VZCZCXRO8760
PP RUEHRG
DE RUEHBR #1775 2351318
ZNR UUUUU ZZH
P 231318Z AUG 06
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC PRIORITY 6452
INFO RUEHRG/AMCONSUL RECIFE 5330
RUEHSO/AMCONSUL SAO PAULO 7839
RUEHRI/AMCONSUL RIO DE JANEIRO 2730
RUEHSG/AMEMBASSY SANTIAGO 5704
RUEHBU/AMEMBASSY BUENOS AIRES 4213
RUEHAC/AMEMBASSY ASUNCION 5603
RUEHMN/AMEMBASSY MONTEVIDEO 6414
RUEHQT/AMEMBASSY QUITO 1945
RUEHPE/AMEMBASSY LIMA 3135
RUEHLP/AMEMBASSY LA PAZ 4802
RUEHCV/AMEMBASSY CARACAS 3396
RUEHBO/AMEMBASSY BOGOTA 3893
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDO/USDOC WASHDC
RHEHNSC/NSC WASHDC

UNCLAS BRASILIA 001775 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USAID FOR LAC - JOHN GARRISON 
STATE PASS OPIC FOR VP R.DRUMHELLER 
NSC FOR FEARS 
TREASURY FOR OASIA - D.DOUGLASS, J.HOEK 
STATE PASS TO FED BOARD OF GOVERNORS FOR ROBITAILLE 
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D 
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/SHUPKA 
 
E.O. 12958: N/A 
TAGS: ECON PGOV PREL EFIN EINV BR
SUBJECT: BRAZIL: MOVEMENT ON PUBLIC-PRIVATE PARTNERSHIPS 
 
REF: 05 BRASILIA 1118 
 
This cable is sensitive but unclassified, please protect 
accordingly. 
 
¶1. (SBU) The GoB is close to launching a much-delayed inter-agency 
review of its first Public-Private Partnership (PPP) proposals for 
major infrastructure investments.  These projects would be reviewed 
by the Ministers of Planning and Budget (Paulo Bernardo), Finance 
(Guido Mantega) and the President's Chief of Staff (Dilma Rousseff), 
who together comprise the PPP Management Committee.  The GoB hopes 
PPPs will make more attractive otherwise marginally profitable 
investments in infrastructure through arrangements such as cost 
sharing, joint investments or operating subsidies.  The GoB now 
expects that the first project bid will be for the repair and 
rehabilitation of a federal highway (BR-116) in the states of Bahia 
and Minas Gerais, the investment in which would be partially 
recovered through tolls, with the remainder paid by the GoB.  A 
federal fund, endowed with assets such as stock in 
partially-privatized oil parastatal Petrobras, will guarantee GoB 
performance of its PPP contract obligations. 
 
¶2. (SBU) Although the GoB initially billed PPPs as the solution for 
Brazil's long-standing infrastructure bottlenecks and lack of public 
investment, implementation of the December 2004 PPP law has been 
very slow.  After years of tight investment budgets, the GoB's 
ability to evaluate projects of this size and complexity has 
withered.  To evaluate projects, therefore, the GoB had to hire 
consultants through a standard public bid (a process that can take 
as much as year).  Having hired a consulting firm to evaluate the 
first two projects put forward by GoB technicians (completion of the 
north-south railway and a port expansion project) the consultants 
reported back after several months that the two projects were 
commercially viable without subsidies, and therefore not appropriate 
to the PPP framework, but rather for simple concessions. 
 
¶3. (SBU) According to Andrew Gunther of the World Bank's 
International Finance Corporation (IFC), the IFC is proposing to 
help the GoB deal with these bureaucratic limitations by creating a 
fund, to be financed jointly by the Brazilian Development Bank 
(BNDES), the IFC and other donors such as the Inter American 
Development Bank (IDB), which would help the GoB select projects and 
then finance the consulting work necessary to put the projects out 
for bid.  By avoiding substantial portions of the Brazilian 
bureaucratic bog, this approach could speed substantially the 
process of getting PPPs out to bid.  The IFC, Gunther told us, also 
will be approaching other donors to sound out their interest in 
supporting the fund. 
 
¶4. (SBU) The GoB is interested in seeing substantial involvement by 
foreign firms and investors in PPP projects.  It hopes that 
involvement by foreign investors and construction/engineering firms 
will increase competition and improve financing terms.  Foreign 
business will still have to navigate bureaucracy, as many states and 
municipalities also plan to sponsor PPP projects based on state and 
local-level statutes that vary from the federal legislation and from 
each other.  The quality of the guarantees offered to investors by 
sub-national governments may vary widely. 
 
¶5. (SBU) Comment:  Although it is ironic that the GoB faces a 
bottleneck in its capability to evaluate PPP projects, themselves 
aimed at addressing infrastructure bottlenecks, the IFC fund 
nevertheless presents a useful opportunity to assist the GoB move 
more quickly on projects that ultimately may prove attractive for 
U.S. investments and exports, both of engineering services and 
equipment.  End Comment. 
 
SOBEL