Emerging Market and Infrastructure Projects in Brazil

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1 Emerging Market and Infrastructure Projects in Brazil October,

2 Brazil will receive the two most important sports events FIFA World Cup (2014) Olympic Games (2016) 2

3 Four scenarios for the external crisis Temporary turbulence Recurrent turbulence and instability Prolonged stagnation Double dip Source and Slides: presentation by GO Associados 3

4 Temporary turbulence GDP growth between 4 5% (Likelihood: 10%) 4 Source and Slides: GO Associados

5 Recurrent turbulence GDP growth falls to 3 4%(Likelihood: 35%) Source and Slides: GO Associados 5

6 Prolonged stagnation: Please read instructions for emergency landing GDP growth falls to 1 2% (Likelihood: 35%) Source and Slides: GO Associados 6

7 Double dip: Get ready for emergency landing Recession (Likelihood: 20%) Source and Slides: presentation by GO Associados 7

8 Factors that may disturb the Brazilian reaction to the crisis Intensity of the fall of commodities prices Difficulty of credit expansion for consumption Lack of space for fiscal expansion 8

9 Positive factors for Brazil Solidity of financial system Reserves Non-existence of a bubble Market and industry defense measures 9

10 Growth expectations Source: BCB 10

11 Current investment rate is not enough to sustain a GDP growth of 5%... Current investment rate Source: PASTORE, A. C.; PINOTTI, M. C.; PAGANO, T. A. Limites ao Crescimento Econômico 11

12 Investment in infrastructure is still low in Brazil Invest (% PIB) Investment (% GDP) Thailand Tailândia Vietnam Vietnã China China Chile Chile Colômbia Colombia IndiaÍndia Philippines Filipinas Brazil Brasil 2,03 3,6 7,3 6,2 5,8 5, ,9 15,4 Sources: Chile and Colômbia: World Bank (2005b); Vietnã, Tailand, Philippines and China: World Bank (2005a); Índia: Government of India (2007)Extracted from Frischtake (2009) 12

13 Investment needs in the next 5 years... 13

14 Public procurement law Federal Procurement Law applicable as general rules to all levels (except for special bidding rules for Petrobras and Eletrobras) Hire/purchase of any work or services above US$ ,00 mandatory public bidding Public bidding for works prior basic project 14

15 Public procurement law international bidding not mandatory (except for biddings funded by the World Bank, IDB Intl Development Bank, JICA Japan Intl Cooperation Agency) Prior experience certificates always required Services contracts limited to five years Turn key not allowed under public bidding law 15

16 Concession and PPPs Classic Concession: DBOT Tariffs charged from users PPP: Classic concession + public subsidies DFBOT + remuneration paid exclusively by the Government 16

17 World cup and Olympics procurement law Applicable to works defined by the Public Olympic Authority and the World Cup Commitee Strict Regime of PPP - Turn key/epc allowed: Basic project Executive project 17

18 Special Rules for major sports events Reversed auction public procurement: Major sports events Works of infrastructure and services in connection with airports within 350 km from any host city Aim at expediting works and services Reversed procedure - bidder offering best proposal (highest discount offered in relation to reference price) and bidders with proposals within a 10% range of the best proposal allowed to participate in the bidding phase Antitrust exemption for joint ventures (under consortium or special purpose company joint participation not subject to antitrust filing 18

19 Infrastructure investments - perspective by sector 250 Value (R$ Billions) Electric Energy Railways Highways Ports Airports Sport Events Total Source: GT do Investimento 19

Disbursements by sector (BNDES -2010) Navigation R$ 228

(6%) Highways R$ 1.051 million (7%) Hydoelectric R$ 6.

280 million Transmission R$ 1.319 million 9% Distributors R$ 1.

20 Disbursements by sector (BNDES -2010) Navigation R$ 228 million (1%) Harbors, Terminals and Storages R$ 859 million (6%) Highways R$ million (7%) Hydoelectric R$ million 41% Railways R$ million 8% R$ million Transmission R$ million 9% Distributors R$ million 9% Alternative Energy R$ million 10% Thermoelectric R$ million 9% 20

21 Five largest construction companies... Pi Companies Revenues Public Private (US$ x 1.000) Contracts Contracts Employees Norberto Odebrecht Camargo Corrêa Andrade Gutierrez Queiroz Galvão OAS

22 Portfolio of projects and opportunities Ports and airports Highways Health and Sanitation Public Transportation Railways Power 22

23 Infrastructure projects with BNDES finance Sector Number of Projects BNDES funding (R$ 10³) Total Investment (R$ 10³) Hydoelectric Highways Energy Transmission Wind Power Harbors, Terminals and Storages Energy Distribution Railways Nuclear Generation Thermoelectric Generation PCH Navigation Transporte Dutoviário Cogeneration Others Air Transport Energy Rationalization TOTAL Projects in all levels, hired through perspective. Position in 05/09/2011. Variable income projects excluded.

24 Brazilian sanitation deficiencies 105 million no access to wastewater collection Wastewater coverage fell from 59,3% in 2008 to 59,1% in million don t have access to bathrooms Brazilian situation is worst than Sudan s, East Timor s or Afeganistan s... 24

25 42% of solid waste collected has an inadequate end Dumps 18% Sanitary Landfills 58% Controled Landfills 24% Source: ABRELPE

26 Future infrastructure demand for cargo transportation Estimate need of investments R$ billions Total : R$ 291,95 bi Harbors 14% Highways 25% Railways 51% Pós Waterwaysa 5% Airports 4% Others 1% 26 Source: Ministério dos Transportes, Plano Nacional de Logística e Transportes, Revisão Model suposes a GDP growth of 3,3% yoy

27 Highway Diagnosis Insufficient levels of conservation and recovery Capacity deficit of the grid in developed regions Inadequate coverage in underdeveloped regions Majority of the states without concession programs or PPPs Urgent situation: 13 of the 20 main Brazilian airports are saturated and the other seven will be in less than 10 years 27

28 Airports in Brazil Brazil has 67 airports operated by INFRAERO -- 4 were recently privatized - Natal,São Paulo Intl Airport, Campinas, Brasilia the number of passengers rose from 71,2 mi in 2003 to 128,1 mi in 2009 less than 4% of the cargo is transported by air 28

29 Airport Investments Infraero is not able to finance the investments needed to overcome bottlenecks The main bottleneck in airports are: passenger terminals - 65% aircraft terrace - 20% runways - 15% 29

30 Ports Overview In Brazil, there are 37 public ports 3 ports operate under private concession model 42 private terminals 30

31 Ports productivity Brazilian harbors are very inefficient Responsible for 95% of Brazilian exports 31

32 Waterways The whole waterway grid transports only 13% of the country s cargo Brazil possesses km of navigable rivers and lakes, but only km for transportation,mostly in the Amazon region Low utilization of fluvial ports is deeply related to infrastructure problems 32

33 Waterways Investments The waterway sector should receive about R$ 60 bi in investments until 2022 so as to reach 23% in cargo transportation 33

34 Railways Excessive quantity of level crossings Lack of outlines in urban areas Lack of railways Gauge inadequacy 34

35 Railways - the Sector in Brazil Responsible for 20,7% of cargo transportation The extension of the railway grid is 30,784 km High costs and unavailability of routes are the main cause of the non-utilization of railways 35

36 Power Generation not in line with economic growth Hydros less and less areas which h may be drowned 36

37 Power Generation Even if there were available areas, the implementation of hydro plants is far too expensive Example: Three Gorges, China world s largest hydro, costed USD 22 billion and generates only 2% of China s energy demand 37

38 Power Generation Brazilian Government a stimulus program for renewables called PROINFA (Program for Incentives to Alternative Sources of Electrical Energy) 38

39 PROINFA Aiming at diversifying the energy matrix Tax and charge incentives SHPs Eligible for PROINFA n g f a c i l i Wind Farms Biomass-fired facilities But: local content requirements t for granting g loans too restritive i e s thermal 39

40 Solar Energy Brazil has two times Germany s insolation per m 2, the first generator of electricity it throughh solar systems Barrier to the increase of solar electricity - excessive requirements by lending banks, such as 10-year PPAs not feasible, as main consumers of solar electricity are shopping centers and industry, which h currently enter into PPAs with distributors for 5-year periods 40

41 Most investors in small hydro power plants are industry and self- generators and distributorsib willing to prevent black-outs Another stimulus to renewables was the Brazilian Government s popular housing program My Home, My Life, launched in 2011, mandatorily equipped with solar panels for heating water 41

42 Lack of Governmental planning and execution capacity leads to PPPPs some Brazilian equity funds are stepping in to invest in solar projects 42

43 Private Investments FUNDS are Investing P2Brasil was established by Pátria and Promon to manage private equity investments t in infrastructure t assets predominantly in Brazil. P2Brasil focuses mainly in the following infrastructure sectors: transportation and logistics; oil and gas; water, waste and related services; power distribution and transmission. Raised US$ 1.15 billion for investment in infrastructure t 43

44 Partners: Banco do Brasil; Banco Espírito Santo; Banco Santander; Banco Votarantim; BNDESPAR; Banco Bradesco; Citibank; Itaú/Unibanco e HSBC. Mission: Development of infrastructure projects of public interest and attractiveness for private investors Modus operandi: Proposes and develops the project to the Public Body at no cost and is reimbursed by winner of the public bid Expressions of Interest: Allows the private sector to structure projects to the publics sector 44

45 SÃO PAULO Alameda Santos, º, 10º, 11º e 12º andares Cerqueira César CEP São Paulo SP Brasil Tel +55 (11) Fax +55 (11) RIO DE JANEIRO Av. Almirante Barroso, 52 5º andar Centro CEP Rio de Janeiro RJ Brasil Tel +55 (21) Fax +55 (21) Cecilia Vidigal Monteiro de Barros ceciliavidigal@mfra.com.br 45

BNDES support to Infrastructure

BNDES support to Infrastructure 32th German-Brazilian Economy Meeting Hamburg, Germany September 1st, 2014 Claudia Cristina de Campos Manager of the Logistics Department - Infrastructure Division AGENDA