Brazilian law provides a number of ways for Administration ensure the payment of their financial compensation to the private partner. Among the means provided for, there is i) linking of budget revenues; ii) creation or use of special funds provided by law; iii) hiring of surety bond with insurance companies that are not controlled by the Government; iv) guarantee provided by international organizations and financial institutions that are not controlled by the Government; v) guarantees provided by a guarantee fund or state-owned company created for this purpose; vi) or other mechanisms allowed by law.
There are two types of PPP’s contracts: (1) sponsored concession, in which the private partner’s remuneration is comprised of tariff revenue and the public partner’s financial contribution (that cannot be higher than 70 per cent of the total remuneration of the private partner unless there is a specific legislative authorization for the project); (2) administrative concession, in which the private partner’s remuneration is entirely paid by the public partner. Payments will be calculated according to the accomplishment of performance and quality standards and parameters, which will be defined case-by-case according through the provisions of the invitation to bid and the PPP agreement.
Regardless of the model adopted (sponsored concession or administrative concession), the PPP model is characterized by the sharing of extraordinary risks (unforeseeable circumstances and force majeure, for example) between public and private partners, through Government’s offer of additional guarantees and a variable remuneration linked to the performance of the private partner.
Other model of partnership that can be established between Administration and private partner is denominated common concession. This is not a form of a PPP concession. The object of this type of contract is the delegation of the management and the execution of public services, with investments made by the private partner.
Such contract is celebrated for the execution of public service, preceded or not by public work. Its remuneration is consisted by users’ tariffs and alternative, complementary and ancillary revenues. Exceptionally, public subsidy is allowed, including in special tax treatment form.
In this contractual model the investment recovery is obtained by the delegated service exploration, without sharing extraordinary risks and neither the sharing of additional economic gain between the private partner and the Government.
However, what’s similar between the common, administrative and sponsored concessions is that the private partner shall make initial investments to implement a public service or infrastructure in all of them. The investments will be amortized over the course of a long-term deal, through the profits that the public service or infrastructure provides.