Brazil’s Best Counsel 2021 - Chapter Opening: Public Law

Public Law

In 2020, Brazil accelerated the internationalization of its public law in light of its bids to join the Organization for Economic Co-operation and Development (OECD) and the World Trade Organization’s Agreement on Government Procurement, enacting or proposing legal and regulatory frameworks in areas such as water and sewerage, distribution of natural gas and cabotage shipping ─ areas which promise an array of infrastructure investment opportunities in the coming years.

Overview

Many of the recent developments in public law in Brazil stem from the 2018 amendment of LINDB (Introduction to Brazilian Law Norms Act), a body of rules which govern the interpretation and application of laws. The reform introduced new standards to address public law concerns and provide legal certainty and stability in the application of public law. It is arguably the most important innovation in public law in recent years. As with other initiatives in the field of public law discussed here, it came in the wake of Brazil’s extensive political, economic and institutional crisis of 2014-2015.

New LINDB

The previous decades had been marked by a growth in oversight and accountability agencies and mechanisms. LINDB was amended to introduce specific provisions designed to advance consequentialism, promote integrity and consistency in government action, protect legitimate expectations, incentivize consensual solutions and compromise, encourage restraint, avoid excessive interference, set clear limits for the accountability of officials and pursue transparency and foreseeability through administrative rules and planning. The reformed LINDB provided limits and tools for government action, and it set the grounds for concrete gains in Brazilian administrative practice.

Negotiated mechanisms

A clear trend is the steady growth in the use of negotiated mechanisms for government action. Laws enacted in 2015 provide for ample use of arbitration, mediation and negotiated settlement in government disputes. In 2019, the city of São Paulo enacted a law providing for dispute boards, and a similar bill (PL 206/2018) to extend the system to the federal government is currently before Congress.

Areas such as anticorruption, environment, competition, government expenditures and contractual misconduct favor replacing unilateral sanctions with negotiated agreements. The legal uncertainty surrounding such agreements, due to the variety of government agencies apt to prosecute wrongdoings, has been obviated by growing interagency cooperation, recognition of agreements by non-participating agencies and acceptance by courts. The lack of clearer rules means that special attention is still required in the negotiation process. Negotiated leniency agreements have allowed self-cleaning initiatives and the preservation of economic activity.

Infrastructure

Some areas of infrastructure investment in Brazil already benefit from well-structured and mature institutional arrangements. Energy and telecommunications have reached a level of stable private investments under specialized regulation. The oil and gas sector has also been on a steady path of regulatory evolution. The focus has shifted to natural gas, including possible new arrangements for the distribution of piped gas. Unlike oil and gas production, under the regulatory control of the federal government, piped gas distribution is provided at state level, generally by SOEs (state-owned enterprises) now under studies for privatization.

Highway concessions started in some states and the federal government in the 1990s. Generations of concession agreements and regulatory frameworks followed. The experience amassed prompted initiatives in new areas, especially due to the logistical needs of Brazil’s thriving agricultural business sector. Decades after the first concession agreements, the transportation sector is moving into either tenders for new concessions or extensions of the original ones. Law 13.448, of 2017, allowed certain transportation concessions to be extended before the end of their first term in exchange for additional investments, and this mechanism has been hugely successful.

The port sector benefited from the early extension arrangement. After a major legal framework change in 2012 and subsequent regulatory developments, the sector received extensive private investment. Large private and public container terminals operated by international players exist in the main Brazilian ports. Grain or other general cargo terminals are crucial for the logistics of Brazil’s agricultural production. In August 2020, the port regulator (ANTAQ) celebrated the successful tender of two new paper-pulp terminals in the port of Santos. Around the same time, Brazil enacted a new change in port legislation to provide for greater flexibility in contracts and investments in public ports. This is a welcome development since it submits the investment in public and private ports to more transparent rules and favors balanced competition.  Interest in the port sector is expected to increase further in the next few years.

Among the various infrastructure areas, arguably the one most under the spotlight right now is basic sanitation, namely water, sewerage and solid waste. Under Brazilian constitutional law, these are generally public services attributed to the various municipalities. Cities are responsible for regulating and providing them either individually or, for greater scale, in association with other cities or by delegation to states.

After decades of regulatory uncertainty, in June 2020, Law 14.026 enacted the new sanitation legal framework in Brazil. The new framework favors regionalization and uniformity of regulation by assigning regulatory functions to a federal agency, and it has been heralded as the gateway for new private investments in an area in which Brazil has a large deficit to overcome. In August 2020, public tenders in accordance with the new framework were already under way.

As expected, the Covid-19 emergency had a direct effect on infrastructure contracts. Regulators were sensitive to the issue and generally acknowledged the unforeseeable impacts on contractor obligations. Regulators have either initiated or admitted discussions in concessions or PPPs regarding the necessary adaptations. In August 2020, a bill in Congress (PL 2.139) proposed adjustments in public law rules to allow for a redesign of obligations in long-term contracts, to avoid extensive economic loss and ensure that public services remain available in spite of the pandemic and its short and long-term effects.

New SOEs legal framework

Brazil has at all government levels a total estimated number of more than 500 SOEs, ranging from local service providers to a global oil and gas player such as Petrobras. In 2016, Law 13.303 enacted new rules for SOEs governance and purchases. The SOEs were given two years to adjust, so the new legal framework is now fully in force. Among other features, it submits SOE contracts to private law, not the general public procurement rules, and it allows for greater flexibility in the selection of contractors to give SOEs the necessary means to compete in the heated marketplaces in which many of them operate.

Public procurement and Brazil’s accession to the GPA/WTO

In contrast with its previous positions, Brazil has in recent times sought to join international organizations such as the OECD and vowed to make the respective institutional adjustments needed to join such organizations. In May 2020, Brazil announced its intention to accede to the government purchases agreement (GPA), under the WTO framework. A bill in Congress (PL 1.292/95) proposes a new public procurement act, drafted long before Brazil made its bid for GPA accession. Public procurement law tends to change, and this can be expected to happen again in the near future. The negotiations for GPA accession will possibly block the pending bill and cause a revision of the rules and practices for international access to government purchases.

As in many other countries, the Covid-19 emergency in 2020 caused the enactment of specific public procurement legislation, as part of Law 13.979. Fast-track purchases, contract modifications and greater contractual flexibility are some features of the emergency legislation.

Conclusion: focus on public law

The exceptional circumstances of 2020 with the Covid-19 pandemic have shed special light on the role of governments and on public law in general. In Brazil, this trend precedes the pandemic. Legislative and regulatory public law developments introduced especially after 2015 will provide the necessary framework for enhanced international investments and business opportunities in the coming years.

ABOUT THE AUTHORS

Marçal Justen Filho is the founder and senior partner at Justen, Pereira, Oliveira & Talamini. LL.B (1977), UFPR; LL.M (1984) and Ph.D (1985), PUCSP. He has held the following academic positions: Professor at the Public Law Institute of Brasília – IDP, Head Professor at the Public Department of UFPR Law School (1986-2006), Visiting Researcher at Yale (2010/2011) and at the European University lnstitute in Florence (1999). He has authored several books on public law. 

Cesar Pereira FCIArb is head of the firm’s infrastructure practice and co-head of its arbitration practice, in addition to being Chair of CIArb Brazil. His practice as counsel, arbitrator and legal expert focuses on infrastructure projects, regulated industries and public procurement. He holds a doctorate in public law from PUC-SP and has been a visiting scholar at Columbia University and the University of Nottingham. He is on the editorial board of Public Procurement Law Review – PPLR.