1. Federative Republic of Brazil 1 ENSURING A POSITIVE LONG TERM ECONOMIC OUTLOOK GUIDO MANTEGA MINISTER OF PLANNING, BUDGET AND MANAGEMENT Geneva January 29, 2004

2. Federative Republic of Brazil 2 It is fundamental to increase investments in infrastructure Electricity Oil Transportation Communications Water resources The conditions for sustainable economic growth have been settled. To consolidate this favorable prospect it is necessary to: Further increase foreign trade and reduce external vulnerability Raise investment levels MULTI-ANNUAL PLAN:

3. Federative Republic of Brazil 3  Investments in infrastructure avoid bottlenecks and provide balanced growth of the economy.  The government would not have enough funding for all necessary investments.  The private sector is an essential partner: The PPPs are mechanisms to foster private sector participation in infrastructure projects.

4. Federative Republic of Brazil 4 Contracting Authority (e.g. Ministry of Transports) Special Purpose Vehicle SPV User Fees (Tolls) Public Payment Final Customers GOVERNMENT PPP Projects Selection The concept of PPP:  Method of procurement in which the private sector participates as entrepreneur and the public sector as a complementary payer of the service. PAYMENT MODEL: Equity Investors Debt Service

5. Federative Republic of Brazil 5 BNDES Project bonds Multilateral Agencies Loan Financing Capital Markets PPP INVESTMENTS BASIC FINANCING STRUCTURE: Service Providers Building Contractor Private Banks Special Purpose Vehicle SPV Equity Investors

6. Federative Republic of Brazil 6  More flexible than existing mechanisms  Concessions Law:  The private sector can build and operate, but is not allowed to receive partial payments from the public sector.  Procurement Law:  The private sector is essentially a supplier for the government. It is not allowed to charge tolls and is limited to five-year contracts.  Public-Private Partnerships (PPP):  Allow different combinations of remuneration of services, for longer periods. Key institutional aspects of PPP in Brazil:

7. Federative Republic of Brazil 7  Contracting procedures must comply with the Fiscal Responsibility Law.  The payment of PPP contracts take precedence over other investments.  Additional guarantees of payment will be created through a specific private-run fund with public assets.  Financing will be facilitated by the BNDES, multilateral financial institutions and capital markets. Key institutional aspects of PPP in Brazil:

8. Federative Republic of Brazil 8  EFFICIENCY GAINS: - Build lower cost infrastructure. - Offer quality public services more rapidly.  INVESTMENT VOLUME GAINS: - Make a wider range of projects viable - Facilitate overcoming bottlenecks and so stimulate other investments.

9. Federative Republic of Brazil 9 Electricity: reduce the risk of a supply deficit and universalize services 1.7 million Universalize electrical power supply in rural areas – in consumer units reached (in 2003 there were 2 million rural homes without electricity) 12,425 km Increase transmission lines (extension of existing lines in 2003 = 79,416 km) 14,085 MW Increase the generation of electricity in hydroelectric, thermal and wind power plants (installed capacity in 2003 = 84,654 MW) Targets by 2007Items

10. Federative Republic of Brazil 10 Oil and Gas: reach self-sufficiency in oil by 2006 and become a net exporter in 2007 2,479 km 34.5 million m 3 /day Expansion of the pipeline network Availability of gas From 1.62 million to 1.85 million barrels/day Expansion of oil refining capacity From 1.6 million to 2.2 million barrels/day Increase in oil production Targets by 2007Items

11. Federative Republic of Brazil 11 Transportation and Logistics: better physical and operational conditions, finish ongoing works projects and start others that help overcome critical bottlenecks 200 million tonsExpansion of port capacity 10,000 kmWaterway development – improving navigability 2,400 kmRailway construction 5,500 kmHighway construction 43,000 km Highway repair/maintenance Annual maintenance Targets by 2007 Items 23,000 km Highway repair/maintenance Rehabilitation

12. Federative Republic of Brazil 12 Water Resources: significantly increase water supply in semi-arid regions ItemsTargets by 2007 Revitalization and integration of basins, with an outflow of 75 m³/s. (population reached) 1.6 million Drinkable water supply for 200 localities in the semi-arid region (population reached) 3.7 million PROÁGUA – infrastructure. Water accumulation and distribution through 2.000 km of water mains – accumulated water in m 3 5 billion m 3 Development of irrigated agriculture. Expansion of irrigated area for regional development (percentage increase in irrigated area) 83%

13. Federative Republic of Brazil 13 Example 1: PORT OF ITAQUI Location: São Marcos Bay, State of Maranhão Characteristics: Located in an area of rapid development of agriculture and heavy industry Fundamental link in export corridor for iron ore, steel and soybeans, which are booming Presence of major Brazilian and international corporations (i.e. CVRD, ALCOA, Baosteel, ACELOR) 1,616 meters of potential dock quay, natural depth ranging from 10.5 to 20.5 meters 70 million tons of cargo handling capacity in 2001

14. Federative Republic of Brazil 14 Development of the Itaqui Port; Extending the quay by 300m; Enlarging the width of Pier 2 (leased to CVRD) by 8 meters for the execution of landfill works (250,000 square meters), aiming at general cargo and container operations with a potential cargo handling capacity of 180,000 ton/year. Estimated Investment: US$ 55 million Agency in charge: EMAP – Empresa Maranhense de Administração Portuária Implementation: 2004-2007 Project Features:

15. Federative Republic of Brazil 15 Example 2: BR-101 Highway, NE Location: Crossing the states of Bahia, Sergipe, Alagoas, Pernambuco, Paraíba e Rio Grande do Norte Characteristics: Connecting infrastructure for the fastest growing tourism region in Brazil Traffic volume ranging from 6,300 to 17,000 vehicles/day Estimated cargo transported by 2011: 107 million metric tons Potential synergy with real estate and tourism industry development

16. Federative Republic of Brazil 16 Project Features: Restoring existing infrastructure; Building 770 Km of new lanes; Development of commercial activities along the highway. Estimated Investment: US$ 675 millions Agency in Charge: Ministry of Transportation Implementation: 2004-2007

17. Federative Republic of Brazil 17 Example 3: NORTH-SOUTH RAILROAD, ESTREITO TO BALSAS SECTION Characteristics: Key infrastructure for the development of the eastern agricultural frontier; Backbone of the Northern export corridor; Linking the soybean production area of Balsa to the Port of Itaqui; Strong improvement of soybean competitiveness in international markets Location: State of Maranhão

18. Federative Republic of Brazil 18 Project Features: Construction of 204km of railroad between the Multimode Platform of Porto Franco and Balsas. Estimated Investment : US$ 230 million Agency in Charge: VALEC Implementation: 2004-2007

19. Federative Republic of Brazil 19 Example 4: JAIBA IRRIGATION PROJECT Characteristics: Favorable geographical position for irrigation development; Irrigated soil in the area offers the highest productivity rates in the world for tropical agriculture (fruits, sugarcane, etc.). Location: State of Minas Gerais.

20. Federative Republic of Brazil 20 Project Features Development of a new agribusiness area of 100,000 hectares; Irrigable area: 63,000 hectares. Estimated Investment: ~ US$ 325 million Agency in charge: Codevasf / Ministry of Integration Implementation: 2004-2007

21. Federative Republic of Brazil 21 Example 5: IRECÊ Characteristics: Irrigation project serving small and medium producers; 87.11 km of main channels and 31.61 km of secondary channels; Irrigated soil in the area offers the highest productivity rates in the world for tropical agriculture. Location State of Bahia

22. Federative Republic of Brazil 22 Project Features: Development of a new agricultural area of 93,000 hectares; Irrigable area: 59,600 hectares. Estimated Investment: US$ 308 million Agency in charge: Codevasf / Ministry of Integration Implementation: 2004-2007

23. Federative Republic of Brazil 23 A broad concept of stability and favorable investment climate: Economic stability Macroeconomic responsible policies Long term development project Political stability Democratic Rule of Law Tolerance among competing political forces Social stability Reducing of inequalities Improving education