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Brazil Uses Full Range of Project Delivery Options

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Major Brazilian projects registered in the Barchan Foundation database show that governments at all levels continue to rely on the full range of project delivery and finance alternatives in arranging for infrastructure renewal and expansion.  These projects include a mix of road, airport, rail, transit, energy, water, wastewater, and prison projects.  

Attorney Cecilia Vidigal Monteiro de Barros, of XBB in Sao Paulo, describes Brazil’s overall delivery strategy for large projects as primarily focused on two basic models:

“Brazil has been using two different legal frames to implement infrastructure projects, namely 'straightforward concession' and 'PPP' (Public Private Partnership). Straightforward concession, where the private sector derives revenues only from the project facility, has been the preferred model by Brazilian Government.  Infrastructure projects that are unprofitable and unable to repay private investors without governmental compensation have been delivered under the PPP regime. [Editor's note:  in Brazil -- the term PPP is equivalent to at least partially publicly funded DBOM.] Recent infrastructure projects, both under straightforward concession and PPP, are usually delivered under a BOT contract scheme (Build, Operate and Transfer). The State of São Paulo has recently launched transportation projects using the BOT contract scheme, such as the São Paulo subway lines (under PPP regime) and the concession of several highways (under straightforward concession regime).  Brazilian political risks (such as change in law, contractual risks, etc) usually work as a drawback to private investors. However, such drawbacks seem to be insufficient to prevent private partners from investing in infrastructure projects, demonstrating the confidence of private partners in the Brazilian economy. Such confidence is also demonstrated by private investments in the projects launched under the federal government’s Growth Acceleration Program (Programa de Aceleração do Crescimento - PAC) which already amount US$ 48 billion or a quarter of the total amount that has already been invested under such program (around US$ 200 billion).” 

Projects Focused on Initial Delivery.

Delivery strategies focused upon initial delivery only – namely, Design-Bid-Build and Design Build – are staples of public sector infrastructure delivery in Brazil. 

Notable examples include the Sao Paulo Light Rail (Metro Line – 17) Project which, although in the Project Definition/Programming phase, is expected to be delivered using the Design-Bid-Build approach.  The project involves the establishment of Light Rail to connect the neighborhood of São Judas to the Congonhas Airport, while providing interconnections with two other existing lines – São Paulo Metro Line - 9 and Metro Line – 4.  The first phase of the project is expected to be tested in 2010 and to be in use in 2011. The secondary phases will provide the interconnections, and include the first ever support of the Federal Government for the railway system of São Paulo.  Three other projects now in the Design/Construction phase indicate Brazil’s continued reliance on Design Build.  These include (i) the Nova Marginal (New Bypass) project in São Paulo, a major congestion reliever for the Tietê Expressway; (ii) Phase 1 and 2 of the Bolivia-Brazil gas pipeline project; and (iii) the construction of the Southern Section of the Ring Road around Sao Paolo.  Phase 1 and 2 of the Bolivia-Brazil gas pipeline project consists of the construction of 3,150 km of pipeline connecting the city of Rio Grande in Bolivia to the city of Porto Alegre in Brazil.  The first phase of the gas pipeline (as far as São Paulo) was inaugurated in February 1999. In March 2000, the second phase of the gas pipeline was inaugurated to meet demand in Brazil’s South. The construction of the Southern Section of the Ring Road around Sao Paolo, which was divided into five (5) lots and auctioned to different construction companies. Interestingly, a concession for the operation and maintenance of these five lots will occur subsequently, and the winner of that concession competition will take responsibility for building the other sections of the Ring Road.

Projects Focused on Life Cycle Delivery.

Mixed Public and Private Finance.

Recent major projects in Brazil have relied heavily on the integration of design with construction and with long term operations and maintenance (or DBOM), and mixed public and private finance.  One of these projects is in operation – Energy Transmission Line Norte-Sul II – a 1,200-Megawatt (“MW”), 1,278-kilometer (“km”) 500-kilovolt (“kv”) power transmission line from the State of Maranhão the Distrito Federal across the central area of Brazil’s central.  The procurement includes the development, construction, erection, commissioning, operation and maintenance of the transmission line, and is funded through some private sector loans, but primarily through government loans. 

A series of DBOM projects are now in the Design/Construction phase.  These include Metro Line 4 – one of the first PPP projects in Brazil that comprised a turnkey contract for the provision of civil works and electrification for the 12.8 km of metro line and a concession contract to provide rolling stock and to operate the system for 30 years, financed mainly by the private sector, but partially by the State.  Another of these projects is the Alto Tietê Water Project in the state of São Paulo -- which represents a dramatic expansion of the potable water treatment system at the Taiaçupeba Reservoir, and that includes silt treatment, water transmission lines, 4 additional reservoirs for storing up to 70 millions liters of water; and O&M services over a 15 year contract term. 

Two more of these projects represent substantial improvements in the level of wastewater treatment.  The Sanitary Sewage System of Rio Claro project and the Sanitary Sewage System of Rio das Ostras are federally financed DBOM projects intended to accelerate the timing of improved treatment of wastewater for two population centers with 370,000 residents.  A similar procurement strategy was followed for the MG-050 Road project, which is comprised of the reconstruction, expansion and maintenance of 372 km of the Road MG-050 across the states of Minas Gerais and São Paulo by a private party who provides initial private finance in exchange for a government commitment of fixed availability payments over the life of the concession.

Two other projects now in the Project Definition/Programming phase are expected to follow a similar DBOM procurement strategy:  (i) the rehabilitation and operation of nearly 700 km of Road BR-116/324; and (ii) the High Speed Train project sponsored by the federal government expected to connect the cities of Campinas, São Paulo, and Rio de Janeiro.

Purely Private Sector Finance.

Brazil’s national and state government are using DBFOM (Life Cycle/Private Sector Finance) on four other major infrastructure projects, now in Design/Construction, including:  the Santo Antônio Hydroelectric Plant on the Madeira River, in the State of Rondônia; the Jirau Hydroelectric Plant also on the Madeira River; the Pontal Irrigation Project in Petrolina (the first water PPP in Brazil); and the Ribeirão das Neves prison facility in the State of Minas Gerais.

Notes: 

1. To view more information about the project delivery and procurement strategy followed on these projects, go to www.barchanfoundation.com, click on the Projects tab, then on the Advanced Search tab.  Set the Country attribute to "Brazil" and click Search.

2. To learn more about The Barchan Foundation, Inc. or to post interesting public infrastructure projects to the Barchan Foundation data base, please go to www.barchanfoundation.com

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