InfrastructureOpportunities

An Overview on the Logistics

Investments Program (PIL) for

International Investors

The OppOrTunITy: The Logistics Investment Program (PIL)

With a US$66bn pipeline of public-private partnerships in greenfield

and brownfield projects, Brazil has one of the world’s largest infrastructure

programs, the PIL. Opportunities are presented in

• Airports

• Highways

• Ports

• Railways.

Why to invest in Brazil’s infrastructure?• Huge domestic market - 200 million people

• Diversified industrial base

• One of the world’s largest commodities producer

• Large territory

• Gateway to South America

• Stable Democracy and Rule of Law

• Private sector-led: attractive Concessions and PPPs business models

For the next decades, Brazil will see an increasing demand on its

infrastructure matrix, particularly from a substantial rise in oil production, new

mining projects, agribusiness expansion due to emerging markets continuous

demand for commodities, coupled with increased market access for Brazilian

food products abroad.

In the past five years, the private sector has already invested approximately

US$200bn in Brazil’s infrastructure and further investments are still needed.

Brazil’s infrastructure offers investors an attractive opportunity to profit from

assets with:

• long lifespan

• reliable cash flow

• attractive yields

• protection against inflation

• low volatility

• uncorrelated returns

AIrpOrTs OPPOrTunITIes

Continuous economic growth, poverty reduction and the FIFA World Cup in

June 2014 delivered a significant legacy for Brazil’s airport sector. Brazil conceded

six important airports to the private sector, having as a direct result 16.7 million

passengers travelling around Brazil during the Cup while showcasing the country

as a well-prepared tourism destination for international travelers. The airport sector

presents a unique opportunity for international investors;

• Largest air transportation system in Latin America

• 10 out of the 20 busiest airports in the region.

• 109 million passengers in 2013; 90 million domestic passengers

• 12% traffic growth (CAGR - compounded annual growth rate) in the last decade

• 126 destinations served and 994,700 domestic flights and 138,900 international;

relatively small number compared to other continental countries.

• Airfreight within Brazil almost doubled between 2004 and 2013, to 408,620 tons.

• International air freight to and from Brazil expanded by 37.2% to 777,570 tons

Araras

Jundiaí

Caldas Novas

Ubatuba

Itanhaém

Porto Alegre

Florianópolis

Bragança Paulista

Salvador

Fortaleza

Campinas (Amarais)

Opportunities: With increasing demand and the upcoming Olympic

Games in 2016, new projects are already on track, also leveraging investments

opportunities on hangars, warehouses and equipment.

• 4 airports concessions; Fortaleza (US$600m), Salvador (US$1bn),

Florianópolis (US$360m) and Porto Alegre(US$830m), by the second

quarter of 2015

• 7 regional airports to be auctioned; Bragança Paulista, Campinas

(Amarais), Itanhaém, Jundiaí, Ubatuba, Araras and Caldas Novas

• civil aerodromes and regional concessions offered by state and municipal

governments

As an international hub, Brazil has open skies agreements with several countries including Bahrein, Canada, Chile, Hong Kong, Mexico, Qatar, Singapore, South Korea, the UAE and the USA and is negotiating with other partners including the EU.

Brazil is carrying out a further phase of major highway concessions to

meet growing demand. Road freight is the dominant transport mode in Brazil,

with an estimated annual revenue of US$5.3 billion. Brazil’s road network

stretches for 1.7 million kilometers, competing between cargo and passenger

transportation. Its concession model is consolidated, having been applied

since 1994, with 55 highways currently under concession to the private sector.

Brazil identified 15 highways as strategic transport corridors to be

auctioned to the private sector, totaling over 7,000km in extension and

representing an estimated investment of almost US$17 billion.

Those projects are mostly brownfield, focused on resurfacing and lane

widening. All are trunk roads linking production centers with ports. Winners

receive exclusive rights to operate those highways and are entitled to charge

tolls from road users, after concluding 10% of the works.

hIghwAys

Brazil offers competitive benefits for road concessions contracts:

• an extended lifespan (30 years as opposed to the more traditional 25-year contract period);

• attractive financing conditions (70% potential leverage at the Brazilian Development Bank’s and a 20-year financing term with a 5-year grace period);

• conservative sets of operational forecasts that allow concessionaires to be more efficient in capital and operational expenditure;

• competitive internal rates of return (IRRs).

Opportunities: Forthcoming auctions in 2015:• 460km stretch over highways BR-476, BR-153 and BR-282 from Lapa (state of Paraná) to the state line between Santa Catarina and Rio Grande do Sul; and a second branch (over highway BR-480) to Chapecó (state of Santa Catarina).

• 439km stretch over highway BR-364 from Jataí (state of Goiás) to BR-153 in the state of Minas Gerais.

• 704km stretch over highways BR-364 and BR-060 from Rondonópolis (state of Mato Grosso) to Goiânia (state of Goiás).

• 976km stretch over highway BR-163 from Sinop (state of Mato Grosso) to Itaituba

(state of Pará), gateway to the Amazon River transshipment station of Miritituba.

Forthcoming auctions in 2016:

• 199km stretch over highway BR-101 from Feira de Santana (state of Bahia) to Gandu (state of Bahia)

• 564km stretch over highway BR-101 from the state line between Paraíba and Pernambuco to the state line between Pernambuco and Alagoas; and a second branch (over highway BR-232) from Recife (state of Pernambuco) to Cruzeiro do Nordeste (state of Pernambuco)

• 305km stretch over highways BR-262 and BR-381 from Belo Horizonte (state of Minas Gerais) to the state line between Minas Gerais and Espírito Santo

• 357km stretch over highways BR-101, BR-493 and BR-456 from Ubatuba (state of São Paulo) to BR-040 in the state of Rio de Janeiro

• 455km stretch over highways BR-470 and BR-282 crossing the state of Santa Catarina to the Ports of Navegantes and Itajaí (state of Santa Catarina)

• 307km stretch over highway BR-280 from Porto União (state of Santa Catarina) to the Port of São Francisco do Sul (state of Santa Catarina)

• 220km stretch over highway BR-101 from Palhoça (state of Santa Catarina) to the state line between Santa Catarina and Rio Grande do Sul

• 581km stretch over highways BR-101, BR-116, BR-290 and BR-386 from Porto Alegre (state of Rio Grande do Sul) to Carazinho (state of Rio Grande do Sul), Camaquã (state of Rio Grande do Sul) and the state line between Rio Grande do Sul and Santa Catarina

• 249km stretch over highway BR-267 from Nova Alvorada do Sul (state of Mato Grosso do Sul) to Presidente Epitácio (state of São Paulo)

• 327km stretch over highway BR-262 from Campo Grande (state of Mato Grosso do Sul) to Três Lagoas (state of Mato Grosso do Sul)

• 806km stretch over highway BR-364 from Porto Velho (state of Rondônia) to Comodoro (state of Mato Grosso)

pOrTs

Brazil’s port infrastructure is set to receive an unprecedented flow of new

investment over the next five years, creating a unique window of opportunity

for international investors. The main drivers for that expansion are agriculture

and mining commodities such as soy beans and iron ore which are exported by

Brazilian ports.

Private sector companies are forecast to invest an estimated R$37.4 billion

in Brazil’s ports as a result of the PIL.

• approximately 95% of Brazil’s total trade in goods passes through the

nation’s ports

• amount of cargo handled by Brazil’s ports has increased by 63.1% from

570.8m tons in 2003 to 931.0m tons in 2013

• Brazil’s containerized trade has grown at an average annual rate of 10%

• Shipped Cargo is expected to reach over 2 billion tons by 2030 – 5.7%

growth per year

Opportunities: Together with the PIL, Brazil’s Port Act introduced in

2013 brings the following new opportunities for private investors:

New tenders for port zones in Public Ports

GROUP 1: 29 port areas

o 9 areas in the Port of Santos (SP)

o 4 areas in the Port of Vila do Conde (PA)

o 4 areas in the Port of Santarém (PA)

o 12 areas in the Ports of Belém, Miramar and Outeiro (PA)

GROUP 2: 21 port areas

o 1 area in the Port of São Sebastião (SP)

o 1 area in the Port of Manaus (AM)

o 1 area in the Port of Aratu (BA)

o 6 areas in the Port of Paranaguá (PR)

o 1 area in the Port of Santana (AP)

o 5 areas in the Port of Suape (PE)

o 1 area int the Port of São Francisco do Sul (SC)

o 2 areas in the Port of Itaqui (MA)

o 2 areas in the Port of Santos (SP)

o 1 area in the Port of Rio de Janeiro (RJ)

• New Private Terminals (TUPs): over 63 initiatives are already under way

and investors are invited to contact the Ports Ministry to propose new TUPs

at anytime.

• No restrictions on third-party cargo in Private Terminals (TUPs)

• Early contract renewal

• Dredging - US$2.4bn investment of in 20 public ports over the next 10

years.

• Short sea shipping and pilotage

rAIlwAys

Over the coming decade, Brazil’s railway sector will undergo a major

transformation. 3,000km of rail are being built under the Infrastructure Public

Investment Program (PAC) connecting the North and South regions as well as

building a corridor to the Northeast establishing major rail arteries to structure

network growth:

• North-South Line (Ferrovia Norte-Sul – FNS), with 4,155.6km when

complete

• West-East Interconnection Line (Ferrovia de Integração Oeste-Leste –

FIOL), with 1,527km

• Trans-Northeastern (Transnordestina), with 1,728km

Railway accounts for approximately 25% of Brazil’s goods freight transport,

transporting especially iron ore (over 70% of total rail freight), soybeans, corn

(maize), steel and other minerals and there are 28,190km of railway under

private management in Brazil.

There are 5 railway auctions scheduled to take place in the near future,

totaling over 7,000km in extension and representing an estimated investment of

almost US$23.5 billion (investment in completed auctions are estimated at US$

5.3 billion, totaling US$ 28.8 billion).

Forthcoming auctions:

• 2 stretches (totaling 1,430km) over the North-South Line (FNS); the first from Barcarena (state of Pará) to Açailândia (state of Maranhão) and the second from Palmas (state of Tocantins) to Anápolis (state of Goiás)

• 2 stretches (totaling 895km) over the North-South Line (FNS); the first from Anápolis (state of Goiás) to Estrela D’Oeste (state of São Paulo) and the second from Estrela D’Oeste to Três Lagoas (state of Mato Grosso do Sul)

• 1,140km stretch from Lucas do Rio Verde (state of Mato Grosso) to Miritituba (state of Pará)

• 572km stretch from Rio de Janeiro (state of Rio de Janeiro) to Vitória (state of Espírito Santo)

• 3,500km strech over the Brazilian side of the Bi-oceanic Railway

1. Capital market instruments, including Infrastructure Debentures

The Brazilian government has developed new capital market instruments to

incentivize financing for infrastructure, including by non-residents.

Infrastructure Debentures (Debêntures de Infraestrutura) were created in 2010 as a

specific form of debenture; essentially a ‘capex bond’ that also enables foreign investors

with a mechanism through which to provide financing for infrastructure investment

projects. For debentures in general, non-residents investors are exempt from corporate

income tax (Imposto de Renda – IR) and financial transactions tax (Imposto sobre

Operações Financeiras – IOF), if certain conditions are met.

A further gateway for non-resident investors is through investing in infrastructure-

linked investment funds (Fundos de Investimento em Direitos Creditórios – FIDCs).

Non-resident investors are also exempt from IR and IOF taxes for investments in funds

allocating at least 85% of the fund’s assets to Infrastructure Debentures.

For more information on investing in Brazil from a non-resident perspective, the

Brazilian Financial and Capital Markets Association (Anbima) has compiled the

following guide:

http://portal.anbima.com.br/informacoes-tecnicas/regulacao/guias/Documents/Non-resident_

Investors_Guide.pdf

Source: ‘Brazil’s economic and infrastructure investment opportunities’, Ministry of Finance, January 2014

fInAncIng

There are two main sources of infrastructure financing in Brazil: (1) financing on

the capital markets, including Infrastructure Debentures; and (2) credit lines from the

Brazilian Development Bank (BNDES).

MRE(MINISTRY OF EXTERNAL RELATIONS)

MPOG(MINISTRY OF PLANNING, MANAGEMENT AND BUDGET)

APExBRAsil(BRAZILIAN TRADE AND INVESTMENT PROMOTION AGENCY)

Track RecordsIn just a two-year window, the PIL has already successfully delivered 48

infrastructure projects to the private sector.

• 6 international airports auctioned to the private sector (Natal-São Gonçalo do Amarante, São Paulo-Guarulhos, the busiest airport in Latin America by passenger traffic, Rio de Janeiro-Galeão, Brasília-Juscelino Kubistchek, Belo Horizonte-Confins and Campinas-Viracopos)

• 6 highways auctioned to the private sector, totaling 4,872km: 5 highways and 1 major toll bridge (Rio-Niteroi) have already been successfully auctioned and will generate an estimated US$11.1 billion in new investment over the 30-year contract duration period.

• 36 private port terminal (TUP) projects approved

gOvernmenT suPPOrT

More information can be found at MRE website. www.brasilexport.gov.brContact MRE at www.brasilexport.gov.br/ask-brasil-export

More information can be found at MPOG website: www.planejamento.gov.br

More information can be found at Apex-Brasil website. www.apexbrasil.com.brContact Apex-Brasil at investinbrasil@apexbrasil.com.br

2. Brazilian Development Bank (BNDES) credit for infrastructure

The Brazilian Development Bank (BNDES) is currently the largest financing

partner for infrastructure projects in Brazil. BNDES provides corporate finance

(company loans) and project finance (finances a specific project and not the

company at large by providing loans to a special purpose vehicle – SPV –

constituted to execute the project). Foreign firms are eligible to apply for BNDES

financing, as well as companies controlled by Brazilian capital.

BNDES can provide loans covering up to 70% of the total value of projects for

airports, highways and ports, and up to 90% for railways. Part of BNDES financing

can be offered at a competitive interest rate called the Long-Term Interest Rate

(Taxa de Juros de Longo Prazo, abbreviated ‘TJLP’), while the remaining portion of

BNDES finance is provided at market rates.

To learn more about BNDES financing, please visit www.bndes.gov.br

SBN, Quadra 2, Lote 11 Edifício Apex-Brasil – Brasília-DF CEP 70040-020+55 61 3426-0202

apexbrasil@apexbrasil.com.br

www.apexbrasil.com.br