Public-Private Partnership

Agenda

- Concessions in Brazil

- Surety insurance for concessions

- Guarantee underwriting for concessions /Underwriting of concession guarantee s

2

History of concessions in Brazil

• 1995 – Law No. 8,987 regulates public service concessions in Brazil

• 2004 – Law No. 11.079 creates public-private partnerships in Brazil.

3

Comparison between common and PPP’s concessions

Item Common concession Administrative concession

Pubic-private concession

Law No. 8.987/95 11.079/04 11.079/04

Amount Not regulated Minimum amount BRL 20 million

Minimum amount BRL 20 million

Term Not regulated Between 5 and 35 years Between 5 and 35 years

Paid by the public sector

In exceptional situations only Consideration Subsidy

The contract establishes

performance evaluation

criteria

Applicable Mandatory Mandatory

Variable remuneration

linked to performance

Applicable Mandatory Mandatory

Demand risk Borne by the concessionaire

Borne by the public sector in most cases.

Shared between the public sector and the private

partner

4

Main types of concession

• Roads

• Airports

• Railroads

• Subways

• Ports

• Cleanup

• Urban cleaning

• Telecommunications

• Bus transportation

“ In Brazil, Concessionaire’s annual written premiums are estimated between USD 25 million and USD 30 million.”

5

2015/2021 Brazil’s main estimated investments

Railroads – USD 22,700 million

Roads – USD 17,300 million

Ports – USD 9,800 million

Airports – USD 2,200 million“The concessionaire’s contract is one of the few renewable contracts”

6

History of surety insurance in Brazil

• 1993 – Law No. 8,666 – introduces surety insurance as a type of guarantee for public contracting.

• 1997 – The SUSEP issues Regulations No. 04 and 05 establishing the types, provisions and counterguarantees of surety insurance.Regulation No. 05 was exclusively issued to regulate the concession market

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SUSEP Regulation No. 05/97

SUSEP Regulation No. 005, dated 23 May 1997

THE SUPERINTENDENT OF THE SUPERINTENDENCE OF PRIVATEINSURANCE– SUSEP, as provided for in Section 36, Paragraph “c”, of Decree-Law No. 73, dated 21November 1966,

RESOLVES:

1. To approve the wording of the Policy, Conditions and Rates of Surety Insurance,particularly when it is issued by insurance companies,as required by Edicts and Concession Contracts from the public authorities, in the form ofAnnexes I to V which are an integral part of this Regulation.

8

History of surety insurance in Brazil

• 2003 – The SUSEP issues Regulation No. 232, which establishes new provisions for surety insurance.

• 2013 – The SUSEP issues Regulation No. 477, which currently regulates surety insurance in Brazil .

9

SUSEP Regulation No. 477/2013

3. Period:

3.1. The policy period shall be fixed according to the following rules:I – it will be equal to the term fixed in the administrative contract for project

execution, services and/or purchases; II – the policy will be written for renewable periods in case of concessions and

permits for public service.

3.2. The renewals referred to in paragraph II of Section 3.1. are not automatic, they shall be communicated by the insurance company to the insured and policyholder through a written notice stating their explicit interest to maintain the policy, no later than ninety days before its expiration date.

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Contract – ARTESP (Regulatory Agency for Delegated Public Transport Services of São Paulo State)

CLAUSE 29 – GUARANTEESa. Performance guarantee for operating and maintenance functions;

b. Performance guarantee for expansion functions;

c. Guarantee of payment of the fixed valued referred to in paragraph II of Section 43.1.

29.5. The guarantees mentioned in Section 29.2, paragraphs “a” and “b”, shall have a minimum period of12 (twelve) months. The guarantee mentioned in paragraph “c” of the same section will have a 18(eighteen) month period.

29.6. In case of nonrenewal of the surety policy by the insurance company, the CONCESSIONAIRE shall submit anew guarantee, equivalent in value and conditions, before the expiration of the policy, regardless of the noticeto be given.

29.6.1. Noncompliance with the condition provided for in this section, or the nonapproval by the CONTRACTINGPARTY of the guarantee offered to replace the former, will constitute noncompliance by the CONCESSIONAIRE.

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Contract – DER PR ( Road Department of Paraná State)

1. As guarantee of the faithful performance of the obligations assumed for the execution of this

CONTRACT (Performance Guarantee), the CONCESSIONAIRE makes a deposit in favor of the DER amounting

to 5% (five percent) of the Estimated Value of the gross estimated revenues, according to the Toll Revenues

Chart of the COMMERCIAL OFFER.

2.1. The Concessionaire submits the surety insurance policy for a period of one year, which can be

extended for successive annual periods up to the extinction of the CONCESSIONAIRE’s obligations, provided

that the INSURANCE COMPANY expresses its formal agreement to extend it. If the INSURANCE COMPANY is

not interested in extending the policy, they shall give notice to the CONCESSIONAIRE and the DER no later

than 60 (sixty) days before the policy expiration date. It is also expressly established that in no case the

above-mentioned rejection could be considered by the Insured as legal grounds to call on the Performance

Guarantee.

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Contract – ANTT (National Surface Transport Agency)

11.1 The Concessionaire shall maintain the Contract Performance Guarantee in favor of the ANTT as guarantee of the faithful performance of the contractual obligations as follows:

Periods and amounts Up to the handover of the improvement works provided for in sections 3.2.1 to 3.2.3 of the Road Exploitation Program ( PER): BRL 275,000,000 (two hundred and seventy-five million reais).

From handover of the improvement works provided for in sections 3.2.1 to 3.2.3 of the PER up to the end of the Concession Term: BRL 150,000,000 (one hundred and fifty million reais).

From the end of the Concession Period up to the end of the Contract Term: BRL150,000,000 (one hundred and fifty million reais).

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Contract - ANTT

11.3 At the discretion of the Concessionaire, Contract Performance may be guaranteed by one of the following options:

11.3.1 Deposit, in cash or in federal public debt securities; 11.3.2 Bank bond, as shown in Annex 3; or 11.3.3 Surety insurance whose policy shall comply at least with the contents of

Annex 4.

11.4 Bank bonds and surety insurance policies shall have a minimum period of 1 (one) year from their date of issue. The Concessionaire is responsible for keeping them effective on an ongoing basis during the Term of the Concession, and shall renew or update them as required at least 30 (thirty) days before their expiry date.

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Contract - ANTT

11.5 Without prejudice to the other cases provided for in the Contract and in the current regulation, the Contract Performance Guarantee may be used in the following cases:

11.5.1 When the Concessionaire fails to perform the investment obligations provided for in the PER (Road Exploitation Program) or to comply with the Performance Parameters, the Technical Parameters, or does not apply them as agreed to;

11.5.2 when the Concessionaire does not pay the penalties provided for in the ANTT Contract and regulations;

11.5.3 when the Reversible Property returned does not comply with the provisions set in the Contract including, but not limited to, compliance with the PER, the Performance Parameters, and the execution plan and other requirements set by ANTT;

11.5.4 when the Concessionaire does not pay the supervision quota in due time, as provided for in paragraph 14.10, as well as any indemnification or pecuniary obligation related to the Concession for which the Concessionaire is responsible.

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Underwriting

- Contract- Counterguarantees- Incurred and Budgeted cash flow - Budgeted Income vs. Incurred Income - Budgeted Investments vs. Investments Made- Equity- Funding- Economic and financial position of the shareholders- Environmental Permits- Expropriation- Penalties Applied

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Highest risks in a 25-year concession

-Equity-Funding

-Expropriations-Environmental

Permits-Income

-Large projects

-Operating

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

-Return of Reversible Property

High Medium MediumLow

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Concessions Sector

Concessions Sector

Contents

Macroeconomic

Market Share

Financial Information

Revenues per Road

Variation in shares

Conclusion

Annexes

Concessions Sector

Road Logistics – Sector in numbersM

acro

econ

omic

Traffic – GDP correlation

4.814 5.333 5.9176.755

8.227

10.370

12.10513.401

14.508

617 629 674 728

1.000

1.3221.483

1.585 1.625

2005 2006 2007 2008 2009 2010 2011 2012 2013

Toll revenues vs. Paying vehicles (mill.)

Conc

essi

ons

Source: Arteris RI, ABCR, DNIT , ANTT and ARTESP

Trends - Traffic

12%

8%

80%

Unpaved

Paved

Planned

Road Network

70%30%

Government

Private

Amounts in million BRL

75%

85%

95%

105%

115%

2006 2007 2008 2009 2010 2011 2012 2013

Light Vehicles

Heavy Vehicles

Payroll

Industrial Production

3,16%3,96%

6,09%

5,17%

-0,33%

7,53%

2,73%

0,90%

2,30%3,02% 2,33%

6,60%6,19%

-0,34%

11,07%

3,88%4,10%

9,10%

2005 2006 2007 2008 2009 2010 2011 2012 2013

GDP

Road

Concessions Sector

Road Concessions

3,226

2,438

1,9351,642

1,054 1,000

304

4,488Market Share in km

Other

Railroad Concessions

13,128

7,080

4,238

1,674 1,621

ALL VLI Transnordestina MRS Ferrovia Novoeste

Market Share in km

Company A Company B Company C Company D Company E Company F Company G

Company A Company B Company C Company D Company E

Concessions Sector

Financial ResultsNet Income

Net Results

6,016

4,856

3,641 3,377 3,0382,639 2,629

843

In million BRL2010 x 2011 x 2012 x 2013

1.367

16527

466 469 399 32667

Income Breakdown

Company A

Company A

Company A

Company B

Company B

Company B

Company C

Company C

Company C

Company D

Company D

Company D

Company E

Company E

Company E

Company F

Company F

Company F

Company G

Company G

PortsRailroadsOtherAirports

Roads

3.01

5.98

3.21

1.83 1.61 1.19

-0.98

2.46

4.93

2.46 2.31 2.08 2.15

-0.83

2.18

3.602.71 2.55

2.01 2.22

-0.44

2011 2012 2013

0

1.000

2.000

3.000

4.000

5.000

Caixa EBITDA CP 2015 2016 2017 2018 em diante2018 onwards

Concessions Sector

Amortization scheduleIn million BRL

Debt breakdown

Net Debt/EBITDA

Ratio

Company A

Company A

Company B

Company B

Company C

Company C

Company D

Company D

Company E

Company E

Company F

Company F

Company G

Company G

Cash

5 6

15

5

20 20 20 20 20

Concessions Sector

316 KM 218 KM 306 KM 223 KM

412KM

320 KM562 KM

401 KM 382 KM

Company A – Analysis per Contract

Concession Term- Years

291

515454

302

-16

55

-11

8130

Net income/km – figures in thousands

Concessions Sector

Variation in Shares

0

25

50

75

100

125

150

175

200

25/11/2011 25/05/2012 25/11/2012 25/05/2013 25/11/2013 25/05/2014

- Variation in shares in this period – Index (baseline = 100)

Source: Info Money and UOL Economia

Summary of Guarantees for Concessions

- The product has been used for 18 years in Brazil

- It is accepted by all Brazilian Concession Granting Bodies

- It may be included in automatic reinsurance treaties

- High insured amount

- Responsible underwriting

- Renewable portfolio

- Low loss frequency, although the loss ratio may be high

- Transparent provisions with well-defined terms

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Thank yougustavoh@jmsegs.com