Ministry of Integration and Regional Development publishes new ordinance establishing criteria and complementary conditions for classifying priority investment projects in the irrigation sector

On January 20, 2025, the Ministry of Integration and Regional Development (“MIDR”) published MIDR Ordinance No. 128, which establishes the complementary conditions for classifying, approving and monitoring investment projects considered to be priorities in the irrigation sector.

The MIDR will be in charge of approving (where applicable) the issuance of securities provided for in Article 2 of Law No. 12,431, of June 24, 2011, and Law No. 14,801, of January 09, 2024, and monitoring the development of these investment projects. This duty may be delegated to the regulatory agency or other entities linked to the MIDR, when compatible with their respective legal and regulatory powers.

MIDR Ordinance No. 128 aims to facilitate the issuance of incentivized debentures and infrastructure debentures, stimulating the development of irrigation-related projects and, in turn, ensuring the availability of water for agriculture and increasing productivity and food security.

Incentivized debentures or infrastructure can be used to finance projects in the irrigation sector that directly or indirectly provide suitable conditions for the use of irrigation in agricultural crops, such as:

• o implementation, expansion, recovery, adaptation or modernization of mechanical, electrical and civil structures and all the components necessary for the operation of an irrigation system, such as equipment, components, and structures for water collection, elevation, condition, storage, distribution, agricultural drainage, systematization and soil correction; or
• improvements to support agricultural production and access roads.

Activities involving the administration, operation, upkeep and maintenance of irrigation infrastructure for common use are excluded.

Key highlights of MIDR Ordinance No. 128

Exemption from prior ministerial approval

MIDR Ordinance No. 128 innovates by removing the need for prior ministerial approval for irrigation projects involving public services owned by states, the Federal District or municipalities. It also establishes special conditions for projects involving authorizations to use water resources or infrastructure, designed to ensure that the investment project does not jeopardize the execution of existing public concessions in the same location, as will be detailed below.

These topics were not covered by MIDR Ordinance No. 1,936 of June 14, 2023, which was repealed by MIDR Ordinance No. 128.

Despite the exemption from prior ministerial approval, Normative Ordinance No. 128 recommends that the project owner await receipt of the opinion on whether the project has been classified as a priority before proceeding with the first issuance of securities with tax incentives.

Monitoring and inspecting projects

The MIDR will monitor and inspect the infrastructure projects classified as priorities and may seek the institutional cooperation from other bodies to this end. The MIDR will specifically monitor projects involving public services owned by the Federal Government and regulated by the National Water and Basic Sanitation Agency (“ANA”) indirectly, through consultations with the agency.

For projects involving public services owned by sub-national entities, the issuer will submit to the National Secretariat for Water Security, within 30 working days of the end of the estimated deadline for completion of the investment project, a technical statement from the regulatory agency or appropriate body attesting to the physical implementation of the projects or stating the new deadline for completion.

In addition, the issuer of securities with the tax benefits referred to in Ordinance MDIR No. 128 must submit a copy of the report referred to in Article 15 of the Brazilian Securities and Exchange Commission (“CVM”) Resolution No. 17, of February 09, 2021, drafted by the issuance’s fiduciary agent, to the National Secretariat for Water Security every year, within four months of the end of the fiscal year.

In addition, the project owner must inform the National Secretariat for Water Security within a maximum of 60 days of any change in the implementation of the project, including changes to the execution period or withdrawal. The amendment, therefore, must be carried out without prejudice to the securities already issued and, in the event of changes that alter the nature or value of the investment, the issuer must request the National Water Security Secretariat to amend the terms of the investment project, which will only be accepted if such changes:

1. have been authorized by the appropriate regulatory body or entity, in the case of a project regulated by the Government;
2. are within the scope of the concession, permit, authorization or lease agreement; and
3. meet the requirements established in MDIR Ordinance No. 128 and other applicable legal and infra-legal regulations.

The National Secretariat for Water Security must respond to the request for an amendment within 30 days, which can be extended for the same period if justified.

In addition, the MDIR will be responsible for directly monitoring the project’s implementation, except for aspects relating to financial execution. As soon as it becomes aware of any occurrences indicating that the priority project has not been implemented or that it has been implemented in disagreement with the terms of Decree No. 11,964, it must notify the CVM and the Special Secretariat of Federal Revenue.

Special criteria for projects subject to public authorization

MIDR Ordinance No. 128 established additional criteria that must be met for projects involving public concessions, either in force or being structured, and authorizations for the use of water resources or public irrigation infrastructure. They include:

• submitting a statement of conformity along with the application for classification as a priority project;
• submitting a compatibility analysis, ensuring that the authorization obtained does not conflict with existing public concessions, demonstrating:
  • that the use of water resources and/or public infrastructure will be carried out with no damage to the execution of public concessions in the same region; and
  • that the investment project can be integrated with existing public concessions without compromising the availability of resources.
    
• submitting a technical opinion from the ANA for projects subject to authorizations regarding the use of federal water resources, confirming that their use for the project will not compromise the volume or quality of water resources;
• submitting an impact analysis on concessions under structuring, carried out by a qualified professional, if there are concessions or permits in the same region as the authorized project, containing:
  • assessing potential impacts of authorized projects on concessions being planned; and
  • submitting recommendations to mitigate impacts, which must be validated by the appropriate sector bodies or granting authorities.

In addition, the project owner must maintain communications with the granting bodies responsible for the respective irrigation infrastructure concessions or permits in the region of the authorized project to coordinate the use of water resources.

For more information on Decree No. 11,964, Law No. 12,431, Law No. 14,801, and  Law No. 11,478 – which created the Equity Investment Fund (“FIP”) for investment in infrastructure and Research, Development and Innovation (“RD&I”) with tax incentives for its shareholders – access the client alerts published by our experts:

• Law No. 14,801/2024 establishes a new category of infrastructure debentures
• Decree No. 11,964 regulates the classification of investment projects as priorities
• Ministry of Transport – incentivized debentures and infrastructure in the road and rail sector
• Ministry of Ports and Airports – incentivized debentures and infrastructure in the logistics and transport sector
• Brazilian Federal Revenue Service Normative Instruction No. 2235/2024 – details the tax benefits of issuing incentivized and infrastructure debentures
• Ministry of Mines and Energy – incentivized debentures and infrastructure in the natural gas and biofuels sector
• Ministry of Mines and Energy – opens public consultation for ordinance that will regulate the classification of projects as priorities in the strategic minerals sector for energy transition

Access MIDR Ordinance No. 128 in full.

Demarest’s Public and Regulatory Law, Investment Funds and Asset Management, Infrastructure and Project Financing and Capital Markets teams continue to monitor updates relating to the priority sectors and remain available to provide any further clarification that may be necessary.