Infrastructure PPPs as an investment opportunity in Brazil’s economy by Zachary A. Kaplan, Development Specialist, DAI. Presentation featured at

1. Infrastructure PPPs as an
investment opportunity in Brazil’s
economy
Emerging Markets Institute, Cornell Johnson School of Management
Zachary Kaplan
DAI
September 20, 2012
New York City

2. Public-Private Partnerships (PPP/P3)- What are they?
PPPs are contractual arrangements between the public
sector and a private sector party for the private delivery of public
infrastructure services or other basic services.
Why are they important to Brazil?
PPPs arrangements open up infrastructure and service
delivery to the private sector as a form of investment, carrying
new sources of capital and bringing along efficiency, transparency,
and better service provision.
Why are they important to investors interested in the Brazilian
market?
New sectors of the market ready for investment

3. The Case for Brazil’s Infrastructure
“
Brazil’s Infrastructure Needs Infrastructure as an investment
sector
• 104/142 (WEF quality of infrastructure
rank, China is 69th, India 86th and Russia • Consumer demand: almost 200 million
100th) people, with an increasing middle class
demanding infrastructure
• 2011-2014, $80 bn spent on
infrastructure “growth acceleration” • Strong macro financials: US$2.5 trillion
program, averages to around 1% p.a (2011) GDP (8th in world); 2011 2.7%
growth in GDP
• Need about 6-8% of GDP to catch up
with South Korea in 20 years • New market opportunities: 2014 World
Cup and 2016 Olympic games
• Around $125bn annual infrastructure
funding deficit • Deep sources for local finance matching
(BNDES)
• Strong political will
• Returns on investments ranging from 8-
20%

4. “ Brazil is offering an extraordinary investment
opportunity in an environment of economic and
institutional stability”
- President Dilma Rousseff, August 15, 2012,
Address on infrastructure stimulus plan

5. History of P3s to-date in Brazil
• Since 1990, a total of 550 PPI 350
Number of Projects Reaching
transactions have reached 300
250
closure 200
Closure
150
• Leveraged $326 bn in 100
infrastructure financing 50
0
• $134bn in energy Energy Telecom Transport Water and
Sewage
• $138bn in telecom
Infrastructure Sector
• Fairly even split in value
between each model
Concession
• Uneven dispersion between
types of PPP, with more on
Divestiture
O&M
Greenfield
• Opportunity to leverage more
Management and financing through new
lease
models

6. The underpinnings behind the deals
Legal Framework
• National PPP Law: 2004 PPP Law opened-up Brazil for private
investment in public infrastructure; improved dispute resolution by
arbitration, established government financial support and backstop
facility, expanded types of PPPs that can be used
• State-level: Minas Gerais, Sao Paolo, Espirito,
• Municipal-level: City of Rio de Janeiro and Sao Paolo, developing PPP
manuals, standard bidding documents, investment guides
Key Institutional Partners
• BNDES- Brasil’s Development Bank not only funds deals but helps
package and sell the transactions to other private investors
• IFC/World Bank- providing technical assistance and funding for many
PPP deals; supporting PPP units at national and state-level’s with
capacity building
• Sector ministries, departments and agencies- championing the PPP
development of each project

7. custo Brasil: cost of Brazil, the risks
• Licenses and regulatory environment can stifle projects-
getting construction permits (ranks 127 in Doing Business’s
construction permit index) and environmental licenses(Belo
Monto, controversial hydroelectric scheme is the Amazon) can
be burdensome and time-consuming
• High taxes (28 different taxes on electricity)
• BNDES crowd-out (local financial markets are deep
and, although sometimes costly, can crowd-out investment
from abroad)
• Exchange risk, collection risks and payment risks
• Local partnerships are critical: foreign investors cannot own
more than 40% share in local company (such as an operating
company). Finding the right local partner is key

8. New opportunities
for investment
• Auction: Tolling 4700 miles of road
and 10,000km of railway- around
$66bn)
• 3 BRT in Rio
• Ring-road
• LRT btw Rio and Sao Paolo
• Airports: 3 concessioned this year-
Sao Paulo ($9.4bn), Viracopas
($2.23bn), and Brasilia ($2.16bn)
• Rio Airport
• Ports: success of Maravilha
• Irrigation initiatives in NE such as
Pontal
• Stadium and World Cup/Olympic
assets
• Hospitals and clinics
• Solid waste

9. How to move forward
• Select sector and generate pipeline of project
• Identify local investment partners and operating groups
• Work with BNDES, IFC and government to identify risks (draw
on risk mitigation tools when necessary such as
MIGA, PRGs, PCGs)