Focus on: Public lighting PPP contracts in Brazil: an overview

Municipal responsibility

Since 2014, all the public lighting assets have been transferred to municipal authorities due to Resolution nº 414/2010 of the Electric Energy National Agency (ANEEL). Before this, the companies responsible for the electric energy distribution managed those assets.

In this sense, Brazilian cities became the sole ones responsible for providing all the utilities regarding public lighting services, including its expansion, modernization, control, operation, maintenance, and management. Those activities may demand great investments, compromising the fulfillment of other equal relevant activities under municipal jurisdiction.

Why PPP?

Public lighting services – if well provided – have positive externalities (private and social). It helps and supports public security, real estate appreciation, public health, local business development, etc.

However, public lighting is a kind of service that does not allow municipalities to collect fees or retribution from citizens. Public lighting lacks the necessary “individual utility” for that purpose – it is a “public good,” a well-known market failure.

Those services are mainly financed by the Public Lighting Contribution (COSIP), a tax collected by the municipalities based (in most cases, but not in all of them) on the quantity of electric energy consumed by each taxpayer. The amount collected through COSIP has been insufficient to finance public lighting services appropriately.

Given that, while the service has been sub-provided, municipalities could not simply transfer it to private companies by ordinary concession contracts (Law nº 8.987/1995).

The alternative, thus, is a public-private partnership (PPP) on an administrative concession basis (in which there is no direct payment or contribution by the service users). Under this model, except for alternative projects that the private operator can eventually run, the entire project fund is derived from the contributions made by the public partner (Article 2º, §2º, Law nº 11.079/2004).

Bidding process

Before Law nº 14.133/2021, public lighting PPP tender offers could only be made through the “Competitive Modality.” After that, they may also happen through the “Competitive Dialogue Modality.” However, there is no evidence of the use of this later modality in public lighting PPP contracts.

The process in the competitive modality is mainly divided into two phases. In one of them, formal documents of the competitors are examined, such as corporate documents, financial registers, and certificates that prove previous experience in similar projects. In the other one, the bidding commission judges the economic proposals. Those phases can be reversed according to the bidding notice.

Although the law provides other bid criteria, municipalities usually select the proposal that provides the lowest value contribution.

Public contribution

Public contribution under public lighting PPP contracts essentially derives from financial resources collected by the municipalities based on COSIP.

It does not mean that the entire COSIP will be transferred to the private partner. Traditionally, the bidding process winner offers substantial discounts on the initial public contribution. By the way, this is one among many other reasons that make PPP contracts in public lighting services so attractive to municipalities.

Moreover, the public contribution can be conditioned to specific goals that have to be achieved by the private partner during the contract performance (PPP contracts tend to establish goals regarding the expansion of the public lighting net, assets modernization, service availability, etc.)

Main contractual responsibilities (of the private partner)

The private partner’s main responsibilities are to operate the public lighting system, assure its maintenance, keep its availability according to the levels outlined in the contract, expand the public lighting net toward uncovered areas, and modernize the public lighting assets (rendering relevant efficiency to municipalities regarding energy cost).

Luis Felipe Dalmedico Silveira
Contracts Partner, Finocchio & Ustra
E: felipe.silveira@fius.com.br