Brazil Infrastructure PAC 2 and Beyond. June 2010

Transcription

1 Brazil Infrastructure PAC 2 and Beyond June 2010

2 Infrastructure Highlights PAC Olympic Games Macroeconomic and Political Stability 2014 FIFA World Cup Continuous Growth in Brazil Pre-Salt Area Huge Infrastructure Bottlenecks 2

3 PAC 2 Original PAC launched in 2007 only 10% 40% of projects concluded In 2010, the Federal Government launched PAC 2, which estimates investments of approximately R$ 1,5 trillion (including some of the R$ 500 billion of PAC still pending) in the upcoming years Project Objective Areas of Focus Estimated Investment Better City Tackle the major challenges facing large urban areas to improve quality of life Sanitation, crime prevention in high-risk areas, urban mobility, paving US$ 31.3 billion Citizen Community Increase the availability of State services in poorer districts Emergency care units, basic health clinics, daycare and pre-school centers, school sports facilities, community police stations US$ 12.6 billion My House, My Life Reduce the housing deficit, stimulate the civil construction sector, and generate jobs and income Urbanization of informal settlements US$ billion Water and Light for All Provide general access to water and electricity Water supply in urban areas US$ 16.6 billion Energy & Logistics 3

4 PAC 2 Practical Consequences of projects included in the PAC-2 Priority in BNDES financing and other governmental benefits Planning improvement Priority in the analysis of environmental licenses Governmental task forces (public attorneys) Marketing / political instrument 4

5 2014 FIFA World Cup: Overview Investments needed in all of the 12 selected cities (Rio de Janeiro, São Paulo, Belo Horizonte, Porto Alegre, Curitiba, Brasília, Fortaleza, Salvador, Recife, Natal, Cuiabá and Manaus) Areas directly related to the 2014 World Cup: construction or improvement of the stadiums, as well as their proximities rental and disposal of equipment (for example: vehicles, medical devices, identification and detection equipment) accommodation and leisure activities to the athletes of the participant countries, for the press and for the audience public transportation (mass transportation as subways, bus rapid transit, trains and their required operational elements as avenues, bridges, among others) general services structures 5

6 2014 FIFA World Cup: PPPs - Stadiums PPPs in 5 out of 12 of the selected cities Main Lenders: BNDES and BNB PPP PPP PPP PPP PPP 6

7 2016 Olympic Games: Overview Areas directly related to the 2016 Olympic Games (to take place in Rio de Janeiro): construction or improvement of the arenas that shall held the Games rental and disposal of equipment (for example: vehicles, medical devices, identification and detection equipment) accommodation and leisure activities to the athletes of the participant countries, for the press and for the audience improvement of public transportation used in the 2014 World Cup 7

8 2016 Olympic Games: APO Federal Government State of Rio de Janeiro City of Rio de Janeiro Federal Government (Sports Ministry) Original State Authorities (State Secretaries etc.) Assignment $$ (cost reimbursement) APO (public consortium) Responsible for the planning, coordination and implementation of the civil works and services Services Contract Brasil 2016 Private Parties Public biddings for public constructions; concessions; PPPs etc. 8

9 High Speed Train: Project Overview Construction, operation and maintenance of a High-Speed Train system between Campinas/ São Paulo and Rio de Janeiro, with stations in Viracopos Airport, Guarulhos Airport, Jundiaí, São José dos Campos, Volta Redonda, and Galeão Airport Integration between the two largest urban areas in Brazil and the improvement of their competitiveness, due to the reduction in the travelling time and in transportation costs Possible path of the project: Concession Period: 40 years L E G E N DA L E G E N DA Possible adjustment L = 256mi. (412 km) Possible adjustment L = 256mi. (412 km) TRANCORR RSC L = 281mi. (452 km) TRANCORR RSC L = 281mi. (452 km) Construction Period: 5 years Start of Construction: 2010 Campinas Pinheiros Campinas Barra Funda Barra Funda São José dos Campos São José dos Campos Taubaté Taubaté Resende Resende Volta Redonda Volta Redonda Pinheiros São Paulo-Rio de Janeiro Length L= 256 mi. (412 km) São Paulo-Rio de Janeiro Length L= 256 mi. (412 km) Campinas-São Paulo Length L= 62,4 mi. (100,5 km) Campinas-São Paulo Length L= 62,4 mi. (100,5 km) Based in the Ministry of Transportation High Speed Train Report Rio de Janeiro Based in the Ministry of Transportation High Speed Train Report Rio de Janeiro Estimated value of investments: R$ 34 BI 10 bi: equity 6,5 bi private 3,5 bi gov - Etav 24 bi: debt 21 bi BNDES 3 bi ECA 9

10 High Speed Train: Key Issues Concession Regime and the Proposed Bidding Structure Concession agreement to be executed by a SPC to be formed by the winning bidder(s) and a governmental entity Final bidding structure subject to confirmation once Bid is officially launched Preferred bidder criterion: lowest tariff (30%) and less public financing needs (70%) Interested bidders: Japanese Chinese Korean French German Transfer of Technology New technology of railroad services which is not known or controlled by the Brazilian Government, nor is necessarily accessible to private railroad concessionaires in Brazil 10

11 Other Sectors & Financing Other sectors of expected growth: Airports, Toll Roads, Energy, Urban Development, Ports, Sanitation Main Financing Players: Governmental Banks: e.g, BNDES, BNB, BB/CEF, FI-FGTS Multilaterals: e.g. BID, IFC, CAF ECAs: e.g. JBIC, KFW Commercial Banks: e.g. Santander, Bradesco, Itau- Unibanco Investment Funds: e.g., FI-FGTS, InfraBrasil, etc. Financing Instruments: Financing (loan) agreements (syndicated, A/B loan, club deal, on-lending etc.) Debentures CCBs FIDCs Subordinated loans 11

12 José Virgilio Enei

13 Project Finance in Brazil: Tackling Risks - Funding Growth Brian Bradshaw Wednesday, June 16, 2010 Brazil Infrastructure: PAC 2 and Beyond 801 Pennsylvania Avenue N.W. - Washington DC When You Think INTERNATIONAL, Think Fulbright. TM

14 Brief Outline Current state of global project finance Brazilian Infrastructure Overview Risk Analysis Brazilian experience in oil & gas project finance 2

15 Current State of Global Project Finance 3

16 Project Finance Activity in 2009 Approximately 712 projects worth over $292.5 billion 9% decrease from 2008 when $320.9 billion were raised Latin America accounted for 11.69% share of global volume in billions of dollars Latin America accounted for 9.4% share of global volume in number of deals Brazil accounted for 2 of the top 4 largest projects in 2009 and ranked 3 rd in global volume in billions of dollars Oil & Gas accounted for 22% share of global volume of project finance by sector Source: Dealogic Project Finance Review (January 11, 2010) 4

17 Global Deal Volume No. Deals Sources: Project Finance Magazine (Feb. 2007) and Dealogic Project Finance Review ( ) 5

18 Regional Analysis North America $31.2 billion; 93 deals Western Europe $54.3 billion; 265 deals Eastern Europe $10.8 billion; 16 deals Asia $104.0 billion; 160 deals Middle East/Africa $39.7 billion; 63 deals Latin America/Caribbean $34.2 billion; 67 deals Australasia $16.8 billion; 47 deals Source: Dealogic Project Finance Review (January 11, 2010) 6

19 Brazilian Infrastructure Overview 7

20 Infrastructure Overview Transportation Toll Roads Investments: $18.5 billion through 2010 (PAC) Main Projects: SP Ring Road South Section; 3 rd phase of Federal Toll Road Concessions Program; 2 nd phase of SP Concession Program Railroad Investments: $ 4.4 billion through 2010 (PAC). National Logistics Plan estimates that rail network maintenance and expansion will require $65.5 billion up to 2023 (Transportation Ministry) Main Projects: North-South Railroad (Transnordestina); São Paulo Rio de Janeiro high speed train; municipal subway projects for the World Cup 2014 Source for PAC estimates: Brazilian Federal Government PAC Investment Forecast in Logistics Infrastructure

21 Infrastructure Overview Transportation (cont ) Airports Investments: $1.7 billion through 2010 (PAC) Main Projects: Concession of International Airports (e.g., Rio de Janeiro & Campinas); expansion of Guarulhos airport / construction of a 3 rd international airport in SP; concession of SP state airports Ports Investments: $1.7 to $2.8 billion through 2011 (private sector), $1.5 billion through 2010 (PAC) Main Projects: Embraport; Porto de Açu; Tecon-SC; Concession Santos Port expansion. Source for PAC estimates: Brazilian Federal Government PAC Investment Forecast in Logistics Infrastructure

22 Infrastructure Overview Energy Power Generation Investments: $36.6 billion through 2010 for the development and construction of 12,386 MW through 2010 (PAC) Main Projects: Santo Antônio (3,150 MW), Jirau (3,300 MW), Belo Monte (11,182 MW), MC2 s Thermo Plants (4,200 MW) Transmission Investments: $7 billion through 2010 adding 13,826 km of new transmission lines to the Brazilian interconnected system (PAC) Main Projects: transmission lines linking Madeira Complex (North Region) to consumption centers, as well as projects connecting Manaus and Macapá (Amazon Region) to the rest of Brazilian transmission system Distribution Investments: up to $4 billion in 2009 to provide universal access Source for PAC estimates: Brazilian Federal Government PAC Consolidated Investment Forecast in Energy Infrastructure

23 Infrastructure Overview PAC2 Total investments of $881 billion $605 billion for energy projects $486 billion for oil and gas projects $75 billion for power generation, including the construction of 54 hydro power plants $530 billion to be invested between 2011 and 2014 Source: Brazilian Federal Government PAC 2 Report (March 29, 2010) 11

24 Risk Analysis 12

25 Risk Identification: Commercial Risks Construction risk Cost overruns Delays Environmental risks Failure to meet contract specs Failure of subcontractors Feedstock shortages Fluctuations in price of feedstock and off-take Lack of demand or revenue Physical force majeure Technology failure Unforeseen site conditions 13

26 Risk Identification: Financial Risks Change in control of off-taker / project partner/counterparty Currency exchange rates Financial failure of off-taker / project partner/counterparty Inflation Interest rates 14

27 Risk Identification: Political Risks Breach of contract Change in government Change in law Expropriation / nationalization Institutional instability / legal uncertainty/change in law Political violence (e.g., acts of war, terrorism, civil unrest) Public perception Restricted currency availability, convertibility and transferability Restricted repatriation of profits Unavailability of proper government consents, permits, etc. Unreliability of dispute resolution procedure 15

28 Risk Allocation: Contractual Devices Completion (of construction) guarantees from sponsors Guarantees by multilaterals/ecas of repayment of loan if default caused by political risk Commitments by off-takers to pay capacity charges (or equivalent) whether or not product supplied 16

29 Risk Allocation: Contractual Devices (cont.) Force majeure provisions natural FM usually covered by insurance political FM trend to ask for compensation from host government Generally, material project risks are, as far as possible: retained by host government passed through the project company to: Contractors Insurers to a limited extent, shareholders 17

30 Risk Mitigation: How? Mitigating risk occurrence in first place, and their effects when they do effective due diligence detailed country knowledge good project managers on the ground clear documentation with risk appropriately allocated cost effective insurance for risks retained good relationship with other transaction participants independent (foreign) dispute resolution mechanism But above all, sound project economics: asset must be carefully verified pricing must give the off-taker (upon whom the project economics depends) the economic incentive to perform 18

31 Brazilian Experience in Oil & Gas Project Finance 19

32 First Generation Projects: Pseudo Project Financings Background Leading to First Generation Projects Projects of Petrobras ANP guidelines required significant expenditures for upstream activities or risk loss of concessions Capital expenditures restricted by Government budgetary limitations Bolivia-Brazil pipeline absorbed capital expenditure commitments Debt was limited by Central Bank restrictions Regulatory regime prevented Petrobras from benefiting from international pricing Petrobras did not have regular, assured access to international capital markets - Examples of projects: Barracuda, Cabiunas and Marlim 20

33 First Generation Projects: Pseudo Project Financings Equity, Supply credit and bank market SPC OFF SHORE Debt service Funding Debt ECAs, Banks and Bondholders Abroad Brazil SPC ON SHORE Rental/lease payments Rental/lease agreement PETROBRAS Assets mobilization Operation Oil & Gas Concession contract Oil / Gas Production field ANP 21

34 First Generation Projects: Pseudo Project Financings General Characteristics Observations Complex offshore leasing structure tax optimization (income and withholding) Repetro regime Multi-Sourced Lending Arrangements Official and non-official lenders significant Japanese involvement Designed to minimize direct funding obligations of Petrobras Few of the benefits of limited recourse financing. Risks are largely borne by Petrobras: Completion risk Operating/reserve risk Market risk Political risk Most of the burdens of limited recourse financing: Long lead/planning time Increased pricing, reflecting structural risks Significant transaction costs 22

35 Second Generation Projects: Enhanced Corporate Credits Background Leading to Second Generation Projects Petrobras and IOCs Joint Operation Projects Development of new concession areas NYSE Listing of Petrobras Petrobras Adopts US GAAP Financials Increased Exposure to Foreign Rating Agencies Success of First Generation Projects Increase in Oil Prices -Examples: Petrobras International Finance CO (PIFCo) created to purchase oil and oil related products from suppliers abroad and sell them to Petrobras on a deferred basis 23

36 Second Generation Projects: Enhanced Corporate Credits Offshore Financing Structure Sub-Charter Agreement PETROBRAS BRASOIL Rental Agreement Support Agreement Offshore SPC Loan Agreement Loan Agreement BNDES Brazil Abroad Charter Agreement Supplier Contract ECAs and Banks Platform Owner Equipment Suppliers 24

37 Second Generation Projects: Enhanced Corporate Credits General Characteristics Observations Issuance of notes Highly structured; designed to take advantage of favorable tax and customs regimes Pricing above sovereign ceiling Structured to enable multiple lendings to ECAs, commercial lenders, bondholders, etc. (both insured and uninsured) Political risk insurance Lower overall cost of funding Increase speed of project implementation Designed to minimize direct funding obligations of Petrobras, but Lenders given a choice to proceed against offshore borrower or Petrobras Initial involvement of IOCs 25

38 Next Generation Projects Background Leading to Next Generation Projects Petrobras is an experienced and recognized issuer of debt and equity securities IOCs and other oil companies are heading to development phase Brazil remains a net importer of light oil Significant quantities of natural gas are necessary Financial stability Capital markets development (investment grade status) ANP increasingly viewed as a credible and transparent regulator 26

39 Next Generation Projects Types of Next Generation Projects Securitizations: Benefits to Issuers - Longer maturities of debt - Improved risk management and balance sheet performance - Broader class of investors if transaction obtains investment grade rating Limited Recourse Financings: Project company with Petrobras as equity partner is more likely to seek project financing as a funding strategy: Examples in power sector (Aracauria, TermoRio, etc.) Examples in petrochemical projects (Rio Polimeros) 27

40 Next Generation Projects Types of Next Generation Projects International Corporate Financings Joint ventures where Petrobras is not a participant are more likely to use corporate financings as a funding strategy: Project financing may be too expensive and time consuming to pursue. Utilize home country bank relationships for bridge funding. Development of local financing options Domestic capital markets More local financial institutions Pension funds BNDES 28

41 Next Generation Projects Principal Challenges for Next Generation of Brazilian Oil & Gas Project Finances Petrobras monopoly on domestic refining capacity and related infrastructure may deter investment in upstream activities Potential infrastructure bottlenecks (e.g., ports, terminals, pipelines, etc.) Development of a faster and more efficient process for environmental licenses Discussions about assignment of oil & gas concessions Discussions regarding tax expropriation by State Government (ICMS) 29

42 When You Think INTERNATIONAL, Think Fulbright. TM