Economic and financial aspects of the Highway Concessions Program of the State of Sao Paulo

Outline1) Financing structure

2) Return on capital

3) Toll structure

4) Financial risks and contingencies

5) Key factors for success

1) Financing structurea) The economic and financial viability of the business plans of the highway concessions is

based on the financing structure, using “Project Finance,” meeting the credit requirements of the financing sources and permitting adequate return for the concessionaires’ stockholders;

b) Domestic and foreign funding sources generally used for highway concessions in Brazil consider the following premises:

Contracting for a bridge loan to cover initial expenses for the operation, investments, and payment of the installments of the concession;

Contracting for long-term operations for refinancing the bridge loan, seeking to stretch out the debt profile and minimize debt service cost.

c) The financial operations are normally structured with multilateral banks and development agencies: National Bank for Economic and Social Development (“BNDES”); World Bank – IFC; Inter-American Development Bank (“IDB”); Andean Development Corporation (“ADC”); and Other credit institutions.

d) In addition to these financing sources, the business plans include : Resources for operational cash flow; Capital contributions of the shareholders, required in the bidding notices, and additional

contributions. e) The financing alternatives presented must meet the need for project resources in a timely

manner and with financial costs that reflect the market situation.

EVOLUTION OF CONSOLIDATED INDEBTEDNESS

-500

1.0001.5002.0002.5003.0003.500

YEARS

MIL

LIO

NS

OF

R$

Short-term

Long-term

TOTAL

Composition of debt and financial costs

FINANCIAL TYPE AV. ANNUAL INSTITUTION COST SHORT LONG TOTAL

TERM TERM

Nat. Bank. Econ. Soc. Dev. - BNDES Project FinanceTJLP + from 4.5%to 7.5% 220,915 671,642 892.557

Nat. Bank. Econ. Soc. Dev. - BNDES FinameTJLP + from 3.3%to 6.3% 2,426 4,798 7,224

Commercial banks Leasing CDI + up to 2.0% 35,744 73,078 108,822

Commercial banks Working capitalCDI + 1.5%. 134,977 110,313 245,290

Bonds 1st and 2nd seriesIGP-m + 11% 96,192 1,151,9941,248,1863rd series 103.3% of CDI - 506,186 506,186

TOTALS 490,254 2,518,011 3,008,265

CONS. BAL. - BASE 6/08

Concessionaire 2008 - ACTUAL %

Autoban 1.081.687 27,87%Tebe 38.482 0,99%Vianorte 178.465 4,60%Intervias 223.041 5,75%Centrovias 183.790 4,74%Triângulo do Sol 227.931 5,87%Autovias 198.821 5,12%Renovias 213.420 5,50%ViaOeste 466.299 12,02%Rod. das Colinas 241.574 6,22%SPVias 306.007 7,89%Ecovias 521.247 13,43%Total 3.880.763

Concessionaire Year 1 - Projected %

Rodoanel Oeste (West Beltway) 166.185 18,62%D. Pedro I 282.794 31,68%Ayrton Senna / CP 130.381 14,61%Raposo Tavares 116.587 13,06%Mal. Rondon Leste (Marshall Rondon East) 94.653 10,60%Mal. Rondon Oeste (Marshall Rondon West) 102.072 11,43%Total 892.673

ANNUAL COLLECTION FROM TOLL INCOME

(Amounts in thousands of R$)

Em R$ mil Jul/08

CONCESSIONÁRIA Lote 07 D. Pedro I

Lote 16 Raposo Tavares

Lote 19 Mal. Rondon

Oeste

Lote 21 Mal. Rondon

Leste

Lote 23 Ayrton Senna

Carvalho Pinto

Lote 24 Rodoanel

Mário Covas Trecho Oeste

TOTAL

INGRESSOS 28.925.926 13.999.883 9.856.953 15.679.118 5.959.893 14.305.132 88.726.904 DESEMBOLSOS 15.604.686 9.184.828 6.120.888 8.990.585 4.165.742 8.427.033 52.493.762

Despesas Operacionais 4.449.498 3.972.639 2.291.221 3.224.274 1.802.775 2.507.799 18.248.204 Investimentos 2.088.133 1.680.830 1.200.875 1.336.741 668.546 465.176 7.440.301

SALDO FINAL DO CAIXA 13.321.241 4.815.055 3.736.065 6.688.533 1.794.151 5.878.099 36.233.142

SALDO LIVRE DE CAIXA DO PROJETO - ACUMULADO 30 ANOS

George Meek:

Free Cash Balance of Project—Accumulated over 30 yearsConcessionaire

Income

Disbursements

Operating Expenses

Investments

Final Cash Balance

2) Return on CapitalThe return on capital expected for each highway concession project is based on economic-financial feasibility studies for for each individual lot and considers the anticipated traffic on the roads—which generates the concessionaire’s operating income—as well as all costs of expansion and maintenance of the system and service to users.

It also considers the number of years needed for adequate return on invested capital, calculated on a rate that will make the investment attractive. We shall present next a summary with the basic information on each concession lot:

The Domestic Return Rate (TIR) or Rate of Attractiveness for the Private Investor for the Concession Lots, depend on the country’s current macroeconomic conditions, the agents involved, and the concession model adopted.

ConcessionaireYear

ContractSigned

ContractDurationProposed

Current contractTerm - TOTAL Funding Payback TIR

Autoban 1998 20 Years 28 years & 8 mo. 4º Year 9º Year 19,78%Tebe 1998 20 Years 27 Years 3º Year 8º Year 20,23%Vianorte 1998 20 Years 20 Years 4º Year 11º Year 16,66%Intervias 2000 20 Years 27 yrs. & 11 mo. 4º Year 9º Year 19,98%Corredor D. Pedro I 2009 30 Years 30 Years 3º Year 10º Year 16,56%Centrovias 1998 20 Years 21 Years 9º Year 12º Year 19,62%Triângulo do Sol 1998 20 Years 23 yrs. & 1 mo. 5º Year 11º Year 21,38%Autovias 1998 20 Years 20 Years 5º Year 11º Year 17,33%Renovias 1998 20 Years 24 yrs. & 2 mo. 4º Year 11º Year 18,72%ViaOeste 1998 20 Years 24 yrs. & 9 mo. 4º Year 8º Year 19,33%Colinas 2000 20 Years 28 yrs. & 4 mo. 7º Year 11º Year 19,52%Corredor Rapaso Tavares 2009 30 Years 30 Years 5º Year 15º Year 9,16%Corredor Mal. Rondon West 2009 30 Years 30 Years 5º Year 12º Year 12,88%SPVias 2000 20 Years 27 yrs. & 8 mo. 5º Year 13º Year 19,85%Corredor Mal. Rondon East 2009 30 Years 30 Years 2º Year 11º Year 16,02%Ecovias 1998 20 Years 25 yrs. & 10 mo. 5º Year 9º Year 20,60%Corredor Ayrton Senna / Carvalho Pinto 2009 30 Years 30 Years 3º Year 14º Year 9,01%Mário Covas Beltway – West Sector 2008 30 Years 30 Years 2º Year 14º Year 9,31%

Investments Made and Planned:Amounts in thousands of R$ (base Jul/2008)

ConcessionaireStart

DatePlanned Invest-

ment TOTALS

ActualInvestments

Cum..Feb/09% Done

Autoban May 98 4.127.317 3.161.730 76,60%Tebe March/98 242.163 179.271 74,03%Vianorte March/98 907.636 783.048 86,27%Intervias Feb/00 1.633.750 905.107 55,40%Centrovias June/98 1.394.506 894.219 64,12%Triângulo do Sol June/98 1.381.105 995.682 72,09%Autovias Sept/98 1.227.838 971.069 79,09%Renovias April/98 1.119.528 856.486 76,50%ViaOeste March/98 2.517.156 1.870.398 74,31%Colinas May/98 1.613.486 1.154.062 71,53%SPVias Feb./00 1.401.257 976.293 69,67%Ecovias May/98 2.824.196 2.758.616 97,68%SUB TOTAL CONTRACTS IN OPERATION 20.389.938 15.505.981 76,05%Mário Covas Beltway – West section ** June/08 491.114 93.881 19,12%Corredor D. Pedro I * - 2.088.133 - 0,00%Corredor Rapaso Tavares * - 1.680.830 - 0,00%Corredor Mal. Rondon West * - 1.200.875 - 0,00%Corredor Ayrton Senna / Carvalho Pinto * - 668.546 - 0,00%Corredor Mal. Rondon East * - 1.336.741 - 0,00%SUB TOTAL CONTRACTS FOR SIGNATURE 7.466.239 93.881 1,26%GENERAL TOTAL 27.856.177 15.599.863 56,00%

3) Toll and tariff structure• The CONCESSIONAIRE shall install a toll system using the specified operational model,

continuously updating it and increasingly automating it;

• Blockade toll plazas may be installed at access points to the highways in the LOT, if it is found that escaping traffic is damaging other highways or the urban network, based on joint analysis of this solution by the GRANTING POWER, the CONCESSIONAIRE, the municipalities, and the management agencies of the affected highways;

• Tariff updating – Maintenance of tariffs: The value of the toll tariffs shall be preserved by rules for adjustment and review

established in the bidding notice, in order to ensure permanent maintenance of economic and financial balance of the CONCESSION CONTRACT.

Contracts signed in the 1990s – Adjustment index: IGP-m Contracts being signed – Adjustment index: IPCA.

Where:Kmi = Kilometers from the concession’s starting pointKmf = Kilometers to the concession’s ending pointPi = Kilometers betrween each toll plaza (P1, P2... Pn)a, b, c, d, e = Distances in km. as shown in the diagramTCPi = Toll plaza section coverage, i.e., length in km. that each plaza offers users for payment of tollTCP1 = a + (b / 2)TCP2 = (b + c) / 2TCP3 = (c + d) / 2TCP4 = (d / 2) + e

• Toll Plaza Section Coverage – TCP: The collection system is basded on “BARRIER” type toll plazas, using the criteria that each toll is applied to the given length and access points used, as shown in the following figure:

George Meek:Plan for calculation of the TCP—Toll Plaza Section Coverage

AVERAGE COMPOSITION OF TOLLS IN THE 12 WINNING BIDS

COMPOSIÇÃO TARIFÁRIA (Média das Propostas Vencedoras)

Ônus Variável; 3% Ônus Fixo; 8%

Investimentos 20%

Operacão; 28%Taxa de Retorno; 19%

Tributos; 22%

George Meek:TOLL COMPOSITION

(Average of winning bids)

Rate of return 19%

Taxes 22%

Variable obligation 3%

Fixed obligation 8%

Investments 20%

Operation 28%

• The rights and obligatons of the granting power with respect to the existing highway system remain under its jurisdiction until control is transfered to the future concessionaire, along with all the payments and compensations arising from acts prior to transfer of control, except as provided in the bidding notices;

• The concessionaires are responsible for recovery, mitigation, and/or compensation for environmental liabilities set forth in the bidding notices.

4) Fiscal risks and contingencies

• Risks involved:• Economic-financial:

Traffic demand; Structure and obtaining of financing; Exchange risks; Increased costs, expenditures, and inputs; Budgetary approval of expected investments; Tax reform (only direct taxes on profits).

• Bureaucratic: Obtaining of environmental authorizations; Expropriations – payments and occupations.

• Policy: Toll adjustments; Policy of exemptions and subsidies

• The granting power’s role: Establish the rules of the game; Define and specify the works and level of services to be implemented; Guarantee contractual balance and continuity of services; Establish and maintain the tariff policy; Protect the public interest.

5) Key factors for success• Comprehensive and realistic economic viability studies

[Detailed specifications; identification and mitigation of risks]• Legal and contractual support

[Clear definition of rules]• Maintenance of economic-financial balance

[Technical, legal, and financial aspects]• Rigorous selection process

[Technical, legal, and financial aspects]• Requirement for adequate guarantees

[Insurance for guarantee and “all-risks” coverage]• Permanent monitoring and auditing

[Regulatory agencies]

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