Brazil: New public consortia financing regulation

Author: | Published: 28 Aug 2018
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On July 5 2018, the Brazilian Senate passed a new resolution explicitly allowing public consortia to raise money via credit transactions (Resolution 15/2018), amending the previous Senate Resolution 43, of 2001, which regulates and imposes limitations on Brazilian states, municipalities and the federal district when engaging in domestic and international financing arrangements.

Under Brazilian law, a public consortium is any party formed exclusively by federated entities for establishing cooperation among each other with the purpose of reaching common ground and achieving mutual goals. The consortium is usually conceived either as a public association, subject to public law, with a legal personality apart from its members, or as a not-for-profit private organisation. Before the changes introduced by Resolution 15/2018, public consortia were not expressly mentioned by the law and, for that reason, they were unable to obtain proper approval from the National Treasury Secretariat for receiving credit from the market.

Public consortia have a fundamental role to play in providing a wide array of services to the population and enable economies of scale by federated entities. Some municipalities, when acting alone or independently, may face certain difficulties due to reduced size, population and, consequently, low demand. In such cases, public consortia become crucial for increasing the levels of supply and demand, therefore facilitating fundraising and creating new investment opportunities.

Resolution 15/2018 is an important tool for public policies directed at addressing the needs of a society at a time when certain regulatory frameworks in the infrastructure sector are being adjusted to attract and foster new investment, from both the public and private sectors. Take the water and sanitation industry, for instance. This is a historically outdated sector which has been receiving low, or at best insufficient investment, and this has resulted in only 44.9% of the Brazilian population having access to sewage treatment, according to the Brazilian Sanitation Information System (SNIS Sistema Nacional de Informações sobre Saneamento). Its regulatory framework was recently modified through this year's Provisional Measure 844 (MP 844), the latest effort of the federal government to address the lack of regulation at state and municipal levels, and to boost capabilities of providing universal sewage treatment by increasing both investment and training personnel.

In this situation, the changes implemented by Resolution 15/2018 might be an important driver for new investment into the sanitation industry, enhancing credit options for smaller municipalities, where investments have been historically scarce due to the absence of economies of scale, among other things. The changes promoted by Resolution 15/2018 and MP 844 will probably serve to encourage the association of municipalities and consequently attract investment into sanitation through financing arrangements with a shared risk credit profile of debtors. It is important to highlight, however, that credit transactions for public consortia must fulfil certain requirements. These include abiding by the limits and conditions imposed for the credit transactions of each party within the consortium, as required by Complementary Law 101/2000, which imposes limits for indebtedness of municipalities, states and other public entities.

Fernando
Gomes
Alexandre
Leite

 


 

 

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