Presidential Provisional Measure No. 800/2017, popularly known as the “Highways PM,” establishes rescheduling of investments as a new regulatory tool for federal highway concession contracts. Subject to future regulation by the Ministry of Transport, Ports, and Civil Aviation, the measure seeks to solve the problem of concentration of investments in the first years of the concession, in the light of the fall in demand for road services.


The problem is especially evident in the contracts of the 3rd Concessions Stage conducted by ANTT (National Ground Transportation Agency). Per the template for these contracts, the programming of the investments was oriented mainly based on the delivery of the works in the short term. The supervening lack of users suggests, however, that the financial structure of concessions should synchronize the investments with the factors affecting highways’ income generation, of which the cash flow serves the debt.


Under this aspect, pursuant to Paragraph 8 of Article 1 of the PM, investments in segments with higher concentration of demand, determined based on ANTT technical criteria, should be prioritized in the rescheduling. The head paragraph is sufficiently clear in emphasizing, however, that rescheduling may not compromise the service level requirements and the technical parameters originally established in the concession contracts awarded to the concessionaires.


The rescheduling instrument is a document that will establish a new investment schedule for concessionaires for a term of up to 14 years. Its execution is conditioned on a prior demonstration of the economic and financial sustainability of the project until the end of the term of duration of the concession contracts.


In order for the instrument to be signed, the concessionaire must also express an interest in adhering to the financial rescheduling within one year from the date of publication of the PM. Once the administrative procedures have been completed, a contract addendum will be signed, informing the suspension of the investment obligations falling due and the corresponding fines. The silence on fines resulting from investment obligations overdue and in default leads to the interpretation that the rescheduling is not intended to waive breach of contract, but rather to prospectively consider the conditions for provision of service originally defined.


By opting for the rescheduling investments, the concessionaires will be, under the terms of the PM, barred from filing for the concessions´ new bidding procedures, as provided for in Chapter III of Law No. 13,488/17. The remedies are, therefore, not cumulative.


In addition, in spite of the change in the conditions and the time limits of the financial obligations imposed on the concessionaires, the PM imposes the maintenance of financial balance in the concession contract. To this end, it envisaged three contractual mechanisms, applicable on a case-by-case basis. These are: i) a rate and tariff reducer, ii) reduction in the contract’s term of duration, or iii) a combination of both. These mechanisms should be used so that the relationship between the charges and financial rights of each party to the concession contract remains unchanged, despite the new investment schedules.


In view of this, the regulation of the Ministry of Transport will be essential in governing these mechanisms. The PM notes, in any case, that effective application of the rate and tariff reducer, which will culminate in reduction in the IRR (Internal Rate of Return) of the concessionaire, will be conditioned to the end of the new investment schedule. Only at the end of the renegotiated period, therefore, will the new remuneration rate be calculated based on the present value of the discounted amount, considering, via simulated model, immediate application of the reducer.


In the event that the rescheduling agreement is not signed, after the addendum suspending the original investments, the effects of the latter will be interrupted and the adjustments and corrections originally provided for in the concession agreement will be applied whenever called for.


In sum, the PM has great potential to avoid recurrence of concession contracts "devolution", already found to have occurred in at least one precedent within the scope of the 3rd Concessions Stage. Its technical bias may anticipate new sources or volumes of revenue and delay the fulfillment of certain investment obligations, which, from the perspective of financial realism, have become unfeasible under the current demand for road services.