XXXXXX XXXXX LatinLatin Infrastructure Quarterly 1 Infrastructure Quarterly The Project Bond Evolution: Port of Paita Case StudyGianluca G. BacchiocchiThe Canadian WayHealth PPPs Uruguay: Pension Funds and Infrastructure
Latin Infrastructure Quarterly 3 ContributorsTo Our Readers:A Azpiroz, Ignacio Unión Capital s always I am very excited with what you will find inside and I want to make public how much I appreciate the support from the practitioners Bacchiocchi, Gianluca G. that made this Issue possible. Given that large number of articles inside I DLA Piper will not offer brief descriptions of each of them. What I do want to com- Barrios, Adriánment on is that, keeping in line with the previous issues of LIQ, this Issue brings you PwCcoverage of: current matters such as project bonds; new and evolving ones such asinfrastructure investment funds; profiles of companies and projects such as Terminal Bentivegna, EnricoInternacional del Sur (Peru), among other really interesting topics. Pinheiro Neto Advogados LIQ has partnered with Latin Markets to provide relevant exposure to the up- Celio, Jorgecoming “Peru Capital Projects & Infrastructure Summit” and has interviewed three IOS Partnersof the speakers that will be sharing their knowledge and experience at said Summit:Michelle Haigh of Conduit Capital Partners; José Quiñones of the Oficina de Nor- da Rita, Paulmalización Previsional; and Erick Hein Dupont of Terminal Internacional del Sur. PwCI am very happy with the outcome of these interviews and I hope you find them Del Vento, Maximilianointeresting. Partners Group On a last note, please do not close this Issue without reading “Rawson WindProject: A landmark in the Argentine Renewable Energy Generation Market”. This Garver, Mathewarticle should be the first of a series of articles covering infrastructure development Patton Boggs LLPand finance in forgotten Argentina. As I write these paragraphs I am on a plane re- Gutiérrez, Luisturning from delivering a presentation titled “Unveiling the Successes and Critical EMBARQ Latin AmericaConsiderations for LatAm Companies in the Brazilian Infrastructure Market” at theMarcus Evans’ Brazilian Infrastructure and Property Development Summit that took Haigh, Michelleplace close to Salvador (Bahia). The context of delivering said presentation that ob- Conduit Capital Partnersviously touched on Corporación América and being on a plane made me think about Hein Dupont, Erickthe highly successful tender of four Brazilian airports that showed the world how Terminal Internacional del Surinterested investors and operators worldwide are in Brazilian infrastructure. Afterconnecting in São Paulo, I will arrive in Argentina, one of the most hostile jurisdic- Jauhari, Anaditions in Latin America for private capital and resources in the business of developing Emerging Energy and Environment Groupand financing infrastructure. Llamosas, Cecilia The difference between Brazil and Argentina when it comes to current infrastruc- Vouga & Olmedo Abogadosture policy, investment and development is great. As an Argentine national and anobserver of how the region develops its economic and social infrastructure it deeply Motta, Carlos Eduardosaddens me (but does not surprise me) when international and regional players talk Admiral, Lawyer and Engineerto me about how they do not even consider Argentina as a possible market in which Nascimento, Joãoto allocate their capital and resources. Hopefully this scenario will change in the Pinheiro Neto Advogadosfuture and the articles featured in LIQ will serve the purpose of introducing the Ar-gentine infrastructure market to international players. Queiroz, Cesar Please do not hesitate to contact me at email@example.com with feedback on International Consultantthis Issue, questions, issues you would like to read about, events you want to pro- Quiñones, Josémote, and practitioners, companies or projects you would like see covered. Oficina de Normalización Previsional (Perú)Best regards, Rodriguez, Victor Hugo The Hedge Fund Association – LatAm Chapter Russo, Ricardo Pinheiro Neto AdvogadosPatricio Abal. Sawant, Rajeev Assistant Professor at Baruch College Vazquez Acuña, Martín Marval, O’Farrell & Mairal Vouga, Rodolfo Vouga & Olmedo Abogados
4 Latin Infrastructure Quarterly LatAm Chapter XXXXXX XXXXX Connect | Unite | Inspire Advancing Transparency and Trust in LatAm Alternative InvestmentsThe Hedge Fund Association™ is a not-for-profitinternational group of industry professionals with a missionto provide a forum for thought leaders, innovators,practitioners and investors who are shaping the way businessis conducted in the global hedge fund industry.With the maturity and institutionalization of the global hedgefund industry, the HFA advocates for the industry by givingvoice to the issues affecting the industry through theeducation of investors, the media, regulators and legislators.Members of the HFA also serve the community at largethrough a commitment to philanthropy.. Latin American Chapter Director Victor Hugo Rodriguez, LatAm Alternatives New York-LatAm Chapter Director Les Baquiran, Park Hill Group (a division of the Blackstone Group) Brazilian Chapter Co-Directors JOIN US AT HFA LatAm Marcia Rothschild, Citibank Latin America MEMBER BENEFITS: Otavio Vieira, Fides Asset Management Chilean Chapter Director Exclusive Opportunity to be interviewed at Juan Luis Rivera, Moneda Asset Management Top Publications Unique Private Events with Asset Colombian Chapter Director Allocators (Exclusive to Managers Daniel Osorio, Andean Capital Management Members) Your Logo and Core Strategies Argentinean and Uruguay Chapter Co – Directors Description on HFA Web Site Michelle Furnari, LatAm Alternatives Authorization to display HFA Logo in your Martin Litwak, Litwak and Partners firm literature Private Invitations & Industry Conference Peruvian Chapter Director Discounts Carlos Rojas, Andino Capital Management Access a network of leaders for Panama Chapter Director expanding professional opportunities Jose Abbo, SFC Investments Introductory Annual Membership Pricing The Hedge Fund Association™ (U.S.) 1-202-478-2000 | firstname.lastname@example.org | theHFA.org
Contents 5 ContentsLocal Pension Funds and Infrastructure Development in Uruguay......................6The Project Bond Evolution: Port of Paita Case Study.......................................13Brazilian Fostering of Private Financing of Infrastructure Projects...................18Peru: Port of Matarani - Terminal Internacional del Sur....................................22Peru’s National System of Pensions...................................................................27The Canadian PPP Model and Its Applicability in Latin America.....................29Health PPPs: Rationale & Drivers......................................................................32Integrated Transit Systems and Bus Rapid Transit in Latin America................36Infrastructure Investing – An Alternative Perspective.......................................40Divergence in Foreign Direct Investment and Infrastructure Development inLatin America....................................................................................................45III Brazil Infrastructure Investments Forum......................................................49The Peruvian Electricity Market.......................................................................51Energisation of Paraguay’s Eastern Region.......................................................53LatAm Infrastructure: Outlook for 2012 and the role of PPPs..........................55Critical Steps for Implementing Successful Public-Private Partnerships in theBrazilian Road Sector.........................................................................................58Rawson Wind Project: A Landmark in the Argentine Renewable Energy Gen- Adrian Barrioseration Market....................................................................................................63Latin American Hedge Funds..............................................................................66 Paul da Rita
6 Latin Infrastructure Quarterly Infrastructure FinancingLocal PensionFunds andInfrastructureDevelopment inUruguayLIQ talks to Ignacio Azpiroz of Union Capital andMaxmiliano del Vento of Partners GroupI gnacio Azpiroz: Last year a new With approximately EUR 24.8 billion in ture opportunities: brownfield (existing), PPP law was approved unanimous- assets under management across private rehabilitative brownfield, and greenfield ly and the recent steps towards its equity, private infrastructure, private real (development), across geographic re- implementation represent an ap- estate, and private debt, the firm has re- gions and accessed through direct, sec-propriate legal framework to promote mained as an independent company, al- ondary and primary investments. As athe participation of local investing insti- lowing it to focus exclusively on private result, Partners Group began to establishtutions in future projects. Access to the markets assets and minimizing potential the team, tools, systems and geographicasset class had been quite limited until conflicts of interests. Partners Group has presence necessary to address this broadnow, but given the new regulation, I en- been an early player in the infrastructure set of opportunities. Since then, Partnersvision a substantial shift in the following sector, making its first investment in 2001 Group has built up its expertise, relation-months. In Uruguay, there is consensus and its first private infrastructure fund ship and knowledge base in global infra-among economists that, in order to main- investment in 2002. As the infrastructure structure markets, by investing over EURtain economic growth in the long run, the market matured, Partners Group devel- 1.3 billion and completing 52 transactionsinvestment/GDP ratio must increase. As oped significant infrastructure expertise in more than ten countries in the course oflong as the PPP projects are adequately through a number of investments in in- the past decade.structured I am convinced that pension frastructure partnerships, direct and sec- How was the portfolio of the local pen-funds will support these initiatives. ondary investments. These investments sion funds, AFAPs, made up before the Maximiliano Del Vento: Partners have been broadly diversified across geo- recent changes to the legal framework?Group was founded in Switzerland in graphic region and sector (e.g. transporta- Can you describe these changes in theJanuary of 1996 and has seen then steadi- tion, communication, utilities and social framework? And, how do you envisionly increased its presence to a global or- infrastructure). Early on, Partners Group the portfolio to change in the near future?ganization that includes over 550 profes- recognized the importance of making use Ignacio Azpiroz: Current portfolio op-sionals in 15 offices around the world. of the full spectrum of private infrastruc- portunities are reduced, not because of lit-
Infrastructure Financing Latin Infrastructure Quarterly 7 “Montevideo’s Internationaltle interest from AFAP but because thereare few projects available in the market.Considering both direct and indirectinvestment in infrastructure, AFAP’sparticipation today is about 5% of the Airport is now a new landmarkportfolio. Montevideo’s InternationalAirport is now a new landmark for thecountry and we are proud to have partici- for the country and we arepated in this project. With regards to therecent changes to the legal framework, proud to have participated in this project.”there are two main points from the lend-ers point of view: the concession pledgeand the step in right implementation. Inaddition the pension fund limits regard- Ignacio Azpirozing PPP investments was increased from25% to 50%. I envision 10% to 15% par- tion. In our experience, pension funds are GDP ratios of about 5% and high demandticipations in the asset class. The system increasingly looking at infrastructure to of sovereign debt endorse this statement.currently holds 9 billion AUM which diversify their portfolios, due to the low I am sure that securities related to infra-represents 17% of GDP and, if we take correlation to traditional asset classes. In structure investments will have also highinto account that it is still in the accumu- summary, the asset-class is attractive for demand if investors can custody them atlation phase, these are big numbers for pension funds because infrastructure as- an external clearinghouse.the size of the country. sets typically: i- show low correlation to Maximiliano Del Vento: The OECD broader economic cycles, providing a key report on Infrastructure to 2030 (volumesWhy do infrastructure investments diversification benefit to pension fund 1 and 2) published in 2006/2007, esti-make sense for local pension funds? portfolios heavily exposed to equities and mated global infrastructure requirements bonds; ii- provide a stable predictable to 2030 to be USD 50 trillion. SuchIgnacio Azpiroz: I believe that this type return with strong downside protection; levels of investment cannot be financedof assets is intrinsically related to the iii- generate a running cash yield provid- by traditional sources of public financeportfolio’s objectives. These are long- ing capacity to fund pension obligations; alone. The result has been a significantrun investments with a very attractive iv- trade at compelling risk premiums infrastructure gap and the need of r newrisk/return relation. In addition, there are over government bonds; and v- provide sources of finance. Public budgets fed byseveral other positive aspects, including: inflation protection due to inflation-linked taxes will not suffice to bridge the infra-a) diversify our portfolio; b) cash flows (or at least inflation correlated) payment structure gap. What is required is greaterare indexed to inflation; c) improves the structures. private capital participation, together withquality of life of our affiliates. It is im- greater diversification of public sector rev-portant to point out that this kind of in- When it comes to infrastructure invest- enue sources. Institutional investors willvestments in infrastructure are also part ments, do AFAPs invest/work together? play a relevant role in bridging this gap,of other pension fund portfolios of the financing long-term, productive activi-region, such as in Chile, Perú, Colombia Ignacio Azpiroz: This is an important is- ties that support sustainable GDP growthand México. sue. At Union Capital we believe that any and increased national competitiveness. Maximiliano Del Vento: The continu- improvements regarding the development Partners Group believes that emerginging volatile macro-economic backdrop of the final security will benefit all inter- markets exposure can be an important re-and record low real yields for safe assets ested parties. All key actors (developers, turn driver when incorporated into glob-have resulted in growing interest by in- sponsors, funders and government agen- ally diversified infrastructure portfolios.stitutional investors in an asset classes cies) should look for synergies in order to As a result, all of Partners Group’s infra-that can generate stable performance achieve goals, gain experience and move structure programs have an allocation towhilst still producing desirable yields. forward in a synchronize way. emerging markets infrastructure assetsInfrastructure investments are attractive Are there opportunities for internation- (typically 5% - 20%). In addition Part-to institutional investors such as pension al institutional investors? Has there been ners Group manages a separate accountfunds as they can assist with liability interest shown by big international play- for a European pension funds focuseddriven investments and provide dura- ers in the Uruguayan market? solely on emerging markets infrastruc-tion hedging. Infrastructure projects are Ignacio Azpiroz: Yes, I believe new ture investments. Despite a recent slow-long term investments that could match conditions clearly favor the participa- down in the growth trajectory of severalthe long duration of pension liabilities. tion of international investors. It is clear key economies, many emerging marketIn addition infrastructure assets linked the Uruguayan prestige abroad based in countries still exhibit strong growth fun-to inflation could hedge pension funds a market friendly legal framework and damentals, are in a healthy fiscal position,liability sensibility to increasing infla- a strong macroeconomic outlook. FDI/ and have a high need for infrastructure
8 Latin Infrastructure Quarterly Infrastructure Financingbuild-out as well as the ability to investin infrastructure assets. Emerging market “In our experience, pension funds aregovernments have increasingly adoptedstable regulatory frameworks, a prerequi- increasingly looking at infrastructure to diversify their portfolios, due to the lowsite for attracting long-term capital. Con-sequently, country and regulatory risks in correlation to traditional asset classes.”many jurisdictions have declined, therebyincreasing the set of investment opportu-nities in emerging markets. For instance,this can be seen in Thailand, where the Maximiliano Del Ventofirst independent power producer regu-lation was established in 1992. Today, the renewables space but have sensibly the asset class is important due to thea 15- year plan is driving investments structured such subsidies to make them independent and significantly uncorre-in the renewable energy sector. Partners fiscally acceptable longer-term (thereby lated nature of the risks to which privateGroup recently completed an investment reducing the risk of retrospective changes infrastructure assets are exposed (e.g.in Wind Energy Holdings, the company as we have seen in Europe). Outside the political risk, regulatory risk, projectconstructing Thailand’s first utility-scale renewables sector we also believe that risk and potentially some demand risk).wind projects. These projects benefit transportation and energy infrastructure Pension funds should also appreciatefrom a highly attractive ten-year adder assets remain attractive in the emerging that there is not a “one size fits all” ap-tariff and considerable downside protec- markets, particularly in Asia. proach to how best to access this oppor-tion through conservative underwriting tunity. Partners Group approaches theassumptions. Partners Group continues to How should pension funds access the infrastructure investment opportunitybelieve that the most compelling opportu- infrastructure investment opportu- through an integrated approach of in-nities in emerging markets involve asset- nity? vesting in infrastructure funds (on bothcreation strategies (i.e. greenfield) rather a primary and a secondary basis) as wellthan buying existing assets (i.e. brown- Maximiliano Del Vento: Pension funds as directly into infrastructure projects/field), which tend to be priced at a premi- that wish to access the investment op- assets. Investing in this manner allowsum. We are seeing particularly attractive portunity should prioritize building a the firm to take maximum advantage ofdeal-flow in the renewable energy sec- diversified portfolio of quality infra- market opportunities for the benefit oftor in Asia (in particular Thailand, India structure assets. Partners Group be- its clients. In this way Partners Groupand Malaysia), Latin America, Eastern lieves it is important to diversify private also can construct portfolios that moreEurope and South Africa. Many of these infrastructure investments by region, effectively mitigate the J-curve, pro-geographies have established attractive sector, and maturity stage (greenfield/ vide earlier distributions and enhancedfeed-in tariffs to promote development in brownfield). Such diversification within liquidity.
Infrastructure Financing Latin Infrastructure Quarterly 9
10 Latin Infrastructure Quarterly Deals Partners Group strategically allocatescapital to the segments of the private in- Ignacio Azpiroz, Chief Invest-frastructure market that the firm believes ment officer, Union Capital AFAPwill offer superior value “relative” to (Pension Fund – Uruguay)other segments at a given point in timewithin strategic asset allocation ranges. Ignacio Azpiroz is the Chief Invest-Partners Group considers this integrated, ment officer of Unión Capital AFAP,relative value approach to be the founda- one of the four pension funds in Uru-tion for superior long-term investment guay with USD 1.450 million of assetperformance. under management as of September, 2011. He has more than 15 years ofWhat have been major works financed experience in the market. He has alsoin the past by AFAP? And, what are the advised Boston Fondos mutual fundsprojects in the pipeline? from 1999 to 2001. He is an econo- mist from the Udelar University, andIgnacio Azpiroz: I have already men- holds a Finance Diploma from ORTtioned the construction of Montevideo’s University. Besides he is a CFA char-International Airport that involved a total terholder since 2007.investment of over $ 200 million. Someother major projects funded by AFAP inthe past include the improvement of na- Maximiliano Del Vento, Investment Solutions, Partners Grouptional highways, energy production proj-ects and the development of sanitation Maximiliano Del Vento is a member ofsystems. These projects were developed the investment solutions team in theby national and local governments. Re- New York office. His responsibilitiesgarding the pipeline, the first two projects include investment origination and cli-are a Greenfield of a correctional institu- ent relations in Latin America. Prior totion and a Brownfield of roads. We also joining Partners Group, he worked atforesee some other investments in rail- Merrill Lynch in New York, covering pri-roads, ports development, and wind ener- vate clients and middle market institu-gy which will demand investments close tions in Latin America. Previously, heto $ 5 billion in the next 5 years. was an associate at Bank of America Merrill Lynch global investment bank inWhat is the role of the Uruguayan Cen- New York, covering financial sponsorstral Bank in AFAP investments? in North America. He holds a Master’s degree in corporate finance from theIgnacio Azpiroz: The Uruguayan Central University of Barcelona in Spain, anBank (UCB) regulates the entire system. LL.M. in Law and Economics from theThe availability of this type of invest- University of Torcuato Di Tella in Argen-ment projects is based on three minimum tina, a juris doctor degree (J.D. equiva-requirements: 1) the UCB must approve lent with honors) from the University ofthe investment; 2) the instruments must Belgrano, Argentina and earned a Financial Risk Management Certificatebe listed on an exchange; and 3) obtain from New York University.a local rating of at least BBB-. The mainchallenge now is to obtain a good ratingduring the pre-operational phase withsome credit enhancement that can ensurethe participation of pension funds from investment, both locally and internation- are adapting their regulations to addressthe start. One important issue is that the ally. PPP projects are not only a great op- infrastructure needs, putting local pensionAFAP cannot bear construction risk. I portunity for portfolio diversification but funds and other institutional investors inthink that a mechanism to minimize this will also help improved competitiveness a leadership position to champion the de-risk must be developed. as well as quality of life for our affiliates. velopment of asset class. Failure to make Ignacio Azpiroz: In sum, I am con- Maximiliano Del Vento: The suc- significant progress towards bridging thevinced that the economic environment cessful expansion of pension funds into infrastructure gap could prove costly inas well as the adequate legal framework infrastructures depends to a large extent terms of slower economic growth andwill promote the success of PPP projects. on regulatory changes to pension fund re- loss of international competitiveness.I expect a high interest in this type of gimes. Several countries around the world
12 Latin Infrastructure Quarterly DealsInfrastructure financing in Latin America has developedrapidly over the last 6 years. What was generally limitedto syndicated bank and multi- and bilateral lending, gov-ernment funding and insured project bonds, infrastruc-ture financing has evolved to rely on the capital markets The Project Bondlike never before, even without the support of traditionalcredit enhancers. In the past, especially before the 2008market meltdown, when the capital markets were accessedto finance Greenfield and Brownfield projects, interna-tionally placed bonds were either wrapped by credit en- Port of Paitahancers, or involved the securitization of payments com- Evolution: Case Studying from a central government that were not tied to thecompletion of the project or operating risk. Only once theproject was completed could a project bond that relied onthe cash flows of the particular project be issued withoutcredit enhancement in the capital markets. In the lattercase, the original debt that was incurred for the construc-tion of the project was refinanced with bonds that a pro-vided longer tenor with fixed interest rates (if US dollarbased) and perhaps even lower interest rates.J ust recently, however, on April 18, coastal port in the northern region of Peru 2012, the first Rule 144A/Reg S in terms of container volume. Its opera- project bond was issued for a Latin tions are carried out pursuant to a 30‑year American Brownfield project be- design, build, finance, operate and transferfore construction and without credit en- concession granted by the Governmenthancement. This landmark project bond of Peru (the “Concession”) in Septemberwas issued by Terminales Portuarios Eu- 2009. The Issuer derives its revenues fromroandinos Paita S.A. (the “Issuer”) for tariffs charged for the provision of cer-the expansion of the Paita Terminal Port tain standard services to users of the Portin the region of Piura, Peru (the “Port”). which are required under the Concession,The notes (the “Notes”), which are due in including, among others, the loading and2037, raised $110,025,000, carry a fixed unloading of cargo, cargo movement andinterest rate of 8.125%, and were rated weighing, and from fees charged for the by Gianluca G. Bacchiocchi, Esq.“BB-” by Fitch and “BB” by Standard & provision of any special services to usersPoor’s. This article provides an overview of the Port not required under the Conces-of the transaction, and explores some of sion, including, among others, stevedor-the key structuring issues that had to be ing, reefers, shiftings and late arrivals.overcome in order to complete the first The Issuer is 50% owned by Cosmossuccessful Rule 144A/Reg S project bond Agencia Marítima S.A.C. (“Cosmos”), awith full demand, operating and construc- subsidiary of Andino Investment Hold-tion risk for a Latin American project. ing S.A. (“AIH”), 40% owned by Tertir – Terminais de Portugal S.A. (“Tertir”),The Issuer a subsidiary of Mota-Engil, SPGS, S.A. (“Mota-Engil”), and 10% owned by Mo-The Issuer operates, maintains and devel- ta-Engil Peru S.A., a subsidiary of Mota-ops the Port, which is the second largest Engil and formerly known as Transleicoastal port in Peru based on twenty-foot S.A. (“Mota-Engil Peru” and togetherequivalent units (“TEUs”), and the largest with Cosmos and Tertir, the “Sponsors”).
Deals Latin Infrastructure Quarterly 13The Port to cover the debt service on the notes ac- proximately $123,000,000 (“Stage 4”) is cording to their model, and because the at the Issuer’s discretion for the operationThe Port was built in 1966 and reno- bulk of the IMAG was only available for of the Port, but must be completed ac-vated in 1999. The Port was managed a period of 15 years, beginning one year cording to the following schedule: by theby Empresa Nacional de Puertos, S.A. after the completion of Stage 1 (described 5th year of the Concession $5,000,000 of(“ENAPU”), an entity owned and con- below), whereas the Notes would be out- Works are to be completed, by the 10thtrolled by the Government of Peru, from standing for approximately 7 additional year an additional $10,000,000 of Worksits construction until October 7, 2009, years. One final consideration regarding are to be completed, by the 15th year anwhen the Issuer took over operations in the IMAG for this transaction was rele- additional $10,000,000 of Works are toaccordance with the Concession. The vant: it is paid 12 to 13 months after the be completed and by the 20th year the re-Port’s operations are focused on exports, fiscal year in which a shortfall determina- mainder of the additional Works are to bewhich represented approximately 71% of tion has been made, and not on a month- completed. The Concession requires theits total activity in 2011, 99% of which by-month basis, meaning that it does not Issuer to set aside and transfer to a specialconsisted of container shipments. The cover demand volatility during a year, but trust (the “Additional Investments Trust”)main exports shipped through the Port rather such volatility had to be mitigated each year, for the first 20 years of theare fish, fishmeal, fish oil, mangos, coffee by a debt service reserve. Concession, amounts required to com-and bananas. The main imports shipped The Concession may be terminated plete the Stage 4 Works according to athrough the Port are solid bulk products, prior to its original expiration date for the schedule that ensures that adequate fundssuch as fertilizers and grains, and liquids, following reasons, among others: (a) mu- will be available to complete these Workssuch as soy oil. tual agreement of the parties, (b) unilater- in accordance with the above timing. ally by the Grantor for reasons related to As compensation for the Concession,The Concession public interest, (c) by the non-breaching the Issuer is required to pay two fees on party upon a breach of the other party’s a monthly basis. The first fee is paid toPursuant to the Concession, the Issuer material obligations, or (d) at the Issuer’s the Grantor, and is equal to 2% of the nethas the right to operate and maintain the option in case of force majeure or acts of monthly income of the Issuer from pro-Port’s existing facilities and is required to God that affect the completion of the Is- viding standard and special services atdesign, construct, operate and maintain suer’s contractual obligations under the the Port. The second fee is paid to thea new container pier and, depending on Concession for a period of 6 months and regulator of the Port, the Peruvian Pub-the level of utilization of the Port, make produce losses of over 60% of the Port’s lic Transport Infrastructure Regulatorycertain other improvements, including the operational capacity. Agency (Organismo Supervisor de la In-installation of additional port equipment The Issuer is required to invest ap- versión en Infraestructura del Transporteand reinforcement of the existing jetty proximately $293 million in the Port (the de Uso Público) (the “Regulator”), whichpier. The Issuer is also required to pro- “Works”) in four stages, so long as cer- is currently equal to 1% of net annual in-vide the standard services, but is entitled tain demand levels are reached at the Port. come received from standard and specialto collect fees for any other services that Stage 1 of the Works, with an estimated services at the Port. In addition, the Is-are provided to users of the Port. total cost of $130 million, is required to suer must make a contribution every year Pursuant to the Concession, the Min- begin immediately and consists of the to the Port of Paita Social Fund in theistry of Transport and Communications construction of a new terminal, which amount of U.S.$195,858, which funds areof the Republic of Peru (Ministerio de will have a 300 meter berth and 13 me- intended to promote sustainable develop-Transportes y Comunicaciones de la ter depth and a container yard of 12 hect- ment in the Paita Province.República del Perú) (the “Grantor”) pro- ares, and the installation of three gantryvides the Issuer with a minimum annual cranes at the Port (“Stage 1”). Stage 2 Construction and Equipmentincome guarantee (“IMAG”) pursuant to of the Works is required to be completed Workswhich the Grantor will pay the Issuer the within 18 months of the Port achievingshortfall between the revenues collected container volume of 180,000 TEUs per All the construction Works that are in-by the Issuer for a particular calendar year, and involves the purchase of addi- tended to be completed with the pro-year and the minimum annual guaran- tional port equipment with an estimated ceeds of the financing (the “Construc-teed income for that year (which amount cost of approximately $19.3 million tion Works”) include the constructionincreases each year that it is available). (“Stage 2”). Stage 3 of the Works is re- for the Stage 1 Works and certain StageAn IMAG can be an important consid- quired to be completed within 18 months 4 Works. These Construction Works areeration for a financing, especially if it is of the Port achieving container volume of to be completed by Mota-Engil Peru,sized to cover debt service during the life 300,000 TEUs per year, and involves the with the support of Mota-Engil, Engen-of the debt service and is paid quickly reinforcement of the existing jetty pier, its haria e Construção S.A. (collectively, theonce a shortfall determination has been support area and the purchase of addition- “Contractors”), pursuant to a fixed pricemade. However, in this transaction it al port equipment, with an estimated cost engineering, procurement and construc-was not given any consideration by the of approximately $19.8 million (“Stage tion services contract (the “EPC Con-rating agencies because it was not sized 3”). The remaining investment of ap- tract”). The Contractors, pursuant to the
14 Latin Infrastructure Quarterly DealsEPC Contract, are required to provide a In addition, the Issuer entered into tors, holding the bonds without gettingperformance guaranty in an amount equal a contract (the “Independent Engineer involved in decision-making, unless fac-to 10% of the total compensation to be Agreement”) with R. Rios J. Ingenieros ing a significant change or an event of de-paid under the EPC Contract and a qual- (the “Independent Engineer”), which is fault. In this transaction, not all approvality guarantee in an amount equal to 1.5% acting as the independent engineer on rights were given to the Independentof the total compensation to be paid un- behalf of the bondholders, and with Ci- Engineer, which is normal for a projectder the EPC Contract. Other than these tibank, N.A., as bondholder trustee (the bond. In those situations where the Inde-guarantees provided by the Contractors, “Indenture Trustee”), pursuant to which pendent Engineer was not given approvalno other guarantees are provided to the the Independent Engineer provides, for rights and the bondholders are requiredIssuer for the Construction Works. the benefit of the Indenture Trustee on to approve certain actions (other than an The equipment Works that are to be behalf of the bondholders, all services event of default scenario), the bondhold-completed with the proceeds of the fi- contemplated to be performed by the ers will be deemed to have approved suchnancing (the “Equipment Works”) include Independent Engineer under the various actions unless a certain percentage (usu-all of the cranes required for the Stage 1 transaction documents. These services ally a majority) of the bondholders haveWorks and two additional mobile cranes include, among others, reviewing and au- responded within a set amount of timethat qualify as Stage 4 Works. The Equip- thorizing payments for the Construction after receiving the applicable approvalment Works will be completed under two Works and Equipment Works and moni- request notice, disapproving of the ac-separate sale and installation contracts. toring the progress of construction under tion. This deemed approval approachThe Stage 1 Equipment Works will be the EPC Contract, and the installation and prevents bondholders who fail to respondcompleted by Liebherr Container Cranes assembly of the cranes. In addition, the to an approval request from keeping theLtd. and the Stage 4 Equipment Works will Independent Engineer was requested to Issuer from going forward with necessarybe completed by Liebherr Werk Nenzing prepare an independent engineer’s report, changes, even though these bondholdersGMBH. Both supply contracts require the that was attached to the offering circular would have agreed with the request ifsuppliers to provide the Issuer with letters for the Notes. they had responded. The assumption isof credit to support the completion of their Because the financing is pursuant to a that only bondholders that disagree withobligations under the supply contracts and project bond, rather than a traditional loan a certain action will be motivated enoughto support the advance payments required transaction, the Independent Engineer to respond to an approval request. In anto be made by the Issuer under them. will also be required to re-test the Issuer’s event of default scenario, the bondholders debt service coverage ratio upon the oc- will be required to give actual instructionsSupervision of the Works currence of certain events and provide to the Indenture Trustee. approvals or disapprovals with respectThe Issuer entered into a construction to certain actions of the Issuer under the The Notesand equipment installation supervision transaction documents, such as changescontract (the “Construction Supervision to budgets, the Issuer’s three-year capi- The Notes, which are senior secured obli-Contract”) with Bureau Veritas del Peru tal plan and the implementation of any gations of the Issuer, were issued pursuantS.A. (the “Supervisor”) to supervise the major Works. These additional actions to a New York law-governed indentureconstruction of the Construction Works are significant in a project bond, since and indenture supplement (collectively,and the installation of the cranes, and to the Issuer will not know the identity of the “Indenture”). The Notes carry a fixedcoordinate these Works to ensure timely the bondholders to discuss these actions interest rate of 8.125% throughout the lifecompletion of the Issuer’s obligations un- with them, and bondholders, unlike lend- of the Notes and fully amortize over a pe-der the Concession Agreement. ing institutions, tend to be passive inves- riod of 25 years; however, during the first 5 years only interest is paid on the Notes.“The Notes carry a fixed The long tenor and fixed interest rate are probably the biggest advantages the Is- suer achieved by issuing a project bond,interest rate of 8.125% rather than entering into a traditional loan. Even though the Notes were rated “BB-” by Fitch and “BB” by Standard & Poor’s, which classifies the Notes as high yieldthroughout the life of the bonds, the Issuer was still able to obtain an attractive long term fixed interest rateNotes and fully amortize over due to the structure, low interest rate en- vironment, stable country risk (Peru cur- rently has a foreign debt rating of “BBB”a period of 25 years” by both Fitch and S&P) and the demand for long-term fixed income.
Deals Latin Infrastructure Quarterly 15 For those that are not familiar with rights are already contemplated in the half of the Indenture Trustee with respectproject bonds, the Indenture contains all payment and guarantee trust agreement to all Peruvian collateral. In addition, theof the various covenants and representa- (discussed below), the Indenture and any Notes also have the benefit of a debt ser-tions and warranties of the Issuer and the future indenture supplements for all po- vice reserve account equal to 6 months ofevents of default, similar to a loan agree- tential series of notes issued by the Issuer debt service.ment. Most of the covenants, representa- pursuant to the Indenture.tions and warranties and events of default Although the Notes are expected to Payment and Guarantee Trustare similar to what would have been ne- remain outstanding for 25 years, theygotiated in a traditional loan agreement; are subject to the following redemption The Payment and Guarantee Trust Agree-however, there are some key differences. events: (a) optional redemption with a ment is the key security agreement forAs mentioned above, the approval rights make-whole premium for the life of the the transaction. All of the cash flows ofhave been modified to reflect the different Notes, (b) withholding tax redemption, the Issuer from the Concession, includingprotocols for approving various actions, (c) change of control of the Issuer and (d) all revenues from services and insurancewhich includes giving greater rights to the mandatory redemption upon the occur- proceeds, are deposited in a revenue ac-Independent Engineer and using deemed rence of certain events of default. count and flow through the accounts es-approvals when bondholders are required tablished by the Payment and Guaranteeto weigh in. In addition, greater flexibil- Security Trust Agreement pursuant to a waterfallity was given to the Issuer before approv- that terminates with the excess cash flowals are required. This was accomplished The Notes are secured equally by first account. In addition, all payments to theby giving more materiality carve-outs priority liens and ratably on a pari passu Issuer for operations and maintenanceand increasing certain dollar thresholds. basis by (a) a pledge of all of the capital costs (including setting aside moniesAnother significant difference from a tra- stock of the Issuer held directly or indi- in a reserve account for operations andditional project finance loan transaction rectly by AIH and Mota-Engil pursuant maintenance) and Construction Worksis that the Issuer is not required to abide to a shareholder pledge agreement, (b) a are made by the Peruvian Trustee, as wellby the Equator Principles. This is not mortgage over the Concession, (c) a per- as payments required to be made to thethe case in all project bonds, especially fected beneficial and/or security interest Grantor, the Regulator and the Port ofif the arrangers and initial purchasers of in substantially all of the Issuer’s assets, Paita Social Fund under the Concession.the bonds are also Equator Principles Fi- granted pursuant to a Peruvian payment The Peruvian Trustee is also required tonancial Institutions (“EPFIs”). Two key and guarantee trust agreement (the “Pay- set aside the debt service required for thefactors that are generally discussed when ment and Guarantee Trust Agreement”) Notes and any future series of notes, asdetermining whether an issuer of a proj- entered into between the Issuer and Ci- well as any amounts required to top upect bond must comply with the Equator tibank del Perú S.A., as Peruvian trustee the debt service reserve account, bothPrinciples are, first, whether the potential (the “Peruvian Trustee”), and (d) an un- of which are transferred to the Indentureinvestors require compliance and, second, conditional and irrevocable pledge, as- Trustee for application pursuant to the In-if the initial purchaser is an EPFI, whether signment and transfer to the Indenture denture.its internal policy requires compliance for Trustee pursuant to the Indenture, for the With respect to future Works, the Pe-a project bond. benefit of the bondholders and all other ruvian Trustee is required to begin setting In order to give the Issuer maximum secured parties, of a security interest in all aside monies required for Stage 2 Worksflexibility to finance future Works within of the Issuer’s rights, title and interest in, in a separate trust account (the “Stage 2the same structure, the Indenture for this to and under any other assets. Since most Trust Account”) once container volumetransaction allows for future series of pari of the security is subject to Peruvian law, at the Port reaches 160,000 TEUs perpassu notes to be issued to finance such Citibank del Perú S.A. was appointed by year. The schedule of the amounts toWorks. Even though the Issuer is required the Indenture Trustee and the Issuer as be set aside each month, which is basedpursuant to the transaction documents to sub-collateral agent pursuant to a sub- on the financial model’s projections forset aside monies for future investments at collateral agency agreement to act on be- the Port at closing, is expected to ensurethe Port, the ability to anticipate Worksbefore the money has been set aside, solong as certain conditions precedent aremet, such as debt service coverage ratios, “Another significant difference fromallows the Issuer to choose when it makes a traditional project finance loanthe most economic sense to complete ad-ditional Works. In addition to providingflexibility, the ability to issue additional transaction, is that the Issuer is notseries of pari passu notes under the sameindenture also alleviates the need to enter required to abide by the Equatorinto intercreditor agreements, since all ofthe waterfalls, voting rights and collateral Principles”
16 Latin Infrastructure Quarterly Dealsthat sufficient monies will be set aside to proceeds account. The Sponsors were droughts, plagues and natural disasters.complete the Stage 2 Works once the Port required to make equity contributions In addition, demand can be affected byhas achieved container volume equal to on or prior to the issuance of the Notes macroeconomic factors and competi-180,000 TEUs per year. to pay for their contribution with respect tion. An independent traffic consultant, Similarly, with respect to the Stage 3, to (a) the costs for Equipment Works, (b) APOYO Consultoría S.A.C., provided athe Peruvian Trustee is required to begin up-front payments for the Construction traffic study of the Port that incorporatedsetting aside monies required for Stage Works, (c) the required balance of the weather and macroeconomic factors to3 Works in a separate trust account (the operations and maintenance reserve ac- predict potential demand volatility at the“Stage 3 Trust Account”) once container count, (d) the required balance of the debt Port. This traffic study was a very impor-volume at the Port reaches 260,000 TEUs service reserve account, (e) an up-front tant component for the rating process andper year. The schedule of the amounts to amount to be set aside for the Additional for creating the financial model.be set aside each month, which is based Investments Trust and (f) and other costs Because of the long tenor of the Notes,on the financial model’s projections for being funded and pre-funded on the issu- it was important to consider structuralthe Port at closing, is expected to ensure ance date of the Notes. elements that could provide liquidity ifthat sufficient monies will be set aside to After the issuance date of the Notes, the demand is negatively impacted at thecomplete the Stage 3 Works once the Port Sponsors are required to make periodic Port over the life of the Notes. A debthas achieved a container volume equal to equity contributions to pay for Construc- service reserve is a typical enhance-300,000 TEUs per year. tion Works and any other costs required to ment for moderate demand volatility. With respect to the Stage 4 Works, the be paid for by equity contributions, such However, in order to address significantPeruvian Trustee is required to set aside as certain Equipment Works and certain demand volatility, the Issuer was givenmonies immediately according to a sched- operating and maintenance costs. the following additional liquidity: if de-ule set forth in the Concession agreement mand decreases and either (a) containerthat ensures that sufficient monies are volume drops below 160,000 TEUs perset aside to complete the Stage 4 Works “One of the most year before 18 months have passed af-when required, as described above. The ter it reaches 180,000 TEUs per yearPeruvian Trustee transfers these monies significant aspects of (i.e., when the Stage 2 Works must beto the trustee of the Additional Invest- completed) or drops below 260,000 this project bond isments Trust on a yearly basis, or earlier TEUs per year before 18 months haveif required to complete such Works. The that the construction passed after it reaches 300,000 TUEsrequirement of the Issuer to both (a) make per year (i.e., when the Stage 3 Workssignificant additional investments at the risk was not fully must be completed), as applicable, orPort pursuant to the Concession and (b) (b) the Issuer reasonably believes thatreserve for future Works according to a mitigated, which is it will not achieve container volumeschedule mandated by the Concession, of 160,000 TEUs per year or 260,000with respect to Stage 4, and the schedules the first time this has TEUs per year, as applicable, within 1set forth in the Payment and Guarantee year of the date predicted for achiev- been accomplishedTrust Agreement, with respect to Stage 2 ing such volume levels in the financialand Stage 3, added complexity and lever-age to the structure, but it also provided for a Latin American model on the closing date (collectively, “Demand Events”), the Issuer is al-assurance to investors that the structure Rule 144A/Reg S lowed to tap into the Stage 2 Trust Ac-accommodates all future investment ob- count or the Stage 3 Trust Account, asligations of the Issuer under the Conces- project bond.” applicable, for debt service and also tosion. suspend deposits into the applicable ac- All equity contributions required to be count until a new date agreed upon withmade by the Sponsors pursuant to a spon- the Independent Engineer. The Issuersor support agreement are deposited, after Demand Risk must first demonstrate to the satisfac-passing through a separate escrow account tion of the Independent Engineer that aset up for tax purposes, into an equity pro- As with any project with demand risk, Demand Event has occurred before theceeds account maintained by the Peruvian there is always a possibility that de- Issuer will be given these rights. SinceTrustee. The Notes raised approximately mand may decrease and result in lower the Stage 2 Works and Stage 3 Works68% of the amounts needed for the Con- revenues at the Port than originally an- only need to be performed once the re-struction Works, Equipment Works and to ticipated. Since the Port is mostly export quired volume levels are reached, thisfund various transaction accounts. The oriented, the main drivers for demand additional liquidity benefits both theSponsors’ equity contributions cover the are agricultural and oceanic output in bondholders and the Issuer withoutbalance and are supported by letters of the Port’s area of influence, which can compromising the Issuer’s obligationscredit that can be drawn upon by the Peru- be affected by, among other things, cli- under the Concession.vian Trustee and deposited into the equity mate change, including El Niño, floods,
Deals Latin Infrastructure Quarterly 17Operating Risk erated was a very important consider- ation for bondholders. Gianluca G. Bacchiocchi is a partnerThe Issuer enjoys the benefit of the global at DLA Piper and focuses his practiceand local experience of its joint venture Negative Carry on representing sponsors, issuers andpartners in operating ports and providing underwriters in cross-border capi-related logistical services. In addition, Probably one of the most challenging as- tal markets transactions with Latinbefore the bond offering, the Issuer was pects of a non-refinancing project bond America, including project bond fi-able to operate the port for 2 and 1/2 years is how to address negative carry, which nancings, public and private issuanc-to create a positive track record that could is the interest paid on bond proceeds that es of asset-backed securities, privatebe analyzed by both the rating agencies cannot be fully deployed since the con- issuances of future-flow backed secu-and the bondholders. These factors, along struction will occur over a period of time. rities and high-yield debt issuances. with a reserve account for operating and In a number of project bonds, this issue Mr. Bacchiocchi also assists sponsors,maintenance, were able to significantly has been addressed by issuing variable borrowers and lenders with projectmitigate the operating risk to the satisfac- funding notes. In this transaction, it was and infrastructure financings, public-tion of the rating agencies and the bond- decided that for obtaining the best execu- private partnership transactions, gen-holders. tion, only one series of regular upfront eral secured and unsecured lending funded notes would be issued. However, arrangements and international debtConstruction Risk since the negative carry incurred by the restructurings. He has been named Issuer will be amortized over 25 years, a leading capital markets and bank-Based on the report provided by the In- its impact will be minimized. Since is- ing and finance lawyer by Chambersdependent Engineer, the Construction suers tend to focus on the all-in costs of Latin America. Transactions handledWorks and Equipment Works are not the transaction, the all-in costs will not be by Mr. Bacchiocchi have received acomplex and can be completed within significantly impacted by negative carry number of awards from IFLR, Projectthe timetable established by the Issuer. so long as the bonds they issue are ex- Finance and Latin Finance, includ-Also, the EPC contractor, which agreed pected to have a long tenor. ing most recently the Latin Americanto do the Construction Works pursuant to Water Infrastructure Deal of the Yearthe EPC Contract that includes a perfor- Conclusion 2010 Award from Project Finance andmance guarantee and quality guarantee, the 2011 Americas Project Financehas significant construction experience in As project bonds have evolved, espe- Deal of the Year Award from IFLR. Peru. In addition, the supply contracts for cially over the last 6 years, sponsors now Mr. Bacchiocchi is fluent in Italian,the Equipment Works are with reputable have more options available to them, Portuguese and Spanish.suppliers of cranes who agreed to pro- even if some traditional lending op-vide performance guarantees pursuant to tions are less accessible due to the cur-the supply contracts. These factors, along rent banking crisis in Europe. Althoughwith the involvement of the Supervisor the capital markets may be unfamiliarand the Independent Engineer, helped to territory for some sponsors, the advan-considerably reduce the construction risk tages that project bonds provide spon-of the project, although construction risk sors, namely long term financing at fixedwas still a factor. rates (if US dollar based) and potentially One of the most significant aspects of lower interest rates, can significantlythis project bond is that the construction outweigh the disadvantages, namely ob-risk was not fully mitigated, which is taining consents from bondholders, dif-the first time this has been accomplished ficulty analyzing construction risk andfor a Latin American Rule 144A/Reg S negative carry, which as the Paita Portproject bond. The key reason the proj- project bond demonstrates, can be read-ect bond was able to proceed with con- ily addressed. If this was a Greenfieldstruction risk is that, as a Brownfield project, it is unlikely that the construc-project, the Port has been generating tion risk would have been left complete-revenues for years, including the most ly unmitigated for a project bond, but asrecent 2 and 1/2 years pursuant to the bond investors and rating agencies be-Concession, which allows bondholders come better at analyzing infrastructureto be paid, whether or not construction projects and governments get better atis completed on time. There still is the structuring concessions, project bondsrisk of a default under the Concession will continue to evolve in Latin Americadue to the construction, but not having and perhaps Greenfield project bondsto rely on the construction of a project with construction risk may someday be-to be completed for revenues to be gen- come a reality.
18 Latin Infrastructure Quarterly Infrastructure FinancingA Brazilian fter more than a decade of economic stability and timid (when compared to other emerging countries) althoughresilient growth, it is time for Brazil to Fosteringtackle its most critical deficiency: thecountry’s infrastructure. With most of the investments in in-frastructure deployed back in the 1970’sand mid 1980´s, Brazil now faces a grimscenario: recurring power blackouts of Private(apagões), especially during draughtseasons, overwhelmed airports, roads re-quiring immediate maintenance, incipi-ent railway network and insufficient portservices. According to the latest “Global Financing ofCompetitiveness Report 2011-12”, Bra-zil, currently the 6th largest economy inthe world, occupies the 53rd position ingeneral competitiveness and only 104thin quality of overall infrastructure. This scenario is a consequence of,among several other macroeconomic fac-tors, a low rate of investments in infra-structure. It is estimated that Brazil hasinvested, in average, approximately 2% of Infrastructureits GDP in infrastructure since 1985. The Projectsmain reason for this decline in infrastruc-ture investments is the general deteriora-tion of the macroeconomic environmentverified in Brazil in the mid-1980’s, whenthe country was suffering with a soaringinflation and an upsurge in its public in-debtedness. Ricardo Simões Russo (Partner), There is consensus among all sectorsof the Brazilian society that if the govern-ment does not act energetically in order Enrico Bentivegna (Partner) andto create a favorable environment for in-vestments in infrastructure the country’s João Fernando A. Nascimentodevelopment may enter stagnation in thenext years. (Senior Associate) of PinheiroThe Growth AccelerationProgrammes (“PACs”) and Neto AdvogadosBNDES infrastructure alone reached 3.2% of the According to its own reports, BNDESAs an attempt to remedy the shortfalls country’s GDP in 2010. is likely to disburse up to R$ 150 billionconcerning public and private invest- Both PAC and PAC II program and (US$77 billion) in 2012, which representsments in infrastructure, Brazilian federal the investments deriving therefrom rely a slight increase over last year’s R$140government has put in place two large heavily in public financing. As the main billion (US$ 71 billion). This increase,infrastructure programs, the first one financing agent for infrastructure proj- although not very significant, evidencesin 2007 (“Programa de Aceleração do ects in Brazil, the Brazilian National So- that Brazil is not ready yet to reduce theCrescimento” or “PAC” - Growth Ac- cial and Economic Development Bank role of BNDES in the economy, so as toceleration Program), and the second one (“BNDES”) plays an essential role in the foster the participation of the private sec-in 2010 (also known as “PAC II”). As a Brazil’s equation to sustain economic tor in the financing of infrastructure proj-result, the share of public investments in growth, competitiveness and innovation. ects.
Infrastructure Financing Latin Infrastructure Quarterly 19 In addition, according to research re-ports published by the BNDES, there isa need in Brazil for investments in theamount of R$ 1,324.00 billion during the “Both PAC and PACperiod of 2010 to 2013. Further, pres-ently, approximately 90% of long termfinancings in Brazil were granted by stateowned banks, BNDES and federal finan- II program and thecial institutions. In order to accomplish the above men-tioned endeavor, the Brazilian govern-ment must improve the tools available in investments derivingthe Brazilian market, in order to promotethe participation of the private sector inlong term financings required for the im-plementation of infrastructure projects. therefrom rely heavily In this regard, recent rules and regula-tions were enacted in order to promote thecreation of a long term financing privatemarket. Such rules have as their main pur- in public financing.”pose not only foster the participation ofprivate entities on long term credit trans-actions but also aim to promote in Brazil Requirementsthe development of the local debt securi- Brazilian Reference Rate (TR);ties market. The main requirements in connection 7. interest payments cannot be made in with the issuance of Infrastructure Bonds intervals shorter than one hundred andInfrastructure Bonds – Re- can be summarized as follows: eight days;quirements and Benefits 8. the Infrastructure Bond must be regis- 1. such debt securities must be issued by tered for trading in a regulated securi-Through the enactment of Law No. 12,431, a special purpose company organized ties market; andof June 24, 2011 (“Law 12,431/11”), for the specific infrastructure project; 9. they must contain a simplified proce-which was further regulated by Decree- 2. the project to which they are linked dure to demonstrate the purpose of al-Law No. 7.603, of November 9, 2011 must be approved by the applicable locating the proceeds in investment(“Decree-Law 7,603/11”), the Brazilian ministry overseeing the industry in projects, including the ones related togovernment created certain mechanisms which the project is inserted; the intensive economic production con-to promote the use by local companies 3. offering must have a minimum nected with research, development andof the capital markets for the purposes of weighed tenor of four years; innovation.their long term financing. Among these 4. securities cannot be called upon or re-mechanisms the so-called “Debêntures deemed within the first two years of For the purposes of the ministry approvalde Infraestrutura” (Infrastructure Bonds) their issuance; mentioned in item (2) above the respec-were created, the first type of securities in 5. the buyer cannot have a commitment tive projects must: (1) be addressed to in-Brazil designed specifically to raise long- to resell the securities to the issuer; vestments in infrastructure or to intensiveterm private funds to be applied in infra- 6. securities must have a fixed interest economic production connected with re-structure projects. rate, linked to a price index or to the search, development and innovation, and“The Brazilian National Social and EconomicDevelopment Bank (“BNDES”) plays an essentialrole in the Brazil’s equation to sustain economicgrowth, competitiveness and innovation.”
20 Latin Infrastructure Quarterly Deals(2) aim at the establishment, expansion, In addition, foreign investors that No. 3,836, of February 25, 2010. In Junemaintenance, repair, adaptation or mod- make the acquisition of Infrastructure 11, 2010, MP 472/09 was converted intoernization, among others, of one of the Bonds are subject to the Brazilian so- Law No. 12,249 (“Law 12,249”), whichfollowing areas: (a) logistics and trans- called “IOF exchange” assessment (tax further defined the legal terms and condi-portation; (b) urban mobility; (c) energy; assessed at the foreign exchange transac- tions applicable to the letras financeiras.(d) telecommunications; (e) broadcasting; tion verified at the moment of the entry The main characteristics of the letras(f) sanitation, and (g) irrigation. of the investment proceeds in Brazil) at financeiras are: Infrastructure Bonds must be distrib- a 0% rate (as opposed to a rate that mayuted by means of public offerings pursu- reach up to 6% in other types of fixed in- 1. they are fixed income instruments is-ant to the Normative Ruling No. 400, of come investments). sued by financial institutions;December 29, 2003, issued by the Brazil- 2. they have a minimum maturity ofian Securities and Exchange Commis- twenty-four (24) months; andsion (Comissão de Valores Mobiliários “The so-called 3. their minimum nominal amount is R$– CVM), or also by means of public of- 300,000.ferings with restricted efforts (i.e., for alimited number of investors and without “Debêntures de The first letras financeiras issued with thethe need for registration with local secu-rities commission), pursuant to the CVM Infraestrutura” abovementioned characteristics were reg- istered with CETIP (Central Agency forNormative Ruling No. 476, of January Custody and Financial Settlement of Se-16, 2009. (Infrastructure curities) in April of 2010. One year later, The offerings of Infrastructure Bonds the stock of such instruments had alreadythat are subject to the terms of Law12,431/11 must be made prior to the Bonds) were reached R$72.8 billion. At the end of March, 2012, the stock of letras financei- created, the firstdeadline of December 31, 2015. ras reached R$175.6 billion.Tax Aspects – Benefits of the A market for long term privateInfrastructure Bonds type of securities debt instrumentsLaw 12,431/11 not only created a specifictype of long-term investment, but also es- in Brazil designed In order to increase the trading volumes of all these private, long-term bonds, thetablished additional measures to stimulate Brazilian government is structuring, to-the market for Infrastructure Bonds, espe- specifically to raise gether with the private sector (under thecially by means of the tax treatment appli- coordination of ANBIMA), the Liquid-cable to the investors in such securities. long-term private ity Enhancement Fund (Fundo de Apoio à Under Law 12,431/11, in general Liquidez – “FAL”), which main purpose isterms, income earned by investors shall funds to be applied to function as a “market maker”, funded bybe subject to the Brazilian withholding BNDES and by mandatory deposits heldincome tax, at the following rates: by banks with the Brazilian Central Bank in infrastructure under mandatory reserve requirements.1. 0% (zero percent) when ascertained The idea behind FAL is to provide a by foreign investors (provided they projects.” safer environment for individuals and for- are not resident or located in tax heav- eign investors interested in investing in en jurisdictions); this new debt instruments, thus increasing2. 0% (zero percent) when ascertained Other measures to stimulate trading volumes for corporate debt (espe- by individuals that are tax residents in long-term private financing cially in the secondary market). Brazil;3. 15% (fifteen percent) when ascer- Brazilian federal government also estab- Conclusion tained by Brazilian legal entities that lished additional measures to stimulate are subject to taxation according to the market for long term financing, such As seen from the initiatives described above, the “actual profit regime” (lucro real), as exempting the long-term bank bonds Brazilian Government has put in place sev- “estimated profit regime” (lucro pre- called letras financeiras from mandatory eral measures to promote long term invest- sumido) or “imposed profit regime” reserve requirements. ments in infrastructure. These measures en- (lucro arbitrado); tax- exempted legal The letras financeiras were created tail the continuance of public investment and entities; or legal entities subject to the by Provisional Measure No. 472, of De- financing related to infrastructure projects, as Simplified Tax Payment System for cember 15, 2009 (“MP 472/09”), which well as the creation of a friendlier environ- Small Businesses and Small Compa- was regulated in the following year by ment for the private sector to participate in nies (Simples Nacional). Brazilian Monetary Council’s Resolution the long-term corporate debt market.
Deals Latin Infrastructure Quarterly 21 Enrico J. Bentivegna João Fernando A. Nascimento Ricardo Simões Russo Telefone: +55 (11) 3247-8719 Telefone: +55 (11) 3247-8798 Telefone: +55 (11) 3247-8720 email@example.com firstname.lastname@example.org email@example.com São Paulo São Paulo São Paulo Enrico J. Bentivegna has been a João Fernando A. Nascimento has Ricardo Simões Russo has been member of the corporate area of been a member of the corporate a partner at Pinheiro Neto Advo- Pinheiro Neto Advogados since area of Pinheiro Neto Advogados gados Corporate Area since 2009. 2000, and is based at the São since 2000, and is based at the He focuses his practice on financial Paulo office. He practices in the São Paulo office. He practices in and banking law, foreign exchange, areas of securitization of receiv- the areas of corporate finance, M&A and securities markets. Ri- ables, investment funds, corpo- project finance, trade finance, debt cardo has a LL.B. degree from the rate law, mergers and acquisitions, restructuring, regulation of finan- Catholic University of São Paulo capital markets, and regulation cial institutions and banking prod- (1997). He also has a LL.M degree of financial institutions, project fi- ucts, having graduated from the in Banking and Financial Law from nance and PPPs (Public-Private Mackenzie University in 2002. He the Boston University School of Partnerships). Having graduated worked as a foreign associate at Law (2002). Fluent in Portuguese, from the University of São Paulo Hughes, Hubbard & Reed (Miami) English, Spanish and Italian, he Law School (1996), he holds a in 2008-2009. He was admitted was a foreign associate of Cleary, specialization course in Corpo- to the Brazilian Bar Association in Gottlieb, Steen & Hamilton in 2002 rate Law from the same University. 2002. and 2003. He was admitted to the He worked as a foreign associate Brazilian Bar Association in 1998. at Hunton & Williams (Miami) in 2004. He was admitted to the Bra- zilian Bar Association in 1997.
22 Latin Infrastructure Quarterly Companies O ur major customers are min- ing companies that use the terminal facilities to export their different products, con- sidering that the amount of cargo moved through Matarani Port represents the 50%Peru Port of Matarani of their total cargo. Among them we can name Sociedad Minera Cerro Verde Port Free McMoran, Xstrata Copper, Compa- nia de Minas Buenaventura, Glencore, Ares and Suyamarca that belong to Ho- schild group, and Minera Pampa de cobre internacional of Milpo Group. Copper concentrate, cop- per cathodes and gold concentrate are the main products which are shipped to ports in Asia. It is worth mentioning that Tisur is a multi-purpose port due to the experience at handling all types of cargo. The econo- my of the region is growing significantly and the road infrastructure is improving, allowing the communication among other towns and making new important projects possible. Based on this, we can say Mata- Terminal rani is on its 25% capacity. As a result, a very important growth will be seen in the del sur following years, especially in container cargo by decreasing the mining relative weight in our operations. In container cargo, our Customers are Tecnológica de Alimentos S.A. – Tasa and Pesquera Diamante which export fishmeal to Asia. Consorcio Peru Murcia and ALSUR S.A produce agro industrial products that are shipped to The USA and Spain, Inkabor S.AC distributes borate in The USA and Europe. How would you describe the state of the economic infrastructure assets bringing those products to the Port’s facilities? (Roads, railroads, navigable rivers (if any))The Port of Matarani (the “Port”) is of great importance Being a strategically multi-junction offor the south region of Peru, who are the main clients of different roads and the southern rail road,Terminal Internacional del Sur (“TISUR”), which are the among them the main road that connectsmain products exported from its facilities and the main the country from south to north. Two roads to the Peruvian highlands and con-destinations of Peruvian production coming out of the necting with Bolivia and the central statesPort’s facilities? of the Brazilian amazon. As regards air transport, RodriguezLIQ talks to Erick Hein Dupont, Ballon International Airport in the city of Arequipa is located 120 km from the port.General Manager TISUR has held the concession since 1999, could you describe the invest-
Companies Latin Infrastructure Quarterly 23ment plan for the enlargement and handy size. This new system loads near a CAL, MAJES SIGUAS II, as well as themodernization of the Port’s facilities? million and a half tons per year. various projects that will be generated in The investments in infrastructure have In the year 2011, Tisur acquired the the region.been performed by commitments associ- Liebherr crane HM 400 of 100 tons of ca- For the next years Tisur has plannedated with the Contract of Concession and pacity. Possessing these two cranes has al- to execute investments orientated at in-accompanying the growth of load vol- lowed Matarani to enhance its containers creasing its capacity to manage minerals,umes that we handle. services, being able to offer the shipping containers and bulks. To accomplish this Tisur has made important investments lines the attention of gearless vessels. objective, the following projects are heldin the past 12 years, such as the construc- Also worth highlighting are (i) the acqui- in portfolio:tion of new silos of 25 thousand tons by sition of equipment of last generation for the System of Reception, Storage andincreasing the capacity from 50 to 75 handling of load such as top picks, forklifts, Loading of Concentrate of Mineral andthousand tons and the acquisition and telescopic cranes, and frontal mini loaders; Berth F in Bay Islay – Berth F: this proj-implementation of a grain tower with an (ii) the addition of 5 acres have been added ect is destined to attend the projects of Theunloading capacity of 400 TM/HR which to our storage areas are also worth high- Bambas, Antapaccay of the mining Xstrataenabled us to increase our capacity from lighting; (iii) the building of a heavy vehicle and Cerro Verde 1 and Cerro Verde 2 of200 to 600 TM/HR. Since 1999, Tisur has outer harbor that increases the loading and the mining Sociedad Minera Cerro Verde.made investments worth more than $ 35 unloading of trucks; and (iv) the building of It will possess a capacity of 2,000 ton/h ofmillion dollars. liquid storage tanks. capacity of loading and it has the potential In the year 2004, Tisur turned into the The company carries out studies of of attending to 5 million tons per year. Es-first Peruvian port in possessing a port demand for port services with a projec- timated investment: US$ 200MM.“Copper concentrate, copper cathodes and gold concentrate are the main products which are shipped to ports in Asia.”mobile crane: the Gottwald HMK 280 E tion of five years. The demand growth is Fitting out new areas of storage: thisof 60 tons of capacity for the attention of evaluated according to the GDP and spe- project consists of the incorporation ofbulk, break bulk and containers. cific projects, this is why in the next four new zones and areas of storage, mainly in In 2005, a reception, storage and ship- years, and projections for investments are the high part of the port. The project con-ping system was built and implemented around $ 200 million to meet the demand templates a new access with truck scalesfor copper concentrate. As of today, this generated by the new mining operations and the progressive fitting out of 10 hect-system is the most modern one in the or expansions like THE PETROCHEMI- ares of zones and stores covered, as it isSouth Pacific coast. Environmental re-quirements were taken into considerationfor this project for the managing of con-centrate of mineral. With this implemen-tation it passed from storing the mineralin slabs without coverage to closed stores,the first tubular conveyor belt was imple-mented and installed in Peru and a “adhoc” shipper for these operations. Thisproject undoubtedly constitutes a signifi-cant improvement in how mining opera-tions of the south of Peru manage envi-ronmental matters. The project included:(i) a system of reception for trains andanother one for trucks; (ii) the construc-tion of two mineral stores of 75,000 and45,000 tons of capacity; and (iii) a systemof loading of concentrates with a capac-ity of 1,500 ton/h for the loading of ships
Companies Latin Infrastructure Quarterly 25evolving the demand of spaces. Estimat-ed investment: US$ 5MM. Port extension – Berth E and NetworkSystem of Liquid Cargo- Berth E: thisproject is thought to attend to the increaseof demand for the unloading of liquids inMatarani port, principally sulphuric acid.It consists of the construction of a berthto the interior of the current south break-water and the laying of a pipeline up tothe tanks of storage of the high part of theport. Estimated investment: US$ 7MM.How have been the risk allocation pro-visions of the concession agreement(as may have been amended since itsexecution) respected by TISUR andthe Port Authority along the life of theconcession? Please provide us with ex-amples to illustrate this ongoing rela-tionship between TISUR and the State. In Peru, the regulation of private in-vestment in public infrastructure in theport sector has mainly focused on threeissues: (i) prices; (ii) competition in theprovision of services; and (iii) access toinfrastructure. OSITRAN has jurisdictionas a regulator in this issue. Access to intermediate service providerto essential facilities is a central aspect inthe regulation of activities related to infra-structure. In our case, intermediary com-panies are dedicated to stowing or towing. The National Port Authority (NPA orAutoridad Portuaria Nacional, in span- “The company carries outstudies of demand for port services with a projection of five years. The demand growth is evaluatedaccording to the GDP andspecific projects, this is whyin the next four years, andprojections for investmentsare around $ 200 million.”
26 Latin Infrastructure Quarterly Dealsish) is the one, which is in charge of the frastructure projects in Peru and a State which find the opportunity to bring shipsport system management and adopts poli- that strongly incentives private invest- of major capacity reducing in this way thecies that promote and encourage private ment in public infrastructure assets, there cost of maritime freight. To this benefit weinvestment to improve infrastructure as has been considerable investment in port should add the reduction of port costs alsowell as implementation of the port and terminals in Peru, do port terminal opera- generated by the competition between ter-port operations in general. tors in Peru compete among each other? minals, which encourages exporting and In these twelve years our relationship If so, in what way and how does that ben- benefits Peruvian foreign trade.with both NPA and OSITRAN has been efit the Peruvian economy? Furthermore, this competition in Cal-outstanding. An interesting fact that must In some cases the port terminals compete lao strengthens the network of feederbe taken into consideration is that with OS- between themselves, the most important ports as other Peruvian ports find in Cal-ITRAN we practically initiated activities to- case is the one given in Callao, where in lao multiple opportunities of transfer together and we preceded NPA, in this sense 2006 Dubai Ports World was awarded with direct traffic.we have grown together and a lot of Tisur’s the concession of the South Pier for 30 yearsexperiences have served to mark the guide- and APM Terminals was awarded with theline for the new port system in Peru. concession of the North Pier in 2011. With the growth of the Peruvian econ- Both terminals are competing in order toomy, the availability of financing for in- win the business of different shipping lines, Erick Hein Dupont • General Manager of Terminal Internacional del Sur S.A. Matarani Port, Areq- uipa. • General Manager of Almacenes Pacifico del Sur S. A. Operadores Logísti- cos. Bolivia. • Board Member of Alpasur (Almacenes Pacífico del Sur S.A.). • Board Member of JPQ Bayovar Port. • Board Member of LQS, Liquid Terminal. • Regional Counselor of Senati Arequipa. • Board member of the Chamber of Commerce and Industry of Arequipa. • Chairman of the South Regional Directive Committee 2021 • Board Member of the Public Charity of Arequipa (2001) • Officer of the Peruvian Navy in retirement with a major in Naval Aviation, Pilot. • Postgraduate in Business Administration Program in ESAN and the Advance Management Program at the University of Piura.
Institutions Latin Infrastructure Quarterly 27Peru’s NationalSystem ofPensionsLIQ talks to José Quiñones, Chief InvestmentOfficer of the Previsional Normalization OfficePlease provide us with a brief intro- ed a law (Decreto Ley N°25,967) creat- pension plan covering near 480,000 pen-duction explaining what are the ONP, ing the Previsional Normalization Office sioners and 2,900,000 workers created byFCR, and SNP and describing your (Oficina de Normalización Previsional or law (Decreto Ley N°19,990) enacted onwork. “ONP”), entitled to administrate the Na- May 1973. tional System of Pensions (Sistema Na- On April 1996, another law (DecretoWay back in December 1992, the Peru- cional de Pensiones or “SNP”). This was Legislativo N°817) creates the Pensionvian Government, planning to reform the followed by the law N°26,323, enacted on Reserve Consolidated Fund (Fondo Con-social security system by creating fixed June of 1994, detailing ONP’s functions. solidado de Reservas Previsionales orcontribution private pension plans, enact- The SNP is the Peruvian fixed benefit “FCR”), meant to preserve the resources established to pay for pensions. FCR can not use its resources in any other way. The“The Board sets the investment FCR is governed by a Board of Directors with the President being the Minister ofguidelines and ONP manage the Economy and Finance, and ONP acting as its technical secretariat. The Board sets the investment guide-resources. The investment decisions lines and ONP manage the resources. The investment decisions are made by theare made by the ONP’s Investment ONP’s Investment Committee, integrated by ONP’s CEO, General Manager and Chief Investment Officer (Director de In-Committee, integrated by ONP’s versiones). The Risk Officer and the Con- troller also participate in said sessions.CEO, General Manager and Chief My work, as Chief Investment Offi- cer, is to propose investment alternativesInvestment Officer” to the Investment Committee, as well as asset allocation and guidelines updates to present to the Board.
28 Latin Infrastructure Quarterly InstitutionsWhat is the current composition of theportfolio of the FCR? Jose QuiñonesThe current FCR portfolio is made up ofthe following (in US$ MM): Jose Quiñones is Investment Director of Oficina de Normalización Pre-• TOTAL PORTFOLIO: 2,953,299 visional – ONP and by so he is the Secretary of the Fondo Consolidado• FCR Local Market: 2,346,345 de Reservas Previsionales – FCR’s Board of Directors. Currently he is• Government (long term): 278,762 responsible of the management of the financial resources and the real es-• Non Financial Corp. (medium term): tate assets of the FCR, serving also as a member of the investment com- 185,785 mittee of the ONP, Technical Secretariat of FCR. He is Vice President of• Financial System (short term): Empresa de Electricidad del Peru – ELECTROPERU’s Board of Directors. 1,523,595 Prior to joining ONP in November 1998, he worked as a consultant (1995• Central Bank (short/medium term): – 1998). Before that, he was General Manager of Coril SAB, a bourse 144,874 agency (1994 – 1995), Financial Manager of Extebandes, a multinational• Mutual & Investment Funds: 24,493 bank (1982 -1993), Technical Advisor to the General Manager of the Cen-• Real Estate: 125,724 tral Bank of Peru – BCRP (1982; 1975 – 1980), General Director of Eco-• Infrastructure: 63,112 nomic and Financial Affairs of the Ministry of Economy and Finance – MEF• FCR External Market: 606,954 (1980 – 1981) and a National Accounts Division Chief of the BCRP (1968• Merril Lynch 1-3 y. Corp/Gov. A – 1975). (B110): 167,724 He also represented MEF as a member of the Board of Directors of the• Lehman Brothers Agg. Bond Index: Banco de Fomento Agropecuario (1980 – 1983) and as Vice President of 395,307 the Board of the Fondo Nacional de Propiedad Social (1977 – 1981). He• Citigroup World Gov. ex-US Bond worked as a professor in the Universidad del Pacífico (1969 – 1981) being Index: 43,923 Head of the Academic Department of Economy (1976 – 1981). He is an economist graduated from the Pontificia Universidad Católica delWhy do infrastructure investments Peru and has post-graduate studies (Doctorat de l’Université de Paris) inmake sense to the ONP? Economic Development.There are two main reasons to invest ininfrastructure: (i) these investments aredesigned for the long run and FCR, as Let’s not forget that it also helps to Spanish) Taboada last year with Peru-a pension fund, must invest considering diversify our portfolio and improves the vian AFP´s. We are currently investingthat time horizon, saving only for the expected return. in infrastructure project bonds issued byshort term the part that should provide the Public-Private Partnerships.required liquidity to pay for pensions; and What major works have been financed(ii) developing infrastructure helps Peru by the FCR? How those investments Are there co-investment opportunitiesto grow countrywide, it contributes to the structured? for international players to invest witheconomic and social development of our We have invested in the Waste Water FCR?country. Treatment Plant (PTAR, for its name in Not yet. We do not invest in infrastructure in the international market as we are not permitted by our Board of Directors. We“There are two main reasons to invest in are planning to present a proposal and ex- ecute some investments through Privateinfrastructure: (i) these investments are designed Equity Funds (Fund of Funds as a first phase), but not co-investments properlyfor the long run and FCR, as a pension fund, must speaking. In the domestic market we are doinginvest considering that time horizon, saving only the investments through infrastructure project bond programs.for the short term the part that should provide What are the main projects current be-the required liquidity to pay for pensions; and (ii) ing analyzed by the ONP (FCR)? We are evaluating investments in Lineadeveloping infrastructure helps Peru to grow Amarilla toll road in Lima.countrywide, it contributes to the economic andsocial development of our country.”
Institutions Latin Infrastructure Quarterly 29Adrian Barrios - Vice President, The Canadian PPP model and itsInfrastructure & Project Finance -PwC CanadaThe Canadian model in Public Private Partnerships applicability in Latin America(“PPP”) is considered one of the most successful in theworld, jointly with the numerous PPP projects in other ju-risdictions like UK or Australia. During the last decadethere have been around 100 infrastructure projects pro-cured as PPP representing billions of dollars in investment.I s this a good model for a Latin the government having resources or not. American country to follow? How The government could have the capital to far is the Latin American infrastruc- finance entirely an infrastructure project, ture market with respect to the ma- but a Value for Money analysis could in-ture Canadian market? dicate that the best procurement process There is no doubt that Canada is an is through a PPP. It is not exactly the sameexample to follow. In the western hemi- situation, but this could be compared withsphere, Canadian PPP development is the decision of purchasing a house andahead from the one in the United States. choosing either paying 100% or getting aIt has contributed to consolidate an infra- mortgage. If the rate of the mortgage isstructure market that includes construc- less than the opportunity cost of invest-tors, operators, financiers, public authori- ing that money in an investment fund, aties, which now are used to high-level rational investor will get a mortgage. Instandards to fulfill. a PPP a Value for Money analysis reflects For Latin America, it is not just a mat- the savings the government could get ifter of following a model. It is of trying to transferring the risks of owning the infra-bring a market. structure property to a private partner. The infrastructure market will go A PPP can be summarized as a pay-where there are the minimal conditions ment from the public authority to the pri-regarding returns and risks. When the vate sector for performance.market arrives, there will be more inter- The effects a PPP market brings on theaction between local and regional players private sector are related to the long-termwith worldwide players. The public au- compromise a company or consortiumthority will need to understand the tech- must assume with respect to an infrastruc-nical concepts and regard them as a new ture. An incentive is created to deliveralternative to be used, that has proven the infrastructure project on time and onsuccessful in other latitudes. budget, and to comply with the required standards during all the lifecycle of theValue of a PPP structure project. The effects on the public sector areOften PPPs have been labeled as an al- that it becomes disciplined, where theternative procurement method or a way requirements of a project must be clearlyfor a government to fund infrastructure identified and defined, in order to avoidprojects when government resources are poor initial assessments. In the news wesimply not enough to meet the needs. Is have seen many examples of infrastruc-this true, what is the true value that a PPP ture projects than were announced withstructure brings to the table according to an X budget and finished with a 3X or 4Xthe Canadian experience? budget. That also brings a bad political The adoption of a PPP is not a matter of reputation.
30 Latin Infrastructure Quarterly Institutions And yes, it is true that PPP procure-ment is a way of providing infrastructure “One of the main lessons learned iswithout a public sector payment until theinfrastructure is delivered according to compromise. If the government is notthe public sector’s requirements. It is an compromised with the project, if thealternative way to control a project: if itdoes not comply, no payment.Lessons learned objectives are not clear, there is a big possibility that the project will fail.”What have been the lessons that Canadahas gained over the past 20 years that canbenefit others wanting to follow the samepath? A procurement process is long. Some- in concepts like Value for Money, Public As we wrote early, there is already a one will be committed to spend time and Sector Comparator, PPP screening, theybig bundle of examples of PPP success resources if he/she finds that the new en- will be eager not to prefer this method-stories in Canada. One of the main lessons vironment is somehow familiar. This is ology as a dogma (which is not), but tolearned is compromise. If the government why logically the first investors are local regard it as an available alternative toolis not compromised with the project, if or regional. But when we are dealing with for procuring infrastructure projects.the objectives are not clear, there is a big large infrastructure projects, global play- To attract investors to a PPP proj-possibility that the project will fail. The ers are always required. This is what Can- ect it is required a good management ofcompromise shown by the public author- ada did to create and reinforce its infra- the procurement process, with a fair andity gives a good signal to the market. Bad structure market, basically following the transparent evaluation, where the objec-signals from the government, inconsis- UK model and improving it, especially tives of the government are well defined,tencies, lack of coordination with stake- with the financial closing timing. the technical requirements are well speci-holders, will discourage investors who Communication from the government fied, and the contracts are financeable.would prefer to go to more“predictable” is very important, not only to stakeholdersmarkets. involved in an infrastructure project (like A success story Another lesson learned is that as the owner of a property where a highwaymore projects are procured under a PPP, will pass through) but also inside the dif- A good example of a success story in Can-a minimal set of standards is reinforced. ferent government levels: ministries, re- ada is the Canada Line Project, named inConstructors, operators, financiers, will gions, municipalities. Historically, the 2010 as one of the 100 most innovativebecome used to a way of working. There- PPP promotion process has begun from a and socially significant infrastructurefore, for one of these participants to jump specialized Infrastructure or PPP agency. projects in the world by KPMG. PwC wasto new environments, will depend if there Public servants working in ministries or the financial advisor.are certain compatibilities between the municipalities at first will not see any The Canada Line was the first rail proj-way they are use to work and what the benefit from changing their way of work- ect realized as a PPP in North Americanew environment is offering. ing. But as they are exposed and trained that implied the connection of an airport with two cities (Vancouver and Rich-“As more projects are procured mond). It is composed of approximately 19 km. of a light train system, with 18 sta- tions and a number of passengers of aboutunder a PPP, a minimal set 100,000 per day. It had an approximate cost of US$2 billion.of standards is reinforced. One of the key elements of this project was the level of coordination between the involved authorities. This project impliedConstructors, operators, the participation of 8 agencies or govern- ment institutions which contributed with its financing: the Government of Canada,financiers, will become used to the Provincial Government of British Co- lumbia, Translink, the International Airporta way of working.” of Vancouver, the cities of Vancouver and Richmond, the Vancouver Port Authority, and the Regional District of Vancouver. This coordination between so many government authorities, difficult but in
Institutions Latin Infrastructure Quarterly 31the end successful sent a strong message investment, and that keeps an untouch-to the market: the Canadian Government, able track record referred to the respect Adrian Barriosat all its levels, is compromised with the of contracts.success of a major infrastructure project. This last issue has been a burden in Adrian Barrios has more than 10 With respect to the technical aspects, Latin America for many years. Private years of professional experiencea key success factor was the transfer of investment will not go and do a favor to in project finance, business valua-geotechnical, excavation and demand anyone. It will go where there is an option tion, mergers and acquisitions, fi-risks. Normally in Canada there have of a profit with bearable risk. It will not nancial modelling, feasibility anal-been few examples of a full demand risk go to a location where the common place ysis, microfinance and financialtransfer. In the case of Canada Line, the is that after some years, the State declares audit. In the last 5 years he haslevel of demand risk transfer was low, as “change of rules” and nationalizes or ex- led more than 50 business valu-the concessionaire did not have control propriates its assets. ations and transaction projects inover the tariffs, and therefore over the This is why the procurement process Canada, Peru and Ecuador. Hisvolume of passengers. However, and here phase is fundamental. The final con- experience comprises the mining,is where the innovation comes, the con- tent of the contract between the public energy, financial services, health,cessionaire was allowed to promote the and private sector should protect the agribusiness, infrastructure and“passenger experience” of using the Can- Government, in the short, medium and commercial sectors. He holdsada Line based on values like punctual- long-term, during the construction, op- an MBA from ESADE Businessity, neatness, order. So the concessionaire eration and maintenance phases of the School and is BA in Economicsreceived an availability payment not only project. from the Universidad del Pacífico.for fulfilling a schedule, but also for the Latin America has a lot to learn about He can be reached at adrian.bar-number of passengers using the service. the Canadian PPP experience. At the firstname.lastname@example.org. beginning of the PPP development inThe recipe of success of PPP Canada, 15 years ago, there were manyin Latin America voices against it, like unions, politicians, academics. But time showed that the PPPSo, Latin America could reply this model, methodology was not a dogma, or an un-receive and embrace this market of global contestable solution. It was just an alter-players? native.“Communication from thegovernment is very important, notonly to stakeholders involved in aninfrastructure project.” First, it would work better in a country According to a recent Canadian Coun-with investment grade. The Latin Ameri- cil for PPP Poll, Canadian support for PPPcan rankings put in the first places coun- is on the rise reaching 70% acceptance.tries like Chile, Mexico, Brazil. Also ulti- The reason for this is that taxpayers canmately there is more activity in emerging see infrastructure projects being built andeconomies like Peru or Colombia. delivered on time and on budget, that the Second, and most important, there levels of services are adequate, and thatshould be a commitment from the gov- their standard of living rises accordingly.ernment with respect to developing its Would we have these results some dayinfrastructure market. A commitment that in Latin America?considers the ultimate available tools re-garding project financing, that preparesall its government levels in the conceptof a public-private partnerships, that hasa legal framework that welcomes foreign
32 Latin Infrastructure Quarterly InstitutionsHealthPPPs:Rationale & Drivers Paul da Rita – Global Leader for Health PPPs at PwCG overnment spending on healthcare around the world Examples of such projects can be seen in Spain, Brazil, the Ca- is growing at a pace that is likely to be unsustainable ribbean and the UK. unless new funding sources are found and more ef- The trend has gathered momentum due to a number of rea- ficient delivery methods are sought. As this reality sons. Investment need and government budget constraints aredawns governments are increasingly looking to PPPs to solve foremost among them. Governments today are spending in-the larger problems in care delivery that are driving spending. creasing portions of their budgets on health. Spurred by ageing, Healthcare has been largely overshadowed in the PPP market chronic disease and technology, as well as the growing expecta-by super projects in energy, telecommunications, and transporta- tions of the population, health spending will increase by overtion. While estimated at only about 10% of all PPPs, healthcare 65% over current levels by 2020. This will intensify the need forprojects are among the most complex and require a special un- alternative methods of financing and care delivery. According toderstanding of the delicate balance in delivering such a critical PwC estimates, the OECD and BRIC nations alone will need topublic service. For example, in other types of PPP projects, the spend $3.6 trillion on infrastructure over the next 10 years. How-physical infrastructure is the desired end product and any provi- ever, health spending beyond infrastructure -- which representssioning to maintain and run it is secondary. Health systems are 95% of health spending -- will total more than $68.1 trillion.different. For health systems, a hospital is a small part of what This huge spend will become a target for government efficiencykeeps people healthy; the desired end result for government is and create a market for private organisational investment andbetter health for a population. management. To address this reality, health PPPs have evolved significantly Chart 1: The more aspects of healthcare that are included inover the last 20 years. They started as a way for governments the PPP, the more the potential for savings increasesto build new or revamp crumbling hospital infrastructure in .countries like the UK and Canada. More recently their scope As governments at central and local levels grapple with sig-has expanded from a primarily infrastructure-oriented model to nificant deficits following the global financial crisis, private in-a clinical services delivery model; some projects include both. vestment and expertise have become even more vital to address 32
Institutions Latin Infrastructure Quarterly 33health system needs. There is often wide divergence betweenpublic and private healthcare in developing countries; PPPs pro- Drugs, devices, Potential for savings & efficiency gainsvide a way to harness the skills, knowledge and capacities of the home, long-term care 25-45%private sector to achieve public policy goals. This in turn pavesthe way for a shift in the government’s role from provider to Primary care 15-25%regulator. However, ultimately the scope and structure of health PPPsreflect specific needs and context. While some countries seek Hospital - non- clinical services and clinicalto add new beds, others require skills that are in short supply services 30-45%in the local/regional economy. For instance, PPPs have beenused in the Turks and Caicos Islands and Lesotho as a way ofsecuring access to not just infrastructure but also skills and Infrastructure 2-5%technology. *Percent of total health spendingPayment mechanismAs in other infrastructure PPPs, the payment mechanisms inhealth PPPs are based on the contractual allocation of risk andthe scope of services. However, the development of new mod-els has necessitated the development of new models of paymentwhich incentivise risk sharing. Traditional payment mechanisms are availability-based, set-ting out the level of performance that is required by the privateprovider, how this will be measured, pricing arrangements andany volume or value guarantees. The incentives are largely pu-nitive in nature, containing deductions that the private providerwill face should it not provide the expected level of service ormake the facilities available, as well step-in and terminationrights for extreme cases of poor performance. These establishedmodels are still evident today in health infrastructure deals inprojects all over the world including Brazil and Mexico. However, with health PPPs now increasingly focused on tal operator through a capitation payment. Under this systembetter procurement and value for money, measurements of payments are based on the number of people to be served bysuccess are evolving away from simple availability toward the provider. The payer pays a monthly per-capita paymentbetter health outcomes. For instance, the Alzira project in to the provider institution to deliver a package of services toSpain covers infrastructure and clinical services for hospital consumers who subscribe to that plan or are resident in thatand primary care clinics and the government pays the hospi- region. The provider receives no extra payments regardless of whether a patient is hospitalized once in a year or 5 times.“Healthcare projects The payment mechanism hence creates a positive incentive to keep patients healthy and out of the hospital and shifts some of the demand risk to the private sector.are among the most More integrated projects may combine these approaches, creat- ing mixed payment streams. As previously mentioned, the Turkscomplex and require a and Caicos Islands project Includes 2 payment streams – one for the facilities (2 small hospitals) and funded by the government, and the second for the provision of clinical services on a capitat-special understanding ed basis and funded through a new mandatory health insurance scheme. Both types of payments are subject to periodic review/of the delicate balance adjustment and deductions for poor performance against a range of performance indicators.in delivering such a The Healthcare PPP market in Latin Americacritical public service.” Latin America has had an active PPP market for some time al- though healthcare projects have been relatively slow to take off. However, in common with many other parts of the world, we are 33
34 Latin Infrastructure Quarterly Institutions a number of Hospitals and Diagnosis Centres on a PPP basis. “Spurred by ageing, However, the project ran into problems due to various issues. Consequently, the procurement has been postponed 4 times due chronic disease and to lack of interested parties. Newer projects, such as the expan- sion and renovation of a general hospital in the State of Bahia, technology, as well as the which includes both clinical and non-clinical services and equip- ment supply, fit with the broader international trend towards more integrated models. growing expectations of the population, health spending The market in other Central and Latin American countries is also developing rapidly. By defining risk allocation more clearly and allowing for unsolicited proposals, Mexico’s new Federal PPP will increase by over 65% law is expected to facilitate greater private investment in infra- structure through PPPs and it is hoped that it will speed up a num- over current levels by ber of health PPP projects at both Federal and State level, that have been in the pipeline for some time. Interestingly, Mexico 2020. This will intensify has used the PPP model to procure not just hospital infrastructure but also very high tech services such as IT. Such services, due to their complexity and the risk of obsolescence, have struggled to the need for alternative be successfully delivered through PPP around the world. It may be that in this case, there are lessons that can be learned from the methods of financing and Mexican experience. care delivery.” Chile has a history of health PPPs since 2000 but has failed to make significant inroads into a substantial pipeline of projects, with only 1 currently in procurement.now seeing increasing interest from Latin American countries Key success factorswho are looking to improve access to and the quality of health-care for their citizens. There are a number of lessons that Latin American governments Brazil is one of the largest and most active infrastructure can learn from the international experience as they embark onmarkets in Latin America. While PPPs provide an attractive PPP programmes. Successful programmes around the worldavenue for the government to make progress towards its ambi- have a number of consistent success factors, some of which aretious developmental goals, they are constrained by a variety of set out below:reasons that are also relevant across sectors. For instance, Role of the government: Market interest and participation Many states have PPP laws (in addition to a federal PPP in PPP projects, particularly in newer markets, is significantlyLaw). Additionally, federal law establishes that the annual PPP dependent on the role, and perception, of government. It aloneat State or Municipal level should not be higher than 3% of can establish the over-arching policy and legal framework undertheir net revenue; which such projects can be conceived and developed. PPPs de- Municipalities and States do not typically have the budget pend heavily on contracts that are effective and enforceable, soto develop PPP studies and can only develop these studies a clear legal and regulatory framework is an important pre-req-through partnerships with IFC, BNDES or private companies uisite, and a lack of clarity and consistency creates uncertaintywilling to develop unsolicited proposals; for investors. Given the significant investment and long-term na- Private investors require robust guarantees to protect their ture of PPPs (which often cover multiple election cycles), dem-investment in the event that State or Municipal governments onstrating high-level political support and commitment is alsoare unable to make the appropriate payments and default. important. For instance, governments may draw up investmentMany of these Municipalities and States do not have access to plans to indicate the potential flow of future projects and explainappropriate assets to deposit in these guarantee funds. how such projects fit together within the context of national or In many cases the authorities also lack the skills required to regional economic plans to build a broader consensus. Such stepssuccessfully structure and procure PPP projects. send a powerful message of consistency and credibility to private As a result, there are relatively few projects being procured sector counter-parties and lenders about the public sector’s seri-across all sectors. To address the issue, there is a growing rec- ousness of intentognition that the rules for unsolicited proposals need to be re- Transparency and objectivity: A number of developing coun-defined to enable private investors to participate in the tenders. tries have a long and difficult legacy of corruption and misman- Like other sectors, the experience in health has also been agement of public funds. However, by embedding commercialmixed so far with much interest (and need) but not very much and procurement discipline PPPs offer powerful incentives forprogress. In one of the early projects, the municipality of São projects to meet allocated budgets and deadlines. EstablishingPaulo proposed to develop a substantial project which included and adhering to a transparent PPP process, including clear pre-
Institutions Latin Infrastructure Quarterly 35 Paul da Rita Paul is an experienced PPP practitioner who has worked with many pub- lic and private sector organisations in delivering innovative and complex healthcare PPP projects across the world, over the last 15 years. Paul is a senior member of PwC’s Corporate Finance healthcare team in the UK and is also the Global Leader for health PPPs for the firm across our inter- national network . Paul joined PwC in September 2000. Since that time he has completed a number of high profile and complex deals from the largest UK Healthcare project at Barts and The Royal London, to the largest international project for the New Karolinska Hospital in Stockholm. In between, Paul closed other notable deals in the UK and the innovative project in the Turks and Caicos Islands, which included the provision of long term clinical services. More recently, Paul is providing support to the PwC international network on projects in Brazil and South Africa. In addition, Paul is keen to explore how PPPs can be used to improve the delivery of assets and healthcare services to developing economies.“While the provision of Be flexible: The global economic crisis in 2008 had far- reaching consequences for the project finance market, with delays in financial closures, higher financing costs and projecthealth is widely recognised cancellations. However, the upward pressure on credit spreads has gradually subsided. We find that well-structured pipeline projects are able to obtain financing, facilitating a trend towardsas the responsibility project restructuring and renegotiation. Such developments em-of government, private phasise the need to adapt to market conditions and experience by evaluating on-going projects and improve the process where necessary. Such a willingness to learn from “pathfinder” typecapital and expertise are projects is particularly crucial for countries with ambitious project pipelines.increasingly viewed as Conclusionwelcome sources to induce There is no country in the world where healthcare is financed entirely by the government. While the provision of health isefficiency and innovation.” widely recognised as the responsibility of government, pri- vate capital and expertise are increasingly viewed as welcome sources to induce efficiency and innovation. Hospitals - and healthcare more broadly – are unrecognisable today comparedqualification criteria and short listing methodology, objective and to 30 years ago and health PPPs must continue to adapt to keepquantifiable bid evaluation and award criteria as well as quality up with the accelerating pace of change. This is as true in theassurance and approvals processes, help to attract both local and developing countries of Latin America as it is in more matureinternational bidders, thus creating the competitive landscape economies in Europe and elsewhere. Governments in Latinwhich is key to delivering value for money. America can learn much from the successes as well as the fail- Invest in skills and resources: Infrastructure projects are com- ures of health PPP projects around the world. It is clear thatplicated by their very nature and implementing PPP solutions PPPs are one of the tools that can be used by governments toin healthcare is significantly different from concessions for toll deliver the improvements in healthcare systems that are needed.roads, airports etc. The public sector needs access to commercial It is also clear that unless PPP programmes are carefully struc-and financial skills to fulfil its role as an effective client. In many tured and lessons learnt from the international experiences,cases, this is one of the most important investments most health projects can continue to struggle and potential improvements tobodies will make. healthcare not delivered.
36 Latin Infrastructure Quarterly ProjectsIntegrated Transit Systems LIQ Talks to Luis Ricardo Gutiérrez, EMBARQ Latin America Strategicand Bus Rapid Transit in Director and General Secretary of the Latin American Association of Integrated Systems and BRT (“SIBRT”) Special thanks to Julián Sastre, Deputy Chair of the Infrastructure and Services Forum (Spain), for arranging and contributing to this interview. Could you briefly explain EMBARQ spaces. The network employs more than and SIBRT? 100 experts in fields ranging from archi- tecture to air quality management; ge- EMBARQ’s mission is to act as a catalyst ography to journalism; and sociology to and help implement environmentally and civil and transport engineering. financially sustainable transport solutions SIBRT brings together Latin Ameri- to improve the quality of life in cities. ca’s most influential Integrated Transit Since 2002, the network has grown Systems and Bus Rapid Transit (“BRT”) to include five Centers for Sustainable agencies. SIBRT facilitates the exchange Transport, located in Mexico, Brazil, of knowledge, produces “best practice” India, China, Turkey and the Andean studies of the management, standard- Region, that work together with local ization, and operation of urban publicLatin America transport authorities to reduce pollution, transport, and proactively promotes In- improve public health, and create safe, tegrated Systems and BRT adoption as accessible and attractive urban public the safest, most efficient and sustainable
Projects Latin Infrastructure Quarterly 37form of mass transit. The Association iscommitted to quality urban public trans-portation development. SIBRT is presentin 19 cities of 8 countries, which togethercomprise more than 95 million urban in-habitants. Its Associates provide publictransit services to more than 20 millionriders per day on more than 700 km ofexclusive bus corridors (further informa-tion in www.sibrtonline.org). SIBRT wascreated in April 2010 with headquarters inCuritiba. EMBARQ acts as SIBRT’s GeneralSecretariat.What is the functional concept of BRTsand why are they interesting for LatinAmerica.BRTs are high-performance transporta-tion solutions for urban corridors withelevated demand. BRT was conceived asan alternative to metros and light rails,which are more expensive, take longer • Centralized control system These two components were not suffi-to implement, and are less flexible than • Smart card payment collection sys- ciently present in the following BRT sys-BRTs. BRTs, like railways, are one solu- tem tems: Trole of Quito (1995), and Trans-tion to sustainable urban public transpor- • User information systems milenio in Bogotá (2000). In the Quitotation challenges; they are an important Project, only the colonial center was con-part in managing the complex transporta- Curitiba’s BRT has two additional de- nected to the city’s other bus networkstion needs of growing cities. sign elements which are often overlooked and in Bogota the BRT was implemented The BRT model was invented in Curi- in other BRT systems throughout the world: above the Avenida de Caracas (the cor-tiba. The design features that constitute a ridor with the greatest level of demand),BRT are: 1. The BRT system was designed as part making it detached form the city’s center. of an integrated network of buses that It is worth highlighting that Transmilenio• Exclusive corridors serves the entire city. revolutionized the mass transit industry• High-capacity buses, either articu- 2. The BRT and integrated network when it achieved the highest level of BRT lated or bi-articulated buses are linked to land use management, capacity at 45,000 passengers per hour• Closed stations using pre-paid ticket- providing a comprehensive citywide per direction. Transmilenio shifted the ing systems transportation vision. mass transit paradigm, proving that BRT
38 Latin Infrastructure Quarterly Projects mobility as a social right. This would al- low for governments to assign resources more efficiently and take into account the social and economic impacts of urban transport projects. Limited institutional capacity, with regards to infrastructure (public sector) and operations (private sector), limits the funding options available to regional gov- ernments. These problems are even more of a problem when city and local govern- ments are searching for funding options. With regard to institutional capacity, we have found that there are limited hu- man resources availability that have the skillset needed to carry out and promote BRT and integrated transportation solu- tions. As demand continues to grow for transit modernization projects this will create a bottle-neck. Available financial resources are beginning to increase, but the lack of institutional capacity at the city and local level will prevent fundersis indeed a mass transit solution that can public transport is a challenge for cities and investors from dispersing their funds,compete with rail-based technology. attempting to develop a BRT. Some na- creating lost opportunities for public Transmilenio’s success led to the ac- tional governments have highly advanced transportation improvements.ceptance of BRTs in the mass transport transit policies while others do not. Bra- The challenge of private operator capacityindustry. Its impact can be seen in the zil stands out as a leader in the field. is of the utmost importance. The majority ofgraphs below, which show the evolution Brazil voted last April to adopt a highly- transport services (80 to 85%) are providedof BRTs and exclusive corridors for bus advanced Public Transport Act which using buses or mini-buses with highly de-routes worldwide. In a 10 year period be- is geared towards sustainable mobility teriorated service levels, operating undertween the launch of Transmilenio in 2000, founded on the following basic pillars: precarious company structures. Public trans-when there were 23 BRTs in the world, the portation services run by professional andnumber of BRTs worldwide has reached • Collective and non-motorized (bicy- modern companies are still the exception to134 cities. As of 2012, 53% of BRT pas- cle) public transport. the rule. Where they exist they are found insenger demand is located in Latin America • Physical and fare integration of mo- tandem with BRTs or integrated transportalthough significant growth levels are be- bility aimed at the entire population. systems (the latter generally in Brazil). Per-ing noted in China and India. • Demand management of the use of haps this might be the most sensitive issue In Latin America, EMBARQ and SI- private vehicles. for the transformation of public transport inBRT have been promoting the integration • Acknowledgement of persons and Latin America. The quality of private transitof BRTs into the entire city transporta- rights of public transport users (qual- companies deserves greater study in order totion network. We have found that it is not ity standards of vehicles, informa- best understand how to change from conven-enough to have solutions that only focus tion, time-keeping and openness of tional operators to professional operators.on main corridors; rather to provide high- service).quality service the transportation system • Establishment of directives which What were main conclusions drawnneeds to be integrated operationally, physi- state: from the 2nd SIBRT Congress heldcally, and fares must allow for transfers. • Efficiency and quality of service are in Leon in April 2012, and what wereFortunately, Latin American cities are in- demanded of Public Sector Managers. your highlights from this event?creasingly moving towards high-quality in- • The reduction of contaminating sub-tegrated transport solutions for all citizens. stances and emissions. During the 2nd SIBRT Congress twenty- • Transport and Transit Plans (PlanMob) eight high-quality presentations wereWhat problems are found during de- for cities with more than 20 thousand given on the four transportation issues:velopment? inhabitants (previously 60 thousand) in Public Policy for Sustainable Urban order to provide federal resources. Transport, Financing of Integrated Trans-The lack of clear policy on the part of na- port Systems, Road Safety for Urban Bustional governments with regards to sus- Another policy element that is lacking in Networks and Quality of Service / Usertainable transport and the prioritization of most countries is the adoption of urban Satisfaction / Image of BRTS. These pre-
Projects Latin Infrastructure Quarterly 39sentations allowed us to reach conclu- as duties pertaining to regulation and the service levels expected. For this rea-sions which will guide the next stage of management of operational contracts. son, there must be a meeting of minds andSIBRT’s benchmarking work. The private sector generally operates and an alignment of wills geared towards the Amongst the dignitaries present at the manages the bus fleets and drivers and citizens’ needs with an eye towards howevent, the following are worthy of special receives a concession from the govern- those needs align with private sector in-mention: the President of the Municipal- ment to operate for a determined number terests.ity of Leon, Ricardo Sheffield Padilla; the of years. In this way a combined actionMayor of La Paz, Bolivia, Luis Revilla; between public and private sectors is in- What is the outlook for major projectsthe Columbian Deputy Transport Minis- dispensable in order to avoid serious neg- on the horizon?ter, Felipe Targa Rodríguez; the General ative externalities, which are generated inManager of the EMBARQ Network, Hol- the urban transport market: According to estimations made by EM-ger Dalkmann; the General Manager of Inefficient land use (congestion and BARQ and SIBRT, the modernization ofURBS-Curitiba and Deputy Chair of SI- urban chaos) public transport networks in 242 LatinBRT, Marcos Isfer; the General Manager Negative effect on public health (ac- American cities with more than two hun-of BHTrans, Ramón Víctor Cesar; The cidents, pollution, lack of public space dred and fifty thousand households whichWorld Bank’s Urban Transport Advisor, for physical activities) utterly onerous for signifies around three hundred and sev-O.P. Agarwal; and the Deputy Chair of governments, companies and families. enty million inhabitants requires:the Infrastructure and Services Forum in All of this demands the presence of 27,000 M US$ for public investment inSpain, Julián Sastre; as well as the Gen- the public sector combined with an effi- infrastructure, in order to put into serviceeral Manager of Excelencia ALC-BRT, ciently managed and professional private 5,400km of additional BRT corridors, andJuan Carlos Muñoz. sector presence, which incorporates state- A further 70,000 M US$ of private in- The event attracted the attendance of of-the-art technology in order to provide vestment for fleet renovation.more than 350 specialists and operatorsin the field of urban public transport from15 Latin-American countries and beyond.Management representatives and techni-cal staff from 19 SIT and BRT associate Luis Ricardo Gutiérrezmanagement agencies in countries such Mr. Gutiérrez has 36 years of experience as an expert in decision-makingas Brazil, Colombia, Chile, Ecuador, processes and capacity building. He has extensive experience in BRT andGuatemala, Mexico, Paraguay and Peru urban transportation projects in policy and planning arenas. An engineerwere present. Other attendees included and economist, Mr. Gutiérrez holds a master’s in Development Planningtransport managers and public sector from the National University of Engineering of Lima, Peru as well as a mas-representatives from countries such as ter’s in Economics and studies for Ph.D. in Political Science from BostonArgentina, Bolivia, Botswana, Canada, University.Spain, the United States and India. Also Mr. Gutiérrez has been an economic research professor at some of theparticipating were representatives of op- most esteemed universities in his native Peru. He managed the prepara-erators from the aforementioned coun- tion phase of the BRT Transportation Project for Lima and Callao, Perutries amongst which was Otavio Cunha, from 1996 to 1998 for the World Bank. As a consultant for the World Bank,the General Manager of the NTU, the Na- he worked on a variety of sustainable transport and poverty relief projectstional Association of Brazilian Operators in Latin America. In 2001, he was recruited for the position of Vice-Ministerfor Urban Transport. of Transport in Peru and later became the executive director of an ambi- 21 sponsors took part including: DINA, tious reconstruction program aimed at rebuilding the area affected by thePagobus, ACS, Andina Technology, Em- 2000 earthquake in southern Peru.presa1, Inteligensa; Silver Plus: Volvo, Mr. Gutiérrez has been the strategic director for Latin America at EM-GMV, Servyre; Caliper, Doppelmayr, BARQ since 2003. From this position, he helped establish CTS-Mexico,Hersan, Trapeze, BEA, Transconsult, In- CTS-Brazil and CTSS-Andino; and built strategic partnerships with the An-terBerica, Grupsa, Nettropolis, Hyundai, dean Development Corporation (CAF) and the Pan American Health Or-Régie T, Bioplast. The organization of the ganization (PAHO). In September, 2009 Mr. Gutiérrez was honored withevent was funded by EMBARQ. the WRI President Award. He is a founder and honorary associate of the Association of Latin American Integrated Transport Systems and BRT (SI-How are these projects linked to the BRT), and serves as the General Secretary of SIBRT. He is also a memberphilosophy behind PPPs? of the Executive Committee of the Center of Excellence ACL BRT (Across Latitudes and Cultures Bus Rapid Transit). Throughout his career as an ac-Due to their very nature urban public ademic, journalist, public official, consultant, and director he has authoredtransport projects imply PPP style solu- a number of books, essays, and articles.tions. The public sector usually assumesfinancing of BRT infrastructure, as well
40 Latin Infrastructure Quarterly Infrastructure FinancingInfrastructureInvesting– An Alternative Perspective communication, as well as other socialLIQ talks to Anadi Jauhari, CAIA, Senior Managing Di- sectors, and will likely come from publicrector at Emerging Energy and Environment LLC and to and private sources.Rajeev J. Sawant, Ph.D., Assistant Professor at Baruch How will such huge demands for capi-College in New York tal be met?I n this article, Anadi Jauhari shares vestments. There is clearly an acknowl- Anadi Jauhari: These demands will be his insights on the topic of alterna- edgement of the fact that the region’s met by a combination of private capital tive investment strategies, including existing infrastructure bottlenecks ham- both foreign and local, as well as by de- hedge funds, listed and unlisted pri- per productivity, limiting the full growth velopment banks and multilateral insti-vate equity in the context of the region’s potential of the economies. A level closer tutions. Local capital includes pensionhuge infrastructure needs. Dr. Sawant to 4% to 6% of GDP per annum is recom- funds, insurance companies, family offic-explores the perspective of institutional mended by the World Bank to meet new es and high net worth individuals, whileinvestors as capital providers for infra- growth and maintain existing infrastruc- private capital may potentially includestructure development focusing on both ture stock. At about $5 trillion nominal foreign institutional investors, pensionthe promise and the challenges of invest- regional GDP, this crudely translates into funds and the sovereign wealth funds.ing in infrastructure assets. $200 billion to 300 billion per annum of Such foreign investors find some coun- infrastructure investment over the next try markets in the region attractive dueCould you give us a sense of the scale of 15 to 20 years. These investments are to their view on long-term fundamentalsthe challenges and investment required required in transport, energy, water and underlying such markets.in the region in the context of the capi-tal-raising environment? “Recycling local savings to productiveAnadi Jauhari: Infrastructure investmentin the region has lagged that of the middle investments requires institutional andincome Asian countries such as Korea,Malaysia and Indonesia by a wide mar- governance arrangements which aregin. At roughly about 2% to 3% of GDPannually in recent years, infrastructure beginning to get established and beinvestment levels in the region are con-sidered barely sufficient to maintain theexisting base of infrastructure. Similar noticed following the success of theto other emerging markets, economic andpopulation growth, urbanization, and ris- Chilean model.”ing per capita incomes have created theneed for more infrastructure-related in- Anadi Jauhari
Infrastructure Financing Latin Infrastructure Quarterly 41 Recycling local savings to productive to play a role with the pull-out of the of capital which may be reinvested intoinvestments requires institutional and European banks. Foreign institutional alternatives, and grow the alternatives/governance arrangements which are be- investors in certain markets may view in- hedge fund investing space.ginning to get established and be noticed frastructure debt attractive relative to the Unlike private equity funds which de-following the success of the Chilean mod- risk and return profiles of the assets and ploy capital based on lock up periods >10el. The region’s favorable demographics their favorable view on the sovereign and years, hedge funds invest in listed secu-support the growth in the pension assets regulatory risks in these markets. rities, which provide daily or monthly li-in Chile, Mexico, Peru, Brazil and Co- quidity, and often employ leverage as partlombia. This is motivating for pension Do you see hedge fund strategies as of their strategies. Hedge fund strategiesfund managers and country regulators part of alternatives allocation playing a will likely expand as the listed universe ofto go beyond conservative investing and role in the development of infrastruc- companies with infrastructure assets andlook to public equities and alternatives. ture in general? cash-flows grows over time. The com-The combination of more capital coming position of public companies on the keyinto equities via the growth of the local Anadi Jauhari: Hedge fund strategies can stock markets does not often accuratelyequity markets including the potential in- certainly be applied to infrastructure as a reflect the composition of the underlyingtegration of the Chilean, Colombian and subset, but in general hedge fund manag- GDP, and tend to be concentrated with aPeruvian stock exchanges in addition to ers tend to be more generalist and sector- few big names – in some cases, with sec-the relatively more developed Mexican tor (for example, commodities or naturaland Brazilian exchanges, is a positive de- resources, consumer, financial services).velopment. “Private equity capital This will evolve over time as more GDP Private equity funds being raised in sectors get represented in the mix and asthe market - $8 billion in 2011 and $16 more Latin American infrastructure ori-billion expected in 2012 as per Preqin – can bring in private ented companies grow in number and be-are more generalist funds which target gin to access public equity markets.the overall growth in the region, though sector efficiencies in Hedge fund strategies and mandatessome of the capital may find its way into commonly and currently being imple- the build-out or ininfrastructure, and over time in the medi- mented by Latin American hedge fundsum term, we will see the development of include long short, macro, relative value,sector or country focused infrastructure arbitrage, managed futures, fixed income,funds. Though private equity will still the private ownership event driven, relative arbitrage and dis-be part of the ecosystem, it alone cannot tressed debt. Of these, long-short, macro,meet the region’s infrastructure needs, distressed debt, event driven, and fixedand will likely complement and or act as and operation of income accounts for over 2/3rd of as-a bridge to the public equity markets in sets under management (AUM) in Latinthe region, especially as public markets such assets and will America. In terms of geographic focus,become deeper and more integrated. Pri- Brazil accounts for the lion’s share of as-vate equity capital can bring in private sets under management.sector efficiencies in the build-out or in be important in the Hedge funds in the region have donethe private ownership and operation of well relative to other emerging marketssuch assets and will be important in the development of and were less impacted in the financialdevelopment of infrastructure stock in the crisis as compared to other markets andregion. have continued to attract inflows. How- The interest of many foreign asset man- infrastructure stock in ever, in terms of AUM, LatAm hedgeagement firms to set up shop in the region funds account (AUM $59 mm as per Eu-to benefit from the favorable trends in the the region.” rekahedge) for close to 5% of total hedgeavailability of local pools of capital, and fund assets under management globallythe emergence of a local talent base of (though not a perfect metric, very roughlyfund managers, is also a positive develop- Anadi Jauhari in line with the region’s share of the glob-ment which will likely further reinforce al GDP).the deployment of alternatives. Infrastructure assets by their very na- agnostic and I am not aware of hedge Do you see listed infrastructure as anture can support debt due to their stable fund managers that solely specialize in investment strategy in the region?cash-flow and operating profiles. The infrastructure in the region. Rising in-availability of debt capital to support in- come levels and wealth-creation result- Anadi Jauhari: Listed strategies aroundfrastructure investments will come from ing from commodity related booms, local infrastructure assets (utilities, transportlocal banks and local capital markets, land sales, acquisition of local companies and logistics, energy) are likely to be-though development banks are expected by foreign companies will increase levels come more common similar to the trend
42 Latin Infrastructure Quarterly Institutionswe are seeing in the developed markets, and renewable energy and deployment of tractors etc. are used because returnsand will provide an efficient way for in- clean technologies which have been proven from listed infrastructure equities are cor-vestors to get exposure on infrastructure elsewhere and which can benefit from the related with other equities. It is clearlyassets. These may include investing via region’s very favorable resource base. De- difficult for institutional investors to in-the shares of infrastructure companies, or spite its “clean” energy matrix, the region vest directly in infrastructure assets asthe securities created by the bundling of can tap its vast untapped energy resources equity or debt holders because finding,infrastructure assets. The primary benefits – without subsidies - to increase energy se- evaluating, structuring, monitoring andthat come with listed strategies include curity efficiently and play an important role operating infrastructure assets requireliquidity, more targeted exposure on in- in the global fight against climate change. significant expertise and experience. In-frastructure investment attributes that frastructure assets are also lumpy invest-investors seek (income, inflation protec- How does infrastructure fit institution- ments and institutions may take on con-tion, cash-flow stability) and efficiency. al investor portfolios and what role do centration risk with a limited number ofThe downside is that listed strategies can infrastructure funds play? investments possible with their allocationbe correlated with the broader equity mar- Rajeev J. Sawant: Infrastructure assets to infrastructure. Infrastructure funds cankets and hence, can be more volatile. produce stable, long dated cash flows help overcome these constraints through The development of local and regional reaching out to 75 years and beyond. As- experience in specified sectors and geog-public equity markets and the ability of set lives for roads and electricity aver- raphies and by pooling funds to diversifylocal infrastructure companies to access age over 30 years. In combination with across assets. Of course, infrastructuresuch markets will provide an effective inelasticity of demand and their monop- investing has challenges too. Illiquid-way to invest in listed infrastructure. This oly like positions, these long dated cash ity and exposure to regulatory or policywill lead to the development of investable flows provide an excellent match to long or political risk constitute some of theseinfrastructure indices and infrastructure- dated liabilities particularly from pension challenges. Infrastructure funds can alsooriented mutual funds and ETF’s, a trend funds which need to pay out their mem- help inexperienced investors in mitigat-also being seen in the developed markets. ber retirees over increasing periods of ing these risks. time. Infrastructure assets provide naturalWhat sectors you feel are promising hedges against inflation because inflation What are the challenges facing infra-for infrastructure investments in the increases the price of replacement assets. structure funds in Latin America andregion? The risk reward profile for this asset class how do they manage them? is attractive, providing a defensive posi-Anadi Jauhari: Energy, transport, water tion against economic downturns. Finally Rajeev J. Sawant: The primary challeng-and waste management are among the most from a portfolio perspective, research es arise from illiquidity and political risk.promising sectors for investments. Low per suggests that infrastructure returns fromcapital consumption of these infrastructure direct investing are not perfectly corre- Illiquidityservices or products and the need to improve lated with other asset classes such as eq-existing and build new infrastructure due to uities and debt thereby providing diversi- Infrastructure assets are relatively illiquidrising income levels and urbanization is cre- fication benefits. and investors need to manage illiquidity.ating a huge demand for new investments. These diversification benefits decline Illiquidity may be understood in a num-An area that is promising relative to the when equities of listed infrastructure ber of ways – as the opportunity cost ofdeveloped markets is the promise of clean firms such as utilities, construction con- foregoing other comparable investments in the time it takes to exit a position, ad- ditional costs paid by investors to reverse“Listed strategies around infrastructure a position such as larger bid-ask spread, or the difference in price at which an as-assets (utilities, transport and logistics, set owner can sell at a given point in time relative to its ‘true’ price, or simply theenergy) are likely to become more common excess time it takes to unwind a position. Infrastructure funds manage illiquiditysimilar to the trend we are seeing in the in a number of ways. One strategy is to al- locate illiquidity risk to the investors mostdeveloped markets, and will provide an able to bear it. Thus the selection of in- stitutional investors to match the level ofefficient way for investors to get exposure illiquidity is important. Typically, pension funds are able to deal better with illiquid-on infrastructure assets.” ity because of their long dated liability structures which mirror the increasing lifeAnadi Jauhari spans of their members. In fact seeking il- liquid assets can be an attractive strategy
Institutions Latin Infrastructure Quarterly 43for such investors because of higher il- Additional illiquidity management monitoring fund manager’s performanceliquidity adjusted returns. Endowments strategies suggested by academic re- is in itself a subject of great importancesuch as Yale University for example, search involves the creation of ‘synthet- large enough to fill a book.selected portfolio investments that paid ic instruments’ that mimic infrastruc- Illiquidity reduces demand for infra-illiquidity premiums. The strategy for ture returns, are indexed to inflation structure assets. This is an important con-managing illiquidity then is to select in- but are liquid thereby providing liquid straint that prevents capital allocation to in-vestments that incorporate an illiquidity inflation adjusted returns. These strat- frastructure assets and leads to mispricing.premium sufficient to generate a higher egies however remain in their infancyilliquidity adjusted return than a compa- particularly in Latin America but strong Political riskrable liquid investment. investor appetite for such a product is We know that investors seek inflation likely to drive innovation and increase A significant challenge that infrastructureadjusted returns which infrastructure assets in their supply. funds need to manage is the challenge ofare able to provide. Yet there is a relation- A final illiquidity issue arises from the political risk or the risk of loss to inves-ship between illiquidity and inflation. In- distortion in price discovery that occurs tors from government actions. Infrastruc-frastructure assets are capital intensive but due to illiquidity. Illiquidity makes price ture services remain politically salient.once operations commence, infrastructure discovery difficult and since returns and Governments are directly involved eitherassets require little capital expenditure. In- return volatility measurement requires as buyers and suppliers or indirectly in-flation increases the value of capital assets accurate prices, infrastructure returns volved as regulators of infrastructure ser-since inflation increases replacement costs are measured incorrectly. Return vola- vices which tend to be natural monopoliesto obtain the same output. Since the initial tility is likely to be depressed due to il- because infrastructure services have tra-capital investment has a long life, generat- liquidity. Moreover, since returns tend to ditionally been provided by governmentsing stable cash flows over long period of be incorrectly measured, it is difficult to and consumers expect their provision astime, infrastructure assets are excellent monitor fund performance, for example, public goods. However, private capital’shedges against inflation. Moreover, infra- against a fund benchmark. Infrastructure advantages which include superior moni-structure output is undifferentiated. After benchmarks usually comprise of traded toring abilities, overcoming incentiveall, electricity generated by a 30 year old infrastructure equity indices such as Mac- problems, greater allocation efficiency,plant is identical to electricity generated quarie Index, and bond indices. The mis- and higher operational efficiency improveby a 5 year old plant. Therefore, the ad- match between a liquid benchmark and an the quality, quantity and lower the costsditional investment in replacement assets illiquid asset return can create problems of infrastructure services.because of high inflation provides no ad- in fund performance monitoring. The se- While these capabilities probably re-ditional value. lection of an appropriate benchmark for main one of the safest bulwarks against The additional value accruing to exist-ing capital infrastructure assets from high “In combination with inelasticityinflation can be realized in two ways. Oneway is by increasing output prices to keeppace with inflation. And the second wayis by unlocking the capital appreciation inthese assets through their sale. These two of demand and their monopoly like positions, these long dated cashmethods serve different investor needs. Thefirst method, increasing output prices tokeep pace with inflation which involves in-creasing user prices for electricity, tolls etc.is more likely to meet investor needs with flows provide an excellent match toliability matching requirements. An excel-lent example is pension funds with cash long dated liabilities particularlyflow needs that increase with inflation tomeet their liabilities. In the second method,assuming that user fee increases face resis- from pension funds which need totance; investors can achieve inflation linkedreturns through asset sales. Lack of liquidity pay out their member retirees overaffects this method. Illiquidity implies thatsale of infrastructure assets requires more‘time to sale’ as compared to liquid assets. increasing periods of time.”Investors able and willing to bear the addi-tional time to sale can consider this method Rajeev Sawantbecause while they wait they are compen-sated by the increase in value from inflation.
44 Latin Infrastructure Quarterly Institutionsappropriation, it is important that infra the returns from infrastructure assetsfunds leverage these capabilities into but because they are implemented using Anadi Jauhari, CAIA, is a Seniorpolitical capabilities. Political capabili- exchange traded instruments they are Managing Director at Emergingties refer to capabilities of assessing risk liquid and no longer bear counter-party Energy and Environment Groupand managing the policy-making pro- risk. One approach explored academical- (EEE), a Connecticut-based alter-cess. This is an additional dimension of ly builds on the insight that government native investment firm with officesinfrastructure investing that is difficult to regulation prevents equity infrastructure in Rio, Mexico City, and Panama. master, and can provide competitive ad- investors from obtaining excess returns, EEE specializes in alternative in-vantage to infrastructure funds because it i.e. government regulations create an ef- vestment strategies with a focusis difficult to imitate. Best practices com- fective cap on the upside. Government on clean and renewable energyprise of understanding regulators prefer- regulations also protect infrastructure infrastructure. ences, constraints and political environ- investors from excess downside sincement while simultaneously ensuring that infrastructure services are public goods Rajeev J. Sawant, Ph.D. is anoperational practices match these prefer- and contracts usually guarantee a re- Assistant Professor at Baruchences and constraints. For example, seek- turn. Government regulations then cre- College in New York, NY and aning a rate increase during an election year ate a floor on infrastructure returns, ef- expert in infrastructure financeis likely to reduce an investment’s po- fectively creating a collar. A synthetic and research. His research onlitical capital while high quality, reliable collar thus mimics infrastructure returns infrastructure has been publishedservice and inclusion of vocal influential when inflation protection is added to the in the peer reviewed Academyconstituencies is likely to increase politi- synthetic asset. Among many possibili- of Management Review, Journalcal capital. ties, the cap may be created by using an of International Business Stud- Appropriate structuring of the invest- equity buy-write index while the down- ies and Journal of Structuredment also leads to better management of side guaranteed return may be created by Finance. He is the author of ‘In-political risk. Components of structuring buying an inflation linked bond index. frastructure Investing: Managinginclude selection of the debt equity level, This synthetic portfolio is rebalanced Risks and Rewards for Pensions,choice of lenders, local partners, output dynamically using factor weights ob- Insurance Companies and En-customers, input suppliers and construc- tained by regressing listed infrastructure dowments’ published by Wileytion contractors. For example, selecting and utility returns against covered call & Sons. He advises EEE in thelenders with high influence in the invest- index and inflation linked bond index development of alternative infra-ment country as part of the lending syn- as risk factors. This creates an inflation structure investment strategiesdicate reduces the likelihood of political protected collar on equity returns which and insights.risk down the road. mimics infrastructure returns but is liq- Other mechanisms such as front load- uid. An important caveat to bear in minding cash flows may prove problematic is that the synthetic asset portfolio willbecause this step typically results in in- not be perfectly correlated with and willcreased user charges early in the life of a not have the return distribution of infra-project. This can engender a backlash and structure returns but investors essentiallyput at risk the return on the investment. trade perfect correlation with infrastruc-Infrastructure funds may also manage po- ture assets with liquidity which for somelitical risk by matching investments with investors may be more desirable. An in-investors who are able to manage politi- teresting question of course is how thecal risk. Pension funds can mobilize their difference in correlation affects the over-subscribers such as teachers, firemen, to all portfolio because one advantage ofmanage political risk and are therefore investing in infrastructure assets is theirone such investor group that can earn low correlation with equities and debt. Ahigher returns from taking on political synthetic infrastructure asset that is evenrisk. less correlated with equities and debt will be even more attractive to investors.What are some innovations that we canexpect to see that address these chal-lenges?Rajeev J. Sawant: An interesting innova-tion in infrastructure investing that seeksto overcome the issue of liquidity is theuse of synthetic assets. Synthetic infra-structure assets are engineered to mimic
Institutions Latin Infrastructure Quarterly 45I Divergence in n 2011, Latin American and Carib- bean (“LAC”) inbound foreign di- rect investment (“FDI”) increased to US$ 153.5 billion, a 12% increase Foreign Directover its 2008 historical high water-mark,based upon the recent report publishedby the Economic Commission of LatinAmerican and Caribbean (“ECLAC”).The region has experienced increased Investment andFDI for several decades; however, it hasnot translated into higher productivity.In fact, despite this increased investment,the region’s economic productivity hasremained stagnant over this time. This article argues that, given thelikelihood of an economic slowdown inChina and recession in the Eurozone, in- Infrastructurecreases in productivity will be essential Development infor growth to continue in the LAC re-gion. Productivity will not grow withouta substantial increase in infrastructureinvestment throughout the region overa sustained period of time. Leadershipwithin the region must continue to attractand incentivize partnerships with theprivate sector to build a modern infra-structure, particularly in transportation Latin Americasystems, while commodity prices remainstrong and FDI robust. In a recent interview with Luis Alberto Mathew G. GarverMoreno, President of the Inter-AmericanDevelopment Bank (“IDB”) conduct- Senior Advisor to Privateed by the Economic Intelligence Unit(“EIU”), Moreno remarked that “slowgrowth was a function of productivity in Capital and InfrastructureLatin America, which has stagnated forthe last 15 years.” He continued, “pro- Groupductivity is closely linked to the region’shuge infrastructure gap. Logistics costsin our countries continue to range from Patton Boggs LLP18% to 34% of the value of traded goods,compared with an average of 9% in theOECD countries.” Moreno concluded decades. Investments into critical fa- three decades, although several LAC“to close these gaps and build infrastruc- cilities such as transportation, logistics, countries have recently completed publicture…Latin America needs to spend the ports, and other enabling infrastructure private investments in airports, rail, andequivalent of 6% of its GDP on infra- have consistently lagged FDI. The result- social infrastructure with noteworthy suc-structure.” ing infrastructure gap is substantial. cess. Based upon a joint report published The effect of this declining investmentDecades of Declining Infra- in February 2012, entitled Infrastructure is exemplified by Brazil, by far the largeststructure Investments and its for Regional Integration by ECLAC and beneficiary of 2011 FDI, with US$ 67B of Union for South American Nations (“UN- the US$ 153B overall flow. Brazilian work-Effects ASUR”) it states, “infrastructure invest- er productivity in the manufacturing indus-Despite increased FDI flows into the ments declined from 4% of GDP in 1980 try has fallen 15% over the past 30 years asregion, discussed below, infrastructure to only 2.3% in 2008.” The gap has been compared to an 82% increase in Chile, 17%investments have steadily declined as a attributed to a consistent decrease in in- increase in Argentina and 808% increase inpercentage of GDP over the past three frastructure investments over the past China, according on the Institute of Applied
46 Latin Infrastructure Quarterly InstitutionsTable 1 creased to US$ 153.5 billion, a 12% increaseGlobal Net Foreign Direct Investment by Developing Regions (in billions) over its 2008 historical high water-mark. Despite the growing economic uncertainty,Investment flows LAC inbound FDI is expected to reach US$Region 2007 2008 2009 2010 2011 150 billion in 2012. More importantly, theWorld 1,971 1,744 1,185 1,290 1,509 region’s aggregate share of global FDI grew from 6% in 2007 to more than 10% in 2011.Latin America & Caribbean 117 137 82 121 153 Table 1 illustrates the FDI flows to deve-South Eastern Europe 573 137 82 121 153 loping regions.Africa 63 73 60 55 54 In 2011, Brazil’s FDI inflows increased by 37% to US$ 66.7 and received moreMiddle East 78 92 66 58 50Source: Economic Commission Latin American Report; FDI, 2011 page 22; Table 1.1; based uponofficial figures via United Nations Commission Trade and Development “This article argues that, givenEconomic Research (“IPEA”) calculation In the past two decades, global FDIof worked hours and number of employees has risen almost five times from US$208in the industry. Another effect of this gap is billion in 1990 to its historical high ofillustrated by the 2010 IDB report compar- $1.97 trillion in 2007 per the ECLAC re- the likelihooding logistics costs as a percentage of GDP port. Global foreign direct investment hasof select LAC countries with the USA and become an indispensible element of the of an economicOECD countries: global economy, reflecting the structural slowdown in China and recession in the Eurozone, increases in productivity will be essential for growth to continue in the LAC region.” than over half of the overall increase in FDI inflow to all LAC countries. In 2011, the percentage of FDI received by the natural resources sector in Brazil fell Overall, the IDB report shows logis- changes characterized by the increasing sharply from its previous high. Mosttics costs as a percentage of GDP in LAC demand for international investments to South American countries experiencedcountries between 50% and 350% higher support growth. increased FDI inflows, with new high-than in the OECD countries (referred in Following the 2008 financial crisis, water marks in Chile, which increased bychart above as “OCDE”). This report at- FDI flows fell sharply by 16% and again 15% to a new high of US$ 17.3 billiontributes these excessive costs and result- by an additional 40% in 2009. In 2011, and Colombia, which increased by 92%ing stagnant productivity to inadequate the global FDI flows once again increased to a record US$ 13.2 billion; largely in theinvestment in critical infrastructure, par- by roughly 17%, rising from US$ 1.29 natural resources sector. As the region’sticularly ports, rail and roads. trillion to US$ 1.509 trillion, but still second largest inbound recipient, Mexi- down from its 2007 high. co’s FDI increased 10%, at an estimatedForeign Direct Investment LAC countries were significant benefi- US$ 19.4 billion, well below its 2008Capital Flows Globally and in ciaries of this upward FDI trend. After two high of US$ 31.3 billion. decades of growth, 2011 proved to be the re- As indicated below, the largest share ofLatin America gion’s best year on record. In 2011, FDI in- FDI inflows to LAC countries originated
Institutions Latin Infrastructure Quarterly 47from Europe investors representing 39% just 10 years ago as referenced by March a region of strategic importance. The chartof 2011 FDI, of which Spain comprised 2012 EIU report. This structural increase below illustrates their respective share of14%, whereas Asia represented only 9%. is a growing concern as fluctuations in global commodity consumption:Europeans have been the region’s largest commodity prices may have a dispropor- In 2011, China was the third largest in-investors for more than a decade, averag- tionate effect on the region’s growth. Its vestor with an estimated $8 billion, downing an estimated US$ 30 billion per year natural endowments are a blessing; how- significantly from a high of $15 billion inin FDI; however, this trend may slow be- ever, the increased dependence has cre- 2010 according to ECLAC. Investmentsyond 2012. ated vulnerabilities. from China were predominantly focused In April 2012, The International Mon- Brazil, by far the region’s most signifi- towards natural resources on more thanetary Fund (“IMF”) published the Global cant economy, represents roughly 43% of 30 projects across South America inFinancial Stability Report warning that its GDP, and serves as a regional proxy for countries from Ecuador to Brazil to Ven-global economic growth may be hurt by future growth. In a recent article by Ruchir ezuela. In April, officials reported thethe deleveraging underway at European Sharma in Foreign Affairs, Sharma states Gross Domestic Product in China slowedbanks. The report estimates that bank that “Brazil rests on an extremely shakybalance-sheets could be reduced by as premise: commodity prices.” Sharmamuch as $2.6 trillion over the next two continued “the problem is that the globalyears, as banks raise capital and divest appetite for those commodities is begin-assets in a credit constrained environ- ning to fall.” The author continued, “Bra-ment. As the region’s largest investment zil must recognize that the era of highpartner, this deleveraging trend will likely commodity prices and easy growth inhave a dampening effect on European in- emerging markets is ending.” High inter-vestments in the coming years. est rates attract foreign capital but prohibit stronger growth. More acutely, its curren-Slowdown in Global Commod- cy has increased roughly 100% against theity Cycle U.S. dollar over the past decade, dampen- ing its competitive position in global mar-The LAC region’s remarkable economic kets. Should this forecast prove accurate,growth has been driven, not by increased suggesting the “Commodity Slowdown”productivity, but in large part by global Brazil and the region must drive a moredemand for commodities and natural re- balanced development model.sources. The region’s dependence on China is a large driver of global com-commodities as its primary economic en- modity demand, as their insatiable demandgine has risen to 39% of GDP from 26% for commodities has made Latin America
48 Latin Infrastructure Quarterly Institutionsmore than was forecasted to 8.1% down 180 billion or between 5.7% and 8.1%from 8.9% in 2011. China’s base metal of regional GDP for required capacityimports are already slowing, and metals expansion and maintenance.” The study Mr. Garver is a Senior Advisorare being warehoused in growing quanti- continues, “an additional US$ 74.5 bil- to the Global Infrastructure andties as manufacturing has slowed. lion and US$ 126.5 billion or between Private Capital Group with Pat- An economic slowdown is under way 3.4% and 5.8% of regional GDP should ton Boggs, LLP; a global law firmin China, signaling decreased demand for therefore be spent per year in the period based in Washington DC. HeLAC commodities in the near-term fu- 2006-2020 in order to maximize the posi- worked with global investmentture. The region’s vulnerability to price tive effects of infrastructure on the econ- funds on infrastructure financefluctuations and sudden capital flow dis- omy.” Without sustained infrastructure and development projects aroundruptions must galvanize the region’s lead- investments, existing infrastructure will the world. Previously, Mr. Garverership to coordinate and promote system- grow obsolete; transportation networks served as the Secretary to theic infrastructure investments to enhance will remain costly and inefficient, ulti- Global Steering Committee forproductivity, while commodity demand mately diminishing the region’s growth DLA Piper, LLP, one of the largestremains strong. and comparative advantages. law firms in the world. Mr. Garv- Public and private leaders in Latin er also serves as a director to aClosing the Infrastructure Gap American are increasingly aware of this private investment firm focused pressing need for infrastructure invest- on international arbitrage invest-With the increasing likelihood of a global ment, and recent projects have experi- ments. Mr. Garver is a graduateeconomic slowdown, a Eurozone reces- enced robust attention from the global of Michigan State University andsion and slowdown in China, it is prudent investment community. It is estimated Oxford University.for the LAC region to expect a slowdown that Brazil, Mexico, Peru and Colombiain future FDI. Growth expectations must will account for roughly US$200 billionalso forecast the likelihood, at least in the in infrastructure finance projects in Latinshort to medium-term, of decreased com- America over the next several years, ac-modity demand from China. If growth cording to a report published by CG/LAwill not be driven by increased FDI or Infrastructure. The region is riding acommodity demand, it must be driven wave of renewed interest in infrastructureby productivity gains, and this will not development; however, sustained invest-happen without sustained investment in ments must be made spanning severalcritical infrastructure. A modern econ- economic cycles to bridge the gaps be- exports and higher investment in the re-omy must have a modern infrastructure tween FDI and infrastructure quality in gion, the LAC countries have failed toto support its growth. As the evidence is the region. direct sufficient resources to infrastructureundeniable, drawing a clear correlation investment, dropping from 4% of GDP inbetween a modern infrastructure and its Conclusions 1980 to 2.3% of GDP 2008. Although thepositive impact on trade, growth, and de- region has enjoyed recent noteworthy suc-velopment with increased physical move- Over the past several decades, sustained cess, it is estimated that the region shouldment of goods, services, and ideas from increases in FDI with a focus on natural re- invest roughly 6% of its GDP to achieveone country to another. sources have helped boost the region to its maintain its economic growth outlook. The report Infrastructure for Regional current competitive position. Over the past Leadership within the region must contin-Integration estimates that Latin American 10 years alone, the region’s economic de- ue to attract and incentivize partnerships withcountries “need to invest an annual aver- pendence on commodities has risen from the private sector to build a modern infra-age of between US$ 128 billion and US$ 26% to 39% of GDP. Despite increased structure, particularly in transportation sys- tems, while commodity prices remain strong and FDI robust. Time is of the essence. With“The LAC region’s remarkable economic Europe preoccupied by the Euro Crisis, and China’s economy slows, two of its three larg-growth has been driven, not by increased est trading partners will likely see slowerproductivity, but in large part by global demand growth over the next several years. This slowdown could have a disproportionate ef-for commodities and natural resources. This fect on the region’s economic foundations.structural increase is a growing concern as The time is now to expand upon recent suc- cess to build a modern infrastructure that en-fluctuations in commodity prices may have a ables increased productivity, through a more balanced development model based upondisproportionate effect on the region’s growth.” systemic infrastructure investments over the next decade and beyond.
Institutions Latin Infrastructure Quarterly 49Following the success of its previous editions the III Brazil III Brazil InfrastructureInfrastructure Investments Forum will once again bringtogether leading experts for this unique event on strategicinfrastructure sectors already in great expansion.T he program of the event will tor invested US$2.5 billion and promises feature panel discussions on the to invest another US$5 billion until 2015 recent developments in Brazil- only in container terminals. ian airports, railways and ports, In 2011 the growth of Brazilian sales Investments Forumas well as in the areas of oil and gas – a abroad was surpassed only by three coun-permanent source of interest in Brazil – tries – India, Russia and Australia. Ourand civil construction, a basic instrument business transactions with the rest of thefor private involvement in infrastructure. world accounted for more than 20% of With the 2014 World Cup and the 2016 our GDP, helping the country reach theOlympic Games drawing near, Brazil has position of sixth largest economy in thespent billions on public works. Infrastruc- world, surpassing the United Kingdom.ture development has become a great con- The Programa Nacional de Dragagemcern of the Brazilian government, in order da Secretaria de Portos (PND) [Nationalto keep pace with its rapidly expanding Program of Dredging from the Ports De-economy and growing cities. partment], Regime Tributário para In- Many investors are confident that centivo à Modernização e à AmpliaçãoBrazil´s strengthening internal capital da Estrutura Portuaria (REPORTO) [Taxmarket, growing consumer class and rap- Incentive Scheme for the Moderniza-id industrialization hold the promise of tion and Expansion of Port Structure],long-term sustained growth. Planejamento Estratégico da Logística Airport industry witnessed a major Portuária e Programa de Incentivo dashake-up this year when it offered private Cabotagem [Strategic Planning of Portcompanies concessions to operate three Logistics and Cabotage Incentive Pro-of the major airport terminals in Brazil. gram] together with the solid regulatoryMajor expansions are also underway in model of the Public Ports operated by theairports of the cities that will host the Private Sector ensure the provision of ser-sports events. vices in the sector”. Railway and ports are one of the pri- The President of the Brazilian Asso-orities of the federal growth acceleration ciation of Port Terminals and Customsprogram (PAC) in view of the rise in de- Clearance Areas, Agnes Barbeito, wrotemand of Brazil foreign trade and internal about the measures taken by the Brazil-transportation of goods. Several major ian Federal Government in regards to theprojects are underway to improve the modernization of our port system:countries surface transportation networks “The actions of Antaq [National Wa-and waterway systems, even in cities such terway Transport Agency], the regulatingas Belém, not directly affected by the up- body of the sector, the management ofcoming sports events. the Federal Government´s assets by the Richard Klien, Chairman and Vice- Companhia Docas, the Conselhos de Au-Chairman of the Board of Multiterminais toridade Portuária (CAPs) [Port Authorityand Santos Brasil, logistics giants that Counsels] that allow for the participationown some of the largest port operations in of the private sector in the decision mak-Brazil, will join the seminar, as both his ing process and the work force manage-companies have decided to sponsor the ment bodies (OGMOs) acting in publicevent. He briefly commented and showed ports are solid.his enthusiasm about the development of Today the port activity sustains itself inthe port sector in Brazil: a legal framework that works very well. “The Brazilian social and economic Otherwise, the country’s ports would notdevelopment depends on the growth of have borne the huge growth we had in for-international trade, which relies on mod- eign trade. Many Brazilian terminals areern ports in expansion. The private sec- equivalent to the best ports in the world
50 Latin Infrastructure Quarterly Institutionsin productivity and work with the most attended the 2011 forum and shares hismodern equipment and technology “. insights on the event: “The seminar had In regards to the oil sector, Brazil’s a rich agenda and offered a remarkablevast deepwater oilfields known as pre-salt gathering of high-level business peoplepromise to take the country into the ranks and government authorities”.of the world´s top oil producers over the The launch of the 2012-2013 edition ofnext decade. The gas industry in Brazil the book “Infrastructure Law of Brazil”,has also enormous potential for develop- edited by Marçal Justen Filho and Cesarment and civil construction is the sector A. Guimarães Pereira and published bywith the greatest expectation of invest- Editora Fórum, one of the organizers ofment in the next years. the seminar together with the Brazilian With a tailor-made agenda, this inter- American Chamber of Commerce, pub- Justen, Pereira, Oliveira & Talamini (partners Fer-national Forum enables the participants to lishing house, will take place during the nao Justen de Oliveira and Marcal Justen Filho)find authoritative information and reliable event. The book provides the reader with and the EcoRodovias Group (board member Mar- celo Almeida and general counsel Marcos Oliveirainsights on infrastructure projects and on a solid foundation on the Brazilian law Moreira) supported the 2011 edition of the Brazilthe Brazilian legal framework. The pan- in areas such as energy, oil and gas, tele- Infrastructure Investments Forum. Marcal Justenels and discussions will be conducted in communications, transport and logistics, Filho was one of the speakers.English or Portuguese, with simultaneous sanitation, waste management, mining,translation. competition law, corporate taxation, envi- The event also provides an unrivalled ronmental law and dispute resolution.networking opportunity with high-calibre The program comprises a keynote con-professionals - an aspect that has been ference on international arbitration thatkey to the event’s success over the past will be delivered by Justice Joao Otaviotwo years. Noronha, a Brazilian judge in the higher This is an essential oportunity for ac- court (STJ) charged with recognizingtive business people. US and Brazilians international awards and a specialist ininvestors, consultants, law firms, com- arbitration. This most important instru-panies and investment funds interested ment to advance worldwide trade andin partnerships or opportunities in the in- business will be discussed during a net- Richard Klien (second from left), Chairman of thefrastructure sector will definitely benefit working luncheon, the perfect format to Board of Multiterminais and Santos Brasil, attend-from the expertise of the speakers and the raise all possible issues and discuss them ed the 2011 Forum and will be a speaker in 2012.high level of the debates. thoroughly with other participants and Some of the 2011 speakers were Marcos Pinto (Ga- vea Investments), Minister Marcio Fortes (Head of Marcelo Almeida, former Congress- experts. the Brazilian Public Olympic Authority) and Marcalman in Brazil and current Board member Justen Filho (Justen, Pereira, Oliveira & Talamini).of the Brazilian infrastructure conglom-erates EcoRodovias and C.R. Almeida,
Infrastructure Financing Latin Infrastructure Quarterly 51How does the current state of Peru’s ute to the growth of power demand. Finally, with specialized agencies responsible foreconomy and political situation affect as the middle class expands, the increased oversight of defined segments. The Comitéthe electricity market from your invest- use of household appliances and other pow- de Operación Económica del Sistema In-ment criteria point of view? er-consuming devices increases demand terconectado Nacional (COES) coordinates for power on a per capita basis. This rapid the operation of the national power system,Peru’s economy has experienced steady growth in the demand for electrical power while the Organismo Supervisor de la Inver-growth over the past ten years, from four to results in a very large need for new invest- sión en Energia y Mineria (OSINERGMIN)ten percent annually. In fact, it has been the ment as power generation is a highly capital oversees reference prices and power conces-fastest growing economy in South America intensive business. sion contracts.in the last ten years. This GDP growth has Economic growth in Peru is supported byled to an increase in power consumption of a stable political environment and continuity When you analyze the Peruvian elec-85% over the period from 2000 to 2009. in the regulations that govern the power sec- tricity industry, do you see a greaterDuring that period, electricity demand has tor and investment in general. When Presi- potential for greenfield projects or forgrown seven percent per year, while sup- dent Humala was elected in 2011, there was acquisitions of existing assets?ply expanded by only three percent per concern that Peru’s history of protecting in-year, putting pressure on the system and vestor rights could be threatened. However, In any market, we seek opportunities bothincreasing the need for new investment. As experience to date and the selection of the to acquire operating assets and to buildeconomic growth is projected to continueat around five percent per year, we expectcontinued increase in power demand, par-The PeruvianElectricityMarketLIQ talks to Michelle Haigh, Vice President andInvestment Manager at Conduit Capital Partnersticularly considering that Peru has among ministers surrounding the president demon- new generation plants. In new plants, wethe lowest level of per capita electricity con- strates a continued commitment to protect in- focus on projects with full permitting thatsumption in the region. Electrical power is vestor rights and maintain a predictable regu- are close to entering construction. Givenneeded to support increasing industrial ac- latory and tax environment, which is critical the growth in demand in Peru, we seetivity. Continued advances in electrification for any private investor. This is demonstrat- compelling opportunities for new proj-(rural access) to provide power to the 15% ed by Peru’s investment grade rating from ects to add capacity to the system. Thereof the population that does not currently the credit rating agencies. The regulatory are an estimated $5 billion of new privatehave access to electricity will also contrib- framework in the power system is balanced projects in the planning stages.
52 Latin Infrastructure Quarterly Infrastructure Financing Further, greenfield opportunities are awarded based on the most competitivesupported by the existence of experienced price. These are market-friendly con-construction companies in Peru. Green- tracts and allow for long-term financing. Michelle Haigh is a Vice Presi-field projects require construction con- dent and Investment Manager attracts that have a fixed price and which Is your Firm interested in the produc- Conduit Capital Partners, sourc-require the contractor to complete the tion of electricity out of renewable ing, evaluating and executingproject by a fixed date, with guarantees sources of energy? Should your Firm be new investment opportunities forfor on-time delivery and plant perfor- interested in this kind of projects, could the Latin Power Funds. Conduitmance levels. you comment on projects in Peru? Capital Partners is a private eq- uity investment firm focused onTalking about Power Purchase Agree- Conduit is interested in both traditional (ther- the significant investment oppor-ments, as owners of power plants, why mal) and renewable energy projects through- tunities presented by the inde-do you need them? And particularly in out the region and in Peru. Latin America pendent electric power industryPeru, what is the average term length benefits from strong natural resources, in- in Latin America and the Carib-of PPAs and who are the most common cluding some of the best wind and solar re- bean. Michelle joined the firmcounterparties? gimes in the world. To date, during our eigh- in 2007 from Goldman, Sachs & teen year investing history, we have invested Co.’s Public Sector & Infrastruc-The Power Purchase Agreement (PPA) is in small hydroelectric plants, geothermal and ture Banking group, where shethe foundation of any generation project. wind, and are currently evaluating our first served infrastructure clients in theOnly with visibility on the future revenues solar power opportunity. Commonwealth of Puerto Ricoof a project is it possible to evaluate the Peru has compelling hydro, wind and and State of New York. She start-cost of building the project and the result- solar resources, providing the basis for ed her career at SJF Ventures, aing return to the investor. Without a long renewable power opportunities. The venture capital fund that investsterm contract, it is very difficult to obtain government has supported the creation in companies with both strong fi-a reasonable level of debt financing. A of power projects to take advantage of nancial growth and positive com-contract period of 15 to 20 years allows these resources by structuring bid pro- munity impact. Michelle holds anfor long-term financing and a reasonable cesses specifically for renewable energy MBA from The Wharton Schoolequity return at an attractive power price. generation, for up to five percent of the of the University of Pennsylva-It is critical that the counterparty to the system. The renewable energy bids are nia and a BS in Economics andPPA, the off-taker, is a credit-worthy entity organized by the Ministerio de Energia y Political Science from the Univer-with the financial position to support the Minas. The contracts are well-structured sity of Pittsburgh. She is fluent inrevenue payments over that period of time. and the projects add diversification to the Spanish and Portuguese.Further, it is important to the long term vi- energy matrix in Peru. Any difference inability of the project for the price of power the renewable energy contract price com-to be competitive with alternative sources. pared to the prevailing spot market price In Peru, most PPAs are with the dis- is levied through a small charge to all fi- What is the current situation of Con-tribution companies and large industrial nal consumers. We are actively pursuing duit Capital Partners?companies. There are periodic auctions a number of these types of projects.to sell energy to the system, and these are The Conduit team has been investing in the power and energy infrastructure sec- tor in Latin America and the Caribbean“Economic growth in Peru is since 1993. Through the Latin Power funds, we have invested in 35 projects in 11 countries. Latin Power I and II havesupported by a stable political been fully liquidated. Latin Power III, a $392 million fund, has been fully com- mitted; three investments have been soldenvironment and continuity in to date and we are managing the remain- ing portfolio of assets. We continue to bethe regulations that govern the dedicated to the sector and region and ac- tively seek new investment opportunities.power sector and investment ingeneral.”
Projects Latin Infrastructure Quarterly 53P ENERGISATION araguay is the largest net en- ergy exporter in the world. The country annually exports 45,000 GWh and imports nil. Para-guay’s installed capacity is of 8.8 GW.In contrast, Paraguay is one of the lowest OF PARAGUAY´Sconsumers of energy in South America,with its annual per capita consumptionbeing only 6,388 KWh. Paraguay hasreported losses of about 30% of the totalenergy distribution per year. From the macro point of view, one of EASTERNthe most desired assets in the region andin the world is without any doubt energy.The country produces and wastes energyevery year, depriving the region of cleanand abundant energy as well as its owneconomy from receiving market-priced REGIONretribution for its export product whichcould very well be invested in more infra-structure projects to enhance its transmis-sion and distribution systems as well asexport installations. As some studies report, even if the Rodolfo Vouga and Cecilia Llamosas of Vouga & Olmedocountry´s energy demand were to grow Abogados200 MW per year there would still be along way to go until the situation turnscritical as is currently the case in othercountries in the region. However, being one of the world’s So far, the absence of modern transmis- The region is in dire need of energy. largest producers of energy does not en- sion lines has hampered Paraguay´s abil-In 2012, Paraguay exported over 39,000 sure Paraguay energy availability. Up ity to offer a solid internal energy trans-GWh to Brazil and about 6,000 GWh to until now Paraguay has proven incapable mission and distribution system, whichArgentina. Additionally, it received gen- of taking advantage of its most abundant in addition to the competitive prices anderous offers from Uruguay and Chile to asset. As an example, the city of Salto del availability of resources would attract en-buy its energy surplus. By not seizing Guairá, located in the Eastern Region, is ergy-intensive industries. Not only wouldthese opportunities, Paraguay is throw- currently satisfying its energy demand the enhancement of the transmission anding away its most valuable commodity. with imported fuel-based energy, pro- distribution system facilitate the installa-Not only is the country squandering its duced by generators that were installed as tion of such industries, but moreover itchances of obtaining instant income in an emergency measure. The fact remains may lead to a cost-effective managementexchange of its product, but it is also los- that, albeit abundant and excessive, ener- of the energy surplus which would enableing an invaluable chance to become a true gy lacks a physical way to get to the focal the optimisation of exportation.integration catalyst. points of development. In September 2011, the construction of the first high voltage transmission line“The absence of modern started. The transmission line will con- nect the Itaipú Hydroelectric Dam –the largest operating in the world- with the Department of Villa Hayes in the Chacotransmission lines has hampered (Western) Region, 37 km north-east fromParaguay´s ability to offer a solid the capital Asunción.. The installation of this transmission line alone will bring substantial benefits to the industrial sector in the country. Asinternal energy transmission and more energy is served to the industrialdistribution system.” centres, the sector will blossom by boost- ing the creation of new industries and the development of the areas adjacent to the project.
54 Latin Infrastructure Quarterly Projects industrialisation will to a great extent de-“The general consensus is that the pend on foreign investment, that is, for- eign industries with interest in investingrelatively-low cost of the local in the country. On this latter point, the general consensus is that the relatively- low cost of the local workforce and theworkforce and the low tax rates in low tax rates in Paraguay, combined with high tax rates in Brazil and difficulties inParaguay, combined with high tax Argentina, among other factors, will most likely convince investors. As a matter of fact, an important number of Brazilianrates in Brazil and difficulties in and Asian companies, have already start- ed setting up operations in the country or have at least shown great interest to investArgentina, among other factors, will in the near future. In sum, there is an evident grow-most likely convince investors.” ing need in the market that must be ad- dressed. As well as a clear surplus of such resource in the country, it seems only logical that the next step should be to make the resource available to cover Along with the Itaipú-Villa Hayes line, projects are of the utmost importance for such necessity, both at the internal andthe construction of a second high voltage the country because they will energise the external levels.transmission line is under study. The Eu- Eastern Region which is home to 97% of The first step was already taken withropean Investment Bank is currently con- the Paraguayan population, the country´s the installation of the first high voltagesidering the possibility to grant a credit capital and its industrial and commercial transmission line. However, if the gov-that will allow the triangulation of the en- focal points. ernment obtains funding from the Euro-ergy produced by the two largest dams in The triangulation of energy will be a pean Development Bank or through otherthe country (Itaipú and Yacyretá). turning point for the country´s energy situ- credit facilities, the energisation of the This second line is projected to run ation. It may contribute to pull Paraguay eastern region will be consolidated andfrom the city of Ayolas (close to Yacyretá) out of the agro-exporter stigma and cata- Paraguay will be ready to welcome en-to Villa Hayes (like the first transmission pult it to an industrialised economy model. ergy-intensive industries and offer themline, passing through Asunción). Both Of course, it must be added that the energetic stability and competitive prices. RODOLFO G. VOUGA ZUCCOLILLO is a Senior Associate at Vouga & Olmedo Abogados. He graduated with Honors from the National University of Asuncion (J.D., summa cum laude, 2007) and was awarded a Masters in Law (LL.M.) degree from Columbia Law School (LL.M., 2010). He passed the New York Bar exam. His fields of expertise are: Litigation, Arbitration and Mediation; M&A; Foreign Investments; Corporate and Commercial; Capital Markets; Tax and Customs Law. He has been actively involved in various projects related with foreign investments. He is a former assistant professor in Legal Technique at the National University of Asunción. Languages: Spanish, English, Portuguese, German. CECILIA LLAMOSAS –is a Paralegal at Vouga & Olmedo Abogados. She is expected to obtain her law degree from at Nation- al University of Asunción, Paraguay / Katholieke Universiteit Leuven, Belgium this year. She speaks Spanish, English, German and Dutch and is a member of the European Law Students Association and Erasmus Mundus Alumni. She is also a participant of the Roundtable on Renewable Energies of the Paraguayan Ministry of Industry and Commerce.
Institutions Latin Infrastructure Quarterly 55LATAMInfrastructureOutlook for 2012 and the role of PPPs Jorge Celio – VP IOS Partners USA & Director General de IOS Partners SL EuropeT he outlook for Latin America believes that higher inflation in the near billion in infrastructure assets between infrastructure is stable in 2012, term is not a major concern for infrastruc- 2012 and 2015, mostly in the surface reflecting the ongoing favor- ture projects in the region. transport and energy sectors. able demand dynamics despite The rise in infrastructure PPPs bodesthe backdrop of a weaker U.S. economic well for the region. When one looks atrecovery and concerns over Europe, ac- “When one looks countries that have allowed a fair amountcording to Fitch Ratings. of private investment from either con- The outlook encompasses the toll road, at countries that struction firms or concession operators inairport, social and power segments of the infrastructure, one finds that these coun-infrastructure sector, each of which indi- have allowed a fair tries have better infrastructure and highervidually has a stable outlook. Fitch ex- GDP growth. Infrastructure is incrediblypects ratings in larger economies in the amount of private beneficial to a country and its people.region to be relatively resilient. Getting it built is a good idea, and gov- At IOS we expect regional growth to investment from either ernments simply can´t build all of it withdrive demand for infrastructure expan- the capital constraint they all face today.sion through Latin America. In Brazil, construction firms or The backlog of infrastructure in thethe 2014 World Cup and 2016 Olympic region needs government interventionGames is further boosting infrastructure concession operators through investments and public policiesinvestment. Even in the event of a ‘hard to reverse inefficiencies. One of the mainlanding in China’ or a double dip reces- in infrastructure, challenges is to achieve greater coherencesion in the US. and coordination between relevant actors Increasingly open societies and reli- one finds that these in the area of infrastructure. In particular,able monetary and fiscal policies favor the need for such coordination betweenthe development of transportation and countries have better agencies of different institutions but simi-energy projects given population growth lar levels of government, agencies fromand latent demand for basic public ser- infrastructure and different levels of government, privatevices. and public actors. For example, better use Interest rate increases pose a potential higher GDP growth.” of existing infrastructure such as trans-risk given the long-term fixed rate debt port reduces the cost of deployment offinancing nature of most infrastructure In the last two decades, investment broadband networks. Better coordinationprojects, although we expect the major in infrastructure projects that rely on of transport policies in the sector agencieseconomies to continue a trend of fiscal private-public partnerships (PPPs) has should also be a must.discipline, keeping financing costs rela- steadily increased in Latin America, and Greater efficiency in the public pol-tively stable. Rating agency Fitch also the region is expected to invest US$450 icy cycle infrastructure can achieve a
56 Latin Infrastructure Quarterly Institutionshigher level of development. To identify seaport, and high-speed rail investments, in Latin America. Examples include athe bottlenecks that limit effectiveness for instance, than for investments in en- fund established by Ashmore Investmentof infrastructure policies, the process of ergy distribution or telecom. and Inverlink in Colombia, Brookfieldpolicy development should be evaluated There are other factors that increase Asset Management´s Colombian and Pe-and reinforced in its different phases: pri- risk, as well, such as unpredictable po- ruvian funds and a Macquarie Group fundoritization and planning, implementation, litical factors; the possibility of overzeal- in Mexico.operation and maintenance. This requires ous governmental regulation and price- The Brazilian investment bank BTGthe definition of a framework and of regu- capping, or even nationalization; and the Pactual and the domestic conglomeratelations that establish checks and balances risks inherent in large markets. But in EBX have each announced plans to setalong with accountability mechanisms terms of the fundamentals that determine up major infrastructure funds. And Celfinand transparency. long-term risks, infrastructure companies Capital, one of Chile´s largest investment Although the success of PPPs depends tend to be strong. banks, has an infrastructure fund, Celfinto a large extent on public sector readiness We want to remark on the dependabil- Infraestructura, as well.and execution, questions remain about ity of infrastructure investment. If inves- Many countries in the region allow do-how and why private sector parties should tors want exposure to an economy like mestic pension funds to commit capital toinvest. The answers vary from country to Brazil´s, it is better to be invested in infra- infrastructure funds and hold long-termcountry, and depend largely on investment structure than, for instance, certain com- debt issues. In a recent report, the Ban-climates and financing conditions. A recent modities, as the value of infrastructure is co Bilbao y Vizcaya Argentaria (BBVA)Economist Intelligence Unit (EIU) report determined more directly by Brazil´s ex- sums up the mutually beneficial relation-rates such conditions across the region, panding economy. Investing in a big sugar ship between pension funds and infra-finding that Chile scored best, “with 97.2 or soybean producer, is not making a bet structure PPPs in the Latin American con-out of 100 for the PPP financial facilities on the Brazilian economy. It is betting on text. From the point of view of the funds,category, leading the region with an almost commodity prices, which are very volatile. for one, they are often interested in in-perfect score.” Brazil, Mexico, Panama There are several sources through frastructure funds because the long-termand Peru also scored relatively well. The which the private sector can finance the life cycle of infrastructure assets tendsEIU states, however, that there is vast room development of infrastructure. We look to match their long-term liabilities andfor improvement almost everywhere. at these sources, examining their unique “permits optimal planning.” At the same The general benefit of investing in roles. time, “It´s to be expected that the partici- “Greater efficiency in the public policy cycle infrastructure can achieve a higher level of development. To identify thebottlenecks that limit effectiveness of infrastructure policies, the process of policy development should be evaluated and reinforced in its different phases: prioritization and planning, implementation, operation and maintenance.”infrastructure assets is that they tend to Infrastructure funds purchase shares pation of pension funds in the infrastruc-offer consistent returns. Infrastructure in infrastructure project companies and ture investment will reduce the politicalcompanies usually have solid fundamen- work with strategic investors such as and regulatory risk, as one expects bet-tals, hold concession rights or licenses operators and construction companies to ter discipline on the part of governmentsthat restrict competition and protect them maximize revenue and increase equity with respect to contracts and the rules ofagainst inflation, and are usually relative- value over time. The performance of such the game, if the wellbeing of local work-ly immune to the economic cycle. Though funds is tied to their ability to extract divi- ers is at stake through private pensions,”there are high development costs, includ- dends from the operating asset or through says the report. Pension funds might alsoing design and construction, there are refinancing. be attracted to the relatively good cost/relatively low marginal costs for produc- They may ultimately sell their shares benefit ratio of infrastructure projects.tion, and little or no competition once in to other owning members of the project´s Lastly, the report notes that private pen-operation. consortium, a third party, or the public sion funds “can garner public favor if the Risk-return will vary according to sub- through an IPO. In recent years, several public sees that the funds are investing insector, with greater risk-return for airport, major infrastructure funds have emerged projects that improve their daily lives as
Institutions Latin Infrastructure Quarterly 57 In recent years, shares of Latin Ameri-“We observe four reasons why investing can infrastructure companies have out- performed their benchmarks: the S&Pin listed shares is particularly attractive: Global Infrastructure Fund; Macquariethe efficiency an open market gives to asset Global Infrastructure 100 ETF; and the S&P Emerging Markets Infrastructure In-prices; greater clarity of dividend yields; dex Fund. We observe four reasons why invest-added liquidity; and higher standards of ing in listed shares is particularly attrac- tive: the efficiency an open market givestransparency and reporting than one finds to asset prices; greater clarity of dividend yields; added liquidity; and higher stan-with private equity deals. The last point dards of transparency and reporting than one finds with private equity deals. Thecan be especially important for a skeptical last point can be especially important forpublic sector. There is a correlation between a skeptical public sector. There is a cor- relation between the depth and breadththe depth and breadth of country´s capital of country´s capital markets, on the one hand, and that country´s ability to expandmarkets, on the one hand, and that country´s economically. Brazil has benefited from São Paulo´s dominance as a truly world-ability to expand economically.” class financial center, one of the few in the southern hemisphere. It´s clearly has been a huge benefit to the recent growth of their economy to have a domestic fi-well as the returns and risk profile of their ment vehicle. They represent a dependable nancial center with a great deal of scalepension funds.” way to diversify portfolio risk. The highly and scope and international presence. Listed infrastructure shares in capital local nature of infrastructure businesses andmarkets are seen by investors as an attractive projects and their relative immunity from theoption because of intrinsic characteristics of economic cycle gives them a low correlationboth the underlying business and the invest- with broader stock trends. Jorge Celio has been a Consultant and Lead Strategist in Capital Markets, Banking & Infrastructure, has worked in Latin America and New York for leading investment banks, rating agencies and multilateral financial institutions in Washington, DC. In this capacity he was responsible for the analysis and debt strategy of project finance, corporates, and countries in emerging and de- veloping economies. He has advised governments, banks and companies on debt rating issues and debt restructurings. Mr. Celio is characterized by his ability of make others buy-in the concept of strategic consulting. He has co-authored leading publications on emerging markets strategy, economic and infrastructure issues (“Rating Infrastrucuture Peojects in emerging Markets” Fitch Ratings . In 1998 he participated on the peace accord between Peru and Ecuador presenting “Integracion Peru-Ecuador: Forjando un Futuro Compartido.” Previously he worked as a Computer Scientist for General Electric and Hoffman La-Roche. Mr. Celio studied Computer Science and also holds a Master’s Degree in Economics and International Studies from New York University and advanced studies at the Harvard Kennedy School of Government. He is currently VP of IOS Partners and General Director of IOS Partners Europe. IOS Partners, Inc. (www.iospartners.com) IOS Partners Europe SL (www.ioseurope.eu) is an international economic develop- ment and financial services firm with dual Headquarters in Miami and Barcelona, IOS Partners, Inc. is a leading international economic development and financial advisory firm with offices throughout the world and recognized global leadership and ex- perience delivering pragmatic, market-driven solutions to clients in diverse fields, including Private Sector Development (PSD), Public Private Partnerships (PPPs), Risk Management, Infrastructure and Capital Markets Development Strategies, Institutional and Capacity Building for the development of PPPs and PSD, the establishment of respective legal and regulatory policies and frameworks, institutional structure and operational guidelines to support successful Private Sector Development and Public Pri- vate Partnerships.
58 Latin Infrastructure Quarterly Regulation IntroductionCritical Steps for Today’s Brazilian road transportation infrastructure is not consistent with the require ents of the country’s economic m dimension. About 75% of the road net-Implementing work presents some form of deficiency, which translates into increased costs, harming production and, conseuently,q the consumer. Only 6% of the country’s road network is paved, in contrast withSuccessful usually more than 90% observed in de- veloped countries. Moreover, the poor quality of Brazil- ian roads contributes to the country’s poor safety records: every year therePublic-Private are about 400,000 injured victims and 34,000 deaths from road crashes. This article describes the main steps (e.g., technical, legal, social) in a way toPartnerships in serve as a guide to potential investors in- terested in the PPP roads market in Bra- zil. Increasing the use of PPP in the roads sector seems to be a logical approach to relieve the road infrastructure deficit,the Brazilian without overburdening the public budget at national, state and local levels. The Brazilian Federal Law 11,079Road Sector The PPP legal framework was established through the Brazilian federal Law 11,079, of De ember 30, 2004, which brought out c the general rules for tendering and con-Cesar Queiroz, International Consultant, tracting PPPs in the country. Henceforth, the federal PPP law will be referred to asFormer World Bank Highways Adviser PPP Law. The PPP Law establishes general rulesand Carlos Eduardo Motta, Admiral, for competitive bid ing and contracting d the private partner at both the nationalLawyer and Engineer and sub-national levels. It complements the concession laws (Laws 8.987/95 and 9.074/95) and the pro urement law (Law c seems to be a logical approach to relieve 8.666/93). The law also established anAbstract the road infrastructure deficit, without organizational structure in the federalBrazil, occupying a land area of more overburdening the public budget at na- government to oversee the Brazilian PPPthan 8.5 million square kilometers, is tional, state and local levels. program.predomi antly a roads country. About 64 n A review of the main steps in the Among its features, the PPP Law al-percent of all cargo and 90 percent of pas- preparation of a PPP project for roads in lows government entities to assume long-sengers are transported by road. Further Brazil is preented, including the main s term com itments, including the pay- msocial and economic growth in the coun- responsibilities under both the public ment of subsidies to service providers,try requires a sustainable road network, and private sectors. The authors expect with the overall obecive of increasing j twith significant improvements to the cur- that the discussion of critical steps in the efficiency. The law also requires publicrent existing network. process serves as guid nce for investors a hearings to be held, and economic and fi- The increased use of public-private interested in joining the successful PPP nancial as essments to be carried out for spartnerships (PPP) in the roads sector market for roads in Brazil. each proposed PPP project.
Regulation Latin Infrastructure Quarterly 59“About 75% of the road network presentssome form of deficiency, which translatesinto increased costs, harming production and,consequently, the consumer.” Sponsored and Administrative Brazilan acronym), to be established by i established by the Fiscal ResponsibilityConcessions the successful bidder. The SPE is usually Law. a consortium of entrepreneurs and inves- The PPP Steering Committee (CGP),The PPP Law defines PPP as a concession tors who will fund and man ge the PPP a established by presidential decree (De-contract that may take one of two forms: project. cree No. 5385/05, modified by Decree(a) “sponsored” concession; or (b) “ad- Types of PPP – may include typical No. Decree 6.037/07), works under theministrative” concession. In a sponsored public services, such as roads and other coordination of the Ministry of Planningconcession, the private partner revenues transport infrastructure, transportation and Budget, and is also composed of rep-come from (a) fees charged to the users, services, sanitation, health, and edu resentatives from the Minisry of Finance tand (b) financial subsidies paid by the cation. Services to be provided to the pub- and the Presidency. Its responsibilities in-contracting public entity as the services lic administration can also be conracted t clude to:are delivered. as a PPP. In the case of administrative conces- The ability to generate revenues is a • Approve the Projects and PPP con-sions, the contracting state entity pays key factor in the choice of the form of tracts.fully for the services provided; there are concession. Common concessions ap- • Authorize the opening of the biddingno user fees. This might occur, for exam- ply to self-sustaining projects, while PPP process.ple, when the state decides not to charge projects (i.e., spon ored or administrative s • Define the priority services to be pro-any kind of toll, taking charge of all ex- concessions) are those that require public vided under PPP arrangements.penses, on a road intended to promote the financial support. • Define the criteria for analyzing thedevelopment of a deprived region. appropriateness and timing of the If a project is shown to be financially PPP Institutional Arrangements contract.viable without any public funding, in- • Set up the procedures for contractstead of falling under the PPP Law, it In Brazil, at the federal level, several award.should be managed as a “common” con- agencies are responsible for different as- • Authorize the launching of the bid-cession, to be bid and im lemented under p pects of the PPP program, as discussed ding and approve the bidding docu-the country’s concession laws and other below. ments.related norms. This is the case of all the The Ministry of Planning, Budget and • Approve the PPP plan, and monitorroad concession contracts awarded in Management assesses models and moni- and evaluate its implementation.Brazil before the PPP Law was enacted. tors potenial PPP projects, which have t • Review the contract monitoring re- been identified as priorities by the Part- ports.Basic PPP Concepts Under nership Steering Committee (CGP). • Develop standard bidding documentsthe Brazilian PPP Law The Ministry of Finance is responsible and sample PPP contracts. for appraising any proposed PPP project • Authorize the use of the resourcesThe Brazilian PPP law provides several and mak ng sure that the program is with- i of the PPP Guarantee Fund (FGP) touseful definitions, such as: in the maximum allowable allocation for guaranee the government financial t The Public Partner - may include gov- PPP projects. Such limit is set as 3 percent obligations.ernment agencies, special funds, mu ici n of the net current revenues, as defined inpaliies, public foundations, public com- t Articles 195 and 239 of the Con titution. s The Technical Committee of Public-Pri-panies, joint stock compa ies and other n The limit applies to all levels of govern- vate Partnerships (CTP) is coordinated byentities controlled directly or indirectly ment. The National Trea ury Secretariat s the Chief Eco omic Advisor of the Minis- nby the Union. (STN), after receiving information about try of Planning, Budget and Management, The Private Partner – should be a Spe- the project, verifies that the pro osed p and also includes members from the Min-cial Purpose Company (or SPE, usng the i spending is within the spending limits istry of Finance and the Presidency of
60 Latin Infrastructure Quarterly Regulation “Increasing the use of PPP in the roads sector support will allow a higher numer of projects to be im lemented. p b seems to be a logical approach to relieve The CGP then includes the projects deemed as priorities in the PPP Federal the road infrastructure deficit, without Plan (PLP) and author zes the responsible i entity to carry out detailed studies for the overburdening the public budget at national, project. Decree No. 5977 of De ember 1, c 2006, regulates the presentation of project state and local levels.” studies and design. The public entity responsible for the proposed project, usually with the assis-the Repub CTP can reuest studies, lic. q is referred to as the Concerned Public En- tance of pri ate con ultants, will carry out v ssurveys or investigations to support a tity (or OIP, using the Brazilian acronym). more detailed studies, including:proposed PPP project, which has aleady r The PP is then submitted to CGP by Technical studies: detailed projectbeen established as a pri rity. o the ministry or regulatory agency (such identification, preliminary design and The Special Purpose Company (SPE), as ANTT) re ponsible for the sector. The s feasibilty studies to support the imple- ito be established by the successful bidder, PP should indicate the type of PPP to be mentation of the project as a PPP.will be exclu ively responsible to imple- s adopted and basic information, such as Fiscal studies: the impact on the bud-ment and manage the object of the part- project description, expected demand and get and financial provisions, includingnership (e.g., a motorway or an airport). economic and so ial bene ts, as well as c fi com li nce with the law on fiscal respon- p aThis feature facilitates the control and the projected cash flow during construc- sibility.supervision by the Govrnment, as the e tion and operation of the project. Legal studies: preparation of draftSPE cannot have any other responsibility. The CGP first checks whether the proj- bidding documents and PPP contract,The SPE may be incorporated in the form ect has been included in the Multiyear particuarly describng the services to be l iof a publicly traded corpo ation, with the r Plan (PPA), which summarizes the gov- provided, the required quality or perfor-majority of its voting capital in the pri ernment’s strategy for the economic and mance parameters, applicable technolo-vate sector. The PPP law forbids the gov social devel pment of the country. Next, o gies, contractual terms (not less than 5ernment to be its majority partner. In any it reviews the impact of the proposed years, not more than 35 years), and thecase, the government participation in the project implementa tion for govrnment e share of risks between the partners.SPE requires legislative authorization. and society in general, as well as the Once the studies have been completed, The PPP Guarantee Fund (FGP) was availability of public re ources to imple- s the entity responsible for the proposedestablished by the government to provide ment the project. In setting prioriies, the t project submits a Technical Proposal to theguarantees for the financial obligations as- CGP takes into account that projects with CGP, requesting authorization to launchsumed by the government under the PPP lower re uirements for public financial q the bidding process.program. The FGP is managedby the Bank of Brazil.The PPP BiddingProcessThe Brazilian PPP law pro-vides for two distinct phasesin the bidding process: (a)inter al phase (or planning); nand (b) external phase (or bid-ding).The Internal or PlanningPhaseInitially, a Preliminary Pro-posal (PP) should be preparedby a public entity, such as anagency of the federal govern-ment, special funds, munici-palities, public foundations, FIGURE 1 - The Process of Planning and Contractingpublic companies, or joint PPP in Brazilstock companies. Such entity (Source: Authors)
Regulation Latin Infrastructure Quarterly 61The External Phase or Bidding “If a project is shown to be financially viable without any public funding,The external phase includes public con-sultation, the invitation to bid, the receipt instead of falling under the PPP Law,of ten ers, and the contract: d Public consultation: a notice contain- it should be managed as a “common”ing general project information (e.g.,de cripion, the term of the contract and s t concession, to be bid and implemented its estimated value) is published in theofficial press, major newspapers, and under the country’s concession laws andelectronic media inviting com ents to be msubmitted by a specified deadline. Public other related norms.”hearings may also be conducted. Invitation to bid: taking into accountthe results of the public consultation, thebid ing documents are reviewed and fi- d guaran tees to in surance companies, of all concessions become subject to re-nalized, and a formal invitation to bid is financial institutions and international or- negotiation, often due to unrealistic costpublished. ganizations, which ulti ately will assure m and revenue assumptions (Amos 2004). Receipt of tenders: tenders are received payment of the public sector obligations While not all renegotiation is undesirable,in a public session and the success ul bid- f to the private partner. opportunistic renegotiation should be dis-der is selected according to the criteria in According to the PPP law, the public couraged in both existing and future con-the bidding documents. entity may only assume financial obliga- cessions. The appropriate behavior for Contract: the winning bidder establish- tions with the private partner for payments governments is to uphold the contractuales a SPE and the PPP contract is signed related to services delivered. Consequent- obligations result from the competi- ingbetween the responsible entity and the ly, until the begining of project opera- n tive bidding process, and not to concedeSPE. tions, all funding for the project (e.g., for for opportunistic requests to renegotiate. A summary of the steps in both the construction) has to be pro ided by the pri- v Improving concession design and estab-internal and external phases is given in vate partner. It is interesting to note that the lishing credible regulations can lowerFigure 1. legal framework of several other countries the incidence of renegotiations (Guasch does not have such restriction. 2004: 38, 96).Guarentee Good Governance in PPP ConclusionsIrrespective of how good the project Contractspreparation and how appropriate the PPP The steps discussed in the article for pre-model adopted, guarantees may still be Road concession contracts in Brazil, paring and implementing PPP projects inneeded by the investors should any de- as in many other countries, include re- roads in Brazil is ex ected to serve as a pfault of public secor financial obli ation t g quired standards for construction, op- general guidance for domestic and inter-occur. The guarantees available in Bra- eration, maintenance, and toll collection. national investors interested in participat-zil provide increased comfort to the pri- For monitoring the quality of the facility ing in cometitive selection of conces- pvate partner, as they are designed to be during the life of the concession, several sionaires in Brazil.promptly implemented, withut the in o performance indicators of condition are In order to make PPP projects more at-tervention of the Judiciary. used, including roughness, skid resis- tractive to private investors, the Brazilian The PPP Guarantee Fund (FGP) was es- tance, luminescence of pavement mark- PPP law pro ides the Contracting Entity vtablished by the government to guarantee ings, and the presence and condition of with several options to extend guaranteesthe pay ent of financial public obligations m signs, lighting, and other safety features. to the private partner, including thoseunder PPP projects awarded by federal Performance on these indicators that falls given by the PPP Guarantee Fund, guar-agen ies. It has its own assets, consisting c outside the boundaries of acceptability antees linked to revenues, and guaranees tof fixed and variable income securities may lead to penalties for the concession- provided by international financial insti-and varia le. The FGP capital is entirely b aire. Enforcing such standards helps the tutions.public, subscribed by eligible shareholders government and the users to reap maxi- The authors believe that the Brazilian(i.e., the Union and public companies and mum benefits of road concessions. PPP framework provides for a balancedfoundations). The legal limit for the FGP Any future revision of the PPP Law partnership that is adantaeous to both v gcapital is R$6 billion (about US$3.8 bil- should also establish clear mechanisms contracting parties, and that the Brazilianlion), which is also the overall limit for the for renegotiaion and amendments (as a t road sector offers great opportunities forprovision of guarantees by the Unon. The i way to minimize potential contract dis- foreign investors interested in the design,CGP is managed by the Bank of Brazil. tress and cancellation). The renegotiation construction, operation and maintenance In order to reduce the cost of raising fi- of projects is not an unusual occurrence of roads under the country’s PPP program.nance, the FGP can also provide counter- (Harris et al. 2003). In fact, about half
62 Latin Infrastructure Quarterly Regulation Cesar Queiroz Carlos Eduardo Motta International Consultant, Former World Bank Highways Adviser Lawyer and Engineer 4601 North Park Ave Rua Osvaldo Cruz, 1 sala 612 Chevy Chase, MD, 20815 Meireles, Fortaleza, CE, 60125-150 USA Brazil Tel +1 301-755 7591 Tel +55-85-304747 8797 / Tel +55-85- email@example.com 8895 9999 Cesar Queiroz, former World Bank http://cemottaadvocacia.jur.adv.br/ Highways Adviser, is an interna- firstname.lastname@example.org tional consultant on roads and Carlos Eduardo Motta, Admiral, En- transport infrastructure. His main gineer and Lawyer, Master and Ph.D. expertise is in public-private part- in Marine Sciences, is currently a con- nerships in infrastructure, road sultant with main operations in For- maintenance, financing, manage- taleza and Rio de Janeiro. While with ment and development, perfor- the Navy, his professional experience mance-based contracts, improving included executive and operational po- governance, quality assurance and evaluation, research, teaching and sitions. training. Between 1986 and 2006, he held several positions with the World In Washington D. C., he was the head Bank, including Lead Highway Engineer and Principal Highway Engineer. of the Brazilian Representation to the Prior to joining the WB, Cesar was the deputy director of the Brazilian Inter-American Defense Board, an in- Road Research Institute in Rio de Janeiro, Brazil. He holds a Ph.D. in ternational organization under the Or- civil engineering from the University of Texas, a M.Sc. in production engi- ganization of American States (OAS), neering from the Federal University of Rio de Janeiro, and a B.Sc. in civil offering advice on matters of hemi- engineering from the Federal University of Juiz de Fora, Brazil. Cesar has spheric defense. published two books and more than 130 papers and articles in more than His specializations include public-pri- 10 countries. His recent assignments with the World Bank and other agen- vate partnership (PPP) contracts, and cies include infrastructure advisory services in Russia, Brazil, Latvia, Lithu- provision of legal services with empha- ania, Poland, Ukraine, Moldova, Philippines, Uganda, Tanzania, Sri Lanka, sis on PPPs and the Law of the Sea. India, Laos, Yemen, Egypt, Saudi Arabia, Tunisia, Sweden and Norway. He was a professor of transportation engineering at the Brazilian Military Institute of Engineering in Rio de Janeiro from 1983-1986, has lectured on private participation in infrastructure at George Washington University since 1996, and is currently a visiting professor at the University of Bel- grade, Serbia. He has gained considerable experience in monitoring and evaluation not only by leading World Bank-transport projects in a number of countries (in- cluding managing a US$1.05 billion loan portfolio to the Russian Federa- tion), but also through the preparation of World Bank implementation com- pletion reports (e.g., Guinea Bissau, Estonia), Quality Assurance Group (QAG) project assessment in several countries (e.g., Tanzania, Brazil), and carrying out a Project Performance Assessment Report (PPAR) of the Nicaragua Second Road Rehabilitation and Maintenance Project, for the World Bank Independent Evaluation Group (IEG). While his experience has been mostly in the road sector, his work has also covered other forms of infrastructure, including supervision of the World Bank-financed Klaipeda Port Project (2001-2005) and advising research work at the Universities of Mississippi (USA) and Belgrade (Serbia) to adapt the financial models of the Toolkit for PPP in Roads and Highways, respectively to the water and railways sectors.
Deals Latin Infrastructure Quarterly 63Introduction – The Argentine tion of the reserves held by the Argentine Argentine Renewable EnergyEnergy Market Central Bank. Generation Market – Regula-A All these factors have resulted in insuf- fter a decade of robust eco- ficient investments in energy infrastruc- tory Framework nomic growth Argentine en- ture which may in turn trigger a damag- ergy market is facing unprec- ing shortage of energy supply which may Argentina has an extraordinary potential edented challenges. Energy limit the ability of the Argentine economy to produce electricity from renewableconsumption has significantly increased to maintain a sustainable path of growth. sources, especially wind, solar and bio-since 2003 driven not only by the posi- This complex environment presents fuels. Nevertheless, investments in thistive performance of the economy but by particular challenges in the case of the type of infrastructure projects have notprice regulations that have kept Argen- electricity generation market. Argentine been significant until recently and, con-tine energy prices below international electricity generation market is highly sequently, the contribution of renewableprices. Nevertheless growth production dependant on the supply of hydrocarbons energy sources to the total energy genera-of energy has slowed and, and in the case due to the fact that a significant portion tion supply has been marginal. In order toof crude oil production has recently de- of the power generation is produced by promote the development of renewableclined, due to Argentina maturing oil and thermal power generation plants fired power generation market, Argentine Con-gas fields and pricing policies taken by by natural gas, diesel, fuel oil and coal. gress passed on December 6, 2006 Lawthe Argentine government to prioritize Consequently, all future investments in 26,190 which approved the “National Re-domestic supply. As a result of that, Ar- power generation infrastructure will be gime of Incentives of the Use of Renew-gentina has increased the import of hy- constrained by the perspective of a re- able Sources Directed to Power Genera-drocarbon, especially natural gas in the duction in the availability of hydrocar- tion” (the “GENREN Program”).form of liquefied natural gas and natural bons resources, especially natural gas. Renewable energy sources included ingas imported from Bolivia. Imports of Renewable energy generation projects the GENREN Program are: (i) wind, (ii)hydrocarbons have had a significant im- are called to play a significant role in the solar, (iii) geothermal, (iv) tidal, (v) smallpact in the process of deterioration of the search of alternative sources of electric- hydro (plants up to 30MW), (vi) biomass,foreign trade surplus and in the reduc- ity generation. exhaust gases and biogas. The aim of the GENREN Program is to achieve in the year 2016 a contribution form the renewable energy sources equalRawson to 8% of the total consumed energy in the country. To that end the Regime has adopted an incentive program for invest- ments for new power generation facilities from renewable sources. This program will be in force for ten years and has theWind following characteristics: Tax benefits. (a) An alternative between: (x) Anticipated refund of the VAT of the new amortizable goods used in theProject: project. The VAT charged to the benefi- ciaries in concept of purchase, manufac- turing or definitive import of goods, or in concept of infrastructure works, will be credited against other taxes that should be collected by the National Tax Author-A landmark in the ity (“AFIP”) after, at least, 3 fiscal years since the investments had been made. Otherwise, the VAT will be refundedArgentine Renewable Energy within the lapse set in the project’s ap- proval, in the terms and with the guaran-Generation Market tees foreseen therein. (y) Accelerated amortization of the goods in relation with the Income Tax. The beneficiaries will be entitled to amor-Martín G. Vázquez Acuña of Marval, O´Farrell & Mairal tize the investments made after the proj-
64 Latin Infrastructure Quarterly Dealsect’s approval and pursuant to the terms No. 1/09) conducted by Energía Argen- tion air currents. To replace this rising air,provided therein. tina Sociedad Anónima -a corporation cool air from the Atlantic coast moves (b) The goods related to the projects controlled and managed by the Argentine in, which results in strong and consistentwill not be considered for the Minimum government for the exploration, exploita- wind resource in that area. During the de-Supposed Income Tax. tion and commercialization of petroleum velopment phase of this project Geneia (ii) Additional payment: The proj- and natural gas, as well as the generation, engaged Garrad Hassan, the world’s lead-ects will receive the additional benefit transmission and commercialization of ing independent wind resource consultantwhich consists on the payment of an electricity- (“Enarsa”) in accordance wit to conduct a wind resource assessmentamount equals to A$ 0.015 per KWh to the GENREN Program to develop and to determine the feasibility and potentialthe generators of energy from renewable operate 895 MW in new renewable en- of the selected sites, as well as the loca-sources. Solar energy projects will re- ergy installed capacity. tion of the wind turbines and towers. Theceive A$ 0.9 per KWh. In 2010 Geneia was awarded the right consultant reports issued by Garrad Has- to develop and operate the Rawson Wind san for the Rawson Wind Project wasGENEIA: A Key Player in the Project, which comprises two wind farms based on the analysis of historical windArgentine Renewable Energy located in Rawson in the province of data recorded and provided by Geneia for Chubut. approximately 2.4 years for the RawsonGeneration Market The Rawson Wind Project is a wind Wind Project, several site visits and an a power generation project comprised review of the specific features of the windGeneia S.A. (formerly Emgasud S.A.) of two wind farms with a combined in- turbines proposed to be installed by Ves-(“Geneia”) is an Argentine energy com- stalled capacity of 77.4 MW provided tas for these projects.pany primarily engaged in the power gen- by 43 Vestas wind turbines (model V90 The reports concluded that the se-eration business and Argentine´s largest 1.8 MW, class IEC IIA) purchased from lected site for the Rawson Wind Projectelectricity generation company based on Vestas pursuant to a turbine supply and was adequate for a number of reasons, in-installed capacity for wind power gen- installation agreement signed with them cluding the low incidence of wind gustseration. Geneia is directly engaged in in October 2010. in the area, the suitability of the type ofthe power generation business through Under this agreement, Vestas has is- wind turbine selected for the projects, theits ownership and operation of various sued a manufacturer’s warranty for the capacity factor estimated based on avail-thermal power generation plants fired by turbines, towers and other equipment to able wind data. The report also concludednatural gas and diesel fuel located in the be supplied for an amount not to exceed that the average net electricity output es-provinces of Buenos Aires, Entre Ríos the purchase price paid by us for such timated of 300 GWh/annum over the firstand Chubut with a combined installed equipment for a term of 2 years and one ten years of operation with a capacity fac-capacity of approximately 280 MW, and additional year in case of any repairs dur- tor of 43% for the Rawson Wind Project.the wind farm located in the province of ing the warranty period.Chubut with an install capacity of 77.4 In addition, in October 2010 Geneia IV.3. Power Purchase AgreementsMW, which comprises the Rawson Wind entered into a services and availabilityProject. agreement with Vestas pursuant to which Geneia is a party to two power purchase In addition, through its subsidiar- Vestas provides technical assistance, agreements (“PPAs”) with ENARSA inies Emgasud Renovables and Patagonia training and maintenance services to us connection with the Rawson Wind Proj-Wind, Geneia is currently constructing with respect to the turbines comprising ect which expire in 2026.five additional wind farms located in the Rawson Wind Project, and has guar- Under these PPAs, Geneia have the ob-Puerto Madryn, Chubut with an expect- anteed that the wind farms achieve a min- ligation to build, operate and maintain theed combined installed capacity of 220 imum average availability factor for a five wind farms subject to such agreement andMW. Through its subsidiaries Emgasud year term. sell electricity to ENARSA when request-Renovables, Nor Bragado and Aldyl San The commercial operation date of the ed by ENARSA and, in return, is entitledLorenzo, Geneia is also developing three Rawson I wind farm was January 1, 2012, to receive a variable payment for elec-thermal power generation plants fired and the commercial operation date of the tricity effectively dispatched by Geneiaby biofuel and natural gas located in the Rawson II wind farm was January 20, in an amount in U.S. dollars per MW/h,provinces of Entre Ríos, Buenos Aires 2012. which is payable Argentine pesos at theand Santa Fe with an expected combined exchange rate in effect on the last day ofinstalled capacity of 102 MW. IV.2. Wind Resources Assessment each applicable monthly billing period. Although the electricity generated byRawson Wind Project The unique topography and climate of the the Rawson Wind Project benefits from area in the Patagonian region where the the priority dispatch established by theIV.1. Overview of the Project Rawson Wind Project is located results current regulatory framework, as is cus- in peak wind intensity adequate for wind tomary in wind power projects, GeneiaIn 2009 Geneia participated in an interna- power generation. As this area heats up is not entitled to receive firm capacitytional bidding process (Bidding Process during the day it creates upward convec- charges.
Deals Latin Infrastructure Quarterly 65The Project Bond and receivables from CAMMESA in the event of an event of default related to the Martin G. VázquezOn November 18, 2010, Geneia issued Bonds Class II and Bonds Class III.a U.S.$77,179,200 aggregate princi- The terms governing the issuance of Martín G. Vázquez Acuña joinedpal amount of Class III bonds under the Bonds Class II and Class III contain re- Marval, O´Farrell & Mairal inGlobal Program (“Project Bond”). The strictive covenants and other provisions 2002. His areas of specializationproceeds from the issuance of the Project that establish certain limitations with re- are banking law, capital marketsBond were used to finance the construc- spect to, among others, (a) limitation of and corporate law. His profes-tion and operation of the Rawson I and change of business, (b) maintenance of sional practice includes bankingRawson II wind farms and for investments corporate existence, (c) certain limita- regulatory and foreign exchangein other electricity generation projects, as tions on mergers and consolidations, (d) matters, project, acquisition andwell as repay other payments obligations maintenance of ranking of the bonds with structure finance, capital marketsincurred in connection with such projects. respect to other unsubordinated debt, e) transactions, mutual funds, trusts, The Project Bond is denominated in certain limitations on sale of assets, (f) derivatives. He graduated fromU.S. dollars and is payable in pesos at the certain commitments on asset mainte- the Law School of the Universityexchange rate applicable on the third day nance, (g) certain limitations on the incur- of Buenos Aires (1996) and ob-prior to every principal payment date or rence of new debt, (h) certain limitations tained a master’s degree in lawinterest payment date. on related party transactions, (i) certain and economics from the Torcuato The Project Bond is non-convertible, limitations on investments, (j) certain Di Tella University. Previously heunsubordinated and secured, and is am- limitations on the incurrence of liens, (k) was a foreign associate at Skad-ortized in 23 consecutive quarterly pay- enforcement of collateral, (l) certain re- den, Arps, Slate Meagher andments (the first of which was made on striction on dividend payments, (m) cer- Flom in New York (2007-08) andMarch 30, 2012) and with a final maturity tain limitations on the ability of subsidiar- worked as attorney at the Legalon September 30, 2017. ies to limit their ability to make payments Department of Banco Société The Project Bond bears interest at to us, (n) enforcement of insurance, (o) Générale (2000-02) and Bancoa rate of 11%. During the grace period fulfillment of obligations under the En- Tornquist (1998-2000). He is the(which ended on March 30, 2012) interest ergía Distribuida II Project PPAs (until co-author of a book on derivateswere paid monthly and thereafter are paid the occurrence of certain milestones and transactions and of a book on for-quarterly. until beginning of operations of Rawson eign exchange controls and au- Bonds Class II and Class III are se- I and Rawson II wind farms), (p) compli- thor of articles on different bank-cured by two Argentine trusts and a first ance with environmental regulations and ing matters. He is a member ofpriority registered pledge over four wind authorizations, (q) compliance with re- the Bar Association of the CityTM 2500 turbines acquired to GE Pack- porting obligations, (r) certain limitations of Buenos Aires and of the Bankaged Power Inc. on the amendment of project agreements. Lawyers Association of Argentina. Pursuant to the first trust, or the Guar- He was recognized as an “Associ-anty Trust, Geneia assigned to such trust: ates to Watch” - “Chambers Latin(i) all receivables payable by Compañía America” during the years 2011Administradora del Mercado Mayorista and 2012.Eléctrico Sociedad Anónima (“CAMME-SA”) and ENARSA under certain powerpurchase agreements entered into in con-nection with power plant projects ownedby GENEIA, until the occurrence of cer-tain milestones, and the Rawson WindProjects PPAs, in the aggregate, up to anamount necessary to pay in full the im-mediately following interest and capitalservice and (ii) the assignment of all pay-ment rights under a guaranty trust whichshall receive equal to 5% to all paymentsmade by CAMMESA to ENARSA underthe PPAs (up to 10% of all amounts owedby ENARSA under the PPAs) in order toguaranty all payments obligations owedby ENARSA under the PPAs. A second trust, the Default Trust,would receive all the collection rights
66 Latin Infrastructure Quarterly InstitutionsAs Director of the LatAm chapter of fund manager from any other LatAm vestments. You should note that the tech-the Hedge Fund Association, what is country will find it hard to convince in- nological infrastructure of regional stockyour overall opinion on the state of La- vestors about his/her expertise in the Bra- exchanges is more than ready to handletAm based hedge funds? zilian market. It is easier to sell the com- large trading volumes as more inves- parative and competitive advantages you tors and issues access the regional capi-The state of local and regional hedge may have in other countries. tal markets. Also note that in order forfunds is a great indicator of the state of the IPOs to continue growing, governmentalregional capital markets. For the last ten The line between hedge funds and pri- incentives are needed for family busi-years, LatAm hedge funds have shown a vate equity funds is getting more and ness to consider trading off opening theirstrong and steady growth primarily due to more blurry in more consolidated mar- companies for public scrutiny. To finish,the activities of hedge funds based out of kets, is this case too in Latin America it is important to remember that a greatBrazil. What are the main reasons? Excel- i.e. do hedge funds invest in private number of hedge funds in Latin Americalent macroeconomic policies, great politi- equity? have a very important mix of equities andcal leaders and the fact that the Brazilian credit (bonds) in their portfolios; this ismutual fund industry evolved in such a Hedge fund managers can and do invest the way they prepare for possible times ofway that facilitated the development of in what are now called “special oppor- increased volatility. They are pretty savvyhedge funds, under the regulation of the tunities”. Private equity investments are managing risks these days.local Comissão de Valores. very important for institutional investors Currently, more than 80% of LatAm around the world and Latin America is Are there funds of hedge funds activehedge funds are headquartered in Brazil. not an exception. However, as the region in Latin America? While Brazil has taken the lead in re- begins to see more Initial Public Offer-cent times, the hedge fund industry in ings, I think that the typical hedge fund This is also a very interesting question.other LatAm countries will benefit in the managers will stick to listed equity in- There are funds of private equity fundsshort to medium term future as the questfor alternative investments among assetmanagers around the world continues. Latin The regional industry showed relativestrength during the market dislocation of2008. The performance of LatAm hedgefunds only declined 4.98% which showedthat capital preservation was of the utmostimportance for managers. While one can Americanclaim that the BRIC economies have fallena bit behind lately, there is no doubt that,among them, Brazil represents a great entrypoint in the event of a healthy pull back.Do these hedge funds invest regionally Hedgeor in a particular country?Interesting question. Practitioners alwaystry to invest in their own countries be-cause of the comparative and competitiveadvantages they can have. However be- Fundscause managers look for liquidity, diversi-fication and new investment opportunitiesit is natural for them to adopt a regionalperspective. Currently, some hedge fundmanagers have two main portfolios (sub-funds): (i) the domestic portfolio and (ii)the LatAm ex-Brazil portfolio.Why would a hedge fund manager LIQ talks to Victor Hugo Rodriguez,have an ex-Brazil portfolio? Founding Director of The Hedge FundWell, like I said before, 80% of the hedge Association (HFA) – LatAm Chapterfunds are based out of Brazil. A hedge
Institutions Latin Infrastructure Quarterly 67and hedge funds. This is because institu- How do they approach the due dili- Victor Hugo Rodrigueztional investors from the United States, gence of these vehicles?Europe and Asian consider these vehicles Victor Hugo Rodriguez is the Founderto be very valuable and are willing to pay Institutional investors have rigorous due and CEO of LatAm Alternatives. Victorextra fees for the know-how of where to diligence questionnaires and they also Hugo has over 17 years of experienceinvest considering the large number of perform internal investigations of poten- in Management, Sales, Marketing andhedge funds in the region in order to re- tial investments. They also hire firms such Business Development across theduce their exposure to operational risks. as LatAm Alternatives as consultants securities industry in the US-LatAmThis is interesting because funds of funds to know “who is who” which is critical region. He was Partner and Head ofare retreating in other regions. Worth when negotiating. Latin American Prime Brokerage forcommenting as well is that local pen- Merlin Securities (Mid Tier Prime Bro-sion funds are currently analyzing these Are there infrastructure funds active in ker) and Director of Global Institution-investments for potential changes in the the region? al Sales at Trade Station Securities.future. Before he worked as Director of Latin Of course. In the alternatives markets America for Terra Nova Trading (nowGiven your job as Director of LatAm there are three fundamental areas: mar- Light Speed Trading) and in the lateAlternatives you are probably the right ket strategies, private equity and infra- 90’s he was the Founding Presidentpractitioner to ask about how do La- structure. There are funds active in Bra- & CEO of Pristine.com Latin America.tAm’s institutional investors view al- zil, Mexico, Chile, Peru, and Colombia. He has been a live TV Economicsternative investments. I would like to mention that these types News Anchor and currently serves as of funds will grow even more in the next the Founding Director of The HedgeAt LatAm Alternatives we deal with decade due to the consolidated expansion Fund Association (HFA) – LatAmNorth American and Latin American in- of middle class in Latin America and the Chapter. Also he is Member of thestitutional investors. In the case of LatAm great infrastructure need in the region. STAF Board (Security Traders Asso-institutional investors they have been ciation) of Florida and Member of therather cautious. For these investors, edu- If so, what is the state of these funds? Board of Advisors at Emerging Mar-cation is and has always been a very im- kets Virtual Exchange (EMVx). Re-portant issue. This particularly true after They are very active particularly because cently he co-published a white paperthe big mistakes of 2008 and fraud cases local institutional investors find them as “The Spectrum of Investors for Latinsuch as the well known Madoff case. a very appropriate investment. As I men- American Hedge Funds”, and hasHaving said this, the LatAm institutional tioned before, infrastructure funds togeth- been interviewed by The Wall Streetinvestors are eager for solid, transparent er with hedge and private equity funds Journal, Institutional Investors, Euro-and sound alternative investments op- will all keep on growing because there is Money, Bloomberg, The Trade News,portunities because of the diversification a lot of liquidity out there and the region’s Traders Magazine LatAm Fund Man-benefits, adjusted volatility and returns. middle class keeps expanding. ager, Financial Times, Inversiones. On a last note, people that work in the com, FinWeek, Finalternatives, HFM-What are some of the main concerns capital markets and particularly in Alter- week, Yorba TV Alternative Latin In-global institutional investors have when native Investments around the world have vestors Magazine and Funds Peopleit comes to analyzing potential alterna- a particular mission to “give back to so- during the last few weeks.tive investments in Latin America? ciety” in the form of philanthropy. We in Latin America should do the same. ThereThey consider the following aspects: (i) are no excuses. If you can’t give out mon-liquidity of the investment strategy; (ii) etary resources you can give out yourstrength of the strategy (iii) the team’s time. We will be proactively promotingprofessional and academic background The Hedge Fund Care in Latin America.and what kind of relevant exposure the Our countries need our help and we theteam’s members have had; (iv) fund’s LatAm Hedge Fund Community will stepsize; (v) market’s size; (vi) social and in even further. Please visit http://www.political stability of the country; (vii) hedgefundscare.org/correlation between the fund’s past per-formance and the economy and world’smarkets; (viii) the custodians (Multiprimes perhaps); (ix) what type of riskmanagement tools the fund’s manager isusing; and (x) how the manager separatesalpha from beta and how he/she actuallygenerates returns.
68 Latin Infrastructure Quarterly XXXXXX XXXXX 8-9 Cumbre de agosto Proyectos de 2012 Capital & LIMA, PERÚ Infraestructura SWISSOTEL, Jorge Vilches CEO, LAN Peru Henrik Kristensen, Enrique Cadenas Managing Director, CEO Contugas APM Terminals Callao Gonzalo Tamayo, Mark Hoffmann Dulio Costa Socio Director, Gerente General Managing Partner & CEO, Macroconsult S.A. Duke Energy Egenor Macrocapitales Platinum Sponsor: Susan Tinker, Vice President of Partnerships Services, Partnerships BC Aldo Fuertes Silver sponsor: Gerente General, Rubén Lora Popular S.A - Sociedad Managing Director Administradora de of Production, Fondos de Inversión S.A. Mota-Engil Peru CP&I 2012 “Con el objetivo de cerrar la existente brecha 300 participantes Expositor: 55 oradores en infraestructura a 30 consesionarios estudios de casos través de proyectos de 20 países representados inversión en el Perú y así Cooperación 15 horas de networking estratégica: mismo, abrir la puerta al 2 días de contenido 1 gran oportunidad de expandir su comercio y el desarrollo negocio y su red profesional de nuevos proyectos “ Para más información, por favor contactar hoy mismo a Daniel Para Mata al teléfono 212-213-3271 o un correo a Daniel.email@example.com Latinmarkets.org