It is still too early to diagnose and, above all, predict all the effects that the covid-19 pandemic will have on concession contracts, under common or public-private partnership arrangements. It seems certain, however, that this event of cataclysmic proportions will bring back the practice of rescheduling investments in these contracts.

In Brazil, the issue had appeared in 2017 through Executive Order No. 800 (MP 800), establishing guidelines for the rescheduling of investments in federal highway concessions. That situation was, in comparison to the current one, simpler: it was a case of deterioration of macroeconomic variables in relation to the years 2012 to 2014, when the 3^rd stage of the Federal Highway Concession Program (Procrofe) had been bid. The explanatory memorandum for MP 800 argued that the scenario for concessionaires from 2015 onwards was one of difficulties in obtaining long-term loans, given the "financial liquidity constraint", and in generating revenue, due to a fall in the volume of general road traffic, especially when related to heavy vehicles, as they have greater elasticity as a function of GDP and greater impact on fare multipliers.

The remedy that MP 800 offered to concessionaires was de-concentration of investments in the initial years of the contract, contrary to the original modeling, which sought precisely to accelerate the economy by implementing infrastructure in the short and medium term, such as additional lanes and works of art. However, the immediate application of the rebalancing discount ("factor D") or any other contractual sanction was removed. The indirect assistance to the concessionaires was found, in fact, in the possibility of maintaining the economic and financial balance of the contract, as related to the investments delayed, unbalanced in favor of the companies, until the end of the performance of the new schedule, which could occur within up to 14 years. Only then would the rebalancing discount be applied (considering all prior financial effect, one should acknowledge).

Regardless of the merits of the reasons and the legal arrangement of the remedy, the fact is that the rule lost its effectiveness, since it was not converted into law, and, except for a single contract, all the other concessions of the 3^rd phase of Procrofe incurred significant delays in their schedule for investments, which resulted in the expiry of some contracts or in the rebidding of others (sometimes still in an embryonic phase), under the framework of Law No. 13,448/17.

Similar consequences have been seen in other sectors, leading to the design of innovative contract provisions to be introduced in future instruments. An example is that of airports: even before MP 800 (which would naturally be applicable to contracts in force at the time of its promulgation), the modeling of the 4^th Stage of Anac Concessions (Fortaleza, Salvador, Porto Alegre, and Florianópolis) had already considered, for the new contracts, investment triggers linked to demand. The contractual mechanism was defined as an event indicated in the Infrastructure Management Program in which the expected demand would give rise to the obligation of the concessionaire to begin investments in order to maintain the service level. Its purpose was to establish a balance between investment and demand, expenditure and revenue, in order to oblige the concessionaire to deploy certain infrastructure components in the event of a consistent and corresponding increase in the number of users.

The solution was well received by the market, to the point of being replicated in the contractual instruments of the 5^th Stage of Anac Concessions (the first one that followed the model of slots/blocks of airports), and, based on all appearances, it will also be adopted in the contracts for the 6^th Stage (currently in public consultation phase). More than that, the model was exported to the highway sector and renamed a volumetric trigger in the concession contracts for the South Integration Highway - RIS and BR 364/365, which defined application thereof in the Highway Operation Program.

It has become a general guideline to use the consecrated legal category of article 24 of the Law of Introduction to the Rules of Brazilian Law (LINDB), in public law governing transport and logistics infrastructure to balance the investment obligation of concessionaires with (i) maintenance of the service level (distancing itself, therefore, from the old guideline of the Logistics Investment Program, of 2012, to generate externalities in potential detriment to funds inherent to the concession itself) and (ii) the capacity to generate fare revenues. There is a commutativity between the terms of this relationship (investment and demand, expense and revenue), the disruption of which has legal consequences. And that is where the effects of covid-19 come into play, because they have the potential to cause this disruption.

A significant part of the legal understandings on this discussion would tend to lead to a scenario of economic and financial rebalancing of the contract (a subject that we discussed, in a very introductory manner, in another article on this portal, and that we will analyze with the necessary details soon). At a first glance, however, the subject seems to deserve a separate legal framework.

In fact, the rescheduling of investments in concessions does not suggest a remedy to restore the concessionaire due to the materialization of a risk allocated to the granting authority. Moreover, the contractual allocation of risks itself, depending on each specific and concrete provision, could indicate an unrestricted absorption of the risk of demand by the concessionaire (except for scenarios of an extraordinary nature and without prejudice, moreover, to an evaluation of the overlapping or prevalence of acts of God and force majeure provisions, events normally absorbed by the Government in contractual instruments).

In cases of breaking of the balance between investment and demand, what is at stake is not exactly compensation to the concessionaire for a financial loss it has incurred, when, contractually, it would be up to the granting authority to bear such a loss. It is basically a question of avoiding an even greater loss to the detriment of proper performance of the contract itself: the rescheduling of investments is a measure that is necessary to release the concessionaire from making an investment that has become economically unrecoverable, a sunk cost, in the expression of the project financing literature. It is not, therefore, a case of revision of the schedule for investments as a measure to restore a contractual imbalance, but a qualitative renegotiation of investments that, after the agreement, became useless, that is, they will not serve, at least at that moment originally conceived, to maintain the contractually defined levels of service. For example, why add another lane to a stretch of road if there is evidence that there will be no traffic to justify it? Why expand the handling capacity of a port terminal if there will be no increase in cargo? What good is a new runway at an airport if the airlines will not use it?

The discussion of rebalancing, in terms of rescheduling investments, becomes relevant as a measure for possible compensation of the granting authority or of the users: after all, a certain investment by the concessionaire will no longer be made. It would be expected that the economic and financial balance of the contract would be restored in their favor, through, for example, reduction in the amount of the fare, increase in the value of the grant, or shortening of the contract term. However, such restoration measures would have the same financial effect for the concessionaire as would the performance of the investment itself. There is no difference between obliging the concessionaire to incur an unrecoverable or useless investment and rebalancing the contract because such an investment, in spite of its inefficiencies, has not materialized.

In this sense, if we start from the premise that certain investments have become economically irrecoverable, or useless for the maintenance of contractually defined service levels, economic and financial rebalancing of the contract to the detriment of the concessionaire would be equivalent to potential unfeasibility of the concession, since we would be promoting an uneconomical and irrational contract from the point of view of allocative decisions. It would then be up to the granting authority to assess whether the reasons that led it to proceed with the concession continue on the objective contractual basis or whether, on the contrary, they have disappeared. In the second case, there would be no legally acceptable solution for the Government, except early termination of the contract, with due compensation to the concessionaire. In the first case, that is, concluding that those reasons remain, although certain investments cannot be made, at least in the schedule originally devised, rescheduling without contractual rebalancing is justified.

Of course, the issue will bring in a number of challenges, both for the Government and for concessionaires, in order for the rescheduling of investments to be effectively applied. The lack of a contractual provision does not seem, however, to be sufficient reason to avoid  facing them, nor does absence of express legal permission, in which we recognize the good time for the government to rethink the re-promulgation of MP 800 or its equivalent, duly perfected and adapted to the complexity of the current crisis.

Along these lines, the bill for the General Concessions Law (PL 7063/17), for which the rapporteur's opinion was approved by the Chamber of Deputies at the end of 2019, even provides that a provision for ordinary review of concessions may cover adaptation of investment plans and their respective schedules, without, however, detailing the relevant rights, obligations, constraints, and procedures. Therefore, it should not be esteemed to be a sufficient legislative effort to set a regulation at the same legal level as those challenges.

In addition, there are tendencies, also during the planning stage, to make it difficult to reschedule investments in concessions, and this point deserves attention: if we do not understand that legal permissiveness on the subject is indispensable, a prohibition on implementing rescheduling, or even an unreasonable legislative constraint thereon, could repel the measure from the legal system, possibly absolutely. The provisions of PL 2711/19, which seek to amend Law No. 8,987/95, seem to provide, for example, for an almost automatic reduction in the contractual term due to delays in the delivery of works, without opening room for potential discussions.

From the point of view of the legal experience, it will be especially important to establish rescheduling of investments as a self-executive measure, to be applied directly by the concessionaire, even if with the subsequent consent of the granting authority, and to what extent economic and financial rebalancing of the contract, in favor of the latter or the users, will be unauthorized (and, if not, when and how it will occur).

There are many technical and legal grounds to support rescheduling of investments, even more so under the strong effects of covid-19 on the variables of the investment and demand equation of concessions, under a common or public-private partnership arrangement. If the most recommended alternative in each case is to preserve the concession, the rescheduling of investments will serve to turn a measure used in the best legal technique into a general guideline of public law regarding transport and logistics infrastructure.