The concession of LOTEX to the private sector

The Council of the Federal Government's Investment Partnerships Program recently approved the studies carried out by the BDNES on the Instant Lottery (LOTEX), defining that the common concession will be the model of delegation adopted.

Law 13,155 / 2015, which created and regulates the instant lottery, provides that LOTEX is authorized by the Ministry of Finance and executed by the Caixa Econômica Federal, directly or indirectly, through a concession. Therefore, the concession was already the model of delegation provided by law.

The traditional method to transfer any public activity to the private sector in Brazil is the concession agreement. This method was widely used in the 90' to allow infrastructure development of various sector, such as ports, public transportation and railways.

The concession is granted by a contract (concession agreement) signed between the State (Granting Authority) and the private part (Concessionaire). This contract transfers to the private party the right to explore the public activity for a period, according to the legislation. A bidding process precedes this contract.

In the concession of public service, the State remains the owner of the activity, transferring only the right to explore it to the private sector. At the end of the term of the concession, the private party has no right to explore the activity. It is necessary a new bidding process to make a new contract.

Law 13,155 / 2015 provides that LOTEX may be executed indirectly by Caixa Econômica Federal (article 28, paragraph 1). Therefore, it is the model currently envisaged in the law for the delegation of LOTEX to the private sector. 

The concession must be designed by the State in the way that is most convenient and appropriate. In this sense, the law admits several legal solutions and various concession models. The PPI Board approved the common concession model, which was most used by the Federal Government in the last twenty years.

The main characteristics of the common concession are its remuneration, which is made directly by the user of the service, and the risk matrix, which provides that the concession will be given at the risk of the individual. That is, the individual who assumes the concession has the right to operate the delegated service, but also assumes the inherent risk of the activity granted.

These two characteristics demonstrate the complexity of a common concession, which can be seen in the case of LOTEX. The Federal Government will continue to own the instant lottery service and, for this reason, may make changes regarding its execution by the individual. In addition, it may make other demands indirectly related to LOTEX, such as corporate governance requirements (compliance). All this will entail costs for the individual, which can be shared with the users, in order to maintain the economic-financial balance of the concession contract.

This inherent complexity of the concession should be considered in the drafting of the concession contract, which can provide for the mechanisms necessary to ensure greater security during the execution of the contract.

In addition, the PPI Board approved that the bidding of LOTEX will have as criterion of judgment of the winning proposal the largest award in a single installment. In other words, those who pay the most value to the Union will win. This criterion of judgment is adequate for the concession of services that result in a financial collection, as is the case of LOTEX.

The advantages of electing the value of the grant as a criterion of judgment for the State are evident. In summary, the State will advance the profit that would have in the execution of the service in the next 25 years. The disadvantage of this criterion of judgment is that this value will be passed on to the users of the service. When we deal with essential public services, such as municipal public transport, this criterion is often inadequate because it results in a large part from the tariff increase.

However, the criterion seems to be appropriate for the granting of LOTEX. After all, the purpose of this concession is to allow the instant lottery to be exploited in a more efficient manner, ensuring greater revenue generation. Thus, in principle, the value of the grant will correspond to this increase in LOTEX's profitable capacity.

Finally, the PPI Board approved the concession term for 25 years. This period should have been estimated considering the time needed to amortize the investments, including the value of the concession grant, and to adequately remunerate the concessionaire.

The approval of the studies carried out by BNDES on LOTEX by the Federal Government demonstrates the rapid progress in the concession process. The model chosen (common concession) indicates that the Federal Government does not intend to innovate in the legal model chosen, and should rely on the successful experiences of other concessions. This will undoubtedly reduce the bidding questions. The expectation about this bid, therefore, is positive, especially considering that the Federal Government intends to launch bidding notice in the last quarter of this year.

 

Fonte: GMB