Public Law, Project Finance and Regulatory

Brazil’s new dispute resolution mechanism warmly welcomed

Brazil’s infrastructure ministry and judicial oversight body CNJ launched on Tuesday a dispute resolution committee to improve legal certainty for transport infrastructure projects.

“This initiative is very welcome because it shows that the government is trying to find solutions in the form of mediation or arbitration to deal with legal disputes that have certainly arisen due to pressures on costs for existing concession contracts,” Paulo Dantas, an infrastructure and project finance specialist at law firm Castro Barros Advogados, told BNamericas.

“The path of mediation has a faster solution than a legal dispute in the courts,” he added.

The dispute resolution committee will oversee legal controversies related to projects that are part of the federal investment partnerships program (PPI).

“The joint agenda between the powers [government and CNJ] aims to improve the business environment and improve the performance of the judiciary in the Brazilian infrastructure environment,” the infrastructure ministry said in a release.

The partnership between the ministry and the CNJ will also be important to expand interaction between the federal government and the private sector, it added.

The Brazilian government aims to push ahead with plans to award more concessions in the coming months. However, the persistent inflationary pressure is likely to force certain companies that signed concession contracts in recent years to seek a review of the terms.

The main area affected by the sharp increase in costs is highways.

“The sharp and extraordinary rise in prices may make some [highway] tenders unfeasible, as input values included in the original studies for concessions have quickly become outdated,” Marco Aurélio Barcelos, president of Brazilian highway concessionaire association ABCR, told BNamericas in a recent interview, underlining that the price of petroleum asphalt cement, used to make asphalt, has jumped 80% in the last 18 months, while inflation according to the official IPCA index was 16% over the same period.

On the other hand, according to government officials consulted by BNamericas, who declined to be named for this article, they are reluctant to negotiate a review of the existing contracts right now, as they expect that inflationary pressures will tend to cool in the coming months given the aggressive hikes in the central bank’s Selic benchmark rate.