-owned company’s side in the contract and the governing law.

In contracts entered into under Law 13,303/2016, in which there is already a natural departure from the administrative contract classification — with a contractual instrument governed by Private Law to be entered into — the privatization of the state-owned company should not, as a rule, have major impacts on the agreement, given that it is subject to the private regime.

On the other hand, in contracts entered into under Law 8,666/1993 in which the state-owned company is the contractor, the contract may be maintained with the privatized company. To this end, the general conditions of its contracting must be maintained, and the agreement may even be extended, provided that this possibility is set out in the call for bids and the public interest and advantageousness of the measure are demonstrated, as decided by the Federal Court of Accounts in its answer to the consultation that gave rise to Judgment No. 2,930/2019-Plenary.

Finally, in contracts subject to Law 8,666/1993 in which the state-owned company acts as the contracting party, privatization has a direct and immediate impact on existing contracts, whose continuation depends on a broad review of the exorbitant clauses, provided the parties wish to maintain the contractual relationship. After all, all the prerequisites justifying the exorbitant powers disappear due to the change in legal regime, and the privileged position is no longer justified. Moreover, this change of regime and the greater scope of private autonomy allow the parties both to renegotiate the basis of the contract and to choose to terminate it, in the latter case without the penalties that would be inherent to the sanctioning regime of administrative contracts.

[1] The discussion aligns with and complements the relevant initial ideas set out by Bernardo Strobel Guimarães, Caio Augusto Nazário de Souza and Pedro Henrique Braz de Vita in an opinion article published on this same portal on the effects of the privatization of state-owned companies on contractual relationships. Available at: https://www.conjur.com.br/2022-nov-05/opiniao-privatizacao-estatais-vinculos-preexistentes. Accessed on 10/12/2023.

[2] MÂNCIA, Fernando Borges; MENEGAT, Fernando. Teoria jurídica da privatização: fundamentos, limites e técnicas de interação público-privada no Direito Brasileiro. Rio de Janeiro: Editora Lumen Juris, 2017, p. 106.

[3] Also according to Mância and Menegat, the creation of a state-owned company in itself already constitutes a form of privatization, in the “decentralization” modality, characterizing a kind of “flight into Private Law”, in Maria João Estorninho’s relevant formulation (MÂNCIA, Fernando Borges; MENEGAT, Fernando. Teoria jurídica da privatização: fundamentos, limites e técnicas de interação público-privada no Direito Brasileiro. Rio de Janeiro: Editora Lumen Juris, 2017, p. 106).

[4] See: “The contracts that such companies enter into to fulfill the purposes for which they are legally established — as well as those entered into by state-owned companies in charge of promoting public works — are administrative contracts, under the same terms and conditions as those entered into by the direct Administration” (BANDEIRA DE MELLO, Celso Antônio. Curso de Direito Administrativo. 32nd ed. São Paulo: Malheiros, 2015, p. 215).

[5] See: “State-owned companies, as legal entities governed by private law, in principle enter only into Private Law contracts, without exorbitant clauses, except insofar as these embody unilateral contractual powers found in private law contracts themselves (e.g., the power of termination without cause – unilateral termination – in lease agreements)” (ARAGÃO, Alexandre dos Santos. Empresas estatais: o regime jurídico das empresas públicas e sociedades de economia mista. 2nd ed. Rio de Janeiro: Forense, 2018, p. 185).

[6] This is the approach taken by STROPPA, Christianne de Carvalho. O regime jurídico dos contratos das empresas estatais prestadoras de serviços públicos na Lei de Responsabilidade das Estatais – Lei nº 13.303/2016. 2019. 213 p. Doctoral dissertation (Law). Faculty of Law, Pontifical Catholic University of São Paulo. São Paulo.

[7] This is the case of the waivers set out in article 24, items VIII and XVI, of Law 8,666/1993.