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 1 BNDES Main Figures 2 Infrastructure Perspectives 3 Modalities of Financing 4 Infrastructure Division 5 Logistics Investment Program 6 Concluding Remarks

Brazilian Development Bank Highlights Founded on June 20th, 1952 100% state-owned company under private law Main provider of long-term financing in Brazil Key instrument for implementation of Federal Government s industrial and infrastructure policies Support micro, small and medium-sized companies Emphasis on financing investment projects, but also supports Export and Internationalization of Brazilian companies

Disbursements by Business Sector BNDES Total Disbursement (R$ bn) 137.4 168.4 139.7 156.0 190.4 40.0 47.1 52.3 64.9 92.2

BNDES s Interest rate Financial Cost + Basic Spread + Credit Risk Rate Financial Intermediation Rate + Direct Operations Banks Credit Risk Rate Indirect Operations Financial Cost = Long-Term Interest Rate (TJLP) or Consumer Price Index (IPCA) or US dollar or foreign currencies basket (Funding cost) BNDES Basic Spread = from 0% to 3.0% per year (Margin to cover operational and administrative expenses) Credit Risk Rate = from 0.40% to 2.87% per year (Margin to cover non-performing loans) Financial Intermediation Rate = 0.5% to large companies and 0% to micro, small and medium sized companies

AGENDA 1 BNDES Main Figures 2 Infrastructure Perspectives 3 Modalities of Financing 4 Infrastructure Division 5 Logistics Investment Program 6 Concluding Remarks

Investments will reach at least US$ 1.9 trillion in coming 4 years Investment Outlook for Brazil (2013-16) (U$ billion - Constant prices) Sectors 2008-2011 2013-2016 Δ (%) CAGR % Industry 434,4 529,7 21,9 4,0 Infrastructure 184,1 250,8 36,2 6,4 Housing 305,6 394,9 29,2 5,2 Agriculture and Services 589,2 776,1 31,7 5,7 Total 1.513,3 1.951,5 29,0 5,2 Source: BNDES (*) Note : The BNDES research on the investment outlook for 2013-2016 covers 66% of the total industrial investments, and 100% of investments in infrastructure, totalizing about 58% of the investments in the economy (excluding residential construction). Agriculture and Services investments are based on queries to Sectorial entities and/or econometric forecast.

Investments in logistics will increase 123% in coming 4 years Sectors 2008-2011 2013-2016 (US$ Billion) Δ(%) Infrastructure 184,1 250,8 36,2 Electricity* 82,2 85,1 3,6 Power Generation 52,5 57,2 9,0 Transmissio 6,9 13,6 97,1 Distribution 22,8 14,4-36,8 Telecommunications 43,5 52,2 20,1 Sanitation 17,4 21,7 24,9 Highways 20,5 35,2 71,8 Railways 14,0 39,4 182,6 Ports 5,0 12,5 150,1 Airports 1,7 4,7 170,9 Logistics 41,2 91,9 123,0 Logística * It represents an expansion 44.5 80,4 GW of power capacity 179,2 and 23,600 Km Transmission 123,0 Lines Source: BNDES

AGENDA 1 BNDES Main Figures 2 Infrastructure Perspectives 3 Modalities of Financing 4 Infrastructure Division 5 Logistics Investment Program 6 Concluding Remarks

Project Finance Modality Project Finance - Financing a specific project, not the company s business as a whole. Segregate the project costs, revenues and risks in a Special Proposed Company (SPC). Requirements of a Project Finance: Creation of a Special Proposed Company (SPC); Different collaterals between the implementation and operational phases; Pledge of all future revenues to the loan providers, pledge of SPC shares, escrow accout; Project cash flow has to support the loan installments - Debt Cover Ratio (DCR) has to be greater or equal to 1.20.

BNDES and the Project Bond Possibility to add a public Bond to the Project s sources; The Bond can be issued on the SPC or on a holding company, which controls the SPC, in this case the funds from the bond should be incorporated to the project as equity. If the holding company is not listed in the stock market, it should sign a commitment to go public at Bovespa (São Paulo Stock Market) through an IPO (Initial Public Offering).

Project Finance: the Corporate Structure Brazilian Infrastructure Bonds and infrastructure investment funds benefits for non-resident investors: (i) zero Income Tax rate (ii) zero IOF (Financial Operation Tax) Bond Equity Holding Bond Equity SPC 1 SPC 2 SPC N GovernmentBanks canco-investwithstrategicandfinancial investors, eitherdirectlyin the SPC s or through the holding company s equity, taking minority equity stake Source: BNDES

AGENDA 1 BNDES Main Figures 2 Infrastructure Perspectives 3 Modalities of Financing 4 Infrastructure Division 5 Logistics Investment Program 6 Concluding Remarks

Infrastructure Division Understanding BNDES structure BNDES Infrastructure Division comprises only part of the segments usually known as Infrastructure Industrial Division Telecommunication Social Infrastructure Division Urban mobility Infrastructure Division Electric Power Industry Oil and Gas Sanitation Renewable Energy Transportation and Logistics

Infrastructure Division Annual Disbursement Eletric Power Industry Breakdown Infrastructure Division Performance R$ billion Generation Transmission Distribution 34% p.a 13 12 14 17 19 Energy Power Industry Forecast 8 50 6 Transportation and Logistics 40 44 2 28 33 25 2006 2007 2008 2009 2010 2011 2012 2013 19 16 15 Transportation and Logistics Breakdown 7 9 3 40% p.a 9 2006 2008 2010 2012 2014E 2016E Railroads Toll roads Ports Airports Others 1 1 1 3 2006 2007 2008 2009 2010 2011 2012 2013 3 5 7

Infrastructure Division: Transportation and Logistics Annual Disbursement Warehouses 2% Air Transportation 0% Armazéns Transporte aéreo Aeroportos Airports 40% Dutos Navegação Portos Rodovias Pipeline Transportation Ferrovias 4% Disbursements % 2013 Railways 17% Ports 12% Navigation 1% Highways 24% R$ Billions CAGR: 32,3% CAGR: 37,1% 12,0 9,5 7,5 17,0 22,0 0,4 0,6 0,9 0,9 1,9 1,0 3,6 3,9 5,1 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Forecast

Infrastructure Division Approvals between 2003 and 1st semester of 2013 Transportation and Logistics Sector Installed Capacity Number of Projects BNDES Credit Line R$ 000 Total Investment R$ 000 Highways 5,064 km 40 14,792,293 26,635,253 Railways 2,237 km, 15,212 wagons and 227 locomotives 28 14,096,989 30,211,077 Ports, Terminals and Warehouses 107,429,148 tons/annum 48 7,547,282 15,101,869 Airports 57 MM pax/annum 11 3,630,718 8,060,049 Shipping Industry 223 Ships 31 2,496,449 3,071,277 Pipeline 1,331 km 1 1,902,700 8,690,000 TOTAL 158 44,466,431 91,769,525

AGENDA 1 BNDES Main Figures 2 Infrastructure Perspectives 3 Modalities of Financing 4 Infrastructure Division 5 Logistics Investment Program 6 Concluding Remarks

Logistics Investment Program Highways (1/2) A snapshot of the brazilian road network 18,000 Private Roads (Km) 60 Private Roads 16,000 14,000 Concessionaires 50 12,000 40 Federal 10,000 8,000 30 4,774 km 31% 69% States 10,680 km 6,000 20 4,000 2,000 10 0,000 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 PIL will increase the current network toll road by near 50% 9 road stretches Totaling 7 thousand km Estimated investment US$ 23 bn

Logistics Investment Program Highways (2/2) Main Regulatory Aspects Duplication works should take place within five years. The EPL - Logistics and Planning Company (a state-owned company) is responsible for obtaining environmental license for duplication and improvement works. Toll charging will be authorized after the completion of 10% of duplication works. Road Concessions up to 2013 (ongoing feasibility studies) Next Road Concessions Stretch BR-050 (GO/MG) BR-060/153/262 (DF/GO/MG) Tariff discount Bidders Km CAPEX (US$ bn) 42,4% 8 436.6 1.15 52,0% 5 1,176.5 3.05 BR-163 (MT) 52,0% 7 850.9 2.35 BR-163 (MS) 52,7% 6 847.2 4.35 Stretch CAPEX (US$ bn) BR-262 (ES/MG) 0.85 BR-101 (BA) 1.80 BR-153 (GO/TO)/TO-080 2.40 BR-116 (MG) 2.50 Total 7.55 BR-040 (MG/GO/DF) 61,1% 8 936.8 3.35 Total 4,248.0 14.25

Logistics Investment Program Railways (1/2) Current railway network 12 Concessionaires (28,314 km) Cargo Volumes ALL (4 stretches) Vale (4 stretches) Transnordestina MRS 1,674 4,207 10,283 11,738 182 203 221 232 258 271 244 278 291 298 76% iron ore billion tonne-km Others (2 stretches) 412 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Logistics Investment Program 11 thousand km railway concession 12 railway stretches 35-year term Estimated investment: US$ 45.5 bn Segregation of the system into: (1) the infrastructure manager and (2) the rolling stock operator

Logistics Investment Program Railways (2/2) The railway network:

Logistics Investment Program Airports (1/2) Total passenger movement in 2012-193 million. Infraero (state-owned company) - responsible for the maintenance, operation and investment of 67* airports that accounted for 97% of the Brazil total passenger traffic. Societary Structure A B C Private shareholders SPC INFRAERO 51% Concessionaire 49% 1st Round (2012) Passenger (Million) Winning bid (R$ billion) Premium over the Minimum Bid Expected investment (R$ billion) Concession Term (years) GUARULHOS (SP) 32.8 16.2 374% 5.2 20 VIRACOPOS (SP) 8.9 3.82 160% 8.7 30 BRASÍLIA (DF) 15.9 4.51 673% 2.8 25 * Before the auction of Guarulhos, Brasília, Viracopos, Confins and Galeão.

Logistics Investment Program Airports (2/2) 1 Concession of the two of the major international airports 2nd Round (2013) Passenger (Million) Winning bid (R$ billion) Premium over the Minimum Bid Expected investment (R$ billion) Concession Term (years) GALEÃO (RJ) 17.5 19.0 294% 2.8 25 CONFINS (MG) 10.4 1.82 66% 1.8 30 2 Investment in Regional Airports - US$ 3.6 billion in 270 regional airports. Strengthen and restructuring of Brazil's regional aviation network. Regional airports will be managed through administrative PPP. 3 Authorization for private airports dedicated exclusively to general aviation.

Financing Infrastructure Loan conditions Financial Conditions Logistics Investment Program Sector Grace Period (up to - years) Loan Tenure (years) BNDES Credit* * Financial Cost Spread (% p.a) Toll Roads 5 25 70% 2.0 Airports 6 months after the 20 70% 0.9 + Risk rate TJLP conclusion of the 5.0% p.a Ports project up to 20 65% 2.5 Railroads 5 30 70% 1.0 * Limited to DSCR 1.2

Brazilian air transport sector Air passenger demand 200 150 100 50 0 71 10 82 11 96 102 13 12 Dom 111 113 13 13 61 71 83 90 98 100 128 13 115 155 16 139 180 18 162 2003 2004 2005 2006 2007 2008 2009 2010 2011 * World CAGR in 2003-2010 was 4,8%. Int CAGR: 12,2% Domestic travels have increased faster than international travels. The passenger to population ratio has more than doubled in less than a decade although it s still less than a third of the ratio of mature markets.

Concession of São Gonçalo do Amarante São Gonçalo do Amarante Airport - RN Objective: concession of the new international airport in Rio Grande do Norte, 18 km from Natal; Investments: US$ 353 MM, including passenger terminal, cargo, equipment, basic infrastructure etc.

Concessions of Guarulhos, Viracopos & Brasília Guarulhos International Airport Project: Renovation and expansion of the Guarulhos International Airport (SP): The busiest airport in Latin America Period of concession: 20 years Estimated investment: US$ 3.7 bn Traffic Traffic in 2013: 36 million pax 23.5 MM Domestic Passengers (65%) 12.5 MM International Passengers (35%) Passenger traffic increased 11% per year, in the last 20 years Estimated traffic in 2031: 54 million pax

Concessions of Guarulhos, Viracopos & Brasília Viracopos Airport Project: renovation and expansion of the Viracopos Airport (Campinas - SP): We expect a strong growth for the next 30 years: it will be the largest cargo airport in Brazil Period of concession: 30 years Estimated investment: US$ 6.8 bn Traffic Traffic in 2013: 9.3 million pax 9.23 MM Domestic Passengers (99%) 0.07 MM International Passengers (1%) Passenger traffic increased 40.6% per year, in the last 8 years Estimated traffic in 2041: 90 million pax

Concessions of Guarulhos, Viracopos & Brasília Brasília International Airport Project: Renovation and expansion of the Brasília International Airport (DF): It s already an important hub for domestic flights (40% of domestic passengers are connecting passengers) and it has potential to become a hub for international flights as well Period of concession: 25 years Estimated investment: US$ 2.1 bn Traffic Traffic in 2013: 16.6 million pax 16.2 MM Domestic Passengers (97%) 0.4 MM International Passengers (3%) Passenger traffic increased 7.8% per year, in the last 8 years Estimated traffic in 2037: 50 million pax

Concessions of Galeão & Confins Galeão International Airport Project: Renovation and expansion of the Galeão International Airport in Rio de Janeiro (RJ): The 2nd international gateway of Brazil Period of concession: 25 years Estimated investment: US$ 2.56 bn Traffic Traffic in 2013: 17.1 million pax 12.9 MM Domestic Passengers (75%) 4.2 MM International Passengers (25%) Passenger traffic increased 10.6% per year, in the last 8 years Estimated traffic in 2039: 60 million pax

Concessions of Galeão & Confins Confins Airport Project: Renovation and expansion of the Confins Airport in Belo Horizonte (MG): The 5th busiest Brazilian airport Period of concession: 30 years Estimated investment: US$ 1.54 bn Traffic Traffic in 2013: 10.3 million pax 9.9 MM Domestic Passengers (96%) 0.4 MM International Passengers (4%) Passenger traffic increased 20.1% per year, in the last 8 years Estimated traffic in 2044: 43 million pax

AGENDA 1 BNDES Main Figures 2 Infrastructure Perspectives 3 Modalities of Financing 4 Infrastructure Division 5 Logistics Investment Program 6 Concluding Remarks

Concluding remarks Brazilian growth will be led mainly by infrastructure investments; Infrastructure pipeline: low risk and long term attractive yield opportunities; Government financial institutions, like BNDES, will retain a role in financing Brazilian development; Investment financing requires new private players and investors, using project finance and capital market instruments, led by private financial agents.

Claudia Cristina de Campos Manager of the Logistics Department claudiacampos@bndes.gov.br