Too Public to Fail? Concessionaire Insolvency, Public Service Continuity and the Hidden Fiscal Risk of Privatized Infrastructure

Luiz Carlos Nacif Lagrotta

No gfy8x_v1, LawArchive from Center for Open Science

Abstract: The insolvency of private concessionaires exposes a structural paradox of privatized infrastructure. Concession contracts formally allocate operational, financial, and commercial risks to private operators. Yet when the operator of an essential public service collapses, the State cannot always behave as a passive third party. The service must continue, users must be protected, and public authorities remain politically and legally tied to the function they delegated. The concessionaire is therefore not simply “too big to fail”; it is too public to fail. This article argues that concessionaire insolvency should not be treated merely as a problem of civil procedure, contract enforcement, or bankruptcy law. It is a problem of public governance and institutional risk allocation. Using Brazil as a case study, especially the repetitive appeal proceeding in ProAfR no REsp 2,005,469/RJ, the article examines whether enforcement proceedings may be redirected against a public entity when a public service concessionaire becomes insolvent, even though the public authority did not participate in the original adjudicatory phase and is not named in the enforceable title. The article develops a comparative and theoretical framework. It uses the United Kingdom’s Thames Water crisis and the water Special Administration Regime as a living example of continuity without ordinary corporate rescue; the European Union’s concession framework as a legal model centered on operating risk; and the United States as a limited analogy for infrastructure distress, public-private partnerships, and special insolvency regimes. The argument draws on Michael Mann’s concept of infrastructural power, Ayres and Braithwaite’s responsive regulation, Brandon Garrett’s critique of negotiated corporate governance, Jennifer Arlen’s incentive-based theory of corporate liability, and the law-and-economics literature on PPP renegotiation and risk allocation. The article defends a principle of continuity without public insurance. The State must preserve essential services, but it should not automatically absorb the concessionaire’s debts. Public liability should be exceptional, legally grounded, and connected to specific public conduct, statutory assumption, contractual obligation, or continuity measure. The public function may be too important to fail, but the private operator remains private enough to bear the consequences of its own risks.

Date: 2026-07-09
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Persistent link: https://EconPapers.repec.org/RePEc:osf:lawarc:gfy8x_v1

DOI: 10.31219/osf.io/gfy8x_v1

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