In late 2021, the president of Brazil enacted Law No. 14,286, which establishes the New Brazilian Foreign Exchange Framework. Among several innovations, which will be addressed in a specific e-Alert, the Law met an old demand from the infrastructure sector: the possibility of stipulating payment in foreign currency for certain agreements executed between parties resident in Brazil. The legal authorization applies to agreements executed between exporters, on the one hand, and companies holding concession, permission, authorization or lease in infrastructure sectors, on the other hand. The innovation will open up funding opportunities for new projects (such as power generation projects) involving exporting companies. The new rule will be valid one year after the publication of the Law, that is, as of December 30, 2022.
The matter of payments in foreign currency in agreements entered into in Brazil has always generated extensive discussion, especially in the infrastructure sector, where there is significant foreign investment. Different interests, not always convergent, have guided the discussion: there are those concerned with risks related to the “dollarization” of the Brazilian economy, and others who defend the diversification of funding sources for the sector, in addition to the foreign investors (and lenders) themselves, concerned about the volatility of the Brazilian currency.
Article 6 of Law No. 8,880/1994, enacted at the time of the Real Plan (Plano Real), established that contractual adjustments linked to the exchange rate variation would be null and void, while Article 1 of Decree-Law No. 857/1969 considered null and void all agreements, bonds or any documents, as well as the obligations enforceable in Brazil, whose payment was stipulated in gold or foreign currency. The exceptions are listed in Decree-Law No. 857/1969 itself, and do not include infrastructure sector’s agreements.
With the publication of Law No. 14,286/2021, Brazilian law now authorizes the payment in foreign currency of obligations, enforceable in national territory, stipulated in agreements executed by exporters, in which the counterparty is a company holding a concession, permission, authorization or lease in the infrastructure sectors (Article 13, VII).
This means, for instance, the possibility of executing power purchase agreements (the so-called “PPAs”) in the free market, through which an exporter, in the capacity of buyer, may acquire power from an authorized company or concessionaire, in the capacity of seller, and stipulate the payment obligations in foreign currency. Another sector that may benefit from the new rules is the logistics sector, where exporters may, for instance, stipulate the payment obligations in foreign currency under agreements executed with port terminals’ lessees for cargo handling.
Even with the publication of the Law, some aspects may be subject to future regulation by the Brazilian Central Bank, such as, for example, the definition of exporter and the need for the contracts provided for in Article 13, VII to be directly linked to the export activity.
Another point of attention is the effectiveness of the new rule: Law No. 14,286/2021 will become effective one (1) year after its publication, at which time Article 6 of Law No. 8,880/1994 and Decree-Law No. 857/1969 (among other foreign exchange regulations) will be revoked. Therefore, prior toentering into agreements with a foreign currency payment clause, it is worth verifying its legality from a timing perspective.
Our Energy, Mines and Infrastructure Practice Group remains available for further clarification.