The City Hall of Rio de Janeiro has implemented an innovative financial model for the urban requalification of the Port Region. Resources for the Porto Maravilha Urban Operation come from additional construction potential of the area, instituted by the Municipal Complementary Law 101 of 2009. This model guarantees works and service provision until 2026, benefiting current residents and workers directly, as well as the entire Metropolitan Region indirectly.

Porto Maravilha’s works and services do not use money from the treasury of the city.

What is additional construction potential?

Urban legislation of the city defines the type, size and height allowed for real estate to be built in every land of every neighbourhood. Therefore, it determines what is called construction potential by area. To recover degraded regions, the Statute of Cities (Federal Law 10.257/2001) provides the creation of consorted urban operations in which the municipality establishes specific rules for new buildings. According to this law, entrepreneurs may build larger properties, with more square meters, in exchange for exactions, that is, payment of financial contribution. On the other hand, resources obtained must be used exclusively to cover expenses with the urban operation.
Entrepreneurs’ financial contributions are made through the purchase of Certificates of Additional Construction Potential (Cepacs). Each certificate is equivalent to an amount of square meters to be built. For instance, someone interested in a one thousand square meters parcel can build an enterprise of one thousand square meters without having to buy Cepacs. Considering, for instance, that a Cepac corresponds to one square meter, and that someone intends to construct a 2 thousand square meters building, then this investor will need to buy one thousand Cepacs.
In Porto Maravilha, one Cepac corresponds to different amounts of square meters, depending on each sector. To stimulate housing construction in the Port Region, it was established that one Cepac enables the construction of more square meters in residential enterprises than in the commercial ones. In some sectors, this difference can be more than double if the real estate is residential.
Where and how the resources gained from selling Cepacs are applied?

The Municipal Complementary Law 101/2009, which created the urban operation Porto Maravilha, establishes that all of the resources gained from selling additional construction potential must be used in the urban requalification of the 5 million square meters defined by the law. The reconstruction of networks of drainage, water, sewer, natural gas, electricity, public lighting and telecommunications, the urbanization of the region and the implementation of the new road system, besides maintenance and service provision, are paid with this money. At least 3% of the collected amount must be used in the valorization of the area’s material and immaterial patrimony. The same law provides that Public Power implements a program of socioeconomic development of the population directly involved and uses resources of the urban operation.

Among its innovations in Porto Maravilha, the City Hall of Rio opted to hire a company to carry out the works and the provision of public municipal services through an Administrative Concession, a modality of Public-Private Partnership (PPP) in which payments to the private partner are made through public installments (regular payments with Public Power resources). In this case, the money originates from selling Cepacs. The purpose is to guarantee the execution of the entire requalification process in a single contract. The provision of infrastructure maintenance services, such as urban cleaning, garbage collection and traffic operation, is also paid with these resources. The City Hall established a long term requalification plan, annually adjusted in accordance with the progress of works and the relation of interventions with city’s dynamics.
The costs of the urban operation total R$ 8 billion according to figures from June 2011; from this amount, R$ 400 million relate to the administration of the Companhia de Desenvolvimento Urbano da Região do Porto do Rio de Janeiro (Company of Urban Development of the Port Region of Rio de Janeiro) – CDURP, the City Hall company responsible for the management of Porto Maravilha, and R$ 7.6 billion to the PPP contract. Lasting 15 years, from June 2011 to June 2026, the PPP includes works and services in all of Porto Maravilha’s 5 million squares meters and not just in areas that receive new enterprises with additional construction potential. Therefore, changes benefit, above all, current residents. With the conclusion of interventions, services that began to be provided immediately after the signing of the contract will become more qualified. For instance, the drainage networks of streets that historically suffered with floods are being gradually remade and the problem solved.

CEPAC: What is it?

The Porto Maravilha works are not paid with the municipality’s money. Investors that are building new enterprises in the Port Region disburse resources for infrastructure and public services within its 5 million square meters (m²).
The law that created the Porto Maravilha Urban Operation defined the increase of construction potential in some areas (in the number of m² one is allowed to build in a determined land) that varies according to address. To build, an investor is required to buy Certificates of Additional Construction Potential (Cepacs). With the purpose to stimulate occupation of the region, residential projects demand less Cepacs than the commercial ones.
Preserved areas, on hills or adjacent to hills, cannot suffer modification (do not have additional construction potential), but receive as well Porto Maravilha’s infrastructure works and tax incentives for restoration and housing.


How Cepacs were sold and for whom?

To guarantee the minimum risk of interruption of a long-term urban requalification plan, the City Hall chose the strategy to offer the entire stock of Cepacs by auctioning a single and indivisible lot. According to the auction rules, the buyer of the stock would have to assume the costs of the urban operation during 15 years, as determined in the payment schedule of the PPP contract. The City Hall also committed to sell to the auction winner an extent of lands that use 60% of Cepacs, an obligation that was fulfilled in 2014.
The auction winner was the Real Estate Investment Fund of the Port Region (FIIPM), created by the Severance Indemnity Fund for Employees (FGTS) and managed by Caixa Econômica Federal, which made a successful bid of R$ 3.5 billion, or R$ 545 for each unit, for the stock of Porto Maravilha’s Cepacs, obtaining as well the preference in the purchase of properties expropriated by the City Hall and that use at least 60% of Cepacs. In buying the certificates, the fund assumed the payment of the urban operation expenses for 15 years.
Why did the FGTS invest in the Porto Maravilha urban operation?

Among its obligations, the FGTS has to invest in order to valorize its resources and fulfill its duties with workers. The FIIPM has the tasks to pay for the urban operation expenses and to develop the resources invested by the FGTS with 6% profits per year plus the National Index of Price to the Ample Consumer (IPCA). Besides Cepacs, the FIIPM also bought a large number of properties in the region, as proposed in the auction, amplifying its condition to generate business.
Since June 2011, the FIIMP negotiates Porto Maravilha’s Cepacs and properties directly with the real estate sector. In a second auction, this time promoted by this fund in 2012, part of the Cepacs were sold for R$ 1,150 each unit, which made clear its valorization potential.

The FGTS also innovates

Historically, the FGTS invests in housing, sanitation and infrastructure, finances specific sectors of urban needs. It is a consensus that big Brazilian metropolises, and even regional urban hubs, need reforms to conjointly solve problems of mobility, housing deficit, infrastructure and sanitation, and precariousness in urbanization and availability of community equipment.
By investing in consorted urban operation, the FGTS is financing urbanization processes in all their complexities, an extremely positive action, since the fund is the biggest source of capitals to finance the necessary reforms of Brazilian cities. However, this aspect has not been noticed by many of those who propose to discuss urban operations in general and Porto Maravilha in particular.
Another innovative and very relevant characteristic is that, according to the financial modeling defined by the City Hall of Rio, a good deal of real estate valorization generated with the urban requalification is appropriated by the FGTS (through the FIIPM), which became the biggest agent of the region’s real estate development, and of the city’s as well.
The model created by Porto Maravilha enables the City Hall of Rio de Janeiro to coordinate the biggest project of urban reform of the country without the use of tax money. Profits are transformed into services, infrastructure and urbanization that benefit directly the Port Region and indirectly the entire Metropolitan Region of Rio de Janeiro.
With urban requalification works in full progress and housing, hotel and commercial enterprises under construction, the Port Region reappears with gains for residents, cariocas and also for the pockets of the Employee’s Fund.
Alberto Silva, president of Cdurp
July 2015