// 1 Brazil, BNDES and Financing Infrastructure Wagner Bittencourt de Oliveira Vice-President

// 2 Part I: The Economy Fundamentals of the Brazilian Economy Investment: current status and perspectives Part II: BNDES Part III: Financing of Infrastructure Projects Infrastructure Division Logistics Investment Program Financing Infrastructure Agenda

// 3 Part I: The Economy Fundamentals of the Brazilian Economy Investment: current status and perspectives Part II: BNDES Part III: Financing of Infrastructure Projects Infrastructure Division Logistics Investment Program Financing Infrastructure Agenda

/ / 4 Brazil has solid fundamentals to sustain economic growth Stable legal and institutional framework; Social inclusion has driven the domestic market; Healthy banking sector unexposed to troubled assets; Robustness of the external sector; Strong long-term planning; Government is ready to foster growth: Fiscal and monetary instruments; Improved regulatory framework; Private sector partnerships.

/ / 5 Gross Fixed Capital Formation (% of GDP) Expanding investment is a government priority Source: IBGE.

/ / 6 Increasing public sector investment Public Sector Investment (% of GDP) Source: IPEA.

/ / 7 Sound macroeconomic framework: Declining Net Public Debt/GDP Consolidated Public Sector Net Debt (% of GDP) Source: Brazilian Central Bank. *position on November 2013

/ / 8 CPI Inflation (IPCA index, % YoY) Sound macroeconomic framework: Inflation is under control Source: Brazilian Central Bank and IBGE.

/ / 9 International Reserves (US$ billion) Sound macroeconomic framework: Strength of the external sector Source: Brazilian Central Bank

/ / 10 Sources: National Agency for Civil Aviation (ANAC), National Agency for Aquatic Transportation (ANTAQ), Brazilian Association of Highway Concessionaires (ABCR) and Brasilian Association of Automative Vehicle Manufactures (ANFAVEA). Increasing demand for infraestructure

/ / 11 Part I: The Economy Fundamentals of the Brazilian Economy Investment: current status and perspectives Part II: BNDES Part III: Financing of Infrastructure Projects Infrastructure Division Logistics Investment Program Financing Infrastructure Agenda

// : very promising investment outlook Source: BNDES

// 13 Total Fixed Investment in Brazil may reach US$ 1.9 trillion in the coming 4 years (*) (*) Note: The BNDES research on the investment outlook for covers 66% of the total industrial investments. and 100% of investments in infrastructure. totalizing about 58% of the investments in the economy (excluding residential construction). Agriculture and Services investments are based on queries to Sectorial entities and/or econometric forecast. Investment Outlook for Brazil ( ) (U$ billion - Constant prices) 13 Source: BNDES

// 14 Provisional estimates for GFCF (% GDP) Logistics Investment Program (PIL) will contribute decisively to raising Brazil’s GFCF Source: BNDES

// 15 Part I: The Economy Fundamentals of the Brazilian Economy Investment: current status and perspectives Part II: BNDES Part III: Financing of Infrastructure Projects Infrastructure Division Logistics Investment Program Financing Infrastructure Agenda

// % Public Stable Funding (FAT) 2,853 employees Instruments  Direct Operations  Indirect Operations  MSME (financing and guarantee)  Exports (Pre and Post shipment)  Project finance  Equity (Shareholding)  Non-reimbursable Resources BNDES: Among the most efficient development banks in the world BNDES KFW Germany CDB China KDB South Korea Assets 367,825657,3471,191,597147,067 Outstanding Loans 254,019526,4011,016,95985,572 Net Profit3,0093,0639, ROA (%) NPL (%) Foundation Employees2,8535,1908,038na 2012 (in US$ million) Source: BNDES Source: Banks' balance sheets. We used the appropriate data to the IFRS (International Financial Reporting Standards). Main source of long term financing in Brazil

// 17 Increasing demand for resources Converted to US dollar on the disbursement dates Average growth of 22% in disbursements during the 2008 – 2012 period Source: BNDES

// 18 Diversified allocation of resources, keeping up with Brazil’s recent transformation Disbursement by Sector (%) Disbursement by Region (%) Source: BNDES

// 19 Support for large-scale firms, main actors in investment in Brazil... Disbursement per Company Size – (%) Source: BNDES

// 20 MSMEs but also financing MSMEs: important for job generation Source: BNDES

// 21 Export financing: Focus on capital goods and engineering services Exports: Pre and Post Shipment by destination Source: BNDES Africa Europe and Asia North America South and Central America In US$ billion Acumulated in 12 months

// 22 sep/13 Estimated market value (US $ b.) 45.4 Nº firms with direct support 203 Nº Investment Funds 44 Equity portfolio: institutional and strategic Portfolio Composition – sep/2013 Equity Portfolio Source: BNDES

// 23 BNDES’ infrastructure loans are firmly on the rise BNDES disbursements in Electricity and Logistics U$ billion Source: BNDES

// 24 Industrial Policy Disbursements (Brasil Maior Plan) US billion Government’s priority: disbursements to industry and innovation Disbursement to Innovation US billion Source: BNDES

// 25 BNDES plays a key role in generating jobs

// 26 BNDES fosters investment that otherwise would not exist Growth in fixed assets of 3,000 industrial firms: supported x non-supported firms in 2010 Source: BNDES, based on SERASA data. Sixteen published BNDES assessments between 2006 and 2013, of which 11 showed positive impacts, while five showed partial positive or less meaningful effects. Topics: employment, productivity, balance sheets, firm exports, effects on local governments and sectors (four of these made by BNDES staff). 23% 21% 10% 0%5%10%15%20%25%30%35% Supported Non Supported Investment without BNDESInduced by BNDES

// 27 BNDES and other development banks in 2012 (Outstanding Loans/GDP and Outstanding Loans/Total Credit) Source: Annual reports of the respective banks, IIF and Central Banks of the respective countries. Produced by BNDES KDB: Korea Development Bank; CDB: China Development Bank; KfW: KfW Bankengruppe (Germany). BNDES: the same relative size, but Brazil´s credit market appears to be limited

// 28 Part I: The Economy Fundamentals of the Brazilian Economy Investment: current status and perspectives Part II: BNDES Part III: Financing of Infrastructure Projects Infrastructure Division Logistics Investment Program Financing Infrastructure Agenda

// 29 Infrastructure Division Portfolio of projects Projects status: disbursing and under analysis

// 30 Infrastructure Division Annual Disbursement Transportation and Logistics Breakdown Eletric Power Industry Breakdown Forecast Infrastructure Division Performance 34% p.a 40% p.a R$ billion

// 31 Infrastructure Division Approvals between 2003 and 1 st semester of 2013 Transportation and Logistics

// 32 Part I: The Economy Fundamentals of the Brazilian Economy Investment: current status and perspectives Part II: BNDES Part III: Financing of Infrastructure Projects Infrastructure Division Logistics Investment Program Financing Infrastructure Agenda

// 33 Logistics Investment Program Highways (1/2) A snapshot of the brazilian road network 31% 69% Federal States 10,680 km 4,774 km Private Roads PIL will increase the current network toll road by near 50% 9 road stretches Totaling 7,000 km Estimated investment US$ 23 bn

// 34 Logistics Investment Program Highways (2/2) Duplication works should take place within five years. The EPL - Logistics and Planning Company (a state-owned company) is responsible for obtaining environmental for duplication and improvement works. Toll charging will be authorized after the completion of 10% of duplication works. Main Regulatory Aspects Road Concession Auctioned (2013) Next Auctions Stretch Tariff discount BiddersKm CAPEX (US$ bn) BR-050 (GO/MG) 42,4% BR-060/153/262 (DF/GO/MG) 52,0%51, BR-163 (MT) 52,0% BR-163 (MS) 52,7% BR-040 (MG/GO/DF) 61,1% Total 4, Stretch CAPEX (US$ bn) BR-262 (ES/MG)0.85 BR-101 (BA) 1.80 BR-153 (GO/TO)/TO BR-116 (MG)2.50 Total 7.55 Ongoing feasibility studies

// 35 Logistics Investment Program Railroads (1/2) Current railroad network 11,000 km railroad concession 12 railroad stretches 35-year term Estimated investment: US$ 45.5 bn Segregation of the system into two separate private parties: 12 Concessionaires (28,314 km) Cargo Volumes 76% iron ore Logistics Investment Program (1)the infrastructure manager and (2)the rolling stock operator (1)the infrastructure manager and (2)the rolling stock operator

// 36 Logistics Investment Program Railroads (2/2) New Regulatory Model: open access The Concessionaire owns the right to exploit the railway. 1 2 Valec (state-owned company) purchases the integrality of the operational capacity of the railway, and pays a tariff to the Concessionaire. 3 Valec sells the railway capacity to rolling stock operators, which can be a cargo owner, independent train/logistics operators, and rail concessionaires.

// 37 Logistics Investment Program Airports (1/2) Infraero (state-owned company) - responsible for the maintenance, operation and investment of 67* airports that accounted for 97% of the Brazil total passenger traffic. Regulatory Model * Before the auction of GRU, BSB, VCP, CNF and Galeão

// 38 Logistics Investment Program Airports (2/2) Concession of the two of the major international airports 1 Investment in Regional Airports - US$ 3.6 billion in 270 regional airports. 2 Strengthen and restructuring of Brazil's regional aviation network. Regional airports will be managed through administrative PPP. Authorization for private airports dedicated exclusively to general aviation. 3

// 39 Logistics Investment Program Ports (1/2) New Port Law (n o 12,815/13) changed the Regulatory Framework Two ways for private exploitation of ports: (i)concessions (for terminals located inside public ports): need to be auctioned and must include: expiration date, renewal clauses, leasing fees and the restriction to hire workers from OGMO (Port Labor Management Body) (ii)authorizations (for terminals located outside of public port zones, i.e. private ports): does not require a public auction, only an authorization. There were two types of authorizations: exclusively for handling owned cargo and both owned and third party.

// 40 Logistics Investment Program Ports (2/2) Investment opportunities: R$ 54 billion Regulatory Agency (ANTAQ) announced that has already received 123 request for authorization, of which: 63 for port terminals - R$23.5bn investment 44 trans-shipment terminals, amounting to R$1.6bn investment 11 small-size terminals and 5 touristic terminals For public port concessions, the auctions will be divided into four blocks totaling R$27bn in investments among 159 bidding processes: Block 1 (R$5,4 bn): 10 terminals in the Ports of Santos (R$ 2,0 bn) and 20 terminals in the Ports of Pará (R$ 3,4 bn). Block 2: 11 terminals in the Port of Paranaguá (R$ 2,8 bn) and 6 terminals in the ports of Bahia. Block 3: Ports of Suape, Itaqui and remaining North and Northeast terminals. Block 4: Ports of Vitoria, Rio de Janeiro, Itaguai, Rio Grande and Sao Francisco do Sul;

// 41 Part I: The Economy Fundamentals of the Brazilian Economy Investment: current status and perspectives Part II: BNDES Part III: Financing of Infrastructure Projects Infrastructure Division Logistics Investment Program Financing Infrastructure Agenda

// 42 Financing Infrastructure Stimulating bonds issuance The size of the loan is calculated taking into account the project’s capacity of repayment. Instalments calculated using the Constant Amortization System Debt Service Coverage Ratio (DSCR) ≥ 1.2 The amortization curve can be based on French Amortization System (Price Table), in case the SPC issues bonds. Collateral sharing. Repayment schedule of bonds customized according to the cash flow generation of the project.

// 43 Financing Infrastructure Guarantees Loan Tenure Pre-Completion Debt service account (3 instalments) Pledge of the SPC’ shares Pledge of receivables and rights (including any indemnity payment) Step in rights Corporate Guarantee Bank Guarantee Equity Support Agreement Package of insurance Post-Completion General Structure Operational and Financial Covenants

// 44 Financing Infrastructure Holdings and SPC’s Holding Government Banks/Funds may co-invest with strategic and financial investors, either directly in the SPC’s or through the holding company’s equity, taking minority equity stake SPC 1 SPC 2 SPC N Bond Equity Bond Equity Brazilian Infrastructure Bonds and infrastructure investment funds – benefits for non-resident investors: (i)zero Income Tax rate (ii)zero IOF (Financial Operation Tax) Brazilian Infrastructure Bonds and infrastructure investment funds – benefits for non-resident investors: (i)zero Income Tax rate (ii)zero IOF (Financial Operation Tax)

// 45 Financing Infrastructure Loan conditions * Limited to DSCR ≥ 1.2 Financial Conditions – Logistics Investment Program *

// 46 Thank you!