Brazil: Lula’s government gathers projects to launch a “new” Growth Acceleration Program” by the end of the month

By Paula Beatriz

The government of Luiz Inácio Lula da Silva (PT) wants to launch the new version of the Growth Acceleration Program (PAC) by the end of May.

The information was confirmed to Gazeta do Povo by the Minister of the Civil Household, Rui Costa.

The initial idea was to launch the program during the 100 days of the government or at the end of April, but the package was not ready in time.

Until a few days ago, ministries collected projects to add to the plan.

The infrastructure investment program was generically mentioned in the government program delivered to the Superior Electoral Court (TSE) for the 2022 elections.

It was also among the proposals listed in the “Letter for Tomorrow’s Brazil”, a letter of intentions presented by Lula just three days before the second round of voting.

It is another old PT program relaunched during his mandates, like Bolsa Família, Minha Casa Minha Vida, Mais Médicos, Programa de Aquisição de Alimentos (PAA), and Programa Nacional de Segurança Pública com Cidadania (Pronasci).

[Family Aid, My House My Life, More Doctors, Food Acquisition Program (PAA), and National Program for Public Security with Citizenship (Pronasci)]

In a speech on the May 1st holiday, the president said the plan would help “bring back job generation.”

“We are inviting foreign businessmen to invest in Brazil and showing them the great projects we will present in the third PAC.”

“It will be the largest infrastructure project in this country,” said Lula.

The first edition was launched by him in 2007, and the second in 2011, during Dilma Rousseff’s (PT) government.

In addition to providing for public investments in hundreds of projects, the PAC also contained tax relief measures and credit stimulus to attract private capital.

Directly responsible for the program’s first edition when she headed the Civil House, Dilma was called the “mother of the PAC” by Lula and cultivated a reputation as a project “manager” that would later be used to elevate her as a presidential candidate.

The government’s idea is to make part of the works of the new PAC feasible through public-private partnerships (PPPs).

Last month, the Ministry of Finance presented two measures to stimulate this arrangement.

One of them is granting guarantees from the National Treasury to enable partnerships between states and municipalities.

Another initiative is the permission to issue debentures (debt securities) with an income tax exemption for PPP investments in education, health, public security, the prison system, urban parks and conservation units, cultural and sports facilities, social housing, and urban regeneration.

The government will create a management council for the new PAC, formed by the Civil House and the Ministries of Finance, Planning, and Management.

The function of this council will be to approve or disapprove the program’s portfolio of works and define the resources that will be sent to each area of the program, which in principle will be six:

• transportation;
• energy;
• urban infrastructure
• communications;
• social equipment; and
• water for all.

Lula’s ministers are still collecting projects to compose the PAC portfolio.

In the last week of April, for example, Petrobras informed that the Ministry of Mines and Energy requested information about the company’s projects to subsidize the elaboration of the program.

The state-owned company said it had passed on data from its projects in the implementation phase and also others that are in the “exploratory” stage – such as the search for oil in the Equatorial Margin, seen as a “new pre-salt” and target of controversy with the Ministry of the Environment – or else in the planning phase, such as biorefining.

Although they may be part of the new PAC, all the projects listed by the oil company were already foreseen in its strategic plan for 2023-2027, released in late November, still in the government of Jair Bolsonaro (PL).

The Planalto also consulted governors on priority projects and launched a platform for monitoring stalled works called “Mãos À Obra” [Hands-on], where state and municipal managers can update the status of projects carried out in partnership with the federal government.

TCU FOUND THAT 21% OF THE PAC PROJECTS WERE PARALYZED

Lula has emphasized in his speeches the need to resume stalled works inherited from predecessors.

However, PAC has left behind a long trail of interrupted projects.

An audit by the Federal Audit Court (TCU) conducted in 2019 found that 2,914 PAC works were stopped, equivalent to 21% of all contracts closed since 2007.

According to the survey, of R$663 billion initially planned to be invested in the PAC, R$127 billion were tied to stalled works.

According to a publication by the Brazilian Chamber of the Construction Industry (CBIC), 47% of the interrupted works were due to technical issues, i.e., “flaws, errors and omissions in the basic projects.”

In another 23%, the interruption was caused by abandonment by the contracted company.

Economist Carla Beni, MBA professor at the Getulio Vargas Foundation (FGV), says that the first editions of the PAC were marked by poorly formulated projects, management failures, high costs, and wrong delivery deadlines.

“Everything generated a mismatch between what was promised at the beginning of these programs and the amount realized until the closing of these programs,” she points out.

According to her, PAC 1 was a stage of “beginning of large constructions,” and the second edition failed by betting more on new projects than on the conclusion of ongoing projects.

“This is where a criticism of this model comes in, where the excess of public spending may have deepened our fiscal problem and produced an inflationary process,” she evaluates.

Most of the projects were delivered with great delays concerning the initial deadline.

This was the case with three large hydroelectric plants in the Amazon: Santo Antônio, Jirau, and Belo Monte.

Besides starting to deliver energy much later than promised, reaching full operation only by the end of 2019, Belo Monte was also controversial because of its impacts on the environment and indigenous communities.

Besides counting on resources from state pension funds, called by the government to help finance projects, the PAC also had large participation from the National Bank for Economic and Social Development (BNDES).

Calculations for 2011 show that, of the total R$327 billion in estimated investments in a portfolio of 503 projects by then, the state-owned bank had financed about R$179 billion, or 55% of the total.

Another PAC hallmark was the frustrated attempt to make large-scale projects feasible.

One example was the bullet train project between São Paulo and Rio de Janeiro, which in theory, would be ready for the 2016 Olympics, but was abandoned after cost reviews and empty auctions.

Also left by the wayside were Petrobras projects, such as the Premium 1 refinery in Maranhão, which would cost R$41 billion and had the ambition of being the largest in the world.

After spending R$2.1 billion, it was canceled by the state company, which considered it unfeasible.

The stimulus to PPPs in this new edition of PAC can help attract a good volume of private money and save federal expenses, says lawyer and market operator Felipe Sant’Anna, who teaches courses in finance.

But he doubts the viability of this initiative in a PT government.

“The great doubt lies precisely in the internal debate within the government and the coalition that elected Lula because the discourse has always been to strengthen the state sector, placing the public machine as the main development engine, without handing this mission over to private capital,” he says.