Brazil’s deficient airport infrastructure was not a major issue until the country was awarded the 2014 World Cup and the 2016 Olympic Games, yet for years it had impaired the blossoming of high-value-added industries. Historically Brazil has been able to manufacture high-added-value products at low costs, but the costs of shipping those products to Europe, Asia or North America – which purchase 70% of Brazil´s exports and are only reachable by sea or air -- inhibit its competiveness. Many factors account for these costs, but the country´s airport infrastructure should take much of the blame.

1. Companies Latin Infrastructure Quarterly 1
Brazilian Airport
Privatization
PORT OF Guatemala
PPP Law
CALLAO
Multipurpose North
Cleantech
Infrastructure
Terminal A New Investment Frontier?

2. 2 Latin Infrastructure Quarterly Contributors
Contributors Welcome to first issue of Latin
Infrastructure Quarterly (LIQ)!
L
Ana Fernández González atin America is going through an impressive economic expansion. We,
here at LIQ, agree that economic growth can only be sustained over
Roger Miralles time with a strong development of social and economic infrastructure
with the private sector actively involved in the process. Every gov-
Anadi Jauhari ernment in the region agrees as well. Many countries have chosen to
Emerging Energy & Environment take action to foster said development. In those countries, the public and the private
sectors have struck partnerships that have resulted or will result in stronger econo-
Adrian Barrios
mies. This is perhaps why David Roseman, of the Macquarie Group, said that “South
PricewaterhouseCoopers
America is the next logical step”. A few other countries, for different reasons, present
Andrew Bogan less appropriate scenarios for infrastructure development. We intend to provide you
Bogan Associates with valuable insight from both set of countries.
The infrastructure professionals responsible for this process are not looking for
David Bloomgarden news coverage because they already know in advance the developments of the indus-
Multilateral Investment Fund try. We know these professionals are looking to read how their colleagues solved a
client’s contractual, regulatory, financial or bureaucratic problem or how they struc-
Dennis Blumenfeld tured a specific deal and what lessons were learned. Practitioners also appreciate
Multilateral Investment Fund reading about how a certain development will impact the future of the industry, and
what ideas are out there that may help address some of the current obstacles to the
Diego Harman
further development of infrastructure.
Rubio Leguia Normand
Our proposal with LIQ is for you, the infrastructure professional, to use it as a
Fabiana Peixoto de Mello mean through which you can access hard-to-find analysis and actionable information
from your colleagues in the form of articles and interviews, case studies, project pro-
Jorge Figueredo files, and, "logistical" issues to have in mind.
Vouga & Olmedo Abogados With the above purposes in mind we intend LIQ to be an accessible space for you
to share your ideas and experiences with a relevant audience: fund managers, govern-
Luis Pedro Del Valle ment officials, lawyers, bankers, and consultants. Should you be interested in doing
Arias & Muñoz so please do not hesitate to contact us at info@liquarterly. Also, we look forward to
your feedback on things to improve and topics to cover.
Manuel Ugarte
Estudio Delmar Ugarte Abogados We hope you enjoy the magazine.
Miguel Ronceros
Estudio Delmar Ugarte Abogados
Milagros Maraví
Rubio Leguia Normand
Paulo de Meira Lins
International Finance Corporation
Roberto Tapia
Rodolfo Vouga
Vouga & Olmedo Abogados

3. Contents 3
CONTENTS
Grup TCB..........................................................................................................4
A terminal operator with a worldwide presence
40
Cleantech Infrastructure:................................................................................8
New Investment Frontier?...............................................................................12
Multipurpose North Terminal:
(Muelle Norte) of Callao’s Port
Public Private Partnership in Chilean Hospitals..............................................20
A new market in development
Airport Infrastructure in Brazil.......................................................................24
Mezzanine Finance forLatAm’s Infrastructure..............................................28
12
Spain’s Infrastructure P3 Program...............................................................32
Infrastructure Projects in Peru:....................................................................36
Are Regional Governments Still under the.
Paternalism of the Central Government?
Privitization Models for Latin American Airports &..................................40
Implications for Brazilian Airport Privatization
Infrascope:......................................................................................................44
An interactive learning tool and benchmarking index
28
EU Debt Crisis and Spanish PPPs..................................................................46
The Impact of the Regional & Local Elections in Spain................................48
Itaipú-Villa Hayes Electric Transmission Line..............................................53
Hidrovia on the Paraguay River.....................................................................54
Airports Concession in Paraguay...................................................................55
Peruvian Infrastructure Projects....................................................................57
48
Public Private Partnerships Act in Guatemala...............................................59
LIQ Speaks with Paul de Meira Lins of the IFC...........................................61

4. 24 Latin Infrastructure Quarterly
Airport
Infrastructure
in
Brazil
Fabiana Peixoto de Mello

5. Deals Latin Infrastructure Quarterly 25
Brazil’s deficient airport infrastructure was not a major issue until the coun-
try was awarded the 2014 World Cup and the 2016 Olympic Games, yet for
years it had impaired the blossoming of high-value-added industries. His-
torically Brazil has been able to manufacture high-added-value products at
low costs, but the costs of shipping those products to Europe, Asia or North
America – which purchase 70% of Brazil´s exports and are only reachable by
sea or air -- inhibit its competiveness. Many factors account for these costs,
but the country´s airport infrastructure should take much of the blame.
I
nfraero, a company wholly owned by the Government of why. In Brazil, however, direct subsidization programs are like-
Brazil, manages 67 Brazilian airports, only 11 of which ly to cause a very tough political discussion and to reinforce the
are currently profitable. It uses cross-subsidy mecha- existing antagonism between regions, mainly the Northwest and
nisms to support the network. The aviation agency Southwest. The country’s historically uneven wealth distribu-
(ANAC) issued new regulation that will change cross tion and huge dimensions have ignited these feelings in the past,
subsidy calculation (Res 180/11). Instead of setting different and it is not politically wise to stoke them.
tiers of tariffs by passenger movement, as Infraero used to do, Brazilian investment capacity is exhausted and infrastruc-
negative operational results will be set off with disproportionate ture investments can only be borne by tax increases. Taxation
distribution of the network´s commercial revenues. is already very high and increasing it will reduce the country’s
Airports with higher operational results will have higher tar- competitiveness. Moreover, Brazilian regulations are unfriendly
iff increases. The challenge is that most airports have negative to private investment in airport infrastructure.
operational results because they do not move enough passengers The Governors of the States of Rio de Janeiro and Minas
to break even. Experts estimate that an airport needs to move Gerais are facing a lot of pressure to meet the deadlines for the
about 1.5 million per year to break even, but 66% of Brazil- Olympics and World Cup and are pushing for the total transfer
ian airports move fewer than 1 million passengers per year, and of management of Rio de Janeiro/Tom Jobim and Confins air-
24% move fewer than 450,000 passengers. ports to the private sector.
The new regulation will increase the rigidity of the network President Dilma Roussef has raised the possibility of trans-
and make it even more complicated to receive private invest- ferring the management of some airports to special purpose ve-
ment into individual airports. The airports will only be viable as hicles in which Infraero would have minority participation, and
parts of a whole. Hence, the privatization of airport infrastruc- then selling the Government’s majority equity in Infraero.
ture currently under discussion will maintain 49% Infraero’s Official documents confirming these statements will not
network ownership. be unavailable until December 2011. But the recently created
There are alternatives for making the network more flexible, Civil Aviation Secretary has just created two additional agen-
including direct subsidies to unprofitable routes, as the Essen- cies named CONAERO and CAA and has taken measures to
tial Air Services (EAS) program in the U.S. and Public Service improve Infraero’s governance.
Obligations (PSOs) in Europe do. CONAERO is a committee made up of representatives of the
These programs bring transparency and make it very clear Agriculture Ministry, Defense Ministry, Revenue Ministry, De-
what portion of the deficit is being borne by the taxpayer and velopment Ministry, Health Ministry, and the aviation agency.

6. 26 Latin Infrastructure Quarterly Deals
CAA is an airport operating authority that will oversee the
direction and operations of most important Brazilian airports
which are expected to be privatized soon: Guarulhos (SP), Con-
gonhas (SP), Galeão (RJ), Santos Dumont (RJ), Brasília (DF),
and Confins (MG).
The specific functions and responsibilities of each agency
are very unclear, particularly because Infraero itself will be the
CAA and hence oversee direction of the companies in which it
has minority interest.
The Civil Aviation Secretary measures to improve Infraero’s
governance suggest that the Government may open the compa-
ny’s capital in the future.
The current privatization model developed by the Brazilian
Aviation Agency and used for the construction, operation, and
exploitation of a new airport in the city of São Gonçalo do Ama-
rante, in the State of Rio Grande do Norte, called ASGA.
The existing airport in the city of Natal is also located in
Rio Grande do Norte and is only 11 kilometers away from
ASGA. According to a study conducted by the IPEA (Instituto
de Pesquisa Econômica Aplicada, or Institute of Research in Ap-
plied Economics), the capacity of the existing airport in Natal is
about to be exhausted considering the projections of passenger
demand. But according to ANAC’s information, dated February
2011, the existing airport is not profitable, as the chart below to the Government of Argentina. The joint venture has already
demonstrates. stated that will proceed with aggressive bids in other Brazilian
A joint venture of Corporación America and Engevix won airports’ privatizations and that it will seek Brazil’s Exim Bank
the bid for ASGA offering a 228.82% markup. The 8% return es- (BNDES) financing. Nonetheless, the result of the bid bought
timated by the joint venture is deemed impossibly high by other some time to the regulatory agencies in a sector that is facing a
competitors and some analysts. Corporacion America is known severe leadership and organizational crisis.
for having defaulted its concession fees of Ezeiza Airport due Investors interested in the São Paulo airports’ bids are de-
manding non-compete guarantees, such as the prohibition of
construction of another airport to serve the congested metro-
There are rumors that
politan area of São Paulo. There are rumors that the Federal
Government does not want to bid for a brand new airport in
São Paulo because the State Government belongs to the oppo-
the Federal Government sition. Numerous studies prove that São Paulo needs another
airport, regardless of any improvements made to the existing
ones. Investors’ requests may well suit Federal Government’s
does not want to bid for a intentions, but they would be very detrimental to the city and
the State.
President Roussef’s special-purpose-vehicle model obliges
brand new airport in São the private investor to complete the necessary construction for
increasing a given airport’s capacity. The problem is that Infrae-
ro itself has not been able to complete the necessary construction
Paulo because the State for years, even though it had been given the resources to do so,
mainly because of environmental and regulatory restrictions.
The risk of not obtaining environmental and regulatory au-
Government belongs to thorizations has jeopardized many energy projects in Brazil.
Bidders have won the rights to develop projects only to face
immense difficulties in getting the necessary licenses and hence
the opposition to honor their delivery obligations.
According to the abovementioned study by the IPEA in 2010,
the average processing time for an environmental license to start

7. Deals Latin Infrastructure Quarterly 27
With depreciation and interest (R$) Without depreciation and interest (R$)
Activity Revenue (R$)
Cost Result Cost Result
Cargo handling fees 705.962 1.865.972 -1.160.010 1.347.463 -641.501
Non regulated fees (mainly
8.749.305 3.051.655 5.697.650 2.064.163 6.685.143
commercial fees)
Domestic boarding fees 10.223.027 17.383.742 -7.160.715 11.442.416 -1.219.389
International boarding fees 1.443.684 1.243.722 199.962 815.731 627.954
Domestic Landing fees 987.505 13.451.201 -12.463.696 8.841.410 -7.853.905
International Landing Fees 953.941 1.656.211 -702.270 1.081.407 -127.466
Total 23.063.424 38.652.503 -15.589.079 25.592.590 -2.529.166
building a project was 50 months. authorization only lasts for five years and can be revoked at any
Recently the energy sector has developed a Pre-Tender Li- time. Nevertheless, their number has grown substantially and
cense (Licença Prévia para Leilão) for projects, granted before the network is getting denser quickly in and around the cities of
the tender. The winning bidder still has to pursue other envi- São Paulo and Rio de Janeiro.
ronmental licenses after being granted the authorization for the Brazil does not lack the demand or resources for, nor the
project. There have been no discussions over implementing a overall interest in, improving its airport infrastructure. It lacks
similar license for airports. coordinated action oriented toward the long-term development
Even though obtaining an environmental license involves of the country. No measure taken now will adequately prepare
a lengthy process, analysis of the difficulties Infraero faces to Brazil for the World Cup or Olympics Games. Brazil needs
carry out its investments has been focused on its challenges strong leadership that understands the development challenges
with project management. In July, the Civil Aviation Secretary facing us and communicates them clearly to the population.
has announced measures of improvement in this regard that in-
clude the creation of a new business directorship to be filled by
August.
As the clock ticks and the debate over the best methods con-
Brazil does not lack
tinues, some players have decided to take action.
In an effort to avoid a total fiasco and build the very mini-
mum capacity for the events, keeping away from major regula-
tory and environmental issues, Infraero has decided to build op-
erational modules (Módulos Operacionais Provisórios) for the
existing terminals, sarcastically nicknamed “puxadinhos” (an- the demand or re-
nexes) by the population. According to Infraero, these modules
sources for, nor the
are cheaper, less comfortable, but temporary. These modules
augment the check-in, boarding, and deboarding areas, but do
not increase the number of aprons and lanes. They will merely
increase the area where passengers will have to wait too long for
the same number of flights.
President Roussef has passed a law that loosens up procure- overall interest in,
ment rules for all airports within a 350km radius of the World
improving its airport
Cup host cities. Numerous entities and legal authorities have
criticized this law for facilitating corruption and abusive prac-
tices in the Government’s procurement and for reducing the
transparency of public actions and expenses.
Investors, on the other hand, are exploring less regulated op-
portunities, such as private airports. The challenge is that private
infrastructure.
airports cannot be explored for commercial purposes, as their

8. 64 Latin Infrastructure Quarterly Companies