Today the Brazilian Federal Government issued the Provisional Measure 752/2016, with new rules for extending the term of some concessions of railways, highways and airports, in consideration for additional investments. Those rules also apply to termination of certain supposedly problematic concessions, which will be subject to new bids to replace the service provider. Those rules were issued in the context of the new Brazilian privatization program (Programa de Parcerias de Investimentos – PPI) implemented by President Temer.
A hot discussion on the new privatization program concerned how to define the indemnification due to the private parties, the concessions of which will be terminated. The solution was to ascertain the amount of indemnification through arbitration. Please note that the new rules do not establish the criteria to be adopted for this purpose.
The Provisional Measure establishes that the concession agreements between the government and the private parties in this program will have either an arbitration clause or another ADR provision, such as mediation. The private party will fully advance the costs and expenses of the arbitration, but the final arbitral award may sentence the government to pay back such costs. The arbitration will be held in Brazil and the language will be Portuguese. The rules clarify that the following matters can be submitted to the arbitration: (i) compensation to reestablish the economic equilibrium of the contract; (ii) the indemnification due to termination or transfer of the contract; and (iii) whether or not a party breached a contractual obligation. The federal govern will issue a decree with the criteria for choosing the arbitral chambers which will manage the procedures.
Those rules show that the Brazilian government’s commitment to arbitration, which will not only be the venue to resolve disputes on the new concessions, but will also address one of the most sensitive issues on the old concessions, that is to say, the value of indemnification due to early termination.
Please note that under Brazilian Law Provisional Measures immediately produce the effects of laws, but they have to be confirmed by the Congress, which can reject them or modify their contents. Therefore, those new rules may still be subject to change. The new privatization program is expected to start being rolled out by the second quarter of 2017, when Provision Measure 752/2016 will have been analyzed by the Congress.
