BRAZIL Law and Practice Contributed by: Roberto Panucci, Tiago Severo, Diogo Nebias and Guilherme Teles, Panucci, Severo e Nebias Advogados
and offloading units (FPSOs), pipelines and gas pro- cessing plants are sometimes financed through pro- ject structures – often combined with sponsor guaran- tees – whereas upstream exploration and production is still largely funded on corporate balance sheets. Transportation infrastructure also plays a central role, with concessions and PPPs supporting long-tenor financings for toll roads, airports, port terminals, and railways. These projects usually combine financing from the BNDES and commercial banks, as well as public offerings of infrastructure debentures, which are are tax-incentivised to attract private investment. In the water and sanitation sector, new concessions have accelerated since the introduction of the 2020 regulatory framework, driving large capital expendi- ture (capex) programmes financed through long-term loans and debenture issuances. Digital infrastructure is another growing area, with fibre optic networks and telecommunications towers increasingly financed through structured debentures. In addition, certain industrial and agribusiness ven- tures have adopted project finance techniques, par- ticularly where long-term offtake contracts – ie, agree- ments in which a buyer commits to purchase output at pre-agreed terms – provide the predictability needed to support bankability. 8.2 Public-Private Partnership Transactions Brazil relies on two main models for private partici- pation in infrastructure. In traditional concessions, governed by the general concession law and sec- tor-specific statutes, the private sector provides the service and is subject to risk of demand. The con- sumers/users pay for the services. As regards PPP transactions, there are two frameworks. Under one framework, the consumers/users and the government pay for the services. Under another framework, the government alone pays for the service and it is often used for hospitals or prisons. Common challenges in these structures include a demanding procurement process, a three-stage environmental licensing procedure, tax constraints at state and municipal levels, and the need to allocate demand risk and foreign exchange risk with precision. Regulatory approvals are also required for granting
security interests, for changes of control of the con- cessionaire, and for step-in rights (ie, rights granted to lenders to replace the project operator if the pro- ject operator defaults financially). Careful drafting of concession contracts is essential to ensure clarity on risk matrix, performance standards, payment mecha- nisms, changes in law, and termination compensation – all of which are critical to achieving bankability. 8.3 Governing Law Concession and PPP contracts are governed by Bra- zilian law and many now allow for ADR in the form of arbitration, typically seated in Brazil and applying Brazilian law. Engineering, procurement and construction (EPC) contracts and supply agreements for projects that are entirely domestic are usually governed by Brazilian law. However, when foreign contractors or suppliers are involved, the parties may negotiate the application of foreign law combined with international arbitration, provided that the arrangement remains enforceable in Brazil. Financing agreements for international lend- ers are frequently governed by New York or English law, reflecting global market practice. By contrast, all security interests over Brazilian assets must be docu- mented under Brazilian law and enforced under local procedures, given that property rights are subject to domestic rules. Intercreditor agreements (which set the rights of and priorities among multiple lenders) and common terms agreements (which standardise provisions across different financing tranches) often follow precedents from the Loan Market Association (LMA) or New York law templates. These are then adapted to Brazilian requirements on perfection (which refers to the reg- istration steps that make security interests effective against third parties) and foreclosure (which is the legal process for the enforcement of collateral). 8.4 Foreign Ownership Foreign investors can own Brazilian project compa- nies and assets, subject to a few restrictions depend- ing on asset type, as follows. • Rural land and border-area property face statu- tory restrictions that are typically addressed with
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