Latin Infrastructure Quarterly Issue 1

Companies Latin Infrastructure Quarterly 1

Brazilian Airport
Privatization

PORT OF Guatemala
PPP Law
CALLAO
Multipurpose North
Cleantech
Infrastructure
Terminal A New Investment Frontier?

2 Latin Infrastructure Quarterly Contributors

Contributors Welcome to first issue of Latin
Infrastructure Quarterly (LIQ)!

L
Ana Fernández González atin America is going through an impressive economic expansion. We,
here at LIQ, agree that economic growth can only be sustained over
Roger Miralles time with a strong development of social and economic infrastructure
with the private sector actively involved in the process. Every gov-
Anadi Jauhari ernment in the region agrees as well. Many countries have chosen to
Emerging Energy & Environment take action to foster said development. In those countries, the public and the private
sectors have struck partnerships that have resulted or will result in stronger econo-
Adrian Barrios
mies. This is perhaps why David Roseman, of the Macquarie Group, said that “South
PricewaterhouseCoopers
America is the next logical step”. A few other countries, for different reasons, present
Andrew Bogan less appropriate scenarios for infrastructure development. We intend to provide you
Bogan Associates with valuable insight from both set of countries.
The infrastructure professionals responsible for this process are not looking for
David Bloomgarden news coverage because they already know in advance the developments of the indus-
Multilateral Investment Fund try. We know these professionals are looking to read how their colleagues solved a
client’s contractual, regulatory, financial or bureaucratic problem or how they struc-
Dennis Blumenfeld tured a specific deal and what lessons were learned. Practitioners also appreciate
Multilateral Investment Fund reading about how a certain development will impact the future of the industry, and
what ideas are out there that may help address some of the current obstacles to the
Diego Harman
further development of infrastructure.
Rubio Leguia Normand
Our proposal with LIQ is for you, the infrastructure professional, to use it as a
Fabiana Peixoto de Mello mean through which you can access hard-to-find analysis and actionable information
from your colleagues in the form of articles and interviews, case studies, project pro-
Jorge Figueredo files, and, "logistical" issues to have in mind.
Vouga & Olmedo Abogados With the above purposes in mind we intend LIQ to be an accessible space for you
to share your ideas and experiences with a relevant audience: fund managers, govern-
Luis Pedro Del Valle ment officials, lawyers, bankers, and consultants. Should you be interested in doing
Arias & Muñoz so please do not hesitate to contact us at info@liquarterly. Also, we look forward to
your feedback on things to improve and topics to cover.
Manuel Ugarte
Estudio Delmar Ugarte Abogados We hope you enjoy the magazine.
Miguel Ronceros
Estudio Delmar Ugarte Abogados

Milagros Maraví
Rubio Leguia Normand

Paulo de Meira Lins
International Finance Corporation

Roberto Tapia

Rodolfo Vouga
Vouga & Olmedo Abogados

Contents 3

CONTENTS
Grup TCB..........................................................................................................4
A terminal operator with a worldwide presence

40
Cleantech Infrastructure:................................................................................8

New Investment Frontier?...............................................................................12
Multipurpose North Terminal:
(Muelle Norte) of Callao’s Port

Public Private Partnership in Chilean Hospitals..............................................20
A new market in development

Airport Infrastructure in Brazil.......................................................................24

Mezzanine Finance forLatAm’s Infrastructure..............................................28

12
Spain’s Infrastructure P3 Program...............................................................32

Infrastructure Projects in Peru:....................................................................36
Are Regional Governments Still under the.
Paternalism of the Central Government?

Privitization Models for Latin American Airports &..................................40
Implications for Brazilian Airport Privatization

Infrascope:......................................................................................................44
An interactive learning tool and benchmarking index

28
EU Debt Crisis and Spanish PPPs..................................................................46

The Impact of the Regional & Local Elections in Spain................................48

Itaipú-Villa Hayes Electric Transmission Line..............................................53

Hidrovia on the Paraguay River.....................................................................54

Airports Concession in Paraguay...................................................................55

Peruvian Infrastructure Projects....................................................................57

48
Public Private Partnerships Act in Guatemala...............................................59

LIQ Speaks with Paul de Meira Lins of the IFC...........................................61

4 Latin Infrastructure Quarterly Companies

Grup TCB:
A terminal operator with a worldwide presence

Since its foundation in 1972, Grup TCB has estab- it operates, from the initial stages of the
project to the day-to-day management of
lished itself as the foremost Spanish operator of intermodal traffic.
port terminals, engineering services and consultan- The key to the company strategy lies
cy for container and general cargo terminals. This in its running of the terminals. One of its
guiding principles is to maximize internal
leadership is demonstrated by its specialization in logistics with the objective of satisfying
multiple spheres of operations and cargo manage- and enhancing the needs of its customers
ment, as well as its strategic presence in different and the communities where the terminals
are located. The company offers an ample
ports around the world. spectrum of services, including port infra-
structure design, acquisition and manage-
In recent years Grup TCB has under- ment of equipment, planning of intermodal
gone rapid growth and major expansion connections, and even the implementation
in Europe, the Americas and Asia. With of customized online solutions. And all
activities stretching from the Pacific of this is subject to the strictest criteria
Ocean to the Aegean, Grup TCB has im- in terms of security, quality and respect
mersed itself in an ambitious plan for in- for the environment, and approved by in-
ternational development that is constantly dependent certifying agencies. This glo-
evolving. It bases its growth strategy on bal vision of the shipping cargo business
being a leading operator and shareholder has helped to consolidate the company´s
in every one of the terminals in which preeminent position.


Grup TCB has a global vision of the cargo ship-
ping business, one that meets all of its clients’ needs


At present Grup TCB´s worldwide Buenaventura as the port with the greatest training gantry crane operators. Together
operations include terminals in Barce- potential on Colombia´s Pacific Coast. with the Brazilian company Incatep, it has
lona, the Canary Islands, Valencia, Gijón, The Buenaventura terminal, with an trained 18 operators to handle port facili-
Paranaguá (Brazil), Havana (Cuba), Pro- investment of US$240 million in its first ties in this way. As a result, the terminal
greso (Mexico), Buenaventura (Colom- phase, provides a real alternative for car- can offer its clients productivity on par
bia), and Nemrut Bay (Turkey). It also go transport by allowing clients in the re- with the highest figures posted along the
owns two intermodal service subsidiaries gion to optimize their import/export pro- western coast of South America.
(TCB Railway Transport and TCV Rail- cedures and to harness the considerable This recent inauguration consolidates
way Transport) and four rail terminals synergies available in terms of operating. Grup TCB´s position on the American
(Barcelona, Valencia, Gijón, and Zarago- Buenaventura is a strategic enclave for continent, where it has three other termi-
za). It is developing its business activity international shipping lines: close to the nals: TCP, in Paranaguá (Brazil); TCY, in
in the area of engineering and technical Panama Canal, at the midpoint between Progreso (Mexico); and TCH, in Havana,
consultancy by undertaking terminal-de- North and South America, and the closest Cuba.
velopment projects. port to the Far East. From here, Colombia Located on the eastern coast of Bra-
In tandem with its terminal opera- ships 60% of its total exports, including zil, the port of Paranaguá is a first-class
tions, the group is also developing other 80% of its coffee. logistics port. Its area of influence cov-
activities, including traffic analysis; legal, TCBuen expects to handle 250,000 ers 800,000 km2 and accounts for 60%
technical and economic viability studies; TEU over the course of 2011, its first year of Brazil’s GDP. It also boasts important
development of the port master plan; de- in operation. Moreover, two vessels can international connections, being a port
fining the ideal operating system; and de- simultaneously dock at its quay, which of call for major shipping lines from the
fining investment. It is also undertaking measures 480 metres in length, and it has U.S., Canada, Europe, Africa and the Far
projects in civil engineering, installations a 26 hectare container yard for storage. East. TCP´s short-term plans are focused
and machinery, which include studies in Facilities at TCBuen principally consist on the physical expansion of the terminal.
maritime climate, navigation and ma- of two Post Panamax gantry cranes with The investment required for extending the
noeuvres, among other relevant subjects. a capacity of 65 tons and equipped with 315-meter quay and acquiring new equip-
In the area of re-engineering, it de- the latest technology; there are also seven ment will be around US$90 million. Ob-
signs environmental management and RTG cranes for operating within the con- jectives include surpassing 0.85 million
sewage treatment systems, prepares stud- tainer yard. TEU by 2012, with an expected capacity
ies on lighting and maintenance, analyzes (TCBuen has placed itself at the fore- forecast of 1.5 million TEU for 2013.
dangerous goods, and prepares safety front of the most modern shipping termi- Since 2005, Grup TCB has run the port
plans, while also modifying and modern- nals in Latin America by using simulators of Progreso in the Gulf of Mexico. This
izing facilities for improved operations with the most innovative technology for enclave, located on the Yucatán peninsu-
and making changes in distribution to op-
timize production.

Port terminals in South
America Colombia´s Buenaventura
Last May, Grup TCB inaugurated
TCBuen, a new container terminal in
Terminal is establishing
itself as one of the most
Buenaventura, Colombia. More than 900
guests were invited to the opening cer-
emony of the terminal, presided over by
the President of the Republic of Colom-
bia, Juan Manuel Santos Calderón; the
Minister for Transport, Germán Cardona;
the Minister for the Environment, Beatriz
modern ports in Latin
America -
Uribe; and the Governor of the Valle del
Cauca department, Francisco José Lou-
rido. The Colombian President under-
lined the importance of introducing this
new infrastructure, which would establish


Grup TCB expects to see a 13%
growth in 2011 -

la, serves an area of influence of intense center with enormous potential for the de- continues to participate actively in inter-
economic development, particularly in velopment of international trans-shipment national conferences across the Americas,
terms of its in-bond, logistics and tourism traffic, while it also services its own internal Europe and Asia.
industries. Its area of development covers needs for the general supply of the island. The company is also continuing to opti-
the states of Quintana Roo, Campeche, mize its existing terminals, through various
Chiapas, Tabasco and Yucatán; in total, Global growth expansion and improvement projects, as at
this represents an area of influence with the terminal of Gijón, which recently un-
over 10 million inhabitants, including its veiled a new crane, and the terminals of Bar-
floating population, which makes up 10% In keeping with its strategy, Grup TCB celona and Valencia, where train-transport
of the total population of Mexico. intends to sustain its worldwide growth and has helped produce very high growth rates.
In Cuba, Grup TCB participates in the maintain a geographically balanced busi- So despite the economic situation that
mixed-concession holder company of the ness portfolio. In tandem with the steadily has shaken the world, Grup TCB maintains
Container Terminal of Havana, having as- progressing development of a terminal in an optimistic outlook for the future. The
sumed the management of its entire busi- India (Ennore), with a planned investment company expects to achieve a growth rate
ness. The privileged situation of Cuba in the of US$340 million, and the growth of its of 13% by the end of the year and forecasts
Gulf of Mexico makes the port of Havana a newly inaugurated terminals, the company continued progress at all terminals.

8 Latin Infrastructure Quarterly Infrastructure Financing

Anadi Jauhari is a Senior Managing Director at

A New Investment Frontier? Emerging Energy and Environment LLC (EEE),
a Connecticut-based alternative investment firm
with current presence in Rio, Mexico City, and
Panama. EEE specializes in renewable energy,
cleantech, energy and emerging infrastructure.
Cleantech Infrastructure:

Prior to his current role, Anadi was the Head of
Americas Project Finance Group in New York at
Natixis, a French bank. He co-founded EEE in
2009 with John Paul Moscarella, a co-founder of
the AIM-listed Latam-focused renewable energy
and carbon developer, Econergy International plc,
which was acquired by GdF Suez in 2008.
EEE’s mandate is to invest institu- able business models that produce goods
tional capital in emerging trends and the and services, which increase energy ef-
fast- growing markets globally through ficiency, substitute or reduce fossil fuel
its dedicated investment funds. Over the consumption, and reduce or eliminate
next 10 to 15 years, EEE believes that environmental waste in sustainable ways.
technological innovations and climate These companies have varying risk pro-
change will create unparalleled invest- files depending upon the business model
ment opportunities for a range of invest- and market positioning. On a risk-return
ment strategies – venture, private equity, continuum, on one end, within the broad-
infrastructure and fixed income. As an er cleantech universe, we have early stage
alternative asset manager, EEE believes investing in start-ups, with a high level of
its strength lies in its industry and asset technology and commercialization risks,
expertise, local presence in the target and infrastructure oriented companies, on
markets, and close relationships with lo- the other end of the spectrum. Because of
cal and overseas strategic and financial the diverse nature of risk-return profiles
players. The firm currently manages an of investment opportunities, a wide range
early stage cleantech venture equity fund of investment strategies are feasible –
- A conversation with Anadi Jauhari, CAIA

in Latin America, which is fully commit- venture, private equity, infrastructure and
ted. Its second Latam-focused private fixed income.
equity fund, backed by US- based, Euro- At a macro level, the region is in a
pean and regional multilaterals, will fo- very good economic shape today – ma-
cus on late stage renewable and cleantech jor countries have good balance sheets in
infrastructure. large part due to the structural and eco-
nomic reforms. Over 80% of the region’s
What is cleantech and why is it im- $5.3 tn GDP today, is accounted for by in-
portant for Latin America from macro vestment grade countries – Brazil, Chile,
and sector perspectives? Colombia, Mexico and Peru as compared
to mid- to late 1990’s when the first wave
We define “cleantech” very broadly of privatization and investments began,.
– to include companies with sustain- Although the region was not immune

Infrastructure Financing Latin Infrastructure Quarterly 9

from the financial crisis, it emerged quick- countries with more established energy
ly based on its exports and internal sourc- infrastructure. As US, Canada, Europe,
es of demand with current expectation of and Asia (especially China) begin to di-
future real GDP growth in the 4% to 5% rect investment dollars in the develop-
range. With economic growth comes ris- ment of clean technologies, which, once
ing incomes and improved standards of commercialized, can be transferred and
living. This translates into more demand deployed in the region.
for energy. Per capita electricity con- As the cost of producing energy
sumption in the region is still low by de- from renewable sources has come down
veloped country standards, which means quickly and if our long-term outlook is
that it will grow quickly. This creates a one of scarce natural resources (oil, gas
need to build new infrastructure that pro- etc), then cleantech, as an energy solu-
vides access to secure and cost-effective tion, becomes economically attractive.
sources of energy to keep pace with grow- Also, as evident from recent renew-
ing demand. A reliable energy infrastruc- able energy auctions in Peru, Brazil and
ture is also fundamental to the region’s Uruguay, renewables are competitive
energy security. with traditional forms of energy with-
In our view, cleantech investments can out explicit subsidies, and in fact in the
help diversify energy sources and build Brazil auction for wind energy, these
new energy infrastructure that is both sus- bids were lower than natural gas com-
tainable and cost-effective. The region bined cycle plants. Clean technology What are the opportunities in clean-
is endowed with a vast, untapped renew- solutions – especially distributed gen- tech infrastructure investing in Latin
able resource base which is more attrac- eration – can be implemented quickly America?
tive (in terms of energy potential) than in in smaller communities – as often there
the developed world. For example, small are no scale disadvantages with smaller We see tremendous opportunities in re-
hydro (<30 mw), wind, solar, and biomass renewable generation sources. Such newable energy generation (small hydro,
are in abundance in the region and only a projects can have direct economic ben- wind, solar, biomass, geothermal), cogenera-
very small fraction of the resource base efits – through the localization of sup- tion, waste management, transport efficiency,
has been utilized. ply chains. Such green stimulus is an energy storage, microgrid, efficient lighting
The region has the benefit of deploy- important contributor in creation of systems, and biofuel/biogas infrastructure.
ing the newest technologies developed jobs which makes clean energy politi- We are focused on the infrastructure end of
elsewhere and hence, leapfrog other cally acceptable. the cleantech – our definition of infrastruc-
ture includes assets stable cash flow, with
low technical or operating risks. What we
What we find interesting is that within the clean- find interesting is that within the cleantech
segment, especially on the technology end
tech segment, especially on the technology end of of the spectrum, as technologies mature,
a company with the right combination of
proven technology and business model, can
the spectrum, as technologies mature, a company take on “infrastructure” attributes – i.e., sta-
ble cash flow via contracts combined with
with the right combination of proven technology strong market positioning. The traditional
forms of clean energy infrastructure include
and business model, can take on “infrastructure” contracted energy generation assets which
have stable long-term cash flows and lim-
attributes – i.e., stable cash flow via contracts com- ited operating risk. Longer term, we see a
regionally integrated market develop with

bined with strong market positioning. transmission links that connect different re-
newable resource-rich markets.


What trends we are seeing in clean some form of currency risk mitigation via The fund will take mitigated completion
energy sector more broadly that the re- contracted linkages with inflation (local, or greenfield risk, but generally no early
gion could benefit from? US) and or US$ tariffs. Long-term ener- stage development risks. Our infrastruc-
gy prices will still reflect fossil fuel prices ture focus removes any technology or
Declining all-in costs of renewable which are global commodities – again de- commercialization risks. The focus will
energy generation, in large part to techno- pending upon the market in the region. also be on small- to -medium sized renew-
logical improvements, greater diffusion An important development is the ables and cleantech cos or projects (up to
of promising clean technologies from the emergence of local pension capital for 50 MW to 100 MW individually) which
developed markets, and a strong realiza- private equity as an asset class. Pension at times can be aggregated into larger
tion on part of the regulators to develop a reform in Brazil, Colombia, Peru, Mexico portfolios for improved portfolio efficien-
regulatory and policy-framework are posi- and Chile is likely to open up new sources cies. A large part of economic activity in
tive trends we see in the region which will of capital for private equity style invest- the region is still organized via small and
continue to drive renewable and cleantech ing as local pension funds diversify their medium enterprises (SME) in the region,
investments. Clean energy deployment investment options from their traditional which often lack access to capital and
can be done on a distributed generation reliance on government bonds. While knowhow. The fund’s likely target will
basis, especially in solar, cogen, small hy- it is unclear whether the new source of be a subset of the broader SME universe,
dro, which means smaller scale projects capital will find its way into renewable entrepreneurs with vision and experience
can be implemented quickly. infrastructure, we believe the stable and to develop and implement the region’s
essential nature of some of the clean in- cleantech infrastructure in the region.
What are the challenges and risks
in the implementation of cleantech in-
vestment solutions in Latam?
Pension reform in Brazil, Colombia, Peru, Mex-
The development of clean infrastruc-
ture faces capital and execution or imple- ico and Chile is likely to open up new sources
mentation related bottlenecks, as is the
case in any market – developed or devel- of capital for private equity style investing as
oping. From a capital perspective, access
to early stage capital is still very challeng- local pension funds diversify their investment
ing for project developers, and so is the
availability of long-dated project finance options from their traditional reliance on gov-
capital - ideally to match the underlying
contracts or the economic life of assets - on
cost-effective terms. Local debt markets
ernment bonds.
lack depth and unable to provide long-
term asset funding that is often required
for renewable and cleantech infra. This is frastructure assets, in general, would be a How does EEE create value in its
an area multilaterals have provided inno- good match for such capital. portfolio companies?
vative financing solutions in the past and From an execution or implementation
they will continue to be important players point of view, the development of local EEE’s senior professionals have
in cleantech capital formation. engineering, procurement and construc- extensive experience in the targeted
Foreign institutional investors inter- tion (EPC) base, as well as appropriate sectors – we have a strong local pres-
ested in gaining equity exposure via un- risk-transfer structures which mitigate ence in our key target markets. Our
listed fund structures are often concerned counterparty risks (offtaker, EPC contrac- teams work closely with the portfolio
about currency risks in the region – not tor, operator, etc.). The role of multilat- companies and have a hands-on ap-
surprising given the region’s history with erals and local government is critical in proach in managing the assets and in
high levels of inflation and currency cri- addressing some of these bottlenecks. introducing best-practices in project
ses. The macroeconomic situation is execution, operation and financial
vastly improved now and going forward, What opportunities will EEE’s sec- controls.
our view is that the region will enjoy in- ond fund invest in?
creased macroeconomic stability and reg- Anadi Jauhari can be reached at Ana-
ulatory certainty. We believe, depending EEE’s second fund will invest in re- di.jauhari@emergingenergy.com.
upon the market, energy assets do provide newables and cleantech infrastructure.

12 Latin Infrastructure Quarterly Deals

Multipurpose
North Terminal
(Muelle Norte) of Callao’s Port

The bidding for the 30-year con- being already operated by DP World and In the end, APM Terminals and Hutch-
tract to upgrade and expand the Ter- the North Terminal was being operated by inson tied on the first and second com-
minal Muelle Norte must have been state-owned company Enapu). With the petition factors, while APM Terminals
quite competitive, why was APM finally intention to reduce the fees that the fee op- offered a full 100% discount on Special
awarded with said contract? erator would charge to the minimum level Services, which finally broke parity with
possible and to further enhance competi- Hutchinson, which offered on that same
Indeed it was a very competitive bid, tion in Callao’s Port, the two (2) remaining concept a 85.88% discount.
probably the most important project grant- prequalified bidders (APM Terminals and
ed in concession in the last five (5) years, Hutchinson Port Holdings, MSC did not What is your opinion regarding the
involving Peru´s most valuable port and an present economic proposal) had to deter- risk allocation scheme set forth in the
initial investment commitment for 5 stages mine the following competition factors: contract (please discuss permitting,
of US$ 750 million. Technical operation economic equation i.e. can the conces-
requirements criteria was well above the • Cost per 20-foot full container using sionaire ask the grantor for a tariff
standard, as desired by the Peruvian govern- a dock gantry crane (being US$ 102 review and on what grounds, construc-
ment in the quest for only well recognized the minimum), including a Cost Rate tion and operation risks).
port operators worldwide to participate in per TEU / day per additional storage
the bidding process. As such, important time after the 48 hours established in We find that the Concession Agree-
experience in port operation was to be met, Standard Services for containerized ment has an acceptable risk allocation
either as a direct bidder or through a Con- cargo (US$ 3 being the minimum, scheme, although it could have been bet-
sortium, crediting annual movement equal US$ 7 as maximum). ter structured for the benefit of the Con-
to or larger than 10,000,000 TEU, with port • Discount rate offered regarding cessionaire. For example, the restitution
managing effective control of at least one Standard Service Rates based on of the economic-financial equilibrium of
terminal with an annual movement equal to break bulk cargo, rolling cargo, solid the Concession Agreement can only be
or larger than 1,000,000 TEU. APM Termi- bulk cargo and liquid bulk cargo (up invoked by any of the parties in case of
nals, being the second largest port operator to 25%). changes in the applicable laws and regula-
in the world with 61 ports and terminals in • Discount rate offered regarding cer- tions, which means other risks not related
33 countries, covering all continents, had tain Special Service rates included with the enactment of a new law cannot
the sufficient strength and experience to be in the Concession Agreement (up to be invoked as cause for said restitution
declared a successful prequalified bidder. 100%). (for example, variations of exchange cur-
The Peruvian government felt that • Additional Complementary rency, strikes that may paralyze the port
the competition in Callao’s Port had to be Investment. operation for a considerable period, eco-
strengthened (since South Terminal was nomic obligations not clearly defined to

Deals Latin Infrastructure Quarterly 13
date in the agreement, among others that Peruvian government for the Ex- Terminal through Peruvian state-
may arise). ploitation of the concession. owned company ENAPU, within the
Risk assumption is detailed through- 3. The shares of the Concessionaire. administration of port operations.
out the Concession Agreement according In order to procure the financing of The Peruvian government wanted
to the matter (labor, environmental, op- the project. to avoid with this labor conflicts
erative), and it is common for the Grantor with ENAPU workers, and also to
to assume responsibility, to hold the Con- It is worth noting that the project is prevent public reactions against the
cessionaire harmless and take all the nec- divided in stages, the first five (5) of man- project related to the topic of the pri-
essary actions with regards to, any claim, datory compliance and the possibility for vatization of the country’s main port.
action or act filed by third parties regard- the development of a sixth stage that in- As a result of the above, by Supreme
ing the Grantor’s obligations or damages cludes a new Container Terminal which Decree N° 019-2010-MTC, the Min-
caused, due to events or situations that oc- could increase investments from US$ 750 istry of Transport and Communica-
curred before Takeover. million to 1,2 billion. tions established for the adminis-
tration of port infrastructure to the
How is the upgrade and expan- What were the three main issues private sector to be given through
sion being financed? Briefly described you had to solve when (i) providing ad- the form of a Joint Venture with
the security structure permitted in the vice for this transaction; and (ii) pro- ENAPU. The aforementioned de-
concession agreement (share pledge, viding advice for the takeover of the cree received much criticism, main-
assignment of contract, assignment of operation? ly because opting for a joint venture
rights, pledges, etc.). operation was not in accordance in
Advice on the transaction recent history in private investment
This is a DFBOT Agreement (Design, 1. Structuring of the Project: Given the promotion related to infrastructure
Finance, Build, Operate and Transfer). interest of many foreign investors in projects in the past 20 years, devel-
Hence, the financing of the project corre- taking operation of the North Termi- oped through concession schemes.
sponds exclusively to the Concessionaire, nal due to its strategic position in the Moreover, other attributes of the
being its responsibility to obtain the fund- Pacific Ocean (DP World and APM Ministry of Transports and Commu-
ing for the works and port equipment nec- Terminals had previously presented nications given by the decree were
essary for each stage of the project, prior separately Private Initiatives), the also criticized: (i) leaving at its cri-
to its construction. This must be credited Peruvian government wanted to pro- teria whether the Agency for Promo-
prior to the construction of Stages 1 and mote the project as a public bid main- tion of Private Investment – PROIN-
2. taining a presence in the Callao Port VERSION should direct the project
With the purpose of financing the
design, construction, conservation and
exploitation of the North Terminal, the
Concessionaire may, following previous
APM Terminals, being the second
approval granted by the National Port
Authority, with the Grantor’s favorable
opinion and the Regulator’s technical
largest port operator in the world
opinion, grant guarantees in favor of Per-
mitted Creditors, to guarantee the permit-
ted guaranteed Indebtedness on the fol-
with 61 ports and terminals in 33
lowing matters:

1. The concession right, pursuant to
countries, covering all continents,
article 3 of Law Nº 26885, which
establishes the possibility in en-
cumber a mortgage and execution
had the sufficient strength and ex-
of the concession right in case of
default of the Concession Agree-
ment, including the extrajudicial
perience to be declared a successful
execution.
2. The concession’s income, net of
the compensation granted to the prequalified bidder.


bid, which could ensure a process of operator) to participate in the com- minimum rates were low and other
transparent selection, (ii) to develop petition for the award of the North obligations were demanding in com-
a private public bid, with competi- Terminal, in order to avoid the exist- parison of those for DP World; while
tion of only private bidders of its ence of monopoly within the Callao DP World felt the Peruvian govern-
choice, (iii) including ENAPU in the Port Terminal which would prevent ment was breaching anti-competition
business, a state company that could competition and the benefits related law by giving the North Terminal bid-
provide little in front of his partner. to it, mainly the reduction of tariffs. ders an operating port, including state-
Three days after the issuance of Su- Once the public bid for the North owned ENAPU’s port equipment,
preme Decree N° 019-2010-MTC, Terminal was announced on August while it had to construct its own ter-
the government published Supreme 2010, the process was carried out minal and but its own port equipment.
Decree N° 020-2010-MTC, in which with certain discrepancies of the bid- Since DP World felt it was being dis-
it clarified that prior to the Joint ders who did not consider ENAPU criminated against by being prevented
Venture to be entered, a public bid as a partner who could bring some- from participating in the bid, it filed a
directed by the Ministry of Trans- thing to the business (consider- constitutional claim for the supposed
ports and Communications had to be ing that the state-owned company breach of its non-discrimination right.
performed to determine the capacity would take a 17.01% percentage of The claim was presented alongside
and expertise of the private investor gross revenues before taxes). Even with an injunction which would have
which would enter the Joint Venture. though the concession mechanism allowed them to participate in the
Despite the above clarification, the was finally enforced, this did not public bid for the North Terminal.
controversy over the partnership prevent bidders from signing with This was a key subject for APM
with ENAPU was still a criticism, ENAPU a Joint Venture Agree- Terminals, since DP World could
thus generating voices of disagree- ment as an annex of the Concession have had comparative advantages
ment on private investors interested Agreement in exchange for ENAPU in case it was allowed to present
in the North Terminal, on the viabil- goods and assets that bidders felt proposals (lower rates, privileged
ity and profitability of the project. were not an adequate return for information). This required sev-
Thus, in July 2010, the State enacted the benefits ENAPU would give. eral negotiations and meetings with
Supreme Decree N° 146-2010-EF, Proinversion in which common terms
mentioning that the Joint Venture 2. Injunction to the bidding process: The were reached as to prevent the bid-
had to be bid under a concession government enacted a Supreme De- ding process from being cancelled.
scheme. This meant that the main cree during the process, based on the Finally, the injunction was left without
legal relationship would be given political decision to promote compe- effect as to promote terminal competi-
by a Concession Agreement, sign- tition in the port by not allowing ex- tion in benefit of Users, and the bid-
ing in parallel a Joint Venture Agree- isting port concession holders to par- ding process continued without DP
ment as a contract appendix. It ticipate in this or in other future bids. World being prequalified as bidder.
also established that the public bid Being the port operator of the South To date, there is still the constitutional
would be in charge of Proinversion. Terminal in the same Callao’s Port in claim filed by DP World pending of
Following the purpose described in which the North Terminal is located, resolution in Peruvian constitutional
both Supreme Decrees N° 019-2010- DP World felt it was being discrimi- courts, and a claim filed by such com-
MTC and N° 020-2010-MTC, which nated against by being prevented from pany before the Arbitration body of the
sought to promote competition in the participating in the bid. One of the ar- International Center for Settlement of
management of port infrastructure guments DP World felt strong about Investment Disputes (ICSID), accord-
service, Supreme Decree N° 033- was the fact that they had been grant- ing to the dispute resolution mecha-
2010-MTC was published, with a ed with a green-field project and the nism. APM Terminals will not par-
specific prohibition for private port North Terminal Project in Callao’s Port ticipate in such arbitration procedure.
administrators that had an existing was a brown-field project with cash
contractual relationship with the Pe- flows already being generated and a 3. Closing Date: The Peruvian gov-
ruvian government, to participate in port already managed by state-owned ernment decided to go along with
other public bids designed to deliver ENAPU, to be transferred already in the bidding process despite some
the administration of another port in- operation to the successful bidder. social conflicts generated mainly
frastructure within the same port ter- All in all, APM Terminals and the from ENAPU workers that did not
minal. In other words, what the gov- rest of the Bidders wanted the same agree with the concession, rallied
ernment wanted was to prevent DP economic and technical conditions behind a presidential candidate that
World (the existing South Terminal as those on the South Terminal, since originally claimed that ports as stra-


tegic sectors of the country should in “Appendix 23”, from which the which had doubts in accepting job
remain under the administration of Concessionaire had to make job offers offers from ENAPU. The result of
Peruvian-owned companies (such to at least sixty percent (60%) pursu- all efforts displayed was successful,
candidate, Ollanta Humala, later won ant to the Concession Agreement. In since more than ninety percent (90%)
the presidential elections but since this sense, the agreement mentioned of the employees (around 420 work-
then he has moderated his origi- for the Concessionaire to send job ers)that received job offer letters,
nal speech, now keen in respecting offer letters within fifteen (15) days finally accepted joining APM Termi-
and fomenting private investment). counted since the Port award, hav- nals team.
Once the award of the bid was con- ing the port employee’s ten (10) 2. Labor Contracts: The Concession
cluded on April 1st 2011, APM Ter- days to answer this communication. Agreement established for APM Ter-
minals felt time was a key factor in In this part of the process, we had to minals to sign labor contracts with
protecting future investments, and confront with two problems. First of all, all employees who had accepted
wanted to sign the Concession Agree- the employee´s data sent by ENAPU their job offers, within 60 days be-
ment as soon as possible, even though was not updated. This problem af- fore takeover of the port operation.
takeover of the operation would be fected the notification of the job offer For this, we needed the employee’s
done later. Closing Date was pro- letters sent by the Concessionaire, in remuneration information from
grammed on March 11th, 2011, and reason that the addresses detailed in ENAPU. In this sense, according
important matters where pending the Annex 23 list were not correct. to the offer job letter’s experience,
to be performed as to comply with On the other hand, the port employ- it was necessary to prepare a very
obligation prior to Closing Date. ees had many doubts about the con- cautious labor contract, where two
Among other obligations, we advised ditions that we established in the clauses were of particular interest:
APM Terminals in the following: (i) job offer letters, which had been ex-
constitution and incorporation, along pressed through several letters that • If the worker detected a disparity
with the other members of the Consor- the Unions sent us, although APM between the remuneration estab-
tium, of the Concessionaire company, Terminals was just expressing such lished in the contract and the real
a special purpose vehicle with a capi- letters according to terms and condi- remuneration, the worker would
tal stock of US$ 61,433,839.80; (ii) tions of the Concession Agreement. have to prove with his payment
celebration of shareholders agreement Our law firm wanted to prevent tur- slips the real remuneration.
and deliver copy of the act in which moil from port workers, so we sent • The employer could ob-
shareholders approve the Concession to Callao’s Port two (2) of our labor serve the bargaining agree-
Agreement; (iii) registry of powers of lawyers, specialists in human re- ment benefits executed be-
attorney of legal representatives and sources management, during the 10 tween ENAPU and his unions.
directors; (iv) delivery of perform- days term for workers to answer job The result was once again suc-
ance bond of US$ 30,716,920.00; (v) offer letters, in order to explain them cessful: only 4 employees of all
reimbursement procedure expenses and answer all queries and ques- the operative workers who had
to Proinversion for an amount of tions regarding takeover and new accepted the offer job letters did
US$ 1,255,013.70 (vi) negotiating labor conditions, and in turn such not sign their labor contracts.
on the insurance for port operation, lawyer were receiving in return and
civil responsibility and workers. in representation of APM Terminals 3. Timing for Takeover: Once again,
Coordination with Proinversion was the employee’s acceptance letters. time was of the essence and takeo-
crucial in order to perform all neces- These 10 days were very important ver was finally programmed for
sary obligations for Closing Date. That in the takeover process, because we July 1st, even though the Conces-
included permanent work meetings had our first contact with the port sion Agreement had set forth six-
as to avoid observations in the docu- employees. In this sense, APM ty (60) days from Closing Date.
mentation to be delivered at Closing Terminals acquired their trust, re- ENAPU and APM Terminals had
Date, as well as a pre Closing-Date assuring them the commitment of to make all necessary coordina-
the Concessionaire in not affecting tion’s for the transfer of the op-
Advice on the takeover of the any right they might have had pre- eration without affecting port ac-
operation viously by working with ENAPU. tivities during the transfer process,
A joint conference summoned by and also had to comply with some
1. Hiring of Operative Workers: Proin- ENAPU and APM Terminals was legal obligations that would allow
version provided APM Terminals a very helpful and important for con- APM Terminals to operate normal-
list of ENAPU operative employees vincing the remaining employees ly. Some of the most important ac-

tions taken by the Concessionaire Signing Date, the anchoring ground for the term for negotiation or direct dealing
and needed for takeover included: traditional fishing vessels near Berths C shall not be less than six (6) months. Such
and D should have been reorganized, so term shall be counted from the date in
• Communication and ap- that the use of the area by such vessels which the party invoking the clause noti-
proval of Tariffs for Stand- does not affect the operational capacity fies the request to initiate direct dealings
ard and Special Services. of the North Terminal nor the Works ex- to the Ministry of Economy and Finance
Communication and approval of ecution. As of Takeover date, ENAPU is in its capacity as the Coordinator of the
Users Claim Regulations. executing a plan to remove from the areas State Coordination and Response System
• Hiring of operative and white- such fishing vessels. in International Investment Disputes,
collar personnel necessary to In case the parties, within the direct
commence port operations, and What is the dispute resolution dealing term, did not settle the dispute or
registering of labor contracts in mechanism set forth in the Concession uncertainty arose, they shall define it as a
the Ministry of Labor. Agreement? technical or non-technical dispute or un-
• Lease agreements with foreign certainty, as the case may be.
personnel and migratory status The Concession Agreement has set Technical Disputes: Equity arbitra-
before the Ministry of Labor. forth an arbitration procedure for any dis- tion, in which the arbitrators shall settle
• Negotiation and entering of pute settlement or controversy that arises the dispute to the best of their knowledge
agreements with all providers between parties. However, there is a spe- and belief. The dispute shall be settled
and suppliers of goods and serv- cific procedure that must be followed be- through national arbitration, and regu-
ices in the port. fore an arbitration even occurs: lations of the Arbitration Center of the
• Negotiations with existing port Direct dealing, by petition of one of Lima Chamber of Commerce, regarding
providers and suppliers that the parties to the other, stating the conflict anything not provided for in this Conces-
wished to continue relations or any uncertainty that has juridical rel- sion Agreement, shall apply
with APM Terminals. evance and may arise regarding the inter- Non-Technical Disputes: Arbitration
• Coordination and negotiations pretation, execution, compliance and any at law, procedure by which the arbitrator
with ENAPU and the Grantor aspect related to the existence, validity or shall settle in accordance with the applica-
regarding takeover. effectiveness of the Concession Agree- ble Peruvian laws. The arbitration at law
ment or its termination. may be national or international, depend-
What are the main contractual obliga- The term for direct dealing for nation- ing on the amount of the controversy. In
tions regarding the port operation of al arbitration shall be fifteen (15) Days that sense, when non-technical disputes
the grantor (e.g. dredging, coastal de- counted since the day in which one of the involve an amount that exceeds US$ 10
fenses, navigational buoys)? parties informs the other in writing about 000,000.00 or its equivalent in domestic
the existence of a dispute. currency, disputes will be settled by in-
There are no key obligations of the Regarding international arbitration, ternational arbitration at law, through a
Grantor regarding port operation, since
responsibility for the entire operation has
been transferred in concession to APM
Terminals, including all goods of ENAPU
related to the North Terminal and areas in
which it operated. In that sense, the Con-
cessionaire has the right to the exclusive
execution and/or provision of any and
all services that may be rendered within
the North Terminal as from the Takeover.
This must be done observing principles
established in our National Port Law, in-
cluding free competition, neutrality and
non-discrimination principles, so that it
shall not be able to behave in a way that
aims at affecting the competition of port
services in Callao’s Port Terminal.
There was one specific obligation by
the Grantor in which it guaranteed that on


procedure followed in compliance with tled through arbitration at law by means tionally and irrevocably waived any dip-
the Conciliation and Arbitration Rules of of a procedure conforming with the con- lomatic claim for controversies or con-
the International Center for Settlement of ciliation and arbitration Regulations of flicts that may arise from the Concession
Investment Disputes. On the other hand, the Center of the Chamber of Commerce Agreement.
for non-technical disputes in which the of Lima.
involved amount is equal or less than Finally, it is worth mentioning that
US$ 10 000,000,00 or its equivalent in the Concessionaire and its partners or
domestic currency, disputes shall be set- shareholders have expressly, uncondi-

Miguel Ronceros
mronceros@delmar-ugarte.com
www.delmar-ugarte.com

Partner with Delmar Ugarte Abogados in Peru, holds an LL.M. de-
gree from The London School of Economics, a JD from Pontificia Uni-
versidad Catolica del Peru and specialized studies in infrastructure
at The John F. Kennedy, School of Government (Harvard University).

He focuses mainly on representing parties in the development and financ-
ing of infrastructure projects in different sectors, including airports, ports, toll
roads, oil and gas, telecommunications, electricity, among others. He is a Di-
rector of the Finance Law Program at Universidad del Pacifico and a Project
Finance professor at Universidad del Pacifico, Universidad ESAN and UPC.

His relevant experience include representing the IADB, IFC, US-Exim Bank, K-
Exim and SACE in a US$2.2 billion financing for an LNG project in Peru(“Deal
of the Year” awards by Latin Finance, Project Finance International and
Latin Lawyer); representing Odebrecht in a US$600 million financing for a toll-road (“Deal of the Year Award” by
CG/LA Infrastructure - Most Innovative Infrastructure Financing Structure in Latin America); leading the external
advisory of the Peruvian Government in the structuring of a US$650 million containers terminal’s concession in
the Callao Port (“Entrepreneurial Creativity” award) and advising the Peruvian Government in the drafting of the
Public-Private Partnerships laws.

Mr. Ronceros has been name one of the leading attorneys in Peru in Financing and Projects by Chambers and
Partners and by Which Lawyer and in Public Procurement by Who’s Who. He was also recognized by Latin Lawyer
as one of the top twenty lawyers in Peru under the age of forty.

P

ublic
rivate
artnership in Chilean Hospitals

A new market in development

I
n Chile, the application of the Public Private Partnership (PPP) model was initiated in
1996, with the approval of the General Law on Public Works Concessions. Since then,
there have been numerous public works developed under the PPP model in such dis-
tinct areas as airports, roads, ports, stadiums and prisons. These works exceed US$12
billion in investments and have changed the connectivity and productive capacity of
the country. Chile is a recognized leader in LatAm in being conducive to business, invest-
ment, and PPPs. Even more importantly, its consumers have developed a high standard of
services in areas handled traditionally, and often inadequately, by the State.
Beginning in 2000, several PPP initiatives were developed for Chilean hospitals, but most
of them failed to reach completion for technical or political reasons; only Maipú and La
Florida Hospitals, both of them located in Santiago de Chile, are now under construction.
These projects are intended as general hospitals, each with nearly 400 beds, and with a total
budget of over US$300 million. The PPP aspect of these projects extends to most of the non-
clinical support services and leaves out the medical equipment and clinical operations. The
projects were initiated in 2006, tendered, and awarded in 2009 to the Spanish company San
José–Tecnocontrol. The process has been a real test for applying the PPP model to Chile´s
public health sector, and so far it has been successful in terms of the design process, bidding
and construction.


The devastating earthquake of Febru- tion of the hospitals in its PPP portfolio, and probably the best option for the Gov-
ary 27, 2010, highlighted the vulnerabili- yet no major advances in the field have ernment is to respond to these demands
ty of the country´s hospital infrastructure, been observed since the change in govern- by the way of PPPs, as they will incorpo-
which suffered major losses in its opera- ment a year and a half ago. The market`s rate quality standards of services and help
tional healthcare capacity in more than 70 expectations and the Chilean population´s focus the work of managers and clinicians
hospitals, with 25 of them rendered out complex healthcare needs are increasing, directly on the healthcare of users.
of service or seriously damaged. As a
whole, the healthcare network lost more
than 4,700 beds. This situation demon- Dr. Roberto Tapia Hidalgo
strated the high obsolescence and vulner- rtapia2005@gmail.com
ability of Chile´s hospitals. http://concesionesensaludparachile.blogspot.com/
To date, the official portfolio of PPP
hospital projects exceeds US$1.5 billion.
Only one of these projects, the Antofa- The author has worked during
gasta Hospital, is in the prequalification the last 20 years in the area
stage, with over 700 beds and more than of project management and
US$300 million of investment; it should public health in Chile and with
call for bids in September 2011. The various international agencies,
rest of the projects include large, high- developing his professional
complexity hospitals located in Santiago, work in such areas as primary
such as the Salvador-Geriatrico and Sot- health care, international co-
ero del Rio Hospitals, each with more operation, and hospitals PPPs.
than 700 beds, and the Felix Bulnes Hos- He has worked in both the
pital, with 400 beds. Other, smaller hos- public and private sector and
pitals are located in the areas stricken by has done extensive consulting
the earthquake, such as the Parral, Curico for the development of PPPs.
and Cauquenes Hospitals. All of these In the public sector he was
projects require architectural design as a in charge of the successful
prerequisite for being tendered. Addition- PPP development and tender
ally, in recent months the government process of the Maipú and La
has announced that new hospitals will be Florida Hospitals in Chile
built via PPP. These projects include more
than 4 new hospitals in the early stages His approach to the PPP ap-
of study, and together they should exceed plication to health care sector is based on the ethical imperative for
US$700 million of investment. incorporating new ways of investing in LatAm development, aiming
In all cases, given the local regulatory simultaneously for high technical and economic standards.
requirements and bidding methods estab-
lished by law for the country´s public-
sector tenders, these projects will require
highly competent local professional teams
to analyze the information provided by
the Chilean State and make the bidding
process competitive. The Chilean PPP
tender process establishes an iteration of
consultation and construction for the tech-
nical and economic contents of the tender,
and the efficiency of each company in this
process is a key for the development of a
real understanding of each project.

The current Chilean Government faces
a huge challenge in realizing the construc-

24 Latin Infrastructure Quarterly

Airport
Infrastructure
in
Brazil
Fabiana Peixoto de Mello


Brazil’s deficient airport infrastructure was not a major issue until the coun-
try was awarded the 2014 World Cup and the 2016 Olympic Games, yet for
years it had impaired the blossoming of high-value-added industries. His-
torically Brazil has been able to manufacture high-added-value products at
low costs, but the costs of shipping those products to Europe, Asia or North
America – which purchase 70% of Brazil´s exports and are only reachable by
sea or air -- inhibit its competiveness. Many factors account for these costs,
but the country´s airport infrastructure should take much of the blame.

I
nfraero, a company wholly owned by the Government of why. In Brazil, however, direct subsidization programs are like-
Brazil, manages 67 Brazilian airports, only 11 of which ly to cause a very tough political discussion and to reinforce the
are currently profitable. It uses cross-subsidy mecha- existing antagonism between regions, mainly the Northwest and
nisms to support the network. The aviation agency Southwest. The country’s historically uneven wealth distribu-
(ANAC) issued new regulation that will change cross tion and huge dimensions have ignited these feelings in the past,
subsidy calculation (Res 180/11). Instead of setting different and it is not politically wise to stoke them.
tiers of tariffs by passenger movement, as Infraero used to do, Brazilian investment capacity is exhausted and infrastruc-
negative operational results will be set off with disproportionate ture investments can only be borne by tax increases. Taxation
distribution of the network´s commercial revenues. is already very high and increasing it will reduce the country’s
Airports with higher operational results will have higher tar- competitiveness. Moreover, Brazilian regulations are unfriendly
iff increases. The challenge is that most airports have negative to private investment in airport infrastructure.
operational results because they do not move enough passengers The Governors of the States of Rio de Janeiro and Minas
to break even. Experts estimate that an airport needs to move Gerais are facing a lot of pressure to meet the deadlines for the
about 1.5 million per year to break even, but 66% of Brazil- Olympics and World Cup and are pushing for the total transfer
ian airports move fewer than 1 million passengers per year, and of management of Rio de Janeiro/Tom Jobim and Confins air-
24% move fewer than 450,000 passengers. ports to the private sector.
The new regulation will increase the rigidity of the network President Dilma Roussef has raised the possibility of trans-
and make it even more complicated to receive private invest- ferring the management of some airports to special purpose ve-
ment into individual airports. The airports will only be viable as hicles in which Infraero would have minority participation, and
parts of a whole. Hence, the privatization of airport infrastruc- then selling the Government’s majority equity in Infraero.
ture currently under discussion will maintain 49% Infraero’s Official documents confirming these statements will not
network ownership. be unavailable until December 2011. But the recently created
There are alternatives for making the network more flexible, Civil Aviation Secretary has just created two additional agen-
including direct subsidies to unprofitable routes, as the Essen- cies named CONAERO and CAA and has taken measures to
tial Air Services (EAS) program in the U.S. and Public Service improve Infraero’s governance.
Obligations (PSOs) in Europe do. CONAERO is a committee made up of representatives of the
These programs bring transparency and make it very clear Agriculture Ministry, Defense Ministry, Revenue Ministry, De-
what portion of the deficit is being borne by the taxpayer and velopment Ministry, Health Ministry, and the aviation agency.


CAA is an airport operating authority that will oversee the
direction and operations of most important Brazilian airports
which are expected to be privatized soon: Guarulhos (SP), Con-
gonhas (SP), Galeão (RJ), Santos Dumont (RJ), Brasília (DF),
and Confins (MG).
The specific functions and responsibilities of each agency
are very unclear, particularly because Infraero itself will be the
CAA and hence oversee direction of the companies in which it
has minority interest.
The Civil Aviation Secretary measures to improve Infraero’s
governance suggest that the Government may open the compa-
ny’s capital in the future.
The current privatization model developed by the Brazilian
Aviation Agency and used for the construction, operation, and
exploitation of a new airport in the city of São Gonçalo do Ama-
rante, in the State of Rio Grande do Norte, called ASGA.
The existing airport in the city of Natal is also located in
Rio Grande do Norte and is only 11 kilometers away from
ASGA. According to a study conducted by the IPEA (Instituto
de Pesquisa Econômica Aplicada, or Institute of Research in Ap-
plied Economics), the capacity of the existing airport in Natal is
about to be exhausted considering the projections of passenger
demand. But according to ANAC’s information, dated February
2011, the existing airport is not profitable, as the chart below to the Government of Argentina. The joint venture has already
demonstrates. stated that will proceed with aggressive bids in other Brazilian
A joint venture of Corporación America and Engevix won airports’ privatizations and that it will seek Brazil’s Exim Bank
the bid for ASGA offering a 228.82% markup. The 8% return es- (BNDES) financing. Nonetheless, the result of the bid bought
timated by the joint venture is deemed impossibly high by other some time to the regulatory agencies in a sector that is facing a
competitors and some analysts. Corporacion America is known severe leadership and organizational crisis.
for having defaulted its concession fees of Ezeiza Airport due Investors interested in the São Paulo airports’ bids are de-
manding non-compete guarantees, such as the prohibition of
construction of another airport to serve the congested metro-

There are rumors that
politan area of São Paulo. There are rumors that the Federal
Government does not want to bid for a brand new airport in
São Paulo because the State Government belongs to the oppo-

the Federal Government sition. Numerous studies prove that São Paulo needs another
airport, regardless of any improvements made to the existing
ones. Investors’ requests may well suit Federal Government’s

does not want to bid for a intentions, but they would be very detrimental to the city and
the State.
President Roussef’s special-purpose-vehicle model obliges

brand new airport in São the private investor to complete the necessary construction for
increasing a given airport’s capacity. The problem is that Infrae-
ro itself has not been able to complete the necessary construction

Paulo because the State for years, even though it had been given the resources to do so,
mainly because of environmental and regulatory restrictions.
The risk of not obtaining environmental and regulatory au-

Government belongs to thorizations has jeopardized many energy projects in Brazil.
Bidders have won the rights to develop projects only to face
immense difficulties in getting the necessary licenses and hence
the opposition to honor their delivery obligations.
According to the abovementioned study by the IPEA in 2010,
the average processing time for an environmental license to start

With depreciation and interest (R$) Without depreciation and interest (R$)
Activity Revenue (R$)
Cost Result Cost Result

Cargo handling fees 705.962 1.865.972 -1.160.010 1.347.463 -641.501

Non regulated fees (mainly
8.749.305 3.051.655 5.697.650 2.064.163 6.685.143
commercial fees)

Domestic boarding fees 10.223.027 17.383.742 -7.160.715 11.442.416 -1.219.389

International boarding fees 1.443.684 1.243.722 199.962 815.731 627.954

Domestic Landing fees 987.505 13.451.201 -12.463.696 8.841.410 -7.853.905

International Landing Fees 953.941 1.656.211 -702.270 1.081.407 -127.466

Total 23.063.424 38.652.503 -15.589.079 25.592.590 -2.529.166

building a project was 50 months. authorization only lasts for five years and can be revoked at any
Recently the energy sector has developed a Pre-Tender Li- time. Nevertheless, their number has grown substantially and
cense (Licença Prévia para Leilão) for projects, granted before the network is getting denser quickly in and around the cities of
the tender. The winning bidder still has to pursue other envi- São Paulo and Rio de Janeiro.
ronmental licenses after being granted the authorization for the Brazil does not lack the demand or resources for, nor the
project. There have been no discussions over implementing a overall interest in, improving its airport infrastructure. It lacks
similar license for airports. coordinated action oriented toward the long-term development
Even though obtaining an environmental license involves of the country. No measure taken now will adequately prepare
a lengthy process, analysis of the difficulties Infraero faces to Brazil for the World Cup or Olympics Games. Brazil needs
carry out its investments has been focused on its challenges strong leadership that understands the development challenges
with project management. In July, the Civil Aviation Secretary facing us and communicates them clearly to the population.
has announced measures of improvement in this regard that in-
clude the creation of a new business directorship to be filled by
August.
As the clock ticks and the debate over the best methods con-

Brazil does not lack
tinues, some players have decided to take action.
In an effort to avoid a total fiasco and build the very mini-
mum capacity for the events, keeping away from major regula-
tory and environmental issues, Infraero has decided to build op-
erational modules (Módulos Operacionais Provisórios) for the
existing terminals, sarcastically nicknamed “puxadinhos” (an- the demand or re-
nexes) by the population. According to Infraero, these modules

sources for, nor the
are cheaper, less comfortable, but temporary. These modules
augment the check-in, boarding, and deboarding areas, but do
not increase the number of aprons and lanes. They will merely
increase the area where passengers will have to wait too long for
the same number of flights.
President Roussef has passed a law that loosens up procure- overall interest in,
ment rules for all airports within a 350km radius of the World

improving its airport
Cup host cities. Numerous entities and legal authorities have
criticized this law for facilitating corruption and abusive prac-
tices in the Government’s procurement and for reducing the
transparency of public actions and expenses.
Investors, on the other hand, are exploring less regulated op-
portunities, such as private airports. The challenge is that private
infrastructure.
airports cannot be explored for commercial purposes, as their


Mezzanine Finance
for LatAm’s Infrastructure
Mezzanine finance is an innovative and complex
way to finance corporate expansion projects, ac-
quisitions, recapitalizations, and leveraged buy-
outs, as well as to structure refinancings. A mez-
zanine financing can be structured in a number
of ways, a versatility that facilitates its capacity
to evolve with market conditions and adapt to
meet particular financial needs of companies and
projects. As Eduardo Farhat, a Principal at Dar-
by Overseas Investments (Darby), the private eq-
uity arm of Franklin Templeton Investments spe-
cializing in emerging markets and an experienced
player in mezzanine finance worldwide, says, “A
well structured mezzanine transaction aligns all
interests around the success of the project and
provides all sides with a better deal, as it miti-
gates risks from the investor side while avoiding
Patricio Abal unnecessary dilution from the sponsors.”

Infranstructure Financing Latin Infrastructure Quarterly 29

T
hough many private sec-
tor companies worldwide
have utilized mezzanine
finance to develop public
infrastructure projects, the
LatAm region has had limited experience
– with a few important exceptions. Darby
launched the Darby Latin America Mez-
zanine Fund back in 1999 and the Brasil
Mezanino Infra-estrutura – FIP (BMI) in
2007, and is apparently in the process of
closing its Darby Latin America Mezza-
nine Fund II after a number of years of
fundraising. EMP Latin America has be-
gun investing its Central American Mez-
zanine Infrastructure Fund (CAMIF), as
well, a development which infrastructure
professionals are watching closely.
This article will provide an overview
of mezzanine finance and the most com-
mon issues surrounding it. It will then
address the characteristics and activity of
the funds named above.
Characteristics of mezzanine finance
Mezzanine financing can be struc-
tured in a number of ways to provide a
tailor-made solution based on the trans-
action and the capital structure of the
company receiving the financing. In fact,
mezzanine finance is a collective term for
hybrid forms of finance, as it has features
of both debt and equity.
It is important that companies consid-
ering mezzanine finance understand that
the return of the mezzanine providers,
targeted at 20% in most cases, will be the
aggregate of any or all of the following:
the interest cash payment; the so-called
“payable in kind” interest, which basically
means that the interest amount is added to


the principal outstanding; the return from rity packages will need the consent of “Equity kicker”: Can be in the form
the equity stake; and whatever participa- senior lenders (see “Intercreditor issues,” of warrants and/or profit sharing arrange-
tion the provider gets over the results of below); ments tied to the company’s performance
the company’s performance. Exit structure/s: The most common (measured using net profits, EBITDA, or
Issues to be considered by companies ways for mezzanine finance providers to operational metrics);
applying for mezzanine finance exit an investment are through a recapi- Holding or operating company: Pro-
With the previous section in mind, it talization of the company (using gener- viding the mezzanine finance to the
should not be a surprise that negotiations ated cash or senior debt contracted on former means additional risk for the pro-
over mezzanine finance can involve many more convenient pricing) or through an vider (because the holding company has
issues, extend over time, and demand acquisition of the company by a strategic no operational cash flows, so that a legal
plenty of documentation. That is why investor; structure to secure the dividends from the
companies considering this type of fi- Covenant protection: While the debt operating company has to be put in place);
nance are advised to seek proper legal and component of a mezzanine transaction hence costs increase for the recipient. The
financial advice, both before applying for shares a similar set of covenants to bank plus side is that the debt will not affect
the finance (to anticipate the expectations loans, ratios are not as stringent; the operating company’s ratios involving
and requests of mezzanine providers) and, Intercreditor issues: Senior creditors interest coverage or leverage;
subsequently, during the negotiations of and providers of mezzanine finance will Transparency requirements: Com-
term sheets and legal documentation (to have to negotiate an intercreditor agree- panies are expected to report certain fi-
be able to more efficiently tackle the is- ment to address, among others issues: nancial and operational information in a
sues that are listed below). the collateral to guarantee the mezzanine timely and complete fashion to allow ap-
Due to the equity and debt elements loan, the remedies to be exercised upon a propriate monitoring.
that characterize this type of long-term default on their respective loans, and the Lastly but certainly not least in impor-
risk capital, investors and companies have conditions under which the mezzanine tance, there are the beneficial effects for
to understand and negotiate a number of provider can accept a payment (differ- a company of a partnership with a mez-
complex issues: ent from the interest payment) from the zanine provider. As when partnering with
Security: Mezzanine is subordinated company; a private equity firm, the company’s im-
to senior loans, therefore security can Interest rates: Can be fixed or age improves, increasing the chances of
consist of second liens on assets. Secu- variable; partnering with sponsors and accessing
relevant deal flow.
Our region’s experience with infra-
focused mezzanine funds
“investing in Brazilian infrastructure In 1999, Darby launched its pioneer
Latin America Mezzanine Fund. By
2005, it had made 12 investments for a
is a complex activity that requires a total of US$200 million. Today it is fully
divested. The fund had a strong focus on
number of pieces to be put in the right infrastructure and showed great diversifi-
cation across countries and infrastructure
place simultaneously: senior financ- sub-sectors (toll roads, ports, pipelines,
energy, telecom, etc).

ing, all required licenses, and a certain The last few years have seen an in-
crease in the launching of infra-focused
mezzanine funds.
amount of equity from a sponsor with a In 2007, Darby led the way, yet again,
with the launching of the BMI. As the
remarkable track record and indisputa- name suggests, this is a mezzanine fund
focused on just one country, Brazil, and

ble reputation, among other elements.” a specific sector, infrastructure. Further-
more, the currency of investment is the
real (R$387.5 million), and the external
capital was raised from Brazilian institu-
tional investors (we use the word “exter-

Latin Infrastructure Quarterly Issue 1

Latin Infrastructure Quarterly Issue 1

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