Infra k brazil infrastructure 30aug2010

Investing in infrastructure in Brazil

Market research

September 2010

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Content

• Macro-economics: Brazil, an attractive country

• The infrastructure sector in Brazil: an overall

2

perspective

• Specific investment opportunities in infrastructure

GDP: a growth economy

4,3

5,7

4,0

6,1

5,1

3,8

REAL GDP growth at 2009 prices and 2008-2050 forecastPercentage

Brazilian Real crisis and

Lula´s election

India 5,8%China 4,7%USA 2,4%

3

Brazil´́́́s growth story is forecasted to continue at a solid pace

4,3

1,3

2,7

1,1

3,24,0 3,8

2000 2001 2002 2003 2004 2005 2006 2007 2008 2008 -2050

Source: Banco Central do Brasil; PWC

Population: the key to sustained competitiveness

147159

171183 190

215

Brazil: populationMillions of inhabitants

5th most populated country in 2008 and 2050

4

One of the main advantages of the Brazilian economy is the high availability of labor resources which is predicted to remain stable in

the coming decades

1990 1995 2000 2005 2008 E 2050

Source: IBGE (Instituto Brasileiro de Geografia e Estatistica), United Nations

Brazil is one of the main FDI destination

•Brazil´́́́s economy is one of the main recipient of foreign direct

1,64

1,67

1,93

India

USA

China

AT Kearney 2010 FDI Confidence Index®Values calculated on a 0 to 3 scale

High confidenceLow confidence

Vs ranking 2009

=

5

foreign direct investment (FDI)

•Lately, the improvements in institutional credibility and regulatory framework are helping to increase FDI

1,32

1,32

1,32

1,33

1,35

1,43

1,53

UK

Canada

Mexico

Australia

Poland

Germany

Brazil

45 Bi. US$ inward inflow

in 2008

Source: AT Kearney; United Nations

Motorization rate: strongly increasing

174 185 196 207 216 228243

262285 311

Evolution of the motorization rate 2000-09Vehicles per 1.000 inhabitants

59 Millions of vehicles (x2 in 2000-09)

6

Strong increase in the motorization rate in the last decade, showing the fast modernization of the country

174

2000 2001 2002 2003 2004 2005 2006 2007 2008

Source: DENATRAN (Departamento Nacional de Transito; Ministerio das Cidades); IBGE; Infra-k analysis

2009

Brazil is a serious economic power

Population*

GDP**

Brazil Russia China India

Comparison of BRICs countries

•190 millions•1.4% growth rate

•142 millions•0.4% growth rate

•1,328 millions•0.6% growth rate

•1,148 millions•1.7% growth rate

•1,981 bi. USD•10,325 USD per capita

•5.8% growth


•9.2% growth


•13.4% growth


•10.2% growth

7

Brazil, as one of the largest of the world´́́́s developing economies, will play a relevant role in the global economy

Source: KPMG and Infra-k analysis

Trade balance

FDI

•5.8% growth •9.2% growth •13.4% growth •10.2% growth

• Imports / exports: 223 / 226 bi. USD

•45 billion USD in 2008

* Population in 2008; growth rate in the period 1998-2008** Nominal GDP in billion USD at PPP; GDP per capita in USD at PPP; GDP annual growth in the period 1998-2008 in USD at PPP


• Imports / exports: 1,233 / 1,580 bi. USD





Content


• The infrastructure sector in Brazil: an

8

overall perspective


Brazil is moving forward in PPPs (1/2)

Stage 3

Stage 2

High

Sophistication

UKAustralia

IrelandNetherlands Spain

FranceCanada

USJapan

Germany

Greece

Portugal

New ZealandItaly

Marketdevelopment curve

9

Brazil is still in the Stage 1 but remains as one of the countries with the

most activity at this stage

Source: Deloitte

Stage 1

Low

HighLow Activity

ChinaIndiaSlovakiaLatviaRussia

HungaryCzech RepublicBulgariaCroatia PolandAlbania

Belgium South Africa

DenmarkMexico

FinlandBrazil

GermanyPortugal

Brazil is moving forward in PPPs (2/2)

Selection of some countries at different stage of development of PPPs

LEGEND

012

3

4

Discussions ongoingProjects in procurementMany procured projects, some projects closedSubstantial number of closed projectsSubstantial number of closed projects, majority of them in operations

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UK

Australia

4

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2

4

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4

4

4

3

4

3

4

1

4

1

4

2

4

3

4

4

10

Brazil has made progresses in PPPs, specially in railways,

roads and ports, but there is still room for improvement

Source: PWC and Infra-k analysis

Australia

Spain

Canada

Mexico

Brazil

1

1

1

-

-

4

1

-

1

0

1

-

-

-

-

1

-

-

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2

2

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4

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3

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4

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3

Forecasted investments in infrastructure

• Investments in basic infrastructure are expected to soar:

−Ports: +203%22

3916

29

235

14

33

Railways

Roads

Ports199

274

Forecasted investments in infrastructureBrazilian R$ Billions

+37%

11

−Ports: +203%

−Roads: +45%

−Railways: +82%

−Sanitation: +77%

Source: APE/BNDES; GT Investimento

6892

66

67

22

2005-2009 2010-2013

Energy

Telecom

Sanitation

PAC: Government Accelerated Growth Programme (1/2)

34%

12%

16%

Expectations for PAC1 2007-09 Projects completed under PAC1 2007-09

Transportation Transportation

Social and urban

12

Expectations for PAC1 were quite high but the real execution of projects

has been well below the targets

Source: Financial Times; Federal Government/Contas Abertas; National Treasury; Ministry of Finance

45%

56%28%

TotalR$504 Bi.

TotalR$257 Bi.

Energy Energy

Social and urban

PAC: Government Accelerated Growth Programme (2/2)

Expectations for

6,8%4,7%

4,1%

5,0%

7,5%

1,3%

4,6%

Expectations for PAC2 2011-14

Project1

HighwaysRailways

Other energy

Logistics

Transportation

Energy

Social and urban

Health, education

Subsidized home loan programme

Urbanisation of favelas

13

Expectations for

PAC2 are much

more aggressive

Source: Financial Times; Federal Government/Contas Abertas; National Treasury; Ministry of Finance

3,2%

18,4%29,8%

14,6%

TotalR$959 Bi.

Electricity infrastructure

Oil and natural gas

Mortgage finance

of favelas

Infrastructure finance perspectives

State-owned banks

Private banks

Main institutions

•BNDES•Banco do Brasil•Caixa Economica Federal

•Itaú Unibanco•Santander•Bradesco

Infrastructure financing role

•BNDES (National development bank) is the main provider of long term financing for any infra project

•Limited participation so far (co-financing with BNDES)

•Market starting to develop

14

Capital markets (both equity and debt) are at a very incipient stage, but they are starting to grow given the huge amount of capital needed to

fund the large pipeline of projects

Source: Infra-k analysis

banks •Bradesco

Private equity houses

•Axxon•Carlyle•Santander•Franklin Templeton

•Market starting to develop

•First infra funds launched•Equity financing plays a very important role

Content


• The infrastructure sector in Brazil: an overall

15

perspective


Attractiveness of the different infrastructure sub-sectors

Airports

Railways

• Few PPP projects

Types of projects

• International operators

Main players

• Select the right business opportunity and be a partner to Infraero

Key success factors

• Very large PPP opportunities • Large consortia of specailized operators and OEMs with local construction companies

• Local partners selection

16

Roads

Energy

Stadiums

• Few PPP projects but profitable and already developed model

• Local and international specialized operators

• Tender bidding skills• M&A capabilities to acquiere

current operators

• Few and large projects in generation

• PPP opportunities in trasnmission

• Local and international specialized players

• Local partners selection

• Many projects but profitable model still to be defined

• Local construction and real estate players

• Find a profitable business model

Main investment opportunities (1/2)

Airports

Project

• Passeger terminal expansion of the Confins international airport in Belo Horizonte (MG)• Passenger Terminal 3 and runways in Sao Paulo international airport / Guarulhos (SP)• New traffic control tower and passenger terminal in Sao Paulo airport / Congonhas (SP)• Expansion of Rio de Janeiro international airport / Galeao (RJ)• Runway expansion in Porto Alegre international airport• Passenger terminal expansion in Brasilia international airport (DF)• Passenger terminal expansion and new runway in Manaus international airport (AM)• Passenger terminal expansion in Fortaleza international airport (CE)

Estimated investment R$ Millions

• 216• 1,370• 300• 688• 122• 439• 794• 525

• High speed railway Sao Paulo - Rio de Janeiro• Airport Express Railway from Sao Paulo downtown to SP Intl. Airport / Guarulhos (SP)

• 34,600• 1,440

17

Railways

• Airport Express Railway from Sao Paulo downtown to SP Intl. Airport / Guarulhos (SP)• Rio de Janeiro subway (RJ)• Curitiba subway (PR)• Centralized system of fees collection in Sao Paulo metropolitan area (smart card) (SP)• Transcatarinense railway (SC)• South SP Railway ring (Ferroanel Sul) (SP)• Litoranea railway (SC)• North-South railway – 2,258 km on North and Central region• Transnordetina railway – 1,728 km of railways on Northeast region

• 1,440• 1,150• 2,000• 220• 1,000• 333• 954• 6,400• 4,500

Roads

• Rodoanel Sao Paulo (SP ringroad) – East part (SP)• Rodoanel Sao Paulo (SP ringroad) – North part (SP)• ERS 010. Progresso highway. Porto Alegre (RG)• Federal roadways concession program: BR-116 Minas Gerais, BR-381 Belo Horizonte,

BR-040 Brasilia• Road privatization in Minas Gerais. 13 packages (MG)

• 1,750• 1,600• 4,500• N.A.

• N.A.

Main investment opportunities (2/2)

FIFA World Cup stadiums

Project

• Mané Garrincha Stadium – Brasilia (DF)• Verdao stadium – Cuiabá (MT)• Arena da baixada Stadium – Curitiba (PR)• Castelao Stadium – Fortaleza (CE)• Vivaldao Stadium – Manaus (AM)• Dunas Stadium – Natal (RN)• Beira Rio Stadium – Porto Alegre (RS)• Arena Sao Lourenço – Recife (PE)• Maracaná Stadium – Rio de Janeiro (RJ)• Fonte Nova Stadium – Salvador (BA)• Morumbi Stadium – Sao Paulo (SP)

Estimated investment R$ Millions

• 600• 430• 138• 400• 580• 301• 130• 500• 430• 550• 250

18

• Morumbi Stadium – Sao Paulo (SP)• Joaquim Americo Guimaraes Stadium – Curitiba (PR)

• 250• 204

Energy

• Santo Antonio hydroelectric power plant – 1st plant of the Madeira complex (3,150 MW)• Jirau hydroelectric power plant – 2nd plant of the Madeira complex (3,300 MW)• Belo monte hydroelectric power plant (5,681 MW)• Angra 3 nuclear power plant (11,181 MW)• Madeira transmission system• Interconnection North-Northeast

• 5,200• 5,000• 3,000• 7,000• 521• 279

Other projects

• Sao Paulo water and sewage company expansion – PPP projects• Santa Catarina Logistics hub (several ports)• Multimodal Tiete Paraná hydroway (alcohol pipeline)• Datacenter for Banco do Brasil and Caixa Economica Federal – Brasilia (DF)• Porto Maravilha project (RJ)• Canoas Prison Complex • Petrolina irrigation project

• N.A.• 400• 1,400• 262• 4,560• 2,800• 474

FIFA 2014 and Rio Olympics 2016 impact

FIFA World Cup 2014

•Projects coordinated by each of the12 host cities states & municipal governments

•Federal government involved in major infrastructure areas

• Investments to build and reformstadiums around US$5.7 billions

•Estimated number of tourists duringthe event: 500,000

Rio Olympics Games 2016

•The project is coordinated byFederal, State and City governments as well as by theBrazilian Olympic Committeethrough the Rio 2016 OrganizingCommittee but most of the effortsand decision power concentrated at the City level

•11 permanent and 4 temporary

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Brazil will host the world´́́́s 2 premier sporting events in a time span of 2 years

the event: 500,000•Commercial air traffic should doubleuntil 2014

•Large investments in hotels, portsand airports

•11 permanent and 4 temporaryinstallations to be built

•A bus rapid transport system to beimplemented as well as a modernisation of the subway

•Regeneration of Rio´s historic portarea

•+15% increase in tourism expected

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Infra k brazil infrastructure 30aug2010