North American Development Bank (NADB)

Border Environment Cooperation Commission (BECC)

April 2014

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Issues for Discussion

1. Update on Project Activities

2. Progress on Port-of-Entry Study

3. The Future of NADB – Options for a General Capital Increase; and the case for NADB-BECC institutional merger

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Established in 1994 to develop and finance infrastructure projects that protect, preserve and enhance the environment and promote sustainable development along the U.S.-Mexico border.

The Bank provides financing to projects located within 100 km north and 300 km south of the border that have been certified by the Border Environment Cooperation Commission (BECC).

Overview

Mandate Ownership Structure NADB is 100% owned by the United

States and Mexican Governments in equal shares.

50% 50%

USA MEXICO

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NADB and BECC share a ten-member Board of Directors, with an equal number of representatives from the U.S. and Mexico.

U.S. Members Mexico Members

Secretary of the Treasury Secretary of Finance and Public Credit (SHCP)*

Secretary of State Secretary of Foreign Affairs (SRE)

Administrator of the Environmental Protection Agency

Secretary of the Environment and Natural Resources (SEMARNAT)

U.S. Border State Representative Mexican Border State Representative

U.S. Border Public Representative Mexican Border Public Representative

*Current chair; chairmanship rotates annually between U.S. and Mexico.

Overview

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Loans Grant AdministrationTechnical Assistance

and Training Market-rate lending Financing up to 85% of project cost

with terms as long as 25 years in dollars and pesos

Focus on financial feasibility of the projects (credit & risk analysis, payment source and structure, and credit support)

BECC and NADB technical assistance grants and training programs for project development and institutional strengthening of borrowers or potential borrowers

Product Portfolio

Eligible Sectors

Water, Wastewater & Storm Drainage

Solid, Industrial & Hazardous Waste Air Quality

Clean/Renewable Energy Energy Efficiency

Water supply, treatment and distribution

Wastewater collection, treatment and reuse

Water conservation Storm drainage

Sanitary landfills Collection & disposal

equipment Dumpsite closure Recycling Site remediation Toxic waste disposal

Street paving and roadway improvements

Ports of entry Public transportation Emissions reduction

Solar Wind Biofuels Methane capture Waste-to-energy Hydro Geothermal

Public lighting Building retrofits Equipment

replacement Water utilities

Grants allow NADB to expand the pool of eligible borrowers in border municipalities where debt financing options are often limited EPA-funded Border Environment

Infrastructure Fund (BEIF) NADB-funded Community

Assistance Program (CAP)

Overview

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Jurisdiction Projects eligible to receive BECC-NADB financing must be located within 100 kilometers north

and within 300 kilometers south of the U.S.-Mexico border (the “border region”).

Geographic Jurisdiction

U.S. Border: 37 counties in four states Population: 9.6 million

(3.1% of U.S. population)

Mexican Border: 213 municipalities in six states Population: 16.6 million

(14.8% of Mexican population)

Population within JurisdictionMexico

State PopulationBaja California 3,155,070Chihuahua 3,094,944Coahuila 1,832,232Nuevo Leon 4,610,918Sonora 1,650,527Tamaulipas 2,243,135

Total 16,586,826United States

State Population

Arizona 1,354,780California 5,459,482New Mexico 268,736Texas 2,559,239

Total 9,642,237

Source: U.S. Census Bureau, 2010 census Source: INEGI, 2010 census

Overview

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Operating Environment

The ten states of the U.S.-Mexico border comprise a vibrant economic region with a GDP of almost US$5 trillion.1

Trade of goods between the U.S. and Mexico reached over $500 billion in 2013, which represents an increase of about 118% since 2002. Of this trade, surface trade (land modes) accounts for over 86% of total trade.2

Mexico’s economy grew at 2.2.% in 2013, and is expected to grow at 3.0% in 2014, and 3.5% in 2015. In the U.S., growth is expected at 2.8% for 2014 before rising to 3% in 2015.3

Rapid demographic growth continues to impact the region, with the population projected to grow at rates exceeding anticipated national averages, in some cases by more than 40%. The border population is expected to increase by 4.6 million people by the year 2020.4

Mexico is projected to be the 7th largest economy by 20505

1 Colegio de la Frontera Norte, “Indicadores Prioritarios Transfronterizos,” 2010 estimate.2 Office of the United States Trade Representative.3 International Monetary Fund.4 EPA/SEMARNAT, “State of the Border Region: Indicators Report,” 1st edition (2011).5 PwC

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Operating Environment (continued)

Climate Change: A Driving Factor Reduction of greenhouse gas emissions has emerged as a central point of U.S.-

Mexico bilateral cooperation, as evidenced by the 2009 Bilateral Framework on Clean Energy and Climate Change, positioning the NADB as a project leader and expert in the border region.

Mexico’s General Law on Climate Change is one of the strongest national climate change laws to date, establishing reduction goals of 30% by 2020 and 50% by 2050.

Impact on border:

Several cities in the NADB region in Mexico are considering implementation of modern mass-transit systems, particularly Bus Rapid Transit, which may be subsidized by the federal program, FONADIN, and require capital and debt components for project implementation.

Paving and the construction of thoroughfares to improve traffic flows will continue to generate potential projects in Mexico in the coming years.

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Operating Environment (continued)

Clean/Renewable Energy and Energy Efficiency United States: Renewable Portfolio Standard requirements and the extension of

federal PTCs, coupled with the resource potential for solar and wind energy in the border region, will continue to drive renewable energy growth for the coming years, despite the termination of some fiscal incentives.

Mexico:

Mexico’s electricity needs areexpected to grow 5.2% annually, with even higher rates in certain population centers. 1

With grid parity in Mexico, the 2008 Law for Renewable Energy, and the continued downward trend in costsper megawatt for wind and solar energy, important growth is expectedin the NADB’s region.

1 Instituto Nacional de Ecología

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Operating Environment (continued)

Water and Wastewater The water stressed conditions in the

border region will generate demand for substantial investments in water supply, water efficiency, and wastewater reuse projects in urban and rural areas.

These investments will be in addition to those driven by projected population growth in the region.

Diminishing grant funds to subsidize water/wastewater infrastructure will compel communities to finance needed improvements with debt.

BECC estimates current basic infrastructure needs in the border region at over US$8.6 billion.

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19 new projects certified by BECC ✓ Water: 2 drinking water, 5 wastewater and 1 storm drainage

✓ Air quality: 1 paving and 1 basic urban infrastructure project

✓ Clean Energy: 7 solar energy, 1 wind energy and 1 landfill gas-to-energy

US$359.7 million in new financing contracted✓ US$349.9 million in loans for 11 projects

✓ US$9.8 million in grants for 9 water/wastewater projects & 1 storm drainage project

US$232.9 million in funding disbursed to 28 projects✓ US$215.0 million in loans

2013 Results

✓ US$17.9 million in grants

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Annual Financing ActivityAs of February 28, 2014

Breakdown of Annual Grant & Loan Activity

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Cumulative FinancingAs of February 28, 2014

US$2.22 billion contracted to support 192 projects representing an investment of more than US$5.67 billion

✓ US$1.53 billion in loans ✓ US$0.69 billion in grants

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Project OutcomesAs of December 31, 2013

US$1.98 billion disbursed to support 175 projects

Of the 192 certified projects financed by NADB to date:✓ 140 – have been fully implemented✓ 41 – are in various stages of construction✓ 11 – are at the bidding or design stage✓ 1 – has been cancelled

These projects include…

✓ 22 WTP & 39 drinking water distribution systems

✓ 177,112 households with first-time/improved water services

✓ 58 WWTP & 94 WW collection systems

✓ 294,829 sewer connections to treatment systems that will prevent discharge of untreated sewage into rivers and streams

✓ Wastewater treatment coverage in Mexican border region increased about 27% to over 80%

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Project OutcomesAs of December 31, 2013

9.3 million square meters of dirt roads paved and 187 km of roadway improvements, resulting in better traffic circulation and reduced CO2 emissions

1 port of entry reducing idling times, fuel consumption and exhaust emissions

16 landfills built/expanded & 12 dumpsites closed

759.7 MW of new solar and wind energy capacity installed, which will contribute to the displacement of an estimated 1.5 million metric tons/yr. of CO2 emissions

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International Crossing Study

In the context of the U.S.-Mexico High-Level Economic Dialogue (HLED), the BECC-NADB Board adopted a resolution in November 2013 direct the Bank to support the two governments in mapping priority points-of-entry (POE) infrastructure projects and identifying potential financing structures for them.

General Scope: Gather and organize existing information on all international

crossings/bridges between Mexico and the U.S., as well as those currently being implemented and those proposed in the future.

Evaluate current financing mechanisms and identify new options. Create a permanent IT system for follow-up on the projects, which

would be the exclusive property of the two governments.

Funding: Equally funded by NADB and the Mexican Government, through FONADIN, US$300,000 each.

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International Crossing Study

Study Status: Two project managers, one from each country and experts in the

field, have been hired to oversee the procurement and performance of the study

Various binational and inter-agency meetings in Mexico City and Washington, D.C., both in person and by teleconference, have been held with the participating federal agencies, as well as other institutions and experts on border crossings.

The terms of reference of the study are under development and will be finalized in April.

Procurement is scheduled to begin April 15th, with contract award in May.

The study will be completed in October 2014

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General Capital Increase

Since 2009, NADB’s project financing has grown at an average annual rate of 40.2%, disbursing over $1.3 billion to support communities in the border region.

Over the past several years, NADB has made significant strides in diversifying the sectors in which it operates, and the borrowers to which it lends. The Bank has expanded its portfolio to include basic infrastructure other than water and renewable energy.

Due to its strong capitalization, NADB has maintained a high credit rating which has played a crucial role in its ability to access the capital markets at relatively low interest rates.

The benefit of those low rates has been transferred to project sponsors and hence to the development of environmental infrastructure.

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General Capital Increase

Due to significant growth in recent years, NADB’s capital adequacy ratios have deteriorated to the point of compromising future growth.

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General Capital Increase

As a result of the deterioration of its capital adequacy ratios, NADB’s credit rating was downgraded by S&P in 2012 and by Moody’s in 2014.

These credit rating downgrades have increased the interest rate at which NADB borrows funds.

A general capital increase in the near future is critical to:

Prevent a further increase in NADB’s cost of funding and, therefore, in the interest rates offered to project sponsors.

Preserve the Bank’s capacity to promote the development of environmental infrastructure.

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Completed Projects in 2013

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‘Los Alisos’Nogales, SON

‘Alcatraces’ Tijuana, BC

WWTP Playas de Rosarito, BC

San Luis RC, SON

El Centro Solar, CA

Ramona Solar, CA

Ocotillo Wind, CA

Rio Grande City, TX