The ‘Here’ and ‘Now’ of Smart Cities in Public Lighting PPPs

The implementation of smart city initiatives through public-private partnership (PPP) contracts in the public lighting sector has been under discussion for some time. However, beyond political and business goodwill, many steps had to be taken for such projects to begin materializing consistently.

There was a significant increase and proliferation of public lighting PPPs supported by FEP/Caixa and BNDES in structuring new projects. The involvement of these entities was crucial for the sector’s expansion as they enabled the structuring of projects in a more transparent and independent manner, aiming to establish mechanisms that balance municipal demands and private interests.

In the 2023 edition of the sector overview developed by the Brazilian Association of Public Lighting Concessionaires (ABCIP), a survey reveals that players estimate “a threefold increase in contracts between municipalities and private entities for the modernization of public lighting parks by 2024. In other words, from nearly 70 contracts signed in mid-2022 to 210 by the end of next year.”

However, it is a fact that the modeling of these projects with federal support did not bring smart city initiatives into the scope of public lighting service delegation contracts. Mixing activities could lead to questions about the aggregation of the bidding object and generate discussions on the use of COSIP/CIP funds for activities outside the core of public lighting services. Since the goal of federal programs is to boost more infrastructure investments, aspects that might pose risks to launching new projects, such as including smart city initiatives, are often excluded from the models.

This does not mean that federal support for the proliferation of PPP contracts in the public lighting sector has stopped fostering smart city initiatives. On the contrary, these contracts have opened a door through the treatment of the subject via ancillary revenues, associated and alternative projects, authorized by Article 11 of Law 8.987/95, including allowing partnerships with granting authorities.

It is important to note that a municipality with an ongoing public lighting PPP has a private partner with exclusive access to municipal network assets, interested in exploring new services that could provide additional revenue. For municipalities providing public lighting services exclusively through Law 8.666, there is no such alignment of interest and legal permission for exploring new revenue streams.

Despite criticisms of some contract clauses, it is true that there is now a contractual base upon which new projects to activate Internet of Things (IoT) technology in the public lighting network can be developed. However, it should be emphasized that this type of initiative is not suitable for every contract or situation; it is necessary to assess the city’s context and its needs concerning new services.

In other words, to develop this type of initiative consistently, a “new” project model must be created, through a study that demonstrates to stakeholders that any smart city project intended for implementation will be viable from different perspectives.

Technical analysis of technological feasibility and public lighting assets is needed, sometimes involving the evaluation of local network poles. The business model might also involve leveraging 5G investments, with the installation of signal transmitters and unactivated fiber optics within the public lighting network, sometimes even using the public lighting concessionaire as an intermediary with the electric utility, to bring synergy among business agents.

Economic-financial analysis of the business plan is also required, studying revenue sources (users, businesses, government), investments (CAPEX), and costs (OPEX) involved in the project, and sometimes evaluating alternative solutions such as equipment leasing or lending. Additionally, options for municipalities to maintain the service after the PPP contract ends may need to be assessed.

Legal analysis is also necessary to structure the commercial partnership, for example, to assess the legal regime of the contract: whether it is an exclusively private agreement with government approval or, alternatively, a business arrangement between the concessionaire and the state contractor to provide necessary services to the municipality. Furthermore, various financing structures and regulatory obligations of the parties need to be evaluated, with a focus on LGPD guidelines and judicial precedents regarding data collected from similar services.

It is worth noting that this type of initiative is not a thing of the future.
It is already happening in at least two municipalities. The first example is from São Paulo, where the PPP contract included services for the maintenance, replacement, and modernization of traffic light infrastructure. Another example was implemented by Enel X in Angra dos Reis, where the company will be responsible for rotating parking in the municipality, which will serve as a revenue source to drive multiple smart city services for the population, such as public Wi-Fi in squares, traffic light automation, video surveillance cameras, among others.

In both cases, there were questions about the proposed models, but these were overcome by demonstrating prior evaluations, with technical and legal arguments addressing concerns, for example, about the need to bid for the installation of additional assets benefiting municipalities and citizens.

All indications are that the key to unlocking smart city opportunities lies in the efforts made by private entities, particularly public lighting concessionaires, to prospect for innovation and structure disruptive business models in a consistent and technical manner. At the same time, granting authorities must understand the impact of these new smart services in their municipality and foster an appropriate institutional environment for these innovations. The current portfolio of signed and ongoing contracts offers a broad range of possibilities. Innovation is essential. With the world clamoring for technological advancements, it seems that the “here” and “now” have indeed arrived for smart city projects in public lighting PPPs.