ML infrastructure in brazil

Infrastructure in Brazil

Regulation of logistics infrastructure in Brazil

Changes made fundamentally alter the underlying incentives of the bidding processes in the area of infrastructure concessions. These changes reflect – and were made on the basis of – recommendations made in the CARR report.

LSE research into the regulation of logistics infrastructure in Brazil has had a far-reaching and positive impact. From changing the nature of laws to its inclusion in teaching materials, this research has been instrumental in shaping the discussion.

What was the problem?

In 2016, the incoming Temer administration in Brazil passed a temporary measure to regulate future tender processes for logistics infrastructures. Provisional Measure 752 allowed the expansion and enhancement of the partnerships between private investors and governmental ventures, including via the establishment of two new advisory bodies: the PPI Council and the PPI Executive Secretary.  It was intended to: 

  • Provide a new legal tool for renegotiating concessions or returning failing concessions to the government, allowing for arbitration to set the level of compensation for the concessionaire. 
  • Address the widespread “gambling” culture by excluding concession holders who sought to “hand back” their concession from entering subsequent re-bidding processes unless their role in the bidding consortium was less than 20 per cent.
  • De-bureaucratise business set-up.
  • Reduce the tendency for conflicts to be subject to lengthy courtroom disputes by introducing arbitration tribunals offering an alternative to judicial processes.

What did we do?

With colleagues from RAND Europe, Professor Martin Lodge (Professor of Political Science and Public Policy) worked between May 2016 and March 2017 to develop new insights into, and proposals for, the regulation of logistics infrastructures in Brazil.

Research funded by the UK’s Prosperity Fund culminated in “Regulation of logistics infrastructure in Brazil” Centre for Analysis of Risk and Regulation report (the CARR report).  It was published in both Portuguese and English on the Centre for Analysis of Risk and Regulation (CARR) website in March 2017.

Some of the most immediate challenges that the report recommended tackling related to the need to renegotiate concessions, as per the Temer administration’s temporary measure. The CARR report questioned the credibility of measures intended to address the “gambling” culture, pointing particularly to the fact that an intention to grant long-term concessions to existing concession holders was inconsistent with the stated aim of attracting “new” investment and investors and the requirement that the proposed system raised for an increase in the number of potential bidders.

The report highlighted the problem of incomplete risk transfer to concession holders, who will always have an incentive to see renegotiation on terms advantageous to them. It recommended, instead, that concession holders who returned concessions to the state would be barred from re-bidding. The report also challenged the likely efficacy of arbitration tribunals, noting that this required an acceptance of the tribunal judgments by all parties and was predicated on an assumption that there was sufficient capacity to establish such tribunals in the first place.

The report focused on federal-level initiatives, particularly those launched in the second half of 2016 and intended to emphasise predictability and credibility as a means of attracting private and “new” investment from international sources. The research, which required close collaboration with key regulatory and ministry officials in the federal government of Brazil, took the form of documentary analysis and interviews, plus project workshops with key ministry stakeholders in Brasilia (September 2016) and at the Instituto de Persquisa Econômica Aplicada, IPEA (November 2016). The research team also ran a webinar with speakers from the National Audit Office and Ofcom on public-private partnerships and auctions, in October 2016.

Preliminary recommendations were discussed during a special session of the UK-Brazil Infrastructure Task Force in London in January 2017.

The report diagnosed four capacity deficits in terms of analytical, coordination, oversight, and delivery capacities, and challenged the efficacy of the existing emphasis in regulatory debate in Brazil on reducing “discretion”. Instead, it proposed using the notion of “disciplined discretion” as a model for the future development of regulatory capacity. To achieve this the authors recommended the development and use of the following tools:

  • Procedural tools to enhance the information base for decision-making.
  • Engagement tools to encourage less adversarial relationships with stakeholders and more informed decision-making.
  • Incentive tools to discourage the widespread “gambling culture”, including through the use of different re-tendering criteria (which were taken up in legislation), benchmarking and “naming and shaming” to encourage concession-holders to improve performance.
  • Challenge tools to enhance the strategic quality of decision-making by empowering regulators to more robustly challenge plans and actual performance.
  •  The report was critical of various reform options, namely the creation of special purpose vehicles and the creation of additional institutional units. Instead, it advocated the use of coordination protocols to establish a clearer set of mutual understandings about roles and responsibilities between actors and agencies.

The CARR report was cited several times in debates about the Temer administration passing a temporary measure to regulate future tender processes for logistics infrastructures. Several of the provisions were subsequently changed in line with the recommendations of the report.

What happened?

In June 2017, the Provisional Measure 752 was converted into a federal law, making it permanent unless, or until, it is subject to further legal change conditional on Congressional approval by both the Chamber of Deputies and the Senate. The new law (No.13.448) establishes general guidelines for the extension and re-establishment of the partnership agreements defined under Law 13.334 of 13 September 2016, in the road, rail and air sectors of the federal public administration, and amends Law 10.233 of 5 June 2001 and Law 8.987 of 13 February 1995.

Changes made to the temporary measure at its translation into federal law fundamentally alter the underlying incentives of the bidding processes in the area of infrastructure concessions. These changes reflect – and were made on the basis of – recommendations made in the CARR report.

The report has continued to influence regulatory capacity work in Brazil. In September 2018, a joint ordinance established the “Network of the state regulators” (RADAR) tasked with bringing together regulatory experience and enabling better coordination. The work on RADAR was led by staff at the Agência Nacional de Transportes Terrestres (ANTT) that had been directly involved in the initial report, and that were directly influenced by the report’s emphasis on the need to enhance coordinative capacity across agencies.

In June 2018, Professor Lodge participated in two roundtables in Brasilia – at the “Debureaucratisation Institute” and at Escola Nacional de Administração Publica (ENAP) 


– to consider the ongoing development in regulatory capacity. The former initiative in particular was noteworthy as it involved industry association and private sector participants in the discussion. The report is also used as teaching material for a Regulation postgraduate degree jointly run by the Brazilian Federal Court of Auditors (TCU), and the federal civil service college, ENAP. In addition, the framework used by the report is also being applied to work in Mexico, in particular the analysis of the institutional evolution of a new regulator in environmental health, Agencia de Seguridad, Energía y Ambiente (ASEA).