Q&A

José Virgilio Lopes Enei, Machado Meyer Sendacz e Opice

To what extent are PFI/PPP projects still the most successful repeatable model of financing public works projects?

Leaving aside smaller and simpler projects, which might be successfully implemented through more traditional models such as governmental procurement of public construction works, the public sector in Brazil has very scarce human resources, constrained debt finance capability and serious limitations, which together make it hard to efficiently operate large, capital-intensive and/or complex infrastructure projects. Governmental constraints have become even more severe in the past four years, due to the worst economic and political crisis in Brazilian history. Although Brazil has entered recovery mode since mid-2017, recovery is slow and shall face more challenges ahead – such as the 2018 presidential election and the approval of its social security reform, which cannot be delayed much longer.

Therefore, delivery and operation of these projects needs to rely more and more on the private sector, subject to authorisations, concessions and/or regulation from government, as applicable.

With this context in mind, PFI/PPP (concession-type) projects, whereby investments are carried out and financed by the private sector, continue to be the most successful model of implementation of these large public works projects in Brazil.

Renewable energy projects constitute a significant share of projects being built across the world. What role are they playing in your jurisdiction?

Large hydro projects constitute the backbone of the power generation system in Brazil. Nevertheless, other types of renewable projects are gaining growing relevance to our power matrix, contributing to the diversification of the system and mitigating hydrological risk. Brazil has already developed a large portfolio of wind farms, mostly in the north-east region of the country. Projects are now able to generate wind power at very competitive prices, as a result of growing efficiency. Brazil also has a relevant volume of power generation coming from biomass (mostly from sugar cane bagasse, a by-product of sugar and ethanol production). Finally, Brazil has seen a surge in solar projects over the past three to four years. There is an active M&A market for these renewable assets. Considering the ability of these projects to secure predictable revenues through long-term power purchase agreements, project financing is a natural fit.

The world of project finance seems to be more cross-border than ever before. What do lawyers need to do to remain ahead of the curve in such an internationally competitive market?

The world is becoming more and more globalised. International experience and the ability to work in collaboration with other lawyers in different jurisdictions are key elements for a successful practice.

What advantages do a greater range of finance structuring options bring to clients and how does this impact your practice?

Projects have different challenges and risk profiles. A single alternative does not serve them all. In a world with multiple alternatives, it is possible to develop and finance a larger number of projects and in a more efficient manner, because each project will pursue the financing alternative that is the most suitable to
its needs.

How are developing markets generating new challenges for project finance lawyers?

Projects are always evolving and frequently becoming more sophisticated. Project financing structures need to follow such a pattern. In Brazil, for instance, we have recently participated in large cross-border Brazilian currency-denominated project finance deals that were simply not conceivable some years ago. Frequently, project finance for complex projects in Brazil will require coordination of different financing sources, such as different banking loans and capital market debt financing to be closed simultaneously. Requirements of different banks and lenders need to be conciliated.

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