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The Amazon North and AmazonThe Amazon North and Amazon Central Highway Concessions in
PeruPeru
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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
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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
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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%)
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e 6 ou sCost: S/. 25/passenger
e 3 ou s ( 50%)Cost: S/. 13/passenger (-48%)
The Amazon North Highway Concession
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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
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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
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Phase II Tarapoto – Paita Months 25 – 48 $125.73
Total $218.83
Obligatory services provided by the Concessionaire
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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
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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%
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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
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Service level standards … at work
• Sealing cracks • Replacing missing signs• Removing debris from the
road• Repairing guardrailsp g g
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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
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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$1.50 / 100 Km. (8 tolls)IPCCPI ⎞⎛⎞⎛
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[ ( ) ] [ ( ) ]000
%5050,1$%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
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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
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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.)
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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
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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
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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
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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
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sufficient to cover outstanding obligations at all times
Contract Signed June 2005
Bond Issue: August 2006Bond Issue: August 2006
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Tarapoto -Yurimaguas
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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
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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.
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• $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 ($115m) O&
Partial CreditGuarantee
MultilateralDevelopment
Bank
Issueand O&M
DomesticCapital Markets
Coupon P t (i )
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Markets Payments (i + p)
Results of Financial Transaction
Concession Name IIRSA North
Concession Term 25 yearsConcession Term 25 years
Bond Issue Amount US$ 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)
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Transaction Close August 11, 2006