by Roger D. Feldman

Summary

Use of concessions for build-operate-transfer development and privatization has spread in emerging countries from electric power to environmental services contexts. An analysis of Brazil's Concession law casts light on key questions regarding the generic content of host emerging country concession laws; their adaptation to the environmental field; and the viability of Brazil as a major new infrastructure privatization market. The Brazilian Concession Law represents nothing less than a platform to enable private providers to replace state corporations which have provided public services, with private providers (or subcontractors), subject to public jurisdiction. In developing the structure and application of the Concession Law to wastewater treatment, Brazilian legislators could draw from a variety of concession experiences. Conversely, private developers are often familiar with those experiences and evaluate statutory ambitions in terms of past success and previous responsiveness of those experiments to private sector developmental and transactional requirements. Three such benchmarks are other Latin American experiences; the power sector, and the U.S. experience. The bottom-line, based on experience, is that private evaluation of proposed concession laws is important not only for legal but also for financeability purposes. The private sector concessionaire generally establishes certain key criteria in evaluating concession opportunities: Among these are - Suitability of the scope. - Transparency of the procurement process, and selection on a basis realistically compatible with project financing, and - Sufficiency of the protection of the rights of the concessionaire and its lenders from cash flow interruption or annulment, plus others, as described in the article. Concessions responsive to these guidelines in Brazil and elsewhere are most likely to achieve ultimate success.

Roger Feldman, President of The National Council for Public-Private Partnerships, heads the Privatization Practice Group of McDermott, Will & Emery, based in Washington, D.C.