Supporting Brazilian Regulation to Encourage Private Investment

Background

Logistics infrastructures are critical for social and economic development, with their enhancement being a central theme for national governments worldwide. However, given the state of public finance across multiple countries worldwide, a key challenge is how to attract sufficient private investment into infrastructures to achieve this social and economic development.

Brazil is one country facing such constraints due to insufficient infrastructure capacity and a lack of resources. Despite initiatives aimed at facilitating investment and competition, which includes the creation of the high-profile PPI (Brazil's investment partnerships program), there are long-term issues regarding logistics infrastructures that require addressing.

There are three potential options to develop logistics infrastructures in Brazil, with each having distinct implications for regulatory governance and capacity. These are:

• The use of ‘special purpose vehicles’ to speed-up individual projects and create ‘islands of excellence’;
• The creation of new institutional capacity to develop strategy oversight and offer overall responsibility over logistics infrastructure planning; and,
• The use of coordination protocols to establish a clearer set of mutual understandings about roles and responsibilities.

Goals

RAND Europe, in collaboration with the Centre for Analysis of Risk and Regulation (CARR) at the London School of Economics, was awarded funding by the UK Government Prosperity Fund to support the Brazilian Logistics Investment Programme by delivering a roadmap to the Brazilian Ministries of Planning and Finance in logistics infrastructure investments. The purpose was to assess the current regulatory framework and encourage reform to enable greater participation of private investment.

The research team had two main objectives:

• Deliver a comparative overview of regulatory experiences in logistics infrastructure that can be used as a roadmap for private investors. This part of the project focused on bidding processes, procurement rules, government arrangements and aspects of regulatory oversight.
• Conduct a review of the railway sector regulatory framework, drawing on practical lessons from UK experience. The review concentrated on extrapolating from comparative and international experiences to support Brazilian reform.

Video Overview

Methodology

The project team used a number of methods to conduct the study, including:

• A review of relevant literature and data;
• Desk-based research;
• Workshops with Brazilian government experts and other key stakeholders organised in cooperation with the Instituto de Pesquisa Econômica Aplicada (IPEA), a Brazilian government-led research organisation; and
• Fieldwork in Brazil

Findings

While all three options to develop logistics infrastructures in Brazil have their particular advantages and disadvantages, the adoption of coordination protocols have the potential to establish clear expectations regarding joint working across agencies and ministries. There has been a successful precedent in the Brazilian context for using a similar type of approach through the work of Anvisa (Agência Nacional de Vigilância Sanitária) – a health regulator which is coordinating the sector. The Productive Development Partnership (PDP) is an example of Anvisa’s coordinating role in regulatory technical committees.

There are number of regulatory capacity challenges that exist within Brazil, which are broadly the following:

• Renegotiating concessions;
• The complexity of the administrative set-up which can result in inconsistent decision-making and application of rules leading to insufficient oversight and control; and
• The challenging political and economic environment which makes demand forecasting difficult.

To enhance regulatory capacity, the overall emphasis should be on developing ‘disciplined discretion’. Such an approach requires a relaunched relationship between ministries and regulators, and stable resource flows to regulators to encourage the repeated utilisation of promising new avenues of measuring performance.

In order to enhance regulatory capacity there requires closer attention to the deployment of following tools:

• Procedural tools to enhance the information base for decision-making;
• Engagement tools to encourage less adversarial relationships with stakeholders and more informed decision-making;
• Incentive tools to discourage the widespread ‘gambling culture’; and
• Challenge tools to enhance the strategic quality of decision-making by drawing on the dispersed capacities within the federal government.

To enhance regulatory governance, there should be a wider dialogue between PPI, ministries and regulators around the need for:

• A stable policy framework that allows for long-term planning and consistent decision-making.
• A strategic capacity to develop logistics infrastructure that goes beyond the politically and administratively convenient.
• The development of a clear understanding of the PPI (or any other central unit) as a coordinator of concession plans that promotes regulatory agencies and ministries in developing concessions.
• Appropriate resourcing of regulatory agencies to support the monitoring of concessions on the basis of agreed ‘tramlines'.
• A reputation among concession holders that 'gambling' is not lucrative and that regulatory regimes are credible and not prone to ad-hoc renegotiation on the basis of political pressure.

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