Companies Latin Infrastructure Quarterly 1 Brazilian Airport PrivatizationPORT OF Guatemala PPP LawCALLAOMultipurpose North Cleantech InfrastructureTerminal A New Investment Frontier?
2 Latin Infrastructure Quarterly ContributorsContributors Welcome to first issue of Latin Infrastructure Quarterly (LIQ)! LAna Fernández González atin America is going through an impressive economic expansion. We, here at LIQ, agree that economic growth can only be sustained overRoger Miralles time with a strong development of social and economic infrastructure with the private sector actively involved in the process. Every gov-Anadi Jauhari ernment in the region agrees as well. Many countries have chosen toEmerging Energy & Environment take action to foster said development. In those countries, the public and the private sectors have struck partnerships that have resulted or will result in stronger econo-Adrian Barrios mies. This is perhaps why David Roseman, of the Macquarie Group, said that “SouthPricewaterhouseCoopers America is the next logical step”. A few other countries, for different reasons, presentAndrew Bogan less appropriate scenarios for infrastructure development. We intend to provide youBogan Associates with valuable insight from both set of countries. The infrastructure professionals responsible for this process are not looking forDavid Bloomgarden news coverage because they already know in advance the developments of the indus-Multilateral Investment Fund try. We know these professionals are looking to read how their colleagues solved a client’s contractual, regulatory, financial or bureaucratic problem or how they struc-Dennis Blumenfeld tured a specific deal and what lessons were learned. Practitioners also appreciateMultilateral Investment Fund reading about how a certain development will impact the future of the industry, and what ideas are out there that may help address some of the current obstacles to theDiego Harman further development of infrastructure.Rubio Leguia Normand Our proposal with LIQ is for you, the infrastructure professional, to use it as aFabiana Peixoto de Mello mean through which you can access hard-to-find analysis and actionable information from your colleagues in the form of articles and interviews, case studies, project pro-Jorge Figueredo files, and, "logistical" issues to have in mind.Vouga & Olmedo Abogados With the above purposes in mind we intend LIQ to be an accessible space for you to share your ideas and experiences with a relevant audience: fund managers, govern-Luis Pedro Del Valle ment officials, lawyers, bankers, and consultants. Should you be interested in doingArias & Muñoz so please do not hesitate to contact us at info@liquarterly. Also, we look forward to your feedback on things to improve and topics to cover.Manuel UgarteEstudio Delmar Ugarte Abogados We hope you enjoy the magazine.Miguel RoncerosEstudio Delmar Ugarte AbogadosMilagros MaravíRubio Leguia NormandPaulo de Meira LinsInternational Finance CorporationRoberto TapiaRodolfo VougaVouga & Olmedo Abogados
Contents 3CONTENTSGrup TCB..........................................................................................................4A terminal operator with a worldwide presence 40Cleantech Infrastructure:................................................................................8 New Investment Frontier?...............................................................................12Multipurpose North Terminal:(Muelle Norte) of Callao’s PortPublic Private Partnership in Chilean Hospitals..............................................20A new market in developmentAirport Infrastructure in Brazil.......................................................................24Mezzanine Finance forLatAm’s Infrastructure..............................................28 12Spain’s Infrastructure P3 Program...............................................................32Infrastructure Projects in Peru:....................................................................36Are Regional Governments Still under the.Paternalism of the Central Government?Privitization Models for Latin American Airports &..................................40 Implications for Brazilian Airport PrivatizationInfrascope:......................................................................................................44An interactive learning tool and benchmarking index 28EU Debt Crisis and Spanish PPPs..................................................................46The Impact of the Regional & Local Elections in Spain................................48Itaipú-Villa Hayes Electric Transmission Line..............................................53Hidrovia on the Paraguay River.....................................................................54Airports Concession in Paraguay...................................................................55Peruvian Infrastructure Projects....................................................................57 48Public Private Partnerships Act in Guatemala...............................................59LIQ Speaks with Paul de Meira Lins of the IFC...........................................61
4 Latin Infrastructure Quarterly CompaniesGrup TCB:A terminal operator with a worldwide presenceSince its foundation in 1972, Grup TCB has estab- it operates, from the initial stages of the project to the day-to-day management oflished itself as the foremost Spanish operator of intermodal traffic.port terminals, engineering services and consultan- The key to the company strategy liescy for container and general cargo terminals. This in its running of the terminals. One of its guiding principles is to maximize internalleadership is demonstrated by its specialization in logistics with the objective of satisfyingmultiple spheres of operations and cargo manage- and enhancing the needs of its customersment, as well as its strategic presence in different and the communities where the terminals are located. The company offers an ampleports around the world. spectrum of services, including port infra- structure design, acquisition and manage- In recent years Grup TCB has under- ment of equipment, planning of intermodal gone rapid growth and major expansion connections, and even the implementation in Europe, the Americas and Asia. With of customized online solutions. And all activities stretching from the Pacific of this is subject to the strictest criteria Ocean to the Aegean, Grup TCB has im- in terms of security, quality and respect mersed itself in an ambitious plan for in- for the environment, and approved by in- ternational development that is constantly dependent certifying agencies. This glo- evolving. It bases its growth strategy on bal vision of the shipping cargo business being a leading operator and shareholder has helped to consolidate the company´s in every one of the terminals in which preeminent position.
Companies Latin Infrastructure Quarterly 5 Grup TCB has a global vision of the cargo ship- ping business, one that meets all of its clients’ needs
6 Latin Infrastructure Quarterly Companies At present Grup TCB´s worldwide Buenaventura as the port with the greatest training gantry crane operators. Togetheroperations include terminals in Barce- potential on Colombia´s Pacific Coast. with the Brazilian company Incatep, it haslona, the Canary Islands, Valencia, Gijón, The Buenaventura terminal, with an trained 18 operators to handle port facili-Paranaguá (Brazil), Havana (Cuba), Pro- investment of US$240 million in its first ties in this way. As a result, the terminalgreso (Mexico), Buenaventura (Colom- phase, provides a real alternative for car- can offer its clients productivity on parbia), and Nemrut Bay (Turkey). It also go transport by allowing clients in the re- with the highest figures posted along theowns two intermodal service subsidiaries gion to optimize their import/export pro- western coast of South America.(TCB Railway Transport and TCV Rail- cedures and to harness the considerable This recent inauguration consolidatesway Transport) and four rail terminals synergies available in terms of operating. Grup TCB´s position on the American(Barcelona, Valencia, Gijón, and Zarago- Buenaventura is a strategic enclave for continent, where it has three other termi-za). It is developing its business activity international shipping lines: close to the nals: TCP, in Paranaguá (Brazil); TCY, inin the area of engineering and technical Panama Canal, at the midpoint between Progreso (Mexico); and TCH, in Havana,consultancy by undertaking terminal-de- North and South America, and the closest Cuba.velopment projects. port to the Far East. From here, Colombia Located on the eastern coast of Bra- In tandem with its terminal opera- ships 60% of its total exports, including zil, the port of Paranaguá is a first-classtions, the group is also developing other 80% of its coffee. logistics port. Its area of influence cov-activities, including traffic analysis; legal, TCBuen expects to handle 250,000 ers 800,000 km2 and accounts for 60%technical and economic viability studies; TEU over the course of 2011, its first year of Brazil’s GDP. It also boasts importantdevelopment of the port master plan; de- in operation. Moreover, two vessels can international connections, being a portfining the ideal operating system; and de- simultaneously dock at its quay, which of call for major shipping lines from thefining investment. It is also undertaking measures 480 metres in length, and it has U.S., Canada, Europe, Africa and the Farprojects in civil engineering, installations a 26 hectare container yard for storage. East. TCP´s short-term plans are focusedand machinery, which include studies in Facilities at TCBuen principally consist on the physical expansion of the terminal.maritime climate, navigation and ma- of two Post Panamax gantry cranes with The investment required for extending thenoeuvres, among other relevant subjects. a capacity of 65 tons and equipped with 315-meter quay and acquiring new equip- In the area of re-engineering, it de- the latest technology; there are also seven ment will be around US$90 million. Ob-signs environmental management and RTG cranes for operating within the con- jectives include surpassing 0.85 millionsewage treatment systems, prepares stud- tainer yard. TEU by 2012, with an expected capacityies on lighting and maintenance, analyzes (TCBuen has placed itself at the fore- forecast of 1.5 million TEU for 2013.dangerous goods, and prepares safety front of the most modern shipping termi- Since 2005, Grup TCB has run the portplans, while also modifying and modern- nals in Latin America by using simulators of Progreso in the Gulf of Mexico. Thisizing facilities for improved operations with the most innovative technology for enclave, located on the Yucatán peninsu-and making changes in distribution to op-timize production. Port terminals in South America Colombia´s Buenaventura Last May, Grup TCB inauguratedTCBuen, a new container terminal in Terminal is establishing itself as one of the mostBuenaventura, Colombia. More than 900guests were invited to the opening cer-emony of the terminal, presided over bythe President of the Republic of Colom-bia, Juan Manuel Santos Calderón; theMinister for Transport, Germán Cardona;the Minister for the Environment, Beatriz modern ports in Latin America -Uribe; and the Governor of the Valle delCauca department, Francisco José Lou-rido. The Colombian President under-lined the importance of introducing thisnew infrastructure, which would establish
Companies Latin Infrastructure Quarterly 7 Grup TCB expects to see a 13% growth in 2011 -la, serves an area of influence of intense center with enormous potential for the de- continues to participate actively in inter-economic development, particularly in velopment of international trans-shipment national conferences across the Americas,terms of its in-bond, logistics and tourism traffic, while it also services its own internal Europe and Asia.industries. Its area of development covers needs for the general supply of the island. The company is also continuing to opti-the states of Quintana Roo, Campeche, mize its existing terminals, through variousChiapas, Tabasco and Yucatán; in total, Global growth expansion and improvement projects, as atthis represents an area of influence with the terminal of Gijón, which recently un-over 10 million inhabitants, including its veiled a new crane, and the terminals of Bar-floating population, which makes up 10% In keeping with its strategy, Grup TCB celona and Valencia, where train-transportof the total population of Mexico. intends to sustain its worldwide growth and has helped produce very high growth rates. In Cuba, Grup TCB participates in the maintain a geographically balanced busi- So despite the economic situation thatmixed-concession holder company of the ness portfolio. In tandem with the steadily has shaken the world, Grup TCB maintainsContainer Terminal of Havana, having as- progressing development of a terminal in an optimistic outlook for the future. Thesumed the management of its entire busi- India (Ennore), with a planned investment company expects to achieve a growth rateness. The privileged situation of Cuba in the of US$340 million, and the growth of its of 13% by the end of the year and forecastsGulf of Mexico makes the port of Havana a newly inaugurated terminals, the company continued progress at all terminals.
8 Latin Infrastructure Quarterly Infrastructure Financing Anadi Jauhari is a Senior Managing Director atA New Investment Frontier? Emerging Energy and Environment LLC (EEE), a Connecticut-based alternative investment firm with current presence in Rio, Mexico City, and Panama. EEE specializes in renewable energy, cleantech, energy and emerging infrastructure.Cleantech Infrastructure: Prior to his current role, Anadi was the Head of Americas Project Finance Group in New York at Natixis, a French bank. He co-founded EEE in 2009 with John Paul Moscarella, a co-founder of the AIM-listed Latam-focused renewable energy and carbon developer, Econergy International plc, which was acquired by GdF Suez in 2008. EEE’s mandate is to invest institu- able business models that produce goods tional capital in emerging trends and the and services, which increase energy ef- fast- growing markets globally through ficiency, substitute or reduce fossil fuel its dedicated investment funds. Over the consumption, and reduce or eliminate next 10 to 15 years, EEE believes that environmental waste in sustainable ways. technological innovations and climate These companies have varying risk pro- change will create unparalleled invest- files depending upon the business model ment opportunities for a range of invest- and market positioning. On a risk-return ment strategies – venture, private equity, continuum, on one end, within the broad- infrastructure and fixed income. As an er cleantech universe, we have early stage alternative asset manager, EEE believes investing in start-ups, with a high level of its strength lies in its industry and asset technology and commercialization risks, expertise, local presence in the target and infrastructure oriented companies, on markets, and close relationships with lo- the other end of the spectrum. Because of cal and overseas strategic and financial the diverse nature of risk-return profiles players. The firm currently manages an of investment opportunities, a wide range early stage cleantech venture equity fund of investment strategies are feasible – - A conversation with Anadi Jauhari, CAIA in Latin America, which is fully commit- venture, private equity, infrastructure and ted. Its second Latam-focused private fixed income. equity fund, backed by US- based, Euro- At a macro level, the region is in a pean and regional multilaterals, will fo- very good economic shape today – ma- cus on late stage renewable and cleantech jor countries have good balance sheets in infrastructure. large part due to the structural and eco- nomic reforms. Over 80% of the region’s What is cleantech and why is it im- $5.3 tn GDP today, is accounted for by in- portant for Latin America from macro vestment grade countries – Brazil, Chile, and sector perspectives? Colombia, Mexico and Peru as compared to mid- to late 1990’s when the first wave We define “cleantech” very broadly of privatization and investments began,. – to include companies with sustain- Although the region was not immune
Infrastructure Financing Latin Infrastructure Quarterly 9from the financial crisis, it emerged quick- countries with more established energyly based on its exports and internal sourc- infrastructure. As US, Canada, Europe,es of demand with current expectation of and Asia (especially China) begin to di-future real GDP growth in the 4% to 5% rect investment dollars in the develop-range. With economic growth comes ris- ment of clean technologies, which, onceing incomes and improved standards of commercialized, can be transferred andliving. This translates into more demand deployed in the region.for energy. Per capita electricity con- As the cost of producing energysumption in the region is still low by de- from renewable sources has come downveloped country standards, which means quickly and if our long-term outlook isthat it will grow quickly. This creates a one of scarce natural resources (oil, gasneed to build new infrastructure that pro- etc), then cleantech, as an energy solu-vides access to secure and cost-effective tion, becomes economically attractive.sources of energy to keep pace with grow- Also, as evident from recent renew-ing demand. A reliable energy infrastruc- able energy auctions in Peru, Brazil andture is also fundamental to the region’s Uruguay, renewables are competitiveenergy security. with traditional forms of energy with- In our view, cleantech investments can out explicit subsidies, and in fact in thehelp diversify energy sources and build Brazil auction for wind energy, thesenew energy infrastructure that is both sus- bids were lower than natural gas com-tainable and cost-effective. The region bined cycle plants. Clean technology What are the opportunities in clean-is endowed with a vast, untapped renew- solutions – especially distributed gen- tech infrastructure investing in Latinable resource base which is more attrac- eration – can be implemented quickly America?tive (in terms of energy potential) than in in smaller communities – as often therethe developed world. For example, small are no scale disadvantages with smaller We see tremendous opportunities in re-hydro (<30 mw), wind, solar, and biomass renewable generation sources. Such newable energy generation (small hydro,are in abundance in the region and only a projects can have direct economic ben- wind, solar, biomass, geothermal), cogenera-very small fraction of the resource base efits – through the localization of sup- tion, waste management, transport efficiency,has been utilized. ply chains. Such green stimulus is an energy storage, microgrid, efficient lighting The region has the benefit of deploy- important contributor in creation of systems, and biofuel/biogas infrastructure.ing the newest technologies developed jobs which makes clean energy politi- We are focused on the infrastructure end ofelsewhere and hence, leapfrog other cally acceptable. the cleantech – our definition of infrastruc- ture includes assets stable cash flow, with low technical or operating risks. What weWhat we find interesting is that within the clean- find interesting is that within the cleantech segment, especially on the technology endtech segment, especially on the technology end of of the spectrum, as technologies mature, a company with the right combination of proven technology and business model, canthe spectrum, as technologies mature, a company take on “infrastructure” attributes – i.e., sta- ble cash flow via contracts combined withwith the right combination of proven technology strong market positioning. The traditional forms of clean energy infrastructure includeand business model, can take on “infrastructure” contracted energy generation assets which have stable long-term cash flows and lim-attributes – i.e., stable cash flow via contracts com- ited operating risk. Longer term, we see a regionally integrated market develop withbined with strong market positioning. transmission links that connect different re- newable resource-rich markets.
10 Latin Infrastructure Quarterly Companies What trends we are seeing in clean some form of currency risk mitigation via The fund will take mitigated completionenergy sector more broadly that the re- contracted linkages with inflation (local, or greenfield risk, but generally no earlygion could benefit from? US) and or US$ tariffs. Long-term ener- stage development risks. Our infrastruc- gy prices will still reflect fossil fuel prices ture focus removes any technology or Declining all-in costs of renewable which are global commodities – again de- commercialization risks. The focus willenergy generation, in large part to techno- pending upon the market in the region. also be on small- to -medium sized renew-logical improvements, greater diffusion An important development is the ables and cleantech cos or projects (up toof promising clean technologies from the emergence of local pension capital for 50 MW to 100 MW individually) whichdeveloped markets, and a strong realiza- private equity as an asset class. Pension at times can be aggregated into largertion on part of the regulators to develop a reform in Brazil, Colombia, Peru, Mexico portfolios for improved portfolio efficien-regulatory and policy-framework are posi- and Chile is likely to open up new sources cies. A large part of economic activity intive trends we see in the region which will of capital for private equity style invest- the region is still organized via small andcontinue to drive renewable and cleantech ing as local pension funds diversify their medium enterprises (SME) in the region,investments. Clean energy deployment investment options from their traditional which often lack access to capital andcan be done on a distributed generation reliance on government bonds. While knowhow. The fund’s likely target willbasis, especially in solar, cogen, small hy- it is unclear whether the new source of be a subset of the broader SME universe,dro, which means smaller scale projects capital will find its way into renewable entrepreneurs with vision and experiencecan be implemented quickly. infrastructure, we believe the stable and to develop and implement the region’s essential nature of some of the clean in- cleantech infrastructure in the region. What are the challenges and risksin the implementation of cleantech in-vestment solutions in Latam? Pension reform in Brazil, Colombia, Peru, Mex- The development of clean infrastruc-ture faces capital and execution or imple- ico and Chile is likely to open up new sourcesmentation related bottlenecks, as is thecase in any market – developed or devel- of capital for private equity style investing asoping. From a capital perspective, accessto early stage capital is still very challeng- local pension funds diversify their investmenting for project developers, and so is theavailability of long-dated project finance options from their traditional reliance on gov-capital - ideally to match the underlyingcontracts or the economic life of assets - oncost-effective terms. Local debt markets ernment bonds.lack depth and unable to provide long-term asset funding that is often requiredfor renewable and cleantech infra. This is frastructure assets, in general, would be a How does EEE create value in itsan area multilaterals have provided inno- good match for such capital. portfolio companies?vative financing solutions in the past and From an execution or implementationthey will continue to be important players point of view, the development of local EEE’s senior professionals havein cleantech capital formation. engineering, procurement and construc- extensive experience in the targeted Foreign institutional investors inter- tion (EPC) base, as well as appropriate sectors – we have a strong local pres-ested in gaining equity exposure via un- risk-transfer structures which mitigate ence in our key target markets. Ourlisted fund structures are often concerned counterparty risks (offtaker, EPC contrac- teams work closely with the portfolioabout currency risks in the region – not tor, operator, etc.). The role of multilat- companies and have a hands-on ap-surprising given the region’s history with erals and local government is critical in proach in managing the assets and inhigh levels of inflation and currency cri- addressing some of these bottlenecks. introducing best-practices in projectses. The macroeconomic situation is execution, operation and financialvastly improved now and going forward, What opportunities will EEE’s sec- controls.our view is that the region will enjoy in- ond fund invest in?creased macroeconomic stability and reg- Anadi Jauhari can be reached at Ana-ulatory certainty. We believe, depending EEE’s second fund will invest in re- email@example.com the market, energy assets do provide newables and cleantech infrastructure.
12 Latin Infrastructure Quarterly DealsMultipurposeNorth Terminal(Muelle Norte) of Callao’s Port The bidding for the 30-year con- being already operated by DP World and In the end, APM Terminals and Hutch-tract to upgrade and expand the Ter- the North Terminal was being operated by inson tied on the first and second com-minal Muelle Norte must have been state-owned company Enapu). With the petition factors, while APM Terminalsquite competitive, why was APM finally intention to reduce the fees that the fee op- offered a full 100% discount on Specialawarded with said contract? erator would charge to the minimum level Services, which finally broke parity with possible and to further enhance competi- Hutchinson, which offered on that same Indeed it was a very competitive bid, tion in Callao’s Port, the two (2) remaining concept a 85.88% discount.probably the most important project grant- prequalified bidders (APM Terminals anded in concession in the last five (5) years, Hutchinson Port Holdings, MSC did not What is your opinion regarding theinvolving Peru´s most valuable port and an present economic proposal) had to deter- risk allocation scheme set forth in theinitial investment commitment for 5 stages mine the following competition factors: contract (please discuss permitting,of US$ 750 million. Technical operation economic equation i.e. can the conces-requirements criteria was well above the • Cost per 20-foot full container using sionaire ask the grantor for a tariffstandard, as desired by the Peruvian govern- a dock gantry crane (being US$ 102 review and on what grounds, construc-ment in the quest for only well recognized the minimum), including a Cost Rate tion and operation risks).port operators worldwide to participate in per TEU / day per additional storagethe bidding process. As such, important time after the 48 hours established in We find that the Concession Agree-experience in port operation was to be met, Standard Services for containerized ment has an acceptable risk allocationeither as a direct bidder or through a Con- cargo (US$ 3 being the minimum, scheme, although it could have been bet-sortium, crediting annual movement equal US$ 7 as maximum). ter structured for the benefit of the Con-to or larger than 10,000,000 TEU, with port • Discount rate offered regarding cessionaire. For example, the restitutionmanaging effective control of at least one Standard Service Rates based on of the economic-financial equilibrium ofterminal with an annual movement equal to break bulk cargo, rolling cargo, solid the Concession Agreement can only beor larger than 1,000,000 TEU. APM Termi- bulk cargo and liquid bulk cargo (up invoked by any of the parties in case ofnals, being the second largest port operator to 25%). changes in the applicable laws and regula-in the world with 61 ports and terminals in • Discount rate offered regarding cer- tions, which means other risks not related33 countries, covering all continents, had tain Special Service rates included with the enactment of a new law cannotthe sufficient strength and experience to be in the Concession Agreement (up to be invoked as cause for said restitutiondeclared a successful prequalified bidder. 100%). (for example, variations of exchange cur- The Peruvian government felt that • Additional Complementary rency, strikes that may paralyze the portthe competition in Callao’s Port had to be Investment. operation for a considerable period, eco-strengthened (since South Terminal was nomic obligations not clearly defined to
Deals Latin Infrastructure Quarterly 13date in the agreement, among others that Peruvian government for the Ex- Terminal through Peruvian state-may arise). ploitation of the concession. owned company ENAPU, within the Risk assumption is detailed through- 3. The shares of the Concessionaire. administration of port operations.out the Concession Agreement according In order to procure the financing of The Peruvian government wantedto the matter (labor, environmental, op- the project. to avoid with this labor conflictserative), and it is common for the Grantor with ENAPU workers, and also toto assume responsibility, to hold the Con- It is worth noting that the project is prevent public reactions against thecessionaire harmless and take all the nec- divided in stages, the first five (5) of man- project related to the topic of the pri-essary actions with regards to, any claim, datory compliance and the possibility for vatization of the country’s main port.action or act filed by third parties regard- the development of a sixth stage that in- As a result of the above, by Supremeing the Grantor’s obligations or damages cludes a new Container Terminal which Decree N° 019-2010-MTC, the Min-caused, due to events or situations that oc- could increase investments from US$ 750 istry of Transport and Communica-curred before Takeover. million to 1,2 billion. tions established for the adminis- tration of port infrastructure to the How is the upgrade and expan- What were the three main issues private sector to be given throughsion being financed? Briefly described you had to solve when (i) providing ad- the form of a Joint Venture withthe security structure permitted in the vice for this transaction; and (ii) pro- ENAPU. The aforementioned de-concession agreement (share pledge, viding advice for the takeover of the cree received much criticism, main-assignment of contract, assignment of operation? ly because opting for a joint venturerights, pledges, etc.). operation was not in accordance in Advice on the transaction recent history in private investment This is a DFBOT Agreement (Design, 1. Structuring of the Project: Given the promotion related to infrastructureFinance, Build, Operate and Transfer). interest of many foreign investors in projects in the past 20 years, devel-Hence, the financing of the project corre- taking operation of the North Termi- oped through concession schemes.sponds exclusively to the Concessionaire, nal due to its strategic position in the Moreover, other attributes of thebeing its responsibility to obtain the fund- Pacific Ocean (DP World and APM Ministry of Transports and Commu-ing for the works and port equipment nec- Terminals had previously presented nications given by the decree wereessary for each stage of the project, prior separately Private Initiatives), the also criticized: (i) leaving at its cri-to its construction. This must be credited Peruvian government wanted to pro- teria whether the Agency for Promo-prior to the construction of Stages 1 and mote the project as a public bid main- tion of Private Investment – PROIN-2. taining a presence in the Callao Port VERSION should direct the project With the purpose of financing thedesign, construction, conservation andexploitation of the North Terminal, theConcessionaire may, following previous APM Terminals, being the secondapproval granted by the National PortAuthority, with the Grantor’s favorableopinion and the Regulator’s technical largest port operator in the worldopinion, grant guarantees in favor of Per-mitted Creditors, to guarantee the permit-ted guaranteed Indebtedness on the fol- with 61 ports and terminals in 33lowing matters: 1. The concession right, pursuant to countries, covering all continents, article 3 of Law Nº 26885, which establishes the possibility in en- cumber a mortgage and execution had the sufficient strength and ex- of the concession right in case of default of the Concession Agree- ment, including the extrajudicial perience to be declared a successful execution. 2. The concession’s income, net of the compensation granted to the prequalified bidder.
14 Latin Infrastructure Quarterly Deals bid, which could ensure a process of operator) to participate in the com- minimum rates were low and other transparent selection, (ii) to develop petition for the award of the North obligations were demanding in com- a private public bid, with competi- Terminal, in order to avoid the exist- parison of those for DP World; while tion of only private bidders of its ence of monopoly within the Callao DP World felt the Peruvian govern- choice, (iii) including ENAPU in the Port Terminal which would prevent ment was breaching anti-competition business, a state company that could competition and the benefits related law by giving the North Terminal bid- provide little in front of his partner. to it, mainly the reduction of tariffs. ders an operating port, including state- Three days after the issuance of Su- Once the public bid for the North owned ENAPU’s port equipment, preme Decree N° 019-2010-MTC, Terminal was announced on August while it had to construct its own ter- the government published Supreme 2010, the process was carried out minal and but its own port equipment. Decree N° 020-2010-MTC, in which with certain discrepancies of the bid- Since DP World felt it was being dis- it clarified that prior to the Joint ders who did not consider ENAPU criminated against by being prevented Venture to be entered, a public bid as a partner who could bring some- from participating in the bid, it filed a directed by the Ministry of Trans- thing to the business (consider- constitutional claim for the supposed ports and Communications had to be ing that the state-owned company breach of its non-discrimination right. performed to determine the capacity would take a 17.01% percentage of The claim was presented alongside and expertise of the private investor gross revenues before taxes). Even with an injunction which would have which would enter the Joint Venture. though the concession mechanism allowed them to participate in the Despite the above clarification, the was finally enforced, this did not public bid for the North Terminal. controversy over the partnership prevent bidders from signing with This was a key subject for APM with ENAPU was still a criticism, ENAPU a Joint Venture Agree- Terminals, since DP World could thus generating voices of disagree- ment as an annex of the Concession have had comparative advantages ment on private investors interested Agreement in exchange for ENAPU in case it was allowed to present in the North Terminal, on the viabil- goods and assets that bidders felt proposals (lower rates, privileged ity and profitability of the project. were not an adequate return for information). This required sev- Thus, in July 2010, the State enacted the benefits ENAPU would give. eral negotiations and meetings with Supreme Decree N° 146-2010-EF, Proinversion in which common terms mentioning that the Joint Venture 2. Injunction to the bidding process: The were reached as to prevent the bid- had to be bid under a concession government enacted a Supreme De- ding process from being cancelled. scheme. This meant that the main cree during the process, based on the Finally, the injunction was left without legal relationship would be given political decision to promote compe- effect as to promote terminal competi- by a Concession Agreement, sign- tition in the port by not allowing ex- tion in benefit of Users, and the bid- ing in parallel a Joint Venture Agree- isting port concession holders to par- ding process continued without DP ment as a contract appendix. It ticipate in this or in other future bids. World being prequalified as bidder. also established that the public bid Being the port operator of the South To date, there is still the constitutional would be in charge of Proinversion. Terminal in the same Callao’s Port in claim filed by DP World pending of Following the purpose described in which the North Terminal is located, resolution in Peruvian constitutional both Supreme Decrees N° 019-2010- DP World felt it was being discrimi- courts, and a claim filed by such com- MTC and N° 020-2010-MTC, which nated against by being prevented from pany before the Arbitration body of the sought to promote competition in the participating in the bid. One of the ar- International Center for Settlement of management of port infrastructure guments DP World felt strong about Investment Disputes (ICSID), accord- service, Supreme Decree N° 033- was the fact that they had been grant- ing to the dispute resolution mecha- 2010-MTC was published, with a ed with a green-field project and the nism. APM Terminals will not par- specific prohibition for private port North Terminal Project in Callao’s Port ticipate in such arbitration procedure. administrators that had an existing was a brown-field project with cash contractual relationship with the Pe- flows already being generated and a 3. Closing Date: The Peruvian gov- ruvian government, to participate in port already managed by state-owned ernment decided to go along with other public bids designed to deliver ENAPU, to be transferred already in the bidding process despite some the administration of another port in- operation to the successful bidder. social conflicts generated mainly frastructure within the same port ter- All in all, APM Terminals and the from ENAPU workers that did not minal. In other words, what the gov- rest of the Bidders wanted the same agree with the concession, rallied ernment wanted was to prevent DP economic and technical conditions behind a presidential candidate that World (the existing South Terminal as those on the South Terminal, since originally claimed that ports as stra-
16 Latin Infrastructure Quarterly Deals tegic sectors of the country should in “Appendix 23”, from which the which had doubts in accepting job remain under the administration of Concessionaire had to make job offers offers from ENAPU. The result of Peruvian-owned companies (such to at least sixty percent (60%) pursu- all efforts displayed was successful, candidate, Ollanta Humala, later won ant to the Concession Agreement. In since more than ninety percent (90%) the presidential elections but since this sense, the agreement mentioned of the employees (around 420 work- then he has moderated his origi- for the Concessionaire to send job ers)that received job offer letters, nal speech, now keen in respecting offer letters within fifteen (15) days finally accepted joining APM Termi- and fomenting private investment). counted since the Port award, hav- nals team. Once the award of the bid was con- ing the port employee’s ten (10) 2. Labor Contracts: The Concession cluded on April 1st 2011, APM Ter- days to answer this communication. Agreement established for APM Ter- minals felt time was a key factor in In this part of the process, we had to minals to sign labor contracts with protecting future investments, and confront with two problems. First of all, all employees who had accepted wanted to sign the Concession Agree- the employee´s data sent by ENAPU their job offers, within 60 days be- ment as soon as possible, even though was not updated. This problem af- fore takeover of the port operation. takeover of the operation would be fected the notification of the job offer For this, we needed the employee’s done later. Closing Date was pro- letters sent by the Concessionaire, in remuneration information from grammed on March 11th, 2011, and reason that the addresses detailed in ENAPU. In this sense, according important matters where pending the Annex 23 list were not correct. to the offer job letter’s experience, to be performed as to comply with On the other hand, the port employ- it was necessary to prepare a very obligation prior to Closing Date. ees had many doubts about the con- cautious labor contract, where two Among other obligations, we advised ditions that we established in the clauses were of particular interest: APM Terminals in the following: (i) job offer letters, which had been ex- constitution and incorporation, along pressed through several letters that • If the worker detected a disparity with the other members of the Consor- the Unions sent us, although APM between the remuneration estab- tium, of the Concessionaire company, Terminals was just expressing such lished in the contract and the real a special purpose vehicle with a capi- letters according to terms and condi- remuneration, the worker would tal stock of US$ 61,433,839.80; (ii) tions of the Concession Agreement. have to prove with his payment celebration of shareholders agreement Our law firm wanted to prevent tur- slips the real remuneration. and deliver copy of the act in which moil from port workers, so we sent • The employer could ob- shareholders approve the Concession to Callao’s Port two (2) of our labor serve the bargaining agree- Agreement; (iii) registry of powers of lawyers, specialists in human re- ment benefits executed be- attorney of legal representatives and sources management, during the 10 tween ENAPU and his unions. directors; (iv) delivery of perform- days term for workers to answer job The result was once again suc- ance bond of US$ 30,716,920.00; (v) offer letters, in order to explain them cessful: only 4 employees of all reimbursement procedure expenses and answer all queries and ques- the operative workers who had to Proinversion for an amount of tions regarding takeover and new accepted the offer job letters did US$ 1,255,013.70 (vi) negotiating labor conditions, and in turn such not sign their labor contracts. on the insurance for port operation, lawyer were receiving in return and civil responsibility and workers. in representation of APM Terminals 3. Timing for Takeover: Once again, Coordination with Proinversion was the employee’s acceptance letters. time was of the essence and takeo- crucial in order to perform all neces- These 10 days were very important ver was finally programmed for sary obligations for Closing Date. That in the takeover process, because we July 1st, even though the Conces- included permanent work meetings had our first contact with the port sion Agreement had set forth six- as to avoid observations in the docu- employees. In this sense, APM ty (60) days from Closing Date. mentation to be delivered at Closing Terminals acquired their trust, re- ENAPU and APM Terminals had Date, as well as a pre Closing-Date assuring them the commitment of to make all necessary coordina- the Concessionaire in not affecting tion’s for the transfer of the op- Advice on the takeover of the any right they might have had pre- eration without affecting port ac-operation viously by working with ENAPU. tivities during the transfer process, A joint conference summoned by and also had to comply with some1. Hiring of Operative Workers: Proin- ENAPU and APM Terminals was legal obligations that would allow version provided APM Terminals a very helpful and important for con- APM Terminals to operate normal- list of ENAPU operative employees vincing the remaining employees ly. Some of the most important ac-
Deals Latin Infrastructure Quarterly 17 tions taken by the Concessionaire Signing Date, the anchoring ground for the term for negotiation or direct dealing and needed for takeover included: traditional fishing vessels near Berths C shall not be less than six (6) months. Such and D should have been reorganized, so term shall be counted from the date in • Communication and ap- that the use of the area by such vessels which the party invoking the clause noti- proval of Tariffs for Stand- does not affect the operational capacity fies the request to initiate direct dealings ard and Special Services. of the North Terminal nor the Works ex- to the Ministry of Economy and Finance Communication and approval of ecution. As of Takeover date, ENAPU is in its capacity as the Coordinator of the Users Claim Regulations. executing a plan to remove from the areas State Coordination and Response System • Hiring of operative and white- such fishing vessels. in International Investment Disputes, collar personnel necessary to In case the parties, within the direct commence port operations, and What is the dispute resolution dealing term, did not settle the dispute or registering of labor contracts in mechanism set forth in the Concession uncertainty arose, they shall define it as a the Ministry of Labor. Agreement? technical or non-technical dispute or un- • Lease agreements with foreign certainty, as the case may be. personnel and migratory status The Concession Agreement has set Technical Disputes: Equity arbitra- before the Ministry of Labor. forth an arbitration procedure for any dis- tion, in which the arbitrators shall settle • Negotiation and entering of pute settlement or controversy that arises the dispute to the best of their knowledge agreements with all providers between parties. However, there is a spe- and belief. The dispute shall be settled and suppliers of goods and serv- cific procedure that must be followed be- through national arbitration, and regu- ices in the port. fore an arbitration even occurs: lations of the Arbitration Center of the • Negotiations with existing port Direct dealing, by petition of one of Lima Chamber of Commerce, regarding providers and suppliers that the parties to the other, stating the conflict anything not provided for in this Conces- wished to continue relations or any uncertainty that has juridical rel- sion Agreement, shall apply with APM Terminals. evance and may arise regarding the inter- Non-Technical Disputes: Arbitration • Coordination and negotiations pretation, execution, compliance and any at law, procedure by which the arbitrator with ENAPU and the Grantor aspect related to the existence, validity or shall settle in accordance with the applica- regarding takeover. effectiveness of the Concession Agree- ble Peruvian laws. The arbitration at law ment or its termination. may be national or international, depend-What are the main contractual obliga- The term for direct dealing for nation- ing on the amount of the controversy. Intions regarding the port operation of al arbitration shall be fifteen (15) Days that sense, when non-technical disputesthe grantor (e.g. dredging, coastal de- counted since the day in which one of the involve an amount that exceeds US$ 10fenses, navigational buoys)? parties informs the other in writing about 000,000.00 or its equivalent in domestic the existence of a dispute. currency, disputes will be settled by in- There are no key obligations of the Regarding international arbitration, ternational arbitration at law, through aGrantor regarding port operation, sinceresponsibility for the entire operation hasbeen transferred in concession to APMTerminals, including all goods of ENAPUrelated to the North Terminal and areas inwhich it operated. In that sense, the Con-cessionaire has the right to the exclusiveexecution and/or provision of any andall services that may be rendered withinthe North Terminal as from the Takeover.This must be done observing principlesestablished in our National Port Law, in-cluding free competition, neutrality andnon-discrimination principles, so that itshall not be able to behave in a way thataims at affecting the competition of portservices in Callao’s Port Terminal. There was one specific obligation bythe Grantor in which it guaranteed that on
18 Latin Infrastructure Quarterly Dealsprocedure followed in compliance with tled through arbitration at law by means tionally and irrevocably waived any dip-the Conciliation and Arbitration Rules of of a procedure conforming with the con- lomatic claim for controversies or con-the International Center for Settlement of ciliation and arbitration Regulations of flicts that may arise from the ConcessionInvestment Disputes. On the other hand, the Center of the Chamber of Commerce Agreement.for non-technical disputes in which the of Lima.involved amount is equal or less than Finally, it is worth mentioning thatUS$ 10 000,000,00 or its equivalent in the Concessionaire and its partners ordomestic currency, disputes shall be set- shareholders have expressly, uncondi-Miguel Roncerosmronceros@delmar-ugarte.comwww.delmar-ugarte.comPartner with Delmar Ugarte Abogados in Peru, holds an LL.M. de-gree from The London School of Economics, a JD from Pontificia Uni-versidad Catolica del Peru and specialized studies in infrastructureat The John F. Kennedy, School of Government (Harvard University).He focuses mainly on representing parties in the development and financ-ing of infrastructure projects in different sectors, including airports, ports, tollroads, oil and gas, telecommunications, electricity, among others. He is a Di-rector of the Finance Law Program at Universidad del Pacifico and a ProjectFinance professor at Universidad del Pacifico, Universidad ESAN and UPC.His relevant experience include representing the IADB, IFC, US-Exim Bank, K-Exim and SACE in a US$2.2 billion financing for an LNG project in Peru(“Dealof the Year” awards by Latin Finance, Project Finance International andLatin Lawyer); representing Odebrecht in a US$600 million financing for a toll-road (“Deal of the Year Award” byCG/LA Infrastructure - Most Innovative Infrastructure Financing Structure in Latin America); leading the externaladvisory of the Peruvian Government in the structuring of a US$650 million containers terminal’s concession inthe Callao Port (“Entrepreneurial Creativity” award) and advising the Peruvian Government in the drafting of thePublic-Private Partnerships laws. Mr. Ronceros has been name one of the leading attorneys in Peru in Financing and Projects by Chambers andPartners and by Which Lawyer and in Public Procurement by Who’s Who. He was also recognized by Latin Lawyeras one of the top twenty lawyers in Peru under the age of forty.
P20 Latin Infrastructure Quarterly Deals ublic rivate artnership in Chilean HospitalsA new market in development I n Chile, the application of the Public Private Partnership (PPP) model was initiated in 1996, with the approval of the General Law on Public Works Concessions. Since then, there have been numerous public works developed under the PPP model in such dis- tinct areas as airports, roads, ports, stadiums and prisons. These works exceed US$12 billion in investments and have changed the connectivity and productive capacity of the country. Chile is a recognized leader in LatAm in being conducive to business, invest- ment, and PPPs. Even more importantly, its consumers have developed a high standard of services in areas handled traditionally, and often inadequately, by the State. Beginning in 2000, several PPP initiatives were developed for Chilean hospitals, but most of them failed to reach completion for technical or political reasons; only Maipú and La Florida Hospitals, both of them located in Santiago de Chile, are now under construction. These projects are intended as general hospitals, each with nearly 400 beds, and with a total budget of over US$300 million. The PPP aspect of these projects extends to most of the non- clinical support services and leaves out the medical equipment and clinical operations. The projects were initiated in 2006, tendered, and awarded in 2009 to the Spanish company San José–Tecnocontrol. The process has been a real test for applying the PPP model to Chile´s public health sector, and so far it has been successful in terms of the design process, bidding and construction.
22 Latin Infrastructure Quarterly Deals The devastating earthquake of Febru- tion of the hospitals in its PPP portfolio, and probably the best option for the Gov-ary 27, 2010, highlighted the vulnerabili- yet no major advances in the field have ernment is to respond to these demandsty of the country´s hospital infrastructure, been observed since the change in govern- by the way of PPPs, as they will incorpo-which suffered major losses in its opera- ment a year and a half ago. The market`s rate quality standards of services and helptional healthcare capacity in more than 70 expectations and the Chilean population´s focus the work of managers and clinicianshospitals, with 25 of them rendered out complex healthcare needs are increasing, directly on the healthcare of users.of service or seriously damaged. As awhole, the healthcare network lost morethan 4,700 beds. This situation demon- Dr. Roberto Tapia Hidalgostrated the high obsolescence and vulner- firstname.lastname@example.org ability of Chile´s hospitals. http://concesionesensaludparachile.blogspot.com/ To date, the official portfolio of PPPhospital projects exceeds US$1.5 billion.Only one of these projects, the Antofa- The author has worked duringgasta Hospital, is in the prequalification the last 20 years in the areastage, with over 700 beds and more than of project management andUS$300 million of investment; it should public health in Chile and withcall for bids in September 2011. The various international agencies,rest of the projects include large, high- developing his professionalcomplexity hospitals located in Santiago, work in such areas as primarysuch as the Salvador-Geriatrico and Sot- health care, international co-ero del Rio Hospitals, each with more operation, and hospitals PPPs.than 700 beds, and the Felix Bulnes Hos- He has worked in both thepital, with 400 beds. Other, smaller hos- public and private sector andpitals are located in the areas stricken by has done extensive consultingthe earthquake, such as the Parral, Curico for the development of PPPs.and Cauquenes Hospitals. All of these In the public sector he wasprojects require architectural design as a in charge of the successfulprerequisite for being tendered. Addition- PPP development and tenderally, in recent months the government process of the Maipú and Lahas announced that new hospitals will be Florida Hospitals in Chilebuilt via PPP. These projects include morethan 4 new hospitals in the early stages His approach to the PPP ap-of study, and together they should exceed plication to health care sector is based on the ethical imperative forUS$700 million of investment. incorporating new ways of investing in LatAm development, aiming In all cases, given the local regulatory simultaneously for high technical and economic standards.requirements and bidding methods estab-lished by law for the country´s public-sector tenders, these projects will requirehighly competent local professional teamsto analyze the information provided bythe Chilean State and make the biddingprocess competitive. The Chilean PPPtender process establishes an iteration ofconsultation and construction for the tech-nical and economic contents of the tender,and the efficiency of each company in thisprocess is a key for the development of areal understanding of each project. The current Chilean Government facesa huge challenge in realizing the construc-
24 Latin Infrastructure Quarterly Airport Infrastructure in Brazil Fabiana Peixoto de Mello
Deals Latin Infrastructure Quarterly 25Brazil’s deficient airport infrastructure was not a major issue until the coun-try was awarded the 2014 World Cup and the 2016 Olympic Games, yet foryears it had impaired the blossoming of high-value-added industries. His-torically Brazil has been able to manufacture high-added-value products atlow costs, but the costs of shipping those products to Europe, Asia or NorthAmerica – which purchase 70% of Brazil´s exports and are only reachable bysea or air -- inhibit its competiveness. Many factors account for these costs,but the country´s airport infrastructure should take much of the blame.I nfraero, a company wholly owned by the Government of why. In Brazil, however, direct subsidization programs are like- Brazil, manages 67 Brazilian airports, only 11 of which ly to cause a very tough political discussion and to reinforce the are currently profitable. It uses cross-subsidy mecha- existing antagonism between regions, mainly the Northwest and nisms to support the network. The aviation agency Southwest. The country’s historically uneven wealth distribu- (ANAC) issued new regulation that will change cross tion and huge dimensions have ignited these feelings in the past,subsidy calculation (Res 180/11). Instead of setting different and it is not politically wise to stoke them.tiers of tariffs by passenger movement, as Infraero used to do, Brazilian investment capacity is exhausted and infrastruc-negative operational results will be set off with disproportionate ture investments can only be borne by tax increases. Taxationdistribution of the network´s commercial revenues. is already very high and increasing it will reduce the country’s Airports with higher operational results will have higher tar- competitiveness. Moreover, Brazilian regulations are unfriendlyiff increases. The challenge is that most airports have negative to private investment in airport infrastructure.operational results because they do not move enough passengers The Governors of the States of Rio de Janeiro and Minasto break even. Experts estimate that an airport needs to move Gerais are facing a lot of pressure to meet the deadlines for theabout 1.5 million per year to break even, but 66% of Brazil- Olympics and World Cup and are pushing for the total transferian airports move fewer than 1 million passengers per year, and of management of Rio de Janeiro/Tom Jobim and Confins air-24% move fewer than 450,000 passengers. ports to the private sector. The new regulation will increase the rigidity of the network President Dilma Roussef has raised the possibility of trans-and make it even more complicated to receive private invest- ferring the management of some airports to special purpose ve-ment into individual airports. The airports will only be viable as hicles in which Infraero would have minority participation, andparts of a whole. Hence, the privatization of airport infrastruc- then selling the Government’s majority equity in Infraero.ture currently under discussion will maintain 49% Infraero’s Official documents confirming these statements will notnetwork ownership. be unavailable until December 2011. But the recently created There are alternatives for making the network more flexible, Civil Aviation Secretary has just created two additional agen-including direct subsidies to unprofitable routes, as the Essen- cies named CONAERO and CAA and has taken measures totial Air Services (EAS) program in the U.S. and Public Service improve Infraero’s governance.Obligations (PSOs) in Europe do. CONAERO is a committee made up of representatives of the These programs bring transparency and make it very clear Agriculture Ministry, Defense Ministry, Revenue Ministry, De-what portion of the deficit is being borne by the taxpayer and velopment Ministry, Health Ministry, and the aviation agency.
26 Latin Infrastructure Quarterly Deals CAA is an airport operating authority that will oversee thedirection and operations of most important Brazilian airportswhich are expected to be privatized soon: Guarulhos (SP), Con-gonhas (SP), Galeão (RJ), Santos Dumont (RJ), Brasília (DF),and Confins (MG). The specific functions and responsibilities of each agencyare very unclear, particularly because Infraero itself will be theCAA and hence oversee direction of the companies in which ithas minority interest. The Civil Aviation Secretary measures to improve Infraero’sgovernance suggest that the Government may open the compa-ny’s capital in the future. The current privatization model developed by the BrazilianAviation Agency and used for the construction, operation, andexploitation of a new airport in the city of São Gonçalo do Ama-rante, in the State of Rio Grande do Norte, called ASGA. The existing airport in the city of Natal is also located inRio Grande do Norte and is only 11 kilometers away fromASGA. According to a study conducted by the IPEA (Institutode Pesquisa Econômica Aplicada, or Institute of Research in Ap-plied Economics), the capacity of the existing airport in Natal isabout to be exhausted considering the projections of passengerdemand. But according to ANAC’s information, dated February2011, the existing airport is not profitable, as the chart below to the Government of Argentina. The joint venture has alreadydemonstrates. stated that will proceed with aggressive bids in other Brazilian A joint venture of Corporación America and Engevix won airports’ privatizations and that it will seek Brazil’s Exim Bankthe bid for ASGA offering a 228.82% markup. The 8% return es- (BNDES) financing. Nonetheless, the result of the bid boughttimated by the joint venture is deemed impossibly high by other some time to the regulatory agencies in a sector that is facing acompetitors and some analysts. Corporacion America is known severe leadership and organizational crisis.for having defaulted its concession fees of Ezeiza Airport due Investors interested in the São Paulo airports’ bids are de- manding non-compete guarantees, such as the prohibition of construction of another airport to serve the congested metro-There are rumors that politan area of São Paulo. There are rumors that the Federal Government does not want to bid for a brand new airport in São Paulo because the State Government belongs to the oppo-the Federal Government sition. Numerous studies prove that São Paulo needs another airport, regardless of any improvements made to the existing ones. Investors’ requests may well suit Federal Government’sdoes not want to bid for a intentions, but they would be very detrimental to the city and the State. President Roussef’s special-purpose-vehicle model obligesbrand new airport in São the private investor to complete the necessary construction for increasing a given airport’s capacity. The problem is that Infrae- ro itself has not been able to complete the necessary constructionPaulo because the State for years, even though it had been given the resources to do so, mainly because of environmental and regulatory restrictions. The risk of not obtaining environmental and regulatory au-Government belongs to thorizations has jeopardized many energy projects in Brazil. Bidders have won the rights to develop projects only to face immense difficulties in getting the necessary licenses and hencethe opposition to honor their delivery obligations. According to the abovementioned study by the IPEA in 2010, the average processing time for an environmental license to start
Deals Latin Infrastructure Quarterly 27 With depreciation and interest (R$) Without depreciation and interest (R$) Activity Revenue (R$) Cost Result Cost Result Cargo handling fees 705.962 1.865.972 -1.160.010 1.347.463 -641.501 Non regulated fees (mainly 8.749.305 3.051.655 5.697.650 2.064.163 6.685.143 commercial fees) Domestic boarding fees 10.223.027 17.383.742 -7.160.715 11.442.416 -1.219.389 International boarding fees 1.443.684 1.243.722 199.962 815.731 627.954 Domestic Landing fees 987.505 13.451.201 -12.463.696 8.841.410 -7.853.905 International Landing Fees 953.941 1.656.211 -702.270 1.081.407 -127.466 Total 23.063.424 38.652.503 -15.589.079 25.592.590 -2.529.166building a project was 50 months. authorization only lasts for five years and can be revoked at any Recently the energy sector has developed a Pre-Tender Li- time. Nevertheless, their number has grown substantially andcense (Licença Prévia para Leilão) for projects, granted before the network is getting denser quickly in and around the cities ofthe tender. The winning bidder still has to pursue other envi- São Paulo and Rio de Janeiro.ronmental licenses after being granted the authorization for the Brazil does not lack the demand or resources for, nor theproject. There have been no discussions over implementing a overall interest in, improving its airport infrastructure. It lackssimilar license for airports. coordinated action oriented toward the long-term development Even though obtaining an environmental license involves of the country. No measure taken now will adequately preparea lengthy process, analysis of the difficulties Infraero faces to Brazil for the World Cup or Olympics Games. Brazil needscarry out its investments has been focused on its challenges strong leadership that understands the development challengeswith project management. In July, the Civil Aviation Secretary facing us and communicates them clearly to the population.has announced measures of improvement in this regard that in-clude the creation of a new business directorship to be filled byAugust. As the clock ticks and the debate over the best methods con- Brazil does not lacktinues, some players have decided to take action. In an effort to avoid a total fiasco and build the very mini-mum capacity for the events, keeping away from major regula-tory and environmental issues, Infraero has decided to build op-erational modules (Módulos Operacionais Provisórios) for theexisting terminals, sarcastically nicknamed “puxadinhos” (an- the demand or re-nexes) by the population. According to Infraero, these modules sources for, nor theare cheaper, less comfortable, but temporary. These modulesaugment the check-in, boarding, and deboarding areas, but donot increase the number of aprons and lanes. They will merelyincrease the area where passengers will have to wait too long forthe same number of flights. President Roussef has passed a law that loosens up procure- overall interest in,ment rules for all airports within a 350km radius of the World improving its airportCup host cities. Numerous entities and legal authorities havecriticized this law for facilitating corruption and abusive prac-tices in the Government’s procurement and for reducing thetransparency of public actions and expenses. Investors, on the other hand, are exploring less regulated op-portunities, such as private airports. The challenge is that private infrastructure.airports cannot be explored for commercial purposes, as their
28 Latin Infrastructure Quarterly Infrastructure FinancingMezzanine Finance for LatAm’s Infrastructure Mezzanine finance is an innovative and complex way to finance corporate expansion projects, ac- quisitions, recapitalizations, and leveraged buy- outs, as well as to structure refinancings. A mez- zanine financing can be structured in a number of ways, a versatility that facilitates its capacity to evolve with market conditions and adapt to meet particular financial needs of companies and projects. As Eduardo Farhat, a Principal at Dar- by Overseas Investments (Darby), the private eq- uity arm of Franklin Templeton Investments spe- cializing in emerging markets and an experienced player in mezzanine finance worldwide, says, “A well structured mezzanine transaction aligns all interests around the success of the project and provides all sides with a better deal, as it miti- gates risks from the investor side while avoidingPatricio Abal unnecessary dilution from the sponsors.”
Infranstructure Financing Latin Infrastructure Quarterly 29T hough many private sec- tor companies worldwide have utilized mezzanine finance to develop public infrastructure projects, theLatAm region has had limited experience– with a few important exceptions. Darbylaunched the Darby Latin America Mez-zanine Fund back in 1999 and the BrasilMezanino Infra-estrutura – FIP (BMI) in2007, and is apparently in the process ofclosing its Darby Latin America Mezza-nine Fund II after a number of years offundraising. EMP Latin America has be-gun investing its Central American Mez-zanine Infrastructure Fund (CAMIF), aswell, a development which infrastructureprofessionals are watching closely. This article will provide an overviewof mezzanine finance and the most com-mon issues surrounding it. It will thenaddress the characteristics and activity ofthe funds named above. Characteristics of mezzanine finance Mezzanine financing can be struc-tured in a number of ways to provide atailor-made solution based on the trans-action and the capital structure of thecompany receiving the financing. In fact,mezzanine finance is a collective term forhybrid forms of finance, as it has featuresof both debt and equity. It is important that companies consid-ering mezzanine finance understand thatthe return of the mezzanine providers,targeted at 20% in most cases, will be theaggregate of any or all of the following:the interest cash payment; the so-called“payable in kind” interest, which basicallymeans that the interest amount is added to