Interview with José Eduardo Azevedo, State Secretary of Special Projects and Metropolitan Articulation

Speaking about special projects, can you give us a general idea of the different projects you are developing to draw investment?

I would like to speak a little bit about our State before answering that question. Espírito Santo today is in a privileged situation, due to a public management effort that was initiated a decade ago and has its continuity through the government of Mr. Renato Casagrande.

Espírito Santo is nowadays a reference in terms of public management in Brazil, having been highlighted in several awards in the public management area and it’s one of the few Brazilian states that has a long term agenda called Espírito Santo 2025, which is a State agenda organized in partnership with the private sector, with civil society sectors, having established a desirable scenery for the State in 2025 with a set of projects to achieve this and economic, social and infrastructure indicators for the State. This agenda was developed in 2006 and is now being revised and updated, so that we can extend these goals until 2030. In the last few years this agenda has been a reference for State investments.

On the other hand, the State Government has also organized, in a professional way, the public management here in Espírito Santo and, today, it has a highly qualified team in several areas of State management. It built with great effort the fiscal constraints of expenses control and system of collection, one of the best fiscal health framework – Espírito Santo tackles, along with two or three States, the best fiscal conditions of the country and that enables us to invest over 1 billion Brazilian Reais each year which, for a State with the dimension of ours, is highly relevant. We combine investment capacity with quality investment, quality projects, advanced management model with strategic goals, and a healthy environment in terms of relationship between Government and Society: Government with civil society, Government with the business sector, and that has given a privileged condition for the State to draw investment, to attract new economic groups, new investments from all over the world that find a healthy financial balance, a healthy public management, professionalism and a healthy relationship between public and private sector.

In terms of that plan and strategy, did the percentage number of investment grow? Is the difference between what was made in the past and what is being done now visible?

That difference is easily seen. From the point of view of public investment, the State balances show that 12 years ago it had an investment capacity of 1% of its revenue, and now it’s above 15% of its revenue. It had an annual investment of around 50 million per year and now it’s 1.2 billion, and that’s only related to public investment. In the private investment point of view, Espírito Santo has been above average and the GDP has been systematically growing way above the national average. These data are published by the professional organs that work with the country’s economic indicators and show that Espírito Santo has been playing an important role in Brazil’s economic development. That gives us an optimistic vision of the future and gives us evidence that even with the world’s crisis and the difficulties we still have to overcome regarding infrastructure, Espírito Santo will keep its accelerated growth trajectory.

In my area of activity in the State Government, which is a Special Projects Secretary, we work in the enhancement of the State Government capacity in terms of investment beyond the traditional model of direct investment with own resources, i.e. projects of resources attraction among national and international mechanisms and institutions. Nowadays, the State has a portfolio above 2 billions in terms of already executed and in execution attracted resources, with special relevance to the projects with the World Bank, The Inter-American Development Bank, the Banco Nacional de Desenvolvimento Econômico e Social (BNDES) – National Bank for Economic and Social Development and with other institutions that are our partners in these investments.

We have had positive references from these institutions and the World Bank quotes Espírito Santo as a success in terms of projects implementation like, for example, a project called “Águas Limpas” (Clean Waters) in the sanitation area in the metropolitan region, which will allow Espírito Santo's capital, Vitória, to be this year the first Brazilian capital to achieve 100% of treated sewer. That’s a wonderful indicator in terms of Brazil, with successful projects in the areas of urban sanitation, investment on state roads systems, agricultural projects, and in several projects in diverse areas with special emphasis in the social areas. In the last 10 years Espírito Santo reduced poverty alongside with two other States. Social projects, educational projects, health projects, social assistance from the State Government, combined with the ones of the municipalities and also combined with the Federal Government actions here, made it possible for Espírito Santo to achieve these indicators.

The project in water management that we are working on now together with the World Bank will cost around 300 million Brazilian Reals, in order to improve the State water management (including drinking water, but also draining systems to avoid floods that still happen in the metropolitan region). It’s a big project that means reforestation, basic sanitation, improvement of water treatment in the North of the State that has drought problems. Basically, these are the main areas in terms of obtaining financial resources that we are developing.

Moreover, another relevant project front is the development of public-private partnerships which also mean a growth in the intervention and financing capacity of the State Government. In the public-private partnerships there’s a public bid that should start in July. This public bid concerns basic sanitation in the metropolitan region. We are developing 3 more public bids. One of these bids is about public services called “face-to-face” – three units along the State which allow a quality public service to the population – with around 400 services offered, from an identity card to a work permit, etc. Another bid is about public safety: digital identification, and the other one is related to the road transport system, which will also probably be a public-private partnership. We are now gathering proposals to implement this project.

And are these partnerships only from Brazil?

No. Our legislation allows the participation of foreign companies.

Are there any foreign companies interested?

As sanitation goes, we do have foreign companies interested. In the 6 pre-qualified companies to participate in that partnership, two are foreign and they will probably participate in the public bid here in the State.

And can you give examples of countries?

A Japanese company and, if I’m not mistaken, a US company too. These companies are interested and will probably enter partnerships with Brazilian companies. They will not enter in any partnership related with road systems, maybe due to the small size of the project. It will surely not attract foreign investors.

We‘ll probably have more national participation. We are studying other public-private partnership possibilities and other studies are in progress. We have a very significant capacity to carry out public-private partnerships here in the State. Brazilian legislation is now changing, expanding the possibilities and limits of the State to forge public-private partnerships: our limit in the State was 250 million per year and it’s now 400 million per year in what concerns the achievement of public-private partnership. Our intention is to put opportunities on the market for public-private partnerships, in strategic sectors, over the next 2 years of this Government, where the private sector may be a partner in the investments. We are evaluating these fronts, these possibilities, so that this year and on the next one, we can have good projects on the market and seek the participation of the private sector.

Do you already know in what sectors it will be done? Can you illustrate the origine of these investments and the sectors with examples?

The traditional Brazilian public sector financers, by the characteristics of the transactions made with the public sector are: the World Bank, the Ibero-American Development Bank, the BNDES, Caixa Econômica, and Bank of Brazil (which are the local banks). That’s the profile in the case of financing and also in drawing investment grants that usually happen with the Brazilian Federal Government. Exemplifying two interesting projects: one funded in part by the World Bank and the BNDES is the project that is now consolidating its first major step called "Clean Waters"; a set of investments to improve basic sanitation in the metropolitan area. Over 500 million were invested here over the last five years in treatment plants, sewers, pumping stations, improvement of water supply, improvement of the quality of treatment plants, in such a way that we left behind a percentage considered average in terms of sanitation in Brazil of around 30%, and we are now at more than 50% in the metropolitan area of Vitória. That meant a great improvement in terms of human health, in terms of environment, and the final destination of the water is now done in a much more appropriate way and will allow the capital of Espírito Santo to reach this year 100% of treated sewage. That’s an example of investment, funded through external resources, a successful operation that is today as a reference quoted by the World Bank in several conferences all over the world. Our technicians have recently spoken about the question of basic sanitation, in Washington, at a Latin America seminar. Espírito Santo is quoted as reference in that sanitation project.

A project with the Inter-American Development Bank was the recovery of our state highway system: investment in state highways that were already in a high state of degradation and were recovered with these investments: improvement of the design, of the pavement, of the circulation conditions and improvement of road signs. Much of the circulation system of Espírito Santo has been largely recovered, especially prioritizing the strategic routes for our development: those that connect the dynamic cities important to our state’s economy.

Within a year we’ll probably be hiring a new batch of road investment for Espírito Santo. They are two examples of projects, this experience of the State with international organizations, but it’s very interesting due to the experience and knowledge it brings to state management. Espírito Santo won a high credibility both with the Federal Government and among these institutions, because of its activities and fundraising, not only because it pays on time and has a good financial health, but also due to the skills, ability to apply the resources within the deadline, meeting schedule, and quality of works and services it has shown here in Espírito Santo.

Espírito Santo is not a well-known State and special projects have to be implemented. Will the State structure reach the level it should?

You mentioned one of the great challenges of our state. We are a small state, both in terms of population and in terms of area, but we have a reasonable economic representativeness compared to our size. We have great challenges in terms of infrastructure, and this is an issue that has to be treated under two points of view: much of the strategic infrastructure of the Espírito Santo State depends on federal investments, because they are federal responsibilities: an investment in BRs - in the 2 main BRs crossing the state, which are BR 101 and BR 262. BR 101 was submitted to public biding now and has been licensed, and we have the expectation that the contract will be signed in July. The company that took over and won the bid will be doubling, in six years, most of the stretch that passes through Espírito Santo. As for the other BR, the governor is pleading with the Federal Government to include it in a concession, to be subject to a public bidding, because the traffic in that BR – it goes from Espírito Santo to Minas Gerais - is very significant and has great growth prospects. We find that the concession will allow the duplication of the stretch and a better quality of service on the BR. These are claims we make to the Federal Government, because the responsibility for the management of these roads is theirs. Also this segment has good business prospects for the private sector: in the case of the BRs, in the case of the Espírito Santo harbor that is being developed by a federal company which manages the port, a study for implementation of a deep-water port - a new port for Espírito Santo - and a set of works to improve the current harbor system.

We also have two other important issues in the logistics area that are tied to the Federal Government: the question of the state airport, which is an unfinished project, a project where there was an interruption of work due to a legal problem in the performance of the contract, and Federal Government is preparing a new public bid - we expect it to happen and that until 2015 we have a new airport in the state, because there is huge demand for it in Espírito Santo, and a new railway connecting to Rio de Janeiro and São Paulo. There is already an understanding between the State Government and the President of the Federal Government that will address this priority - the National Transportation Agency is hiring an implementation project for the railroad, and we'll be following this and supporting it.

The Governor of Espírito Santo has been available for the Federal Government to work together, including in those investments in the form of partnership, with technical and institutional support and even financial support for them to become real as soon as possible. However, this is a schedule of the Federal Government responsibility. The State Government responsibility agenda, in what logistics is concerned, has been fulfilled: Espírito Santo is investing in regional airports, is investing in the road system on the local system - the Espírito Santo system today has quality and new investments will be made in the future - but we understand that this agenda is critical to the federal state.