Public Law, Project Finance and Regulatory

Brazil tightening legal security for concession contracts, privatizations

Brazilian judicial oversight body CNJ has acted to improve the legal security of concessions and privatization processes by recommending that court judges across the nation be cautious when assessing lawsuits that call for the suspension of bidding processes.

The amendment approved by the CNJ states that “precaution should be used to avoid abuse of the right to legal action against infrastructure projects qualified by the investment partnership program (PPI).”

“The recommendation establishes that judges must hear the public administration bodies responsible for the project in question as a precaution before deciding on any emergency injunction” Luiz Fux, the head of CNJ, who also is chief justice of the country’s supreme court, wrote in a decision.

The CNJ is composed by a total of 15 counselors, nine judges, two members of the public prosecutor’s office, two lawyers and two citizens with comprehensive legal knowledge, and its recommendations serve as guidelines for courts across the nation.

“We are moving toward legal maturity for the contracts, both for those in effect and those that will be signed. The CNJ recommendation helps improve the risk perception of potential investors a great deal,” Paulo Dantas, an infrastructure and project finance specialist at law firm Castro Barros Advogados, told BNamericas. 

Although the government’s program of concessions and privatizations has advanced rapidly in the last couple of years, certain tenders have suffered delays due to legal challenges by opponents, such as labor unions. 

In addition to causing delays to the bidding processes, these legal disputes can undermine their appeal to private sector investors, who see them as more legal risks associated with projects.

The CNJ recommendation is therefore likely to increase the legal security of contracts amid the polarized political scenario in Brazil. 

“Despite some statements during the electoral process, I don’t see either of the two main candidates, if they win, working on reversing the ongoing concessions program. We may have a change in the pace of concessions, but not a reversal,” said Dantas. 

The October presidential election is expected to be direct contest between right-wing President Jair Bolsonaro and leftist former leader Luiz Inácio Lula da Silva, with the latter leading the polls by a comfortable margin. 

Lula’s workers party (PT) recently released its government program, which calls for a greater State role in Latin America’s largest economy.

The PT manifesto outlines opposition to the current government’s privatization plans for firms such as power holding Eletrobras, postal service Correios, oil company Petrobras and Pré-Sal Petróleo (PPSA), a public company created in 2013 to represent the government’s interests in oil and gas production-sharing contracts.