CHALLENGES FOR THE INFRASTRUCTURE DEVELOPMENT IN BRAZIL

DYOGO HENRIQUE DE OLIVEIRA

Minister of Planning, Development and Management

2. Structural and Regulatory and Infrastructure Reforms

1. Economic Recovery and Fiscal Consolidation

SUMMARY

3. Concessions in Infrastructure

1. Economic Recovery and Fiscal Consolidation

ECONOMIC RECOVERY

Structural ReformsImprovement of the

business environment

Public-Private Partnership

Resuming Paralyzed Infrastructure Works

ECONOMIC GROWTH

UPGRADE INFRASTRUCTURE IS NECESSARY FOR:

• Reduction of logistic costs

• Reduction of service gap

• Productivity increase

ECONOMIC GROWTH

• Demand expansion

• Reduction of unemployment ratePOVERTY ALLEVIATION

• Value added to local economy

• Spatial and economic integration

• Promote manufacture and services integration

REGIONAL DEVELOMPENT

5,90%

4,31%

5,91%6,50%

5,84% 5,91%

6,41%

10,67%

6,29%

4,03%

4,30% 4,25% 4,25%

0,0%

2,0%

4,0%

6,0%

8,0%

10,0%

12,0%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017* 2018* 2019* 2020*

IPCA

Source: IBGE(Brazilian Institute of Geography and Statistics) e BCB (Central Bank of Brazil).

BRAZIL HAS SUCEEDED TO SET INFLATION PATH TOWARDS ITS TARGET

INFL

ATI

ON

(%

p.y

.)

Mar/2017 – 12-months IPCA: +4.57%

2017-2020* Projection of Market Expectation: BCB/Focus, April 28, 2017

489523

259

0

100

200

300

400

500

600

abr/

06

ou

t/0

6

abr/

07

ou

t/0

7

abr/

08

ou

t/0

8

abr/

09

ou

t/0

9

abr/

10

ou

t/1

0

abr/

11

ou

t/1

1

abr/

12

ou

t/1

2

abr/

13

ou

t/1

3

abr/

14

ou

t/1

4

abr/

15

ou

t/1

5

abr/

16

ou

t/1

6

abr/

17

EMB

i+ B

RA

SIL

(sp

read

b.p

.)

FOREIGN CONFIDENCE ABOUT BRAZILIAN FUNDAMENTALS HAS RISEN

Source: Bloomberg, JPMorgan. *Position 04/28/2017

Investment Grade S&P and Fitch Period

240 (average Apr/2008 - Sep/2015)

35.000

40.000

45.000

50.000

55.000

60.000

65.000

70.000

75.000

Source: Bloomberg - April 17, 2017 - 11:00 AM

Bo

vesp

a In

dex

(p

oin

ts)

VALUE OF BRAZILIAN COMPANIES PRECEDES THE ECONOMIC RETAKEN

Empresa 28/04/2017 26/01/2016 Variação

Ibovespa (IBOV) 65.071 37.497 73,5%

Petrobras (PETR3) 14,54 5,96 144,0%

Vale do Rio Doce (VALE3) 27,52 8,61 219,6%

Banco do Brasil (BBAS3) 32,61 12,28 165,5%

Eletrobras (ELET3) 17,39 4,88 256,4%

Fonte: Bloomberg. Cotação de 28/04/2017 às 11:06 horas.

04/28/2017 01/26/2016 Chg. %

2017 FIRST QUARTER FORSEES THE END OF 8 QUARTERS RECESSION

0,3%

-0,8%

-2,4%

-1,8%

-0,9%

-1,9%

-0,6% -0,4% -0,3%

1,3%0,7%

3,8%

1,9%

-6,0%

-5,0%

-4,0%

-3,0%

-2,0%

-1,0%

0,0%

1,0%

2,0%

3,0%

4,0%

5,0%

IV - 2014 I - 2015 II - 2015 III - 2015 IV - 2015 I - 2016 II - 2016 III - 2016 IV - 2016 I - 2017

IBC-Br* PIM PMC* PMS*

Q / Q-1 (chg.%) - seasonally adjusted data

Source: IBGE and BCB. Note: *Data until February. 1st quarter = Jan-Feb average.

Ind

eb

ted

nes

s *

of

Fam

ilie

s%

Of

Cu

mu

lati

ve In

com

e in

12

Mo

nth

s

* Indebtedness = ratio between the current value of the debts of families with the National Financial System and the household income accumulated in the last twelve months.

Source: Brazilian Central Bank - BCB

HOUSEHOLD INDEBTEDNESS IS FALLING

Total Indebtedness

Real Estate Loans

Other Loans25,1

27,5 28,8 30,6 31,1 30,6 29,4 27,9 25,8 23,6 23,4

4,15,0

6,6

8,810,8 13,0 15,5 18,0

18,818,6 18,429,3

32,535,4

39,441,8

43,6 45,0 45,944,6

42,1 41,8

0,0

10,0

20,0

30,0

40,0

50,0

60,0

dez/07 dez/08 dez/09 dez/10 dez/11 dez/12 dez/13 dez/14 dez/15 dez/16 fev/17

De

fau

t*%

Of

Tota

l Fre

e C

red

it o

f co

mp

anie

s

De

fau

lt*

% O

fTo

tal I

nd

ivid

ual

Cre

dit

Percentage of the credit portfolio of the National Financial System with less than one installment with arrears greater than 90 days.

Source: Brazilian Central Bank - BCB

CREDIT DELINQUENCY RATES STARTED DECREASING

3,49

3,24

5,42 5,59

6,956,90

5,30

6,22

5,89

5,0

5,5

6,0

6,5

7,0

7,5

2,5

3,0

3,5

4,0

4,5

5,0

5,5

6,0

mar/12 set/12 mar/13 set/13 mar/14 set/14 mar/15 set/15 mar/16 set/16 mar/17

2. Structural, Regulatory and Infrastructure Legal Framework Reforms

New Fiscal regime: Constitutional Amendment 95/2016 of the

Public Expenditure Cap.

Extension through 2023 of the Delinked Federal Revenues

(DRU).

Social Security Reform towards a balanced, sustainable and

demographic updated system.

Labor Reform, with legal framework modernization,

strengthening Labor Collective Agreements.

STRUCTURAL REFORMS

TAMING PUBLIC EXPENDITURE IS THE MAIN GOAL OF NEW FISCAL REGIME

Source: Brazilian Treasury. * 2017 = Extemporaneous Revenue and Expenses Evaluation Report for March, 2017.

Ce

ntr

al G

ove

rnm

en

t P

rim

ary

Exp

en

dit

ure

as %

of

GD

P

14,0%

14,8%14,6%

14,8%

15,6%15,9%

15,1%15,6%

16,4%16,8% 16,9%

16,2%

17,3%

18,2%

16,7% 16,9%17,3%

18,0%

19,3%

19,8%

19,1%

13%

14%

15%

16%

17%

18%

19%

20%

21%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

AND SOCIAL SECURITY REFORM IS NECESSARY

Source: Brazilian Treasury.

Social Se

curity Syste

m R

even

ue

and

Expe

nd

iture

12

-m A

ccum

.Figure

s–

as % o

f GD

P

Soci

al S

ecu

rity

Sys

tem

Def

icit

12

-m A

ccu

m.F

igu

res–

as %

of

GD

P

Deficit

Expenditure

Revenue

-1,55%

-2,55%

5,2%

5,7%

6,7%

8,2%

5,0%

5,5%

6,0%

6,5%

7,0%

7,5%

8,0%

8,5%

-4,0%

-3,5%

-3,0%

-2,5%

-2,0%

-1,5%

-1,0%

-0,5%

0,0%

SOCIAL SECURITY EXPENDITURE SCENARIO WITHOUT REFORMSo

cial

Se

curi

ty S

yste

m E

xpe

nd

itu

re (

as %

of

GD

P)

Regulation improvements in the Natural Gas Industry, reducing

Petrobras Market Share.

Law for Investments in Existing Concessions in infrastructure,

authorizing for renewing concessions before expiration. (R$ 20 bi in

railway)

Law on Land Regularization, legalizing land appropriation.

Unitization of Oil Fields, ruling oil fields that are found beyond

auctioned boundaries.

Revision of Local Content for Oil Fields Policy, rationalizing

requirements for the next auctions.

REGULATORY AND INFRASTRUCTURE LEGAL FRAMEWORK

Creation of a new Long Term Interest Rate (TLP), fostering long term credit

concessions, increasing the monetary policy effectiveness and reducing public

expenditure with interest equalization policies.

Gradual Reduction of the Additional Fine of FGTS (10%), reducing the employment

cost for business.

Distribution of the FGTS’s Net Income, making this Fund more profitable and

incentivizing domestic saving.

Withdrawal from FGTS’s Inactive Accounts until Dec 2015, unfreezing important

economic funding.

Use of FGTS for real estate debts on delay up to 12 months and to Purchase Real

Estate up to R$ 1.5 million, fostering the real estate market.

BUSINESS ENVIRONMENT IMPROVEMENT

Regulatory Framework of Expropriation/Eminent Domain, reducing the timeline.

New regulatory framework for telecommunications, updating regulatory framework, focused

in a competitive market and more investments in broadband.

Improvements in Regulatory Framework for Mining, with the creation of a new regulation

agency.

Fewer constraints for foreign investments in rural properties.

Environmental Licensing, differentiating processes considering complexity of projects.

Simplification and agility of concessions and PPPs, especially small ones.

THE GOVERNMENT IS DISCUSSING NEW INITIATIVES

3. Concessions in Infrastructure

Expansion of the Investment Partnership Program (PPI)

Investments of R$ 45 billion in 55 projects in the areas of

transportation, energy and 15 new state / municipal

sanitation projects

Will be auctions, concessions and other operations to

encourage private initiative to create and improve the

infrastructure in the Country

More predictability with clear and defined calendar and rules

Potential to generate 200 thousand jobs

INVESTMENT PARTNERSHIP PROGRAM – PPI – SECOND STAGE

R$ 45 billion 55 projects

HIGHLIGHTS – PROJETO CRESCER

AIRPORTS

Auction of 4 airports: Fortaleza, Salvador,

Porto Alegre and Florianópolis

HIGHWAYS

Concession of the road section BR 101-RS. Auction

scheduled for November 2017.

BR-364/365 auction scheduled for December 2017

OIL AND GAS

4th round of marginal oil fields scheduled for

May 2017.

14th round of exploratory oil and gas blocks.

.

PORTS

Auction of 3 port leases scheduled for March and

April 2017 (two fuel terminals in Santarém and

one grain terminal in Rio de Janeiro)

DISTRIBUTION OF INVESTMENTS - R$ 45 BILLION IN 55 PROJECTS

ENERGY = 12.7 BILLION

35 of electric power transmission lines

RAILROADS = 25.0 BILLION

5 railroads already granted enter the process of early

renewal of the contract in exchange for investments:

MRS grid (which passes through Minas Gerais, Rio de

Janeiro and São Paulo), Carajás Railroad (Pará and

Maranhão), Vitória-Minas Railroad and FCA (Midwest

and Southeast), as well as ALL - Malha Paulista.

HIGHWAYS = 6.0 BILLION

Concession of BR-101, in Santa Catarina, and

studies with a view to conducting new bids for

three highways: Nova Dutra, CRT and Concer.

PORTS = 1.3 BILLION

Public port terminals - extensions of existing

contracts and concessions of new areas in

Santana (PA), Itaqui (MA) and Paranaguá (PR)

ports. In addition to the extensions of contracts in

the ports of Santos (SP), Vila do Conde (PA) and

Niterói (RJ).

DISTRIBUTION OF INVESTMENTS - R$ 45 BILLION IN 55 PROJECTS

SANITATION INVESTMENTS

3 projects for the concession of water distribution,

sewage collection and treatment services were

approved by the PPI for qualification;

BNDES has launched 6 procedures for the

contracting of specialized technical services for the

structuring of partnership contracts.

• Petrobras’ participation as operator is no long an obligation - Law 13.365/2016

National Council for Energy Policy (CNPE):• Definition about the conditions of local content.

Upcoming auctions in 2017:• 4th bidding round, in granting land ripe fields (marginal deposits) in the mode of Common Concession;

• 2nd round of sharing regime, with the pre-salt polygon unitizable areas;

• 14th round of Bidding in the mode of Common Concession.

• 3rd round of sharing regime. Will be offered the prospects of Pau Brazil and Peroba in the Santos basin and Alto de Cabo Frio-Cabo Frio

and Upper West-Central, within the limits of the Santos and Campos basins;

Upcoming auctions in 2018:• 4th round of sharing regime planned for may 2018.

• Should be assessed the prospects of Saturn, Três Marias and Uirapuru, in the Santos basin, and the exploration blocks C-M-537, C-M-C-M, 655-657, and

C-M-709, located in the Campos Basin;

• 15th round of bidding for blocks, in the mode of Concession• Should be selected blocks of the maritime basins of Amazonas River(SFZA sectors-AP1, AP2, T and AR2), Ceará (SCE-AP2 AP3 and sectors) and Brazil

(sections SPOT-AP1, AP2 and AR2), of ultra-deep waters outside of the polygon of the pre-salt layer field basins (SC-AP4) and Santos (sector SS-AUP1),

and terrestrial basins of Paraná (SPAR-N sectors and CN) and Parnaíba (SPN and N sectors) In addition to blocks of land sectors of Sergipe-Alagoas

basin, Recôncavo, Brazil and Espirito Santo;

• 5th rounds of bidding for onshore fields mature, yet to be defined, scheduled for may 2018.

OIL AND GAS

Upcoming auctions in 2019:

• 5th round of sharing regime, scheduled for the second half of 2019.

• Should be assessed the prospects of Aram, Southeast of Lula, South and southwest of Jupiter and Boomerang, all

in the Santos basin;

• 16th round of bidding for blocks, in the mode of Common Concession, scheduled for the second half of 2019.

• Should be selected blocks Camamu-Almada basins (AP1 and AP2-SCAL sectors) and Jacuípe (JSA-AP) and ultra-

deep waters outside of the polygon of the pre-salt layer field basins (SC-Pa5) and Santos (SS-AUP5), and the

Solimões basins (SSOL-C) and Parecis (SPRC-L and sectors), and blocks of land sectors of Sergipe-Alagoas basin,

Recôncavo , Brazil and the Espirito Santo;

• 6th rounds of bidding for onshore fields mature, yet to be defined, scheduled for the second half of 2019.

OIL AND GAS

HYDROPOWER GENERATION

Power Plants – Brownfield projects

Power Plants (UHE) Capacity (MW)

Volta Grande 1,207

São Simão 1,710

Miranda 408

Jaguara 424

Concession Auction– September, 2017

Total amount estimated: R$ 12 Billions

FEDERAL GOVERNMENT SUPPORT TO MUNICIPALITIES CONCESSIONS

1. FUND

2. TECHNICAL ADVICE

3. STANDARDIZATION

OF DOCUMENTS

4. FINANCING 5. GUARANTEES

6. TECHNICAL TRAINING

7.SIMPLIFICATIONOF LEGISLATION

8. CONTRACTS REGULATION

FEDERAL GOVERNMENT SUPPORT

DYOGO HENRIQUE DE OLIVEIRA

Minister of Planning, Development and Management

THANK YOU!