Public-Private Partnerships become popular and gain small towns in the interior

On the one hand, the need to manage hospitals, expand public lighting and waste treatment; on the other, lack of resources for investments and drop in revenue aggravated by the pandemic. After states, capitals and large cities, PPPs (Public-Private Partnerships) have spread to the interior in an attempt to resolve this contradictory reality.

PPPs are long-term contracts between a public entity and a private party to develop or manage a good or service. In these contracts, the private agent bears the risks and management responsibilities and the remuneration is linked to the performance and demand for the service

The number of PPP contracts in municipalities with up to 20,000 inhabitants jumped from 13 in 2017, the first year of the previous mayor’s term, to 121 this year — an increase of more than nine times, according to an exclusive survey by the consultancy Radar PPP.

In addition, in the comparison between 2017 and 2021, the so-called country PPPs, as they are in smaller locations, also started to represent a larger share of the new contracts. Four years ago, they contributed 5.4% of new contracts; now they represent 28% of the 426 new contracts.

The data also show that the total number of smaller municipalities that took initiatives in this regard also increased six times.

In the case of small towns, the main contracted segments are water and sewage, solid waste and public lighting.

With just over 11 thousand inhabitants, Engenheiro Caldas from Minas Gerais (294km from Belo Horizonte) is the champion in the number of contracts among the cities analyzed by the survey, with five PPPs. The partnerships range from public lighting and a photovoltaic station to a security camera monitoring system.

Without the PPP, the municipality would have difficulties in making these investments, says the municipal secretary of Finance, Gilberto Miranda. “We are still at the beginning of the process, but this type of contracting is spectacular. It is only necessary to certify the feasibility, but it is a great alternative for small municipalities.”

The interior of Minas Gerais is highlighted in this type of partnership. Among the top ten in the ranking, eight are from Minas — such as Miraí, Alterosa and Areado.

In addition to lighting, there are examples of sanitation, such as in Esperantina (TO) and a parking concession in Irani (SC).

According to specialists consulted by Folha, on the side of the city halls, the reduction in revenue during the period of the pandemic and the greater degree of knowledge of how these contracts work, after experiences in state governments and cities, have weighed in the decision for this type of partnership. larger.

“The PPP law dates back to 2004 and represented an innovation in public management. After so many years and with several successful experiences in larger states and cities, the partnerships ended up being demystified”, says Bruno Pereira, partner at Radar PPP.

He adds that there is also great enthusiasm from the private sector for looking for projects in cities in the interior with potential and where a large part of these companies still do not operate. “Recently, we realized that the cities that prioritized lighting the most were those with 50 thousand inhabitants.”

“Society accepts PPP contracts better today than it did a few years ago and politically it is easier for the mayor to propose and find a private partner. And it is possible to copy models that worked in larger municipalities”, says Armando Castelar Pinheiro, coordinator of applied economics from Ibre/FGV (Brazilian Institute of Economics, Fundação Getulio Vargas).

The economist considers, however, that smaller municipalities may run into technical difficulties, such as project preparation, engineering and financial flow analysis, as well as contract details. “The BNDES even tried initiatives to support municipalities in technical assistance and measures like this should be taken up again by states and at the federal level.”

For the lawyer specializing in economic law Gladimir Adriani Poletto, a partner at Poletto e Possamai, in fact, there is greater complexity involved in structuring PPPs, considering the legal designs, the long duration of contracts and the lack of experience on the part of managers themed municipal councils.

“A possible strategy for small towns would be to invest in training their staff. There are initiatives in this regard, such as the IDB [Banco Interamericano de Desenvolvimento], which promotes distance training for municipal, state and federal managers.”

Poletto emphasizes that, once structured, PPPs end up demanding less management work for municipalities than other contracting models. “There are also the guarantors of these projects, mainly the insurance companies that issue guarantee insurance policies to ensure compliance with the contracts.”