Industry demands more legal security for Brazil infra projects

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Thursday, July 26, 2018

Investors and trade groups are demanding more legal security regarding contracts for Brazilian infrastructure projects in order to boost investments.

"Legal certainty does not mean that the legal and contractual environment will be inflexible or unchanging, but that renegotiations, conflict resolution or contingencies will be conducted in a business environment where predictability and trust between the parties will be the rule rather than the exception," said Brazil's powerful infrastructure association Abdib in a statement.

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In recent years, Brazil has seen a reduction in investment in infrastructure due to the government's weak fiscal situation. As a result, the next government that takes office in January following October's elections will likely be obligated to attract private sector investment.

"In general terms, assets linked with infrastructure logistics are more exposed to regulatory risks," Daniel Engel, a lawyer specialized in regulations and infrastructure at Cascione, Pulino, Boulos & Santos law firm, told BNamericas. "The legal side in Brazil is complicated and international investors, not familiar with local rules, sometimes avoid certain segments."

Legal uncertainty also damages the participation of other stakeholders in the infrastructure sector, such as insurers.

"This is indeed a problem. We're not able to attract insurers because even for them the risks are too high. Insurance companies only enter projects when they see profit potential. In the infrastructure area it's too difficult to measure all the risks involved," Paulo Rabello de Castro, the former head of the country's federal development bank BNDES, said in a recent interview with BNamericas.

"Currently, among Brazilian authorities [prosecutors] there is the presumption of fraud regarding businessmen and it's difficult for insurers to price such potential reputational risks."

Infrastructure companies have been at the epicenter of the massive Lava Jato corruption probe in Brazil, along with federal oil company Petrobras.