RDC. Financing Freight Rail Concessions 3 Case Studies from 3 Continents. HENRY POSNER III Chairman.

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1 Financing Freight Rail Concessions 3 Case Studies from 3 Continents HENRY POSNER III Chairman RDC RAILROAD DEVELOPMENT CORPORATION World Bank Transport Forum Washington 10 March 2005

2 AGENDA Background on RDC general businesses investment parameters CASE STUDY: Financing the Nacala Corridor Structural Trends In Africa CASE STUDY: Financing Ferrovias Guatemala Structural Trends in Central America CASE STUDY: Financing Eesti Raudtee Structural Trends in Europe Conclusions 2

3 Background on RDC - General Pittsburgh-based, privately held railway investment and management company Focus: Emerging Corridors in Emerging Markets Financial structure based on Joint Ventures 3

4 Background on RDC Businesses Country Entity Length (Miles) Employees Tons Y (in millions) USA Argentina Argentina Guatemala Peru Malawi Estonia Iowa Interstate ALL Central 3,324 1, ALL Mesopotamica 1, Ferrovias Guatemala Ferrocarril Central Andino Central East African Railways Eesti Raudtee 431 2, Mozambique Nacala Corridor Rail 0.3 4

5 IAIS Gold Harriman Safety Award

6 Background on RDC Investment Parameters Most important factors are: (descending order) 1. Committed government 2. Rational competition among bidders 3. Local partners 4. Investment & management skills 6

7 AGENDA Background on RDC general businesses investment parameters CASE STUDY: Financing the Nacala Corridor Structural Trends In Africa CASE STUDY: Financing Ferrovias Guatemala Structural Trends in Central America CASE STUDY: Financing Eesti Raudtee Structural Trends in Europe Conclusions 7

8 CASE STUDY: Financing the Nacala Corridor Begun st private sector integration of port & rail in the world? Malawi concessioned 1999, but with incomplete financing Cyclone damage in 2003 fixed in 2005 due to incomplete financing Mozambique operational start-up January

9 CASE STUDY: Financing the Nacala Corridor (cont.) Private Equity 25% Private & Quasi-Private (OPIC) Debt 75% Donor Support for Famine Relief No Renegotiation of Terms with Govt. 9

10 Structural Trends In African Privatizations SITARAIL (Cote D Ivoire/Burkina) Rail Investor Sofrerail Ultimate Owner Govt. of France CAMEROON Comazar Govt. of South Africa SIZARAIL (DRC) Comazar Govt. of South Africa ZAMBIA Comazar Govt. of South Africa NACALA CORRIDOR RDC RDC & Partners 10

11 Structural Trends In African Privatizations Public Sector Aid programs in past competed with private sector potential Today s competition primarily between Public Sector investors & Private Sector investors (but Aid programs still represent competition) 11

12 Example: Donated Locomotives

13 AGENDA Background on RDC general businesses investment parameters CASE STUDY: Financing the Nacala Corridor Structural Trends In Africa CASE STUDY: Financing Ferrovias Guatemala Structural Trends in Central America CASE STUDY: Financing Eesti Raudtee Structural Trends in Europe Conclusions 13

14 CASE STUDY: Financing Ferrovias Guatemala % Abandoned 1997 Concessioned for 50 yrs 1998 Hurricane Mitch 1999 Atlantic corridor reopened Pacific & Mexico corridors still abandoned 14

15 CASE STUDY: Financing Ferrovias Guatemala (cont.) Private Equity & Quasi-Equity 100% No Donor Support Ineligible for multi-lateral financing ( Category A Environmental Problem ) 15

16 Local Conditions in Guatemala Squatters, etc. 16

17 Structural Trends In Central America Small, isolated networks marginal unless connected (examples: Guatemala with Mexico, El Salvador) Rail is not a priority, even in Plan Puebla- Panama Social problems overwhelming (squatters, etc.) 17

18 AGENDA Background on RDC general businesses investment parameters CASE STUDY: Financing the Nacala Corridor Structural Trends In Africa CASE STUDY: Financing Ferrovias Guatemala Structural Trends in Central America CASE STUDY: Financing Eesti Raudtee Structural Trends in Europe Conclusions 18

19 CASE STUDY: Financing Eesti Raudtee 1992 Estonian independence but EVR 90% dependent on Russian traffic EVR prepares for reorganization & privatization % of shares sold to BRS 19

20 CASE STUDY: Financing Eesti Raudtee (cont.) Private Equity 67% / Public Equity 33% Debt originally provided by IFC; refinanced in 2004 by Nordea IPO being actively pursued Recent Open Access legislation far more punitive than agreed in 2001 & being contested 20

21 Structural Trends In Europe Dominated by public sector, from France to Russia Exceptions: UK, Estonia Open Access understood & applied in wildly varying ways EU role; elusive, inconsistent, expensive 21

22 A Final Anecdote GUATEMALA ESTONIA TONS ,000 42,000,000 LINES OF BUSINESS Atlantic Containers, Steel, Sugar Pacific? Electricity rights-of-way, etc.? Oil, Fertilizer, Metals PURCHASE PRICE $0, plus 10% of Revenue $60 million for 64% INITIAL FINANCING RDC Local Capital Markets Strategic Investors Int l Capital Markets, IFC 22

23 CONCLUSIONS Multi-laterals helpful in rich countries, ineffective in poor countries Political component (e.g. squatter policies) contribute to economic inefficiency, highway deaths, pollution, etc. Guatemala 2000 Guatemala

24 A LUTA CONTINUA! RDC has done its part, but has finite financial capacity. World Bank should consider how to become Part of the Solution. 24