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International Association of Development Funds Second Conference on Financing Municipalities & Sub-National Governme

International Association of Development Funds Second Conference on Financing Municipalities & Sub-National Governments Washington, USA September 30, 2004. Regional Roundtable Current experience, innovations and opportunities in Latin America: The Chilean Experience. PRESENTATION PREPARED BY:.

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International Association of Development Funds Second Conference on Financing Municipalities & Sub-National Governme

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  1. International Association of Development FundsSecond Conference on Financing Municipalities & Sub-National GovernmentsWashington, USA September 30, 2004

  2. Regional Roundtable Current experience, innovations and opportunities in Latin America:The Chilean Experience

  3. PRESENTATION PREPARED BY: • ING. ALEX CHECHILNITZKY ZWICKY • President of AIDIS • President of AIDIS - Chile • Presidente de Empagua S.A. • Sanitary and Environmental Consultants • Sanitary Services Developement, Management and Operation • E-mail: achechi@empagua.cl - achechi@tnet.cl

  4. Chile in a few numbers • Population 15 million • GDP (Gross domestic product)2004E: US$80 Billion • GDP Per Capita :US$5300 • GDP adjusted for PPP: US$10000-11000 • GDP Growth 5% (2004E), average for 1990-2004 in excess of (5%) • Assets managed by the AFPs US40-45 billion, more than 50% of the GDP • Sovereign spread 80-100 basis points over treasuries

  5. HISTORICAL EVOLUTION OF SANITARY SERVICES FINANCING IN CHILEUp to late 80’s • National Budget and external help • BID, BIRF, other International Institutions, Regional Budget (States or Provinces)

  6. THE SANITARY SERVICES IN CHILE: REGULATION AND CONTROL MAIN CONCEPTS IN THE LEGAL FRAMEWORK OF THE SANITARY SECTOR

  7. BASIC CONCEPTS OF TODAY’S LEGISLATION • SEPARATION OF THE NORMATIVE AND REGULATORY ROLES (WHICH REMAIN IN THE CENTRAL GOVERNMENT), FROM THE COMERCIAL AND PRODUCTIVE FUNCTIONS. • A TARIFARY SYSTEM BASED ON MARKET RATES THAT PROMOTES WATER AND WASTEWATER UTILITY EFFICIENCY AND FACILITATES FINANCING. • DIRECT SUBSIDIES FOR LOW INCOME USERS.

  8. THE LEGAL FRAMEWORK OF THE SANITARY SECTOR IN CHILE(OPERATING SINCE 1990) • General Law of Sanitary Systems • Tariff Laws • Law of the Superintendence of Sanitary Services • Subsidy Law for low income consumers of potable water and users of the sewage system services • Laws that create state-owned utilities as an exception

  9. General Law of Sanitary Systems • The General Law is the legal backbone of the Chilean sanitary system: • Establishes minimum technical and operational standards. • Establishes minimum service quality. • Defines the conditions under which the concessions will be granted.

  10. SANITARY SERVICES CONCESSION • It’s an enabling title that constitutes a right established by law. • Allows a Company, created with that unique purpose, to be the only authorized provider of sanitary services in a determined territory. • On the other hand, concession owners cannot deny service within their territory. • Concessions are granted for an unlimited period of time.

  11. SANITARY SERVICES CONCESSIONFour separate Concessions are identified • Water Production • Water Distribution* • Sewage Recolection* • Sewage Treatment and Disposal * Must be granted simultaneously

  12. Ownership and exploitation rights over concessions can be transferred totally or partially, and on a permanent or temporary basis.

  13. PRIVATIZATION PROCESSMOTIVATION • CAPITAL INTENSIVE PROJECTS REQUIRED BY THE SECTOR.(SEWAGE TREATMENT PLANTS) • PUBLIC RESOURCES NEEDED IN OTHER HIGH PRIORITY SOCIAL AREAS.

  14. CHILEAN SANITARY SERVICES SECTOR STRUCTURE IN 2004 • 95% of the urban population is served by companies owned and/or operated by the private sector • 5% of the urban population is served by one municipal service in the Metropolitan area

  15. The right side of the Balance Sheet of the Chilean Sanitary industryThis Century Customers (via AFR) Commercial Banks AFPs Insurance Companies The Public International Operators (Agbar, etc.) Local Operators AFPs The Public Liabilities Equity

  16. Utilities Privately Owned or Operated

  17. Financial Information of Main SanitaryCompanies(Thousand Dollars in December 31, 2003)

  18. Sanitary Companies:Main Shareholders (December 2003)

  19. Bonds Issuance

  20. Reimbursable Financial Contributions (AFR) • A certain amount of money that Operators can demand to new clients (persons, industries or real state investors) who demand growth or increase in sanitary services. • This amount is stablished in the Tariff Law and bylaw.

  21. Reimbursable Financial Contributions (AFR) • Money must be reimbursed within 15 years. • The annual interest rate payed today for this Contributions is tied to a local currency, inflation-indexed short-term market rate • The current rate being paid is 2.57% per annum plus CPI inflation • This obligations are publicly traded

  22. WHAT HAVE WE ACCOMPLISHED AFTER A LONG PROCESS OF MORE THAN THIRTY YEARS?

  23. SANITARY SERVICES COVERAGE EVOLUTION IN CHILE

  24. Sanitary Services in ChileWater quality ACCOMPLISHMENT OF STANDARDS BACTERIOLOGICAL DISINFECTION PHYSICAL CHEMICAL PARAMETERSPARAMETERS LARGE COMPANIES 99,9% 99,9% 98,0% 97,4% MEDIUM COMPANIES 99,9% 99,7% 98,2% 98,9% SMALL COMPANIES 99,7% 99,8% 99,5% 97,7% TOTAL (COUNTRY)99,8% 99,8% 98,3% 97,7%

  25. AVERAGE TARIFF (US$/M3)

  26. Conclusions • Stable regulatory framework, based in tariffs with a reasonable level that allow autofinancing, and are sostainable in the long term. • Opportunities in both equity and investment grade debt • Spreads of between 80 and 150 basis points over Chilean sovereign debt (and therefore between 160 and 250 bp over treasuries) • Debt is mainly denominated in local currency with inflation adjusted fixed rates, to avoid currency exposure • In consequence the debt market is dominated by local investors

  27. THE END

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