Brazil Private Participation in Infrastructure November 2014 Ministry of Finance

Ministry of Finance
Brazil
Private Participation in Infrastructure
November 2014
Introductory Remarks
• It has been recognized that increasing investment in infrastructure should be a mean to propup long term growth and to tackle the current economic slack (IMF’s WEO, fall 2014)
• In medium-income countries such as Brazil it is about filling the infrastructure gap
• In low-income countries the challenge is to overcome the “bring-your-own-infrastructure”
barrier to investments
• Infrastructure is also a way of reducing inequality, as it affects disproportionally the poor
• One condition for infrastructure to lead to higher growth is efficient implementation
• Traditional forms of contracting might be inefficient as they transfer too much risk to the
government and fail to keep adequate maintenance
• Private participation forms of contracting are regarded as more efficient for large-scale
projects, but there are challenges
• I will raise some issues drawn from the Brazilian experience
Private Participation in Infrastructure – investment commitments
Brazil has a well established tradition in PPI, being a leading country in the developing world
in such form of contracting. Its experience can be valuable to other countries as it varies
widely across regions and levels of government.
In current USD billion, by type
Values accumulated over 1990 – 2012
energy, telecom, transport, water and sewerage
energy, telecom, transport, water and sewerage
80
70
Greenfield
60
Brazil
20%
Divestitures
50
Concessions
40
Others
47%
India
15%
30
20
10
Russia
6%
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0
Source: World Bank and SEAE/MF staff preparation.
Mexico
6%
China
6%
Private Participation in Infrastructure: moving ahead
Sectors with higher private participation (e.g. Electricity and Telecom) have achieved better
performance, while those with less private participation (e.g. water and sewarege) have
lagged behind.
There are currently around 100 million people in Brazil without adequate sewer collection and
treatment.
PPI is making inroads into environment projects such as parks and forest management, as well
as hospitals and schools.
Access to Selected Utility Services (% of households)
1995
2005
2012
Eletricity
91.8
97.2
99.5
Telephone (fixed or mobile)
22.4
71.6
91.2
Water supply
76.3
79.7
84.4
Sewerage
39.7
48.1
57.1
Source: PNAD and SEAE/MF staff preparation.
Funding Infrastructure: moving away from traditional sources
Fiscal constraints is limiting the participation of public banks. Basel III is limiting the
participation of private banks. Policies were put in place to develop capital markets through
tax breaks as a mean to complement infrastructure funding. However this option brings many
challenges as risk mitigation and allocation is much more complex.
Capital Markets
Bond Market:
Infrastructure Bonds
Infrastructure Funds
Securitization Instruments
Banking
Private
Banks
Infrastructure
Projects
Public
Banks
Equity and Private
Equity Funds
Multilateral Instituions Support
Private Participation is No Panacea
Cash Flow Profile
Construction Phase
Greater Risk
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Performance Phase
Less Risk
• Infrastructure investments are generally large and capital intensive;
• They have significant up-front costs, but economic benefits and returns accrue over many years;
• In order to attract private financing and sponsors risks have to be adequately mitigated and allocated
• This involves complex and time consuming preparation that requires highly qualified bureaucracy that
is small or nonexistent in weak institutional environments (i.e. some states and municipalities in Brazil)
• Adequate regulation during the performance phase is necessary since these projects are natural
monopolies – also weak or nonexistent in many regions or countries.
Thank You
Pablo Fonseca P. dos Santos
pablo.santos@fazenda.gov.br
www.seae.fazenda.gov.br