Construction in Brazil• Line 6-Orange: 15.9 km, 634,000 passengers/day • 15 stations including 3 interchange points with existing network • 25-year BOT concession awarded 2013;

1 Copyright © Sobratema 2014

Sobratema for CONEXPO-CON/AGG 2014 Emerging Market Session

Copyright ©

Sobratema 2014

Construction in Brazil CONEXPO-CON/AGG Emerging Market Session

Las Vegas, March 5th, 2014

Paulo Oscar Auler Neto, Vice President, Sobratema Superintendent for Equipment Acquisition, Odebrecht Brazilian Association of Technology for Construction and Mining



BR-020, Goiás – photo CNT

Contents About Sobratema Economic indicators Challenges and opportunities in infrastructure Significant projects Infrastructure concessions Equipment market



Three SOBRATEMA trade fairs – one per year – your gateway to Brazil

June, 2015 June 3-6, 2014 June, 2016

• Created 1988

• 1,052 members, counting companies and professionals

• Unique concept: brings together equipment manufacturers, rental companies, construction companies, importers, parts makers, others

• Unique market intelligence: annual equipment study, investments study

• Works + infrastructure

• Equipment + materials

• Project management

• Logistics, HR, ITC + administration

• Huge market for parts + services

• Total equipment population in 2015: 710,000 units

• More than 110,000 constructors and 12,000 maintenance companies

The 2012 fair:

• 1,042 brands; 494 exhibitors

• 224 international

• Visitors: 54,597 (2,053 foreign)

• Business volume: US$600 mm

• Total area: 85,000 m²

All in São Paulo, Brazil

About SOBRATEMA



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GDP Growth

2000 2010 2005 2015

% p.a.

GDP ranking 2012 - IMF 1 United States 2 China 3 Japan 4 Germany 5 France 6 United Kingdom 7 Brazil 8 Russia 9 Italy 10 India

Economic indicators #1

Brazil’s slow emergence • Commodities boom helped drive growth • Now, reforms are needed • Presidential election in October 2014



Population 202 million

GDP US$2.5 tri

GDP/capita 12,400

Unemployment 5.4%

Inflation 5.6%

Foreign reserves US$376 bi

Top imports (2012) Fuel + lubricants,

mechanical equipment, electrical/electronic equipment, vehicles + parts, chemicals

Top exports (2012) Minerals, oil+fuel,

soy complex, vehicles + parts, engineering products

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2000 2002 2004 2006 2008 2010 2012

Trade surplus US$ bi p.a.

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2000 2002 2004 2006 2008 2010 2012

Exchange rate R$-US$

Brazil’s challenge

Economic indicators #2

Challenges • End of commodities boom • Must boost productivity



Risks to growth of the Brazilian construction equipment market through coming years Possible domestic factors

• Continued under-investment in infrastructure

• Low economic growth

• Bottlenecks – mainly lack of skilled labor

• Political inability to move projects forward at required speed

Possible external factors

• Fall in global commodities demand

• General international insecurity

Infrastructure: challenges

Sobratema surveys of construction and equipment rental companies

Problems 2013 (%)

Project delays 76 Lack of specialized labor 24 Cost of labor 24 Lack of credit to buy equipment 5 Lack of equipment for purchase 0 Nothing significant 3 Cause of project delays Rank (2011-13)

Environmental licensing 1 Slow payment 2 Tender delays 3 Injunctions 4

BR-116, Serra do Cafezal, SP



Infrastructure: opportunities

Huge requirements

• Brazil has 96,714 km of highways, of which: - 39% in bad or terrible condition - 36% in good or excellent condition (National Transport Confederation survey 2013)

• Vehicle fleet: 80 million (Sept. 2013, Denatran)

• Fleet growth (CAGR) 2003-2013: 8.35% (Denatran)

• Population growth (CAGR) 2003-2013: 1.29% (IBGE)

• Air travel – passenger growth (CAGR) 2006-2012: 11.19% (Infraero)

• Foreign trade (US$ imports+exports, CAGR) 2003-2013: 14.94% (Bacen)

• Power consumption (MWh/yr, CAGR) 2004-2013: 3.86% (EPE)

• Shopping malls (CAGR) 2006-2014 (est): 5.48% (Abrasce)

• Rail freight is ≈ 30% of national total; goal is 35% by 2025 (Transport Ministry)

BR-122 in Bodocó, PE – Photo CNT




Significant projects



US$13 billion 11,233 MW

• Firm capacity: 4,571 MW • Where: Xingu River • On stream: 2016 • US$800 m. for mitigation +

sustainable development

Three main dams • Maximum height: 90 m • Total length: 10,144 m • 30.36 million m3 rock, earth,

concrete movement • 20x550 MW Francis turbines • Lake 516 km2 • Norte Energia S.A. –

(consortium, 10 companies)

World’s 3rd largest hydropower dam

Belo Monte



2016 Olympic Games

• Direct cost: US$2.8 billion

• Stadiums, urban transport systems, etc: US$11 billion

• Most major projects now under way

• Many billions of dollars of private investment also expected: hotels, etc

• Games take place at four main venues, all within the city

Legacy → urban transportation, athletes village, sports facilities, new cruise liner terminal + dockland redevelopment

Olympic Park

World Cup → Olympic opening and closing ceremonies in the Maracanã Stadium, rebuilt for the 2014 World Cup



• One of four BRT projects in Rio

• Connects North Zone to Barra beach, site of Olympic village

• 23-km BRT and light vehicle toll-road

• 3 lanes each way: 1 BRT + 2 other traffic + local

• 18 BRT stations, no stop-lights

• Completion 2016; part of Rio’s Olympic legacy

• 35-year PPP concession, awarded 2012

• Consortium: Odebrecht, CCR, Invepar

• Construction cost =/- US$800 million

• 90,000 vehicles/day; 400,000 passengers/day

All conversions at US$1.00 = R$2.00

BRT in Brazil

• Nine other BRT projects for Olympics + World Cup

• Big demand after demonstrations for better public transport

• 2015-2019 Development Plan – “PAC-3” – likely to feature urban mobility systems

Rio TransOlímpica BRT



First Metro (subway) BOT concession awarded as PPP

• Line 6-Orange: 15.9 km, 634,000 passengers/day

• 15 stations including 3 interchange points with existing network

• 25-year BOT concession awarded 2013; work starts 2014; partial operation in 2018

• Consortium “Move São Paulo”: Odebrecht/Queiroz Galvão/UTC/Fundo Eco Realty

• Likely cost US$3.9 b; state will contribute up to 50%

All conversions at US$1.00 = R$2.00 São Paulo Metro and urban rail

Line 6

Expo Park extension

Metro system in São Paulo

• São Paulo has 74 km, 5 lines, 64 stations

• 3.4 million passengers/day

• 1 line already operating under 30-year PPP

• Goal is 150 km by 2020

• Integrated Metro+urban rail system is 330 km

Metro systems in Brazil

• Brasília, Fortaleza, Porto Alegre, Rio, Salvador

• Another 10 cities have metro systems under construction or under study

• Challenge is to increase investment

São Paulo Metro Line 6 PPP




Major concessions



US$ b Status February 2014

Highways 7,500 km 21.0* 5 concessions auctioned

Railways 10,000 km*** 45.5* Auctions delayed to 2014?

High speed rail 511 km 17.8 Project in doubt

Ports 159 27.3 Delayed; 5 terminals authorized

Airports 2 international 9.4** 2 concessions auctioned

Logistics subtotal 121.0

Oil & gas 3 bidding rounds 40.0 Auctions held; reduced interest

Power generation 32,971 MW 74.0 Auctions held normally

Transmission 23,200 km

TOTAL 235.0

** Includes expected investments in several regional airports *** May increase to 11,000 km

Source: Ministry of Finance, Feb. 2013 All conversions at US$1.00 = R$2.00

* 60% through 2017

President Dilma Rousseff announces concessions program Aug. 2012

Federal concessions program



Hydropower + transmission lines

Major hydropower auction due 2014

• Tapajós river: 6,133 MW, possible expansion to 7,880 MW

• Output: 29,550 GWh/year; start operation 2018 or 2019?

• Lake 722 km2

• Head of water: 35.9 m

• Turbines: Kaplan; 31 x 198 MW; 2 x 109.2 MW

• Largest of five-dam complex, total 10.682 MW

Hydropower concession auctions scheduled

Year Stations MW Investment US$ bi 2014 7 7,241 12.2 2015 3 3,249 6.2 2016 2 1,117 2.7 2017 6 8,407 15.8

Other auctions due through 2017

Type Investment MW US$ bi Wind power 11.9 5,720 Bioelectricity 3.5 3,160 Small hydro (<30MW) 3.6 1,170 Gas-fired thermal 1.5 1,500 Transmission lines: 8.6 14,070 km

Chinese investment: 2,092 km transmission line from Belo Monte auctioned Feb/2014; 800 kV; investment > US$ 2 bi; won by China’s State Grid Corporation with Brazilian state companies Furnas and Eletronorte.



Oil & Gas

Petrobras investment plan 2013-2017

• US$236.7 bi – 62% exploration + production; 18% refining

• Crude oil: planned production ramp-up (million BOPD): end 2013 – 2.0; 2017 – 2.75; 2020 – 4.2

• 11 new offshore production platforms on-stream through 2015

E&P auctions in 2013

11th round: on-shore + conventional off-shore Potential: 7.5 billion barrels

Auction: May, 2013, 30 companies bidding

12th round: non-conventional (shale basins) Potential unknown; mainly gas?

Auction: November, 2013, limited interest

Libra field: auction October 2013, just one bidder Petrobras (40%), Total (20%), Shell (20%, CNOOC (10%), CNPC (10%)

R$15 billion signature bonus

Sub-salt petroleum • Recent discovery; ultra-deep offshore; technical challenges • Total potential unofficially estimated as high as

80 billion barrels; 1st auction potential: 10 billion barrels • New concession format: production sharing • Petrobras is operator; minimum 30% stake

Next auctions: probably in 2015



Coming next

689 regional airports • 270 in first phase of program • US$3.6 b of public investment (est.) • Administrative concessions

Opportunities

• New concessionaires now planning mandatory expansion

• Airlines say Brazilian airports need US$28 bi of investment through 2020 to meet traffic growth

6 airport concessions already auctioned

Airport Price paid Min. investment

1. Natal (RN) US$85 m US$325 m 2. São Paulo (SP) US$8.1 b US$2.3 b 3. Campinas (SP) US$1.9 b US$4.4 b 4. Brasília (DF) US$2.3 b US$1.4 b 5. Rio de Janeiro (RJ) US$8.5 b US$3.3 b 6. Belo Horizonte (MG) US$900 m US$2.4 b

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Airport concessions



Transnordestina railway, 1,728 km, moving

ahead slowly with public financing

• 12 concessions planned for 2013, involving US$45.5 bi of investment over 25 years

• None went to auction

• Difficulty in finding adequate economic + legal structure

• Other projects are underway with public investment


Railway concessions



Investment (first block):

• US$11.8 b in first 5 years

• US$9.2 b in 6 – 20 years

Six auctions in 2013: • Five awarded, one failed (no bidders) • Challenge is to accelerate investments

PAC under way

Existing

First block – 9 lots

Brazil highways snapshot:

• Government struggling to attract private investment while keeping tolls low for social, economic reasons

• Some concessions may become PPPs

• Big demand if/when viable model is found

Highway concessions

Auction successful

Auction failed

Second block announced 2014 5 lots; 2,625 km; US$8.9 bi

Source: federal government: Dec. 2012; Feb. 2013; Jan. 2014 ; conversions US$1.00 = R$2.00



Investments could total US$27.1 b

Investment schedule • US$15.5 b through 2014/15 • US$11.6 b in 2016/17 As announced by gov’t in 2012

Two main options • Private terminals: concession • Public ports: leasing of terminals

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16 concessions – first auctions 2014? Largest: Investments 1 Vitória (ES): US$6.7 b 2 Itaguaí* (RJ): US$5.8 b 3 Itaquí (MA): US$2.3 b 4 Belém* (PA): US$2.3 b 5 Paranaguá* (PR): US$2.2 b 6 Aratu* (BA): US$2.0 b 7 Santos* (SP) US$1.9 b

Note: Values include investments at concessions and leased terminals * Concession for more than one ports

Brazil ports snapshot:

• 34 public ports; 35% of cargo tonnage

• 128 private terminals; 65%

• Total 2012 tonnage: 904 million

• Investments needed: dredging, quays, equipment, access

Port concessions




The Brazilian construction market



Established manufacturers (date of factory opening)

Atlas Copco (1995) Case (1970, 2009) Caterpillar (1960, 2011) Ciber (1958)

JCB (2001) Komatsu (1975) Liebherr (1974) New Holland (1970)

Schwing Stetter (1975) Terex (2002) Volvo (1975)

Recent manufacturers

Ammann Bomag Doosan Hyundai

John Deere Hitachi Manitowoc Putzmeister

Sany Tadano XCMG Zoomlion

Equipment market: major players

Broderson Daemo Dieci Genie Hamm

Haulotte Herrenknecht IMER JLG Link-Belt

LiuGong Lonking Manitou Merlo Metso

Shantui Sandvik Sullair Sunward Skyjack

XGMA

Selected importers



• All equipment: growth 2014/2013: + 1.8%; CAGR 2013-2018: + 6.6%

• Earthmoving equipment: growth 2014/2013: - 3.3%; CAGR 2013-2018: + 5.5%

Sobratema Study of the Brazilian Construction Equipment Market 2013-2018

2007 2009 2011 2013 2015 2018

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40

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0

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100

83,545

30,645

34,521

11,691

74,135 102,000

43,580

33,355

‘000 units

All equipment

Earthmoving equipment

“All equipment” includes earthmoving equipment, portable compressors, tower cranes, hydraulic cranes, aerial work platforms, telehandlers, and an estimate of agricultural-type tractors and highway trucks used in construction. Source: Sobratema Market Studies 2007-2014

forecast

Equipment market: growth

Sobratema forecasts




Paulo Oscar Auler Neto, Vice President, Sobratema Brazilian Association of Technology for Construction and Mining Superintendent for Equipment Acquisition, Odebrecht [email protected] Sobratema: (55) 11 3662-4159 www.sobratema.org.br [email protected]

Thank you!

Documents

Construction in Brazil• Line 6-Orange: 15.9 km, 634,000 passengers/day • 15 stations including 3 interchange points with existing network • 25-year BOT concession awarded 2013;