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April 27, 2009

Associação Brasileira da Infraestrutura e Indústrias de Base. BRAZIL SUMMIT 2009. INVESTING IN BRAZIL INFRASTRUCTURE: KEYS FOR A SUSTAINED ECONOMIC GROWTH. Paulo Godoy President. April 27, 2009. BRAZIL. * Population: 187.1 million Area : 8,547,403 km².

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April 27, 2009

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  1. Associação Brasileira da Infraestrutura e Indústrias de Base BRAZIL SUMMIT 2009 INVESTING IN BRAZIL INFRASTRUCTURE: KEYS FOR A SUSTAINED ECONOMIC GROWTH Paulo Godoy President April 27, 2009

  2. BRAZIL * Population: 187.1 million Area : 8,547,403 km² 2007 GDP = US$ 1,295,500 million 2007 GDPper capita = US$ 9,695 (**) * Estimated population by IBGE (Dec. 2007) ** Purchasing power parity (p.p.p.) Source: FMI and IBGE

  3. ABDIB AND INFRASTRUCTURE

  4. ABDIB AND INFRASTRUCTURE FOUNDED IN 1955 IN SÃO PAULO. DURING THE 60, 70 AND 80’s : PROMOTED THE FIRST LARGEPROJECTS IN THE SECTOR. DURING THE 90’s : HELPED TO START PRIVATE INITIATIVE INVESTMENT IN INFRASTRUCTURE. TODAY : CONTRIBUTING TO IMPROVE CURRENT BUSINESS ENVIRONMENT AND TO ATTRACT INVESTMENT FROM ALL PARTNER COUNTRIES. ABDIB’s BOARD MEMBERS ARE PRESIDENTS OR KEY DIRECTORS FROM THE LARGEST ENTERPRISES THAT INVEST OR SUPPLY GOODS AND SERVICES TO INFRASTRUCTURE AND BASIC INDUSTRY MARKETS

  5. OIL, GAS AND PETROCHEMICAL ELECTRICAL POWER BASIC SANITATION PAPER/PULP STEEL AREA COVERAGE INFRASTRUCTURE AND BASIC INDUSTRY TRANSPORTATION TELECOM MINING

  6. GOODS AND SERVICES FOR INFRASTRUCTURE AND BASIC INDUSTRY SYSTEMS / EQUIPMENT ASSEMBLY OTHER SERVICES INVESTORS OPERATORS INTERRELATED AREAS CONSTRUCTION ENGINEERING

  7. REVENUE 2007 MEMBERS 158 160 EMPLOYEES 318,000 MEMBER COMPANIES US$ BILLION (15% GDP)

  8. ABDIB’s POSITIVE AGENDA RATIFY IMPORTANCE OF PRIVATE CAPITAL PARTICIPATION IN INFRASTRUCTURE ESTABLISH CLEAR AND STABLE INSTITUTIONAL RULES CONSOLIDATE REGULATORY AGENCIES WITH AUTONOMY AND INDEPENDENCE DEFINE A SET OF STRUCTURING PROJECTS CREATE ALTERNATIVE MECHANISMS FOR FINANCING

  9. CURRENT LEGAL AND REGULATION ENVIRONMENT

  10. CURRENT LEGAL AND REGULATION ENVIRONMENT • Concession Law • The Concession Law (Law 8,987/95) is the major framework of the relation between the State and Private Enterprise, capable of creating the bases of long-term legal and operational coexistence and defining the nature of the risk involved. • PPP’s – Public Private Partnerships • Modalities of Partnerships with Public Sector • Concession (Law 8,897/95): risk on investors (operators) • Sponsored Concessions *(Law 11,079/04): investors share risk with public sector • Administrative Concession *(Law 11,079/04): government runs the service. Ex. Hospitals, Penitentiary systems * PPP

  11. CURRENT LEGAL AND REGULATION ENVIRONMENT • Regulatory Agencies • Existence of 6 agencies at federal level (Electric Power, oil & gas, ground transport, water transport, air transport, hydroresources), 21 agencies at state level and 5 at municipal level. • Arbitrage • In line with the international practice, arbitrage is an essential clause in concession contracts. It establishes the possibility of using private ways to salve contract conflicts between private enterprise and the State or stated-owned companies. • Language to be used in this process must be Portuguese. As to the legal support for judgements, they are stated in • Law 9,307 / 96 – Arbitrage law • Law 8,987/ 95 - Concession law • Law 11,079/ 04 – art. 11, III – PPPs law

  12. CURRENT LEGAL AND REGULATION ENVIRONMENT CONTINUED • Private Equity Infrastructure Funds - FIPs • Concept and Regulation • Investment Fund (FIP): Federal Instructions 391/03 (FIPs in general) and 406/04 (for FIPs with financial support by foster institutions) • FIP is designed for acquisition of stocks, debentures, bonuses, or other assets convertible or exchangeable to stocks issued by companies, with open or limited capital, with participation in the decision process of the recipient company, effectively influencing both its strategic policy as well as its management, especially by indicating members of the Board (Federal Instruction 391/03, art. 1st.) • FIP is oriented to exclusively qualified investors (Federal Instruction 391/03, art. 5th.)

  13. CURRENT LEGAL AND REGULATION ENVIRONMENT • Investment Funds Of Credit Rights - FIDC • Concept and Regulation • Investment Fund of Credit Rights, or Funds of Receivables (FIDC): Federal Instruction 356/01, modified by Instruction 393/03 • FIDCs: designed to use a significant part of its net assets to applications in credit rights. They can be either open or closed. • Regulation of a FIDC can allow the existence of two different quotes, a senior quote or a subordinated class quote. Subordinated class quotes are not allowed to be withdrawn or redeemed before the senior quotes are withdrawn. These quotes are allowed to be withdrawn or redeemed in credit rights.

  14. PRIVATE PARTICIPATION IN INFRASTRUCTURE

  15. PRIVATE PARTICIPATION IN INFRASTRUCTURE • ELECTRIC ENERGY (POSTCONCESSION) • Generation (1999 / 2008) • 19,121 MW were tendered in this period, as follows: • 13,761 MW granted to the private sector (72%) • 5,360 MW granted to the public sector (28%) • Transmission (1999 / 2008) • 32,449 km were tendered in this period, as follows: • 23,843 km granted to the private sector (77%) • 8,606 km granted to the public sector (23%) • Distribution (1999 / 2008) • Private Participation = 66% • Public Participation = 34% Note: ANEEL is the Regulatory agency for Eletric Energy

  16. PRIVATE PARTICIPATION IN INFRASTRUCTURE OIL AND GAS (POSTCONCESSION) ANP TENDER ROUNDS Note: (*) 8th. Round (2006) fully suspended Brazilian companies represent 52% of new agents ANP is the Regulatory Agency for Oil & Gas

  17. PRIVATE PARTICIPATION IN INFRASTRUCTURE • HIGHWAYS (POST CONCESSION) • Although representing a small part of the total extension of Brazilian highways, the highways under concession are among the most important and the best in global conditions, such as pavement, signs and layout geometry. • 44 concessionaries = 14,822 km (9.0% paved network = 164,997 km) • 13 (federal) = 4,088 km • 36 (state) = 10,705 km • 1 municipal = 25 km • In 7 States: BA/ ES/ MG/ RJ/ SP/ PR/ RS

  18. PRIVATE PARTICIPATION IN INFRASTRUCTURE • PORTS (POST CONCESSION) • OrganizedPorts (40 ports) • PortsunderConcession to privateCompanies = 3 • PortsunderConcession, Delegation, Authorizationandtie-in to Governments = 37 • Private-UseTerminals ( 127 Terminals) • ExploredbyPublicCompanies = 42 • ExploredbyPrivateCompanies = 85 • Total LoadTransportationShare in 2007 • OrganizedPorts = 278.8 millionof ton. (36.9%) • Private – Use Terminals = 475.9 millionof ton. (63.1%) Source: Antaq

  19. PRIVATE PARTICIPATION IN INFRASTRUCTURE • AIRPORT • Infraero is a state-owned national company that manages • 67 airports • 32 load terminals • 80 units in support of air navigation • WATERWAYS (POST CONCESSION) • LAW 10,233, of June 5, 2001, allows the concession of navigable waterways. This fact has not yet been put formally into practice in the country.

  20. PRIVATE PARTICIPATION IN INFRASTRUCTURE • TELECOMMUNICATIONS (POST CONCESSION) • The legislation reform and the privatization of the telecommunications sector in Brazil have presented very positive results. • Fixed Telephony (access to services) • In 1996 – 16.5 million • In 2008 – 41.3 million • Cellular Telephony (terminals and cell phones) • In 1996 – 2.7 million • In 2008 – 150.6 million

  21. PRIVATE PARTICIPATION IN INFRASTRUCTURE BASIC SANITATION (POST CONCESSION) 199 Contracts – 203 Municipalities • MarketShare • 9.6 % ofurbanpopulation 13.8 millioninhabitants • 203 municipalities in 12 states 3.6 % ofalltowns

  22. REQUIRED AND ACTUAL INVESTMENT IN INFRASTRUCTURE

  23. REQUIRED AND ACTUAL INVESTMENT IN INFRASTRUCTURE ACTUAL INVESTMENT INVESTMENT IN INFRASTRUCTURE IS STILL FAR FROM REQUIREMENT 2008 Prices R$ Billion (e) Estimated 2008 Prices: Figures updated by inflation indicator over the period

  24. REQUIRED AND ACTUAL INVESTMENT IN INFRASTRUCTURE INFRASTRUCTURE INVESTMENT (PUBLIC AND PRIVATE) 2007 Prices (Public Investment includes state-owned companies) 63.0% R$ Billion 57.3% 55.1% 54 .2% 50.5% 37.0% 45.8% 42.7% 44.9% 49 .5%

  25. REQUIRED AND ACTUAL INVESTMENT IN INFRASTRUCTURE ACTUAL INVESTMENT (2003 – 2008)

  26. CHALLENGES AND OPPORTUNITIES BY SECTOR

  27. ANNUAL INVESTMENT REQUIREMENT IN INFRASTRUCTURE Notes: (*) E&P, dowstream, Gas and Energy (**) Fixed and mobile telephony

  28. CHALLENGES AND OPPORTUNITIES BY SECTOR • ELECTRIC POWER • 10- Year Expansion Plan for Energy (2008 – 2017) Note: Projects not yet tendered Source : EPE – Empresa de Pesquisa Energética

  29. CHALLENGES AND OPPORTUNITIES BY SECTOR • OIL AND GAS Source: Petrobras, ABDIB, IBP

  30. CHALLENGES AND OPPORTUNITIES BY SECTOR PETROBRAS INVESTMENT PLAN IN BRAZIL FOR INFRASTRUCTURE SEGMENTS Source: 1) Petrobras, ABDIB

  31. CHALLENGES AND OPPORTUNITIES BY SECTOR • TRANSPORT • National Transport and Logistic Plan projects investment over 2008 - 2023

  32. CHALLENGES AND OPPORTUNITIES BY SECTOR • TELECOMMUNICATION • Anatel projects that companies from this sector will invest R$ 250 billion over the next 10 years • BASIC SANITATION

  33. INVESTMENT ALTERNATIVES

  34. Major Developing Countries as FDI Receivers: 2005 – 2008 (US$ billion and % of world FDI inflows) Source: WIR-UNCTAD and SOBEET Elaboration: ABDIB

  35. BNDES Outlays by Activity - 2001 - 2009- (R$ billion and %) R$ Billion Activity % Source: BNDES Elaboration: ABDIB

  36. INVESTMENT FUNDS Mechanisms for long range Investment and Company’s development stage Stocks Marketplace/ Investment Mechanism Mezzanine Private Equity Venture Capital Seed Capital Corporate Stage Start-up Development Pre - Market Net Market

  37. INVESTMENT FUNDS • Direct Participation • participation with stocks with access to decisions • Investment Funds • Seed Capital: Business Plan company’s projects • Private Equity / Venture Capital: participation in small and medium size companies with business potential • Governance Fund: participation in open capital companies, with an effective influence on management

  38. INVESTMENT FUNDS • Investment Funds (cont’d) • Mezzanine: combines debts (debentures, guarantees, etc.) with income (profit, bonus, etc.) • Participation: structured operation to participate in a specific investment project (ex. privatization, sector project, acquisition for restructuring)

  39. INVESTMENT FUNDS • Long range investment via FIP • investment possibility in medium size companies with potential for growth; • clear definition of the investment focus by the fund or its management; • pre-definition of all the ways to withdraw investment; • adoption of good practices of Corporate Governance; • Legislation already consolidated (391 and 3121);

  40. INVESTMENT FUNDS • Long range investment via FIP (cont’d) • new pattern for capital market (levels of governance and market access – Bovespa) • Larger number of managements; • More complete rules and participation in decisions to invest or disinvest.

  41. INVESTMENT FUNDS PRIVATE EQUITY INFRASTRUCTURE FUNDS (PE/VC): CHRONOLOGY OF BRAZILIAN MARKET

  42. INVESTMENT FUNDS PRIVATE EQUITY - BRAZIL SECTOR FIGURES (2004/2008): Committed Capital (US$ billion) Source: FGV - Cepe

  43. INVESTMENT FUNDS PRIVATE EQUITY INFRASTRUCTURE FUNDS (PE/VC): CURRENT OVERVIEW • Brazil owns a finance system more organized and developed than its BRIC partners; • It is the country where services have the largest share in its GDP (PE/VC sector in a privileged position); • Real interest rates going down (favorable environment for company’s acquisitions); • Favorable macro-economic aspects: • Institutional framework, such as laws on PPPs, on bankruptcy and on CVM 391 updated 209; • Quite positive exports and trade balance; • Brazil was given the “investment grade”; • Direct Foreign Investment is back to growth.

  44. INVESTMENT FUNDS FUNDS WITH PARTICIPATION (PE/VC): SECTOR’S PERSPECTIVES • Internal Growth; • Increasing presence of international investors; • Chances of sector consolidation; • Confirmation of the interest rate decrease allowing more resource availability; • Macroeconomic Stability; • Adequate Regulatory framework; • Favorable fiscal application

  45. INVESTMENT FUNDS • Investors in Private Equity Funds will spend more money in emerging markets in the next five years. • Brazil is 2nd. among the preferred ones Preference Global Ranking for Investors Capital of Brazilian Funds, in US$ Billion Source: EMPEA and FGV - Cepe

  46. INVESTMENT FUNDS IN INFRASTRUCTURE IN BRAZIL

  47. PAC – GROWTH ACCELERATION PROGRAM (2007 – 2010) • PAC – Growth Acceleration Program is more than a program oriented to growth expansion. It represents a new concept in terms of investment in infrastructure which, allied to economic measures, will stimulate production sectors at the same time that will provide social benefits to all regions in the country. • Such a huge program becomes feasible only through partnerships between the public sector and private investors, in addition to a constant articulation among all federative institutions. • The concentrated development effort will be done in three decisive axles: • Logistics infrastructure • Energy infrastructure • Social & Urban infrastructure

  48. PAC – GROWTH ACCELERATION PROGRAM (2007 – 2010) 2007 – 2010 EXPECTED INVESTMENT (R$ Million) * ABDIB first estimate: 40% private, 60% public

  49. PAC – GROWTH ACCELERATION PROGRAM (2007 – 2010) Source: Federal Government

  50. PAC – GROWTH ACCELERATION PROGRAM (2007 – 2010) Source: Federal Government

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