Important case law regarding fines imposed to foreign insurance companies

The Court of Accounts, 2nd Chamber, in charge of hearing contentious-administrative matters, unanimously decided to confirm two resolutions of the Superintendence of Insurance (SIS) and of the Board of Directors of the Central Bank of Paraguay (BCP) by which fines were applied to an insurance agent and a foreign insurance company, for carrying out insurance activities without the latter being authorized to operate in Paraguay.

This ruling constitutes an important precedent, since it would be one of the first cases in which a sanction is imposed on a foreign insurance company for insuring risks in Paraguay without being authorized by the SIS. Although Insurance Law No. 827/96 already established the sanction for operating without the proper authorization, in the past there were no known cases in which a fine or sanction had been imposed.

According to the ruling, the intermediation of the sanctioned insurance agent was demonstrated, among other things, by documents proving that she sent insurance proposals from a foreign insurance company that was not authorized to operate in the country, offering coverage from the latter to persons domiciled in Paraguay. In addition, according to the ruling, among the evidence presented by the SIS and the BCP were documents proving that persons domiciled in Paraguay had contracted insurance with a foreign insurance company not authorized to operate in the country.

Should you wish to receive further information regarding this news or other information related to our insurance practice, please do not hesitate to contact us.

House of Representatives to take on Senate’s version on credit bureau bill in Paraguay

This Thursday, the Chamber of Deputies (Lower House of Congress) must address the amendments introduced by the Senate (Upper House) to the bill that modifies the current Informconf Law.

In the midst of political tension between a group of dissident senators and the Executive Branch, the Senate had approved controversial amendments to the bill introduced and approved by the Chamber of Deputies. While the Deputies' version of the bill established the inclusion of positive credit information in credit reports, the Senate deleted this provision, rejecting the inclusion of positive information and including a limit of 3 minimum salaries (PYG 5,500,000*) to be able to report information on debts. This resulted in the concealment of the information, instead of addressing the problem with a solution.

If the Senate version of the bill passes, this would result in harm to the sector of the population it was intended to help in the first place, the working class consumer. The withholding of information will result in a greater number of rejected credit applications, longer periods of analysis, and higher interest rates, all as a result of a presumption of greater risk in granting credit due to the lack of available information.

In short, people will be forced to resort to “informal loans” with usurious rates, since 90% of the loans granted today are below the limit of 3 minimum wages and there would be no information about them.

On the other hand, the Deputies' version will allow for greater financial inclusion, as commercial and financial entities will now have more information (positive information) allowing them to put a person's financial behavior into context. For example, if a person has an unpaid phone bill of PYG 500,000, but has been paying this same bill on a regular basis for the past 12 months, or is paying a mortgage or vehicle loan, then the credit analyst will be able to more adequately assess the credit application and understand that the unpaid debt may be a consequence of an external factor, rather than unreliable payment behavior.

In addition, the inclusion of positive information will allow for faster and more complete analyses for the purchase of work tools, allowing the working class to start earning money quickly in order to pay off their debts. For example, one may be able to buy a motorcycle with a down payment of less than 5% and immediately start working as a delivery man to earn money.

As a result, both consumer associations and financial institutions have made public statements in favor of the Deputies' version.

Although the trend seems to be that the Chamber of Deputies will confirm its own version and reject the Senate's, the Chamber of Deputies still needs an absolute majority to do so. However, the public is confident that the Chamber of Deputies will follow the right path.  

*Exchange rate of PYG 5,200 to USD 1

Ministry of Public Works and Communications launches major infrastructure international public tender

The Ministry of Public Works and Communications (MOPC) has launched a public tender for the construction of the long-awaited overpass for Madame Lynch Avenue. This will facilitate access from the suburbs of Luque to the main city of Asunción, thus allowing the free flow of traffic of more than 20,000 vehicles per day. The MOPC estimates that more than 7,000 cars will enter Asunción through this new access, while at the same time another 14,000 will be able to cross over underneath.

This infrastructure project comprises the construction of 3 main axes. These are an overpass that allows access from Av. Aviadores del Chaco to the Silvio Petirossi Highway, an underpass that connects the two ends of Av. Madame Lynch and a traffic circle that allows possible changes of directions.

Completion of this construction project is estimated within 12 months of the start of construction.

Some of the requirements to participate in this bid are to have generated during the last 5 best years of the last 10 years, an average annual turnover of USD 60,000,000; in addition to having participated in at least 5 road construction projects in the last 10 years. Of these 5 road construction projects, at least one must be the construction of an overpass and one an underpass.

The Bidding Terms and Conditions have been issued and the process is currently in the clarification stage. The MOPC will receive requests for clarifications until June 15, 2015 and final bids are due on June 22, 2015.

If you would like to receive a copy of the Bidding Terms and Conditions or additional information, please do not hesitate to contact us at rgvouga@vouga.com.py and msalgueiro@vouga.com.py

Paraguay is close to reaching investment grade according to Moody’s

Paraguay is now close to investment grade as Moody's Investors Service has upgraded Paraguay's sovereign bond rating to Ba1 from Ba2, changing its outlook from stable to positive. 

According to the firm itself, “the decision to upgrade the rating is attributed to:

1. The implementation of the reform package enacted in 2013 that strengthens the fiscal framework and boosts infrastructure investment.

2. Efforts to diversify the economy that are producing positive results.

3. Improved governance and institutional strength.

BASIS FOR RATINGS

FIRST ELEMENT - Successful progress towards the implementation of the reforms

The government has made progress in implementing the reforms approved at the end of 2013, including: the fiscal responsibility law (FRL); income tax reforms; and the PPP framework to boost infrastructure investment. Despite the dissimilar application of the LRF, limits were observed in the containment of spending and salary increases in the 2015 budget, which is a significant improvement in contrast to the previous year's budget. Tax collection and tax revenues have improved substantially with the implementation of the new laws. While compliance with the limit on recurrent spending was significant, the actual budget deficit approved by Congress was well above the limit set by the LRF. At the same time, the fiscal target was partially met, through the exclusion of capital expenditures financed through the issuance of global bonds. While increased capital spending is desirable, this approach to meeting the fiscal target indicates that the transition to full compliance with the LRF is not yet complete. We expect continued and improved compliance with the LRF to contain recurrent spending and wage growth, creating fiscal space for growth-enhancing capital spending.

SECOND ELEMENT - Economic diversification is underway

Government and private sector-led initiatives are enhancing economic diversification by developing light manufacturing industries and raising the value added of agricultural exports. The government's strategy aims to improve Paraguay's integration into the regional supply chain by encouraging the establishment of maquilas, auto parts manufacturers, and other light manufacturing. We believe the expansion of light manufacturing industries is likely to continue due to Paraguay's competitive advantages relative to neighboring Brazil, which include low labor and energy costs and a more favorable fiscal environment. In addition, growth volatility typically has a limited impact on government revenues and banking sector performance.

THIRD ELEMENT - Improved governance and institutional strength

Government effectiveness has improved since the Cartes administration took office. The government was able to secure the approval of several key reforms, including; the LRF, the Law to Modernize the Financial Administration of the State, the APP Law, and a revision of the sovereign bond law, among others.

The stable outlook reflects our expectation that the government will continue to implement the various laws passed at the end of 2013 and maintain fiscal prudence, while at the same time expanding infrastructure investment in the medium term. We do not anticipate that Paraguay's rating could change in the short to medium term. Moreover, this upgrade would depend on a track record of improvement in the institutional framework, including compliance with the LRF, and sustained improvement in governance indicators compared to peers.

FACTORS THAT COULD RAISE/LOWER RATINGS

Upward rating pressure could result from: (i) track record of commitment to the fiscal responsibility law as a fiscal anchor; (2) successful implementation of growth-enhancing infrastructure investment; (3) continued economic diversification efforts; (4) improved institutional strength and governance indicators.

Downward pressure could result from: (1) the reversal of the government's prudent fiscal management (2) a significant and prolonged commodity shock driven by declining prices or adverse weather conditions; (3) recurring political instability.

TECHOS PAÍS

As a result of this rating action, the ceilings for long-term local currency bonds and deposits changed to Baa3 from Ba1, while the ceilings for short-term local currency bonds and deposits changed to P3 from Not Prime. The ceiling for long-term foreign currency deposits changed to Ba2 from Ba3, while the ceiling for short-term foreign currency deposits remains at Not Prime. The ceiling for long-term local currency bonds remains at Baa3, while the ceiling for short-term foreign currency bonds remains at P-3.

GDP per capita (PPP base, US$): 8,386 (2014 estimate) (also known as Income per Capita)

GDP growth (percentage change): 4.3% (2014 Estimate)

Inflation rate (percentage change dec/dec): 4.2% (2014 Estimate)

General Government Fiscal Balance/GDP: -–2.3% (2014 Estimate)

Current Account Balance/GDP-0.4% (2014 Estimated) (also known as External Balance Sheet)

External Debt/GDP: 52.7% (2014 Estimated)

Level of economic development: Low level of economic resilience

Delinquency history: At least one episode of delinquency recorded since 1983.

On March 29, 2015, a rating committee was convened to discuss the rating of the Government of Paraguay. The main points of the discussion centered on: the issuer's economic fundamentals, including its economic strength, have increased substantially. The issuer's institutional strength/framework has increased. The issuer's fiscal or financial strength, including its debt profile, has improved. An analysis of this issuer, relative to its peers, indicates that a repositioning of its rating would be appropriate.”

Recent appointments for Antitrust Authority

On July 28, 2015, the members of the Board of Directors of the National Competition Commission (CONACOM) were appointed through Decree No. 3827/2015.

Carlos Alberto Filartiga Lacroix, Miguel Osmar Núñez Figueredo and Fabrizio Augusto Castiglioni Serafini were appointed as regular members. Mr. Mario Aníbal Romero Lévera was appointed as alternate member.

The appointment of a Research Director is still pending.

CONACOM is the enforcement authority of the Antitrust Law (Law No. 4956/2013).

Contact us for more information about this news or about the legal framework for antitrust matters.

International Finance Corporation (IFC) retains Vouga in the granting of a US$ 30 Million loan to Sudameris Bank in Paraguay

Vouga Abogados represented the International Finance Corporation (IFC) in granting a loan of up to US$30 million to Banco Sudameris in Paraguay.

The purpose of the loan is to provide the borrower with a short-term revolving loan to be used to fund its lending operations to eligible sub-borrowers through the creation of a pool of eligible sub-loans secured by acceptable deposit warrants.

IFC's loan to Sudameris will enable it to provide financing to Paraguay's fastest-growing sector, which is the mainstay of the country's economy.

The Firm assisted IFC in all matters related to local laws and the agreement was finally executed on February 12.

The International Finance Corporation (IFC) retains Vouga in sell-back of US$62 million stake in Banco Continental

Latin Lawyer reported:

“The International Finance Corporation (IFC) engages Vouga Abogados for the sale of its shares in Banco Continental for US$ 62 million.

Banco Continental retained Galeano Ríos, Morales y Asociados of Asunción to assist in the transaction, which was completed on February 9. The transaction was based on IFC's exercise of a put-back option right (put option) the shares it had acquired in 2009. [...]”

Reprinted with permission of Law Business Research Ltd. This article was first published in LATIN LAWYER. For more information please visit http://latinlawyer.com/features/article/47887/vouga-galeano-rios-ifc-share-sale/.

Paraguayan Government issues public tender for major sanitation project in Asuncion

The Paraguayan state-owned Empresa de Servicios Sanitarios del Paraguay (ESSAP) has initiated a public bidding process for the construction of major sewerage and wastewater treatment systems worth more than US$500,000,000 for the Lambare, Luque and Mariano Roque Alonso basins in the metropolitan area of Asunción.

This project is executed under the modality foreseen in Law 5074/13 “Establishing the Public Works Regime”, according to which the bidder must also arrange for the financing of the works with first class institutions, with sovereign guarantee. Further details on the financing scheme will be published in the bidding documents. The sewer and wastewater system will be constructed under the engineering, procurement and construction (EPC) model.

According to the Invitation for Prequalification, the technical specifications of the project will include the following components:

a) Sanitary sewerage networks (primary, secondary and tertiary collectors and house connections);

b) Pumping Stations and Pumping Lines;

c) Wastewater Treatment Plants;

d) Sub-fluvial outfalls.

The project also includes the assisted operation of the Wastewater Treatment Plants for a minimum period to be established in the bidding process, in addition to the elaboration of an organizational strengthening plan that will include consulting services, provision of goods and services, execution of civil works and electromechanical assembly.

The public bidding is currently in the pre-qualification stage. At this stage bidders must provide information on their technical qualification and then the selected bidders will submit their bid for the engineering, procurement and construction of the sewerage and wastewater treatment system.

The deadline for submitting the pre-qualification application is March 09, 2015 at 9:00 a.m. (Paraguayan time) and the consultation period ends on March 02, 2015 at 12:00 noon (Paraguayan time). Subsequently, the government will select the companies that will be able to participate in the bidding process.

Public bidding is expected to be completed by July 2015 and construction of the project in 4 years.

If you would like to receive a copy of the Invitation for Prequalification or additional information, please do not hesitate to contact us at msalgueiro@vouga.com.py and rgvouga@vouga.com.py.

Mauricio Salgueiro – Rodolfo G. Vouga Z.

Paraguayan Government issues request for qualification (RFQ) for expansion of highways 2 and 7 under first PPP project

Last Friday, January 23, 2015, the Paraguayan Government launched the call for pre-qualification of companies interested in investing in the expansion of international routes 2 and 7, which connect Paraguay with Brazil, under the Public-Private Partnership (PPP) scheme.

The project contemplates the “design, construction, financing, operation and maintenance of the duplication and improvement of the existing 142 km stretch of National Routes N° 02 Mariscal José Félix Estigarribia and N° 07 Dr. Gaspar Rodríguez de Francia”, which represents an investment of approximately USD 350 million (according to government estimates). Among the works to be carried out are the widening of lanes (from 2 to 4), construction of a viaduct, construction of collector roads and the bypassing of several cities.

The government plans to cede the collection of tolls in the cities of Ypacaraí and Coronel Oviedo, which would be collected bi-directionally, for up to 30 years. Other state contributions will be defined at a later date.

Pre-qualification ends on March 16, 2015 at 2:00 p.m. and the consultation period on February 20, 2015. After the study of the documentation submitted, up to 10 companies will be prequalified to participate in the subsequent bidding process.

The tender is scheduled for June 2015 and the works are expected to take approximately three years to complete.

Should you wish to receive further information, including a copy of the bidding documents for the call for prequalification, please do not hesitate to contact us.