Odessa Maritime Days 24 May 2013 – Odessa

Transactions: Pre-Crisis Ports: Facts & Trends Transactions: Pre-Crisis May 2013 Odessa Maritime Days

Ports: Facts & Trends Crisis 2008-2009 Global economic crisis impacted the global trade flows Trade flows start to decrease and number of containers go down Sea freight rates have gone down dramatically Companies are in financial distress and are forced to sell stakes in port assets Operators have difficulties closing a financial loan Less appetite for port concessions Even African projects slow down: syndication May 2013 Odessa Maritime Days

Project Bankability a viable project is not yet a bankable one Economic & Financial Balance Financial Viability Bankability IRR NPV Secu-rities DSCR Determined over a period of > 20 years Includes future project phases Determined over a period of < 20 years Depending of project start-up phase May 2013 Odessa Maritime Days

Project Bankability a viable project is not yet a bankable one Debt service Revenue protection (tariff and competition) CAPEX/ OPEX aligned with revenues Value Engineering and port planning aligned with business demands Securities Proper structuring Proper risk engineering Quantification (value) of impact of different structures and risk allocations: create value Safeguarding in the mean time authorities interest to retain discretion over policy New era of contract engineering May 2013 Odessa Maritime Days

Value engineering A viable project may not yet be bankable This project has a project IRR of 19% and a positive NPV. However, the first year of positive Free Cash Flow is in year 6 The pay-back period is 10 years from initial investment. Vale created after the expansion investments in year 15 are not of interest for the lenders! So, how bankable is this project for project financing? May 2013 Odessa Maritime Days

Basic Port Management models Port Models Basic Port Management models Type Nautical Access Infrastructure Superstructure Labour Nautical services Antwerp Public, by Regional Government (100% subsidy) Public, partly PA partly Reg. Government Mostly Private Some public cranes at daily rent fee Private via regulated dock labor pool River towage: open thru 7-yr concession Harbour towage: by PA Bunkering: open Rotterdam Public by National Government (100% subsidy) Port Authority* Private Private incl. subcontract. Towage: open Pilotage: private, closed Felixstowe (HPH) Harwich Haven Authority responsible dredging & maintenance navigation channel Pilotage: Harwich Haven Authority Other: Private, Open Article Uruguay & Buenos Aires May 2013 Odessa Maritime Days

Financial Structure Business Case Model Cash Flows PA/TO Financial Structure Business Case Model Port Authority Operator Surplus profit is transferred back to PA Port dues Concession fees Handling fees Storage fees Commercial loans Soft loans Terminal Operator Assets Port Authority Assets Equity Subsidy Commercial loans Concession fees Opex Opex May 2013 Odessa Maritime Days © Accenture 2001

Financial Structure Business Case Model Cash Flows PA/TO Financial Structure Business Case Model Minimal rate of return TO Surplus profit Minimal rate of return PA X% Revenue Handling fees Y% Concession fees Create market appetite Secure revenues operator Concession contract (bankability) Competitive tendering for concession Maximise value to Port Align concession fees with surplus profit (time and amount) Port dues BC TO BC PA May 2013 Odessa Maritime Days © Accenture 2001

Contract Award Criteria Tender Process Contract Award Criteria Selection and awarding (give substance to objectives of Ministry/PA) Value: throughput guarantees productivity risk absorption Money: upfront fee fixed fee Royalty/ revenue share May 2013 Odessa Maritime Days

Transaction Costs – Classical Approach Tender Process Transaction Costs – Classical Approach € transaction costs private public time 5 Candidates 1 Preferred Candidate preparation pre-qualification proposal negotiation Draft Contract Final Contract High transaction costs at the tail of the tender procedure for both public and private sector Time consuming negotiations as contract/critical topics are brought in the process (too) late May 2013 Odessa Maritime Days

preparation + market consultation Tender Process Transaction Costs – Competitive Dialogue € Potential to deal with sensitive topics public transaction costs transaction costs private time 5-10 Candidates 3-6 Candidates 3-6 Candidates preparation + market consultation pre-qualification contract “dialogue” proposal Draft Contract Proposal Final Contract BAFO Significant transaction costs at the beginning of the tender procedure for both public and private sector No time consuming negotiations as contract/critical topics are brought in the process early and under competition May 2013 Odessa Maritime Days