New PAC: governance needs to be explained, says expert – 8/11/2023 – Market

In terms of presentation, compared to the previous ones, the third version of the PAC (Growth Acceleration Program) was more organized. The way of listing gave more clarity about benefited sectors and location of projects. But specialists say that an old problem has recurred, the lack of clarity about how the government will operationalize so many proposals, in different senses.

First, there is the issue of management. “The first magnitude failure of PACs 1 and 2 was the fragility of governance, which led to thousands of unfinished, paralyzed works”, says Claudio Frischtak, partner at the international business consultancy Inter.B, specialized in infrastructure investments. “And it is still not clear how they are going to resolve this in this New PAC.”

A study on the PACs carried out by his consultancy in 2017 identified that the government had not even carried out a cost-benefit analysis of the two versions of the program, despite the fact that they are the main drivers of federal public investment.

This is what explains, he says, why a Transnordestina railroad was launched in 2007, in the first PAC, and is now being resumed in the New PAC, with conclusion, at best, in 2027.

“It is imperative for the government to announce large numbers, many works, even if it mixes apples and pears and doesn’t make much sense,” says Frischtak.

“But if the government is going to invest BRL 1.7 trillion, or more, or less, it matters little. In the end, what will make everything possible, apart from, of course, the fiscal space, which is another point I leave out here , it will be the quality of governance — and I call it governance how the government will govern all this, how it will organize priorities, what comes before and what will follow, how it will measure the return, in financial terms and for society, and whether the conclusion of the chosen projects guarantees the service that was proposed, with the quality that was wanted.”

It does not seem that the government has applied any return indicator in the selection of some major works that are in the New PAC. He cites Angra 3, whose work will be resumed, and Ferrogrão, which entered the New PAC in the studies category.

“Is resuming Angra 3 a good idea? How much does its energy cost? Even considering nuclear energy as having low greenhouse gas emissions, what are the considerations in favor of it?”, asks Frischtak.

In the case of the railroad, Inter.B carried out an extensive study, which described the proposal as a “socio-environmental disaster”. Literally, the project does not stand, he says.

In Frischtak’s evaluation, despite the coordination of the New PAC being with Minister Rui Costa’s Civil House, it would be important to establish a collaboration with the Ministry of Planning and Budget.

In his assessment, Planning is the only body within the government with human resources and management tools capable of assessing the progress of projects. The folder has, for example, a Secretariat for the Evaluation of Public Policies, he points out.

With regard to the regulatory and financial implementation of the New PAC, there are interesting initiatives, evaluates Luca Mercadante, an economist at the management company Rio Bravo, who did not expect anything very elaborate along these lines and says he was surprised.

He has just concluded a broad survey on deficiencies in the national infrastructure and states that regulatory reorganization is a key element for expanding investments and works in Brazil.

“We need a capital market with much more legal certainty to be able to operate in the infrastructure sector with long-term investments”, he says.

“Let’s say that the PAC made a good letter of intentions with regard to institutional measures, but we need to see how it evolves, including in Congress”, says Mercadante. “As well as better understanding some suggested mechanisms.”

Proposals were presented to improve environmental licensing, promote credit expansion and foster concessions and PPPs (public-private partnerships).

Two points in particular, which had already been announced by the government, called attention for being included in the program, highlights the economist.

One of them was the creation of the LCD (Development Letters of Credit) for funding aimed at financing structuring projects, with a tax benefit similar to that of infrastructure debentures; LCA (Agribusiness Letter of Credit); and LCI (Real Estate Letter of Credit).

The other point that drew attention was the proposal for changes in the remuneration of the FAT (Fundo de Amparo ao Trabalhador), which is an important source of funds for the BNDES. The text says that there will be diversification of interest rates paid to the FAT, allowing the application of TLP, Selic and pre rate, but without giving details, he says, which prevents an evaluation at this first moment.

The economist also highlights the proposal to improve the system of guarantees for credit, based on the improvement of the New Framework of Guarantees, PL 4.188/2021, in progress in Congress,