Project Finance in Latin America

Public-Private Partnerships for Infrastructure

Development in Middle Income Countries: the

experiences of Chile and Peru

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Patricio Mansilla

Chemonics International Inc.

Wharton Finance Conference

November 5, 2010

Agenda

1. Chilean Institutional Framework for PPPs in infrastructure

2. Key elements to facilitate PPP financing in Chile

3. Peruvian Institutional Framework for PPPs in infrastructure

4. Key elements to facilitate PPP financing in Peru

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1. Chilean Institutional Framework

for PPPs in Infrastructure

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4

Chile: Project cycle and

institutional structure

Chilean PPP Results: Investment

Type of Project Investment (US$ Million)

Interurban Roads 3,800

Urban Roads 2,500

Airports 350

Dams 140

Public Buildings 110

Jails 200

Railways 466

Ports 260

Total 8,000

Chilean PPP Results: Revenues

Ministry Revenues (US$ Million)

Ministry of Public Works 428

Ministry of Transport (Ports) 294

Total 722

Cost of PPP

Project Development

7.79.3

8.2

8.1

19.2

10.1

9.3

15

8.2

13.8

14.6

0

5

10

15

20

25

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Mil

lio

n $

1.8% of Total Investment

2.5 % Including Land Acquisition

Chilean PPP Results: Summary

Summary (US$ Million)

Investment 8,000

Revenues 722

Cost of Project Development 250

2. Key Elements to Facilitate PPP

Financing in Chile

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DISTINCTIVE

ELEMENTS

EXPLICIT

GUARANTEE

DESIGNS

PROPER

RISK

ALLOCATION

Time

Revenues

T

Long Term Minimum

Revenue Guarantee

ACTUAL

REVENUES

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DISTINCTIVE

ELEMENTS

EXPLICIT

GUARANTEE

DESIGNS

PROPER

RISK

ALLOCATION

Time

Revenues

P

ACTUAL

REVENUES

GOV. PAYMENT

TO

CONCESSION

Long Term Minimum

Revenue Guarantee

12Time (years)

Revenues

P

Actual

Revenues

50% Gov.

50% Conces

IMG

Revenue Sharing Mechanism

Rutas delPacífico S.A.

Sociedad Concesionaria

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Santiago- Valparaíso Highway

(Toll Road US$3 for 100 km)

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Rutas delPacífico S.A.

Sociedad Concesionaria

We put your savings in this road to

grow your pension fund

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PPP Projects Operating in Chile

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PPP Projects Operating in Chile

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URBAN ROADSChili

FIRST

URBAN

CONCESSION

PROGRAM

SANTIAGO

AMÉRICO

VESPUCIO

SUR

COSTANERA

NORTEKENNEDY

NORTE-SUR

GENERAL

VELÁSQUEZ

US$440

Mill.

US$270

Mill.

US$290

Mill.

AMÉRICO

VESPUCIO

NORTE

US$ 250 mill.

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Urban Road Concession: East-West

Urban SystemResults

•Investments: US$385 million

•Length: 42 kilometers

•Reduced gas emissions

•Reduced contamination

•Reduced congestion

•Reduced travel time from Las

Condes to the Santiago Airport

•Implementation of the “free flow” electronic toll road system which lets users

go through the road without stopping to pay tolls.

•The number of accidents in the road is very low—average of only 8 per month.

Costanera Norte

PPP Projects for 2010-2014

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Year Investment Million $

2010 500

2011 1.900

2012 1.400

2013 2.300

2014 1.900

Total 8.000

3. Peruvian Institutional Framework

for PPPs in Infrastructure

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TRANSPORT

MINISTRY AND

NATIONAL PORT

AUTHORITY

OSITRAN

Planning BiddingInvestment

and Operation

PROINVERSION

Regulation

•ENAPU

•PRIVATE COMPANIES

•CONCESSIONAIRIE

Peru: Project Cycle and

Institutional Structure

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USAID Successful PPP Program in

Peru

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Pucallpa

YurimaguasPaita

Lima

Economic Corridors facilitate new

business in Perú.

*IIRSA Norte

*IIRSA Central

*IIRSA Sur

*IIRSA Andino

Peruvian Economic Corridors

4. Key Elements to Facilitate PPP

Financing in Peru

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Shadow Rating and Credit

Enhancement• Additional credit enhancement (i.e. partial risk

guarantee) is needed to improve the credit/risk profile

of the debt issue and attract long term institutional

investors

• AFPs in Peru purchase only investment grade bonds.

Minimum AA- (pe)

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Amazon North Transaction Structure

MTC

Concessionaire

Special Purpose

Company (SPC)

Amazon North

Road Concession

Inter-American

Development

Bank

Bond

Issue

25 year

Concession

Contract

Trust

Road Improvements,

Rehabilitation ($220

m), and O&M

($15m/year)

Partial

Credit

Guarantee

Tolls

Domestic

Capital

Markets

MEF

Annual O&M

Payments

PAMO ($15 mill)15 annual

payments

PAO

($29 mill.)

PAMO / PAO

Coupon

Payments (i + p)

OSITRANRegulation

and

Supervision

($60 mill.)

CAF

Bridge Loan

US$60 million

IIRSA North Road

First PPP bond financing and Partial Credit Risk Guarantee (IADB)30

• A 25-year Concession Contract

to improve, rehabilitate, operate

and maintain 960 Km. of road

infrastructure between Paita

and Yurimaguas

• Initial investments:

– Phase I (years 1-2): US$ 95.0

million

– Phase II (years 2-4): US$

120.0 million

– TOTAL:

US$ 215 million

• Average annual O&M: US$

15.0 million

Estimated maximum

annual GOP

contributions

US$

Millions

Annual Payment for

Construction (PAO) for

10 years (end of year 2

through year 12)

US$ 29

Annual Payment for

Operation and

Maintenance (PAMO)

for 20 years

US$ 15

Selection criteria: the lowest

present value of the sum of the

PAO and PAMO payments

Project Description IIRSA North Road

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Facilitating Project Finance and Construction risk

• In lieu of strong toll revenues, the GOP compensates theconcessionaire for construction progress with annual paymentsPAO prorated to the advance of works

• The GOP issues Construction Progress Certificates (CRPAOs)through the Ministry of Transport (MTC)

• Each certificate evidences an unconditional and irrevocableobligation of the GOP to make a fixed payment in U.S. dollars

• The concession agreement provides that CRPAOs are freelytransferable and that once generated they are not subject to anycondition or performance obligation relating the concessionagreement

• The concessionaire raised $214 million through the securitizationof CRPAOs in the international capital markets

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Amazon North Financing

IDB PR

Guarantee

Source: FITCH Ratings

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Facilitating Project Finance and Mitigating

Construction risk

• Bond holders do not take construction risk

• If construction fails to advance on schedule or isabandoned completely for whatever reason, CRPAOswould never be available for purchase, and thesecuritization would never be fully collateralized byCRPAOs

• This possibility does not create additional risk for note-holders, because in lieu of CRPAOs as collateral, thenotes will be backed by the CLN and a letter of credit,which together are expected to be sufficient to coveroutstanding obligations at all times

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a) Increase in Demand (Port moves

more than 1 million TEU per year

and serves 80% of Peruvian foreign

trade)

b) Overruns, low productivity and

technological change

c) Negative externalities

d) $800 million in investments required

in Peruvian ports

Callao Port

Selection Process

• Criteria 1: The lowest tariff index consisting of the followingrates:– Standard Ship Services: US$ 0.70 per meter of the Ship Length/hour

– Standard Cargo Services. 20’ container: US$90; 40’ container:US$135

• Criteria 2: Additional Complementary Investments (ACI) inCallao Port common areas

• Winning Bidder: P&O Dover / Dubai Ports International andUniport S.A.

• In addition, the concessionarie will pay 3% of the annualgross revenues to the National Port Authority and 1% to theTransport Investments Regulator (OSITRAN).

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Container Terminal- Callao Port

Many Thanks!

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