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2 Brazil: a golden customer on an investment spree March 12, 2013 Presented By: Maysa Abrahao Tavares Verzola mverzola@crowell.com Carolina Caiado ccaiado@tozzinifreire.com.br 2

3 Brazil: a golden customer on an investment spree Government Contracts 3

4 Brazilian Steady Growth & Legal Environment The urgent need of infrastructure & Upcoming Sporting Events Where the money is: Government Contracts Investments in infrastructure: sectors US Companies into play: JVs, technology 4

5 - 5 th Economy in the World - 5 th biggest country in mass and population - 5% unemployment rate - lowest interest rates ever (7,25%) 5

6 Projected GDP growth for 2013 worldwide 6

7 Net foreign direct investment flows, selected countries, in US$ billion 7

8 Upcoming Sporting Events: 2013: Confederations Cup 2014: World Cup 2016: Olympic Games 8

9 The Golden Customer The Government: the Federal Union, 27 States and 5,564 Cities. ALL buying assets, retaining services, granting long term concessions and privatizing public services and utilities. PLUS State owned companies like Petrobras, Eletrobras, Infraero. 9

10 The Government buys and retains services to manage and maintain the its administrative structure. The Federal Government spends substantially in defense. US$ 6 billion for the SISFRON Project to monitor the entire border zone of Brazil. In 2012, the Army carried out a public procurement proceeding to acquire systems and equipment for the Project. US$ 25 billion spent by the Federal Union in Highlights: US$ 2.92 billion for IT; Approx. US$ 5 billion for engineering and construction services/materials. 10

11 Procurements of the Federal Government in 2012 (US$ billions) Services US$ % Assets US$ % Source: Comprasnet - Jan to Nov Drafted by SLTI/MP

12 Brazil still depends on the logistic infrastructure built by the Military Government in the 70s. The Government is seeking to turn this page and put the country`s logistics infrastructure on the same level as modern economies. Public procurement proceedings are also required to grant long term concessions as well as to privatize public services and utilities. States and Cities are also preparing public procurement proceedings for metro, monorail, stadiums and water and sewage systems. Highways, railways, ports, airports and urban transportation infrastructure are yet to be built, renovated and modernized. 12

13 President Dilma Rousseff announced important investment programs to improve Brazil`s logistics infrastructure for transportation. Highways, railways, ports and airports will be enlarged and renovated within the next 5 to 25 years. The main goal is to integrate railways, highways, ports and airports to improve the competitiveness of Brazilian products in foreign markets. Increase in the participation of the private sector in the management and operation of the logistics infrastructure, which historically has been run by governmental companies. The Government needs the expertise of foreign operators, especially in ports, railways and airports. 13

14 Pipeline: Highways Long term concessions for the operation of 7 important Brazilian Highways. The highways connect the southeast to the central and northeast regions of Brazil. BR ES/MG BR GO/MG BR 060/153/262 DF/GO/MG BR 153 TO/GO BR 101 BA BR 163 MT BR - 163/267/262 MS Investment of approximately US$ 9 billion in the next 5 years. 14

15 Pipeline: Highways Second phase of PAC: extension and expansion of the Brazilian highway system. Preparation of 112 public procurement proceedings to enlarge and renovate Brazilian highways. PAC total investment in highways: US$ 21 billion. Recent increase in IRR of highway projects: up to 15% per year. 15

16 Pipeline: Railways Investment in 10,000 KM of railways connecting all regions of Brazil: São Paulo Rail Ring Rail access to the Santos Port Railway Lucas do Rio Verde Uruaçu (North to Central Region) Railway Rio de Janeiro Campos Vitória Railway Belo Horizonte Salvador Railway Salvador Recife Investment of US$ 45.5 billion in the next 30 years. High Speed Train connecting São Paulo to Rio de Janeiro. Investment of US$ 19.2 billion. 16

17 Pipeline: Airports Long term concession for the operation of the Rio de Janeiro International Airport (Galeão). Investment of US$ 3,3 billion. Long term concession for the operation of the Belo Horizonte International Airport (Confins). Investment of US$ 2,4 billion. Bidding process scheduled for the second half of Investment of US$ 3 billion for the expansion of 270 regional airports between 2011 and Preparation of bidding processes to grant long term PPP contracts for the operation and renovation/enlargement of regional airports in all regions of Brazil.! 17

18 Pipeline: Ports Long term lease contracts for the operation of 159 port terminals in Public Maritime Ports. Bidding processes should start soon. Investment of more than US$ 27.1 billion. Bidding processes to retain dredging services in Public Maritime Ports. Investment of more than US$ 3 billion. 18

19 Pipeline: Urban Transportation Investment of US$ 16.4 billion from the Federal Government (PAC) to improve the urban transportation systems in the next 3 years. Projects include: subways, commuter rail, light vehicles on rail (LRT), exclusive bus lanes and terminal integration and improvements in the capacity of the systems. State of São Paulo intends to invest US$ 45 billion in urban transportation between 2012 and US$ billion in subways of the City of São Paulo US$ 4.7 billion in lines of the São Paulo Metropolitan Train Company (CPTM) US$ 0.43 billion in Municipal Urban Transport Company (EMTU). City of São Paulo will reach km of urban railways. 19

20 Public Procurement Proceedings Ø The Government must abide by public procurement rules to carry out both assets/ services procurements as well as to grant long term concessions and privatize public services and utilities. Ø Bidding processes in Brazil are complex and intricate. Ø Several types of proceedings depending on the procurement scope and amount: RDC PAC and procurements related to the upcoming sporting events. Privatization bidding processes. Federal Law nº 8,666/93 the Brazilian Public Procurement Law. Defense procurements. Special proceedings for Petrobras. 20

21 Public Government Contracts Procurements GOAL: assure compliance of principle of equality + most advantageous tender to Public Administration (price and technique) General principles: equality honesty abidance by the bid document sustainable national development objective judgment lowest price 21

22 Poll Question Does your company participate in public procurements outside the U.S.? 22

23 Government Contracts in Brazil: 1) Concessions and Permissions 2) Public-Private Partnership 3) General acquisition of goods and services 4) Acquisition of goods and services for the upcoming sporting events 5) Acquisitions by Petrobras 6) Acquisitions by Defence Sector 23

24 USA: technology, need of new markets Brazil: steady yet expanding consumer market 24

25 Brazilian companies have some advantages: Minimum na7onal content Preference margin of 25% in price US companies: JVs or consor7a with Brazilian companies / local subsidiaries 25

26 Airports, Ports Highways Urban rail Sector E&C projects / Supply Contracts Passenger & Cargo Air Transport Water & Sewage Oil & Gas Telecommunication Power Sector Remarks Foreign companies may have to organize a subsidiary in Brazil. Foreign companies must organize a subsidiary in Brazil to operate the services and the infrastructure. Possible restrictions may be set out under municipal laws, since the Municipalities were granted the power to operate local services, especially those for passenger transportation. Preference given to domestic products and services can be established in request for tenders. 4/5 of airlines voting capital and management must be held by Brazilians. Foreign companies must have to organize a subsidiary in Brazil to operate the services and the infrastructure. Foreign companies must organize a subsidiary in Brazil to participate in the exploration and production of oil & gas in the country. Foreign companies must organize a subsidiary in Brazil and additional restrictions may be imposed depending on the services. Foreign companies may have to organize a subsidiary in Brazil. 26

27 Poll Question Does your company participate in public procurements outside the U.S.? 27

28 BNDES Brazilian National Development Bank BNDES disbursed US$ 78 billion in BNDES allocated US$ 50 billion of the disbursed amount for industrial and infrastructure projects included in the Growth Acceleration Program PAC, launched by the Federal Government for sponsoring public works throughout the Country. 28

29 LEGAL ENVIRONMENT FOR INVESTMENTS - No FTA with the US, not a single BIT with any country - Mercosur: just a customs union BUT - No expropriations in history - Constitutional guarantees for takings - Legal provisions to guarantee economic-financial equilibrium in government contracts 29

30 Arbitration in Government Contracts - Concessions and PPP Law - Arbitration broadly accepted by Brazilian Courts - Faster and reliable 30

31 Questions? 31

32 Thank you! Maysa Abrahão Tavares Verzola Maysa has broad experience in litigation and international arbitrations involving complex financial contracts, mergers and acquisitions, joint venture agreements, infrastructure projects, distribution agreements and a wide range of administrative law issues. Maysa graduated from the Law School of Universidade de São Paulo and earned a Master s degree in Administrative Law from the same institution, with high honors. She is also specialized in Administrative Law from Fundação Getúlio Vargas and earned a LL.M degre from the University of Chicago Law School. She wrote the book Administrative Penalties in Brazil, published by Saraiva Editors in Carolina Caiado ccaiado@tozzinifreire.com.br Carolina has broad experience with international and domestic public procurement proceedings carried out by Brazilian governmental agencies. She also has expertise in infrastructure projects in the airport, ports, railways, roadways and basic sanitation sectors, as well as in the defense sector. Carolina has worked for a governmental agency, which gave her knowledge on private-public relations from the Government s perspective. She graduated from the Law School of Universidade Federal de Minas Gerais and earned a Master s degree in Public Law at the Law School of the Universidade de São Paulo. 32

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