Latin Infrastructure Quarterly - Issue 4

XXXXXX XXXXX Latin Infrastructure Quarterly 1
Latin
Infrastructure
Quarterly
Uruguay:
The Project
Bond Evolution:
Port of Paita Case Study
Pension Funds and
Infrastructure
The Canadian Way
Health PPPs
Gianluca G. Bacchiocchi

XXXXXX XXXXXLatin Infrastructure Quarterly2

Latin Infrastructure Quarterly 3
To Our Readers:
A
s always I am very excited with what you will find inside and I want to
make public how much I appreciate the support from the practitioners
that made this Issue possible. Given that large number of articles inside I
will not offer brief descriptions of each of them. What I do want to com-
ment on is that, keeping in line with the previous issues of LIQ, this Issue brings you
coverage of: current matters such as project bonds; new and evolving ones such as
infrastructure investment funds; profiles of companies and projects such as Terminal
Internacional del Sur (Peru), among other really interesting topics.
LIQ has partnered with Latin Markets to provide relevant exposure to the up-
coming “Peru Capital Projects & Infrastructure Summit” and has interviewed three
of the speakers that will be sharing their knowledge and experience at said Summit:
Michelle Haigh of Conduit Capital Partners; José Quiñones of the Oficina de Nor-
malización Previsional; and Erick Hein Dupont of Terminal Internacional del Sur.
I am very happy with the outcome of these interviews and I hope you find them
interesting.
On a last note, please do not close this Issue without reading “Rawson Wind
Project: A landmark in the Argentine Renewable Energy Generation Market”. This
article should be the first of a series of articles covering infrastructure development
and finance in forgotten Argentina. As I write these paragraphs I am on a plane re-
turning from delivering a presentation titled “Unveiling the Successes and Critical
Considerations for LatAm Companies in the Brazilian Infrastructure Market” at the
Marcus Evans’Brazilian Infrastructure and Property Development Summit that took
place close to Salvador (Bahia). The context of delivering said presentation that ob-
viously touched on Corporación América and being on a plane made me think about
the highly successful tender of four Brazilian airports that showed the world how
interested investors and operators worldwide are in Brazilian infrastructure. After
connecting in São Paulo, I will arrive in Argentina, one of the most hostile jurisdic-
tions in Latin America for private capital and resources in the business of developing
and financing infrastructure.
The difference between Brazil and Argentina when it comes to current infrastruc-
ture policy, investment and development is great. As an Argentine national and an
observer of how the region develops its economic and social infrastructure it deeply
saddens me (but does not surprise me) when international and regional players talk
to me about how they do not even consider Argentina as a possible market in which
to allocate their capital and resources. Hopefully this scenario will change in the
future and the articles featured in LIQ will serve the purpose of introducing the Ar-
gentine infrastructure market to international players.
Please do not hesitate to contact me at patricio@liquarterly.com with feedback on
this Issue, questions, issues you would like to read about, events you want to pro-
mote, and practitioners, companies or projects you would like see covered.
Best regards,
Patricio Abal.
Azpiroz, Ignacio
Unión Capital
Bacchiocchi, Gianluca G.
DLA Piper
Barrios, Adrián
PwC
Bentivegna, Enrico
Pinheiro Neto Advogados
Celio, Jorge
IOS Partners
da Rita, Paul
PwC
Del Vento, Maximiliano
Partners Group
Garver, Mathew
Patton Boggs LLP
Gutiérrez, Luis
EMBARQ Latin America
Haigh, Michelle
Conduit Capital Partners
Hein Dupont, Erick
Terminal Internacional del Sur
Jauhari, Anadi
Emerging Energy and Environment Group
Llamosas, Cecilia
Vouga & Olmedo Abogados
Motta, Carlos Eduardo
Admiral, Lawyer and Engineer
Nascimento, João
Queiroz, Cesar
International Consultant
Quiñones, José
Oficina de Normalización Previsional
(Perú)
Rodriguez, Victor Hugo
The Hedge Fund Association –
LatAm Chapter
Russo, Ricardo
Sawant, Rajeev
Assistant Professor at Baruch College
Vazquez Acuña, Martín
Marval, O’Farrell & Mairal
Vouga, Rodolfo
Vouga & Olmedo Abogados
Contributors

XXXXXX XXXXXLatin Infrastructure Quarterly4
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Brazilian Chapter Co-Directors
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Advancing Transparency and Trust in LatAm Alternative Investments
LatAm Chapter

5Contents
Contents
Local Pension Funds and Infrastructure Development in Uruguay......................6
The Project Bond Evolution: Port of Paita Case Study.......................................13
Brazilian Fostering of Private Financing of Infrastructure Projects...................18
Peru: Port of Matarani - Terminal Internacional del Sur....................................22
Peru’s National System of Pensions...................................................................27
The Canadian PPP Model and Its Applicability in Latin America.....................29
Health PPPs: Rationale & Drivers......................................................................32
Integrated Transit Systems and Bus Rapid Transit in Latin America................36
Infrastructure Investing – An Alternative Perspective.......................................40
Divergence in Foreign Direct Investment and Infrastructure Development in
Latin America....................................................................................................45
III Brazil Infrastructure Investments Forum......................................................49
The Peruvian Electricity Market.......................................................................51
Energisation of Paraguay’s Eastern Region.......................................................53
LatAm Infrastructure: Outlook for 2012 and the role of PPPs..........................55
Critical Steps for Implementing Successful Public-Private Partnerships in the
Brazilian Road Sector.........................................................................................58
Rawson Wind Project: A Landmark in the Argentine Renewable Energy Gen-
eration Market....................................................................................................63
LatinAmerican Hedge Funds..............................................................................66
Adrian Barrios
Paul da Rita

Latin Infrastructure Quarterly6 Infrastructure Financing
I
gnacio Azpiroz: Last year a new
PPP law was approved unanimous-
ly and the recent steps towards its
implementation represent an ap-
propriate legal framework to promote
the participation of local investing insti-
tutions in future projects. Access to the
asset class had been quite limited until
now, but given the new regulation, I en-
vision a substantial shift in the following
months. In Uruguay, there is consensus
among economists that, in order to main-
tain economic growth in the long run, the
investment/GDP ratio must increase. As
long as the PPP projects are adequately
structured I am convinced that pension
funds will support these initiatives.
Maximiliano Del Vento: Partners
Group was founded in Switzerland in
January of 1996 and has seen then steadi-
ly increased its presence to a global or-
ganization that includes over 550 profes-
sionals in 15 offices around the world.
Local Pension
Funds and
Infrastructure
Development in
Uruguay
LIQ talks to Ignacio Azpiroz of Union Capital and
Maxmiliano del Vento of Partners Group
With approximately EUR 24.8 billion in
assets under management across private
equity, private infrastructure, private real
estate, and private debt, the firm has re-
mained as an independent company, al-
lowing it to focus exclusively on private
markets assets and minimizing potential
conflicts of interests. Partners Group has
been an early player in the infrastructure
sector, making its first investment in 2001
and its first private infrastructure fund
investment in 2002. As the infrastructure
market matured, Partners Group devel-
oped significant infrastructure expertise
through a number of investments in in-
frastructure partnerships, direct and sec-
ondary investments. These investments
have been broadly diversified across geo-
graphic region and sector (e.g. transporta-
tion, communication, utilities and social
infrastructure). Early on, Partners Group
recognized the importance of making use
of the full spectrum of private infrastruc-
ture opportunities: brownfield (existing),
rehabilitative brownfield, and greenfield
(development), across geographic re-
gions and accessed through direct, sec-
ondary and primary investments. As a
result, Partners Group began to establish
the team, tools, systems and geographic
presence necessary to address this broad
set of opportunities. Since then, Partners
Group has built up its expertise, relation-
ship and knowledge base in global infra-
structure markets, by investing over EUR
1.3 billion and completing 52 transactions
in more than ten countries in the course of
the past decade.
How was the portfolio of the local pen-
sion funds, AFAPs, made up before the
recent changes to the legal framework?
Can you describe these changes in the
framework? And, how do you envision
the portfolio to change in the near future?
Ignacio Azpiroz: Current portfolio op-
portunities are reduced, not because of lit-

Latin Infrastructure Quarterly 7Infrastructure Financing
tle interest from AFAP but because there
are few projects available in the market.
Considering both direct and indirect
investment in infrastructure, AFAP’s
participation today is about 5% of the
portfolio. Montevideo’s International
Airport is now a new landmark for the
country and we are proud to have partici-
pated in this project. With regards to the
recent changes to the legal framework,
there are two main points from the lend-
ers point of view: the concession pledge
and the step in right implementation. In
addition the pension fund limits regard-
ing PPP investments was increased from
25% to 50%. I envision 10% to 15% par-
ticipations in the asset class. The system
currently holds 9 billion AUM which
represents 17% of GDP and, if we take
into account that it is still in the accumu-
lation phase, these are big numbers for
the size of the country.
Why do infrastructure investments
make sense for local pension funds?
Ignacio Azpiroz: I believe that this type
of assets is intrinsically related to the
portfolio’s objectives. These are long-
run investments with a very attractive
risk/return relation. In addition, there are
several other positive aspects, including:
a) diversify our portfolio; b) cash flows
are indexed to inflation; c) improves the
quality of life of our affiliates. It is im-
portant to point out that this kind of in-
vestments in infrastructure are also part
of other pension fund portfolios of the
region, such as in Chile, Perú, Colombia
and México.
Maximiliano Del Vento: The continu-
ing volatile macro-economic backdrop
and record low real yields for safe assets
have resulted in growing interest by in-
stitutional investors in an asset classes
that can generate stable performance
whilst still producing desirable yields.
Infrastructure investments are attractive
to institutional investors such as pension
funds as they can assist with liability
driven investments and provide dura-
tion hedging. Infrastructure projects are
long term investments that could match
the long duration of pension liabilities.
In addition infrastructure assets linked
to inflation could hedge pension funds
liability sensibility to increasing infla-
tion. In our experience, pension funds are
increasingly looking at infrastructure to
diversify their portfolios, due to the low
correlation to traditional asset classes. In
summary, the asset-class is attractive for
pension funds because infrastructure as-
sets typically: i- show low correlation to
broader economic cycles, providing a key
diversification benefit to pension fund
portfolios heavily exposed to equities and
bonds; ii- provide a stable predictable
return with strong downside protection;
iii- generate a running cash yield provid-
ing capacity to fund pension obligations;
iv- trade at compelling risk premiums
over government bonds; and v- provide
inflation protection due to inflation-linked
(or at least inflation correlated) payment
structures.
When it comes to infrastructure invest-
ments, doAFAPs invest/work together?
Ignacio Azpiroz: This is an important is-
sue. At Union Capital we believe that any
improvements regarding the development
of the final security will benefit all inter-
ested parties. All key actors (developers,
sponsors, funders and government agen-
cies) should look for synergies in order to
achieve goals, gain experience and move
forward in a synchronize way.
Are there opportunities for internation-
al institutional investors? Has there been
interest shown by big international play-
ers in the Uruguayan market?
Ignacio Azpiroz: Yes, I believe new
conditions clearly favor the participa-
tion of international investors. It is clear
the Uruguayan prestige abroad based in
a market friendly legal framework and
a strong macroeconomic outlook. FDI/
GDP ratios of about 5% and high demand
of sovereign debt endorse this statement.
I am sure that securities related to infra-
structure investments will have also high
demand if investors can custody them at
an external clearinghouse.
Maximiliano Del Vento: The OECD
report on Infrastructure to 2030 (volumes
1 and 2) published in 2006/2007, esti-
mated global infrastructure requirements
to 2030 to be USD 50 trillion. Such
levels of investment cannot be financed
by traditional sources of public finance
alone. The result has been a significant
infrastructure gap and the need of r new
sources of finance. Public budgets fed by
taxes will not suffice to bridge the infra-
structure gap. What is required is greater
private capital participation, together with
greater diversification of public sector rev-
enue sources. Institutional investors will
play a relevant role in bridging this gap,
financing long-term, productive activi-
ties that support sustainable GDP growth
and increased national competitiveness.
Partners Group believes that emerging
markets exposure can be an important re-
turn driver when incorporated into glob-
ally diversified infrastructure portfolios.
As a result, all of Partners Group’s infra-
structure programs have an allocation to
emerging markets infrastructure assets
(typically 5% - 20%). In addition Part-
ners Group manages a separate account
for a European pension funds focused
solely on emerging markets infrastruc-
ture investments. Despite a recent slow-
down in the growth trajectory of several
key economies, many emerging market
countries still exhibit strong growth fun-
damentals, are in a healthy fiscal position,
and have a high need for infrastructure
“Montevideo’s International
Airport is now a new landmark
for the country and we are
proud to have participated in
this project.”
Ignacio Azpiroz

Latin Infrastructure Quarterly8
build-out as well as the ability to invest
in infrastructure assets. Emerging market
governments have increasingly adopted
stable regulatory frameworks, a prerequi-
site for attracting long-term capital. Con-
sequently, country and regulatory risks in
many jurisdictions have declined, thereby
increasing the set of investment opportu-
nities in emerging markets. For instance,
this can be seen in Thailand, where the
first independent power producer regu-
lation was established in 1992. Today,
a 15- year plan is driving investments
in the renewable energy sector. Partners
Group recently completed an investment
in Wind Energy Holdings, the company
constructing Thailand’s first utility-scale
wind projects. These projects benefit
from a highly attractive ten-year adder
tariff and considerable downside protec-
tion through conservative underwriting
assumptions. Partners Group continues to
believe that the most compelling opportu-
nities in emerging markets involve asset-
creation strategies (i.e. greenfield) rather
than buying existing assets (i.e. brown-
field), which tend to be priced at a premi-
um. We are seeing particularly attractive
deal-flow in the renewable energy sec-
tor in Asia (in particular Thailand, India
and Malaysia), Latin America, Eastern
Europe and South Africa. Many of these
geographies have established attractive
feed-in tariffs to promote development in
the renewables space but have sensibly
structured such subsidies to make them
fiscally acceptable longer-term (thereby
reducing the risk of retrospective changes
as we have seen in Europe). Outside the
renewables sector we also believe that
transportation and energy infrastructure
assets remain attractive in the emerging
markets, particularly in Asia.
How should pension funds access the
infrastructure investment opportu-
nity?
Maximiliano Del Vento: Pension funds
that wish to access the investment op-
portunity should prioritize building a
diversified portfolio of quality infra-
structure assets. Partners Group be-
lieves it is important to diversify private
infrastructure investments by region,
sector, and maturity stage (greenfield/
brownfield). Such diversification within
the asset class is important due to the
independent and significantly uncorre-
lated nature of the risks to which private
infrastructure assets are exposed (e.g.
political risk, regulatory risk, project
risk and potentially some demand risk).
Pension funds should also appreciate
that there is not a “one size fits all” ap-
proach to how best to access this oppor-
tunity. Partners Group approaches the
infrastructure investment opportunity
through an integrated approach of in-
vesting in infrastructure funds (on both
a primary and a secondary basis) as well
as directly into infrastructure projects/
assets. Investing in this manner allows
the firm to take maximum advantage of
market opportunities for the benefit of
its clients. In this way Partners Group
also can construct portfolios that more
effectively mitigate the J-curve, pro-
vide earlier distributions and enhanced
liquidity.
“In our experience, pension funds are
increasingly looking at infrastructure to
diversify their portfolios, due to the low
correlation to traditional asset classes.”
Infrastructure Financing
Maximiliano Del Vento

Latin Infrastructure Quarterly10 Deals
Maximiliano DelVento, Investment Solutions, Partners Group
Maximiliano Del Vento is a member of
the investment solutions team in the
New York office. His responsibilities
include investment origination and cli-
ent relations in Latin America. Prior to
joining Partners Group, he worked at
Merrill Lynch in New York, covering pri-
vate clients and middle market institu-
tions in Latin America. Previously, he
was an associate at Bank of America
Merrill Lynch global investment bank in
New York, covering financial sponsors
in North America. He holds a Master’s
degree in corporate finance from the
University of Barcelona in Spain, an
LL.M. in Law and Economics from the
University of Torcuato Di Tella in Argen-
tina, a juris doctor degree (J.D. equiva-
lent with honors) from the University of
Belgrano, Argentina and earned a Financial Risk Management Certificate
from New York University.
Partners Group strategically allocates
capital to the segments of the private in-
frastructure market that the firm believes
will offer superior value “relative” to
other segments at a given point in time
within strategic asset allocation ranges.
Partners Group considers this integrated,
relative value approach to be the founda-
tion for superior long-term investment
performance.
What have been major works financed
in the past by AFAP? And, what are the
projects in the pipeline?

Ignacio Azpiroz: I have already men-
tioned the construction of Montevideo’s
International Airport that involved a total
investment of over $ 200 million. Some
other major projects funded by AFAP in
the past include the improvement of na-
tional highways, energy production proj-
ects and the development of sanitation
systems. These projects were developed
by national and local governments. Re-
garding the pipeline, the first two projects
are a Greenfield of a correctional institu-
tion and a Brownfield of roads. We also
foresee some other investments in rail-
roads, ports development, and wind ener-
gy which will demand investments close
to $ 5 billion in the next 5 years.
What is the role of the Uruguayan Cen-
tral Bank in AFAP investments?
Ignacio Azpiroz: The Uruguayan Central
Bank (UCB) regulates the entire system.
The availability of this type of invest-
ment projects is based on three minimum
requirements: 1) the UCB must approve
the investment; 2) the instruments must
be listed on an exchange; and 3) obtain
a local rating of at least BBB-. The main
challenge now is to obtain a good rating
during the pre-operational phase with
some credit enhancement that can ensure
the participation of pension funds from
the start. One important issue is that the
AFAP cannot bear construction risk. I
think that a mechanism to minimize this
risk must be developed.
Ignacio Azpiroz: In sum, I am con-
vinced that the economic environment
as well as the adequate legal framework
will promote the success of PPP projects.
I expect a high interest in this type of
investment, both locally and internation-
ally. PPP projects are not only a great op-
portunity for portfolio diversification but
will also help improved competitiveness
as well as quality of life for our affiliates.
Maximiliano Del Vento: The suc-
cessful expansion of pension funds into
infrastructures depends to a large extent
on regulatory changes to pension fund re-
gimes. Several countries around the world
are adapting their regulations to address
infrastructure needs, putting local pension
funds and other institutional investors in
a leadership position to champion the de-
velopment of asset class. Failure to make
significant progress towards bridging the
infrastructure gap could prove costly in
terms of slower economic growth and
loss of international competitiveness.
Ignacio Azpiroz, Chief Invest-
ment officer, Union Capital AFAP
(Pension Fund – Uruguay)
Ignacio Azpiroz is the Chief Invest-
ment officer of Unión Capital AFAP,
one of the four pension funds in Uru-
guay with USD 1.450 million of asset
under management as of September,
2011. He has more than 15 years of
experience in the market. He has also
advised Boston Fondos mutual funds
from 1999 to 2001. He is an econo-
mist from the Udelar University, and
holds a Finance Diploma from ORT
University. Besides he is a CFA char-
terholder since 2007.

J
ust recently, however, on April 18,
2012, the first Rule 144A/Reg S
project bond was issued for a Latin
American Brownfield project be-
fore construction and without credit en-
hancement. This landmark project bond
was issued by Terminales Portuarios Eu-
roandinos Paita S.A. (the “Issuer”) for
the expansion of the Paita Terminal Port
in the region of Piura, Peru (the “Port”).
The notes (the “Notes”), which are due in
2037, raised $110,025,000, carry a fixed
interest rate of 8.125%, and were rated
“BB-” by Fitch and “BB” by Standard &
Poor’s. This article provides an overview
of the transaction, and explores some of
the key structuring issues that had to be
overcome in order to complete the first
successful Rule 144A/Reg S project bond
with full demand, operating and construc-
tion risk for a Latin American project.
The Issuer
The Issuer operates, maintains and devel-
ops the Port, which is the second largest
coastal port in Peru based on twenty-foot
equivalent units (“TEUs”), and the largest
TheProjectBond
Evolution:
byGianlucaG.Bacchiocchi,Esq.
coastal port in the northern region of Peru
in terms of container volume. Its opera-
tions are carried out pursuant to a 30‑year
design, build, finance, operate and transfer
concession granted by the Government
of Peru (the “Concession”) in September
2009. The Issuer derives its revenues from
tariffs charged for the provision of cer-
tain standard services to users of the Port
which are required under the Concession,
including, among others, the loading and
unloading of cargo, cargo movement and
weighing, and from fees charged for the
provision of any special services to users
of the Port not required under the Conces-
sion, including, among others, stevedor-
ing, reefers, shiftings and late arrivals.
The Issuer is 50% owned by Cosmos
Agencia Marítima S.A.C. (“Cosmos”), a
subsidiary of Andino Investment Hold-
ing S.A. (“AIH”), 40% owned by Tertir
– Terminais de Portugal S.A. (“Tertir”),
a subsidiary of Mota-Engil, SPGS, S.A.
(“Mota-Engil”), and 10% owned by Mo-
ta-Engil Peru S.A., a subsidiary of Mota-
Engil and formerly known as Translei
S.A. (“Mota-Engil Peru” and together
with Cosmos and Tertir, the “Sponsors”).
PortofPaita
CaseStudy
Infrastructure financing in Latin America has developed
rapidly over the last 6 years. What was generally limited
to syndicated bank and multi- and bilateral lending, gov-
ernment funding and insured project bonds, infrastruc-
ture financing has evolved to rely on the capital markets
like never before, even without the support of traditional
credit enhancers. In the past, especially before the 2008
market meltdown, when the capital markets were accessed
to finance Greenfield and Brownfield projects, interna-
tionally placed bonds were either wrapped by credit en-
hancers, or involved the securitization of payments com-
ing from a central government that were not tied to the
completion of the project or operating risk. Only once the
project was completed could a project bond that relied on
the cash flows of the particular project be issued without
credit enhancement in the capital markets. In the latter
case, the original debt that was incurred for the construc-
tion of the project was refinanced with bonds that a pro-
vided longer tenor with fixed interest rates (if US dollar
based) and perhaps even lower interest rates.

Latin Infrastructure Quarterly 13Deals
The Port
The Port was built in 1966 and reno-
vated in 1999. The Port was managed
by Empresa Nacional de Puertos, S.A.
(“ENAPU”), an entity owned and con-
trolled by the Government of Peru, from
its construction until October 7, 2009,
when the Issuer took over operations in
accordance with the Concession. The
Port’s operations are focused on exports,
which represented approximately 71% of
its total activity in 2011, 99% of which
consisted of container shipments. The
main exports shipped through the Port
are fish, fishmeal, fish oil, mangos, coffee
and bananas. The main imports shipped
through the Port are solid bulk products,
such as fertilizers and grains, and liquids,
such as soy oil.
The Concession
Pursuant to the Concession, the Issuer
has the right to operate and maintain the
Port’s existing facilities and is required to
design, construct, operate and maintain
a new container pier and, depending on
the level of utilization of the Port, make
certain other improvements, including the
installation of additional port equipment
and reinforcement of the existing jetty
pier. The Issuer is also required to pro-
vide the standard services, but is entitled
to collect fees for any other services that
are provided to users of the Port.
Pursuant to the Concession, the Min-
istry of Transport and Communications
of the Republic of Peru (Ministerio de
Transportes y Comunicaciones de la
República del Perú) (the “Grantor”) pro-
vides the Issuer with a minimum annual
income guarantee (“IMAG”) pursuant to
which the Grantor will pay the Issuer the
shortfall between the revenues collected
by the Issuer for a particular calendar
year and the minimum annual guaran-
teed income for that year (which amount
increases each year that it is available).
An IMAG can be an important consid-
eration for a financing, especially if it is
sized to cover debt service during the life
of the debt service and is paid quickly
once a shortfall determination has been
made. However, in this transaction it
was not given any consideration by the
rating agencies because it was not sized
to cover the debt service on the notes ac-
cording to their model, and because the
bulk of the IMAG was only available for
a period of 15 years, beginning one year
after the completion of Stage 1 (described
below), whereas the Notes would be out-
standing for approximately 7 additional
years. One final consideration regarding
the IMAG for this transaction was rele-
vant: it is paid 12 to 13 months after the
fiscal year in which a shortfall determina-
tion has been made, and not on a month-
by-month basis, meaning that it does not
cover demand volatility during a year, but
rather such volatility had to be mitigated
by a debt service reserve.
The Concession may be terminated
prior to its original expiration date for the
following reasons, among others: (a) mu-
tual agreement of the parties, (b) unilater-
ally by the Grantor for reasons related to
public interest, (c) by the non-breaching
party upon a breach of the other party’s
material obligations, or (d) at the Issuer’s
option in case of force majeure or acts of
God that affect the completion of the Is-
suer’s contractual obligations under the
Concession for a period of 6 months and
produce losses of over 60% of the Port’s
operational capacity.
The Issuer is required to invest ap-
proximately $293 million in the Port (the
“Works”) in four stages, so long as cer-
tain demand levels are reached at the Port.
Stage 1 of the Works, with an estimated
total cost of $130 million, is required to
begin immediately and consists of the
construction of a new terminal, which
will have a 300 meter berth and 13 me-
ter depth and a container yard of 12 hect-
ares, and the installation of three gantry
cranes at the Port (“Stage 1”). Stage 2
of the Works is required to be completed
within 18 months of the Port achieving
container volume of 180,000 TEUs per
year, and involves the purchase of addi-
tional port equipment with an estimated
cost of approximately $19.3 million
(“Stage 2”). Stage 3 of the Works is re-
quired to be completed within 18 months
of the Port achieving container volume of
300,000 TEUs per year, and involves the
reinforcement of the existing jetty pier, its
support area and the purchase of addition-
al port equipment, with an estimated cost
of approximately $19.8 million (“Stage
3”). The remaining investment of ap-
proximately $123,000,000 (“Stage 4”) is
at the Issuer’s discretion for the operation
of the Port, but must be completed ac-
cording to the following schedule: by the
5th year of the Concession $5,000,000 of
Works are to be completed, by the 10th
year an additional $10,000,000 of Works
are to be completed, by the 15th year an
additional $10,000,000 of Works are to
be completed and by the 20th year the re-
mainder of the additional Works are to be
completed. The Concession requires the
Issuer to set aside and transfer to a special
trust (the “Additional Investments Trust”)
each year, for the first 20 years of the
Concession, amounts required to com-
plete the Stage 4 Works according to a
schedule that ensures that adequate funds
will be available to complete these Works
in accordance with the above timing.
As compensation for the Concession,
the Issuer is required to pay two fees on
a monthly basis. The first fee is paid to
the Grantor, and is equal to 2% of the net
monthly income of the Issuer from pro-
viding standard and special services at
the Port. The second fee is paid to the
regulator of the Port, the Peruvian Pub-
lic Transport Infrastructure Regulatory
Agency (Organismo Supervisor de la In-
versión en Infraestructura del Transporte
de Uso Público) (the “Regulator”), which
is currently equal to 1% of net annual in-
come received from standard and special
services at the Port. In addition, the Is-
suer must make a contribution every year
to the Port of Paita Social Fund in the
amount of U.S.$195,858, which funds are
intended to promote sustainable develop-
ment in the Paita Province.
Construction and Equipment
Works
All the construction Works that are in-
tended to be completed with the pro-
ceeds of the financing (the “Construc-
tion Works”) include the construction
for the Stage 1 Works and certain Stage
4 Works. These Construction Works are
to be completed by Mota-Engil Peru,
with the support of Mota-Engil, Engen-
haria e Construção S.A. (collectively, the
“Contractors”), pursuant to a fixed price
engineering, procurement and construc-
tion services contract (the “EPC Con-
tract”). The Contractors, pursuant to the

EPC Contract, are required to provide a
performance guaranty in an amount equal
to 10% of the total compensation to be
paid under the EPC Contract and a qual-
ity guarantee in an amount equal to 1.5%
of the total compensation to be paid un-
der the EPC Contract. Other than these
guarantees provided by the Contractors,
no other guarantees are provided to the
Issuer for the Construction Works.
The equipment Works that are to be
completed with the proceeds of the fi-
nancing (the “Equipment Works”) include
all of the cranes required for the Stage 1
Works and two additional mobile cranes
that qualify as Stage 4 Works. The Equip-
ment Works will be completed under two
separate sale and installation contracts.
The Stage 1 Equipment Works will be
completed by Liebherr Container Cranes
Ltd. and the Stage 4 Equipment Works will
be completed by Liebherr Werk Nenzing
GMBH. Both supply contracts require the
suppliers to provide the Issuer with letters
of credit to support the completion of their
obligations under the supply contracts and
to support the advance payments required
to be made by the Issuer under them.
Supervision of the Works
The Issuer entered into a construction
and equipment installation supervision
contract (the “Construction Supervision
Contract”) with Bureau Veritas del Peru
S.A. (the “Supervisor”) to supervise the
construction of the Construction Works
and the installation of the cranes, and to
coordinate these Works to ensure timely
completion of the Issuer’s obligations un-
der the Concession Agreement.
In addition, the Issuer entered into
a contract (the “Independent Engineer
Agreement”) with R. Rios J. Ingenieros
(the “Independent Engineer”), which is
acting as the independent engineer on
behalf of the bondholders, and with Ci-
tibank, N.A., as bondholder trustee (the
“Indenture Trustee”), pursuant to which
the Independent Engineer provides, for
the benefit of the Indenture Trustee on
behalf of the bondholders, all services
contemplated to be performed by the
Independent Engineer under the various
transaction documents. These services
include, among others, reviewing and au-
thorizing payments for the Construction
Works and Equipment Works and moni-
toring the progress of construction under
the EPC Contract, and the installation and
assembly of the cranes. In addition, the
Independent Engineer was requested to
prepare an independent engineer’s report,
that was attached to the offering circular
for the Notes.
Because the financing is pursuant to a
project bond, rather than a traditional loan
transaction, the Independent Engineer
will also be required to re-test the Issuer’s
debt service coverage ratio upon the oc-
currence of certain events and provide
approvals or disapprovals with respect
to certain actions of the Issuer under the
transaction documents, such as changes
to budgets, the Issuer’s three-year capi-
tal plan and the implementation of any
major Works. These additional actions
are significant in a project bond, since
the Issuer will not know the identity of
the bondholders to discuss these actions
with them, and bondholders, unlike lend-
ing institutions, tend to be passive inves-
tors, holding the bonds without getting
involved in decision-making, unless fac-
ing a significant change or an event of de-
fault. In this transaction, not all approval
rights were given to the Independent
Engineer, which is normal for a project
bond. In those situations where the Inde-
pendent Engineer was not given approval
rights and the bondholders are required
to approve certain actions (other than an
event of default scenario), the bondhold-
ers will be deemed to have approved such
actions unless a certain percentage (usu-
ally a majority) of the bondholders have
responded within a set amount of time
after receiving the applicable approval
request notice, disapproving of the ac-
tion. This deemed approval approach
prevents bondholders who fail to respond
to an approval request from keeping the
Issuer from going forward with necessary
changes, even though these bondholders
would have agreed with the request if
they had responded. The assumption is
that only bondholders that disagree with
a certain action will be motivated enough
to respond to an approval request. In an
event of default scenario, the bondholders
will be required to give actual instructions
to the Indenture Trustee.
The Notes
The Notes, which are senior secured obli-
gations of the Issuer, were issued pursuant
to a New York law-governed indenture
and indenture supplement (collectively,
the “Indenture”). The Notes carry a fixed
interest rate of 8.125% throughout the life
of the Notes and fully amortize over a pe-
riod of 25 years; however, during the first
5 years only interest is paid on the Notes.
The long tenor and fixed interest rate are
probably the biggest advantages the Is-
suer achieved by issuing a project bond,
rather than entering into a traditional loan.
Even though the Notes were rated “BB-”
by Fitch and “BB” by Standard & Poor’s,
which classifies the Notes as high yield
bonds, the Issuer was still able to obtain
an attractive long term fixed interest rate
due to the structure, low interest rate en-
vironment, stable country risk (Peru cur-
rently has a foreign debt rating of “BBB”
by both Fitch and S&P) and the demand
for long-term fixed income.
“The Notes carry a fixed
interest rate of 8.125%
throughout the life of the
Notes and fully amortize over
a period of 25 years”

For those that are not familiar with
project bonds, the Indenture contains all
of the various covenants and representa-
tions and warranties of the Issuer and the
events of default, similar to a loan agree-
ment. Most of the covenants, representa-
tions and warranties and events of default
are similar to what would have been ne-
gotiated in a traditional loan agreement;
however, there are some key differences.
As mentioned above, the approval rights
have been modified to reflect the different
protocols for approving various actions,
which includes giving greater rights to the
Independent Engineer and using deemed
approvals when bondholders are required
to weigh in. In addition, greater flexibil-
ity was given to the Issuer before approv-
als are required. This was accomplished
by giving more materiality carve-outs
and increasing certain dollar thresholds.
Another significant difference from a tra-
ditional project finance loan transaction
is that the Issuer is not required to abide
by the Equator Principles. This is not
the case in all project bonds, especially
if the arrangers and initial purchasers of
the bonds are also Equator Principles Fi-
nancial Institutions (“EPFIs”). Two key
factors that are generally discussed when
determining whether an issuer of a proj-
ect bond must comply with the Equator
Principles are, first, whether the potential
investors require compliance and, second,
if the initial purchaser is an EPFI, whether
its internal policy requires compliance for
a project bond.
In order to give the Issuer maximum
flexibility to finance future Works within
the same structure, the Indenture for this
transaction allows for future series of pari
passu notes to be issued to finance such
Works. Even though the Issuer is required
pursuant to the transaction documents to
set aside monies for future investments at
the Port, the ability to anticipate Works
before the money has been set aside, so
long as certain conditions precedent are
met, such as debt service coverage ratios,
allows the Issuer to choose when it makes
the most economic sense to complete ad-
ditional Works. In addition to providing
flexibility, the ability to issue additional
series of pari passu notes under the same
indenture also alleviates the need to enter
into intercreditor agreements, since all of
the waterfalls, voting rights and collateral
rights are already contemplated in the
payment and guarantee trust agreement
(discussed below), the Indenture and any
future indenture supplements for all po-
tential series of notes issued by the Issuer
pursuant to the Indenture.
Although the Notes are expected to
remain outstanding for 25 years, they
are subject to the following redemption
events: (a) optional redemption with a
make-whole premium for the life of the
Notes, (b) withholding tax redemption,
(c) change of control of the Issuer and (d)
mandatory redemption upon the occur-
rence of certain events of default.
Security
The Notes are secured equally by first
priority liens and ratably on a pari passu
basis by (a) a pledge of all of the capital
stock of the Issuer held directly or indi-
rectly by AIH and Mota-Engil pursuant
to a shareholder pledge agreement, (b) a
mortgage over the Concession, (c) a per-
fected beneficial and/or security interest
in substantially all of the Issuer’s assets,
granted pursuant to a Peruvian payment
and guarantee trust agreement (the “Pay-
ment and Guarantee Trust Agreement”)
entered into between the Issuer and Ci-
tibank del Perú S.A., as Peruvian trustee
(the “Peruvian Trustee”), and (d) an un-
conditional and irrevocable pledge, as-
signment and transfer to the Indenture
Trustee pursuant to the Indenture, for the
benefit of the bondholders and all other
secured parties, of a security interest in all
of the Issuer’s rights, title and interest in,
to and under any other assets. Since most
of the security is subject to Peruvian law,
Citibank del Perú S.A. was appointed by
the Indenture Trustee and the Issuer as
sub-collateral agent pursuant to a sub-
collateral agency agreement to act on be-
half of the Indenture Trustee with respect
to all Peruvian collateral. In addition, the
Notes also have the benefit of a debt ser-
vice reserve account equal to 6 months of
debt service.
Payment and Guarantee Trust
The Payment and Guarantee Trust Agree-
ment is the key security agreement for
the transaction. All of the cash flows of
the Issuer from the Concession, including
all revenues from services and insurance
proceeds, are deposited in a revenue ac-
count and flow through the accounts es-
tablished by the Payment and Guarantee
Trust Agreement pursuant to a waterfall
that terminates with the excess cash flow
account. In addition, all payments to the
Issuer for operations and maintenance
costs (including setting aside monies
in a reserve account for operations and
maintenance) and Construction Works
are made by the Peruvian Trustee, as well
as payments required to be made to the
Grantor, the Regulator and the Port of
Paita Social Fund under the Concession.
The Peruvian Trustee is also required to
set aside the debt service required for the
Notes and any future series of notes, as
well as any amounts required to top up
the debt service reserve account, both
of which are transferred to the Indenture
Trustee for application pursuant to the In-
denture.
With respect to future Works, the Pe-
ruvian Trustee is required to begin setting
aside monies required for Stage 2 Works
in a separate trust account (the “Stage 2
Trust Account”) once container volume
at the Port reaches 160,000 TEUs per
year. The schedule of the amounts to
be set aside each month, which is based
on the financial model’s projections for
the Port at closing, is expected to ensure
“Another significant difference from
a traditional project finance loan
transaction, is that the Issuer is not
required to abide by the Equator
Principles”

that sufficient monies will be set aside to
complete the Stage 2 Works once the Port
has achieved container volume equal to
180,000 TEUs per year.
Similarly, with respect to the Stage 3,
the Peruvian Trustee is required to begin
setting aside monies required for Stage
3 Works in a separate trust account (the
“Stage 3 Trust Account”) once container
volume at the Port reaches 260,000 TEUs
per year. The schedule of the amounts to
be set aside each month, which is based
on the financial model’s projections for
the Port at closing, is expected to ensure
that sufficient monies will be set aside to
complete the Stage 3 Works once the Port
has achieved a container volume equal to
300,000 TEUs per year.
With respect to the Stage 4 Works, the
Peruvian Trustee is required to set aside
monies immediately according to a sched-
ule set forth in the Concession agreement
that ensures that sufficient monies are
set aside to complete the Stage 4 Works
when required, as described above. The
Peruvian Trustee transfers these monies
to the trustee of the Additional Invest-
ments Trust on a yearly basis, or earlier
if required to complete such Works. The
requirement of the Issuer to both (a) make
significant additional investments at the
Port pursuant to the Concession and (b)
reserve for future Works according to a
schedule mandated by the Concession,
with respect to Stage 4, and the schedules
set forth in the Payment and Guarantee
Trust Agreement, with respect to Stage 2
and Stage 3, added complexity and lever-
age to the structure, but it also provided
assurance to investors that the structure
accommodates all future investment ob-
ligations of the Issuer under the Conces-
sion.
All equity contributions required to be
made by the Sponsors pursuant to a spon-
sor support agreement are deposited, after
passing through a separate escrow account
set up for tax purposes, into an equity pro-
ceeds account maintained by the Peruvian
Trustee. The Notes raised approximately
68% of the amounts needed for the Con-
struction Works, Equipment Works and to
fund various transaction accounts. The
Sponsors’ equity contributions cover the
balance and are supported by letters of
credit that can be drawn upon by the Peru-
vian Trustee and deposited into the equity
proceeds account. The Sponsors were
required to make equity contributions
on or prior to the issuance of the Notes
to pay for their contribution with respect
to (a) the costs for Equipment Works, (b)
up-front payments for the Construction
Works, (c) the required balance of the
operations and maintenance reserve ac-
count, (d) the required balance of the debt
service reserve account, (e) an up-front
amount to be set aside for the Additional
Investments Trust and (f) and other costs
being funded and pre-funded on the issu-
ance date of the Notes.
After the issuance date of the Notes, the
Sponsors are required to make periodic
equity contributions to pay for Construc-
tion Works and any other costs required to
be paid for by equity contributions, such
as certain Equipment Works and certain
operating and maintenance costs.
droughts, plagues and natural disasters.
In addition, demand can be affected by
macroeconomic factors and competi-
tion. An independent traffic consultant,
APOYO Consultoría S.A.C., provided a
traffic study of the Port that incorporated
weather and macroeconomic factors to
predict potential demand volatility at the
Port. This traffic study was a very impor-
tant component for the rating process and
for creating the financial model.
Because of the long tenor of the Notes,
it was important to consider structural
elements that could provide liquidity if
demand is negatively impacted at the
Port over the life of the Notes. A debt
service reserve is a typical enhance-
ment for moderate demand volatility.
However, in order to address significant
demand volatility, the Issuer was given
the following additional liquidity: if de-
mand decreases and either (a) container
volume drops below 160,000 TEUs per
year before 18 months have passed af-
ter it reaches 180,000 TEUs per year
(i.e., when the Stage 2 Works must be
completed) or drops below 260,000
TEUs per year before 18 months have
passed after it reaches 300,000 TUEs
per year (i.e., when the Stage 3 Works
must be completed), as applicable, or
(b) the Issuer reasonably believes that
it will not achieve container volume
of 160,000 TEUs per year or 260,000
TEUs per year, as applicable, within 1
year of the date predicted for achiev-
ing such volume levels in the financial
model on the closing date (collectively,
“Demand Events”), the Issuer is al-
lowed to tap into the Stage 2 Trust Ac-
count or the Stage 3 Trust Account, as
applicable, for debt service and also to
suspend deposits into the applicable ac-
count until a new date agreed upon with
the Independent Engineer. The Issuer
must first demonstrate to the satisfac-
tion of the Independent Engineer that a
Demand Event has occurred before the
Issuer will be given these rights. Since
the Stage 2 Works and Stage 3 Works
only need to be performed once the re-
quired volume levels are reached, this
additional liquidity benefits both the
bondholders and the Issuer without
compromising the Issuer’s obligations
under the Concession.
Demand Risk
As with any project with demand risk,
there is always a possibility that de-
mand may decrease and result in lower
revenues at the Port than originally an-
ticipated. Since the Port is mostly export
oriented, the main drivers for demand
are agricultural and oceanic output in
the Port’s area of influence, which can
be affected by, among other things, cli-
mate change, including El Niño, floods,
“One of the most
significant aspects of
this project bond is
that the construction
risk was not fully
mitigated, which is
the first time this has
been accomplished
for a Latin American
Rule 144A/Reg S
project bond.”

Operating Risk
The Issuer enjoys the benefit of the global
and local experience of its joint venture
partners in operating ports and providing
related logistical services. In addition,
before the bond offering, the Issuer was
able to operate the port for 2 and 1/2 years
to create a positive track record that could
be analyzed by both the rating agencies
and the bondholders. These factors, along
with a reserve account for operating and
maintenance, were able to significantly
mitigate the operating risk to the satisfac-
tion of the rating agencies and the bond-
holders.
Construction Risk
Based on the report provided by the In-
dependent Engineer, the Construction
Works and Equipment Works are not
complex and can be completed within
the timetable established by the Issuer.
Also, the EPC contractor, which agreed
to do the Construction Works pursuant to
the EPC Contract that includes a perfor-
mance guarantee and quality guarantee,
has significant construction experience in
Peru. In addition, the supply contracts for
the Equipment Works are with reputable
suppliers of cranes who agreed to pro-
vide performance guarantees pursuant to
the supply contracts. These factors, along
with the involvement of the Supervisor
and the Independent Engineer, helped to
considerably reduce the construction risk
of the project, although construction risk
was still a factor.
One of the most significant aspects of
this project bond is that the construction
risk was not fully mitigated, which is
the first time this has been accomplished
for a Latin American Rule 144A/Reg S
project bond. The key reason the proj-
ect bond was able to proceed with con-
struction risk is that, as a Brownfield
project, the Port has been generating
revenues for years, including the most
recent 2 and 1/2 years pursuant to the
Concession, which allows bondholders
to be paid, whether or not construction
is completed on time. There still is the
risk of a default under the Concession
due to the construction, but not having
to rely on the construction of a project
to be completed for revenues to be gen-
Gianluca G. Bacchiocchi is a partner
at DLA Piper and focuses his practice
on representing sponsors, issuers and
underwriters in cross-border capi-
tal markets transactions with Latin
America, including project bond fi-
nancings, public and private issuanc-
es of asset-backed securities, private
issuances of future-flow backed secu-
rities and high-yield debt issuances.
Mr. Bacchiocchi also assists sponsors,
borrowers and lenders with project
and infrastructure financings, public-
private partnership transactions, gen-
eral secured and unsecured lending
arrangements and international debt
restructurings. He has been named
a leading capital markets and bank-
ing and finance lawyer by Chambers
Latin America. Transactions handled
by Mr. Bacchiocchi have received a
number of awards from IFLR, Project
Finance and Latin Finance, includ-
ing most recently the Latin American
Water Infrastructure Deal of the Year
2010 Award from Project Finance and
the 2011 Americas Project Finance
Deal of the Year Award from IFLR.
Mr. Bacchiocchi is fluent in Italian,
Portuguese and Spanish.
erated was a very important consider-
ation for bondholders.
Negative Carry
Probably one of the most challenging as-
pects of a non-refinancing project bond
is how to address negative carry, which
is the interest paid on bond proceeds that
cannot be fully deployed since the con-
struction will occur over a period of time.
In a number of project bonds, this issue
has been addressed by issuing variable
funding notes. In this transaction, it was
decided that for obtaining the best execu-
tion, only one series of regular upfront
funded notes would be issued. However,
since the negative carry incurred by the
Issuer will be amortized over 25 years,
its impact will be minimized. Since is-
suers tend to focus on the all-in costs of
the transaction, the all-in costs will not be
significantly impacted by negative carry
so long as the bonds they issue are ex-
pected to have a long tenor.
Conclusion
As project bonds have evolved, espe-
cially over the last 6 years, sponsors now
have more options available to them,
even if some traditional lending op-
tions are less accessible due to the cur-
rent banking crisis in Europe. Although
the capital markets may be unfamiliar
territory for some sponsors, the advan-
tages that project bonds provide spon-
sors, namely long term financing at fixed
rates (if US dollar based) and potentially
lower interest rates, can significantly
outweigh the disadvantages, namely ob-
taining consents from bondholders, dif-
ficulty analyzing construction risk and
negative carry, which as the Paita Port
project bond demonstrates, can be read-
ily addressed. If this was a Greenfield
project, it is unlikely that the construc-
tion risk would have been left complete-
ly unmitigated for a project bond, but as
bond investors and rating agencies be-
come better at analyzing infrastructure
projects and governments get better at
structuring concessions, project bonds
will continue to evolve in Latin America
and perhaps Greenfield project bonds
with construction risk may someday be-
come a reality.

Latin Infrastructure Quarterly18 Infrastructure Financing
Brazilian
Fostering
of Private
Financing of
Infrastructure
Projects
Ricardo Simões Russo (Partner),
Enrico Bentivegna (Partner) and
João Fernando A. Nascimento
(Senior Associate) of Pinheiro
Neto Advogados
A
fter more than a decade of
economic stability and timid
(when compared to other
emerging countries) although
resilient growth, it is time for Brazil to
tackle its most critical deficiency: the
country’s infrastructure.
With most of the investments in in-
frastructure deployed back in the 1970’s
and mid 1980´s, Brazil now faces a grim
scenario: recurring power blackouts
(apagões), especially during draught
seasons, overwhelmed airports, roads re-
quiring immediate maintenance, incipi-
ent railway network and insufficient port
services. According to the latest “Global
Competitiveness Report 2011-12”, Bra-
zil, currently the 6th largest economy in
the world, occupies the 53rd position in
general competitiveness and only 104th
in quality of overall infrastructure.
This scenario is a consequence of,
among several other macroeconomic fac-
tors, a low rate of investments in infra-
structure. It is estimated that Brazil has
invested, in average, approximately 2% of
its GDP in infrastructure since 1985. The
main reason for this decline in infrastruc-
ture investments is the general deteriora-
tion of the macroeconomic environment
verified in Brazil in the mid-1980’s, when
the country was suffering with a soaring
inflation and an upsurge in its public in-
debtedness.
There is consensus among all sectors
of the Brazilian society that if the govern-
ment does not act energetically in order
to create a favorable environment for in-
vestments in infrastructure the country’s
development may enter stagnation in the
next years.
The Growth Acceleration
Programmes (“PACs”) and
BNDES
As an attempt to remedy the shortfalls
concerning public and private invest-
ments in infrastructure, Brazilian federal
government has put in place two large
infrastructure programs, the first one
in 2007 (“Programa de Aceleração do
Crescimento” or “PAC” - Growth Ac-
celeration Program), and the second one
in 2010 (also known as “PAC II”). As a
result, the share of public investments in
infrastructure alone reached 3.2% of the
country’s GDP in 2010.
Both PAC and PAC II program and
the investments deriving therefrom rely
heavily in public financing. As the main
financing agent for infrastructure proj-
ects in Brazil, the Brazilian National So-
cial and Economic Development Bank
(“BNDES”) plays an essential role in the
Brazil’s equation to sustain economic
growth, competitiveness and innovation.
According to its own reports, BNDES
is likely to disburse up to R$ 150 billion
(US$77 billion) in 2012, which represents
a slight increase over last year’s R$140
billion (US$ 71 billion). This increase,
although not very significant, evidences
that Brazil is not ready yet to reduce the
role of BNDES in the economy, so as to
foster the participation of the private sec-
tor in the financing of infrastructure proj-
ects.

In addition, according to research re-
ports published by the BNDES, there is
a need in Brazil for investments in the
amount of R$ 1,324.00 billion during the
period of 2010 to 2013. Further, pres-
ently, approximately 90% of long term
financings in Brazil were granted by state
owned banks, BNDES and federal finan-
cial institutions.
In order to accomplish the above men-
tioned endeavor, the Brazilian govern-
ment must improve the tools available in
the Brazilian market, in order to promote
the participation of the private sector in
long term financings required for the im-
plementation of infrastructure projects.
In this regard, recent rules and regula-
tions were enacted in order to promote the
creation of a long term financing private
market. Such rules have as their main pur-
pose not only foster the participation of
private entities on long term credit trans-
actions but also aim to promote in Brazil
the development of the local debt securi-
ties market.
Infrastructure Bonds – Re-
quirements and Benefits
ThroughtheenactmentofLawNo.12,431,
of June 24, 2011 (“Law 12,431/11”),
which was further regulated by Decree-
Law No. 7.603, of November 9, 2011
(“Decree-Law 7,603/11”), the Brazilian
government created certain mechanisms
to promote the use by local companies
of the capital markets for the purposes of
their long term financing. Among these
mechanisms the so-called “Debêntures
de Infraestrutura” (Infrastructure Bonds)
were created, the first type of securities in
Brazil designed specifically to raise long-
term private funds to be applied in infra-
structure projects.
Requirements
The main requirements in connection
with the issuance of Infrastructure Bonds
can be summarized as follows:
1. such debt securities must be issued by
a special purpose company organized
for the specific infrastructure project;
2. the project to which they are linked
must be approved by the applicable
ministry overseeing the industry in
which the project is inserted;
3. offering must have a minimum
weighed tenor of four years;
4. securities cannot be called upon or re-
deemed within the first two years of
their issuance;
5. the buyer cannot have a commitment
to resell the securities to the issuer;
6. securities must have a fixed interest
rate, linked to a price index or to the
Brazilian Reference Rate (TR);
7. interest payments cannot be made in
intervals shorter than one hundred and
eight days;
8. the Infrastructure Bond must be regis-
tered for trading in a regulated securi-
ties market; and
9. they must contain a simplified proce-
dure to demonstrate the purpose of al-
locating the proceeds in investment
projects, including the ones related to
the intensive economic production con-
nected with research, development and
innovation.
For the purposes of the ministry approval
mentioned in item (2) above the respec-
tive projects must: (1) be addressed to in-
vestments in infrastructure or to intensive
economic production connected with re-
search, development and innovation, and
“Both PAC and PAC
II program and the
investments deriving
therefrom rely heavily
in public financing.”
“The Brazilian National Social and Economic
Development Bank (“BNDES”) plays an essential
role in the Brazil’s equation to sustain economic
growth, competitiveness and innovation.”

Latin Infrastructure Quarterly20
(2) aim at the establishment, expansion,
maintenance, repair, adaptation or mod-
ernization, among others, of one of the
following areas: (a) logistics and trans-
portation; (b) urban mobility; (c) energy;
(d) telecommunications; (e) broadcasting;
(f) sanitation, and (g) irrigation.
Infrastructure Bonds must be distrib-
uted by means of public offerings pursu-
ant to the Normative Ruling No. 400, of
December 29, 2003, issued by the Brazil-
ian Securities and Exchange Commis-
sion (Comissão de Valores Mobiliários
– CVM), or also by means of public of-
ferings with restricted efforts (i.e., for a
limited number of investors and without
the need for registration with local secu-
rities commission), pursuant to the CVM
Normative Ruling No. 476, of January
16, 2009.
The offerings of Infrastructure Bonds
that are subject to the terms of Law
12,431/11 must be made prior to the
deadline of December 31, 2015.
Tax Aspects – Benefits of the
Infrastructure Bonds
Law 12,431/11 not only created a specific
type of long-term investment, but also es-
tablished additional measures to stimulate
the market for Infrastructure Bonds, espe-
cially by means of the tax treatment appli-
cable to the investors in such securities.
Under Law 12,431/11, in general
terms, income earned by investors shall
be subject to the Brazilian withholding
income tax, at the following rates:
1. 0% (zero percent) when ascertained
by foreign investors (provided they
are not resident or located in tax heav-
en jurisdictions);
2. 0% (zero percent) when ascertained
by individuals that are tax residents in
Brazil;
3. 15% (fifteen percent) when ascer-
tained by Brazilian legal entities that
are subject to taxation according to
the “actual profit regime” (lucro real),
“estimated profit regime” (lucro pre-
sumido) or “imposed profit regime”
(lucro arbitrado); tax- exempted legal
entities; or legal entities subject to the
Simplified Tax Payment System for
Small Businesses and Small Compa-
nies (Simples Nacional).
In addition, foreign investors that
make the acquisition of Infrastructure
Bonds are subject to the Brazilian so-
called “IOF exchange” assessment (tax
assessed at the foreign exchange transac-
tion verified at the moment of the entry
of the investment proceeds in Brazil) at
a 0% rate (as opposed to a rate that may
reach up to 6% in other types of fixed in-
come investments).
Other measures to stimulate
long-term private financing
Brazilian federal government also estab-
lished additional measures to stimulate
the market for long term financing, such
as exempting the long-term bank bonds
called letras financeiras from mandatory
reserve requirements.
The letras financeiras were created
by Provisional Measure No. 472, of De-
cember 15, 2009 (“MP 472/09”), which
was regulated in the following year by
Brazilian Monetary Council’s Resolution
No. 3,836, of February 25, 2010. In June
11, 2010, MP 472/09 was converted into
Law No. 12,249 (“Law 12,249”), which
further defined the legal terms and condi-
tions applicable to the letras financeiras.
The main characteristics of the letras
financeiras are:
1. they are fixed income instruments is-
sued by financial institutions;
2. they have a minimum maturity of
twenty-four (24) months; and
3. their minimum nominal amount is R$
300,000.
The first letras financeiras issued with the
abovementioned characteristics were reg-
istered with CETIP (Central Agency for
Custody and Financial Settlement of Se-
curities) in April of 2010. One year later,
the stock of such instruments had already
reached R$72.8 billion. At the end of
March, 2012, the stock of letras financei-
ras reached R$175.6 billion.
A market for long term private
debt instruments
In order to increase the trading volumes
of all these private, long-term bonds, the
Brazilian government is structuring, to-
gether with the private sector (under the
coordination of ANBIMA), the Liquid-
ity Enhancement Fund (Fundo de Apoio à
Liquidez – “FAL”), which main purpose is
to function as a “market maker”, funded by
BNDES and by mandatory deposits held
by banks with the Brazilian Central Bank
under mandatory reserve requirements.
The idea behind FAL is to provide a
safer environment for individuals and for-
eign investors interested in investing in
this new debt instruments, thus increasing
trading volumes for corporate debt (espe-
cially in the secondary market).
Conclusion
As seen from the initiatives described above,
Brazilian Government has put in place sev-
eral measures to promote long term invest-
ments in infrastructure. These measures en-
tail the continuance of public investment and
financing related to infrastructure projects, as
well as the creation of a friendlier environ-
ment for the private sector to participate in
the long-term corporate debt market.
“The so-called
“Debêntures de
Infraestrutura”
(Infrastructure
Bonds) were
created, the first
type of securities
in Brazil designed
specifically to raise
long-term private
funds to be applied
in infrastructure
projects.”
Deals

Enrico J. Bentivegna
Telefone: +55 (11) 3247-8719
ebentivegna@pn.com.br
São Paulo

Enrico J. Bentivegna has been a
member of the corporate area of
Pinheiro Neto Advogados since
2000, and is based at the São
Paulo office. He practices in the
areas of securitization of receiv-
ables, investment funds, corpo-
rate law, mergers and acquisitions,
capital markets, and regulation
of financial institutions, project fi-
nance and PPPs (Public-Private
Partnerships). Having graduated
from the University of São Paulo
Law School (1996), he holds a
specialization course in Corpo-
rate Law from the same University.
He worked as a foreign associate
at Hunton & Williams (Miami) in
2004. He was admitted to the Bra-
zilian Bar Association in 1997.
João Fernando A. Nascimento
Telefone: +55 (11) 3247-8798
jnascimento@pn.com.br
São Paulo

João Fernando A. Nascimento has
been a member of the corporate
area of Pinheiro Neto Advogados
since 2000, and is based at the
São Paulo office. He practices in
the areas of corporate finance,
project finance, trade finance, debt
restructuring, regulation of finan-
cial institutions and banking prod-
ucts, having graduated from the
Mackenzie University in 2002. He
worked as a foreign associate at
Hughes, Hubbard & Reed (Miami)
in 2008-2009. He was admitted
to the Brazilian Bar Association in
2002.
Ricardo Simões Russo
Telefone: +55 (11) 3247-8720
rrusso@pn.com.br
São Paulo

Ricardo Simões Russo has been
a partner at Pinheiro Neto Advo-
gados Corporate Area since 2009.
He focuses his practice on financial
and banking law, foreign exchange,
M&A and securities markets. Ri-
cardo has a LL.B. degree from the
Catholic University of São Paulo
(1997). He also has a LL.M degree
in Banking and Financial Law from
the Boston University School of
Law (2002). Fluent in Portuguese,
English, Spanish and Italian, he
was a foreign associate of Cleary,
Gottlieb, Steen & Hamilton in 2002
and 2003. He was admitted to the
Brazilian Bar Association in 1998.
Deals

Latin Infrastructure Quarterly22 Companies
O
ur major customers are min-
ing companies that use the
terminal facilities to export
their different products, con-
sidering that the amount of cargo moved
through Matarani Port represents the 50%
of their total cargo. Among them we can
name Sociedad Minera Cerro Verde Port
Free McMoran, Xstrata Copper, Compa-
nia de Minas Buenaventura, Glencore,
Ares and Suyamarca that belong to Ho-
schild group, and Minera Pampa de cobre
of Milpo Group. Copper concentrate, cop-
per cathodes and gold concentrate are the
main products which are shipped to ports
in Asia.
It is worth mentioning that Tisur is a
multi-purpose port due to the experience
at handling all types of cargo. The econo-
my of the region is growing significantly
and the road infrastructure is improving,
allowing the communication among other
towns and making new important projects
possible. Based on this, we can say Mata-
rani is on its 25% capacity. As a result, a
very important growth will be seen in the
following years, especially in container
cargo by decreasing the mining relative
weight in our operations.
In container cargo, our Customers are
Tecnológica de Alimentos S.A. – Tasa
and Pesquera Diamante which export
fishmeal to Asia. Consorcio Peru Murcia
and ALSUR S.A produce agro industrial
products that are shipped to The USA and
Spain, Inkabor S.AC distributes borate in
The USA and Europe.
How would you describe the state of
the economic infrastructure assets
bringing those products to the Port’s
facilities? (Roads, railroads, navigable
rivers (if any))
Being a strategically multi-junction of
different roads and the southern rail road,
among them the main road that connects
the country from south to north. Two
roads to the Peruvian highlands and con-
necting with Bolivia and the central states
of the Brazilian amazon.
As regards air transport, Rodriguez
Ballon International Airport in the city of
Arequipa is located 120 km from the port.
TISUR has held the concession since
1999, could you describe the invest-
PeruPortofMatarani
Terminal
internacional
delsur
LIQ talks to Erick Hein Dupont,
General Manager
The Port of Matarani (the “Port”) is of great importance
for the south region of Peru, who are the main clients of
Terminal Internacional del Sur (“TISUR”), which are the
main products exported from its facilities and the main
destinations of Peruvian production coming out of the
Port’s facilities?

Latin Infrastructure Quarterly 23Companies
ment plan for the enlargement and
modernization of the Port’s facilities?
The investments in infrastructure have
been performed by commitments associ-
ated with the Contract of Concession and
accompanying the growth of load vol-
umes that we handle.
Tisur has made important investments
in the past 12 years, such as the construc-
tion of new silos of 25 thousand tons by
increasing the capacity from 50 to 75
thousand tons and the acquisition and
implementation of a grain tower with an
unloading capacity of 400 TM/HR which
enabled us to increase our capacity from
200 to 600 TM/HR. Since 1999, Tisur has
made investments worth more than $ 35
million dollars.
In the year 2004, Tisur turned into the
first Peruvian port in possessing a port
handy size. This new system loads near a
million and a half tons per year.
In the year 2011, Tisur acquired the
Liebherr crane HM 400 of 100 tons of ca-
pacity. Possessing these two cranes has al-
lowed Matarani to enhance its containers
services, being able to offer the shipping
lines the attention of gearless vessels.
Also worth highlighting are (i) the acqui-
sition of equipment of last generation for the
handling of load such as top picks, forklifts,
telescopic cranes, and frontal mini loaders;
(ii) the addition of 5 acres have been added
to our storage areas are also worth high-
lighting; (iii) the building of a heavy vehicle
outer harbor that increases the loading and
unloading of trucks; and (iv) the building of
liquid storage tanks.
The company carries out studies of
demand for port services with a projec-
CAL, MAJES SIGUAS II, as well as the
various projects that will be generated in
the region.
For the next years Tisur has planned
to execute investments orientated at in-
creasing its capacity to manage minerals,
containers and bulks. To accomplish this
objective, the following projects are held
in portfolio:
System of Reception, Storage and
Loading of Concentrate of Mineral and
Berth F in Bay Islay – Berth F: this proj-
ect is destined to attend the projects of The
Bambas,Antapaccay of the mining Xstrata
and Cerro Verde 1 and Cerro Verde 2 of
the mining Sociedad Minera Cerro Verde.
It will possess a capacity of 2,000 ton/h of
capacity of loading and it has the potential
of attending to 5 million tons per year. Es-
timated investment: US$ 200MM.
mobile crane: the Gottwald HMK 280 E
of 60 tons of capacity for the attention of
bulk, break bulk and containers.
In 2005, a reception, storage and ship-
ping system was built and implemented
for copper concentrate. As of today, this
system is the most modern one in the
South Pacific coast. Environmental re-
quirements were taken into consideration
for this project for the managing of con-
centrate of mineral. With this implemen-
tation it passed from storing the mineral
in slabs without coverage to closed stores,
the first tubular conveyor belt was imple-
mented and installed in Peru and a “ad
hoc” shipper for these operations. This
project undoubtedly constitutes a signifi-
cant improvement in how mining opera-
tions of the south of Peru manage envi-
ronmental matters. The project included:
(i) a system of reception for trains and
another one for trucks; (ii) the construc-
tion of two mineral stores of 75,000 and
45,000 tons of capacity; and (iii) a system
of loading of concentrates with a capac-
ity of 1,500 ton/h for the loading of ships
tion of five years. The demand growth is
evaluated according to the GDP and spe-
cific projects, this is why in the next four
years, and projections for investments are
around $ 200 million to meet the demand
generated by the new mining operations
or expansions like THE PETROCHEMI-
Fitting out new areas of storage: this
project consists of the incorporation of
new zones and areas of storage, mainly in
the high part of the port. The project con-
templates a new access with truck scales
and the progressive fitting out of 10 hect-
ares of zones and stores covered, as it is
“Copper concentrate, copper cathodes and gold
concentrate are the main products which are
shipped to ports in Asia.”

Latin Infrastructure Quarterly24 Regulation

evolving the demand of spaces. Estimat-
ed investment: US$ 5MM.
Port extension – Berth E and Network
System of Liquid Cargo- Berth E: this
project is thought to attend to the increase
of demand for the unloading of liquids in
Matarani port, principally sulphuric acid.
It consists of the construction of a berth
to the interior of the current south break-
water and the laying of a pipeline up to
the tanks of storage of the high part of the
port. Estimated investment: US$ 7MM.
How have been the risk allocation pro-
visions of the concession agreement
(as may have been amended since its
execution) respected by TISUR and
the Port Authority along the life of the
concession? Please provide us with ex-
amples to illustrate this ongoing rela-
tionship between TISUR and the State.
In Peru, the regulation of private in-
vestment in public infrastructure in the
port sector has mainly focused on three
issues: (i) prices; (ii) competition in the
provision of services; and (iii) access to
infrastructure. OSITRAN has jurisdiction
as a regulator in this issue.
Access to intermediate service provider
to essential facilities is a central aspect in
the regulation of activities related to infra-
structure. In our case, intermediary com-
panies are dedicated to stowing or towing.
The National Port Authority (NPA or
Autoridad Portuaria Nacional, in span-
“The company carries out
studies of demand for port
services with a projection
of five years. The demand
growth is evaluated
according to the GDP and
specific projects, this is why
in the next four years, and
projections for investments
are around $ 200 million.”
Companies

Erick Hein Dupont
ish) is the one, which is in charge of the
port system management and adopts poli-
cies that promote and encourage private
investment to improve infrastructure as
well as implementation of the port and
port operations in general.
In these twelve years our relationship
with both NPA and OSITRAN has been
outstanding. An interesting fact that must
be taken into consideration is that with OS-
ITRAN we practically initiated activities to-
gether and we preceded NPA, in this sense
we have grown together and a lot of Tisur’s
experiences have served to mark the guide-
line for the new port system in Peru.
With the growth of the Peruvian econ-
omy, the availability of financing for in-
frastructure projects in Peru and a State
that strongly incentives private invest-
ment in public infrastructure assets, there
has been considerable investment in port
terminals in Peru, do port terminal opera-
tors in Peru compete among each other?
If so, in what way and how does that ben-
efit the Peruvian economy?
In some cases the port terminals compete
between themselves, the most important
case is the one given in Callao, where in
2006 Dubai Ports World was awarded with
the concession of the South Pier for 30 years
and APM Terminals was awarded with the
concession of the North Pier in 2011.
Both terminals are competing in order to
win the business of different shipping lines,
which find the opportunity to bring ships
of major capacity reducing in this way the
cost of maritime freight. To this benefit we
should add the reduction of port costs also
generated by the competition between ter-
minals, which encourages exporting and
benefits Peruvian foreign trade.
Furthermore, this competition in Cal-
lao strengthens the network of feeder
ports as other Peruvian ports find in Cal-
lao multiple opportunities of transfer to
direct traffic.
• General Manager of Terminal Internacional del Sur S.A. Matarani Port, Areq-
uipa.
• General Manager of Almacenes Pacifico del Sur S. A. Operadores Logísti-
cos. Bolivia.
• Board Member of Alpasur (Almacenes Pacífico del Sur S.A.).
• Board Member of JPQ Bayovar Port.
• Board Member of LQS, Liquid Terminal.
• Regional Counselor of Senati Arequipa.
• Board member of the Chamber of Commerce and Industry of Arequipa.
• Chairman of the South Regional Directive Committee 2021
• Board Member of the Public Charity of Arequipa (2001)
• Officer of the Peruvian Navy in retirement with a major in NavalAviation, Pilot.
• Postgraduate in Business Administration Program in ESAN and the Advance
Management Program at the University of Piura.

Latin Infrastructure Quarterly 27Institutions
Peru’s National
System of
Pensions
LIQ talks to José Quiñones, Chief Investment
Officer of the Previsional Normalization Office
Please provide us with a brief intro-
duction explaining what are the ONP,
FCR, and SNP and describing your
work.
Way back in December 1992, the Peru-
vian Government, planning to reform the
social security system by creating fixed
contribution private pension plans, enact-
ed a law (Decreto Ley N°25,967) creat-
ing the Previsional Normalization Office
(Oficina de Normalización Previsional or
“ONP”), entitled to administrate the Na-
tional System of Pensions (Sistema Na-
cional de Pensiones or “SNP”). This was
followed by the law N°26,323, enacted on
June of 1994, detailing ONP’s functions.
The SNP is the Peruvian fixed benefit
pension plan covering near 480,000 pen-
sioners and 2,900,000 workers created by
law (Decreto Ley N°19,990) enacted on
May 1973.
On April 1996, another law (Decreto
Legislativo N°817) creates the Pension
Reserve Consolidated Fund (Fondo Con-
solidado de Reservas Previsionales or
“FCR”), meant to preserve the resources
established to pay for pensions. FCR can
not use its resources in any other way. The
FCR is governed by a Board of Directors
with the President being the Minister of
Economy and Finance, and ONP acting as
its technical secretariat.
The Board sets the investment guide-
lines and ONP manage the resources. The
investment decisions are made by the
ONP’s Investment Committee, integrated
by ONP’s CEO, General Manager and
Chief Investment Officer (Director de In-
versiones). The Risk Officer and the Con-
troller also participate in said sessions.
My work, as Chief Investment Offi-
cer, is to propose investment alternatives
to the Investment Committee, as well as
asset allocation and guidelines updates to
present to the Board.
“The Board sets the investment
guidelines and ONP manage the
resources. The investment decisions
are made by the ONP’s Investment
Committee, integrated by ONP’s
CEO, General Manager and Chief
Investment Officer”

Latin Infrastructure Quarterly28 Institutions
Jose Quiñones
Jose Quiñones is Investment Director of Oficina de Normalización Pre-
visional – ONP and by so he is the Secretary of the Fondo Consolidado
de Reservas Previsionales – FCR’s Board of Directors. Currently he is
responsible of the management of the financial resources and the real es-
tate assets of the FCR, serving also as a member of the investment com-
mittee of the ONP, Technical Secretariat of FCR. He is Vice President of
Empresa de Electricidad del Peru – ELECTROPERU’s Board of Directors.
Prior to joining ONP in November 1998, he worked as a consultant (1995
– 1998). Before that, he was General Manager of Coril SAB, a bourse
agency (1994 – 1995), Financial Manager of Extebandes, a multinational
bank (1982 -1993), Technical Advisor to the General Manager of the Cen-
tral Bank of Peru – BCRP (1982; 1975 – 1980), General Director of Eco-
nomic and Financial Affairs of the Ministry of Economy and Finance – MEF
(1980 – 1981) and a National Accounts Division Chief of the BCRP (1968
– 1975).
He also represented MEF as a member of the Board of Directors of the
Banco de Fomento Agropecuario (1980 – 1983) and as Vice President of
the Board of the Fondo Nacional de Propiedad Social (1977 – 1981). He
worked as a professor in the Universidad del Pacífico (1969 – 1981) being
Head of the Academic Department of Economy (1976 – 1981).
He is an economist graduated from the Pontificia Universidad Católica del
Peru and has post-graduate studies (Doctorat de l’Université de Paris) in
Economic Development.
What is the current composition of the
portfolio of the FCR?
The current FCR portfolio is made up of
the following (in US$ MM):
• TOTAL PORTFOLIO: 2,953,299
• FCR Local Market: 2,346,345
• Government (long term): 278,762
• Non Financial Corp. (medium term):
185,785
• Financial System (short term):
1,523,595
• Central Bank (short/medium term):
144,874
• Mutual & Investment Funds: 24,493
• Real Estate: 125,724
• Infrastructure: 63,112
• FCR External Market: 606,954
• Merril Lynch 1-3 y. Corp/Gov. A
(B110): 167,724
• Lehman Brothers Agg. Bond Index:
395,307
• Citigroup World Gov. ex-US Bond
Index: 43,923
Why do infrastructure investments
make sense to the ONP?
There are two main reasons to invest in
infrastructure: (i) these investments are
designed for the long run and FCR, as
a pension fund, must invest considering
that time horizon, saving only for the
short term the part that should provide the
required liquidity to pay for pensions; and
(ii) developing infrastructure helps Peru
to grow countrywide, it contributes to the
economic and social development of our
country.
Let’s not forget that it also helps to
diversify our portfolio and improves the
expected return.
What major works have been financed
by the FCR? How those investments
structured?
We have invested in the Waste Water
Treatment Plant (PTAR, for its name in
Spanish) Taboada last year with Peru-
vian AFP´s. We are currently investing
in infrastructure project bonds issued by
Public-Private Partnerships.
Are there co-investment opportunities
for international players to invest with
FCR?
Not yet. We do not invest in infrastructure
in the international market as we are not
permitted by our Board of Directors. We
are planning to present a proposal and ex-
ecute some investments through Private
Equity Funds (Fund of Funds as a first
phase), but not co-investments properly
speaking.
In the domestic market we are doing
the investments through infrastructure
project bond programs.
What are the main projects current be-
ing analyzed by the ONP (FCR)?
We are evaluating investments in Linea
Amarilla toll road in Lima.
“There are two main reasons to invest in
infrastructure: (i) these investments are designed
for the long run and FCR, as a pension fund, must
invest considering that time horizon, saving only
for the short term the part that should provide
the required liquidity to pay for pensions; and (ii)
developing infrastructure helps Peru to grow
countrywide, it contributes to the economic and
social development of our country.”

I
s this a good model for a Latin
American country to follow? How
far is the Latin American infrastruc-
ture market with respect to the ma-
ture Canadian market?
There is no doubt that Canada is an
example to follow. In the western hemi-
sphere, Canadian PPP development is
ahead from the one in the United States.
It has contributed to consolidate an infra-
structure market that includes construc-
tors, operators, financiers, public authori-
ties, which now are used to high-level
standards to fulfill.
For Latin America, it is not just a mat-
ter of following a model. It is of trying to
bring a market.
The infrastructure market will go
where there are the minimal conditions
regarding returns and risks. When the
market arrives, there will be more inter-
action between local and regional players
with worldwide players. The public au-
thority will need to understand the tech-
nical concepts and regard them as a new
alternative to be used, that has proven
successful in other latitudes.
Value of a PPP structure
Often PPPs have been labeled as an al-
ternative procurement method or a way
for a government to fund infrastructure
projects when government resources are
simply not enough to meet the needs. Is
this true, what is the true value that a PPP
structure brings to the table according to
the Canadian experience?
The adoption of a PPP is not a matter of
Adrian Barrios - Vice President,
Infrastructure & Project Finance -
PwC Canada
TheCanadianPPPmodelandits
applicabilityinLatinAmerica
The Canadian model in Public Private Partnerships
(“PPP”) is considered one of the most successful in the
world, jointly with the numerous PPP projects in other ju-
risdictions like UK or Australia. During the last decade
there have been around 100 infrastructure projects pro-
cured as PPPrepresenting billions of dollars in investment.
the government having resources or not.
The government could have the capital to
finance entirely an infrastructure project,
but a Value for Money analysis could in-
dicate that the best procurement process
is through a PPP. It is not exactly the same
situation, but this could be compared with
the decision of purchasing a house and
choosing either paying 100% or getting a
mortgage. If the rate of the mortgage is
less than the opportunity cost of invest-
ing that money in an investment fund, a
rational investor will get a mortgage. In
a PPP a Value for Money analysis reflects
the savings the government could get if
transferring the risks of owning the infra-
structure property to a private partner.
A PPP can be summarized as a pay-
ment from the public authority to the pri-
vate sector for performance.
The effects a PPP market brings on the
private sector are related to the long-term
compromise a company or consortium
must assume with respect to an infrastruc-
ture. An incentive is created to deliver
the infrastructure project on time and on
budget, and to comply with the required
standards during all the lifecycle of the
project.
The effects on the public sector are
that it becomes disciplined, where the
requirements of a project must be clearly
identified and defined, in order to avoid
poor initial assessments. In the news we
have seen many examples of infrastruc-
ture projects than were announced with
an X budget and finished with a 3X or 4X
budget. That also brings a bad political
reputation.

Latin Infrastructure Quarterly30 Institutions
And yes, it is true that PPP procure-
ment is a way of providing infrastructure
without a public sector payment until the
infrastructure is delivered according to
the public sector’s requirements. It is an
alternative way to control a project: if it
does not comply, no payment.
Lessons learned
What have been the lessons that Canada
has gained over the past 20 years that can
benefit others wanting to follow the same
path?
As we wrote early, there is already a
big bundle of examples of PPP success
stories in Canada. One of the main lessons
learned is compromise. If the government
is not compromised with the project, if
the objectives are not clear, there is a big
possibility that the project will fail. The
compromise shown by the public author-
ity gives a good signal to the market. Bad
signals from the government, inconsis-
tencies, lack of coordination with stake-
holders, will discourage investors who
would prefer to go to more“predictable”
markets.
Another lesson learned is that as
more projects are procured under a PPP,
a minimal set of standards is reinforced.
Constructors, operators, financiers, will
become used to a way of working. There-
fore, for one of these participants to jump
to new environments, will depend if there
are certain compatibilities between the
way they are use to work and what the
new environment is offering.
A procurement process is long. Some-
one will be committed to spend time and
resources if he/she finds that the new en-
vironment is somehow familiar. This is
why logically the first investors are local
or regional. But when we are dealing with
large infrastructure projects, global play-
ers are always required. This is what Can-
ada did to create and reinforce its infra-
structure market, basically following the
UK model and improving it, especially
with the financial closing timing.
Communication from the government
is very important, not only to stakeholders
involved in an infrastructure project (like
the owner of a property where a highway
will pass through) but also inside the dif-
ferent government levels: ministries, re-
gions, municipalities. Historically, the
PPP promotion process has begun from a
specialized Infrastructure or PPP agency.
Public servants working in ministries or
municipalities at first will not see any
benefit from changing their way of work-
ing. But as they are exposed and trained
in concepts like Value for Money, Public
Sector Comparator, PPP screening, they
will be eager not to prefer this method-
ology as a dogma (which is not), but to
regard it as an available alternative tool
for procuring infrastructure projects.
To attract investors to a PPP proj-
ect it is required a good management of
the procurement process, with a fair and
transparent evaluation, where the objec-
tives of the government are well defined,
the technical requirements are well speci-
fied, and the contracts are financeable.
A success story
Agood example of a success story in Can-
ada is the Canada Line Project, named in
2010 as one of the 100 most innovative
and socially significant infrastructure
projects in the world by KPMG. PwC was
the financial advisor.
The Canada Line was the first rail proj-
ect realized as a PPP in North America
that implied the connection of an airport
with two cities (Vancouver and Rich-
mond). It is composed of approximately
19 km. of a light train system, with 18 sta-
tions and a number of passengers of about
100,000 per day. It had an approximate
cost of US$2 billion.
One of the key elements of this project
was the level of coordination between the
involved authorities. This project implied
the participation of 8 agencies or govern-
ment institutions which contributed with
its financing: the Government of Canada,
the Provincial Government of British Co-
lumbia,Translink, the InternationalAirport
of Vancouver, the cities of Vancouver and
Richmond, the Vancouver Port Authority,
and the Regional District of Vancouver.
This coordination between so many
government authorities, difficult but in
“One of the main lessons learned is
compromise. If the government is not
compromised with the project, if the
objectives are not clear, there is a big
possibility that the project will fail.”
“As more projects are procured
under a PPP, a minimal set
of standards is reinforced.
Constructors, operators,
financiers, will become used to
a way of working.”

the end successful sent a strong message
to the market: the Canadian Government,
at all its levels, is compromised with the
success of a major infrastructure project.
With respect to the technical aspects,
a key success factor was the transfer of
geotechnical, excavation and demand
risks. Normally in Canada there have
been few examples of a full demand risk
transfer. In the case of Canada Line, the
level of demand risk transfer was low, as
the concessionaire did not have control
over the tariffs, and therefore over the
volume of passengers. However, and here
is where the innovation comes, the con-
cessionaire was allowed to promote the
“passenger experience” of using the Can-
ada Line based on values like punctual-
ity, neatness, order. So the concessionaire
received an availability payment not only
for fulfilling a schedule, but also for the
number of passengers using the service.
The recipe of success of PPP
in Latin America
So, Latin America could reply this model,
receive and embrace this market of global
players?
investment, and that keeps an untouch-
able track record referred to the respect
of contracts.
This last issue has been a burden in
Latin America for many years. Private
investment will not go and do a favor to
anyone. It will go where there is an option
of a profit with bearable risk. It will not
go to a location where the common place
is that after some years, the State declares
“change of rules” and nationalizes or ex-
propriates its assets.
This is why the procurement process
phase is fundamental. The final con-
tent of the contract between the public
and private sector should protect the
Government, in the short, medium and
long-term, during the construction, op-
eration and maintenance phases of the
project.
Latin America has a lot to learn about
the Canadian PPP experience. At the
beginning of the PPP development in
Canada, 15 years ago, there were many
voices against it, like unions, politicians,
academics. But time showed that the PPP
methodology was not a dogma, or an un-
contestable solution. It was just an alter-
native.
Adrian Barrios
Adrian Barrios has more than 10
years of professional experience
in project finance, business valua-
tion, mergers and acquisitions, fi-
nancial modelling, feasibility anal-
ysis, microfinance and financial
audit. In the last 5 years he has
led more than 50 business valu-
ations and transaction projects in
Canada, Peru and Ecuador. His
experience comprises the mining,
energy, financial services, health,
agribusiness, infrastructure and
commercial sectors. He holds
an MBA from ESADE Business
School and is BA in Economics
from the Universidad del Pacífico.
He can be reached at adrian.bar-
rios@ca.pwc.com.
First, it would work better in a country
with investment grade. The Latin Ameri-
can rankings put in the first places coun-
tries like Chile, Mexico, Brazil. Also ulti-
mately there is more activity in emerging
economies like Peru or Colombia.
Second, and most important, there
should be a commitment from the gov-
ernment with respect to developing its
infrastructure market. A commitment that
considers the ultimate available tools re-
garding project financing, that prepares
all its government levels in the concept
of a public-private partnerships, that has
a legal framework that welcomes foreign
According to a recent Canadian Coun-
cil for PPP Poll, Canadian support for PPP
is on the rise reaching 70% acceptance.
The reason for this is that taxpayers can
see infrastructure projects being built and
delivered on time and on budget, that the
levels of services are adequate, and that
their standard of living rises accordingly.
Would we have these results some day
in Latin America?
“Communication from the
government is very important, not
only to stakeholders involved in an
infrastructure project.”

Latin Infrastructure Quarterly - Issue 4

Latin Infrastructure Quarterly - Issue 4

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Latin Infrastructure Quarterly - Issue 4