PORT INFRASTRUCTURE ATTRACTIVENESS FOR PRIVATE INVESTORS Case study: Porto Itapoá

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1 PORT INFRASTRUCTURE ATTRACTIVENESS FOR PRIVATE INVESTORS Case study: Porto Itapoá IV CIDESPORT Marja Weschenfelder Strategy & Innovation Porto Itapoá 28/10/2017 1

2 INFRASTRUCTURE PROJECT RISKS Project lifecycle approach Project Phase Determinant / Risk Specific issue Relevance for the port industry Precompletion Postcompletion The whole project life The Brazilian status Activity planning + + Procurement design + + Technology + + Construction budget and timetable + + Supply availability + + Operation efficiency Inland connectivity ; Balanced modal split Market potential Long term growth Economic stability ++ + Political stability Regulatory framework Stable rules; Government commitment; Long-term master plan Fair and open competition; Clearly written rules; Coordination / clear definition of roles Environment + + Business environment Efficient licensing process ; Bureaucracy in general Capital availability Public grants; Funding schemes ++ - Partnership ++ + Source: Weschenfelder, Marja. The Brazilian port infrastructure attractiveness for private investors. Diss. MSc thesis for Erasmus University Rotterdam. Note: the number of interviewees mentioning the issue: (-) if cited by less than 3 interviewees; (- -) from 3 to 4 interviewees; (- - -) from 5 to 6 interviewees; ( ) up to 6 interviewees. For those that stimulate investments in Brazil, it was applied the same criteria but the character was replaced 2 with +. For the determinants that were not mentioned we added (+) because it seem not to repel private investors

PRECOMPLETION RISKS How Porto Itapoá has mitigated these risks

Activity planning Procurement design Precompletion risks

Construction budget and timetable The company has over 70% of

3 PRECOMPLETION RISKS How Porto Itapoá has mitigated these risks Engineering Procurement and Construction + Project Management Activity planning Procurement design Precompletion risks Technology Actual 1st phase of Expansion Plan + Enger Construction budget and timetable The company has over 70% of the global market share in port cranes + LPC Latina Mitigated risk Partialy mitigated risk

4 PORTO ITAPOÁ (04/06/17)

5 (Phase 01) Phase ,000 SQM and +170 M

POSTCOMPLETION RISKS How Porto Itapoá has

potential Postcompletion risks Operation

Brazilian modal split (%) Aquaviário; 13,6

mitigated risk 28/10/2017 7 Ferroviário;

7 POSTCOMPLETION RISKS How Porto Itapoá has mitigated these risks Labour force Succession plan Permanent personnel trainning LINER AS A SHAREHOLDER Market potential Postcompletion risks Operation efficiency Access bottlenecks The Brazilian modal split (%) Aquaviário; 13,6 Outros; 4,6 Mitigated risk Partially mitigated risk 28/10/ Ferroviário; 20,7 Rodoviário; 61,1 Source: PLANO CNT DE TRANSPORTE E LOGÍSTICA 2014 (pg. 32)

8 THROUGHPUT Brazil ( TEUs) Porto Itapoá (thousand TEUs) % -2% % -5% Source: ANTAQ Estatístico Aquaviário 28/10/2017 8

9 THE BRAZILIAN PORT RANKING

10 PORTO ITAPOÁ INLAND ACCESS Porto Itapoá got operational in June 2011, however the port access to the BR-101 was ready one year later.

11 THE WHOLE PROJECT LIFE RISKS How Porto Itapoá has mitigated these risks Political stability Capital availability The whole project life Business environment Partnership Regulatory framework Mitigated risk Partially mitigated risk 28/10/

12 CAPITAL AVAILABILITY Project finance loans became a risk management technique per se. Complementary loan for expansion Project Finance R$ 330M (2009) *Loan paid in 2013 Refinancing R$ 450M (2013) R$ 90M (2016) Offtaker 28/10/

13 PARTNERSHIP

BUSINESS ENVIRONMENT Licensing timeline Licenses Year Kick-off 1993 Land acquisition 1997 Environmental preliminary license 2003 Regulator authorization 2005 Environmental construction license 2008

14 BUSINESS ENVIRONMENT Licensing timeline Licenses Year Kick-off 1993 Land acquisition 1997 Environmental preliminary license 2003 Regulator authorization 2005 Environmental construction license 2008 Construction end 2010 Environmental operation license 2011 Total time elapsed 18 years Source: Weschenfelder, Marja. The Brazilian port infrastructure attractiveness for private investors. Diss. MSc thesis for Erasmus University Rotterdam. 28/10/

15 POLITICAL INSTABILITY AND REGULATORY FRAMEWORK Political cycle Year Law Relevance President Luis Fernando Collor de Melo. First president democratically elected 1990 Law 8.029, 12/04/ Law 8.422, 13/05/1992 Abolishment of Ministry of Transport and Portobras Creation of Ministry of Infrastructure Abolishment of Ministry of Infrastructure Creation of Ministry of Transport and Communication President Itamar Franco. He replaced the previous president after impeachment President Fernando Henrique Cardoso (re-elected in 1999) President Luis Inacio Lula da Silva (re-elected in 2007) 1993 Law 8.630, 25/02/ Law 8.987, 13/02/1995 Port Modernization Law enactment Port Reform Creation of Landlord and Fully Privatized port structures The first public auctions of port concessions and leasing contracts 2001 Law , 05/06/2001 Creation ANTAQ (regulator) 2007 Law , 05/09/2007 Creation of SEP, new ministry exclusive for port matters 2008 Decree /10/2008 Decree that imposed the own-cargo requirement President Dilma Russeff (re-elected in 2015 Impeached in 2016) 2013 Law /06/ December/2013 New port law repeal of own-cargo requirement Public auction announcement TCU interrupt process of public actions. Adjustments on the bid criteria and technical projects were required 2016-actual President Michel Temer 2016 Law /09/2016 Abolishment of SEP (Special Secretary of Ports) 2017 Decree 9.048, 10/05/2017 Enlarged the concession contract term; Repeal the public consultation and 25% clauses for TUPs expansion 28/10/ Source: by author.

16 FINDINGS The sponsors of Porto Itapoá seem to have successfully controlled the: Planning, design, technological and construction risks by hiring a experienced contractor, project manager, law firm and equipment supplier; Market risks by bringing a shipping liner as a shareholder. On the other hand, the sponsors could not overcome the challenges linked to the: Unfriendly business environment; Political instability; Regulatory issues. Which have affected the project s ability to generate cash flows due to the related delays. 28/10/

17 Contact +55 (47) /10/

Wagner Ferreira Cardoso Executive Secretary of Infrastructure National Confederation of Industry

1 Infrastructure Overview and Ports Regulatory Framework 1st CNI DIPLOMATIC BRIEFING Wagner Ferreira Cardoso Executive Secretary of Infrastructure National Confederation of Industry Brasília, June 9, 2014