www.pwc.com.br

Infrastructurein Brazil

Adding value and managing complexity from medium to large scale green field or brown field capital assets, programs or portfolios

1Infrastructure in Brazil

The Infrastructure context in Brazil

A decades-old pattern of infrastructure under-investment, which has also been combined with an astonishing rise of millions into the Brazilian middle class.

This has created more demand for basic infrastructure electricity, air travel, road use, freight and passenger travel, the whole gamut of activity associated with rapidly expanding purchasing power and discretionary income.

Indeed, every week a new announcement is made to enable further expansion of the infrastructure sector. Much of this, of course, is targeting the up-coming 2014 World Cup and 2016 Olympic games. And while there are many reasons for Brazil to celebrate these tournaments nearly a quarter of a million jobs will be generated along with more than USD 116 billion in direct and indirect economic benefit from the World Cup alone the realities for Brazil, the great promise and the big challenges, transcend these two near-term events. The countrys great hope may rest upon a vision of Brazils extended game the long-term bet that hinges upon harnessing the countrys astonishing assets.

2 PwC

Unprecedented development opportunity

The current infrastructure development boom has arguably no precedents in Brazilian history.

BNDES (National Bank for Social and Economic Development) estimates that infrastructure investments may reach 2.5% or 3% of the gross domestic product (GDP) by 2014.

Between 2003 and 2011, approximately 40 million individuals joined the Brazilian middle class, increasing this group from 65.9 to 105.5 million.

Brazil has over 1,200 ongoing infrastructure projects which will involve investments of USD 348.5 billions. Around 60% are in the initial phase.

Stable returns

Infrastructure can offer stable returns, combining:

A premium to pure government investments.

Stable cash-yields in the case of mature assets.

Significant IRRs in the case of Greenfield projects.

Attractive growth market drivers

Growth and urbanization of population.

Economic growth, increasing personal wealth and demand for higher quality infrastructure.

Low correlation with developed markets.

Historical underinvestment in infrastructure.

Improving investment environment.

Privatizations and public-private initiatives.

Brazil actual projects status

USD 1.00 = R$ 2,00/* Values from September/2012

3% Stagnant

7% In bidding

30% In design/engineering

60% Initiate

How much was invested How much to invest

Source: Annual Exame Infrastructure

348.5 billions in 1,200 projects

27% 73%

BrazilBudget (USD)

3Infrastructure in Brazil

Drivers for infrastructure

Improvement of Brazilian infrastructure is crucial to maintaining the countrys stable growth.

Investments in infrastructure are essential for creation of jobs and business opportunities, increasing competitiveness and social living improvements.

Brazil will carry out a major renovation of its infrastructure, including ports and logistics, airports and transport, railroads, highways, energy and sports arenas.

Brazil will host both the 2014 World Cup and the 2016 Olympic games.

Governments Growth Acceleration Investment Program (PAC2) estimates investments in the 12 host cities around: USD 3.3 billion for stadiums; USD 6.8 billion for urban mobility; USD 0.4 billion for passenger terminals and ports; and USD 1.2 billion for building and renovating the hotel sector.

Five-year plans for infrastructure

Brazil has been making news for the size and scope of its infrastructure ambitions ever since they were jump-started in 2007 by the governments Growth Acceleration Investment Program (PAC 1) followed by a 2nd program that began in 2010 (PAC2) that has led to more than twelve thousand private and public infrastructure projects. Ten projects related to oil, gas, and biofuels account for about half of PAC2s almost trillion dollars planned infrastructure investments by 2016 and beyond, according to Business Monitor International.

Source: Brazilian Federal Government - BNDES, Brazilian Finance Ministry, Petrobras, Dow Jones Newswires, Valor Economico Infrastructure Sector Magazine, May 2012 edition, Forward Investing

4 PwC

Sector major trends

Highlights

The PPPs law has increased transparency and reduced regulatory uncertainties, but unfortunately it has yet to produce tangible results.

Infrastructure offers better returns than the short-term interest rate as inflation risk is covered.

BNDES*, a crucial financier of infrastructure, is deemed to be lending at unsustainable high levels to support PAC projects.

*BNDES: National Bank for Social and Economic Development

Growing concern over the governments spending, which has caused the economy to overheat, means that spending cuts are necessary. Cuts totaling USD 25 billion have already been announced, with infrastructure relatively unaffected; however, it is likely that further reductions be needed.

High costs and shortages of skilled labor are hitting returns on investments.

Environmental approvals for major projects may suffer delays.

Brazil will carry out a major renovation of its infrastructure, focused on 9 core sectors for investments.

Infrastructure in Brazil PwC 5

9 core sectors of infrastructure investment in Brazil

Ports concessions

The government has opened Brazils public ports up to private sector concessions.

1

Railway concessions

Massive investments in railway infrastructure (including High Speed Train - TAV).

Pre-salt

Investments in pre-salt area should turn Brazil into a major crude exporter.

has been budgeted to prepare Rio to host the Olympics, with much of this expected to go towards infrastructure.

USD 14.4billion

Rio 2016

FIFA World Cup 2014Provides significant opportunity for investments in transport, stadiums and hotels.

Supported crucial investment with

USD 160billion

allocated between 2007 and 2010. The USD 480 billion PAC2, runs from 2011 to 2014.

PAC

2nd round airport concessions

Massive investment into the countrys airports, including construction of new airport terminals.

Federal Highways Concessions

Government program covers

12,000 km of roads.

Energy

More facilities are planned, but are often delayed by disputes over environmental licenses, some of which have halted projects for over a decade.

2

34

5 6

78

9

6 PwC

How PwC can help

PwCs Brazil Infrastructure main services

PPP & Infraestructure Government RelationshipProgram and Project

ManagementDebt & Equity Advisory

Development of feasibility studies and preliminary studies to enable PPPs

Preparation of risks and responsabilities matrix

Formatting the terms of the concession including performance indicators for proposal documentation and formatting of the final contract

Government & Governance

Identifying Governments Opportunities

International development

Innovation on Public Management

Construction audit

Construction management

Integrated management of enterprise operation

Project structuring

Risk Analysis

Proposals technical analysis

Maturity Analysis

Sourcing Strategy

Budget and Schedule Control

Mergers & Acquisitions advisory (buy & sell)

Advice on fund raising

Project finance

Private equity advisory

Public company advisory

Privatization advice

7Infrastructure in Brazil

PwCs Brazil Infrastructure differentiation

1

2

3

4

5

6

Our multicompetent and experienced teams guarantee project success and experienced teams guarantee project success

Supporting offices in 17 major Brazilian cities

Methodological approach

Our large portfolio of clients in different market segments

Independence and transparency

PwC can deliver complete solutions to clients

Participation of PwC experienced professionals in generating revenue growth, market entry, mergers & acquisitions

Participation (ad hoc) os PwC specialists in market research, strategic plan development, site location, feasibility studies

We count on the support of strategically located offices and professionals throughout Brazil that know each city with local experience in diverse types of projects

Our adapted methodologies have aided in triggering profit growth and the success of our clients in projects of similar complexity

PwC can leverage its insights from different strategy and operations assignments acquired throughout our vast work experience in the Brazilian and global market

Guarantying the projects success by combining professionals of diverse backgrounds with the experience of our partners involved

PwC has a wide range of service offerings which allow us to deal with any kind of problem, from strategic design to the implementation

8 PwC

Business

Business view

Present business solutions for the most complex problems

Technical

Multidisciplinary and engineering competency

Offer our multidisciplinary service porfolio on an integrated basis to the client

Independence

Transparency

Provide an impartial and distinctive vision of the project performance

Carlos Biedermanncarlos.biedermann@br.pwc.com [55](51) 3378 1703

Andr Marinhoandre.marinho@br.pwc.com [55](11) 3674 2616

Marcio Lutterbachmarcio.lutterbach@br.pwc.com [55](11) 3674 3826

Contacts

For further information, please contact:

2013 PricewaterhouseCoopers Brasil Ltda. All rights reserved. In this document, PwC refers to PricewaterhouseCoopers Brasil Ltda., which is a member firm of PricewaterhouseCoopers, each member firm of which is a separate legal entity. PwC refers to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firms professional judgment or bind another member firm or PwCIL in any way.

Follow us Twitter@PwCBrasil

facebook.com/PwCBrasil