PREPARED BY:Eric Bell, Keith Boom, Valerie Cupp, Bill Panagis, and Kim Rieck

Aqua America in Brazil

Foreign direct investment project focused on water infrastructure in Brazil

Why Invest in Water?Foreign Direct Investment

Growing global demand and decreasing supply of potable water in emerging markets

•In the last century water usage has grown at more than 2x the rate of the population

•Water use increases with a rise in living standards- implications for emerging markets

•Industrial processes are water-intensive

•Brazil: 14% of Earth’s freshwater supply but Northeast does not have access to adequate supply of potable water

•Brazilian Government investing in water infrastructure to prepare for 2014 World Cup & 2016 Olympics

Source: Food and Agriculture Organization of the United Nations (FAO) and UN-Water

•2.5% of Earth’s water supply is freshwater•70% of freshwater is frozen•39% of global population without adequate sanitation

•CONS: Rising inflationary pressure

Why Invest in Brazil?Foreign Direct Investment

Strong macroeconomic fundamentals

Economic powerhouse: 10th largest economy in the world; GDP ≈ USD$1.55 trillion; vast natural resources; large labor pool Robust Growth: Economy expected to grow faster than those of the G6 in next 50 yearsRegulatory Environment: Floating exchange rate, free capital flow, limited barriers to FDI, open capital markets

Monetary Tightening: COPOM raises SELIC rate 75bps in April to 9.5%, 12.5% by 2011Expansionary Fiscal Policy: Increased Government spending to cause additional pressure to curb inflationDeclining Trade Balance: Current account deterioration likely in 2010; could be offset by rising commodity prices and increase in exportsSource: World bank

•PROS: Strong economic fundamentals

Investment StrategyForeign Direct Investment

Enter into joint venture with Miya Group to form Agua Brazil (AB) - owner and operator of a water treatment facility supplying the city of Mossoró

Should we invest? NOForeign Direct Investment

Despite economic growth, improvements in efficiency and increased profitability, risks outweigh return potential

FDI Climate Risk

Competition Low -Partnership with Caern to access water utility monopoly-High demand-Large customer base

Financials High -Rate of return < risk free rate (opportunity cost)-Exchange rate could negatively affect exit strategy-Cash flow dependent on ability of low per capita income customers to pay

Regulatory Low -Low barriers to entry

Political Low -Current administration pro-social reform

Social/Culture Med. -World Cup/Olympics; promotes social infrastructure projects- Corruption prevalent- Sanitation program inefficient