Eduardo Paes wants to give up BRL 4 billion from Caixa to solve the Porto Maravilha impasse

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The mayor of Rio de Janeiro, Eduardo Paes (PSD), started negotiations with Caixa Econômica Federal to give up about R$ 4 billion expected to be invested by a fund managed by the bank in the revitalization of the city’s port area.

The objective is to resolve the impasse that has dragged on for more than five years in the project. The open negotiation in the current Jair Bolsonaro administration will be maintained, in the mayor’s assessment, with the team of future president Luiz Inácio Lula da Silva (PT).

The arrangement aims to accelerate the launch of real estate units in the region, a premise of the project to reinhabit the currently abandoned area. New residential developments have begun to be planned for the port in recent months, but the aim is to broaden the market’s interest while reducing the cost of investment.

The eventual agreement between City Hall and Caixa, however, may end the largest PPP (public-private partnership) signed in the country. An agreement with the Porto Novo concessionaire, responsible for works and services in the region, will need to be signed to terminate the contract still in force, but suspended due to the impasse.

The revitalization of the port area began in 2011 when Fundo da Investimento Imobiliário Porto Maravilha (FIIPM), managed by Caixa, bought 400 thousand square meters of land in the port area and 6.4 million Cepacs, real estate titles that authorize the construction of tall buildings in the region.

He paid BRL 3.5 billion in cash, with FGTS money, and committed to transfer another BRL 6.5 billion —in updated amounts— over 15 years.

It was with the resale of these lands and papers that the bank would maintain the transfer schedule agreed with the municipality until 2026. This amount would be transferred by the city hall for Porto Novo to carry out the works and maintenance of the area.

However, the economic crisis affected the real estate sector and less than 20% of Cepacs were sold.

In 2015, the FGTS had to contribute over R$ 1.5 billion to maintain the schedule of works and services. The aim was not to affect openings on the eve of the 2016 Olympics.

The extra breath was only enough until 2017, when the FIIPM declared insolvency, interrupted the transfers and formed the impasse over the financing of the project. Currently, the concessionaire no longer operates in the provision of public services in the area, assumed by the municipality until the case is resolved.

The City Hall of Rio de Janeiro states that most of the transfers still pending refer to these public services operated by the Porto Novo concessionaire. The assessment is that the government can take over this work once and for all, relieving Caixa’s fund of carrying out new transfers.

The only planned work still pending aims to carry out improvements on Avenida Francisco Bicalho, the area with the greatest constructive potential in the project. A solution evaluated by the mayor is to change these interventions, which were intended to attract more enterprises, for an expansion of the area used by Cepacs, including the neighborhood of São Cristóvão.

The counterpart required by Paes is a reduction in Cepacs prices for resale by Caixa. The intention is to make the area more attractive for enterprises.

The mayor’s expectation is that Caixa’s new board, under Lula’s management, will advance in negotiations to resolve the impasse, which is already in the Federal Court.

It was thanks to Lula that Paes managed to accelerate the completion of the port revitalization works. In 2010, the PT candidate, in the final days of his second term, authorized the use of the FGTS in urban operations, making it possible to purchase all real estate securities in the region in a single lot. This accelerated transfers to the city hall to carry out the interventions.

Ten years later, as Sheet revealed in 2020, Caixa stated in a lawsuit in the Federal Court that the urban operation was unfeasible from the beginning. According to the bank’s new version, only an unlikely scenario would bring demand to all 6.4 million securities acquired by the fund in 2011.

The probable scenario, made before the country’s serious economic crisis due to the new coronavirus pandemic, would give rise to only 68% of the acquired shares. For the bank, there was “an excess of Cepacs and a failure in the studies and assumptions that underpinned the entire operation”.

“The potential volume of area for construction in the region far exceeds the demand of the Rio de Janeiro market, even considering a scenario of resumption of economic growth”, says the study completed in 2019.

The proposed action was aimed precisely at reducing the scope of the PPP, in order to reduce the need for transfers to the municipality.

Sought, the Porto Novo concessionaire did not comment on the negotiations between Caixa and the city hall.

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