The Amazon North and AmazonThe Amazon North and Amazon Central Highway Concessions in

PeruPeru

1

USAID/Peru PPP Program 2003-2007

• Objective: To increase the supply of basic infrastructure services to facilitate enterprise development, p p ,improve productivity and competitiveness, and spur economic growth in key regions of PeruPeru

• Focused on major transport infrastructure

• Assisted GOP Conduct the Entire T ti Lif C lTransaction Life Cycle

Results: $8 million in USAID-financed technical assistance helped leverage more than $700 million in private investment

2

Amazon North: 960 Km.

Transport PPP Transactions

Amazon North: 960 Km. Investments: $220 mil.

O&M: $15 mil./yearAwarded in: April 2005

FBT: 480 Km.Investments: $162 mill.

Amazon Central: 854 Km.Investments: $115 mil.

O&M: $15 mil./yearSouth ContainerTerminal

Port of Callao$364-$617mil.

Awarded: June 2006

3

Why Transport Infrastructure?

Reduced transport costs provides the basis for a competitive business environment

Before the concessionYurimaguas-Tarapoto (125 km)

Transport of cargo

After the ConcessionYurimaguas-Tarapoto (125 km)

Transport of cargop gTime: 12 hoursCost: S/. 160/T (US$50/T)Cost: T/km.= S/. 1.28

p gTime: 4 hours (-70%)Cost: S/. 90/T (US$28/Ton)Cost: T/km= S/. 0.72 (-44%)

Transport of passengersTime: 6 hours

( )

Transport of passengersTime: 3 hours (-50%)

4

e 6 ou sCost: S/. 25/passenger

e 3 ou s ( 50%)Cost: S/. 13/passenger (-48%)

The Amazon North Highway Concession

5

U.P. Chulucanas

U.P. PaitaADT: 1,073

NEW

Amazon North Highway Concession: Works and Tolls

PaitaPiura

ChulucanasADT: 900

NEW

U.P. NievaADT: 1,468

U.P. TabalososADT: 540U.P. Pucará

ADT: 679

Corral Quemado

Rioja

Yurimaguas

El Progreso

US$59.9MUS$17.31M

NEWADT: 679

Dv. OlmosBagua

US$25.3MUS$93.1M

U.P. Bagua

U.P. OlmosIMD: 475Km 236

TarapotoUS$23.20MConcessionaire:Road Improvement (asphalt) RehabilitationRoad expansion Tolls: U.P. Claras

BaguaADT: 1,028

6

pMaintenanceRehabilitation of “critical points”Government of Peru:Rehabilitation by MTC

Tolls:ProjectedExisting

ADT: 269NEW

Obligations of the Concessionaire• Design, build, and/or rehabilitate AN highway infrastructure following

contract specifications• Implement program to bring up to standard existing infrastructure• Operate and Maintain the road following minimum service standard

levels establish in the concession contract – Provide Routine, Periodic, and Emergency maintenance services

• Provide minimum road services for the duration of the contract– Toll collection, weight control, emergency road service (ambulance,

vehicle towing), communications system, etc. • Finance Capital Expenditures:

Estimated Investment Program (in $ millions)Phase I Yurimaguas-Tarapoto Months 1 - 24 $93.10

7

Phase II Tarapoto – Paita Months 25 – 48 $125.73

Total $218.83

Obligatory services provided by the Concessionaire

8

Service levels regulation

• Service levels: parameters establishing the minimum

t bl diti

Road infrastructure• Road’s surface

acceptable conditions associated to the road’s infrastructure

• Shoulders• Drainage structures• Concession Area• Security infrastructure (signs,

protecting barriers, etc)• Bridges and Tunnels• Response time g

• Penalties for non-compliance

9

compliance

Example: Service levels for the roadService leves:

Associated to the Road’s lane

Parameter Measuremnt Service Level

Lane’s width Maximum percentage reduction in width 0%

Reductions in the pavement’s structural layers

Maximim percentage reduction per layer 10%

Holes (Huecos) Maximum percentage of area with holes 0%

Cracks (Fisuras) Maximum percentage of area with cracks of high severity 0,5%

Maximumb percentage of area with cracks of medium severity 15%

Patches (Parches) Maximum percentage of area with patches in bad condition (medium and high severity condition)

0%(medium and high severity condition)

Rutting (Ahuellamiento) Maximim percentage of area with rutting > 12 mm 0%

Sincking (Hundimiento) Maximum percentage of area sincking more than 25 mm 0%

Presence of Debris Maximum percentage of area presenting debris 0%

Presence of obstacles Maximum amount of obstacles 0%Presence of obstacles Maximum amount of obstacles 0%

Rugosity upon completion of the works Rugosity (concreto asfáltico). 2.5 IRI with a 20% tolerance

Rugosity (TSB c/sellado). 3.5 IRI with a 15% tolerance

R it d i th ti d R it ( t fálti ) 3 5 IRI ith 15%

10

Rugosity during the operation and maintenance period

Rugosity (concreto asfáltico). 3.5 IRI with a 15% tolerance

Rugosity (TSB c/sellado). 4,0 IRI with a 10% tolerance

Example: Service levels – response timeService leves:

Associated to the Road’s lane

Parameter Maximum response time for correction (days)

Reductions in lane’s width 21

Reductions in the pavement’s structural 21players

Holes (Huecos) 4

Cracks (Fisuras) 7

Patches (Parches) 4

Rutting (Ahuellamiento) 30Rutting (Ahuellamiento) 30

Sincking (Hundimiento) 7

Exudación 21

Presence of Debris 1

Presence of obstacles 1

Rugosity upon completion of the works 30

Rugosity during the operation and maintenance period

30

11

Service level standards … at work

• Sealing cracks • Replacing missing signs• Removing debris from the

road• Repairing guardrailsp g g

12

ÍTEM PENALTIES / DÍA KM

Lane 0,003 % del PAMO,

Berma 0,003 % del PAMO

Drainage structures 0,003 % del PAMO

Security infrastructure 0,003 % del PAMO

Faja pública 0,003 % del PAMO

Bridges and Tunnels 0,006 % del PAMO

13

The Transaction – Concessionaire Revenues

E t bli h d i l GOP t ib ti US$ MilliEstablished maximum annual GOP contributions US$ Millions

Annual Payment for Construction (PAO) for 15 years US$ 29.5y ( ) yonce construction is completed

$

Annual Payment for Operation and Maintenance (PAMO) for 25 years

US$ 15.3for 25 years

Selection criteria used: the lowest present value of the sum of the PAO and PAMO paymentsp y

Toll Revenues Tariff: US$1.50 / 100 Km. (8 tolls)IPCCPI ⎞⎛⎞⎛

14

[ ( ) ] [ ( ) ]000

%5050,1$%5050,1$ TCIPCIPC

USTCCPICPI

USPeaje ii

ii ×⎟⎟

⎠

⎞⎜⎜⎝

⎛×∗+×⎟⎟

⎠

⎞⎜⎜⎝

⎛×∗=

Financial Structure: Timing Government Payments

0 172Phase I

50 % PAO 30 semi annual

Ph II

30 semi-annual payments

42 1950 % PAO 30 semi-annual

payments

Phase II

250100 % PAMO – quarterly payments

15

The Amazon North Transaction Structure

Ministry of Ministry ofR l t Ministry of

Transport25 year Concession

yEconomy &

FinanceAnnual O&M Payments PAMO

RegulatoryAgency Regulation and

SupervisionCRPAO

ConcessionaireS i l PAmazon North

Concession ContractTolls

($15 mill)

15 annual payments PAO

($29 mill.) Special Purpose Company (SPC)

Amazon North Road Concession

TrustRoad Partial

PAMO / PAO

($60 ill )

Inter-AmericanDevelopment

Bond Issue

Improvements, Rehabilitation

($220 m), and O&M ($15m/year)

Partial Credit

Guarantee

Capital

($60 mill.)

Bridge LoanUS$60 million

16

pBankMarkets Coupon

Payments (i + p)CAF

Main Elements of AN Concession Contract

• Object, nature, duration of the contract• Conditions Precedent: Constitution of SPC; equity contribution,

performance guarantees, financial model, etc.p g , ,• Conditions for demonstrating financial closure (Phases I and II)• Define concession area; timeframe to provide right of way/right of

access• Description of the project; timeframe to conclude engineering designsDescription of the project; timeframe to conclude engineering designs,

and rehabilitation and construction works• Design/construction risk management: treatment of “critical” areas with

geological problems• Maintenance obligations: Routine Periodic and Emergency – Annex 1Maintenance obligations: Routine, Periodic, and Emergency Annex 1

Service Standards• Obligations related to the operation and services to be provided by the

concession (e.g. toll collection, emergency road services, weigh stations, communications, etc.)

17

stations, communications, etc.)

Main Elements of AN Concession Contract

• Commercial aspects of the PPP agreement: toll revenues, additional compensation for O&M (PAMO), compensation for Construction (PAO); adjustments to these payments

• Regulation of the economic/financial equilibrium– Conditions for contractual adjustments and to reestablish the

economic/financial equilibrium: changes in laws and regulations; variations > 5% investment and O&M costsMechanisms for contractual adjustments– Mechanisms for contractual adjustments

• Guarantees and Insurance: – In favor of lenders: Concession rights, concession revenues, shares of SPC

with step-in rights • Environmental management obligations• Environmental management obligations • Other commercial aspects of the arrangements, such as financial

provisions, notice periods, and termination arrangements• Dispute resolution and enforcement: Creating rules about penalties,

mediation and termination procedures

18

mediation, and termination procedures

Mitigation of Engineering and Maintenance Risks

• Concessionaire assumes design risk, except in “critical areas” with known geological problems (less than 0.5% of concession extension)

• Periodic Maintenance risk is assumed by GOP:– Concessionaire establishes a Periodic Maintenance AccountConcessionaire establishes a Periodic Maintenance Account

(CMAP) in a financial institution– The account is funded with $3.6 million of each PAMO– When Periodic Maintenance costs are established, the ,

money is withdrawn from CMAP– If funds are insufficient, GOP/MTC covers the difference up

to amount established in concession contract

19

Potential Risks for Long-Term Financing

CONSTRUCTION PAO ( λ1 ) PAO ( λ1 ) PAO ( λ1 ) PAO ( λ 1).........NO PAO PAYMENTS

15 years 8 yearsPHASE I

(2 years)

PROJECT

FINANCE/

5 ye s

CONSTRUCTION PAO ( λ2) PAO ( λ2) PAO ( λ2) PAO ( λ2) NO PAO PAYMENTS

GOP PAYMENT RISK

Construction

RISK

CONSTRUCTION PAO ( λ2) PAO ( λ2) PAO ( λ2).........

PAO ( λ2) NO PAO PAYMENTS

PROJECT

FINANCE/

15 years 6 years

TRAMO II

(2 years)

Construction

RISK

GOP PAYMENT RISK

Mitigation of Government Payment Risk: MDB Partial Risk Guarantee – Rolling

Government of PeruMTC/MEF

Inter-American Development Bank (IDB)•Guarantee agreement

•Reimbursement contract

Guarantee Rolling

TRUST

Up to 4 PAO semiannualpayments

(US$60 millions)

•Loan agreement

ConcessionContract

Partial Risk Guarantee

TRUST

Concessionaire Capital/Financial MarketSPC issues Bonds

21The PRG improved local Shadow Credit Rating from A (pe) to AAA (pe) The PRG improved local Shadow Credit Rating from A (pe) to AAA (pe)

Facilitating Project Finance and Construction risk

• In lieu of strong toll revenues, the GOP compensates the concessionaire for construction progress with annual payments PAO prorated to the advance of worksp

• The GOP issues Construction Progress Certificates (CRPAOs) through the Ministry of Transport (MTC)

• Each certificate evidences an unconditional and irrevocable obligation of the GOP to make a fixed payment in U S dollarsobligation of the GOP to make a fixed payment in U.S. dollars

• The concession agreement provides that CRPAOs are freely transferable and that once generated they are not subject to any condition or performance obligation relating the concession

tagreement• The concessionaire raised $214 million through the

securitization of CRPAOs in the international capital markets

22

Amazon North Financing

IDB PR Guarantee

23Source: FITCH Ratings

Facilitating Project Finance and Mitigating Construction risk

• Bond holders do not take construction risk• If construction fails to advance on schedule or is

abandoned completely for whatever reason, CRPAOs would never be available for purchase, and the securitization would never be fully collateralized yby CRPAOs

• This possibility does not create additional risk for note-holders because in lieu of CRPAOs asnote-holders, because in lieu of CRPAOs as collateral, the notes will be backed by the CLN and a letter of credit, which together are expected to be sufficient to cover outstanding obligations at all times

24

sufficient to cover outstanding obligations at all times

Contract Signed June 2005

Bond Issue: August 2006Bond Issue: August 2006

25

26

Tarapoto -Yurimaguas

27

Lessons Learned/Factors for Success

• USAID Support: Provided specialized TA through the entire project life-cycle (Alpha to Omega) p j y ( p g )

• Strong Partnership with Government Counterparts– Improved inter-government coordination

• Strong Political Support• Vigorous, open, and transparent competition

28

The Amazon Central Highway Concession

• A 30-year concession to improve, construct, operate and maintain 847 K f ti l hi h b t thKm. of national highway between the cities of Lima, on the Pacific Coast, and Pucallpa in the eastern department of Ucayali.

29

• $115 million in initial investments plus $15 million/year for O&M

Amazon Central Transaction Structure

MTC MEFOSITRAN MTC

30 year Concession

Tolls

MEF

Minimum

OSITRAN Regulation and Supervision

ConcessionaireSpecial Purpose C (SPC)

Amazon CentralRoad Concession

ContractTolls MinimumRevenue

Guarantee)

Company (SPC)

Bond Issue

TrustRoad Improvements,

Rehabilitation ($115m) O&

Partial CreditGuarantee

MultilateralDevelopment

Bank

Issueand O&M

DomesticCapital Markets

Coupon P t (i )

30

Markets Payments (i + p)

Results of Financial Transaction

Concession Name IIRSA North

Concession Term 25 yearsConcession Term 25 years

Bond Issue Amount US$ 214 millionMaturity 2024

Coupon (YTM) 8.75%p ( )

Currency USD

Transaction rule 144A – NYSE

Financial tools CRPAOs – Certificates Recognizing Annual Payment for works – issued by the Government of Peru t e Go e e t o e u

Underwriter and Credit Link Note Provider Morgan Stanley

Partial guarantee Provider Inter-American Development bank

Financial adviser ofFinancial adviser of sponsor Astris Finance

Concession Structure Adviser to the Government USAID/Chemonics International Inc.

Legal adviser of sponsor Clifford Chance (international) and Roselló (local)

31

Transaction Close August 11, 2006