by Giuseppe Giamundo Neto and Christian Fernandes Rosa
Infrastructure Law, it is always worth remembering, brings together several branches of law focused on structuring and carrying out projects with a significant impact on national development. It covers sectors such as logistics and transportation, telecommunications and energy, basic sanitation and solid waste. The evolution of these activities, whose organization falls to the Federal Government, the states or the municipalities, is an important marker of the country’s institutional maturity, since, in addition to their obvious social relevance, they require large investments, recovered over decades of operation — and essential to national development.
From the perspective of improving Brazil’s institutional landscape, several events marked the infrastructure sector during 2020.
In 2019, the modest GDP growth of 1.1% meant that 2020 needed to revise the regulatory framework for infrastructure-related areas and also carry out government actions that could enable public and private investment in the structure for providing these services, mitigating the well-known bottlenecks to growth and competitiveness.
In the area of regulatory revisions, however, some highly relevant initiatives made little progress. There were expectations that the review of the New General Law on Public Procurement and Administrative Contracts would finally be completed, replacing the 1993 law, the basic parameter for all contracts entered into by the Government. The law regulates the contracting of private agents interested in carrying out public works, and applies to those who intend to invest in infrastructure or operate related services. The bill for the new law brings advances in the bid selection procedure and modernizes the legal regime of contracts. It is something to be monitored next year.
On the other hand, during 2020, the New Basic Sanitation Legal Framework law was enacted. It is one of the biggest developments in this sector since 2013, when the Federal Supreme Court was called upon to intervene in disputes between states and municipalities over who has the power to organize or delegate these services to private operators in Metropolitan Regions. The law approved established new rules for the joint management of these services when provided in a joint effort between different political entities — several neighboring municipalities, for example. And it no longer makes the initiatives of governors and mayors conditional on approval by their respective legislatures, reducing political control but speeding up projects in the area.
In addition, the new Sanitation Framework gave central importance to concessions as the contractual regime applicable to the development of these services by third parties, notably private investors. It thus consolidated a legal regime well known to market players that had been used only timidly to enable investment in sanitation facilities. The bet is that the new rules will accelerate public investment (through the association of states and municipalities) and enable greater private participation in the sector, by increasing the scale of projects and spreading the risks of these large financial contributions.
To characterize the path of the infrastructure sector during 2020, the setbacks in the electricity sector must also be noted, where circumstances still under investigation left an entire Brazilian state without access to an essential public service, even leading to the unusual judicial removal of the board of a federal regulatory agency. The blackout, which struck a sector known as one of the best organized, shows how much progress still needs to be made in terms of risk control and encouraging good practices among private providers of public infrastructure services.
And then there was the Covid-19 epidemic. In this area, the transportation sector was the most exposed to the consequences of the health crisis that began in February. Demand for highway and airport services, in particular, was affected by the recommended reduction in travel, as well as by restrictions imposed by other countries, states and municipalities.
Data from the Brazilian Association of Highway Concessionaires recorded, from January to October, a 14.9% drop in vehicle traffic on privately managed roads. In the face of this decline, almost three times greater than the estimated contraction of the Brazilian economy (GDP) this year, the institutions responded. The Office of the Attorney General recognized, in its own legal opinion, that the epidemic is an imbalance event in concession contracts, which means that, to some extent, private investors may seek compensation for the losses they can prove they suffered as a result of this unforeseen event. This mitigates the perception of risk and increases the attractiveness of future tenders, such as that for the Presidente Dutra Highway.
The new year is expected to be more promising. In the airport sector, heavily affected by the epidemic, good results are expected for 2021. On the one hand, the increase in operating capacity should become noticeable as the works provided for in the 4th and 5th rounds of airport concession contracts are delivered at very important facilities such as Salvador, Recife and Cuiabá. On the other hand, the preparatory studies for the 6th round, which includes the concession of airports such as Goiânia and Curitiba, have already been adjusted to the new demand reality, and the process for choosing private partners should be launched in the first months of 2021.
Also worth highlighting are expectations regarding the auction of new mobile telephony frequencies. The selection of bids for 5G operation is scheduled for the first half of 2021 and is being conducted by the National Telecommunications Agency. The Agency will be at the center of discussions next year, as its powers may be expanded to also regulate postal services if the initiative to privatize the Postal Service (Correios) moves forward, under a bill recently submitted to the National Congress.
The setbacks of 2020 required an adjustment to the priorities and economic potential of some infrastructure projects, but in no way changed the importance of public and private investment in the sector, to be enabled by consistent regulatory arrangements and practices. In 2021, the infrastructure sector may come to lead the resumption of economic growth. A commitment to realizing this potential is needed.
Article originally published in Estadão, in Fausto Macedo’s column (in Portuguese), on 12.10.2020.
