LatAm tops other regions in renegotiations of PPP contracts

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Thursday, July 19, 2018

Contract renegotiations for private-public partnerships (PPPs) in Latin America are higher than in any other region in the world, due, among others, to rising costs in construction.

The volume of renegotiations of existing PPPs reached 58% in Latin America and the Caribbean, almost twice the global average of 33%, according to a study by the G20-backed Global Infrastructure Hub.

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"The most common cause of renegotiation was found to be increased costs in construction or operations, while the most common outcome of a renegotiation was a change in tariffs," said the report.

Global Infrastructure Hub highlighted that it analysed projects that reached financial closure between 2005 and 2015, and almost all of them are still in progress, so the percentage of renegotiated contract can still rise. It also noted that a renegotiation of a PPP contract involves changing the original terms and conditions.

BRAZIL

In Brazil PPP contract and concession renegotiations became normal in recent years. As various projects failed to meet revenue expectations, operators keep trying to return their contracts.

This is most common in the highway and airport sectors.

"In Brazil to fix this we need to have clearer rules and conditions before the auction regarding projects. Investors, players in general, need to have more detailed information on the demands of a project, environmental licensing and more time between the publication of the notice and the auction to evaluate the situation more deeply," Daniel O'Czerny, director of infrastructure at Citi Brasil, told BNamericas.

Currently, Brazil's President Michel Temer is evaluating to sign a decree authorizing struggling private groups to return their infrastructure concessions. The decree will be signed as the chief of staff department ended a deep analysis about all legal risks involved, a presidential palace spokesperson told BNamericas earlier this week.

It will cover concessions for highways, railroads and airports. Several concessions that were tendered during former president Dilma Rousseff's administration failed to meet original revenue estimates due to the country's 2015-16 recession.

The decree will likely allow Invepar to return its BR-040 highway concession, which links Brasília and Juiz de Fora cities, and Acciona to get rid of its BR-393 highway concession. Both companies already signaled interest to return their contracts.

Companies interested in returning their concessions must file a request with respective regulators, explaining the technical and economic reasons for a return. The decision then lies with the regulator.

Details of the new rule will be announced when the decree is published, which should happen soon, although no exact timetable is available.