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  • 7 August 2023

TCU decides on re-bidding of infrastructure concession

During the most recent plenary session held on August 2nd, 2023, the Federal Court of Accounts (TCU) resumed its deliberation about case TC 008.877/2023-8, which involves the Court’s answer to a consultation submitted by the Ministry of Ports and Airports and the Ministry of Transportation regarding the possibility to withdraw a re-bidding processes initiated by concessionaires in the infrastructure sector.

The process had been suspended after the Rapporteur Minister’s vote, pending review by two other Ministers. In light of the comments from the other Ministers, the Rapporteur Minister revised and changed his vote.

The primary issue under discussion is whether it is permissible to withdraw a re-bidding request. Law No. 13,448/2017 (Re-bidding Law) sets forth that a concessionaire’s decision to participate in a re-bidding process is “irrevocable and irreversible.” Given such legal provision, there was a question about whether the public authority and the concessionaire could mutually agree to prematurely terminate the re-bidding proceeding and renegotiate the concession contract, allowing the concessionaire to continue rendering public services.

In the opinion of the Rapporteur Minister’s view, only the unilateral termination would be inappropriate. The attributes of irrevocability and non-retroactivity of the Re-Bidding Law, according to the Minister, specifically pertain to the formal declaration made by the concessionaire expressing its intention to return the concession. This does not preclude the possibility of the parties mutually agreeing to withdraw from the re-bidding.

However, this does not imply that renegotiating contract conditions can be used as an argument to redefine a concession contract which resulted from a competitive process and replace it with a new contract.

The TCU decision establishes 15 basic requirements that need to be fulfilled in order for it to be possible to terminate the re-bidding proceeding and renegotiate the concession contract:

  • The Concessionaire cannot have breached Conduct Adjustment Terms (TACs) agreed upon with the Granting Authority;
  • The Concessionaire needs to have formally expressed its interest in continuing to render the public services under the Concession Agreement;
  • Demonstration of public interest and adherence to the legality principle, emphasizing the objectives and principles governing the Investment Partnership Program (“PPI”), as well as the principle of continuity of the service provision;
  • Disqualification of the project from the PPI;
  • Formalization of the settlement through the execution of an amendment to the concession agreement agreed upon by the parties, replacing the previous amendment that set forth the re-bidding, formalizing the withdrawal. The purpose of this measure is to ensure that all the previous investment obligations and originally agreed service levels will be resumed and guaranteed, considering the period of obligation suspension, tariff surplus, basic toll rate, grant amount, and risk allocation;
  • Any rescheduling of contribution payments to the granting authority must observe the criteria established by legal regulations, maintaining the NPV of the grants undertaken originally and complete resuming of payment terms;
  • Studies in the road, rail, and airport sectors to demonstrate the advantages of adjusting the existing contract instead of pursuing re-bidding;
  • Ensuring economic, financial, and operational viability of the new amendment to the current concession, considering the elements that had been taken as grounds for the re-bidding;
  • Maintaining the original concession objectives within the framework of public policy formulated by the relevant Ministry;
  • Including waiver clauses applicable to the Concessionaire in the new amendment to the concession agreement that readjust the current Concession Agreement. It is also possible to reconsider pre-existing disputes, should the re-bidding be reversed, such as arbitration and lawsuits. This does not exclude the possibility of addressing these demands through a consensual resolution between the Granting Authority and the Concessionaire;
  • Incorporating an impediment clause in the new amendment to the concession agreement, preventing the Concessionaire from requesting a new re-bidding process;
  • Evaluating mechanisms for amortizing projects generating non-tariff revenues within the scope of the study that demonstrates the advantages of resuming the concession;
  • Assessing the use of marginal cash flow methodology in an study of advantages for ensuring economic and financial contractual balance;
  • Evaluating the impact on Infraero’s revenues, considering its significant stake in Special Purpose Vehicles (“SPV”) involved in re-bidding procedures;
  • Submitting the studies and the proposed amendment to the current concession contract for TCU review.

The TCU’s decision in this consultation process holds substantial importance for privatization projects across sectors like airports, railroads, and roads. It provides greater clarity on the concept of re-bidding, its boundaries, and associated conditions.

Our Public Law and Regulation team possesses extensive experience in modeling, bidding, and contractual development of infrastructure projects in various sectors. We actively engage in significant cases and discussions concerning privatization processes. For further information on infrastructure concessions or other inquiries, please don’t hesitate to contact us.

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