CONCESSIONS AND PPPs IN BRAZIL'S INFRASTRUCTURE SCENARIO IN 2020

Investment in infrastructure is one of the main indicators of economic development and is the subject of constant study and observation by governments around the world. The volume of capital allocated to infrastructure is decisive for the growth of the Gross Domestic Product (GDP), given the high correlation with the country's per capita income. In Brazil, it is possible to observe a decrease in investment levels in relation to GDP. Between 2000 and 2016, studies by the McKinsey Consultancy indicate that Brazil invested an average of only 2.1% of GDP in the infrastructure sector, and with the post-impeachment crisis of former president Dilma Roussef, this index reached 1.69% in 2018, according to an estimate by the Brazilian Association of Infrastructure and Basic Industry (Abidib). According to the OECD, the average of member countries is 3.61% and that of neighboring countries such as Chile, for example, 3.2%. Abidib estimates indicate that the ideal level of investment percentage of GDP would be 5% per year, and that an annual increase of 1% from current levels would lead to an increase of 2.1% of GDP in a decade. In terms of comparison, developed countries such as the USA and Japan, an increase of 1% would generate advances of 1.8% and 0.6%, respectively, with the global average at 1.6%.

Source: Inter B. ConsultoriaThe low levels of investments in these sectors are quickly translated into a high social cost (Cost Brazil), resulting in terrible essential services such as access to water, sewage, energy, health, schools, etc. The main cause for the reduction of capital allocated to infrastructure in Brazil is the concentration of the segment in the hands of the public initiative, which, given its fiscal deficit and high political and bureaucratic cost, has been unable to maintain past investment levels. The solution found by the current government to carry out these activities with a lower budget commitment is the transfer to the private sector through concessions and Public-Private Partnerships (PPP). Through these mechanisms, the private sector assumes the role of investing and operating, through public compensation, these services with great social impact. In the case of PPPs, part of the remuneration of the private entity is also linked to the fulfillment of performance indicators, structured for the public authority to control and measure the quality of the services provided. Concessions and PPPs are usually composed of 3 stages: PMI/MIP, Public Consultation and Tender: In the first stage, feasibility studies of the project are prepared, based on the interest of the public initiative in granting a certain service, through the PMI (Expression of Interest Procedure), or through the private initiative demonstrating an intention in invest in improvements and operate a certain asset, through MIP (Expression of Private Interest). Projects may be considered feasible to be transferred to the private sector if there is a gain in efficiency in carrying out investments and the operationalization of services. The analysis of this private efficiency gain in relation to the public one is called “Value for Money”. There are two perspectives for this analysis, one qualitative and the other quantitative. In the qualitative analysis, there is a comparison between the non-financial benefits derived from each of the contracting modalities. The main foundations of this type of analysis are based on socioeconomic impacts, greater efficiency of the private sector, quality and availability of the service provided, the transfer of the political and economic risk of the service, in addition to the resumption of assets at the end of the concession.

Figure 1: Qualitative Analysis calculation formula of “Value for Money”The quantitative analysis is based on the comparison of the total costs of the project from the perspective of public management. Thus, the costs resulting from the traditional model and the contracting model through the private sector are discounted at different rates: the cost of public funding for the traditional model and the Social Discount Rate for concessions and PPPs. After carrying out the studies, the public entity defines the one (s) that best fit their needs, then starting with the second stage, the Public Consultation. In it, the future public notice is made available for the company to submit its contributions for improvements and doubts regarding the project, and is also accompanied by a public hearing, open for the entire community to familiarize itself and make considerations about the project. After a hearing, and possible changes to the Public Notice, the Public Tender Notice is published, which will define, through a certain form of judgment, the company or consortium most able to sign the project contract. When properly executed, these projects contribute to the improvement of the scenario of fiscal deficit, in addition to fostering sustainable GDP growth. This is due not only to the generation of jobs with higher productivity rates, that is, a lower number of personnel generating greater added value, but also to the reduction of political risk, one of the main components of Risco Brasil, resulting in a better environment for doing business locally. ARTICLE WRITTEN BY JACKSON MOL — ASSOCIATE FROM FC PARTNERSGo to our site: http://www.fcpartners.com.br