Metro Line 4 – São Paulo - A Case Study of the first PPP in Brazil

As this PPP was, not only the first one in Brazil, but also the first privately operated line in the São Paulo subway system, one of its likely motivations was that it should not fail. A success could encourage new projects,... [ view full abstract ]

As this PPP was, not only the first one in Brazil, but also the first privately operated line in the São Paulo subway system, one of its likely motivations was that it should not fail. A success could encourage new projects, while a failure would probably mean a long lasting step back for development of PPPs in the country.
The private sector has – especially in countries with low savings – a primordial function on providing funds to improve infrastructure. So, it was important that this new kind of partnership between the private and public sectors shows itself promising. To private partners promising means – roughly speaking – stability and profitability. As it was the first PPP, no national paradigm existing, even with as many advantages that the government could provide, a shadow of mistrust was natural.
Applying the concepts of Incentive Theory we should understand how the incentive structures established in the arrangement of this particular PPP influenced the performance of the private partner (reflected by those variables continually measured and previously established by contract as determinants for the value paid by the State to the private agent) as well as the service´s quality itself (tackled by São Paulo State Government by associating 20% of the private party ticketing revenue to a quality related criteria).
Contractual analyses should allow us to identify the formal incentives established with bases in the observable variables. On these incentives, we will examine the roles between the private partner and the public and the distribution of contractually foreseen risks and the windows provided for renegotiation of agreements and remuneration structures. The study of partnership performance reports will examine the performance of the private agent as compared to the mapped incentives of the contractual analysis.