Latin Infrastructure Quarterly - Issue 6

XXXXXX XXXXX Latin Infrastructure Quarterly 1Latin Infrastructure Quarterly

Exclusive interviews to Jorge Quijano, CEO of the Panama Canal Authority and Roberto Roy, Executive Secretary of the Metro de Panamá

Analysis of the renewable energy and port terminals sectors

Contributions from senior executives at CAF and Astris Finance

PANAMA EXCLUSIVE

The IADB and the Reventazón Hydropower Plant

Jorge Quijano

Profiles: OSX, OAS Soluções Ambientais & Latin American Partners

Mining and Infrastructure in Argentina

Letter From the Editor

This issue features a comprehensive coverage of the in-dustry in a very active country, Panama. I would like to thank the professionals at Latin Markets for their timely introductions to the speakers of their upcoming

Panama Capital Projects & Infrastructure Forum. I conducted interviews to high-profile representatives of critical infrastruc-ture sectors in that country: the Panama Canal, the Metro de Panamá, renewables, logistics, and financial services. I was able to confirm what the market and industry players are say-ing about Panama: this is an open economy with the appropri-ate sector-specific policies and frameworks. On a related note, I was impressed by the project implementation capacity shown by some state authorities. The way they have procured, financed and are currently monitoring the construction of the Línea 1 of the Metro and the expansion of the Panama Canal seems to be in line with best practices around the world.

Editor’s observations

The last quarter was an exciting one for infrastructure in Latin America. Practitioners received news of relevant developments almost on a daily basis. I would like to share with you some observations arising from going over our weekly “News & Anal-ysis” and recalling some of the conversations that I had with practitioners on industry matters.

Maritime movements

The port terminals sector had a busy quarter. We read about op-erators looking to expand their presence in Latin America, facil-ity expansions projected or under way to adapt to bigger vessels,

ContributorsBergoglio, TeseoCo-Owner and Co-Managing Partner, Latin American Partners

Carassale, Gian FrancoSenior Investment Officer, Inter-American Development Bank

Croston, Juan CarlosVice-President Marketing, Manzanilo International Terminal

de Araujo Gagliano, UlissesSenior Partner, Nelson Wilians Advogados Associados

Flossbach, FedericoSenior Executive, Confederación Andina de Fomento

García, JuanCritical Infrastructure Consultant

Graziano, Luis FelipeLegal Manager, OAS Soluções Ambientais

Hanono, AlejandroPresident and CEO, Hidrotenencias & Director at Empresas Vicsons

Leal Gondo, GustavoPartner, Nelson Wilians Advogados Associados

Pereira Guimarães, CesarPartner, Justen, Pereira, Oliveira & Talamini Advogados Associados

Perez Pire, RafaelExecutive Director, Unión Eólica Panameña

Pezzuti, Andrés

Quijano, JorgeCEO, Panama Canal Authority

Romero Adame, CintaCollaborator at ALOMON, SLU

Roy, RobertoExecutive Secretary, Metro de Panamá

Sastre, JuliánSenior Partner & Head Projects at S3 Transportation

Spindler, PaulKingston Smith LLP

Toro, JuanDirector, Astris Finance

Villalobos, FedericoSenior Financial Analyst, E3 Capital Costa Rica

Villeneuve, StéphaneVice-President at SNC Lavalin

Zarate, JulianaKingston Smith LLP

To our readers:Welcome to the 6th issue of Latin Infrastructure Quarterly. In this letter, besides introducing you to this very exciting issue, I will offer some brief observations of several relevant industry developments that occurred during the last quarter.

Latin Infrastructure Quarterly2

Latin Infrastructure Quarterly 3Letter From the Editor

governments announcing large investments and tender process-es, and suppliers publicizing big contracts signed with operators.

Asian “stakeholding”

During the last quarter we witnessed strong interest from Asian countries such as China and Japan in expanding their “stake-holding” in LatAm infrastructure. This interest was expressed by acts from government-related entities. This is important. First, because it is common for private sector companies from that far away region to look at their respective governments’ actions first in order to allocate resources anywhere. And second, in the case of China, because of the important role State-controlled players have in its infrastructure industry. To conclude, we should high-light and commend the role played by the multilaterals acting as platforms for investments in our region. They have shown to have the structuring expertise, knowledge of the region and economic and human resources to be an adequate platform to canalize Asian resources into our region.

Similarities between infrastructure and football in Brazil

As a write this letter, o futebol Brasileiro is currently building up for a new season with continuous announcements of players being traded. However news of problems in the different clubs tends to cast a shadow on those related to players that generate so much excitement in the fans.

Something similar has happened with the infrastructure in-dustry during the last quarter in the largest market in our region. The good news came with the numerous governmental actions to foster financing through promoting infrastructure bonds, tax exemptions announced for asset-backed funds that focus on in-frastructure projects and the regular investments / lines of credit announced by the BNDES (an interesting piece of very recent news, that sort of went unnoticed, was the restructuring of part of the BNDES’s debt conducted by the Brazilian treasury). The problematic news came in the form of labor matters, State inter-vention in critical concessions in the energy sector, and adminis-trative and judicial proceedings extending more than reasonably in time.

Extra observations (in a few lines)

An interesting development is the recent creation of a private sector company in the water and sanitation sector in Brazil, sim-ilar to the one featured in this issue. Both these companies are sponsored by important infrastructure players and have ambi-tious growth plans in a sector that has usually remained under State control.

Sector professionals and organizations talk about the conve-nience of having more airports in Brazil and in Mexico. Airlines ask for them as well for competition purposes. Passengers de-mand effective sector policies and efficient services. Regional and international operators have shown that they are ready and willing to embark in new projects. All is set for 2013 to be a

busy year for this sector in those countries.A lot of movement in the PV and wind sectors with financing

being announced by sponsors, private equity and multilaterals in projects in Peru, Chile and Brazil.

I hope you enjoy the issue.Best regards and have a great 2013!

Patricio Abal.Editor

[email protected]@LIQEditor

Latin Infrastructure Quarterly4 Sponsors

5Contents

ContentsIssue Focus: Panama ExclusiveThe Panama Canal..................................................................................................6

CAF’s Involvement in Panama.............................................................................13

A look at Panama’s Hydropower Sector.............................................................18

Infrastructure Finance Advisory in Panama...................................................... 22

Manzanilo International Terminal......................................................................24

The Penonomé Wind Farm.................................................................................28

The “Metro de Panamá”.....................................................................................31

SectorsThe IADB and the Reventazón Hydropower Plant............................................36

Company Profile: OSX.......................................................................................39

Mining and Infrastructure in Argentina...............................................................42

Costa Rica: Paving the Road for a PPP Reform.................................................46

Development of a Public Bicycle Rental Scheme – The Seville Case-Study....48

Company Profile: OAS Soluções Ambientais....................................................54

Medida Provisória 595: Changes in the Port Sector Regulation in Brazil...........58

SNC Lavalin’s Outlook of Colombia..................................................................66

Colombian National Infrastructure Agency Captivates Executives in Toronto..67

Strengthening the Not-For-Profit Sector in Colombia.........................................70

How Good is Your Site Security / Emergency Response Plan?...........................74

Private Sector Engagement and the Brazilian Myth of Fast Paced Growth..........76

Latin American Partners......................................................................................78

Latin Infrastructure Quarterly6 Institutions

THE PANAMACANAL

What are the Canal’s main sources of revenues?

The Canal derives its revenues mainly from providing transit services to ship-pers and shipping lines that move cargo through the route to reach producer and consumer markets in an expeditious and reliable way.

Primary sources of Panama Canal reve-nues include Canal tolls and other marine services. In addition, the sale of water and electricity also provide important streams of revenue. Even though transits might have slightly decreased throughout the years due to increase in vessel size, total Canal revenues have continued in-creasing due to rising cargo volumes.

LIQ talks to Jorge Quijano, CEO of the Panama Canal Authority

Has the worldwide economic slowdown affected the Canal’s revenues?

The waterway registered a slight decrease in tonnage during fiscal year 2009, but since then, it has resumed growth, with fiscal year 2012 setting a record of 333.7 million of PC/UMS tons, an increase of 3.6 percent compared to fiscal year 2011. Toll revenues, at B/.1,852.4 million, increased 7.1 percent, as a result of larger vessel transits. In terms of transiting vessels, fiscal year 2012 regis-tered 14,544 transits, a small 0.95 percent decrease from the previous year, with Pana-max vessels recording 7,241 transits, 56.3 percent of oceangoing vessels. Total cargo through the Canal registered 218.1 million long tons, a slight 1.9 percent decrease over the previous year.

What are the alternatives to the Pana-ma Canal?

There are several alternatives to the Panama Canal around the world, and two which stand out: the US intermodal corridor and the Cape of Good Hope. Both serve the East Asia – East Coast US route for container vessels, the Canal’s most important market segment. The US intermodal corridor im-plies a partial land route, with vessels from Asia unloading their cargo at several Pacific Coast ports in the United States. The cargo is subsequently distributed to locations in the Midwestern and Eastern United States by rail/truck transport. Meanwhile, sailing around the Cape of Good Hope provides an all-water alternative that is used by lines, mainly, in the return voyage.

Latin Infrastructure Quarterly 7Institutions

What are your thoughts on the project to revamp the Guatemalan railroad system to link the Atlantic and Pacific oceans sponsored by Korean firms?

From what we have read in the news, this railroad project seems to be part of a larger effort by the Guatemalan gov-ernment to develop a “technological cor-ridor” running north-south through the country. The government plans to build a whole infrastructure network consist-ing of port facilities, oil pipelines, a four-lane, 372-kilometer highway in addition to a parallel railroad, entirely through the private sector. The ACP considers that any project that facilitates trade and trans-portation will be beneficial to the region, under correct estimates and premises of their market demand and supply.

Let´s discuss the Expansion Program (the «Program»). What works does the Program entail and what is the current status?

The Panama Canal Expansion Program consists of the construction of two new

sets of locks - one on the Pacific and one on the Atlantic side of the Canal. Each lock will have three chambers with wa-ter-saving basins. Total progress for the locks project is currently at 36%.

The program also entails the widening and deepening of existing navigational channels in Gatun Lake and the deepen-ing of Culebra Cut, currently recording 82% progress, and the deepening and

widening of the entrances to the Canal on the Pacific and Atlantic sides, with 97% and 99% progress, respectively.

In order to open a new 6.1 km-long access channel to connect the Pacific locks and Culebra Cut, four dry excava-tion projects were designed. The first three have already been concluded and the fourth phase currently registers 69% progress. Additionally, the Expansion

The waterway registered a slight decrease in tonnage during fiscal year 2009, but since then, it has resumed growth, with fiscal year 2012 setting a record of 333.7 million of PC/UMS tons.


European Investment Bank (EIB) $ 500 M

Japan Bank for International Cooperation (JBIC) $ 800 M

Inter-American Development Bank (IDB) $ 400 M

International Finance Corporation (IFC) $ 300 M

Latin American development bank (CAF) $ 300 M

Total financing: $2,300 M

Estimated costs for the Expansion Program are:(in millions)

Design and build of the Third Set of Locks $ 3,585 M

Pacific Access Channel $ 477 M

Navigational channels improvements $ 800 M

Water supply improvements $ 71 M

Management & Contingency $317 M

Total $5250 M

Program will improve the Canal´s water supply by raising Gatun Lake´s maxi-mum operating level by 45 centimeters.

As of November 30th, the total prog-ress recorded for the overall Expansion Program was 50%.

For a program of this magnitude, how important is there for a state policy to be in place regarding the administra-tion of the Canal to keep short-term politics maneuvers from obstructing the project?

This is of paramount importance, not only for the expansion, but for all activities un-dertaken by the Panama Canal Authority. The Panama Canal has its own organic law, which was included in the Panamani-an Constitution after being ratified by two consecutive administrations. The Canal is acknowledged by all Panamanians as the nation’s principal asset, and its organiza-tional structure guarantees the concept of vital enterprise for world commerce and for Panama. To date, after its transfer to the Republic of Panama, the Canal has executed its role and regulations in com-pliance with article 310 of the National Constitution which bestows in it the com-mitment to manage, operate, preserve, maintain, and modernize the waterway, in a safe, uninterrupted, efficient and profit-able manner.

In what ways will the Canal’s services be enhanced upon the completion of the Program?

The expanded Canal will improve the Canal capacity to satisfy an increasing transit demand with an adequate level of service for every segment. Allowing the transit of postpanamax vessels will re-

duce the number of transits required to transport the forecasted cargo volumes. This, in turn, will lower operation costs and decrease the amount of water used in the current locks.

Can you provide us with a breakdown of the main costs of the Program?

See Figure 1.

How is the Program being financed?

The Panama Canal Authority signed agreements with a group of bilateral and multilateral financing institutions to procure financing of up to $2.3 billion required to complete the expansion of the waterway. With the authorization of Panama’s national Cabinet Council, the Canal Board of Directors proceeded to sign financing agreements with these in-stitutions as in figure 2.

How did you procure the main con-struction works?

The procurement for the construction of the major projects was accomplished through open public tenders. These bid-ding processes were based on best price and best value, whenever a more thor-

Figure 1

Figure 2


ough analysis and weighed assessment of technical proposals were required, in addition to the best price. The design-bid-build approach was implemented for the majority of the construction projects and the design-build approach for the most comprehensive, complex ones. The ACP

analyzed several options to better allocate the associated risks of each project. In the case of the Third Set of Locks Project, after the design & build model was se-lected, individual meetings with the bid-ders were scheduled to acknowledge their input before receiving the proposals.

Was the ACP involved in the design of the works or was it left to outside firms?

For the Third Set of Locks, the ACP worked along with external consultants in the elaboration of a conceptual design - which was provided for the bidding pro-

Latin Infrastructure Quarterly10 InstitutionsThe Panama Canal Expansion Program consists of the construction of two new sets of locks - one on the Pacific and one on the Atlantic side of the Canal.


cess- on which the bidders could base their proposals. All dredging and dry ex-cavation contracts were designed by the ACP. The 2.3 kilometer dam that will separate Miraflores Lake from the new postpanamax channel was designed by URS Corporation.

What are some of the unexpected is-sues that had to be resolved during the execution of the Program?

Unexpected issues are associated with external conditions, which can indirectly affect the works, such as strikes by syn-dicated local construction workers and changes in local laws. Also, working with multinational consortia has proven to be a challenge.

How are the environmental aspects of the Program being handled?

The environment is a priority under the Expansion Program. Along with its con-tractors for each component, the Canal requires the implementation of environ-mental mitigation measures through a dedicated management system in compli-ance with applicable regulations. For ex-ample, wildlife rescue and relocations ac-tivities are conducted as work progresses in all areas in which projects are executed. Mammals, reptiles and birds have been rescued and relocated to safe areas. Re-forestation projects with native species are also being conducted by the ACP and in close coordination with the national envi-ronmental agencies. In this regard, to date, over half a million trees have been planted in 626 hectares. The Expansion Program management also includes an agreement with the Smithsonian Tropical Research Institute for the location and assessment of paleontological findings within the project areas. In addition, regular contact is estab-lished with the communities in the vicin-ity of each of the projects to ensure that project impact is reduced to a minimum. All environmental activities are subject to independent auditing by local environ-mental organizations and all international financing institutions.

Why do you think Panama is attract-ing so much interest from international infrastructure players?

The program also entails the widening and deepening of existing navigational

channels in Gatun Lake and the deepening of Culebra Cut.


Currently, Panama is experiencing major infrastructure investments in addition to the Canal Expansion Program. A proj-ect to develop a metropolitan subway system, the expansion of Tocumen In-ternational Airport and improvements to Panama City’s metropolitan road struc-ture are among the top civil projects cur-rently under execution. Furthermore, its international banking center along with increasing airline connectivity makes it convenient for investors to establish themselves locally and operate at lower costs. Panama has maintained a steady rate of economic growth in the last de-cade, even in the midst of the current harsh worldwide financial crisis.

The Panamanian economy has ex-panded by more than 8% annually since

Jorge L. Quijano is the CEO of the Panama Canal Authority, the autonomous agency that manages the Panama Canal, the leading interoceanic water-way that serves world maritime commerce.

Jorge L. Quijano began his professional development in the Texaco Oil Refinery in Panama, where he worked as a Process Engineer and Prod-uct Forecaster. He started his career with the Panama Canal in 1975 and climbed through the professional and managerial promotion ladder to the position of Maritime Operations Director in 1999, the largest department of the Canal organization, directly involved in the operation and mainte-nance of the principal infrastructure and equipment of the waterway.

As Maritime Operations Director, he was responsible for transit sched-uling, vessel inspection, admeasurements, pilotage, tugs, launches and line-handler services, lockage operations and maintenance, central inven-tory management and motor transportation, emergency and contingency management (industrial fire fighting and hazmat response), as well as ac-cident investigations. Under his leadership, the Department of Maritime Operations obtained the ISO 9001 Certification issued by Det Norske Veri-tas in May 2001 and subsequent re-certifications.

In September 2006, was designated to manage the Panama Canal’s $5.25 billion Expansion Program; and to that effect, he was appointed Executive Vice President of the Engineering and Programs Management Department. Under the Expansion Program, he headed a group of pro-fessionals in charge of contracting and managing: the Locks Design and Construction contract, the Atlantic and Pacific entrance channels dredging contracts, the contracting of four dry excavation contracts to create a new

6.1 kilometer inland channel in the Pacific end of the Canal, the Lake level dredging to be performed by the Panama Canal Authority´s workforce and other smaller support contracts.

A native of Panama City, Republic of Panama, Jorge L. Quijano is a graduate of the industrial engineering school of Lamar University in Beaumont, Texas, and holds a Master of Engineering Degree in Industrial Engineering and Management. He is also a graduate of Executive Management Programs, both in the Federal Executive Institute, Charlottesville, Virginia, and the Northwestern University, Chicago, Illinois. He lives in Panama with his wife, Marcia, and their two children.

year 2000. Growth is particularly strong in the area of services, which accounts for nearly 80% of the country´s GDP. Most of the growth is attributed to a series of policies of privatization, open-ness, and transparency that have been implemented since the year 2000. New trade agreements, in particular with the US, are also opening a series of oppor-tunities for new players, which require infrastructure.

Nevertheless, the principal driver has been the Canal expansion, which is not only increasing the opportuni-ties for world commerce but is enhanc-ing Panama´s Logistic Hub capabilities throughout the world. In this spirit, we can say that shippers and shipping com-panies are discovering opportunities to

optimize operations by taking advan-tage of Panama´s strategic location and its logistic/transportation infrastructure, which includes highly efficient ports in both oceans, a transisthmian railway as well as air and land connectivity. At this point in time, when the US econo-my is growing at sub optimal levels and most of Europe is in recession, Panama provides a good opportunity for retail, exports, and transportation companies to optimize operations by realigning supply chains at a geographical location that has the best connectivity through-out the region in addition to be a secure, reliable and efficient transportation route.

Latin Infrastructure Quarterly 13Infrastructure Financing

Why do you think that Panama is at-tracting so much interest from interna-tional infrastructure players?

The Republic of Panama is one of the Latin American economies that have had one of the highest growth rates in the last 10 years. In 2011, the growth rate of Pan-ama’s GDP was 10,6% which was high-er than the average of 8,4% economic growth for the previous 5 years. It is also expected that the growth rate in Panama for 2012 will one of the highest in Latin America. The engines of growth of Pan-ama’s economy have been a) the growth in internal demand which has been fueled by public and private investment in infra-structure projects and b) a rise of export of goods and services mainly through an in-crease in the activity in Colon’s Free Tax Zone as well as through the expansion of the shipping activity of the Panama Canal

CAF’s and an increase in financial services pro-vided to non residents in Panama.

Taking into consideration Panama´s GDP growth potential and the current expansion and upgrade of new infrastruc-ture projects, Panama has caught the at-tention of infrastructure players who want to assist Panama in the modernization and upgrade of its existing infrastructure platform. In that respect companies are looking for opportunities at infrastructure projects in roads and highways, ports and airports, energy projects, subway, hotels, the Panama Canal as well as water and sanitation projects, among others.

What are the main State policies be-hind infrastructure development in this jurisdiction?

The Government’s strategic plan for the years 2010-2014 has identified four en-

gines that will contribute to the growth of the GDP in the range of 6 to 9 percent on a yearly basis. The mentioned engines are logistics, tourism, agriculture and finan-cial services.

In order to attain the GDP growth po-tential, major infrastructure needs of the logistics and tourism growth engines have been identified:

Logistics: 1. finalize the expansion of the Panama

Canal2. expand and improve existing roads

and highways 3. expand air cargo capacity4. reduce inland transportation costs; Tourism: 1. improve the transport connectivity

of regional airports, roads and high-ways, and marinas

2. improve the water supply and sanitation.

LIQ talks to Federico Flossbach, Senior Executive at Confederación Andina de Fomento

involvement in Panama

Latin Infrastructure Quarterly14 Infrastructure Financing


In that respect companies are

looking for opportunities at infrastructure

projects in roads and highways,

ports and airports, energy projects, subway,

hotels, the Panama Canal as well as water and sanitation

projects, among others.

In order to achieve the above men-tioned goal the development agenda iden-tified in the strategic plan calls for: a) the enhancement of the planning capabilities of the Central Government, b) the im-provement of the capacity of the public entities, c) the development an adequate legal and regulatory framework, d) the enhancement in the coordination of in-frastructure projects among the various players (public and private, regional gov-ernmental authorities and central govern-ment authorities), and e) the development of human capital to fulfill the identified tasks.

In what ways does the CAF contribute to the development and financing of in-frastructure in Panama?

CAF contributes to the development and financing of infrastructure in Panama in many different ways. Regarding funding needs of infrastructure projects, CAF´s strategy in Panama has been to assist projects with long term financing in the following sectors: roads and highways, energy, the Panama Canal, urban mas-sive transport, and social infrastructure in water and sanitation. CAF has extended facilities to the financial sector through short and medium term lines of credit to facilitate banks to fund their trade financ-ing as well as working capital needs.

CAF has also given Technical Assis-tance to public and private projects in Panama. In landmark projects CAF has assisted the private and public sector through its Technical Assistance program in the conception and formulation of the project from the onset of the project. Such an approach has ensured the finan-cial, economic and social viability of the project.

The CAF´s approach to the financ-ing of infrastructure projects is based on promoting self-sustaining infrastructure projects that assure economic develop-ment while taking into consideration en-vironmental and social aspects as well the point of view of relevant stakeholders in the project. CAF also looks at the genera-tion of positive economic externalities in the projects that it funds.

In the financing of infrastructure proj-ects CAF has aimed to incorporate joint financing opportunities with other Mul-

tilateral and Bilateral Institutions as well as other Financial Institutions (Banks and others) in order to promote the flow of funds to Panama.

What is CAF’s infrastructure portfolio in Panama?

CAF´s infrastructure portfolio includes the financing of sovereign and private projects in Panama.

City. The estimated cost of the project is US$ 1,880 million. The debt portion will amount to US$ 1.956 million out of which CAF will participate with US$ 500 mil-lion. The second project is phase 1 and 2 of the “Saneamiento de la Ciudad y Bahia de Panamá”. This project has a total esti-mated cost of US$ 906 million where the debt portion will be up to US$ 627 mil-lion. In this project CAF is participating with US$ 296 million of the debt portion.

In the private sector CAF is partici-pating in the financing of the expansion of the Panama Canal. The estimated to-tal cost of the project is US$ 5.250 Mil-lion, where the debt portion will amount to US$ 2.300 million and where CAF is participating with up to US$ 300 million in the total debt financing. The second private sector project is the financing of Electron Investment which is the Hydro-electric Plant of Pando Monte Lirio in the province of Chiriquí. The total project cost amount to US$ 292,6 where the debt portion will be US$ 183.4 million and where CAF is participating with a Senior Tranche of US$ 25 million and a subor-dinated Debt Tranche of US$ 15 million.

The financing of the expansion pro-gram being implemented by the Autori-dad del Canal de Panamá (Panama Canal Authority) had multiple sources and was signed during the midst of the financial crisis that affected the world markets back in 2008, who were the sources and how was it structured?

The expansion of the Panama Canal had a corporate finance structure since it was based on the repayment capacity of the Panama Canal Authority. Never-theless because of the sheer size of the expansion project relative to the balance sheet size of the Panama Canal Author-ity at that time, the financing structure had many elements of a limited recourse project financing. The total cost of the ex-pansion program amounted to US$ 5,250 million and the debt portion amounted to US$ 2,300 million with a tenor of 20 years, a disbursement period of 6 years and a grace period of 10 years.

The following banks are the lenders to the Panama Canal expansion program: a) the Japanese Bank for International Co-operation (JBIC) made a commitment for US$ 800 Million, b) the European Invest-ment Bank (EIB) made a commitment for

In the sovereign sector, CAF is sup-porting two flagship projects in the coun-try. The first one is the financing of the 1st line of the Metro system in Panama


US$ 500 Million, c) the Interamerican Development Bank (IDB) made a com-mitment for US$ 400 Million, d) the In-ternational Finance Corporation made a commitment for 300 Million, and e) CAF made a commitment for US$ 300 Million.

As of September 2012 the construction progress of the expansion of the Panama Canal has reached about 44,5% and it is expected to be completed and commis-sioned by August 2014.

What were the financier’s main con-cerns given the context?

The closing of the financing took place in 2008 amidst the outset of the worldwide. As you know the financiers to the expan-sion program were Multilateral Banks who fulfilled their role of being lenders of last resort at times of crises. One of the concerns of the lenders at that time was the likelihood that the real sector could be impacted by the financial crises and the potential effects it could have on the ex-

pansion of the Panama Canal.The main concern was that trade flows

among countries could diminish radically and that the use of the Panama Canal could be affected by the worldwide crises. Given the fact that the financial crises has been managed in a reasonable manner and that the real economy has not been affected on a worldwide scale or in a profound way the usage of the Panama Canal has not dimin-ished and has risen in recent years.

In that sense the implementation of the expansion of the Panama Canal has proven to be a timely project and will contribute to the economic development of Panama and will serve expanding trade flows in the world.

CAF is also the main financier of the “Metro de Panamá” project, what are the main characteristics of the financing?

Indeed, CAF is currently participating in the construction and future commission-ing of Line 1 of the Metro of Panama,

which consists in the construction of a metro line of 13,7 kms with 12 substa-tions. In its first phase, the Metro line will be able to connect the San Miguelito neighborhood in the northeastern part of the city with Albrook in the southeastern part of the city, where the interurban bus terminal of Panama City is located. The total project cost amount to US$ 1.880 million, it has several financiers and will improve the urban mobility of Panama City.

CAF is participating in the financing through two separate loans. The first one has been approved and subscribed in 2011 is for the amount of US$ 400 million and the second loan has been approved in No-vember of this year and is for US$ 100 million, and will be subscribed in due course.

With these two credits CAF´s partici-pation in the total financing amount to 26,6% of total project costs. It is expected that a substantial part of both loans will be disbursed in 2013. The loans have a


sovereign guarantee in place and will be executed by the “Secretaría del Metro de Panamá», which is the corresponding au-thority for the execution and commission-ing of the project.

The resources have been earmarked to finance civil works, rolling stock, trains and wagons, environmental and social costs as well as the supervision of the project. Additionally part of the resources can be used to perform independent stud-ies by consultants that might be necessary to assure the commissioning of Line 1 of the metro, which is earmarked for the first trimester of 2014.

Besides the financing provided to the Metro project, CAF also provided technical assistance, what kind of as-sistance?

When the Government decided to imple-ment the construction of a Metro system for the Metropolitan area of Panama, CAF joined forces with other financing entities, to finance through Technical As-sistance funds the feasibility of the con-ceptual design studies of Line 1 of the Metro in Panama. These studies which in-corporated technical, economical and so-cial and environmental aspects were used for the tender offer process as well as the contractual framework of the project.The financing also includes an assessment of the effects that the commissioning of the Line 1 of the Metro will have and the actions that have to be implemented with other public transport systems that oper-ate in the city.

CAF commitment and involvement with the project continues and, as of to-day, CAF is currently in conversations

with the “Secretaría del Metro de Pan-amá” to evaluate its continued support of the project as well as its involvement in the future expansion of the system. CAF is also contemplating to participate with proposals for safety measures along the rail line of the 1 Line of the Metro.

There is another recent infrastructure related project financed by CAF called “Saneamiento de la Ciudad y la Ba-hia de Panamá”, what works does this project entail?

This project has two main objectives. The first one is to improve the sanitary con-ditions of low income neighborhoods in order to diminish the contamination of ur-ban rivers and effluents through the con-struction of a drainage system. The sec-ond objective is to recuperate and clean the bay of Panama through the construc-tion of a waste water treatment plant for the city of Panama.

The project will be developed by the Health Ministry and will have a sover-eign guarantee. The expected total cost of the project is US$ 538 million. The Government has committed funds to the Project in the amount of US$ 58 million and the remainder is being be provided by Financing Institutions and Multilateral Institutions. CAF has committed a loan to the project in the amount of US$ 120 million.

The project will have a second phase in order to expand the initial reach of the project. The total estimated cost of the second phase is US$ 308 million and the amount that has been approved at CAF is US$ 176 million

Federico R. Flossbach, is a Senior Executive in the Representative Office of Corporación

Andina de Fomento (“CAF”) in Panamá where he is responsible to manage CAF´s client relation-ships and identify new business opportunities for CAF´s private sector arm in Mexico, Central America and the Caribbean. Previously he was the Senior Executive officer for the private sector in Brazil out of CAF´s pri-vate sector office in Sao Paulo. Here he was responsible to open CAF´s private client office in Sao Paulo which helped es-tablish CAF´s footprint in Brazil. Initially he worked at CAF in Ca-racas in the Project Finance unit structuring transactions in the energy, telecommunication and transportation sectors.

Before joining CAF, Mr. Floss-bach worked at Chase AG in Frankfurt, Germany a subsidi-ary of The Chase Manhattan Bank where he worked in the Structured Export Finance De-partment. At Chase he was re-sponsible for originating, struc-turing and distributing cross border transactions. Mr. Floss-bach earned a B.S. in Econom-ics degree from the Instituto Tecnológico y de Estudios Su-periores de Monterrey (ITESM) in Monterrey, México, an MBA in Finance from the American Graduate School of Internation-al Management (Thunderbird) in Glendale, Arizona, as well an Advanced Management Pro-gram Degree from Haas Busi-ness School at Berkeley Univer-sity in San Francisco, California.

In the private sector CAF is participating in the financing of the expansion of the Panama Canal. The second private sector project is the financing of Electron Investment which is the Hydroelectric Plant of Pando Monte Lirio in the province of Chiriquí.

Latin Infrastructure Quarterly18 Company Profiles

Panama’s economy has been grow-ing steadily at high rates, what are the main sources of electricity in the Coun-try and what are the national authori-ties doing to keep up with the increas-ing demand?

Since 1997, when the Power Sector was restructured, electric energy production has been the responsibility of multiple enterprises. Initially, most of these where of mixed ownership, state and private, but since the restructuring took place most of the new capacity added to the system has been private investment. About 10% of the total capacity is owned by the Panama Canal Authority, which is state owned.

As for the sources of primary energy, approximately 60% is hydroelectric and the balance is thermoelectric, mostly ob-tained through heavy fuel oil, some light fuel oil and a coal fired plant.

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The guiding policy for the Panama-nian authorities during this period has been the free market rules established in the reorganization laws of 1997. There is a clear correlation between increased investments during the periods when the authorities have shown support of the free market and diminished investments when the signals have not been clear.

To keep up with the increasing de-mand, ETESA (Empresa de Trasmisión Eléctrica, S.A.), which is 100% state owned, is calling for bids for long term Power Purchase Agreements. Two of them will take place in the first quarter of this year (2013).

Who are the main players in Panama’s energy sector?

Panama’s electrical distribution is han-dled by geographical exclusivity conces-

Latin Infrastructure Quarterly 19Company Profiles

sions. Two companies hold these conces-sions and both are of mixed ownership with the state holding 49% of the stock. The private companies holding the 51% in each case are Gas Natural Fenosa, from Spain and Empresas Públicas de Medellin from Colombia. The transmission system is owned and operated by a state owned company.

Regarding the generation subsector, actors are very dispersed. AES Corpora-tion has the largest participation with (i) its 49% stake in AES Panama SA which owns a 481 MW hydro plant and (ii) sole ownership of AES Changuinola which owns a 222 MW hydro plant. SUEZ-GDF has 51% ownership of BLM Corp., a 280 MW thermal facility, and sole ownership of SUEZ-GDF Balboa 87 MW thermal and a 60 MW hydro complex. ENEL has 49% ownership of Fortuna a 300MW hydro plant. There are also other impor-tant Central and South American groups.

How developed is the hydropower sector?

Panama currently has 1231 MW hydro capacity on line. In addition there are some 540 MW under construction. By

most accounts this is a bit more than half the total hydroelectric capac-ity available. There are still some im-portant projects, such as the 200 MW Changuinola II, that have to be devel-oped but evidently most of the easy affordable hydro has been developed already. What lies ahead will be more difficult and more expensive.

Please describe the regulation affecting the power generation sector.

To develop a hydroelectric resource the developer has to obtain a concession. This is a rather lengthy process that starts with requesting authorization to study a site. The developer must perform an environmental impact study, have it ap-proved by the environmental authorities and obtain the water rights required for the hydroelectric development. Once all the requirements are met a concession is awarded usually for a 50 year period. The project can then begin construction.

As for the sources of primary energy, approximately 60% is hydroelectric and the balance is thermoelectric, mostly obtained through heavy fuel oil, some light fuel oil and a coal fired plant.

Latin Infrastructure Quarterly20For a thermal facility a license is re-

quired. To obtain the license the main re-quirement is an approved environmental impact study.

Once the facilities are ready to come on stream, the operator will become an agent in the electricity wholesale market.

Hidrotenencias has recently gone through a corporate change of control, what were the factors that made Hidro-tenencias an attractive business oppor-tunity for these new investors?

Hidrotenencias is well positioned to take advantage of the attractive power market in Panama, which has good fundamen-tals given the constrained supply and the continued demand growth, resulting from significant economic growth and a large portion of the population emerging from poverty. The power generation market in Panama has clear and market-driven rules; generators can sell power through PPA contracts that are put out for bid or through the spot market at unregulated prices. Finally, energy prices in Panama are dollar denominated and the country is investment grade, which facilitates the financing of generation projects in favor-able terms.

Who are the new shareholders?

The new shareholder is a group of in-vestors led by ACON Investments (“ACON”), an international private eq-uity investment firm founded in 1996 that has managed US$2.4 billion of capital and invests throughout the United States and Latin America. ACON is headquar-tered in Washington, D.C. with Latin American offices in Mexico City and São Paulo. The investor group includes FMO, the Dutch development bank, Proparco, the French development bank and Aser-gen, the largest developer and operator of mini-hydro plants in Mexico, which has developed approximately 134 MW of ca-pacity.

What does each of the new sharehold-ers bring to the table?

ACON has led the implementation and improvement of governance, reporting and monitoring systems, as well as the op-

Company Profiles

Latin Infrastructure Quarterly 21

Mr. Hanono is the President and CEO of Hidrotenencias and Director of Em-

presas Vicsons, an investment company run by the Hanono family. He has been actively in-volved with the plant design and construction management of Concepcion, LPN and LPS since 2005. Mr. Hanono has 17 years of project management experi-ence including real estate de-velopment and construction. Mr. Hanono graduated from the ex-ecutive management program at Harvard Business School. He received his master’s degree in Construction Management from Massachusetts Institute of Tech-nology and his Bachelor’s de-gree in Civil Engineering and Business Administration with an emphasis in Finance from Tu-lane University of Louisiana.

erations and maintenance program, which are in line with industry best practices. In addition, ACON together with Asergen have closely supervised the construction of the new plants, which are expected to start operations in 2013. ACON has been actively involved in determining PPA bid prices under analysis prepared by man-agement. In June 2012 each of the com-pany’s three plants was awarded three PPA agreements for the sale of power and energy from July 2012 through December 2015. These PPAs significantly reduce the exposure to spot price volatility and guarantee a price during the contracted period that is in excess of our original ex-pectations. ACON has also leveraged its regional network to source and analyze expansion opportunities via acquisitions and new project development. FMO and Proparco, have provided Environmental and Social guidance and helped imple-menting a strict E&S Management Sys-tem. Finally, principals of Asergen par-ticipate in the Board and provide ongoing strategic and technical support to refine O&M plans, operational policies and re-porting systems.

What is the current operating status of the power plants under Hidrotenen-cias’ control?Hidrotenencias has been operating Con-cepcion Hydroelectric Plant since 2008. We are pleased because it has exceeded all of our expectations. We are currently

commissioning Las Perlas Norte Hydro-electric Plant, and we expect to commis-sion Las Perlas Sur Hydroelectric Plant in the next months. It is a very busy period for us!

Hidrotenencias plans to expand its op-erations regionally, what are the fac-tors that make renewable energy op-portunities in the region attractive?

Hidrotenencias, with the support of ACON, has identified a strong pipe-line of investments to multiply by up to 10x its installed capacity. The plan includes the acquisition or develop-ment of projects in Panama, Costa Rica, Guatemala, and Mexico among other countries. Hidrotenencias seeks to man-age more than 500 MW in renewable energy assets across Latin America by 2017. Latin America is experiencing

fast growth in power demand (1.5x – 2.0x annual GDP growth vs. 1.0x in developed world). Currently, there are significant power constraints in the re-gion, such as limited excess generation capacity (demand – supply) and limited

Investors include ACON Investments, FMO - The Dutch development bank, Proparco - the French development bank, and Asergen.

Once all the requirements are met a concession is awarded usually for a 50 year period.

access to fossil fuels, and the size of the economies limit the feasibility of large projects. The World Bank estimates that Latin America requires annual invest-ment of US$15 billion in the electrical sector in order to meet demand require-ments.

Company Profiles


What is Astris Finance (“Astris”) and what is your role?

Astris Finance is a US-based transac-tion advisory firm specialized in infra-structure and energy, with operations in the Americas, Europe and Africa. The firm has offices in Washington DC, Par-is and Mexico. We specialize in advis-

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LIQ talks to Juan Toro, Director at Astris Finance

ing sponsors and institutional investors in structuring and financing infrastruc-ture and energy projects in emerging markets.

Astris has been very active throughout the region recently, with which infra-structure players do you most often work with and why?

Historically, we have worked advising sponsors in the process of crafting financ-ing strategies in the context of a bid, or assisting sponsors in the process of rais-ing non-recourse debt at project level, whether through a bank syndicate, A/B loans structures, guaranteed debt pack-ages, or capital markets. Lately, we have also started working on the buy side rep-resenting institutional investors and/or in-frastructure funds acquiring assets in the region or setting up investment vehicles to go after greenfield projects.

How does Astris compete against the project finance divisions of big project sponsors?

We do not compete at all. They are our clients and we are set to assist them in reaching their goals: wining and financing projects. We complement project finance divisions and as such we have worked successfully with the most sophisticated sponsors in the world. We bring a fully dedicated team of specialists with asset and regional experience that allow us to provide the best advice to our clients.

Can you please describe the services you provide for companies looking to bid for a project?

Astris Finance contributes to the review of the bidding documents (early identi-fication and mitigation of bankability is-sues in draft contracts, Q&A sessions), review of the adjudication criteria, and sizing and optimization of sponsor bid us-ing our state-of-the-art financial models.

Moving to Panama now, can you de-scribe the Balboa Avenue project?

The Project involves the development of a package of urban road works intended to improve the connectivity of Panama City’s western road network and alleviate traffic congestion. Key Project compo-nents include:• Expansion works at Poets Avenue;• Improvement works at Balboa Av-

enue;• A new tourist breakwater in front of

the Fish Market; and• An interconnection network between

Balboa Avenue and Poets Avenue,


which involves the construction of a marine viaduct that will swing around the Historic District.

The USD 782 million project is part of the USD 1.5 billion Panama City Road Network Improvement Program and was awarded to Construtora Nor-berto Odebrecht (“CNO”) pursuant to an international public bidding contest in March 2011. The financing takes the form of a 4 year revolving receiv-able purchase agreement to buy up to USD 567 million of promissory notes from the Republic of Panama known as Cuentas de Pago Parcial (“CPPs”). The CPP structure has been success-fully used in the past in Panama for the financing of several projects. CPPs rep-resent an irrevocable and unconditional payment obligation from the Republic of Panama, and are progressively deliv-ered by the Government as construction milestones are achieved.

Who were the main players involved?

The main players involved were:• Contractor: Odebrecht Panama • MLAs: Bank of Tokyo-Mitsubishi

and Sumitomo Mitsui Banking Cor-poration

• Arranging and Admin Agent: Bank of Nova Scotia

What kind of services did Astris pro-vide to its client?

Astris Finance acted as Financial Advisor to CNO throughout the bidding, structuring, placement, due diligence and closing of the financing. Astris Finance also advised CNO in the structuring of the interest rate hedg-ing strategy, which consists of a string of forward-starting USD zero coupon swaps.

What other sectors are you currently looking at in Panama?

We are currently looking at projects in the port and road sectors and also in the energy sector both conventional and re-newables.

What are some of the ways through which the government of Panama is encouraging foreign private sector

Juan Francisco Toro has 15 years of experience in investment banking and infrastructure. Over his professional career,

Mr. Toro has successfully raised and arranged an aggregate in ex-cess of USD 4 billion of long term financing for infrastructure and energy projects in Latin America, Middle East and Africa. Mr. Toro has worked with Astris Finance since 2005 where he has han-dled and led numerous projects throughout Latin America repre-senting over US$1.5 billion of in-vestment in various infrastructure sectors including transportation, energy, and social infrastructure.

Mr. Toro created and led for three years the project finance practice in Mexico for Dexia where his team participated in the financing and/or structuring of more than 15 projects in infrastructure representing over US$2 billion of investment. Prior to joining Astris, Mr. Toro served at Taylor-DeJongh, a boutique infrastructure investment bank focused on emerging markets, where he advised on power and energy projects scat-tered throughout Asia, Africa, and the Americas, and at Lloyds TSB in Co-lombia as a Senior Foreign Currency Trader in charge of managing the foreign currency position of the bank.

Mr. Toro holds an MS with a concentration in international finance and energy from the School of Foreign Service at Georgetown University as well as a BA in economics and finance from Colombia’s Universidad EAFIT.

parties to invest their resources in the development and financing of the coun-try’s infrastructure?

The Government of Panama keeps look-ing for innovative payment mechanisms

to support the development of public-private partnerships (PPPs). For in-stance, structures such as the CPPs help mitigate construction risk facilitating private participation.

The Government of Panama keeps looking for innovative payment mechanisms to support the development of public-private partnerships (PPPs). For instance, structures such as the CPPs help mitigate construction risk facilitating private participation.

Latin Infrastructure Quarterly24 Company Profile

What is your overall opinion on the Panamanian institutional and regula-tory framework towards ports?

The state of Panama has a very laissez-faire approach regarding ports. The onus for investment and risk is on the private sector. It seems like the market has ac-cepted the framework given that the over-all container terminal throughput growing at a compound annual rate of 19% since 1995.

Manzanilo International Terminal

tries, opening new markets and help-ing the trade balance positively, while importers can bring products cheaper to end consumers; and

3. Options for users: while having a good highway is always a benefit, having a good highway and a good rail infra-structure offers the users (shipping lines/BCOs) different alternatives in an ever more complex global supply chain market.

17 ship-to-shore gantry cranes and top-of-the-line cargo handling equipment, MIT is one of the few terminals in the area that can offer comprehensive cargo handling solutions, including facilities to move containers, roll-on/roll-off, project and breakbulk cargo.

MIT has repeatedly won awards for its efficiency, what are the key indicators that make a port terminal efficient?

Manzanilo International Terminal (“MIT”) is well connected through high-ways to other cities in the region, what would you say are the main reasons for which a port terminal such as yours must be adequately connected to transport in-frastructure?

The main reasons are:1. Port competitiveness: beneficial cargo

owners (“BCOs”) will look for the most economical total transport solu-tion and good connectivity to/from the port helps drive down total transport costs;

2. Country competitiveness: exporters competing in a world-wide market will be able to place their products at a more competitive costs in other coun-

What are some of the main products exported through MIT and what are the main destinations?

Inbound cargo to MIT is well balanced from Asia, Europe and the Americas. On the other hand, 90% of the outbound car-go has the Americas as destination, clear-ly showing that MIT is the gateway to the Americas for all types of commodities.

Please describe your facilities and equipment. What services do you offer to shipping lines?

MIT is strategically placed in the Atlan-tic Coast of Panama, right adjacent to the Panama Canal entrance. With a labor force mainly from the province of Colon,

The main one is vessel productivity, that is, how much time a vessel takes to clear port, measured from the time the vessel ar-rives at the port to the time it leaves the port. This key performance indicator takes into consideration aspects such as terminal productivity, tug/pilot services and avail-ability, authorities’ free pratique time and cargo coordination between terminal, line and BCOs. Other important key perfor-mance indicators are cargo truck turn-time, cargo damage occurrence, cargo data vis-ibility rate through IT deployment.

Why is the logistics park important to your clients?

Now that MIT has helped establish Pana-ma as a cargo hub for the area, it is impor-

LIQ talks to Juan Carlos Croston, Vice-President Marketing


Inbound cargo to MIT is well balanced from Asia, Europe and the Americas. On the other hand, 90% of the outbound cargo has the Americas as destination, clearly showing that MIT is the gateway to the Americas for all types of commodities.


tant for shipping lines using Panama as a cargo distribution center to offer their end customers more integrated services. Hav-ing the best connectivity in the continent, world-class third party logistics and great transport infrastructure, it is only natural to go after the so-called “last-mile logis-tics” services.

MIT is an active member or part of the following international codes and or-ganizations: Customs-Trade Protection Against Terrorism, Business Alliance for a Secure Commerce, International Ship and Port Security Code, and is one of five pilot members of the Panama Customs-led new Authorized Economic Operator.

MIT has focused on sustainable growth, with six particular areas of interest:

1. Employees: 90% of our people comes from Colon, close to 200 of our people have been working with MIT since its beginnings in 1995 and some of them now help our parent company Carrix

In a recent LIQ article we covered the importance of security providers to in-frastructure asset operators, what are the most important security threats to MIT and how do you deal with them?

How do MIT’s activities affect the city of Colon and what are some of the ac-tions derived from MIT’s corporate so-cial responsibility policies?

train new international employees at our training center in Colon or as ex-pats in overseas operations;

2. Environment: MIT is at the fore-front of environmental-friendly cargo han-

With a labor force mainly from the province of Colon, 17 ship-to-shore

gantry cranes and top-of-the-line cargo handling equipment, MIT is

one of the few terminals in the area that can offer comprehensive cargo

handling solutions, including facilities to move containers, roll-on/roll-

off, project and breakbulk cargo.

Latin Infrastructure Quarterly 27Company Profile

Juan Carlos Croston is Vice President Marketing with Manzanillo International Terminal – Panama (MIT-Pana-ma). In this role, Mr. Croston manages all commercial aspects of the terminal. He joined MIT-Panama as a Ter-minal Planner in 2004 and was promoted to the position of Customer Service Manager in 2005. Mr. Croston serves as VP Marketing since January 2008. He’s also an active member of the Maritime Chamber of Panama

(currently, board of directors’ second vice president for the period 2012-2013), member of the Caribbean Ship-ping Association’s General Council and several other local and international organizations.

Before joining MIT-Panama, Mr. Croston worked for 4 years in the supply chain business, including turns as officer onboard container vessels and as distribution manager for an import/export company in Panama.

Mr. Croston holds a B.S. degree in Nautical Engineering from the former Nautical School of Panama and a M.Sc. degree in Maritime Affairs from the World Maritime University, Malmo, Sweden. He is married and has 3 children.

90% of our people comes from Colon, close to 200 of our people have been working with MIT since its beginnings in 1995 and some of them now help our parent company Carrix train new international employees at our training center in Colon or as ex-pats in overseas operations.

dling equipment initiatives that help mitigate impact to nature while also supporting external environmental projects and organizations such as the STRI in Isla Galeta;

3. Vendors: encouraging and supporting micro and small businesses in Colon, while maintaining and developing a strong relationship with all product and service suppliers, has been one of MIT’s key objective since its begin-nings, nurturing best practices along the way;

4. Commercial drive: MIT has retained, in a very competitive environment, more than 95% of its customer base since 1995, maintaining and develop-ing a strong relationship with its cus-tomers;

5. Community outreach: total invest-ment in Colon is now US$ 6 million and includes development of hospi-tals, schools, support of sport pro-grams and maintenance of key land-

mark places in Colon. These projects are developed following international guidelines to ensure community in-volvement and sustainable projects;

6. Public advocacy: MIT is an active member of various local and inter-national organizations, and a case-study of successful public-private partnership in Panama. As the lead-ing cargo terminal in Panama, MIT continues to spearhead the develop-ment of an up-and-coming logistics industry that currently accounts for over 20% of Panama’s GDP.

Latin Infrastructure Quarterly28 Projects

What is the UEP and what is UEP’s relationship with Union Eólica Española (Spanish Eolic Union - UEE)?

UEP is a subsidiary of Unión Eólica Española, a Spanish com-pany with solid and proven experience in the renewable energy sector, with more than 300 MW installed worldwide in wind farms, cogeneration projects, biomass and waste management projects.

With our team in Panama, UEE intends to transfer its suc-cessful business model to Panama, installing innovating infra-structures with proven technology worldwide, which favors the introduction of clean energy.

What other infrastructure-related Spanish companies are presently doing business in Panama?

I do not think any other Spanish companies are constructing wind farms in Panama. However, there are several companies involved in hydro plants and energy distribution, as Gas Natural. Furthermore, the companies that had been contracted for the bal-ance of plant of UEP´s wind plants are Spanish, because one of the requirements in the ETESA [Panama’s state-owned electrical

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LIQ talks to Rafael Perez Pire, Executive Director of the Unión Eólica Panameña (Panamenian Eolic Union - UEP)

transmission company] tender was expertize for more than 10 years in the construction of wind facilities.

The homepage of UEP’s website gives an excellent concise explanation on why you chose Panama to develop projects; can you comment on Panama’s politic and economic stability and its state policy towards foreign direct investment?

For us, as for other investors, it’s important to maintain clear rules in order to ensure the success of the Project.

UEP chooses Panama for being a country with contrasted political, legal and economic stability, and with infrastructure and legislative systems that favor the establishment of clean en-ergy. We believe that this political, legal and economic stability is what makes Panama an ideal country for capital inflows and foreign direct investment.

What are the sources of financing for your projects available in Panama?

Financing is coming from local and international banks, leaded by BICSA [Banco Internacional de Costa Rica S.A.] There are some multilateral banks also involved in project financing.

Latin Infrastructure Quarterly 29Projects

The Penonomé Wind Farm

Please describe the main characteristics and status of the Penonomé Wind Farm project and the economic benefits envi-sioned for end users.

The Penonomé Wind Farm, located in the city of Penonomé, province of Cocle, will be the first wind farm in Panamá and the biggest in Central America. With an investment of more than 440 million dollars, the Penonomé Wind Farm will strengthen

the national energy matrix, complementing the existing tech-nologies and creating more balance and security to the national electric system.

All the necessary topography and geotechnical studies are completed, as well as the implantation phase of the concrete plant and the quarry. The civil works for the Substation El Coco are in process, as well as the purchase of the wind turbines and the main equipment for the Substation El Coco. We estimate that the wind farm will begin its operation between December, 2013 and January, 2014.

Among its benefits we can list:• The Penonomé Wind Farm will have a total installed power

of 220 megawatts that will cover between 6 and 7% of the total energy consumption in Panama. With this power, it will be able to supply 100,000 Panamanian families, that’s equiv-alent to more than half a million citizens.

• 75% of the energy will be produced during the summer when it’s windier, allowing water savings during the dry season and reducing dependency on fossil fuels.

• The production of the Penonomé Wind Farm will reduce the consumption of approximately 145 thousand tons of petro-leum a year, will avoid the emission of 450 thousand tons of CO2 to the environment, the emission of 1,000 tons of nitrous oxides (NOx) a year and, 500 tons of SO2 a year, that produces acid rain.

• The entry of wind energy will strengthen Panama’s energy

UEP chooses Panama for being a country with

contrasted political, legal and economic stability, and with infrastructure

and legislative systems that favor the establishment of

clean energy.


matrix and will increase the security of the electric system of the country, significantly reducing fluctuations in the service.

• The project is going to generate jobs especially for the Cocle community construction phase as well as its operation phase.

• UEP will develop important social projects in benefit of the Penonomé community and neighboring areas.

It’s important to highlight that the wind turbines of the Penono-mé Wind Farm are compatible with the current use of the land, which means that they will not affect the regular activity carried out there. Besides, these lands are generally used for cattle farm-ing and planting of rice, meaning that the Penonomé Wind Farm does not require the movement of the proprietors and does not cause deforestation or degradation of the environment.

Furthermore, the wind turbines will be located at least 500 me-ters away from the houses and their towers are 95 meters high, so the machinery won’t affect the neighboring communities.

Who are some of your suppliers for this Project?

UEP recently formalized an agreement with Grupo Cobra for the execution of the civil and electric works of this project. It’s a turnkey contract that includes the construction of internal roads, roads, trench, foundations and other civil works in the project.

Cobra Group will also be in charge of building El Coco’s substation and all electric works for the connection of the wind farm to the National Interconnection System.

Lastly, the contracted works include the development of the optic fiber communications network between the wind turbines and the substation, as well as the one between the substation and the National Dispatch Center.

The company also finalized its agreement with Goldwind USA Inc. for the supply of the wind turbines. Goldwind is the largest manufacturer of wind turbines in China and the second largest glob-

ally. The Penonomé wind farm will feature Goldwind’s GW2.5MW Permanent Magnet Direct Drive (PMDD) wind turbines.

Goldwind will be supplying, erecting and commissioning the wind turbines and power plant, including the supervision of work performed by the balance of plant contractor on civil works construction, electrical and transmission interconnection.

Can you describe the waste management project you are currently working on?

We are planning to use urban solid waste to produce energy us-ing a gasification process to produce synthesis gas to be used in conventional gas motors. The gasification process will use a gasification device developed jointly by two companies in Spain and the Polytechnical University of Madrid for biomass. Before gasification we will homogenize the wastes and separate all the inorganic fractions, to be recycled, and use only the organic fraction of the urban solid wastes.

Rafael Pérez Pire is an i n d u s t r i a l e n g i n e e r

from the Polythec-nical University of Madrid. With 20 years of experience in renewable ener-gies, Rafael is the Executive Director of Unión Eólica Pa-nameña, company that is building the Wind Farm Penon-omé, the first Eolic Project in Panama.

Rafael began his career working as an engineer in groundbreaking Eolic projects in Tarifa, south of Spain. He is Co-Founder of EnergyTec, S.L., a co-generation Engi-neering and Development Company and, Windset, S.L., a Wind Energy Development Company.

In 1997 he founded Viento y Energía, an Engi-neering company specialized in renewables energy projects. In the year 2002, he started the construc-tion of the first wind farm in Spain, with 1.5 MW turbines. Since then, he has developed more than 1,300MW in renewable energy projects mainly wind farms, but including 12MW in solar PV plants, 10MW in Biogas plants, 8MW in Biomass plants and 60MW in Co-generation plants.

In 2008, Rafael moved to Panama as part of the company Unión Eólica Panameña (subsidiary of Unión Eólica Española) to do feasibility studies and consultancies for a project that is now a reality: the Penonomé wind farm.

The Penonomé Wind Farm will have a total installed power of 220 megawatts that will cover between 6 and 7% of the total energy consumption in Panama.


The Metro de Panamá project is an appropriate reflection of the growth of Panama, what can you tell us about the economy and the main engines of growth?

Panama has shown the highest GDP growth in Latin America over the last years and has the largest GDP per capita in Central America.

This significant growth can be attributed to the dynamics of the following sectors: construction, mining, transportation, stor-age and communications, hotels and restaurants, water and elec-tricity, commerce, private health, and financial services.

The public sector cannot be left aside this listing given that it plans to invest US$ 13.6 billion between 2010 and 2014. This number does not include the US$ 5,250 million for the expan-sion of the Panama Canal.

What is the status of public transportation in Panama City and how will the Metro improve it?

The problems with transport in Panama City are of a great mag-nitude and considerably affect the quality of life of the popu-lation. The majority of the city’s inhabitants depend on public

The “Metro de Panamá” LIQ talks to Roberto Roy, Executive Secretary

transportation to move around the city. Public transportation is currently slow, poorly organized and of low quality and the seg-ment of the population that uses the car to move around experi-ences high congestion levels.

The Línea 1 of the Metro de Panamá is a project that mate-rializes the transportation and urban planning efforts that have been carried out since the 90’s by several administrations. While these efforts have not been linked, they have had the virtue of generating knowledge about urban and transportation problems.

As the majority of Latin American cities, the Metropolitan Area of Panama City has shown an uninterrupted increase in

its motorization rate, which is associated with economic growth and the low quality of public transportation services.

The average length of commuting to work is of 70 minutes which is a relatively long time considering the size and popula-tion of Panama City. It is important to note as well that more than 50% of trips using public transportation involve one or more transfers.

The economy of the sectors with the lowest income is the one most severely affected. Their transportation-related expenses with respect to their income are three times higher than the av-erage (16% against 4.6%). The overall perception of the service provided by public transportation is that it is getting worse with time. This perception is aggravated with the increasingly fre-quent tragic accidents.

The studies performed set forth the necessity to approach the urban mobility problem of Panama City through the develop-ment of an integrated transportation system, restructuring the bus service and adding mass transportation systems along the main city’s corridors. Among the different technological alter-natives that were analyzed for mass transportation systems were the light rail, buses for exclusive lanes and the monorail.

Accordingly, in 2009 the Secretariat for the Metro de Pan-amá, based on a preliminary demand study that confirmed that the axis San Isidro – Albrook should be the one to focus on, began the project that has materialized with the construction of the first line of the Metro.

The objective is the implementation of a Metro type high ca-pacity component that is integrated physically and tariff-wise with the rest of the city’s public transportation system and that improves the current urban mobility conditions affecting the Metropolitan Area of Panama City. The users and the overall population will be benefited through savings in the cost and time


of each trip, an enhanced traffic-related safety and an improve-ment in environmental conditions.

The Línea 1 is the first stage of the Master Network of Mass Transport (Red Maestra de Transporte Masivo) which will be made of 4 Metro lines and a tram linking Paitilla with Casco An-tiguo. This system will have to be comprehensively integrated with the city’s bus system which will create more efficient trans-portation routes and will decrease the length of trips.

Can you provide us with a brief description of the project for the Línea 1?

The Línea 1 will have the capacity to carry more than 15,000 people per hour per direction at first and will grow to 40,000 people per hour per direction by 2035.

The line will be 14km long and will have 13 stations: 5 above-street level (Los Andes, Pan de Azúcar, San Miguelito, Pueblo Nuevo y 12 de Octubre), 7 below-street level (Fernández de Córdoba, Vía Argentina, Iglesia del Carmen, Santo Tomás, Lotería, 5 de Mayo, Curundú) and one half-buried terminal (Al-brook). The construction of Curundú station has begun and will be completed in the future. In the same way, the foundations were left ready for the future construction of the fourteenth sta-tion, El Ingenio. Each of the stations will have elevators and escalators to facilitate the access of all the users, included those physically handicapped.

The above-street level stations will have an average length of 100 meters and the below-street level stations will have an average length of 115 meters. Both types of stations will have a width of 20 meters.

Initially the line will have 19 trains each of which will have 3 coaches and will be able to safely and reliably transport 600 pas-sengers. Each train will be able to have a maximum of 5 coaches (1000 passengers).

The Metro de Panamá will have a high-technology automatic driving system to control the train›s operations and a 1,500 volts rigid overhead electrification system that will guarantee a trans-port system free of polluting gases. Further, a yard and work-shop facility will be set up at the end of the line, covering an area of approximately 10 hectares.

The most important aspect of this project are the social and economic benefits that it will bring. An update to the demand study performed in September, 2012, identified the following benefits that the project will bring between the years 2014 and 2035:

• A satisfied demand of 41,7 million passengers as of 2014.• An annual demand of 77,9 million passengers by 2035.• Accumulated savings in transportation operating costs of

US$ 1,020 million. • Accumulated savings from a lower number of accidents of

US$ 176.2 million.• Accumulated savings from a reduction in polluting gases of

US$ 49.7 million.

But there are also non-quantifiable benefits that this project will bring:


• Family time.• Increase in competitiveness.• Increase in productivity.• Tourism.• Culture.• Health.• Rest.• Punctuality.

As of December, 2012, the overall accumulated progress of the project is of 70.5%.

Please describe the tender process for the Línea 1.

The tender process for the awarding of the Línea 1 contract be-gan with a pre-qualification process that lasted three months and ran along smoothly. We had seven offerors and three of them qualified for the final round. The idea behind the pre-qualifica-tion was to make sure we would then analyze the proposals of companies with proven experience and technical, administrative and financial capacity to carry out a project of this magnitude.

The three offerors that qualified for the final round were:• CONSORCIO CIMA, made up by: Acciona Infraestructu-

ras, S.A. (52%), Mitsubishi Corporation (12%), Mitsubishi Heavy Industries, LTD. (12%), Constructoras ICA, S.A. de C.V. (12%) and Construcciones y Auxiliar de Ferrocarriles, S.A. (12%) with CAF trains;

• CONSORCIO LINEA UNO, made up by: Construtora Nor-berto Odebrecht, S.A. (55%) and Fomento de Construccio-nes y Contratas, S.A. (45%) with Alstom trains; and

• CONSORCIO GRUPO ITALIANO METRO PANAMA, made up by: Impregilo SPA (50%) and Astaldi and Ghella (50%), with Ansaldo-Brea trains.

We then began the analysis of the proposals following the provi-sions of the federal law of government contracts (Ley de Contrata-ciones Públicas) which meant that the price was delivered previ-ously and was known only after the technical evaluation was over.

The contract was awarded to CONSORCIO LINEA UNO that, besides the companies mentioned above, had Sener Ingeni-ería y Sistemas, S.A. (Spain) and T.Y. Lin International (U.S.A.) as project designers.

The tender process was designed and administered in a trans-parent and impartial manner, complying with all the require-ments imposed by the relevant laws and selection criteria set forth in the specifications for pre-qualification and the statement of objections.

What is the cost of the Línea 1 project?

The costs have been divided into the following three compo-nents:

Main contract (units in US$ million):• Civil works and electromechanic systems engineering: 54.9• Civil works for tunneling (8km), stations, viaducts (6km),

works in the city, canals: 966.2• Design, supply and installation of electromechanic systems:

65.7• Design, supply and installation of an integrated railway sys-

tem and rolling stock: 427.6• Other (Quality inspections, price variation for indexed mate-

rials, reallocation of public services): 65.7• Additional civil works: 91.0• TOTAL: US$ 1,671.2 million

Related costs (units in US$ million):• Escalators and elevators: 23.1• Yard and workshop facility – civil works related to buildings

and paving: 30.0• Fare charging system: 8.0• TOTAL: US$ 61.1 million

Expenses and transitional investments by the Metro de Panamá Secretariat (units in US$ million):• Project management: 29.3• State’s Insurance Policies: 15.3• Indemnities and compensations. Social Assistance Program,

rent and land acquisition. Assistance to businesses: 22.4• Administrative and transitional expenses by the Secretariat

from 2010 through 2014: 20.1• Contingencies: 60.7• TOTAL: US$ 147.8 million

It is important to point out that the entire work is intended to be executed in just 38 months including engineering design and the final commissioning tests. Two new Herrenknecht tunnel boring machines with an external diameter of 9.77 meters were used in the project.

How was this project financed?

The construction of the Línea 1 of the Metro de Panamá is a project that represents a great opportunity for the country’s de-velopment and promotes foreign investment and the support of international financing institutions.

Among the main international financing institutions that have invested in this project we find:• Confederación Andina de Fomento – Latin American devel-

opment bank: initially invested US$ 400 million. Recently approved a second financing for US$ 100 million.

• Citibank / World Bank (MIGA): Citibank (structuring agent) and MIGA issued on June 30, 2012, a guarantee for up to US$ 250 million.

• Compañía Española de Seguros de Crédito a la Exportación (CESCE): US$ 61 million.

• Compagnie Française d’Assurance pour le Commerce Exté-rieur (COFACE): US$ 284 million.

• Government: for current or transitional expenses such as compensations, acquisitions, rent, project manager, partial financing of works and equipment such as elevators and es-calators or the down payment to the EPC contractor.


What can you tell us about some of the main contracts af-fecting the project such as the EPC, insurance and the con-tracting of the Project Manager?

Under the EPC contract, the contractor is responsible for the design, detail engineering, the supply of the trains, the con-struction and commissioning of the system. This contract was tailor-made for this project and the Secretariat was advised by an international law firm with experience in Metro projects. The contract also includes the reallocation of public services and the implementation of an environmental plan. Furthermore, the

On August 20, 2012, Ricardo Martinelli, President of Panama, ap-pointed Engineer Roberto Roy as Minister of Panama Canal Af-fairs. Mr. Roy will act as president of the Board of Directors of the Panama Canal Authority. Since July, 2009, Mr. Roy has been

in charge of one of the National Government’s mega projects: the Metro de Panamá. His role is to plan and coordinate the process of design, construc-tion, operation and maintenance of the Línea 1.

Graduated with three degrees from Georgia Tech (United States), Mr. Roy has more than 30 years of experience in the construction industry as Presi-dent and Founding Partner of Ingeniería RM, one of the most well-known companies in the field.

He has been a member of important Boards of Directors. For 9 years he was a part of the wholly Panamanian Board of Directors of the Panama Canal Authority, which took over management of the canal after Panama regained control of it. He was also Director of La Prensa newspaper and Caja de Ahorros. He is a former-President of the Panamanian Construction Chamber, from where he was a sponsor of the Law of Preferential Interests (Ley de Intereses Preferenciales), which has given innumerable benefits to thousands of Panamanians.

ment, as owner of the work, is directly involved and participates in the processes of risk and claim management.

The Project Manager and Technical Advisor (consortium made up by Metro de Barcelona, AYESA and Inelectra) is the party responsible for monitoring the contractor and is the repre-sentative of the State before the contractor for technical matters.

Metro Bus is intended to complement the Metro de Panamá, can you tell us about this project?

The Metro Bus is the system that began the transformation of the Transportation System in Panama. It comprises a brand new fleet of 1,200 buses that replace the old “Diablos Rojos” (Red Devils) that caused so many problems and tragedies. The system was tendered so that it is administered by only one operator. Metro Bus’ rates will be harmonized with those of the Metro de Panamá.

contract has a provision to adjust for changes in the prices of materials, inputs and workforce and sets forth the procedure to calculate the adjustment and a quarterly calculation. As a result of this provision, previously agreed on prices can be increased or reduced.

We decided to move forward with the project using a OCIP insurance (Owner-Controlled Insurance Program), which saves costs and improves the risk and claim management. The govern-

The Línea 1 of the Metro de Panamá is a project that materializes the transportation and urban planning efforts that have been carried out since the 90’s by several administrations.


Latin Infrastructure Quarterly36 Deals

What is the infrastructure-related portfolio of the Inter-American Devel-opment Bank (IADB) in Costa Rica?

The IDB plays a critical role in support-ing the country in developing its infra-structure. We are very active in the sector, providing sovereign guaranteed loans to the Government of Costa Rica and at the same time supporting private and state-owned companies with non-sovereign guaranteed financing. In the last few years we have approved loans for the Juan San-tamaria International Airport (US$ 45 million), water and sanitation investments (US$73 million), education infrastructure (US$167 million) and during this year the second phase of the power sector invest-ment program for US$250 million plus the financing for US$200 million for the Reventazón Hydropower Project and we continue to look to projects in the trans-port sector.

What is the energy matrix of this country?

Costa Rica has a very clean energy ma-trix. Hydro represents 72% of total in-stalled capacity, geothermal 14% and wind 4%. The remaining 10% is thermo. The country has the ambitious goal of be-coming carbon neutral by 2021, thus they work towards maintaining an energy ma-

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LIQ talks to Gian Franco

Carassale, Project Team Leader in the Infrastructure

Division of the Structured and Corporate

Finance Department of the Inter-

American Development

Bank

The Reventazón Project includes the construction of a 130 meter high dam, flooding of a 6.9 km2 reservoir and a 4.2 km river diversion between the dam and powerhouse.

Latin Infrastructure Quarterly 37Deals

trix heavily based on renewables. Reven-tazón is a key part of that goal.

Please describe the main characteris-tics of the 305.5MW Reventazón hy-droelectric project?

The Reventazón project consists of the design, construction, operation and main-tenance of a 305.5 MW hydroelectric plant and its associated facilities includ-ing transmission lines, substations and access roads. The Project is located in the Province of Limon, located eight ki-lometers southeast of the city of Siquirres in Costa Rica. The Reventazón Project includes the construction of a 130 meter high dam, flooding of a 6.9 km2 reservoir and a 4.2 km river diversion between the dam and powerhouse and will use the waters of the Reventazón River to gener-ate an average of 1,407 gigawatt-hours (GWh) of electricity per year.

Why is it so important for this country?

Costa Rica’s economy has grown steadily over the last few decades, and this has driven an increase in electricity demand. The economy is estimated to continue its sustained growth from 2012 onwards, producing rapid growth in energy de-mand. The Electricity Generation Expan-

sion Plan 2012-2024 proposes the addi-tion of net electricity generating capacity of 1,714 MW between 2012 and 2024, 98% from renewable sources.

Rica, generate an average of 1,407 giga-watt-hour (GWh) of electricity per year and become the largest renewable energy project in Central America.

ICE started construction of the Project in September 2009 and, as of December 2012, it is approximately 41% complete. The Project is expected to finalize con-struction and start operations in August 2016.

Who is the sponsor of this project and what is its track record?

The Project will be developed through a special purpose trust established by the Instituto Costarricense de Electric-idad (ICE). ICE is a vertically integrated state-owned company vested with the responsibility to provide electricity ser-vices including generation, transmission and distribution of electricity throughout Costa Rica.

Together with its subsidiaries, it is one of the largest corporations in Central America with US$9.9 billion in assets, equity of US$5.9 billion, sales of US$2.3 billion and an EBITDA of US$0.6 billion in 2011. ICE is rated BB+ by Fitch and Baa3 by Moody’s.

ICE’s electricity generation assets rep-resent 77% of the total national installed capacity; it owns 100% of the transmis-

The Reventazón Project is a key com-ponent of the expansion plan and once completed it will represent approximately 10% of total installed capacity of Costa

We are very active in the sector,

providing sovereign guaranteed loans to the Government of

Costa Rica and at the same time supporting

private and state-owned companies with non-sovereign

guaranteed financing.

Latin Infrastructure Quarterly38 Deals

sion system and together with its subsid-iary CNFL, it distributes energy to 78% of the population.

ICE has designed, built and currently operates almost all hydropower facilities in Costa Rica. It will act as an EPC Con-tractor for the special purpose trust and later the operator of the plant.

Gian Franco Carassale is a Senior Investment Officer in the Structured and Corporate Finance De-partment of the Inter-American Development Bank. In his role, he leads the appraisal and financing of sustainable transport and renewable energy projects. Gian Franco holds a Bachelor’s degree in economics at University of Buenos Aires, Argentina and Master’s degree in finance at Di Tella Uni-

versity, Argentina. Prior to joining the IDB in 2003 he worked in finance-related positions for a number of small companies in Argentina.

million will come from the IDB´s own re-sources and the B-Loan is expected to be funded through a private placement (Reg D format) in the US market. It will be the first time that an MDB has attempted this innovative structure, opening the door for potential replication and bringing the ben-efit of institutional investors attracted by long tenors to address infrastructure needs in Latin America and the Caribbean.

In addition to the US$900 million fa-cility to the trust, ICE is expected to mo-bilize financing to fund their equity con-tribution into the trust for up to US$300 million including a US$200 million CA-BEI/EIB facility with a tenor of 20 years and a US$100 million loan from the IDB sovereign guaranteed window.

Please describe the financing package for this project? Who are the other players participating?

The trust is expected to receive loans to-taling up to US$900 million. The facil-ity will have a maturity of 20 years with 4 years of grace. The IFC will prove a US$100 million loan, a consortium of lo-cal banks will provide US$200 million in colones-denominated financing, while the rest will be lent by an IBD A/B Loan of up to US$600 million, of which US$200

The Reventazón project consists of the design, construction, operation and maintenance of a 305.5 MW hydroelectric plant and its associated facilities including transmission lines, substations and access roads.


OSX is managing a broad and diversified order book of FP-SOs, fixed platforms, supply vessel´s and medium-range

tankers. The Açu Shipbuilding Complex (UCN Açu), which will be the largest Shipbuilding Unit in the Americas, is un-der construction since July 2011 at the Açu Superport Industrial Complex, located in the São João da Barra Industrial District, with technology from its partner Hyundai

OSX is an EBX Group company which provides solutions for the offshore oil industry by means of integrated operations in shipbuilding, leasing of exploration and production (E&P) units, and operation and maintenance (O&M) services.

more than US$ 4.5 billion in funding from the financial and capital markets via its IPO, financing and senior secured bonds in the international markets.

Currently OSX is managing an order book of 23 units destined for the produc-tion of oil and gas in Brazil which are: 5 FPSOs and 4WHPs for client OGX,

OSX provides solutions for the offshore oil industry by means of integrated operations in shipbuilding, leasing of exploration and production (E&P) units, and operation and maintenance (O&M) services.

Heavy Industries, the global leader in na-val construction. For the implementation of its projects, OSX has already obtained



1 PLSV for client Sapura, 11 medium-range tankers for client Kingfish and 2 FPSOs for client Petrobras.

The construction of the Açu Shipbuild-ing Unit in the Açu Superport Industrial Complex in São João da Barra, located in northern Rio de Janeiro State, has been progressing according to schedule since construction began in July of 2011, with partial operation beginning in the first quarter of 2013 and completion estimated for the second quarter of 2014.

Main achievements in the construc-tion of UCN Açu are the conclusion of earthworks; equipment and systems contracted: steel plate cutting machines, pipe cutting machines, steel plate pre-treatment system, gantry cranes and over-head cranes, panel lines, shot blasting machines and press and benders; contract for supply and maintenance of the 345kV substation and connection with the trans-mission line; contract of the Almagesto system, the focus of which is the instru-mentalization of the key shipbuilding processes and systems.

Technological Partnership with HyundaiUCN Açu is a 5th generation shipyard, built and to be operated with technology from our Korean partner Hyundai Heavy Industries (“HHI”), the world leader in naval construction.

For the past almost three years of strategic partnership between OSX and Hyundai, HHI has contributed with its 40 years of experience in naval construction, aiming to provide OSX with Asian levels of productivity, with the implementation of efficient processes in the construction and operation of UCN Açu.

In that sense, the company currently counts on eight Hyundai employees in Rio de Janeiro, assisting on technical inquiries regarding construction design of UCN Açu, as well as in the interface with the HHI team in Korea, which is dedicated to the conclusion of operating manuals and the preparation for the UCN Açu’s team training in the HHI’s Korean shipyard.

OSX’s partnership with HHI also in-cludes adopting engineering projects for maritime units already built by Hyundai in its Korean facilities (as-built design)

and the technical assistance from Hyun-dai during construction of these units.

OSX has contracted additional equip-

The Açu Shipbuilding

Complex (UCN Açu), which will

be the largest Shipbuilding Unit in the Americas, is under construction since July 2011 at the Açu Superport

Industrial Complex.

ment for UCN Açu with Hyundai, such as the Steel Plate Pretreatment System to protect metal surfaces during manufac-

turing; press & benders to manufacture pipes and curved surfaces; and the Panel Line to manufacture components (pan-els) that will form the blocks for vessel hulls.

ITN – Institute of Naval Technol-ogy (Instituto Tecnológico Naval)OSX has started the first classes of the Professional Training Program in Ship-building that ITN – Institute of Naval Technology (Instituto Tecnológico Na-val) is conducting in partnership with SENAI/FIRJAN, the most important en-tity for industrial professional training in Latin America.

Of the 3,100 professionals selected for training until 2013, 880 students have begun the 23 free courses offered in Metal-Mechanics, Electricity, Met-allurgy, Automation/Instrumentation, Oil, Automotive Operation, Construc-tion and Management in São João da Barra and Campos de Goytacazes. The courses are free and selected candidates receive a scholarship.

For this Training Program, approxi-mately 20,000 applications were received and approximately 15,000 candidates per-formed selection tests and approximately 3,100 candidates were selected for the first phase of the Program.

In addition to these training initiatives, the ITN plans to act in partnership with research institutions in the technological development of the shipbuilding and off-shore operation sectors in Brazil.


The quality of a country’s infra-structure plays a key role in de-termining its productivity and competitiveness, thus helping

reduce the volatility of its growth cycle and the capital flows to which underde-veloped economies in terms of infrastruc-ture are exposed.

A wide and efficient infrastructure es-sentially binds production and consump-

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Mining Sector in Argentina

Andrés Pezzutti

Infrastructure includes the physical and social capital that a country or community needs for its economic system to work properly in the provision of goods and services. The social infrastructure refers to assets such as Educational, Health, Security and Recreational facilities, as well as Pub-lic Housing. Whereas, the economic infrastructure refers to Transport (e.g. airports, roads, ports), Communications (e.g. transmission, satellites, cable networks), Utilities (e.g. energy distribution networks, storage, power generation, water, sewage), and Renewable energy.

tion markets at a lower cost, both between regions from the same nation and with the rest of the world. In the absence of it, the contribution to determine the competi-tiveness of a country is often replaced by governments with the management of ex-change rates in order to reduce the costs of internal logistics. But, given that they are highly dependent on the international context and the economic cycle, it re-

stricts the sustainable development of the productive matrix onto other industries which soon find the size and efficiency of the infrastructure diminished. Direct for-eign investment is essential for the local development of the mining sector, and in-frastructure coupled with political institu-tions is one of the main factors for the de-velopment of the sector in the long term.

Mining in Argentina has grown expo-nentially during the last 10 years, hand in hand with the global growth of the indus-try. However, in order to strengthen this growth in the long term the challenges ahead are manifold.

Regional Overview

Precious metals’ prices are driven by many factors including money supply, sovereign debt levels, exchange rates, CDS spreads –default protection costs-, interest rates, inflation and production demand from other sectors such as jew-elry and electronics. However, the global economic downturn and a renewed ex-


pectation that it will take longer than ex-pected to solve, continues to feed greater risk aversion and less confidence in fiat money, thus causing portfolios to turn to quality (or greater allocation to precious metals).

This combination of lower consumer confidence with credit stress has led to a strong appreciation of precious metals to-gether with a lower demand for base met-als for industrial application. In this sense, investment demand has been one of the primary drivers for precious metals appre-ciation, mainly through ETFs as a primary investment vehicle, since investors regard them as a store of value in a context of dol-lar depreciation, as well as a general hedge against expected inflation. Central banks have also shifted their portfolios, and it is estimated that in 2011 alone, they bought about 208 T. of gold, almost 170% more than in the previous year.

According to the World Investment Report from UNCTAD, the value of cross-border M&A -net sales- in min-ing, quarrying and petroleum in 2011 hit its historical record (since 1990) worth USD123,000 M, being the only sector, from the 29 under study, which registered an increase during 2007-2011 (+14.5%) and also hit a record in the overall M&A market share, 23.4%, against a mere 2.1% and 12.4% in 2005 and 2008, respectively. Likewise, 530 cross-border M&A trans-actions were done in the sector, a 26%

Additionally, those countries which are better developed in terms of mining infrastructure have seen their cash costs grow substantially per ounce of extracted

metal as they have been the main hosts for investment at the beginning of the post crisis cycle, and they have a developed infrastructure and less business risk (de-mand and supply factors), political risk

more than before the 2007 global crisis.Mining companies base their uncer-

tainties on the forecasted price of the ref-erence metal, and the reasons for main-taining price levels have encouraged the companies within the sector, worldwide, to incorporate assets to their portfolios in new, low concentration, unexplored and underdeveloped areas (in terms of infra-structure) because at these prices they are economically viable areas.

and regulatory risk (concessions, taxes, duties and tariffs). In early 2012, global gold production set a record of about 2,900 T, with South Africa and Australia recording the highest cash cost at USD/oz.750 and Latin America the lowest, at USD/oz.350. The shortage of rich areas and properties at a reasonable extraction cost in developed mining markets encour-ages investors to enter new ventures in underdeveloped/frontier mining markets,

although they still have to deal with high-er transaction costs, higher political and regulatory risks.

In this scenario, developing countries look to strengthen the sources of com-petitiveness in the long term, seizing the context of international crisis in devel-oped countries, the high global liquidity available, the low interest rates and the global investors who turn their invest-ment portfolios to developing countries with a greater potential for sustainable growth. Much of Latin America has been able to get rid of the growth vicious cycle oriented merely to exports through great-er independent economic policies and by strengthening domestic economies, re-ducing the GDP and export related debt burdens, increasing reserve ratios to GDP and applying an iron grip on inflation, while announcing considerable infra-structure works.

According to data from UNCTAD, foreign direct investment (FDI) in Latin America reached USD153,400 M, 31% more than in 2010, with Brazil account-ing for 54% of the increase in flows into that region (3% from the GDP). In Chile, inward FDI/GDP reached 7%, well above the average of the region: 5.8% of GDP. Uruguay received 5% of its GDP, and Ar-gentina, 2%.

As for the mining sector in the region, in Chile the main M&A transactions were done by Japanese businesses, Japan’s

Mitsubishi Group and Sumitomo group, totaling USD 6,000 M, approximately. Now, the sector accounts for 12% of the Chilean GDP and 60% of its exports (or 4% of the GDP). In Peru, mining is con-sidered the main FDI hosting sector, with investment projects worth USD 9,200 M for expanding existing projects, and USD18,016 M for new projects. South Africa’s Gold Fields and Canada’s Dia Bras made the largest transactions in

Direct foreign investment is

essential for the local development

of the mining sector, and infrastructure

coupled with political institutions is one of the main factors for

the development of the sector in the long term.

Those countries which are better developed in terms of mining infrastructure have seen their cash costs grow substantially per ounce of extracted metal.


M&A for a total of almost USD 700 M. In Colombia, BHP Billiton and Xstrata announced mining investments for a total of about USD 1,300 M, while in Argen-tina the mining sector accounts for 40% of the FDI and holds investment projects of about USD 18,000 M in 2011.

Aside from global and regional invest-ment records, the mining sector is more exposed than ever before to the national-ization of resources and to new and heavi-er taxation, as the countries tax accounts keep shrinking in order to face the ongo-ing global crisis. Likewise, the search for new frontier mining markets owing to the increase in metal cash costs in developed mining countries, forces the sector to get a suitable infrastructure.

Domestic Market

According to the Global Competitive Report ranking issued by the World Eco-nomic Forum, Argentina is in the 86th place, out of 144 countries, in terms of quality and efficiency of its infrastructure, and 138th in terms of the quality of its in-stitutions, which is considered one of the milestones of competitiveness. Although the mining sector has grown exponen-tially after the law reforms of 1994 and even more during the last decade, several challenges lie ahead in order to secure the growth of the sector and the development of a proper industry-wide infrastructure.

As from 1994, mining exploration activ-ities in Argentina increased and so did the development of projects which had been deferred until then, owing to the lack of a low term stability scenario; Law 24196 on mining investments created a framework of stability which long term, high risk in-vestments require. Nowadays, the Mining and Quarrying sector is the most profitable one in Argentina, with a return on assets (ROA) of 27%, on average, according to financial statements, and of 36% for ex-porting mining companies. Between 2002

and 2012, the number of projects grew from 18 to 614, and the production grew tenfold, accounting for almost 5% of the GDP, with the North Western region of Ar-gentina contributing the most to its added value with 48.2%. On the other hand, ex-ports also multiplied from USD 2,140 to USD 7,300 in 2011, and gold and copper account for 60% of exports.

According to the financial statements from the largest mining companies operat-ing in the country, the cash cost per ounce reached USD 340 in 2011, in line with the region reference values, although growing at a faster pace than its peers, mainly due to domestic inflation in dollars. Although the ratio depends on several factors such as production scale and the ore grade of the extracted mineral, as Argentina is a market still far from being developed, these costs are seriously affected by the high domestic inflation in dollars, which besets the rest of the export industry. Additionally, recent regulatory changes governing the sector to-gether with some restrictions on the avail-able infrastructure may be limiting the po-tential growth of the sector in the mid term, given the vast resources available in Argen-tina and the still unexplored areas.

Tax Stability and Foreign Ex-change SettlementIn March 2002, by way of Resolution 11/2002 issued by the National Ministry

of Economy and Infrastructure, mining companies were forced to pay export du-ties on the consumption of mineral prod-ucts. Export Duties rates range from 5% to 10%, depending on the type of mineral, and the corresponding tariff code.

The moment Resolution 11/2002 was passed, several mining companies, which were producing at the time, were vested with the benefit of “tax stability for 30 years” granted by the Nation`s Mining Secretariat, within the framework af-forded by Law 24 196 on Mining Invest-ments, according to which mining ven-tures which fell under such regulations would be granted tax stability for thirty (30) years as from the moment they were subjected to a feasibility study. Under Law 24 196, the benefit of tax stability comprises all “encumbrances”, including direct taxes, duties and tax contributions levied on registered businesses, as well as customs duties, tariffs and further levies on imports and exports.

Thus, at the time Resolution 11/2002 was passed, companies were vested with the benefit of tax stability and were not bound to pay export duties because the National Government acknowledged such right. However, in late 2007, The Nation’s Mining Secretariat issued Note 130/07 and the Domestic Commerce Secretariat issued Note 288/07, whereby certain companies, which had not paid export duties until then (because they were under the tax stability benefit), were no longer exempt from such payment. Even when those Notes were not official-ly released (which gave rise to grounds for challenging their validity) National Customs Administration was forced to apply a withholding, as mining duty, on the amount exported by companies which were vested with the tax stability right.

According to the Global Competitive Report ranking issued by the World Economic Forum, Argentina is in the 86th place, out of 144 countries, in terms of quality and efficiency of its infrastructure.

The main factor to broaden the international market for this mineral will be the cost of transport infrastructure


The National government justified this decision by claiming that “the revenues from mining projects had multiplied if compared with the original values on which they were realized, thus guarantee-ing their continuity”.

The issuance of these Notes made it possible for the fourteen companies af-fected by the provision to file legal ac-tion against the National Government in order to enforce their right to tax stability, most of which are still pending before the Nation’s Supreme Court of Justice. The implementation of this measure impacted negatively both on the companies which where, then, exempt from export duties, and on the mining industry as a whole. The “exploration” sector was badly hit by this measure because, at that time, 85% of the exploration activity in Argentina was undertaken by small investors who lacked the support, the funds or the operating ca-pacity afforded by big companies.

Likewise, during 2011 and 2012, con-trols on imports of goods for the indus-try and on the remittance of dividends abroad were stiffened, and this, in turn, meant that mining multinationals had to cut down on the remittance of profits by about USD 800 M, as a result of the decree-law 1722, dated October 2011, which ruled on the obligation to enter all the foreign currencies from export op-erations and trade them in the exchange market. These changes in the legal frame-work, without mentioning either their ef-ficacy or correlation, affect the business and political risk when assessing projects, and translate into a risk premium addi-tional to the discount rates for the assess-ment of local investment projects. There-fore, only those projects with greater ore grades would succeed.

Argentina preserves one of the largest underdeveloped (or perhaps not devel-oped) mineral reservoirs in the world, the sector is emerging and opportunities are vast as long as the country prepares its in-frastructure and stabilizes the regulatory framework in order to host new invest-ments in the mining sector.

Advances in Infrastructure for the Next DecadesLithium is now one of the minerals with greatest potential in the world, given that

it can be used to accumulate energy used in the manufacturing of basic products from the “new economy”, such as bat-teries for smartphones, iPads, portable computers and electric vehicles; for the generation of clean nuclear power and the functioning of certain satellites; as well as in the pharmaceuticals industry. Bolivia holds 50% of the world’s lithium reser-voirs, followed by Chile with 25% and

pliers of one of the minerals with greatest industrial applications, and the transport infrastructure will play a key role when determining its competitiveness against the main regional players. Nowadays, lithium products are fully transported by truck to Chile, all the way through Paso de Jama, just as the most important sup-plies are shipped. The main factor to broaden the international market for this mineral will be the cost of transport infra-structure. The Belgrano railway, connect-ing the region with the main export nodes, would recover its key role by connecting the NOA region with the Chilean ports of Antofagasta all the way up to Asia. It is estimated that the difference in sea freight between Asia-port of Rosario and Asia-Antofagasta is 35 USD/T.

There have been substantive advances between the government of Salta and a Chilean private business to resume Ramal C-14 (Belgrano loads) from the NOA to the ports of Antofagasta and Mejillones. Although it is still under a trial period, the Argentine Government has undertaken to fund the improvement works needed in the railways.

Outlook

Towards 2013, four substantial projects will begin in Argentina which will en-hance the local mining sector: Pascua-Lama (Barrick Gold Corp.), Cerro Negro (Goldcorp), Don Nicolás (Minera IRL) and Lindero (Mansfield Minerals Inc.). Together, according to the financial state-ments, they will produce about 30 tons of gold and 340 tons of silver per year, during the first 5 years, thus accounting for an additional USD 1,800 M in annual exports; that is, almost an additional 20% if compared with 2011 exports. Likewise, advances in the resolution of infrastruc-ture issues within the NOA region in or-der to enhance lithium production help us be optimistic about midterm mining de-velopment.

Nevertheless, changes in the sector’s regulations analyzed above, regardless of their correlation, impinge on activity schedules in a sector where Argentina has a large potential. Yet, it still has strong competitors in the region which may serve as alternative hosts for investment in mining projects.

Advances in the resolution of infrastructure

issues within the NOA region in

order to enhance lithium production

help us be optimistic about midterm mining

development.Argentina with 10% in the North Western region, along the provinces of Salta, Ju-juy and Catamarca. However, Chile leads the way with 44% of all the lithium trad-ed globally during 2011. Argentina is the second exporter, while the second great world’s reservoir belongs to China, which owns 15% (global).

Thus Argentina’s North Western Re-gion (NOA) poses a great potential for the next decades as one of the main sup-


In order to put things in perspective, it is important to take a closer look at the numbers. While the National Transport Plan 2011-2035 (NTP)

estimates funding needs of $2 billion per year to improve and expand the road net-work, gas taxes ($160 million), property tax on vehicles ($90 million), and state-owned toll roads ($10 million) barely provide $260 million in recurring income to the National Road Council (CONAVI). Furthermore, the NTP points to nearly $600 million in annual investments to-wards port, airport, railroad, and pub-lic transportation infrastructure. Along similar lines, social sector institutions as the Costa Rican Social Security Fund –CCSS- ($1.5 billion), the National Water and Sanitation Company –AYA- ($1.8 billion), and the Ministry of Public Edu-cation –MEP- ($1.0 billion) are also urg-ing resources for critical refurbishment and expansion projects.

It is thus clear that promoting Public Private Partnerships (PPP) is a must-do task in order to attend the increasing in-

Paving the Road for a PPP ReformDecades of limited government investment, restrained fis-cal environment, politicized project planning, and a limit-ed promotion of private initiatives have widened an infra-structure gap that is seriously threatening the long-term growth sustainability of Costa Rica’s $42 billion economy.

Costa Rica:

frastructure demand. However, fourteen years after Costa Rica enacted the Public Work Concession Law (1998 Act 7762 and 2008 Act 8643 reform), only three projects have materialized: $350 million San José-Caldera toll road, $35 million Liberia International Airport Terminal, and $992 million Moin Container Termi-nal (to break ground in 2013). Therefore, it is imperative to analyze the critical el-ements to unlock bottlenecks to private investment and the establishment of a National PPP Policy.

1. Reliable Pipeline. Especially in the transport sector, Costa Rica lacks of a formal and reliable pipeline as project execution is basically a discretionary decision-making process by political au-thorities. A pipeline would provide an ad-equate timeframe and flexibility to struc-ture and tender selected projects. It would also promote the optimization of public spending by avoiding executing infra-structure plans with significant deviations from forecasted demand (over-investing / under-investing). In addition, a long-term

pipeline would strengthen public sector accountability and send a clear sign of government commitment, attractive to in-vestors seeking for markets with growth prospects (not only isolated projects).

2. Life-cycle Model. As with project prioritization, the decision on whether to choose traditional or PPP procurement is susceptible to political and ideological postures of the current government au-thorities. Costa Rica requires mandatory guidelines for public sector institutions to analyze projects from a whole-life costing perspective, factoring construc-tion costs, operation and maintenance costs, risk allocation, credit enhancement mechanisms, expected equity return, etc. Projects would be classified as “PPP-able” once a Value for Money (VfM) test indicates the present value of the whole-life cost of the private proposal is lower than that of the public sector (Public Sec-tor Comparator –PSC-). While there will always exist some criticism about the subjective components of VfM analysis, it is definitely the right path to promote transparency and build up stakeholders’ confidence.

Key Elements of PPP Reform

Source: Author’s own source.3. Availability of PPP Financing. A long tradition of project funding via

Institutions

Latin Infrastructure Quarterly 47

Costa Rica: government resources, credit from inter-national financial institutions and non-reimbursable assistance has inhibited the development of a local market for PPP financing. Along these lines, a National PPP Policy would demand the Costa Rican government to provide credit en-hancement mechanisms (i.e. traffic guar-antees, subordinated debt funding) and have an active role as equity co-investor; all these actions are in line with VfM and contingent liability tests. According to the HM Treasury’s (2012) A new approach to public private partnerships, public co-investment ensures better alignment of private and public sector objectives, greater transparency and improved VfM. Furthermore, the success of PPP projects depends upon the promotion of institu-tional investors participation (i.e. pension funds) and the availability of risk mitiga-tion instruments like credit guarantees, export credit guarantees, and political risk insurance (World Bank 2007, Review of Risk Mitigation Instruments for Infra-structure Financing and Recent Trends and Developments).

4. Dedicated PPP Agency. Finally and perhaps most importantly, a reliable and effective PPP policy relies on an in-dependent regulator. It must be shielded from political interference and endowed with the necessary technical expertise to ensure transparent tendering processes,

adequate contract management and a long-term policy horizon to stakehold-ers. The Costa Rican National Conces-sions Council (CNC) faces criticism due to weak staff-knowledge management and limited regulatory capacity. Further, the CNC suffers from political interfer-ence as its Board of Directors (BoD) is composed, among others, by the Ministry of Public Works and the President of the Central Bank. Given this backdrop, a PPP reform must be founded on replacing the CNC with a dedicated Agency located at the Public Service Regulatory Authority (ARESEP), coupled with a BoD elected through competitive bidding. The Agency would pursue the following objectives: i) promote the efficient use of tax payer/user resources in infrastructure projects, ii) guarantee the principles of independence, accountability, and access to information, iii) guarantee competitive and transparent tendering processes, iv) provide training and technical support, and v) monitor contract management by the procuring public institutions.

Like most developing economies, Costa Rica’s faces the challenge to meet an increasing demand for infrastructure services amid difficult fiscal conditions. At this juncture, it time for reliable and long-term oriented policies to replace improvisation and ideological intransi-gence.

Federico Villalobos is a Senior Financial Analyst at E3 Capital Costa Rica, with deep knowledge

in advanced modeling, indus-try analysis, business valuation, infrastructure project financing and public private partnerships. Prior to joining E3 Capital, Mr. Villalobos worked as High Yield Research Associate (offshore and onshore) for a top tier European investment bank.

Further, Mr. Villalobos has served as Economic and Financial Analyst to several institutions including the Inter-American Institute for Coop-eration on Agriculture, Costa Rican Social Security Pension Fund and Grupo Mutual Mortgage Bank. He has also Published more than 20 Infrastructure PPP-related articles in specialized journals and newspa-pers including Latin Infrastructure Quarterly (Regional), El Financiero (Costa Rica), La Nacion (Costa Rica) and La Republica (Costa Rica). Fed-erico holds a Licentiate Degree in Economics and a Capital Markets Specialization from the University of Costa Rica. Federico is also a Certi-fied PPP Specialist from the Institute for Public Private Partnerships and is an MBA Candidate at Escuela de Organizacion Industrial (Spain), specializing in infrastructure sector firms.

Contact: [email protected] / [email protected]

Projects would be classified as “PPP-able” once a Value for Money (VfM) test indicates the present value of the whole-life cost of the private proposal is lower than that of the public sector.

Public co-investment ensures better alignment of private and public sector objectives, greater transparency and improved VfM.

Institutions


From the days of the first ex-periences of European public bicycle schemes, various stud-ies have been undertaken onto

public bicycle rental schemes, propelled largely by European programmes such as Niches and Optimum2, the former en-trusted with the role of creating promo-tional literature, and the latter to produce an inventory of European-wide initia-tives. In Spain, as a consequence of the recent implantation of these systems, the development of integral policies on the

bicycle has meant the need for drafting studies such as the “ConBici” document, in 2007. From the same year, we can also find the Methodological Guidelines for the Implantation of Public Bicycle Rental Schemes in Spain (IDAE, 2007), drafted by the Bicycle Club of Catalonia (BACC) in collaboration with the Institute for Di-versification and Energy Saving (IDAE). Likewise, statistical studies were found on bicycle usage in different cities, such as EREN Castile and León, PRO-BICI or guides in Vitoria-Gasteiz.

Within this framework of wide-rang-ing and recent experiences, research proj-ects have been undertaken which analyse deeper certain aspects though lacking in others, such as financial, economic and social aspects (IMBIP, 2012). In this ar-ticle we shall present some of the conclu-sions from the aforementioned research project, paying special attention to the evaluation of the PPP method in the de-velopment of the public bicycle rental scheme in Seville, the capital of Andalu-sia.

The Seville Case-Study

The implantation of public bicycle rental schemes (SBP) has spread rapidly through-out Spain since the year 2004, following the success of the Vitoria-Gasteiz scheme, one of the first cities to incorporate the bicycle into its public transport system to create a truly intermodal scheme. These projects, developed on many occasions through the use of public-private sector partnerships (PPP), must follow a series of criteria which allow for the provision of a service for the benefit of society, and so functional aspects as well as financial and environmental ones must all be contemplated. It is, then, a public service in which the Public Sector Administration has an important role, irrespective of whoever manages the system and the provision of private sector financing.

Development Of A Public Bicycle Rental Scheme Based On A Public-Private Sector Participation Model.

(Sevici)


(Sevici)

Studies Into Public Bicycle Rental Schemes In SpainIt was not until the beginning of this cen-tury when the first public bicycle rental schemes were introduced in Spain, with the oldest being that in Castellbisbal (Catalonia), followed by one the flagship projects, such as that of Vitoria, which still maintains to this day the majority of its initial characteristics. These projects entailed manual systems, most of which are currently locked in a transition phas-es, such as the case of Vitoria, where an

automatic system is being backed, which also allows for an intermodal usage with the tramway and bus network, something which had not been seen before in Spain. This is largely due to the fact it would be something of a poor show should a city such as Vitoria, chosen as the European Green Capital for 2012, still have a manu-al bicycle rental system, which, although this was a landmark moment in its day, and has grown much more swiftly than in other cities, has, as time has elapsed, be-come seen as obsolete. Aside from these manual systems, from 2007 onwards au-

tomated systems began to appear, man-aged by companies such as Clear Chan-nel. Worthy of special mention here is the role played by JCDecaux, the first adver-tising company which offered automatic bicycle rental schemes as part of their advertising contract on urban advertising spaces. The first city to have one of these was Cordova. However, these systems have not been expanded as they were bound to the conditions of the advertising contract. Recently, self-owned automatic systems have been begun to be devel-oped, standing out amongst these being


Service Name SEVICI

Concept Automatic system which requires user registration to obtain a magnetic card. Each cycle is docked at a station which works as an interaction point between system and user.

Operational in SevilleInhabitants: 699.759Surface area: 141 km2

Start-up date July 2007

Operational system Cyclocity, shared bicycle system managed by the Local Council, as delegated by its creator JCDecaux.

Other implantations outside Spain Brussels (Belgium); Lyon, Paris, Rouen, Besançon, Marseille, Mulhouse, Toulouse, Aix en Provence, Amiens (France); Luxembourg (Luxembourg)

Geographical coverage area Urban, prohibition of usage outside metropolitan area,

User costs The user can pay an annual fee which gives them the right to free journeys of up to half an hour between SEVici points or through a weekly, short duration fee. Costs are deducted from the credit cards provided by the subscriber.

Financing Fee paying usersPublic Sector: Seville City Council (offices)Private Sector: advertising, although levels have fallen as a result of the economic downturn.

Agents involved in system management

Public Sector: Seville City Council Private Sector: JCDecaux

Infrastructure Number of bicycles: 2.500 Parking areas: 250 Parking stations: 411. There are as many docking stations as bicycles offered. The operation is performed at the docking station itself. Each docking station has an inter-active informative platform. Cycle-path track length: 120 km

User statistics Average user age: Mainly between 16 and 30 years of ageMotives: 45% studies, 23% work, 29% others, 4% operational management. Profession: 59% students, 35% workersGender: 67% Male. 33% Female

Marketing Sponsorship by private sector companies: Advertising:On the bicycles: Cruzcampo brand beer crates designed as cycle baskets. Adverts in classified and leisure magazines. Publications: Brochure showing urban routes

Monitoring Internal

Evaluation/Critique Shortage of maintenance and lack of qualified staff to deal with unlawful and vandal-ism both to cycles as well as docking stations. Impossibility of making contact with an operator on the complaints number, which is aggravated by the fact that said number is a 902 number and expensive for the user, the operating company has not provided a physical space where users can be received in person. This has been recently solved through the opening of a customer service office. There is no simple method to report a mechanical failure on a bike.

Definition and characteristics of SEVICI

Card used Fee 30 minutes 1st Hour 2nd HourShort term 11 € Free 1 € 2 €

Long term 27.5 € Free 0.5 € 1 €

Projects

Latin Infrastructure Quarterly 51the ITCL project, which went into devel-opment in 2005 and followed by Domo-blue, linked to the mobile telephone net-work. Currently, diverse agents from the public and private sector are developing manual and automatic systems to be put at the disposal of interested sectors of the population.

Location of Spanish SPB

In the image we can see a map with the location of systems in place, which al-lows us to view the concentration of sys-tems in areas such as Murcia, the Basque Country, Andalusia and Catalonia (Bar-celona, mainly).] As can be observed, in Spain the basic ty-pology of public bicycle rental schemes are either manual or automatic. If, by the year 2007, half of these schemes were manual and the other half automatic, a shift towards a growth in automatic sys-tems began to be noted at the end of said year.

Over time, an increase has been seen in the number of automatic rental schemes, which has been influenced by the fact that most of these schemes were introduced post-2007, and so most municipalities opted for the installation of automatic rental systems. We must also taken into account that this situation is exacerbated even more as former manual systems are currently being replaced by automatic ones, notably in Vic (Barcelona) and Cartagena (Murcia).

At the current time, of the 75 public bicycle rental schemes in operation, only 18 of these are still operated manually, which means only 23% compared to 77% of automatic systems, with a total of 57 systems.

Likewise, when analysing the infor-mation, we can state that the average age of public bicycle rental schemes is around 5 years. That means the majority of the systems have achieved the survival of the difficult first operational years and are reacting to initial adjustments.

Sevici System Implanted In Seville (Spain) On the opposite page we have outlined the main characteristics of the system:

Financing Analysis

SEVICI is a public bicycle rental scheme which was implanted in the city of Se-ville in June 2007. The Seville City Council invited for public bids on the tender for the administrative contract in-

volving the installation, management and maintenance of the system in the munici-pal region of the city which allowed for the creation of an individualised public transport system through the availability of public bicycles for short-term rental, as well as the implantation of docking sta-tions where these can be parked. Finally, the contract for the development of the aforementioned public service for a pe-riod of 20 years to the French company JCDecaux whose awarding also allowed the company to use elements of the ser-vice and local area as advertising space. Said agreement, given the nature of the different services provided under the same, was drawn up into an official ad-ministrative contract, under the auspices of articles 5.2b and 8 of the Revised Text of the Law on Public Sector Administra-tive Contracts, as passed through Royal Legislative Decree 2/2000, of the 16th of June. This financing method proposed al-lows for the speeding up of the construc-tion process and thus anticipate returns, contribute to budgetary stability, improve the performance of public sector resourc-es through the incorporation of the private sector and shifting the majority of risks to the private sector by entrusting them with the infrastructure’s availability and qual-ity of service. In this way, the aim of the tender contract, which was undertaken at the risk and danger of the adjudicatory party, lasting for 20 years from the date of

Over time, an increase has been seen in the number of automatic rental schemes, which has been influenced by the fact that most of these schemes were introduced post-2007, and so most municipalities opted for the installation of automatic rental systems.

Projects

Latin Infrastructure Quarterly52its signing, entailed aspects such as proj-ect drafting, construction, maintenance and preservation, etc.

The feasibility of the project under the PPP method is necessarily due to the fact that the remuneration system compen-sates the risks borne by the private sector. With the aim of finding out to what ex-tent the public bicycle system is proving profitable, a study has been undertaken on financial – economic profitability.

With this data available, two possible future scenarios have been proposed: • Optimistic Scenario: Supposing that

demand levels for public bicycles in Seville will undergo growth over the next 20 years in the same proportion as has been seen in the previous year’s data (2011). Said variation currently stands at 1.03%.

• Cautious Scenario: Under this sce-nario demand for long term fee paying registrations will remain unchanged for four years from 2012 onwards, due to the decision to limit the number of new registrations as to avoid system collapse. Following this, an impor-tant increase is expected from 2017 onwards after an expansion of the ser-vice from 2,500 to 4,000 bicycles.

The results of this model for the hypoth-eses taken as samples which deal with a profitable investment project, irrespective of the scenario we are operating in:

Socio-Economic Balance

The cost-benefit model which provides information on socio-economic costs has been undertaken based on the differential effect of different modes of transport, in comparison with usage levels of public rental bicycles. For this reason, two types of external factors regarding this model have been taken into account.

See Figure 1

This model provides a TIR of 5.49% which is found to be below the discount

Financial ProfitabilityOptimistic Scenario TIR = 32%

Cautious Scenario TIR = 10,5%

Negative External Factors: Costs

Positive External Factors: Benefits And Savings

Initial investment Operational Costs

Maintenance and development costs External Costs

Accident rate

Pollution

Health

Projects

Figure 1

Latin Infrastructure Quarterly 53rate listed as a reference (6%). In this case, a component of notable weighting in this analysis is the demand for service. As was stated at the end of the previous paragraph, this investment project is af-fected by the number of users requesting the public rental bicycle service. Like-wise, for the project to achieve ideal re-turns, the average annual demand levels should reach to almost 30%. And so, to achieve the balance between the TIR and the considered discount rate (6%) based at the point in which the investment project begins to make a profit, demand would have to increase solely by 5%.

Likewise, it has also been observed that demand, along with other variables to which the model used are sensitive, have the greatest effect, for example, health benefits being much more highly valued above savings in journey time.

Findings

To summarise, public bicycle rental schemes may be feasible:

In a financial sense, through public and private sector partnerships based on com-pensatory measures through advertising contracts. However, they require the back-ing of well-designed and extensive systems which can handle high-demand levels.

The journey costs and that of tax-payer contributions in Seville are similar to those corresponding to bus travel in the city.

The socio-economic balance may be, in the scenario of highly positive usage, based mainly on environmental and pub-lic health factors.

Julián Sastre, is holder of a PhD in Civil Engineering from the Polytechnic University of Ma-drid, specialising in the fields

of Transport, Town and land Plan-ning, and with twenty five years’ professional experience. His ca-reer in the sector began at the Madrid Regional Transport Con-sortium (PTA of Madrid), where he worked from 1986 to 1989, later devoting his time to trans-port consultancy and assess-ment in diverse fields, in Spain and abroad (since early 90ths, Europe, Latin America, Maghreb and Asia). He currently is Senior Partner & Head of Projects of S3 Transportation and researcher dealing with the areas of plan-ning, financing and PPP projects, operations and management of transport systems. He is also the Deputy Chair of the Infrastruc-ture and Services Spanish Forum (www.foroinfra.com). He is au-thor of several Handbooks and Green papers related to trans-port and climate change, public transport and sustainable mobil-ity.

The feasibility of the project under the PPP method is necessarily due to the fact that the remuneration system compensates the risks borne by the private sector.

Cinta Romero Adame, Graduate in Com-pany Management, Administration and

Law of the Univeristy of Pablo de Olavide, Seville; is a frequent collaborator with Consultancy Firm ALOMON, SLU and has worked as a researcher for the Caminos de Hierro Foundation (www.fundacioncdh.com).

Projects

Luis Felipe Graziano

Company Profile54 Latin Infrastructure Quarterly

OAS Soluções Ambientais is part of OAS Investimentos, can you please de-scribe what are the activities of OAS Investimentos?

OAS Soluções Ambientais is a fully owned subsidiary of OAS Investimentos, created to concentrate the group’s invest-ments in infrastructure, especially in pub-lic service concessions (in its common form or in Public-Private Partnership form). The OAS Investimentos, directly or by its divisions involved, has con-solidated operations in roads, subways, and airports, and has recently started its activities in environmental solutions and management of sports arenas. Its origin is before the issue of Brazilian Conces-sions Law (Federal Law 8.987/95) and the OAS Investimentos participated in early concession projects in Brazil, the construction and operation of the “Linha Amarela” in the city of Rio de Janeiro.

OAS Soluções Ambientais LIQ talks to Luis Felipe Graziano, Legal Manager

What is the relationship between OAS Investimentos and Invepar?

OAS Investimentos is a shareholder in In-vepar, in association with the three largest pension funds in Brazil. This company concentrates the OAS Group’s invest-ments in transportation, infrastructure, and logistics. What is the nature and objective of OAS Soluções Ambientais?

This company is the newest division of OAS Investimentos, created to develop and operate all projects involving envi-ronmental solutions for the public and private sectors, providing efficient and sustainable alternatives to water supply and sewage systems and environmental management of industrial waste.


How does OAS Soluções Ambientais benefit from Grupo OAS’s know-how in the concession of public services?

OAS Soluções Ambientais brings the ex-perience acquired by OAS Group in pub-lic service concessions with its knowledge acquired when providing construction services to major operators in the sector in Brazil and abroad, such as SABESP, CEDAE, EMBASA, COMPESA, OSE (Uruguay), Aguas Andinas SA (Chile), among others.

What is OAS Soluções Ambientais cur-rent project portfolio?

Although recently established, OAS Soluções Ambientais already has two

relevant assets: the SAMAR, which holds the full concession of water and sewage services in the city of Araçatuba (São Paulo - Brazil), serving more than 180,000 users, and EPASA, concession-aire that provides more than 48 million cubic meters of water per year to the city of Lima, capital of Peru, benefiting more than 8 million users. What are OAS Soluções Ambientais goals for the future? What markets are you looking at?

The company aims to become one of the largest private operators in this sector in Brazil. The goal is to reach a turnover of US$ 350 million annually by 2017.

To achieve these goals, the company

will focus, at this moment, in sanitation concessions of cities with over 100,000 inhabitants, especially in the South, Southeast, and Northeast Brazil. The preference is for full concessions (when water and sewer services are provided), because they present a better financial viability. The treatment of industrial ef-fluents from large industrial parks is also on the radar of the company, especially when integrated into sewage treatment plants already operated by OAS

Latin Infrastructure Quarterly56What do you look for in your public-sec-tor partner in terms of bringing projects to market and monitoring their development once the contract has been awarded?

The most recent contracts had predicted regulatory agencies to contract monitor-ing, while not always totally indepen-dent. These agencies had their structures strengthened and they are acting in a very diligent way in monitoring the contracts enforcement.

We want strong regulatory agencies in action, because we believe that only strict supervision of contracts will be able to pre-vent uncommitted companies to join this business. Companies that do not comply with the investment plans and other goals set in the contract are not fair competitors.

For example, a few years ago in the Brazilian road concessions sector an ag-gressive move by some companies was perceived due to bids that appeared very advantageous. The toll rates proposed by these competitors were really low, caus-ing an initial impact that was very posi-tive among users and the Government. However, after a while, it was realized that these companies were in breach of their contractual obligations, delaying investments and reducing the quality of service. This is a maneuver that is not ex-pected to occur in the sanitation market and, in order to prevent it from happen-ing, we strongly believe in the role of the regulatory agencies.

About new projects, it was developed in Brazil a collaboration mechanism be-tween the Public and private sectors, the PMI (Procedimento de Manifestação de Interesse, or, in a free translation, Pro-cedure to Express Interest), in which the private sector can apply for permission to study new public service concessions projects, proposing solutions to technical, legal, and financial viability of the proj-ect. We believe that this procedure will be the keypoint for our development. What are the main sources of long-term financing that OAS Soluções Am-bientais turns to in order to finance the building and maintenance of water in-frastructure?

As well as other developing countries, Brazil has large gaps in the sanitation sec-

This company is the newest division of OAS Investimentos, created to develop and operate all projects involving environmental solutions for the public and private sectors.

Company Profile

Latin Infrastructure Quarterly 57tor. The country aims to universalize wa-ter and sewage services by 2020, but even today there are large cities with irregular supply of water and no sewage treatment.

To face this challenge, CEF (Caixa Econômica Federal) and BNDES (Banco Nacional de Desenvolvimento), encour-aged by the Federal Government, have

such as debentures, whose market have grown a lot in recent years, due to the strong appetite of the investors. There are even tax incentives for the so-called “infrastructure debentures”.

The main discussion has been limited to receivables and guarantees equity of the project itself. Although this issue seems inherent to the concept of project-finance, Brazilian financial institutions usually re-quire shareholder corporate guarantees in addition to the guarantees of the project – or at least an equity support agreement (ESA). The projects in sanitation are usu-ally a brownfield type, already having cash generation, this is a question that we do not intend to give in, because other-wise, our growth would limit the ability of holding collateral guarantees.

We believe that our differential is pre-cisely the ability to structure sustainable projects that generate value to the share-holders and ensure the necessary invest-ments – and the PMI, as mentioned be-fore, is the instrument to do that. How does a company such as yours manage the need for ongoing invest-ment and pricing strategy with the need to ensure that the services remain affordable?

Usually, in bidding for sanitation conces-sions, water and sewage rates are pre-es-tablished, following the pattern of prices charged by major public companies such as SABESP, for example. It is a standard accepted by customers and the counties prefer to follow it.

Because of that, we believe in the efficien-cy of the operation, especially in the reduc-tion of system losses and energy efficiency, a key factor to enable new investments. Addi-tionally, the generation of ancillary revenue in providing services for industrial parks lo-cated in the vicinity of the project (reclaimed water, industrial wastewater treatment etc.) can be decisive for achieving the necessary investment without harming the returns ex-pected by shareholders. How important is for the public to be educated on water preservation?

It is essential for sustainable operations in terms of water and sewer services. We know that Brazil is a country favored

A long-term pipeline would

strengthen public sector

accountability and send a clear sign

of government commitment, attractive to

investors seeking for markets with growth prospects (not only isolated

projects).

some lines with long-term financing conditions, hardly equaled by banks and private institutions. We’re talking about interest rates of 8% per year. This is ex-tremely low for Brazilian standards.

Besides this source, we believe enough in private debt instruments

Company Profile

by the availability of water resources, but even with this apparent abundance water remains a finite resource, costing dearly to treat it. We have cities that need to col-lect water hundreds of miles away from its center, which requires heavy invest-ment for extraction and treatment works.

To encourage responsible use of water, as well as being environmentally correct, it is necessary that the company assumes social commitments; those are means for minimizing investments in collection and treatment, facilitating new investments towards universal services while main-taining reasonable levels of tariffs.

Luis Felipe Graziano

Latin Infrastructure Quarterly58 Regulation

Decree 6620 itself was insuf-ficient to prevent Itapoá from coming into operation and Embraport from continuing

construction, as well as to cause the ad-justment or termination of Portonave or

Changes In The Port Sector Regulation In Brazil

The port sector had been expecting for the past few months a package of regulatory changes and an investment program. In 2008, the federal government issued Decree 6620, based on Law 8630 (Ports Modernization Act) and Law 10233 (ANTAQ Act). Some of the Decree’s main features were (i) the regulation of concessions of entire ports, not only port terminals, and (ii) the definition of clear distinctions between public use terminals and private use terminals, based on the requirement that private use terminals should handle mainly or exclusively their own cargo. It was said that after Decree 6620 private use terminals without predominant own cargo, such as Embraport, Itapoá, Portonave and Cotegipe, could no longer be created.

Cotegipe. An ongoing investigation by TCU (Federal Court of Audit, a key audit-ing body in any activity relating to federal government expenditure and efficiency) points toward orders and sanctions against ANTAQ aiming at curing the present sta-

tus of such terminals (TC-015.916/2009-0). The technical report prepared by TCU is strongly in favor of rejecting the pos-sibility of public use terminals under the formal contractual arrangement of private use terminals, such as the four mentioned

Cesar A. Guimarães Pereira LL.M., Ph.D. PUCSP Partner at Justen, Pereira, Oliveira & Talamini

Med

ida

Pro

visó

ria

595

:

Latin Infrastructure Quarterly 59Regulation

above. But the matter has not yet been ad-dressed by the Court. It is unpredictable whether the Court will follow the techni-cal report, particularly after the enactment of Medida Provisória (MP) 595.

MP 595 is a so-called “presidential pro-visional measure”, a form of emergency legislation that is issued by the president and subject to congressional confirmation. It has force of law for 60 days, which can be extended for an additional 60-day pe-riod. During the 120 days the MP has to be converted into law. If not, it will be con-sidered as rejected and will not be able to be resubmitted before the end of the leg-islative year. An MP may be issued only if the matter it regulates is “relevant” and “urgent”. These are open concepts, and neither Congress nor the courts are gener-ally willing to scrutinize them. However, Congress has already occasionally rejected MPs on the basis of lack of “relevance” or “urgency”. An example is the MP that

regulated “dry ports” in 2006 (MP 320). It was rejected because such requirements had not been both simultaneously met, and the MP was converted into a bill to be vot-ed in Congress. It is at least possible that the same will happen with MP 595.

During the 120 days it is expected to remain under discussion in the Brazil-ian Congress, MP 595 will be discussed in light of the 646 proposed amendments that have been submitted by congress-men of all political affiliations. A special

During the 120 days it is expected to remain under discussion in the Brazilian Congress, MP 595 will be discussed in light of the 646 proposed amendments that have been submitted by congressmen of all political affiliations.

Latin Infrastructure Quarterly60congressional committee has been ap-pointed to examine and give an opinion on the propositions and propose if needed a revised version of the MP. The key posi-tions in this committee will be those of the chairman and the speaker – in charge of preparing the initial report and submit-ting it to the deliberation of the commit-tee. Such positions are expected to be filled only after the congressional works are resumed in February. At this point, Congress will have a new president, and this may bring a political new element to the discussion. Under a fresh presidency, Congress may feel more politically at liberty to make deeper changes to the legislation originally introduced by the Executive Branch. If Congress passes the version submitted by the Execu-tive Branch or another one dealing with the same subject matter, it will become a “conversion law” and be enacted with full force of law. If the MP is conversely rejected by Congress, there should be a legislative decree regulating the actions taken under the MP while it was in force.

2. Specific changes

The main features and concepts of MP 595, especially as viewed from a port ter-minal perspective, are as follows:

2.1. End of the concepts of “own cargo” and “third-party cargo”

The divide between public use terminals and private use terminals as known hith-erto ends. There is no reference in the MP 595 to “own cargo” or “third-party cargo”. The relevant distinction now is between terminals that are located within the boundaries of the “organized port” or outside them. Therefore, a key concept for MP 595 is the “organized port area”, which is defined by a presidential decree based on certain parameters provided for in article 2 of MP 595.

2.2. Criterion based on the location of the terminal (inside or outside the or-ganized port area)

Inside the boundaries of the organized ports only leased terminals or port conces-sions can exist. No authorized terminals may be implemented inside the organized

port area. Leased terminals are subject to public bidding and lease contracts that comprise a public service concession; or an authorization (in case of leases whose purpose is one of the those mentioned in items II through IV of article 8; the one provided for in item I – private use termi-nals – is not compatible with the purposes of the organized port as stated in article 2, I, of MP 595);outside the organized ports, the activity is subject to an authorization granted by the federal government (SEP – Special Ports Secretariat). However, it is still not fully clear what treatment will be given to existing private use terminals in organized ports, which are not neces-sarily the same as the “private use termi-nals” referred to in article 8 of MP 595. Articles 50 and 51 may be interpreted as attempting to let them continue to exist, with a required but imprecisely defined adjustment to the new legislation. A pos-sible interpretation is that the adjustment required by article 50 is in fact the ten-dering (or in exceptional cases a contract waiving a public tender) of the private use terminals currently existing within autho-rized ports. This will allow all terminals

inside authorized ports to be subject to the same legal regulation and create a level playing field for competition.

2.3. Limits for the definition of the “or-ganized port area”

The importance given by MP 595 to the organized port area requires special atten-tion to its geographic boundaries. This is generally referred to as “port polygon”. It is a set of lines that define a certain perimeter, as defined by a presidential decree. In article 2 of MP 595 there are general parameters about what should be included in the organized port area. How-ever, the redefinition of the geographic boundaries of an organized port may be a way to manipulate the regulation ap-plicable to a certain port terminal, either by excluding terminals from the lease system or to prevent the implementation or continuation of the activities of autho-rized terminals. One must understand that MP 595 is based on the premise that the organized port is a core element for the structure of the transportation by water and by land. It is a reference for the or-

The divide between public use terminals and private use terminals as known hitherto ends. There is no reference in the MP 595 to “own cargo” or “third-party cargo”.

Leased terminals are subject to public bidding and concession-lease contracts; outside the organized ports, the activity is subject to an authorization granted by the federal government.

Regulation

Latin Infrastructure Quarterly 61ganization of the transportation chain as a whole. Therefore, there is a legal prefer-ence for the maintenance and expansion of each organized port’s area, not for its reduction. In any case of change in a cer-tain organized port’s area, the relevant presidential decree must disclose the factual and legal reasons that justify the change. If the change is to cause a reduc-tion in the current or future boundaries of an organized port area, the government must consider that there is an assumption that such reduction is not needed. There-fore, any reduction must be justified in detail by factual reasons. The mere inten-tion to replace the regulation applicable to certain port terminals – by abandoning a lease system and adopting an authoriza-tion system instead – does not authorize the reduction of an organized port area.

2.4. The interpretation of the concept of “private use”

MP 595 seems to have intended to allow port terminals outside an organized port area to freely handle cargo regardless of its ownership or nature, therefore eliminat-ing the requirement for the majority of the cargo to be owned by the terminal itself. This is indicated in MP 595’s expression of reasons, whose item 7 reads: “The new pro-posed framework eliminates the distinction between own cargo and third-party cargo as an essential element for the exploitation of authorized port facilities”). However, it seems to have reached the opposite result. Article 8 deals with the facilities subject to authorization. There are four kinds, “cargo trans-shipping station”, “small size port fa-cility”, “tourism port facility” and “private use terminal”. The first three have their pur-poses clearly defined in article 2. The latter is defined only as “a port facility exploited pursuant to an authorization, located out-side the organized port area”. The only ele-ment to establish its acceptable purpose is its definition as of “private use”. Therefore, this kind of terminal should correspond to the “exclusive private use terminal” exist-ing under Law 8630, dedicated to the so-called “self-service”, the handling of cargo owned by the holder of the authorization. There is nothing in MP 595 – conversely to the system under Law 8630 – to allow such private use terminals to provide port services or pursue port activities offered to

the public in general. Such services or activ-ities cannot be made to fit into any possible interpretation of “private use”, the concept adopted by MP 595.

The reference in article 8 to the contents of the authorization contract does not deny such conclusion. First, it is not different from the regulation of the exclusive private use terminal under Law 8630. Second, arti-cle 8 extends to all four kinds of authorized facilities; the required contents of the autho-rization contract will apply to each accord-ing to the nature of each kind of facility. In conclusion, the handling of public cargo in general – i.e., the provision of port services

and of handling and storage of goods”. The concentration of such activities in organized ports allows the transportation system to be more rationally structured, since organized ports are points of reference both for trans-portation by water and by land, as well as for the corresponding infrastructure. It is not by accident that practically all mixed private use terminals dedicated to handling third-party cargo are located either in or near organized ports, sharing their land and water accesses.

2.5. Port public service and port activities

In several passages, MP 595 replaces the language “service” with “activity” and tries to separate the concepts of “conces-sion” (of a port as a whole) from “lease” (of a terminal). This change of language in comparison with Law 8630 and 10233 is insufficient to eliminate the concept of “public port services” as provided for in the Federal Constitution or to avoid the conclusion that the leased terminals in an organized port provide public service. The rules in article 5 about guarantees for the users of the service are a confir-mation of this conclusion. However, it is undeniable that MP 595 attempted to stay away from the idea of “public port services” by suppressing any mention to public use or private use terminals – i.e., by no longer defining terminals according to their purposes or missions, but to their location or to the ownership of the areas where they are implemented. One may try to interpret MP 595 as having ended the “public port services”, but this inter-pretation would violate articles 22, XII, “f”, and 175 of the Federal Constitution. Moreover, the consequences of such an (unconstitutional) interpretation would be extremely far-reaching in view of the cur-rent established structure of the Brazilian port sector.

2.6. Institutional arrangement: the CAP – Port Authority Council

Political and legal power in the port sec-tor is centralized in the hands of SEP (the federal government; the “granting power” or poder concedente) and, to a lesser ex-tent, ANTAQ (regulator). The local port authorities lose most of their autonomy and contractual freedom, being subject

or the pursuit of port activities offered in-discriminately to the public in general, who owns the cargo to be handled – can only be made by terminals located within the orga-nized ports. The organized port is defined by article 2, I of MP 595 as “the public asset built and equipped to tend to the necessi-ties of shipping, of handling of passengers

Political and legal power in the port sector is centralized

in the hands of Special Ports Secretariat (the federal government) and ANTAQ (regulator).

Regulation


to closer supervision by ANTAQ. CAP – Port Authority Council – loses almost all its importance, becoming no longer a deliberation body but merely a consulta-tion body for the Port Authority, with no actual powers. CAP had all its composi-tion and attributions listed in Law 8630. This has been removed and has not been replaced by any similar rules within MP 595. According to article 53 of MP 595, CAP will continue to function provision-ally according to its current regulation un-til a possible Decree or secondary regula-tion is enacted.

2.7. Institutional arrangement: defini-tion of the “granting power” (poder concedente)

The “granting power” (poder concedente) in the federal port concessions is SEP. In ports that have been temporarily assigned to states or cities, such as Itajai and Para-naguá, MP 595 is not entirely clear about who the “granting power” is: the federal government, represented by SEP, or the city or state, represented by the local port authority (i.e. the assignor or the as-signee). A systematic approach seems to indicate that the “granting power” is the local port authority, acting on behalf of the city or state. But this construction is not without difficulties. Articles 6 and 9,

with supervision powers over the instru-mentalities of such “granting powers”. Another peculiar topic if the possible dif-ference in the extent of ANTAQ’s pow-ers in one case or the other. Article 51-A of Law 10233 was changed to give AN-TAQ the power to supervise directly the activities of port operators, leased termi-nals and authorized terminals (“ANTAQ is given the competence to supervise the activities carried out by the organized port authorities, by port operators and by the holders of lease or authorizations for port facilities, in accordance with Medida Provisória nº 595, of December 6, 2012”).

However, according to para. 1 of such article, “The attribution referred to in the main body of this article comprises the port authorities of the ports subject to assignment covenants pursuant to Law 9277, of May 10, 1996”. There is no reference to the respec-tive port operators or leased terminals, which may indicate that such operators or termi-nals are only subject to direct supervision by the local port authorities and to indirect supervision by ANTAQ. If this interpreta-tion is correct, ANTAQ can only supervise the local port authorities in this case, not the operators or terminals themselves. This may be particularly relevant for the definition of ANTAQ’s powers to impose sanctions (art. 78-A and para. 1 of Law 10.233).

portation, but in the area of water trans-portation, not ports. According to article 21 of Law 10233, as amended by MP 595, ANTAQ is formally linked to SEP. SEP also has received new attributions. In the former legislation, SEP was in charge of seaports, while the Ministry of Trans-portation was in charge of river and lake ports, except if under the administration of port authorities. Now, the Ministry of Transportation has no role in this area, and all executive power relating to the port sector as a whole has been attributed to SEP. On the other hand, ANTAQ used to propose to SEP the general port exploi-tation (outorga) plans, for SEP to approve them; now SEP prepares them directly (article 24, para. 2, III, of Law 10.683, and article 27, III, of Law 10233).

2.9. Still the relationship between AN-TAQ and SEP

SEP has now increased powers as “grant-ing power” within the federal govern-ment. It is entitled to define the conditions for public tenders of new concessions or leases (which will be conducted by AN-TAQ under such conditions), and well as to enter into the contracts and to grant authorizations for private use terminals. The public tenders and contracts can no longer be conducted or entered into by

for instance, provide that the ANTAQ will conduct the public procurement accord-ing to the guidelines given by the “grant-ing power”. However, article 27 of Law 10233 as amended by MP 595 provides that ANTAQ will supervise all ports, in-cluding those assigned to states or cities. Therefore, ANTAQ would be both in a position of being under the instructions of the “granting powers” (state or city) and

2.8. Institutional arrangement: rela-tionship between ANTAQ and SEP

ANTAQ is now clearly under SEP in political and legal terms. According to the structure created by changes to Law 10233 made by MP 595, ANTAQ must now no longer report to the Ministry of Transportation, but to SEP. It also has some duties toward the Ministry of Trans-

the local port authorities; this situation creates a conflict-of-laws problem to be solved in the ongoing public tenders. MP 595 has also removed from Law 10233 all powers formerly attributed to ANTAQ to enter into contracts or grant authoriza-tions. ANTAQ retains some such powers only in the transport by water sector, in which ANTAQ still reports to the Minis-try of Transportation. In general, ANTAQ

Port concessions or lease contracts, valid for 25 years extendable for an additional 25 years, are granted to the company selected by an open public bidding

procedure.


now has only powers to supervise and apply penalties – except termination of contracts or authorizations, which must be done by the “granting power” (SEP, within the federal government). It is curi-ous that ANTAQ holds the power to de-bar a possible bidder (article 78-A of Law 10233); this confirms that a debarment will not affect by itself the validity or ex-istence of a contract entered into prior to the debarment.

2.10. Public tenders for concessions or leases

Port concessions or lease contracts, valid for 25 years extendable for an additional 25 years, are granted to the company se-lected by an open public bidding proce-dure. The bidding criteria are preferably a combination of the largest amount of cargo that the terminal undertakes to op-erate and the lowest fare charged for this operation. However, the RFP in the bid-ding procedure and secondary regulation may also create other criteria. Article 6 of MP 595 is not clear as to whether the criterion of “greatest handling with low-est tariff” must be adopted, alone or to-gether with other criteria, or whether the RFP could adopt entirely different crite-ria “as defined in the RFP, in accordance with the regulation”. The most logical in-terpretation of the provision confirms that the criterion mentioned in the provision is mandatory and can be applied alone or in combination with other criteria. In ad-dition, the provision refers to “tariff”. In port concession and lease contracts, the tariff is the remuneration paid to the port authority and the price is the remunera-tion paid by the users to the terminal for its services. This provision will need to be carefully interpreted to explain how the parameters of greatest cargo handling and lowest tariff paid to the port authority will be combined. There is no provision for lowest price, except if such criterion is defined by the RFP or regulation.

2.11. Public call and simplified selec-tion procedure for authorizations

Authorization for port terminals outside the organized port boundaries (set by a presidential decree) is not subject to pub-lic bidding. If a company shows interest

in an area, it must file a request for au-thorization. There will be a public call for expressions of interest. If there are two or more interested parties, there will be a simplified bidding – according to article 9 of MP 595, not a formal procurement process – to select the company to receive the authorization.

2.12. The confirmation of provisions concerning expansions and additions to the port facilities

Article 5, IX, of MP 595 repeats the pro-visions of Law 8630 and considers as a necessary provision in the concession or

Decree 6620, is not expressly mentioned in MP 595. However, the above men-tioned provision in MP 595 still grants the possibility of expansions and additions. Decree 6620 has not yet been revoked and is still compatible with MP 595 in this topic. Therefore, the express guarantees and rights provided for in Decree 6620 must be considered as consistent with MP 595 and in force. Moreover, in most cases the right to expansions and additions will not be affected by the supervening legis-lation, since it is provided for in contracts concluded under the previous legislation and protected against legislative changes. Article 50 confirms this conclusion by requiring the adjustment to MP 595 of authorization contracts only, not of lease contracts. Such adjustment was already required by article 47 of Law 10233.

2.13. Essential facilities doctrine

The essential facilities doctrine becomes applicable to both leased terminals (with-in organized ports areas) and authorized terminals (outside such areas). Articles 7 and 10 of MP 595 allow ANTAQ to regulate the use or access “of any third party” to the leased or authorized areas, provided that the holder of the lease or authorization is granted “adequate remu-neration”. This is a novelty in the port sector (it exists in other sectors; article 59 of Law 9478 is an example from the oil and gas sector) and creates a tool for great regulatory intervention in all kinds of terminals. There will certainly be in-tense debate whether this rule will be applicable to existing leased terminals. Authorized terminals, according to article 47 of Law 10233 (which was not changed or revoked by MP 595) must comply with supervening legislation and therefore will be subject to this new rule.

2.14. Port labor and OGMO

Port labor has not undergone significant changes. Article 36 provides that the port work will be conducted in the organized ports by either (or both) permanent em-ployees or outsourced port workers reg-ulated by OGMO, but article 36, par. 2, says that the employees must be selected among OGMO workers. The main topic in this area, greatly criticized by workers,

lease contract one concerning changes, additions and expansions to the facilities and activities. The references to possible expansions are less distinct than in Law 8630 or Law 10233. The possibility of ex-pansion to adjacent areas, provided for in

Authorization for port terminals

outside the organized port boundaries (set by a presidential

decree) is not subject to public

bidding. If a company shows

interest in an area, it must file

a request for authorization.


is article 40. The rule entitles authorized terminals to hire all their work force from employees without any link to OGMO. It will be open to discussion whether this provision will apply to existing autho-rized terminals in which the labor comes from OGMO or only to facilities that have been authorized already under article 8 of MP 595.

2.15. Dredging

There is a new chapter for dredging, pro-viding for 10-year contracts for “dredg-ing by result” to be tendered according to a new, relatively more flexible legislation (RDC – Differential Procurement Regime, Law 12462) created in 2011. This system does not exclude other possible contractual arrangements, such as services contracts pursuant to Law 8666 or dredging under an administrative concession system – a form of PPP (public-private partnership) provided for in Law 11079.

2.16. End or extension (renewal) of ex-isting lease contracts

Article 49 provides for the end or exten-sion of the current lease contracts. As a general rule, the leases are granted for 25 years extendable to another 25 years (ar-ticle 5, par. 1) – the authorized terminals, in contrast, have 25-year terms that can be renewed without any maximum limit. For ongoing leases, article 49 provides that they will be re-tendered until one year before their end. Article 49, par. 2, pro-vides that “the extension of the contracts referred to in this article, if expressly pro-vided for, will be conditioned to the revi-sion of the figures in the contract and to the definition of new obligations concern-ing minimum volume levels and invest-ments”. This provision is unclear about what the “figures” are; it may mean the tariffs paid to the port, the lease payments or the prices charged from the users, since it is a broad term. This rule may apply to any extension that existing terminals may request, although in certain cases the gov-ernment authorities may be considered bound to agree to an extension even re-gardless of compliance with such condi-tions (v.g., when the extension is required as a means to restore the equilibrium of the contract). Many existing terminals are

entitled to extensions based on the regula-tion that was in force before MP 595, and such right is not affected by MP 595.

2.17. Adjustment and legal treatment of existing authorized terminals

Article 51 refers to the ongoing activi-ties of terminals that are not subject to lease contracts, currently existing within organized ports, provided that their au-thorizations or adhesion contracts are adapted to MP 595 (art. 50). There is an initial problem in the application of this provision, relating to its peculiar word-ing. Article 51 refers to article 8 port fa-cilities “located within the organized port area”. However, the article 8 facilities are by definition the “port facilities located

SEP is now entitled to define the conditions for public tenders of new concessions

or leases, and well as to enter into the contracts and to

grant authorizations for private use

terminals.

makes it impossible to apply; (ii) article 51 refers to facilities that are now out-side the organized port but that are later included in the organized port area by an increase in the port “polygon perimeter”; (iii) article 51 refers to port facilities cur-rently within the organized port area but that are excluded from it by a reduction in the port “polygon perimeter”; (iv) article 51 refers to the exceptional situations of port facilities that are outside the orga-nized port area that are partially located inside such area or are dependent upon the organized port’s structures to operate (the case of Portonave comes to mind as an example); or (v) article 51 contains a mere language defect and refers to any authorized terminals (article 8, I through IV) located within the existing organized port areas. In legal terms, alternative (i) seems to be the correct one; the existing authorized terminals must be adapted to MP 595 according to article 50 but have no assurance that their activities will con-tinue as a consequence of such adapta-tion. This may be confirmed by article 50 itself. Article 50 is not clear about what this adaptation will entail. Since the main difference between leased terminals and authorized terminals is now the place where they are located (inside or outside the organized port area), it seems that this adaptation may comprise the undertak-ing of the new obligations (such as sub-mission to the essential facilities system, article 10, and the transfer of assets of article 8, para. 3) and the provision for successive renewals pursuant to article 8, para. 2 (making such authorized ter-minals virtually perpetual). However, it is also possible that such adaptation will allow the government to eventually take over the authorized terminals outside the authorized port areas and tender them ac-cording to article 9, after ascertaining that there are two or more parties interested in exploiting the private use terminal.

This solution would be more consistent with the system introduced by MP 595. Such system differs from that under Law 8630 because it does not give full freedom in the implementation of authorized port, since it requires a public call and a simpli-fied selection process according to article 9. At least, the existing authorized terminals outside the organized port areas must not be renewed according to article 8, para. 2,

outside the organized port area”, not au-thorized terminals in general. Therefore, article 51 refers to port facilities that are at the same time outside and inside the or-ganized port area, which is a logical and physical contradictio in terminis. There are five possible interpretations, and it is not viable at this point to define which will prevail: (i) article 51 must be con-sidered as not written, since its language


Cesar A. Guimarães Pereira is a Brazilian attorney, partner of Justen, Pereira, Ol-

iveira & Talamini and holds an LL.M (1998) and a PhD (2005) in Public Law from Pontifícia Uni-versidade Católica (PUC-SP), in Brazil. He has published numer-ous articles on subjects related to public law and arbitration and the books Elisão tributária e função administrativa (Tax Avoidance and Government Action) (2001) and Usuários de serviços públicos (Users of Pub-lic Services) (2nd ed., 2008). He has recently co-edited and writ-ten for the books Arbitragem e poder público (Arbitration and State Parties) (2010) and Infra-structure Law of Brazil (2nd ed., 2011). He is the president of the arbitration center of the Federa-tion of Industries of the State of Paraná (CAIEP). E-mail: <[email protected]>.

without a prior public call and if needed a simplified selection process pursuant to ar-ticle 9. With regard to private use terminals existing within the organized ports, the pos-sible adaptation should be a tender of the terminal to be subject to the same regula-tion applicable to all other leased terminals within each authorized port. Article 50 of MP 595 does not seem to allow a mere ac-ceptance of existing private use terminals within the port authority areas, with an un-limited series of 25-year periods of validity.

2.18. New breach of equilibrium caused by MP 595 to the existing lease con-tracts

MP 595 creates new risks and competi-tive difficulties on the existing leased contracts. Two aspects seem very clear in terms of conceptual changes in the com-petitive environment. First, there may be an increase in the possible creation of new authorized terminals outside the or-ganized ports. If the limits for the private use allowed to such terminals are not re-spected, the dissemination of new autho-rized terminals may affect the competi-tion. Second, there will be new, unleveled competition from new leased terminals as well. Until now, the leased terminals are obligated to pay large sums to the port au-thorities, since the highest price payable to the port authorities for the lease has been the main criterion for selection of the company to enter into the lease contract. Therefore the existing leased terminals may have to compete against more pri-vate use terminals and with other leased terminals that will not have costs with payments to the port authority. Both the conversion law and the expected second-ary legislation should address this topic to avoid unleveled competition. Such new competition entitles existing terminals to seek compensatory measures to restore the economic and financial equilibrium of their lease contracts.

2.19. Destruction of the existing legal and regulatory framework

Law 8630 was expressly revoked, and so were several provisions of Law 10233. This was a radical blow on the regulatory frame-work that had been built over almost twenty years and had allowed tremendous growth

in the Brazilian port market. Together with Law 10233, the now revoked Law 8630 had a clearly defined system, with a set of gov-ernment bodies with distinct attributions and a rational division between concessions, au-thorizations and lease contracts, each devised to serve specific purposes in the port sector.

2.20. Lack of rationality and systemic structure in MP 595

Any possible problems in the port market were much more due to the lack of en-forcement of the existing law, rather than deficiencies in the legal framework. The new legislation lacks the rationality of the revoked law, and it is difficulty to envision a systematic organization of the port sec-tor based on MP 595. In addition, most of the relevant provisions of Law 10233 were changed to become weaker by adding the phrase “without prejudice to conflicting legislation” to them. Therefore, Law 10233 will no longer help give rationality to the le-gal framework – as it did under Law 8630 by placing the concepts of concession and authorization in perspective within the larger picture of transportation regulation in general. In most cases will not prevail in case of conflict with MP 595.

Conclusion: possible unconsti-tutionality This analysis is limited to the interpreta-tion of MP 595 and does not comprise any discussion on the constitutionality of the new legislation. Many issues concern-ing constitutionality may be raised with regard to the instrument used (the mat-ter may be considered as not simultane-ously “urgent” and “relevant” to justify the issuance of an MP) and the provisions themselves, both in broad terms (v.g., the new system adopted) and in the specifics (waiver of proper public bidding proce-dures in several cases, for instance).


Could you give us a quick overview of the challenges and opportunities for an international engineering and construc-tion firm interested in participating in the infrastructure sector in Colombia?

The opportunities we see are the following:• Colombia is the third largest economy

in Latin America, following Brazil and Mexico, with an important in-frastructure deficit and an economic growth above and beyond most other countries in Latin America.

• The country has a political climate that is stable and, at the macroeconomic level, it operates in a framework of a stable government and macroeconom-ic politics that are efficient; this trans-lates into an investment grade country, and it is very interesting (at the macro level) for a potential investor.

• Opportunities are also spread across various industry sectors, which makes the country extremely interesting from the perspective of diversifying an infrastructure portfolio.

• The various mechanisms by which the government promotes projects (public tenders, private initiatives and design-build contracts) con-tribute to the diversification of the ways in which construction compa-nies can target projects in Colombia.

As for the challenges:• The prequalification requirements for

many projects are extremely onerous for international firms.

• Guarantees expected from proponents of various projects are different than what many international firms are ac-customed to, especially in terms of exposure of the parent company to contractual and financial obligations.

• The legal framework for liabilities is also very different than what is typi-cally seen by international companies in various markets and, in turn, this creates challenges to understand the exposure and implications, especially for long-term projects.

• It is also expected that the extremely large volume of infrastructure work that is going to be required in the next decade will put a strain on locally avail-able resources in terms of construction capacity, resources, materials, etc.

How does the potential development of infrastructure in Colombia compare with other countries in Latin America?

Colombia’s large population is putting a strain on the country’s inadequate in-frastructure and to date, the level of in-vestment in this infrastructure has been low. We anticipate that Colombia will be engaging in a variety of infrastructure projects aimed at catching up with the re-gion’s competing countries, making it one of the key countries on which we will be focusing our development efforts.

What do you think are the main oppor-tunities in the infrastructure sector in Colombia for private investors?

In addition to the road concession proj-ects being tendered by ANI, we see a lot of potential for other infrastructure sectors such as public transport, ports and airports. Furthermore, we envision a sizeable level of business with private clients needing in-frastructure related to industrial activities, especially in oil and gas and mining.

As Vice-President, In-ternational Business Development for the Infrastructure and Con-

struction business unit at SNC-Lavalin, Stéphane Villeneuve is responsible for the pursuit of large infrastructure projects around the world. With a proven track record in developing and implementing solid business strategies, business planning, acquisitions and strategic part-nerships, Stéphane has nearly 20 years of experience in engineer-ing; sales and marketing; busi-ness development; logistics; pro-ject management and customer support. Stéphane possesses a Bachelor Degree in Mechani-cal Engineering from the Royal Military College of Canada and a Master of Business Administra-tion degree from the University of Phoenix.

Andrés Trivino, President of the Canada-Colombian Chamber of Commerce talks to Stéphane Villeneuve, Vice-President at SNC-Lavalin.

SNC Lavalin’s outlook of Colombia


On November 28 the Canada Colombia Chamber of Com-merce in association with the Department of Foreign

Affairs and International Trade Canada, hosted an exclusive event focused on infrastructure opportunities in Colombia titled “Colombia: Infrastructure and Cap-ital Projects Review 2013.”

At this event, Beatriz Eugenia Mo-rales, Structuring Vice-President of Co-lombian National Infrastructure Agency (“ANI”), presented a portfolio of oppor-

tunities in transportation infrastructure. Is important to note that the Colombian government only recently created ANI with the sole objective of supporting the development of transportation infrastruc-ture projects and the participation of the private sector.

The event featured identified oppor-tunities for development in Colombian highways, airports, railways and ports. The audience was comprised of more than 60 executives from Canadian com-panies interested in learning about infra-

Colombian National Infrastructure Agency captivates Executives in Toronto

structure projects in Colombia.The keynote presentation was followed

by a panel discussion that included SNC-Lavalin, KPMG and Export Development Canada. The panelists offered their views on industry developments, opportunities and best practices for investors exploring opportunities in Colombia. The event was hosted at the offices of Gowling Lafleur Henderson LLP (Gowlings)

Colombian current transportation in-frastructure situation is the result of de-cades of underinvestment. Its roads and


railway infrastructure are clearly lag-ging and affecting the competitiveness of Colombian companies. According to the World Economic Forum, Colombia is placed in position 126th in the quality of road infrastructure, out of 142 countries.

Having recently signed Free Trade Agreements with Canada, US, European Free Trade Association and South Korea Colombia faces important challenges, and improving transportation infrastruc-ture in the Country is a most.

In the keynote address it was presented that historically Colombia has only in-vested 1.0 percent of GDP in transporta-tion infrastructure, which the current ad-ministration is planning to increase to 3 percent of GDP by 2014 (US$9 Billion). In order to accelerate the development of the infrastructure sector, Colombia also recently passed a public-private-partner-ship (P3) law that will facilitate procure-ment.

The current transportation plan con-sists of approximately 30 projects (AKA fourth generation) encompassing 8,172 km of highways with an estimated in-vestment of US$25 billion. Two thirds of these projects will be completed through P3’s to be awarded in the next 18 months. The next wave of public infrastructure concessions is to come in late December 2012 and will bring four new projects valuated at US$1.95Billion.

In the panel that followed the keynote speaker, three executives with relevant experience presented their views on dif-ferent topics related to public-private partnerships in developing infrastructure in Colombia.

Stephane Villeneuve, Vice President International Business Development In-frastructure & Construction from SNC-Lavalin, presented a summary of the chal-lenges and opportunities that engineering and construction firms currently face.

Marie-Claude Erian, Sector Advisor on the Infrastructure, Environment & Finan-cial Services team from EDC, explained EDC’s role in helping the development of trade channels and opportunities

Francois Vitale, Senior Manager, Global Infrastructure & Transaction Ser-vices from KPMG LLP Canada presented the key differences between the Canadian and Colombia P3 model.

Canada is a leader in the use of the

From left to right Tim Steed - Senior Associate, International Business Development Group - South America Export Develop-ment Canada (EDC)Maria Rivas Rivero - Business Development Manager - SNC - Lavalin InternationalMarie-Claude Erian – Sector Advisor for Infrastructure and Environment, Export Development Canada (EDC).Armin Nourozi - District Manager, Export Development Canada (EDC)

From left to rightAli Ettehadieh - Executive Vicepresident GenivarBeatriz Eugenia Morales - Vicepresident ANI ColombiaStephane Villeneuve - Vicepresident International Business Development, Infrastructure & Construction, SNC Lavalin Andres Trivino - President Canada-Colombia Chamber of Commerce

P3 model for public works, and as a re-sult, Canadian investors, engineering and construction firms are well positioned to take advantage of the opportunities in Colombia. Amongst these companies that attended were Brookfield, Aecon, Hatch,

Delcan, Fengate, Canadian Pension Plan Investment Board, Ontario Teachers Pen-sion Plan, Plenary Group and Omers.

The public that attended the event was very pleased with the level of the audi-ence and the pipeline of projects that the


Colombian Government has in the up-coming years.

“This was a very informative session on the multiple opportunities in Colom-bia’s infrastructure investment oppor-tunities,” says Armin Nourozi, District Manager for EDC’s Toronto office, who was in attendance. “The interest Cana-dian firms have in these opportunities and understanding the differences in P3 laws

and regulations were well-discussed top-ics.”

The Canada Colombia Chamber of Commerce received good feedback from the audience who were pleased to learn that several of the companies that at-tended the event would be interested to consider these business opportunities in Colombia.

The President of the Chamber of Com-

merce Canada-Colombia, Mr. Andres Trivino, mentioned that as a result of the event and meetings in Toronto, he per-ceives a high interest in the opportunities that are being developed in the sector and an increasing need in identifying local strategic partners in Colombia.

The Canada Colombia Chamber of Commerce, the organization that invited ANI to Canada, is an independent orga-nization based in Toronto, with the main purpose of promoting business relations between private and government entities to strengthen investment and trade be-tween the two countries.

For more information please contact Andres Trivino at [email protected]

www.canadacolombiachamber.org


The social and economic benefits provided by the not for profit (“NFP”) sector in Latin Amer-ica are becoming increasingly

recognised. This creates an increasing focus on fostering economic and social development in Latin America within the public policy agenda as well as from pri-vate sector initiatives. NFP organisations have attracted significant investments into their capacity and infrastructure be-cause of the direct engagement they take towards targeting specific issues. The complexity of the services offered by these NFP organisations is increasing. They deliver crucial services including training and education in communities, aid provision, and alleviating poverty.

NFP organisations typically develop to address given societal needs in the opera-tional areas, and in the context of the local business customs. For this reason the NFP

Strengthening the Not-For-Profit Sector in Colombia

sector in Colombia is mainly linked to large family businesses and corporations. They benefit the public through their Cor-porate Social Responsibility (CSR) pro-grammes. These organisations have built reporting and accountability mechanisms into their operations, increasing their transparency.

Support is provided by organisations like ANDI (National Business Associa-tion) who lead information forums and the development of CSR initiatives. Their aim is to foster sustainability and competitiveness while creating an active dialogue between the different stakehold-ers. Partnership working is key and infra-structure organisations like AFE Colom-bia (Corporate Foundations Association) exist to build and maintain a platform for joint action and effective sector leader-ship.

Although the trajectory of these foun-

dations is long, the sector as a whole still presents low levels of institutionalisation increasing the risk of lack of transpar-ency. A lack of transparency in an NFP organisation can make it difficult for the sector to show what contribution it is making towards social development. The regulatory and reporting practices differ based on the strength and complexity of institutions as well as depending on re-source availability.

To remedy this, a central register for NFP organisations was set up and is man-aged by the Association of Chambers of Commerce (CONFECAMARAS). A cen-tral register can be key to establish an ac-cepted universal framework which guides and unify the operation of NFP organisa-tions and charities in Colombia. By cre-ating universal reporting structures and training individuals in how to adhere to guidelines, internal capacity is built and


‘best-practice’ models can be established. Strengthening the NFP sector is a two-

fold process that requires building the capacity of the individual organisations and developing a coherent framework to guide their operation. Capacity build-ing and clear monitoring procedures in-crease transparency and build trust with the aim of contributing to a more efficient development agenda. Well-managed and sustainable not for profit organisations are better positioned to independently carry out their mandate and engage with the private sector, the government or the international community when aiming for coordinated action.

Recognition of these points is evi-denced in the increasing appetite of funders to build capacity. In Colombia, organisations such as ‘Fundación Bolivar Davivienda’ and ‘Fundación Saldarriaga Concha’ place institutional strengthening

as key part of their funding remit. This shows recognition of the necessity of ca-

partamos con Colombia Foundation’ was specifically created with the purpose of strengthening the social sector; working with over 180 foundations and 18 compa-nies to aid the development of their cor-porate responsibility strategies or family philanthropy plans.

Despite this increased interest in insti-tutional strengthening, the foundations are yet to work closely on investing collective-ly towards creating a central framework that allows capacity building and unified monitoring across the sector. A unified ef-fort would not only allow a broader reach, but also more possibilities for knowledge transfer. ‘Compartamos con Colombia’ has started working aiming to build agree-ments and coordinate joint actions across organisations. International aid such as ‘USAID’ is also developing institutional strengthening programmes while interna-tional not for profits working in fostering

pacity building to allow effective devel-opment of social programmes. The ‘Com-

Partnership working is key and infrastructure organisations like AFE Colombia (Corporate

Foundations Association) exist to build and maintain a platform for joint action and effective sector leadership.


transparency and best practices such as Fundación Lealtad from Spain and organ-isations like Kingston Smith LLP in the UK who act as private sector advisors to charities have also opened operations and dialogues with the different Colombian or-ganisations.

Increases in both in the funding avail-able for social programmes and the eco-nomic development of Colombia, with remaining challenges such as inequality, require organisations to find not only best strategies to thrive, but also to survive in a competitive market that looks for the un-derstanding of the returns of community investments.

Capacity building in key areas will en-able formalisation and accurate impact measurement. The creation of not only a central registrar, but a joint programme to foster best practices providing the tools for communication of actions and impact will also allow better monitoring and subsequent understanding of the sec-tor. Among key areas to strengthen, one is

lation and monitoring of activities un-dertaken, however such temptation must be questioned as to whether such formal measures would benefit the charities, the donors to those charities and most funda-mentally the beneficiaries of charitable giving. Robust regulatory frameworks can be brought to action through self reg-ulation and capacity building.

In terms of capacity building, fundrais-ing, governance, resource management and the provision of services through social enterprise structures are key top-ics to achieve sustainability. However ef-fectiveness in the above fields only comes when an NFP is able to show it is meeting its stated outcomes.

A central register can be key to establish an

accepted universal framework which guides and unify the operation of

NFP organisations and charities in

Colombia.

This article was written by Paul Spindler and Juliana Zarate for Kingston Smith LLP in London

Kingston Smith LLP is one of the top 20 accountancy and au-dit firms in the UK. In addition to audit and accounting work,

Kingston Smith offers a wide range of specialist services to support business growth and development, as well as the not for profit sector. Kingston Smith LLP is a founding member of KS International, an asso-ciation of independent accountancy & consulting firms with presence in 5 Latin American countries.

Kingston Smith LLP’s Not for profit Division is a leading advisor to the not for profit sector, with the head partner chairing the Institute of Char-tered Accountants Charities Technical Committee and the Charity and Voluntary Sector Special Interest Group. Our dedicated not for profit team has the experience and expertise of 13 specialist partners and 14 managers looking after over 700 not for profit clients, who include many well-known charities such as Big Issue Foundation and the Royal Academy of Arts, and the Association of Charitable Foundations.

Synergies between Colombia and the UK and US will facilitate knowledge trans-fer and quicker progress towards best prac-tice. Strengthening NFP organisations will allow them to create actionable operational plans, better manage funds, and communi-cate their actions to access further fund-ing. Building the capacity of organisations is central to strengthening the sector as a whole by providing tool to organisations to enable them to comply with the new reg-istrar requirements and aiming to be able to implement monitoring systems they are able to fulfil. This creates a culture of trust that will be instrumental in both delivering social benefit and attracting the funding re-quired to enable it.

promoting formalisation by making vis-ible the benefits it brings – possible ac-cess to training and to funds from larger or international organisations. Alongside with formalisation, assessing and provid-ing tools to strengthen the tax and fiscal regime affecting the sector is particularly important to avoid the use of the frame-work for fraud.

There may be a temptation to signifi-cantly increase the stringency of the regu-



It is not uncommon to read poorly written security / EP plans. The root cause of a poorly written plan is usually the result of not involving

enough subject matter experts (SME) dur-ing the planning, design and development phases. It is imperative that companies in-clude SMEs because these professionals bring a wealth of real world experience to the table. Many times companies will frown on bringing in outsiders. Compa-nies should make every attempt to bring in disinterested professionals with rel-evant experience that have no stake in your company to provide information and opinions.

Venezuelan oil refinery explosion

It would be interesting to sit down in a lessons-learned forum with the Venezu-elan officials involved in the unfortunate explosion at the Amuay oil refinery on

How Good Is Your Site Security / Emergency Response Plan?

How important is to design, develop,

and implement a comprehensive site

security / emergency preparedness (EP) plan? Do facilities

even have one? If so, is it inspected, and

validated on an annual basis? Latin American

companies have experienced its share

of natural disasters from hurricanes,

massive floods, and earthquakes. They also

have experienced tragic industrial accidents, and criminal attacks against facilities. Site security / emergency

preparedness plans are vital and should

be considered the foundations of

security processes and procedures. This article

will briefly touch on basic considerations.

August 25th. The goal would be to learn if they had comprehensive plans that aided in their response, or if they had a sub-par plans that hindered their response. Some readers might think, what would a security plan have to do with fighting a massive fire? Many security plans also form an important part of the emergency preparedness plan and in some cases they are or can be fused together. Many sites do have separate secu-rity and emergency preparedness plans but they are closely inter-locked in many areas. The Venezuelan incident can offer valuable lessons-learned to gauge the effectiveness, or ineffectiveness of the facility’s security / emergency response plans.

What should these plans include?

When developing these plans the impor-tance is in the details and the “how” is the most important element. Security / EP plans should, at a minimum, cover topics such as:


1. screening and selection processes for personnel;

2. chain of commands;3. liaisons with outside agencies;4. communication equipment and pro-

tocols;5. training and qualifications;6. operating systems and equipment;7. contingency planning stages prior,

during, and after events; and8. if applicable, how the plans would

meet regulatory requirements.

This is just a short list that can be broken down into many sub-groups. In order to establish effective plans companies have to define what to protect, how to protect it, how it will respond to everyday opera-tions, and how it will address emergency / contingency events. The lessons-learned from the August 25th Venezuelan incident will be important for every Latin Ameri-can security manager in order to assist in the development, or review of existing security / emergency plans.

How to guarantee effectiveness?

How do companies validate viable plans? The answer is simple and two-fold, one is by conducting security inspections of site processes and procedures, and the other one is conducting security / emergency plan evaluations through realistic mock exercises. When it comes to the inspec-tions, conversations need to be held with personnel in order to gauge their under-standing of operating procedures. Secu-rity and EP personnel should be able to explain their processes and demonstrate task proficiency. Inspections should also be conducted while sampling personnel during normal operational periods.

Mock exercises are different in that personnel have to demonstrate their knowledge, skills, and abilities while op-erating under scripted but realistic secu-rity / contingency conditions. Basically, inspections are conducted during normal conditions and exercises are conducted under a simulated but realistic contin-gency environment. Companies need to conduct both, inspections and simulated exercises.

Let’s go back to the oil refinery inci-dent in Venezuela. Did they conduct both inspections and exercises on an annual basis? Were there any gaps that could have been mitigated prior to the explo-sion? Any Security / EP Manager operat-ing in Latin America ought to be asking these questions to then assess if one’s fa-cility has the same or similar gaps.

Conclusion

Having good security / emergency re-sponse plans is imperative to driving per-formance and response capabilities in the

event of a real-world contingency. Latin American companies need to analyze the Venezuelan oil refinery incident to evaluate what went right, and what went wrong.

If Latin American countries are to con-tinue to compete on a global stage they have to improve their internal infrastruc-tures and contingency capabilities. Invest-ments are only going to be made when companies know that their Latin American business partners are ready for any contin-gency. Proper planning leads to proper processes, procedures, and responses.Companies

should make every attempt

to bring in disinterested professionals with relevant

experience that have no stake in your company

to provide information and

opinions.

In order to establish effective plans companies have to define what to protect, how to protect it, how it will respond to everyday operations, and how it will address emergency / contingency events

J uan Garcia is a veteran with more than 28 years of tactical and security force experience, both in the

military and civilian realm. Mr. Garcia possesses specialized knowledge in performing tech-nical reviews and evaluations on the theories, principles and practices in physical protection systems, security processes and procedures, and training and qualification programs. Juan has extensive experience in the ar-eas of vulnerability assessment and knowledge of response force capabilities; detection and assessment hardware; defensive strategies; and, response tactics. He can be reached at [email protected].


As Lula´s government was so successful in reducing Brazil´s social inequality, Dilma´s government had not

only the challenge to build up her name apart from her predecessor, but also to keep the economic growth pace, cheer up voters, host the World Cup Soccer Cham-pionship and the Olympic Games. Heir of a boosted Brazil´s, last November Dilma economic policy was harshly criticized by The Economist, as all prospects came into a downturn.

Despite a growth far below the expect-ed, Dilma´s Government still bet on do-mestic consumption as the main driver to push up Brazil. A bold infrastructure eco-nomic package is Dilma´s promise of a legacy for her second mandate, and a po-litical catalyzer to consolidate some old statutes, otherwise left unused in the bot-tom of the Brazilian legislative toolbox – a reform for public-private partnerships that was scarcely applied since 2004.

Since the late 1990`s, a serie of legisla-tions providing legal grounds to attract in-vestments in infrastructure, has promoted

Priv

ate

sec

tor

e

ng

ag

em

en

t changes in the Administrative Contracts Law (Law n. 8.666/93), the Concessions Laws (Law n. 8.987/95) and created the Public-Private Partnerships Law (Law n. 11.079/04). Other relevant laws were also enacted on State and Municipal levels, providing the perception that the private sector is now seen as an important player in the definition of Brazil´s infrastructure projects.

Dilma revisited the reforms as to ad-dress some important questions related to Public-Private Partnerships in general. Taking advantage from previous experi-ences and case-law from other countries, some new useful legal institutes have ar-rived. One of the most interesting solu-tions is the Proceeding for a Proposal of Intentions (“Procedimento de Manifesta-ção de Interesse”, or PMI in Portuguese).

The PMI resembles both the Swiss Challenge and the Unsolicited Bid Pro-ceeding, but without being bidding to either parties. As PMI is still too new in Brazil it should be considered with cau-tion, despite being a useful mechanism. Much that is going on in Brazil´s infra-

and the Brazilian Myth of Fast Paced Growth


Brazilian legal institutions, and democracy as a whole, may still benefit from the ongoing healthy debate that the Federal Government is promoting throughout the major national infrastructure sectors, with special attention to ports, airports, railroads´ PMIs.

Ulisses Gagliano (LLM - UNSW) is Senior Partner at Nelson Wilians Ad-vogados Associados (attorneys at law), and practitioner in corporate and infrastructure Brazilian law.

Gustavo Leal Gondo Partner at Nelson Wilians Advogados Associados (attorneys at law), and practitioner in corporate and infrastructure Bra-zilian law.

structure projects is happening under the same “PMIs” everywhere – a kind of fren-zy market dazzling towards novelty that might unravel losses to the private sector, while this legal framework still needs to mature and be duly tested.

One of the PMI most dialectic feature is to be celebrated though: the competitive smart solutions proposed by private sector towards inadequate old ways of managing infrastructure in Brazil as the oligarchy and the old heavy State bodies struggle to cope with transparency, disclosure, and accountability.

While Dilma still risks as meddles in Brazil´s economy and avoid important re-

forms (as reducing labour and tax burdens from investments), Brazilian legal institu-tions, and democracy as a whole, may still benefit from the ongoing healthy debate that the Federal Government is promot-

ing throughout the major national infra-structure sectors, with special attention to ports, airports, railroads´ PMIs.


Can you tell us about your Firm and your role?

LAP Latin American Partners (LAP) is a fund manager with a team of investment professionals that after working together for many years in private equity in Latin America, decided to focus on a sub-re-gion of Latin America and to specialize in mezzanine, which we believe to be more suitable than pure equity for many of our target companies. That is the genesis of the Central American Mezzanine Infra-structure Fund (CAMIF), which has been making mezzanine and equity invest-ments to medium-sized companies and projects in Mexico, Colombia, Central America and selected Caribbean islands. LAP stresses the importance of relations with local sponsors, advisors and gov-ernments, and offers regional coverage

Latin American PartnersLIQ talks to Teseo Bergoglio, Co-Owner and Co-Managing Partner

through offices in Mexico, Central Amer-ica and Washington, D.C. The firm’s in-vestments are made in compliance with

international standards regarding envi-ronmental, social and anti-money laun-dering aspects. The owners and co-man-

aging partners of LAP are James Martin and myself who together have 45 years of experience in investment and lending in Latin America.

James has been managing PE and mez-zanine investments in Latin America since 1997 for EMP Global (EMPG) and later for EMP Latin America (EMPLA), an af-filiate of LAP with main focus on power, transportation, environmental services, natural resources and energy sectors. Prior to joining EMPG, James worked at International Finance Corporation (IFC) where he headed the team responsible for global investments in water and environ-mental infrastructure and also closed a number of transactions in Latin America in the transportation and gas distribution sectors. Prior to IFC, James worked at BankBoston in Italy, in Mexico as Coun-try Manager, and in Singapore where he

We decided to focus on a sub-region of Latin

America and to specialize in mezzanine, which

we believe to be more suitable than pure equity

for many of our target companies.


Latin American Partners

was regional head of the Bank’s activities in Southeast and South Asia. James has a BSFS in International Economics from Georgetown University and a MBA from Columbia University.

I have been managing PE and mezza-nine investments in Latin America since 2001 for EMPG and later for EMPLA, with main focus on shipping, railroads, power, telecom, port, oil services and gas transportation and distribution. Prior to joining EMPG, I worked at Enron Cor-poration’s Gas and Power Risk Manage-ment Group in Houston and Sao Paulo. Prior to Enron, I worked in the Corporate Banking division of BBVA Banco Fran-ces in Argentina, originating and manag-ing a $300 million portfolio of corporate debt, including project financing, acqui-sition financing, bonds, and syndicated loans across a range of industries. Prior to BBVA, I worked in the automotive industry. I have a B.S. in Business from Universidad del Salvador, a Masters in Economics from CEMA University, and a MBA from Georgetown University.

When was CAMIF closed?

We closed CAMIF at the height of the 2008 financial crisis a few weeks after the collapse of Lehman Brothers and managed to reach the target amount of US$150 million mainly as a result of the strong support of our institutional

investors (including Inter-American De-velopment Bank (IDB), IFC, Dutch de-velopment bank FMO, Finnish Fund for Industrial Cooperation Ltd. and Fondo de

up to their expectations by showing a strong performance of attractive expected returns and healthy liquidity.

As a private equity firm, what are the main indicators of a country’s economy and financial markets that you evalu-ate?

We look for strong economic patterns that lead to sustainable growth and continu-ous need for infrastructure investment. A key component of the success of an in-vestment is getting the macro prospects right and it is not only about originating the right project at the right time but also about being in the right place. Combining a promising macro outlook with a proj-ect with a solid growth prospect provides downside protection to macro swings and unexpected changes in the business.

Within our target region we are attract-ed by overall macro and sector growth, regional integration, skewed energy ma-trices and strong prospects for changes in technology. We also study the regulatory framework of the sectors we are inter-ested in and consider other aspects of the overall investment climate, such as rule of law and the government’s attitude to-wards private investment.

Regarding the financial markets, we look for countries with a clear need for our mezzanine financing and a lack of adequate long-term financing from third

Fondos from Mexico, and the GP). Our investors believed in our team and invest-ment thesis even in those difficult times. The fund has been almost fully commit-ted, and fortunately so far we have lived

We closed CAMIF at the height of the

2008 financial crisis a few weeks after the collapse of Lehman

Brothers and managed to reach the target amount of US$150 million mainly as a result of the strong

support of our institutional investors.

Latin Infrastructure Quarterly80parties in terms of amount, tenor and with our tolerance for our level of subordina-tion. Typically by strengthening capital structures with our mezzanine or a com-bination of our mezzanine and equity, we cover the funding gap that allows com-panies to mobilize third party financing senior to us in priority of payment and sharing of security.

So you mainly look for infrastructure opportunities?

Our main focus is basic infrastructure which in our case is widely defined and includes all forms of power (specifically renewable energy), transport, telecom, water and sanitation. We are at the same time growth oriented so we look for in-dicators that result in a continuous need for additional infrastructure investment. In our region these indicators include sustained country-specific as well as re-gional economic growth along with sec-tor-specific shifts that create investment opportunities. As an example, we have found opportunities in the power sector as these countries seek to decrease de-pendence on expensive thermal genera-tion (diesel, bunkers) toward renewables (hydro, wind, geothermal). In other sec-tors, changing modes of transportation and growth in data-based telephony are some trends that create exciting invest-ment opportunities for CAMIF.

CAMIF also has the flexibility to lend or invest in other sectors such as natural resources, forestry, agribusiness, housing, real estate, health and education among others, which allows us to take advantage

of attractive growth opportunities and achieve a balanced portfolio of investments across different sectors and countries. We have also found a similar compounded effect in sectors with strong prospects for import substitution with sustainable com-petitive advantages to produce locally. We seek to invest in companies that are com-petitive globally, as we see that as the best assurance of sustained success regardless of economic cycles.

What are the main elements of an in-frastructure asset operator that you consider when evaluating an invest-ment?

The key lending principle (which also ap-plies to investment principle) from the 5 C’s of lending is the character and repu-tation of the sponsors and partners. Of course we review the track record of our sponsors and partners but character and reputation is still the main concern which

cannot be overcome by the best share-holder agreement or loan agreement. It is also very important to see that the sponsor has a significant vested interest in the suc-cess of the project and we always expect a sizeable capital commitment by them.

Our interests should be aligned from the beginning and we should structure the transaction in a way that ensures align-ment throughout our holding period. Giv-en that we are growth oriented, we look for sponsor and partners that share the same long-term view and objective. Once we partner, we look for ways to grow the business through domestic expansion, ac-quisitions and internationalization.

What do institutional investors find at-tractive in an infrastructure fund?

Investors are interested in our funds due to our focus on mainly long-term mezzanine financing to infrastructure plays in emerg-ing markets. We specialize in infrastructure, which is continuously in dire need of ad-ditional investment in our covered region. Investment in infrastructure in our focus re-gion combines the benefits of typically pre-dictable USD denominated long-term rev-enues, usually through long-term contracts with high-growth prospects, low volatility and frequent and consistent cash income to lenders and investors. We focus on a sub-region of Latin America with growing economies that are underserved by institu-tional investors. And we specialize in long-term mezzanine lending, which is an instru-ment that provides steady cash flow to the fund and our investors, and clear visibility and mechanisms for the return of the capital invested and its exit prospects.

Combining a promising macro outlook with a project with a solid growth prospect provides downside protection to macro swings and unexpected changes in the business.

Regarding the financial markets, we look for countries with a clear need for our mezzanine financing and a lack of adequate long-term financing from third parties in terms of amount, tenor and with our tolerance for our level of subordination.

Infrastructure Financing

Latin Infrastructure Quarterly 81Our investors also invest in our funds

because they are interested in co-in-vestment opportunities. We provide ex-posure to transactions that are difficult to originate and structure and in most cases would not otherwise be on their ra-dar screen. Our deals require very close monitoring, and our investors typically cannot replicate this commitment of time and resources to individual investments and therefore rely more heavily on our capacity to co-monitor their direct co-investments alongside the Fund’s own investments.

Our ability to mobilize funds from our own investors is also attractive to our portfolio companies given that we can add value beyond the resources that we have at our own disposal. Our investors take advantage of our due diligence and analysis and can expedite their own deci-sion process when analyzing direct co-in-vestment opportunities with the fund. So far, we have created co-investment oppor-tunities for our investors that are a signifi-cant multiple of the total funds committed to the fund and we expect to continue to do so in the future.

Still on institutional investors, what trends do you see in terms of: (i) their appetite for the asset class; (ii) the way they get exposure to the asset class: financial instruments (listed and not

listed); participating in specialized PE funds; or direct investing?

tal fundraising within emerging markets PE funds and a bigger share of total in-vestments. Institutional investors that invest in our funds continue to invest through specialized funds, combine in-house investing and lending with third party manager efforts and are increasing their appetite for direct investing as well. We have seen some cases in which those institutions are setting up in-house asset management capabilities. All these trends will benefit the region, which should re-ceive an increased share of capital inflows that would fund growth and development.

Do you seek control of assets?

We lend and invest in companies which, as is the general case in this region, are typically mid-sized family-owned firms that do not want to permanently lose con-trol or suffer heavy dilution; therefore our mezzanine product is more palatable to them. We look for companies with strong management and proven track record that do not require heavy intervention from a financial institution like ours and therefore we do not need to seek major-ity stakes or control of those assets. But through loan covenants and/or superma-jority right we ensure the necessary influ-ence in the company.

We tend to add value not only by in-jecting long-term capital that represents

We have seen an increasing appetite for the region for several years now as Latin America has gained a bigger share of to-

Our investors also invest in

our funds because they are

interested in co-investment

opportunities. Our

investors take advantage

of our due diligence and

analysis and can expedite

their own decision process

when analyzing direct co-

investment opportunities

with the fund.


Latin Infrastructure Quarterly82a significant amount in the overall capi-tal structure, but also by mobilizing third party capital and financing, usually from our own club of investors that contribute additional funds directly beyond those provided by the fund. Therefore, we tend to be a significant portion of the capital structure of those companies, and we hold significant minority positions which con-vey certain negative control rights but at the end of the tenor of our loans, owners usually regain full control and ownership.

What is the typical holding horizon of the fund and what recent transactions have you done in the region?

We are flexible and try to adjust our hori-zon to the specific needs of the companies and the preferences of the sponsors but given our main focus on infrastructure, we have to provide enough tenor to allow those projects to materialize and grow, and also match the increasingly long se-nior financing available in the region. In general, we have the preference to make long-term investments averaging 8-10 years which differentiates ourselves from other funds active in the region.

The mezzanine product typically com-bines a loan element with equity features which allows the fund to share in the upside of the project. Mezzanine is very flexible and has allowed us to finance a range of opportunities, from expansions of existing businesses to acquisitions and turnarounds. We have done straight acquisitions of minority and majority positions and we have also supported and financed minority shareholders to in-crease their ownership positions (LBOs) and even managements to acquire con-trol ownership stake (MBOs). We have also done corporate restructurings and turnarounds as well as greenfield proj-ects. In many cases we have done trans-actions in which we combined a direct investment in the equity of the company with a mezzanine financing with equity features of its own.

In terms of sectors we have invested in several renewable energy companies in hydro generation and biomass, in various ports terminal operators dedicated to bulk cargoes, both dry and liquid, as well as containers. We have also invested in tele-com and in agribusiness.

How do you envision possible exits in the LatAm region?

While funds invested in the 90s in Latin America hoping that the capital markets would develop enough to make IPOs a likely exit venue, with the exception of

Brazil in the later years, in the vast major-ity of the cases exits took place through trade sales to strategic investors. In our re-gional coverage of Latin America, we ex-pect that trade sales will continue to be the most likely exit route in the years to come.

We come from a background of pri-vate equity and learned that in spite of closely monitoring investments through their life cycle and adding value for many years, the success of those investments depended mainly on one single liquid-ity event in the later years of the fund. Therefore we were exposed to exogenous

factors (e.g. macroeconomic cycles) that could severely impact the return on those investments if they were to occur during the divesting years.

A key lesson learnt from our past expe-rience in PE was to move to a mezzanine instrument and reduce our dependence on this single exit event as we now receive our return of capital and our return on capi-tal during our holding horizon. The exit-related component of our overall return is no longer the make-it or break-it event it is for a private equity investment. However, our investment style continues to be more involved and hands-on like private equity.

Is there a secondary market for private equity stakes in infrastructure projects?

Even though global M&A activity has de-clined to a lower level after the 2007/2008 crisis, given that Latin American econo-mies were not as affected as other devel-oped economies, we saw overall M&A activity to suffer less in Latin America. In addition to this better performance compared to other regions, we saw infra-structure M&A activity to also be one of the strongest in Latin America, which ex-perienced a rebound even since the global economic slowdown. There are local and cross border trade sales taking place and we expect this trend to strengthen in both Latin America and the infrastructure sec-tor in particular. The level of M&A activ-ity within the Latin American region and by foreign bidders acquiring Latin targets is expected to increase or even signifi-cantly increase in the next few years which should benefit PE investing in this space.

We lend and invest in companies which,

as is the general case in this region, are typically mid-

sized family-owned firms that do not

want to permanently lose control or suffer heavy

dilution; therefore our mezzanine product is more

palatable to them.Teseo Bergoglio


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Economy & Finance

Latin Infrastructure Quarterly - Issue 6