Publications

Category: Competition

In a recent ruling on a transaction involving the investment of large trading companies  in a joint venture that operates in the intermediation of road freight, the Administrative Tribunal of of the Administrative Council for Economic Defense (Cade) addressed the risks to competition related to collaboration among competitors and the mechanisms to mitigate them.

The subject is extremely relevant, considering that transactions between rival companies, such as joint ventures, infrastructure sharing agreements and associative agreements  are frequent in a wide array of sectors.

Transactions of this nature often have pro-competitive objectives, such as achieving economies of scale, diluting risks and costs in the implementation of a new project, or obtaining better results in research and development, among others. However, collaboration between rival companies can harm competition and consumers due to the risk of exchange of  sensitive information and increase in the ability or incentive to raise prices and/or reduce output, quality of products or services and innovation – a concern that may apply not only to the market directly affected by the transaction, but also other markets in which the parties are actual or potential competitors.

For this reason, collaboration agreements among competitors tend to undergo careful scrutiny by Cade, which takes into account factors such as the market shares of the companies involved, the characteristics of competition in the relevant market and how the transaction was structured, to assess whether there are risks of exchange of sensitive information and/or incentives and conditions for coordination between the parties that may facilitate explicit or tacit collusion in others markets where they operate independently.

In line with international best practices, whenever Cade considers it necessary to adopt remedies in transactions of this nature, the agency generally requests the adoption of Chinese Walls, robust compliance programs, and independent management bodies for the joint business. Additionally, Cade may required that:

• sensitive data relating to the activities of partners outside the scope of the joint venture that are necessary for their joint business be collected, processed and analyzed by an independent third party;

• sensitive operational information on the joint venture provided to partners be limited to what is strictly necessary to ensure the monitoring and protection of their joint investment; be restricted and protected by physical and electronic barriers to avoid access to other companies of the partners’ groups, and/or be only transmitted to partners in aggregate, historical or anonymized form;

• all meetings of partners or management bodies of the joint venture be subject to previous convocation, with a clear and precise agenda, expressly prohibiting discussions on matters involving information on the individual business of the partners outside the scope of the joint venture, and that all the matters discussed in these meetings be duly registered in minutes;

• meetings between partners and members of management bodies be monitored by an external lawyer to prevent the exchange of sensitive information relating to their individual business; and/or

• employees and/or members of the joint venture management bodies be prohibited from acting in other companies of the economic groups of the partners, or even in the management of competing companies of other groups (interlocking directorates).

In such cases, antitrust risks should be assessed before the conclusion of the transaction agreements, allowing the parties to discuss and design adequate governance mechanisms and antitrust protocols before submitting the transaction to Cade's analysis. This caution tends to avoid a longer analysis by the agency and reduce the risk of remedies to obtain clearance. .

Category: Infrastructure and energy

Since its advent in 1992, the Law of Administrative Improbity, Federal Law 8.429, has evolved, either by the interpretation of our courts or by legislative reforms, in the search for a difficult balance: on one hand, to combat the public agent in bad faith and, therefore, to deter dishonest behavior or deviation from the principles that govern the Public Administration; on the other hand, not to restrain the well-intended public agent from making decisions in the performance of his duties aimed at the best public interest, even if such decisions do not prove to be the most effective or right in the future.

During the first years in which the law was in force, there was a higher perception of impunity. The pendulum was shifting to a gradual hardening of the norm. Laws of 2005, 2014, and 2015, for example, added new items to the illustrative list of acts of misconduct associated with illicit enrichment (art. 9), injury to the public treasury (art. 10), or violation of the principles of public administration (art. 11). Courts have established jurisprudence admitting the merely generic intent for acts of misconduct then based on necessarily intentional conduct (arts. 9 and 11). It was sufficient to show that the public servant had voluntarily incurred on a sanctioned conduct, regardless of bad faith or specific purpose.

The hardening of the Law of Improbity peaked during Operation Lava Jato, which generated a large number of demands and convictions.

However, if an increasing dose of the strictness of the law contributed to reducing the perception of impunity of the malicious public agent, on the other hand, generated a serious and undesirable side effect: administrative paralysis. Even the zealous public agent prefers not to make decisions, under the fear that he or she will be questioned by the control bodies and be subject to personal liability.

This blackout of pens causes great damage to the Public Administration, private agents, and society, because projects are paralyzed, and public services are precariously provided.

In reaction to this scenario, in April 2018, Law 13,655, called the Law on Legal Certainty, introduced new provisions in the Law of Introduction to The Rules of Brazilian Law. Among the innovations for the theme analyzed here, article 28 stands out, according to which "the public agent will be personally liable for his decisions or technical opinions (only) in case of misconduct or gross error."

Inspired by this article, Law 14.230/21 reinforced the fight against the aforementioned administrative paralysis. It brought new wording to the Law of Improbity to, among other changes, remove the penalties against negligent behavior, imposing sanctions only on intentional misconduct. Law 14.230/21 seems to have gone beyond Law 13.655/18 itself because it did not even refer to the gross error.

Several other changes promoted by the new law have also moved towards reducing the rigor of the law. Among them, the following stand out:

• The intentional conduct shall involve the specific purpose of achieving the illicit result (art. 1, §§2 and 3);
• The sanctions have also been eased. For example, in its previous wording, the Law of Improbity provided for fines of up to three times the value of the illicit enrichment, without prejudice to the obligation to repair the damage. Law 14.320/21 reduced the fine, as a rule, to the value of the illicit enrichment or relevant damage;
• The same unlawful act cannot lead to double civil or administrative penalties in the Improbity Law and other laws. Thus, for example, the acts criminalized by the Anti-Corruption Law (Law 12,846) cannot be criminalized by the Law of Improbity (art. 12, §7);
• Damage caused to public property must now be effectively proven, and no longer merely presumed (art. 17-C, I);
• Powers to bring a lawsuit under the law are now attributed only to the Public Prosecutor's Office, and no longer to the injured public entity.

The profound changes promoted in the Law of Improbity have provoked both applause and strong criticism. It is too early to know how our courts will react and interpret the new wording of the law and whether or not it will strike a better balance between combating impunity and defending the public agent acting in good faith.

Category: Litigation

The 3rd Panel of the Superior Court of Justice (STJ) has recently judged the Special Appeal (REsp) 1.801.518/RJ, in which the legitimacy of the Public Prosecutor's Office (MP) was discussed to promote the liquidation and collective enforcement of judgment in the protection of homogeneous individual interests or rights provided for in Article 81, sole paragraph, item III, Consumer Protection Code (CDC).

In the case under discussion, the Public Prosecutor's Office of the State of Rio de Janeiro (MPRJ) filed a public civil action (ACP) against a property developer, so that the company would review a contractual clause that provided for the retention of installments paid in case of withdrawal of the acquisition of property (between 75% and 90% to 25%). It also requested for the recognition of the right of consumers who were harmed to double the debt. The MPRJ´s pleading was granted^[1], and the sentence was reformed by the Court of Justice of the State of Rio de Janeiro (TJRJ) only to rule out double repetition and collective moral damage.

With the judgment finalized, the MPRJ, in addition to requesting the conviction of the property developer to pay a fine for the alleged delay in compliance with an injunction granted by the Court on an incidental basis, began the collective compliance of the judgment, based on Article 98 of the CDC, referring to the simple return of the amounts due to the injured individuals.

When being summoned about the beginning of the execution phase, the company expressed the illegitimacy of the MP to promote the collective execution of the sentence, which was not accepted by the Court of Origin. The decision was the subject of an instrument appeal, to which the local court dismissed.

Against the judgment, the defendant filed REsp 1,801,518/RJ, arguing that only injured consumers could demand compliance with the award. This understanding was unanimously accepted by the Superior Court, confirming the Court's previous view on the subject.^[2]

In the conception of the Ministers of the Superior Court, the public interest that would justify the MP's action in the collective action was overcome in the execution phase, leaving the parquet only the hypothesis of residual execution provided for in Article 100 of the CDC.

According to the vote of the rapporteur, Minister Paulo de Tarso Sanseverino, although Article 98 of the CDC admits the collective execution of the sentence by the entities legitimized in Article 82 of the CDC – among them, the MP –, at the stage of enforcement of the judgment there is no longer the social interest provided for in article 129, item III, of the Federal Constitution to justify ministerial action, since the legal interest at this stage is restricted to the patrimonial and available scope of each of the consumers admittedly injured.

In this sense, the rapporteur minister understood that, in the execution phase of the sentence, the controversy over the homogeneous character of the law is already overcome. Thus, the sentence that recognizes homogeneous individual rights – hypothesis of the case under analysis – can be executed individually, as authorized by the CDC in art. 97.

As for the residual execution hypothesis provided for in Article 100 of the CDC, the rapporteur minister considered that it was not applicable in the case under analysis, since the period of one year would not have elapsed without the qualification of interested parties, under the terms of the article. Thus, the rapporteur declared the MP's active illegitimacy to initiate the execution of the sentence handed down in a collective action - without prejudice to the residual execution, after the legal deadline.

The understanding of the Superior Court has faced criticism from some members of the legal community, who understand that the judicial function is not exhausted with the end of the knowledge phase, under penalty that the satisfaction of collective rights recognized by the judiciary is impaired. Thus, the social relevance of the implementation phase would justify the legitimacy of the MP.^[3]

However, in the face of the last judgments of the Superior Court on the matter, there is a tendency to consolidate the understanding in the sense that there is no social relevance in the execution phase, which is why the MP does not have active legitimacy to promote the collective execution of judgments that protect homogeneous individual rights.

The matter under discussion will be again faced by the STJ in the judgment of RE 1.758.708/MS. Until then, it is expected that the courts of the country observe the position adopted by the STJ and move away from the legitimacy of the MP for compliance with judgment in collective action that protects homogeneous individual rights.

^[1]Before the trial of the ACP, the Court determined that the property developer list the contracts signed with potentially injured consumers, under penalty of a fine of R $ 1 million, due to non-compliance with the court order.

^[2] Cf. REsp 869.583/DF, 4th Class, rapporteur min. Luis Felipe Salomão, tried on 5.6.2012.

^[3] This understanding is in line with the decision given by Minister Nancy Andrighi (Resp 1.028.855/SC), in which it was highlighted that the amendment of the wording of certain articles of the Code of Civil Procedure (CPC) – like the arts. 162, §1, 267, 269, and 463, Caput –, it would show that the proceedings are not necessarily exhausted by the declaration of law, and that the judicial function would only end with its effective satisfaction.

Category: Tax

In the opening article of the monthly column "Carf's Judgments", the theme could be no other than discussions involving the “casting vote”. The existence of a tiebreaker that favors the tax authorities, or the taxpayer, has long permeated the debates on conflict resolution within the Administrative Council of Tax Appeals (Carf).

Carf's collegiates are peer public entity, formed, in the regimental composition, by the same number of advisors representing taxpayers and the National Treasury. This composition presupposes the search for a balance in the interpretation of the tax law, ensuring a neutrality of the analysis. The point is that parity often results in a tie in the trial, resulting in the need for a tiebreaker criterion.

Until the edition of Law 13.988/20, the only tiebreaker criterion existing for the carf trials was the "casting vote", which attributes the prevalence of positioning in the manifestation of the President of the Collegiate (art. 25, §9 of Decree 70.235/72). As, by provision of the Carf Internal Rules, the President of the Collegiate is always a representative of the National Treasury, the prevalence of his vote raised questions about the existence of a bias in the decision to be handed down.

Law 13.988 introduced Article 19-E in the drafting of Law 10.522/02, creating a second tiebreaker rule: in the case of administrative process judgment of determination and charge of the tax credit, the controversy will be resolved favorably to the taxpayer.

In our view, this new criterion can be understood as an unfolding of the legal rule provided for in art. 112 of the National Tax Code (CTN), which contains the maximum in dubio pro taxpayer. If there is no certainty as to the basic elements of the act, such as the legal capitulation of the fact; the nature or material circumstances of the fact; authorship; the nature or graduation of the applicable penalty, the tax law must be interpreted in the most favorable manner to the accused.

It happens that, after the publication of the new tiebreaker rule, the Ministry of Economy published Ordinance 260/20, establishing that the tiebreaker criterion in favor of the taxpayer would be applied exclusively in tax administrative processes of tax credits (release and notice of infringement). The other disputes to be resolved in the administrative body (compensation proceedings, discussions on procedural issues, etc.) would be resolved accordingly the old criterion of prevalence of the collegiate president's vote ("casting vote").

Throughout 2021, when cases with more relevant discussions gradually were returning to the Carf agenda, the effects of the coexistence of these two criteria were verified in practice.

Several controversies that have historically been resolved in favor of the tax authorities have come to have a final solution favorable to the taxpayer, among them: the possibility of deducting interest on retroactive equity (Judgment 9101-005.757), the regularity of the 30% lock for compensation in the event of extinction of the legal entity by incorporation (Judgment 9101-005.728) and the application of international agreements for the purposes of taxation of profits earned by subsidiaries and affiliates in  (Judgment 9101-005.809).

These same matters, when judged in the context of a compensation procedure, were resolved with the application of the criterion of tie-breaker of the vote of the President of the Collegiate, most often favoring the tax autorities (e.g. the recent judgment of Case 16682.720821/2011-35, which dealt with the deductibility of goodwill in the calculation basis of CSLL and, although it was analyzed by the same members of the 1st Superior Chamber of Tax Appeals (CSRF), it had a result opposite to Judgment 9101-005.894, of the previous month).

The relevance of this theme seems to grow in the same proportion of the limits of values for non-face-to-face judgments. As Carf expands the ceiling for non-face-to-face trials (currently r$ 36 million), more complex issues return to the agenda, and the criterion for resolving the trial becomes worth tens (or hundreds) of millions.

This relevance was recently accompanied by urgency: the Supreme Court (STF) took to March 23 the continuation of the trial of direct actions of unconstitutionality (ADIs) 6399, 6403 and 6415, which discuss the constitutionality of art. 28 of Law 13.988/20, a rule that "extinguished" the casting vote. The discussion within the Supreme is placed in two aspects: formal and material.

The formal unconstitutionality is defended by the fact that Article 28 of Law 13.988/20 was inserted in the text of Provisional Measure (PM) 899/19 by parliamentary amendment and already in the phase of conversion into law, without the original theme of PM having a relevant relationship with the tiebreaker criterion, which represents a violation of due process of legislation (what is called "legislative smuggling" or "jabuti").

Thus, the Attorney General's Office (PGR), the Brazilian Socialist Party (PSB) and the National Association of Fiscal Auditors of the Federal Revenue Service of Brazil (Anfip), which are the authors of the ADIs in question, point out that the device that instituted the pro-taxpayer tiebreaker was inserted into Law 13,988/20 improperly, without the legislative power to debate. Former Minister Marco Aurelio joined this current and voted for formal unconstitutionality.

The material unconstitutionality is defended based on the premise that the application of this new criterion favorable to the taxpayer would configure cancellation of the tax credit every time there is a tie, which would imply the prevalence of the private interest in the face of the public interest. Furthermore, it is claimed that the principles of due process and the legitimacy of the administrative act would be violated.

The constitutionality of the rule under discussion is justified by the restoration of the balance of the relationship between the tax authorities and the taxpayer in the administrative sphere since the system of tiebreaker by casting vote generated a distortion in favor of the Public Treasury. With the new system, the protection of the taxpayer's fundamental rights and guarantees against any excesses committed by the State is expanded.

This was the vote given by Minister Roberto Barroso, who understood that it is constitutional the new system of tie-breaker favorable to the taxpayer, provided that it is possible for the tax authorities to resort to the judiciary.

The judgment of these actions brings a series of discussions: if the unconstitutionality of the rule that "extinguished" the quality vote is declared for cases in which tax collection is discussed, how will those processes that have already been terminated by application of the device declared unconstitutional be treated?

On the other hand, in the event of a declaration of constitutionality, is there also a likelihood that the tax authorities will be allowed to turn to the judiciary to challenge decisions given in favour of the taxpayer?

The judgment of this theme by the Supreme Court is expected with high expectations, because its outcome is very relevant for the solution of tax conflicts in Brazil.

Category: Litigation

Eduardo Perazza, Débora Chaves Martines Fernandes, Bruna Godoy Marques das Neves and Danielle Siebra Pereira

Predatory litigation is a concept with many names and still without a clear definition. In a synthetic form, vexatious litigation, oppressive litigation or, in the expression of American law, sham litigation, is the behavior of the one who, using his legitimate right of action and access to justice, makes abusive use of it to make it difficult for third parties to exercise their rights, and not (or not only) in order to safeguard their own right.

Initially developed by U.S. doctrine and jurisprudence according to the logic of competition law, predatory litigation began to be mapped and defined in lawsuits filed without grounds and with the intention of harming the business of competitors. The criteria adopted by U.S. jurisprudence to detect this type of abuse of rights are mainly:

• the purpose of the application of claims without legal grounds;
• the action of actions with intent to harm competitors (anticompetitive purposes); and
• the identification of a pattern of conduct of the author that litigated in a predatory way – since the analysis of an isolated demand may not let us see the anticompetitive character of a litigation strategy.^[1]

The first two points are called the PRE test^[2] and the last Posco test.^{[3] and [4]}

Derived from the environment of competition law, the concept of predatory litigation was initially employed in Brazil in administrative decisions of the Administrative Council for Economic Defense (Cade), which first pointed to the abuse of procedural law for anticompetitive purposes in the judgment of the Sinpetro case in 2004^[5]. Since then, the municipality has been applying the criteria established by the North American jurisprudence, duly formatted for the Brazilian legal landscape, to analyze this type of conduct – as in the case of the Union of Cargo Transport Companies of São Paulo and Region versus Brazilian Post and Telegraph Company (PA 08700.009588/2013-04).^[6]

Although the origin of the concept and its first application in national territory took place in the context of competition law, the abuse of this prerogative may occur in other areas, because the right of action is constitutionally guaranteed to all (Article 5, XXXV of the Federal Constitution) in the most diverse situations of violation or threat to law. In Brazil, the concept of predatory litigation was dismayed from the abusive procedural practice directed against competitors, from a competitive perspective, and began to be adopted in other situations, due to the breadth of the right of action in the Brazilian legal system and the absence of clear mechanisms to control its abuse.

Brazilian courts have begun to come across practices such as:

• the determination of numerous actions with the same request and the same cause of asking, in various regions, in order to hinder the defense of the defendant and / or constitute a threat to freedom of expression – consolidated, for example, in the massive determination of claims against journalists, for the purpose of intimidation;^[7]
• the purpose of shares with fractional applications, which could be gathered in a single demand, in order to multiply the payment of fees^[8] (predatory advocacy); and
• the management of actions to hinder the fulfillment of court orders and that third parties enjoy their rights, among other forms of abuse.

As the possibilities of abuse  – including of the right of action – are as numerous as human creativity allows, the jurisprudential and even legislative framework must be redesigned with more general contours, to prevent procedural fraud of this nature from finding room to develop.

It was exactly in this sense that the Superior Court of Justice (STJ) walked in judging special appeal 1,817,845/MS,^[9] in a judgment reported by Minister Nancy Andrighi. In its decision, the court recognized the abuse of procedural law committed by individuals who, since the beginning of the 1980s, filed four lawsuits and an administrative proceeding to prevent the fulfillment of a court order and the enjoyment of the right to property by third parties, who filed an action seeking compensation for moral and material damages resulting from the unlawful conduct practiced by procedural means. In judging the case, the rapporteur minister defined the following thesis to recognize liability for damages arising from the abuse of procedural law: "The prosecution of successive lawsuits, devoid of proper reasoning and brought with a purpose of intent, may constitute an unlawful act of abuse of the right of action or defense, the so-called procedural harassment".

While the decision seems simple and straightforward – and not particularly innovative in relation to the criteria for the measurement of predatory litigation (or procedural harassment, as Defined by Minister Nancy Andrighi) – its importance is paramount. In considering predatory litigation as an unlawful act (Article 187 of the Civil Code), it remains unequivocal to indemnify the party for the resulting material and moral damages, in amounts that promote effective reparation and not limited to the penalties imposed on litigation in bad faith. The reasoning that associates procedural harassment with the litigation of bad faith was developed by Minister Paulo de Tarso Sanseverino, in the vote that diverged from the understanding of the majority in the judgment of this appeal. For the minister, procedural abuse would be determined only in the process in which it is practiced, and not from a macro view of several issues.

In parallel to the recognition of predatory litigation as an unlawful act by the Supreme Court, two bills on the subject are being processed, PL 90/21 and PL 3.818/20. The latter aims to characterize as an infringement of the economic order the act of exercising the right to petition or action in an anticompetitive manner, regardless of the determination of guilt. On the other hand, PL 90/21 proposes procedural mechanisms that allow the victim of predatory litigation to request the meeting of cases (with the same cause of request) filed against her in an abusive manner, for joint judgment. The measure aims to ensure the full exercise of the adversarial and broad defence (Article 2). This same PL, in addition to pointing out techniques to correct the distortions of the abuse of the right of action, establishes the duty to redress the damages caused by the oppressive litigation (Article 1, §1 and Article 5), in addition to providing for the conviction of the author of such demands in costs and attorneys' fees – even in actions filed in special civil proceedings.

In its efforts against the abuse of procedural law, the National Council of Justice (CNJ) also recommended that Brazilian courts take measures to curb predatory judicialization, a practice capable of ceding defense and limiting freedom of expression. Authored by Minister Luiz Fux, Normative Act 0000092-36.2022.2.00.0000 – approved on February 8 of this year – classifies as predatory judicialization the mass filing of actions in the national territory with similar claims and causes against a specific person or group of people, in order to inhibit full freedom of expression.

The CNJ guides the courts to adopt measures aimed at expediting the analysis of the occurrence of prevention, the connection between actions and possible bad faith of the plaintiffs – among other elements that allow the wide defense of the defendant – in terms analogous to those proposed in PL 90/21, which is cited by Minister Fux in justifying the recommendation. The cases that preceded the manifestation of the CNJ were presented within the framework of the Observatory of Human Rights of the Judiciary, based on a complaint filed by the Brazilian Press Association (ABI) on the filed against a journalist throughout Brazil due to publications on the social network Twitter.

The repression of predatory litigation is fundamental to ensure objective good faith in the civil process. By purging fraudulent behaviors, it seeks to reinforce the hygiene of the entire Brazilian procedural system. Moreover, from a managerial point of view, increased judicial surveillance of the abuse of the right of action is highly desirable in an environment of massive litigation such as the one that currently plagues our courts^[10] and gives judges tools to reject frivolous claims – and adequately punish their perpetrators. Thus, magistrates will be able to focus on demands that effectively require judicial provision.

The concern with access to justice must continue to permeate all initiatives that, in some way, impose filters on the right of action. The concern of the Legislature and the Judiciary to curb predatory litigation in a firm, structured and joint manner is positive and relevant. The ultimate objective is to qualify access to courts and remove frivolous claims, which restrict the exercise of fundamental rights of procedural dimension – such as contradictory and broad defense – and material – as property and free expression.

^[1] OAK, Angela Silver. "The abuse of the right of action in the Brazilian civil procedure - theoretical and practical contours of procedural harassment from the analysis of special appeal 1,817,845". Process ReviewVol. 319 p.339-357, Editora Revista dos Tribunais, 2021. p. 9.

^[2] Real Estate Investors Inc. x Columbia Pictures Industries Inc.

^[3] USS-Posco Industries vs. Costa County Building.

^[4] The "tests", proper to the common law, are parameters standardized by the case-law to identify similar conducts and relate the specific case to the hypothesis already judged, in line with the precedents of a given court.

^[5] A case in which Cade observed and considered illegal the coordinated action of gas stations in the city of Brasilia to try to prevent the Carrefour group from operating gas stations. This decision of Cade was later reformed by the Federal Court (TRF1) and the practice of gas stations was considered legitimate.

^[6] All in all the main requirements adopted by Cade to characterize predatory litigation are (i) unjustified proceedings – with an anti-competitive purpose and result; (ii) the action against competitors with low probability of favorable provision – generating anticompetitive effects on the market; (iii) falsehood presented to the Judiciary or to some administrative agent in order to obtain state provision; and (iv) legal settlement or other actions aimed at causing anticompetitive practices.

^[7] On the subject, see the mapping of the Brazilian Association of Investigative Journalism, available in https://www.abraji.org.br/entenda-o-que-e-assedio-judicial.

^[8] On the subject, the following judgments of the Court of Justice of São Paulo: Civil Appeal 1010920 05.2021.8.26.0576, des. Rel. Maurício Campos da Silva Velho; Instrument Injury 2005467-91.2021.8.26.0000, des. Rel. Clara Maria Araújo Xavier.

^[9] STJ, Resp 1.817.845, rapporteur for judgment min. Nancy Andrighi, Third Class j. 10.10.2019.

^[10] As of December 2020, there were 75.4 million pending cases, down 2.7%, or 2.1 million fewer cases, compared to 2019, but it is still a very significant number (report Justice in Numbers, National Council of Justice, 2021, available in https://www.cnj.jus.br/wp-content/uploads/2021/09/relatorio-justica-em-numeros2021-12.pdf, consulted on 11.02.2022).

Category: Infrastructure and energy

Fabio Falkenburger and Julia Souza Torres

Amidst controversy, the National Civil Aviation Agency (ANAC) published, on February 23, the final adjustments to the draft of the bid notice for the 7th round of airport concessions.

The first draft was published in September 2021, but the layout of airports blocks to be tendered has undergone some changes since then. Initially, Santos Dumont airport in Rio de Janeiro (RJ), considered one of the crown jewels of this bid, would be auctioned in RJ-MG block, together with the Jacarepaguá airport, also in the city of Rio de Janeiro, and three other airports in Minas Gerais. Under intense scrutiny from the state and municipal governments of Rio de Janeiro, who argued that the block’s configuration would weaken the Galeão airport and accentuate Santos Dumont’s overcapacity operations, the Ministry of Infrastructure decided to bid Santos Dumont airport separately.

In February 2022, the Ministry of Infrastructure revisited the concession format once again and decided to tender the main Rio terminals, Santos Dumont and Galeão, together in the same block in the 8th round, which is scheduled only for 2023. The Minister of Infrastructure, Tarcísio de Freitas, stated that this change was due to concerns about possible predatory competition between the two airports, should the bidding be continued with the old configuration. Galeão airport is already facing difficulties with the reduction of passenger and cargo traffic caused by the economic crisis and aggravated by the Covid-19 pandemic. These difficulties led to a deficit of R$ 7.5 billion in the operation and resulted in the return of the concession by the Singaporean operator Changi Airports International.

The 7th round, despite not having a set date, is scheduled to take place at the end of the first half of 2022. The modeling of the concession of the 15 airports in three blocks, and the respective minimum initial contributions, is as follows:

• The General Aviation Block will be composed of the airports of Campo de Marte/SP and Jacarepaguá/RJ. The minimum initial contribution is R$ 138.3 million.
• The North Block II will be composed of the airports of Belém/PA and Macapá/AP. The minimum initial contribution is R$ 56.6 million.
• The Block SP/MS/PA/MG will be composed of the airports of Congonhas/SP, Campo Grande/MS, Ponta Porã/MS, Santarém/PA, Marabá/PA, Parauapebas/PA, Altamira/PA, Montes Claros/MG, Uberlândia/MG, and Uberaba/MG. The minimum initial contribution is R$ 255.2 million.

The concession contract will be valid for 30 years for all blocks. The extension of such a contract will be admitted in extraordinary circumstances for five years only.

The investments to be made over the three decades of the concession are expected to total R$ 25 billion, with almost half of this amount corresponding to the investments to be made in the block that includes Congonhas airport, one of the most profitable in the country. According to Anac, the airports of this round correspond to 26% of the paid passengers that circulate in the country's air transport market.

The draft of the bid notice allows the participation of Brazilian or foreign legal entities, complementary pension entities, and investment funds, alone or in a consortium. However, it does not allow a legal entity, or its subsidiaries and parent companies, to participate in more than one consortium to submit a proposal for the same block. It also does not allow the participation of airlines in the auction, except as a consortium member with less than 2%, considering the sum of their holdings.

As in the last round, the draft also allows the hiring of a technical assistant, in other words, if the winning bidder does not meet the technical qualifications required by the Agency, it must submit a commitment to hiring technical assistance to ensure the effective realization of the project. On the other hand, the tender notice requires that the single bidder company or one of the members to be an airport operator which has operated, in at least one of the last five years, an airport that has processed, in that year, at least:

• For the General Aviation Block, 200,000 passengers or 17,000 aircraft movements (landings and takeoffs).
• For the North Block II, 1 million passengers.
• For the Block SP/MS/PA/MG, 5 million passengers.

The published draft will be reviewed by the Federal Accounting Court (TCU) and then returns to ANAC to set the date and publish the final bid notice.

It is expected that, as with the previous rounds, the auction will move the aviation sector, which slowly recovers from the economic crisis of recent years.