José Andrade Costa Executive Secretary for Public-Private Parternship Program

1. FINANCE DEPARTMENT Executive Department of PPP’s Program PUBLIC-PRIVATE PARTNERSHIP PROGRAM OF THE STATE OF BAHIA José Andrade Costa Executive Secretary for Public-Private Parternship Program Bahia Trade Association – ACB April 28, 2005

2. Fiscal Restrictions

3. Public-Private PartnershipsBahia’s Project STATE’S REVENUES ENTAILED (2004) • PERSONNEL  60,0% • HEALTH AND EDUCATION (EXCEPT PERSONNEL)  13,6% • PUBLIC DEBT (EXTRA AND INTERN-LIMITS) 17,7% • OTHERS STATE SECTOR (EXCEPT PERSONNEL)  0,7% • PASEP, C&T AND POVERTY FUND  2,8% • TOTAL  94,8%

4. Evolution of Shared and Non-Shared Federal Revenues (1988 – 2004) Shared Revenues Non-Shared Revenues

5. Real Variation (IPCA) of Federal Collection of Taxes - 2004 / 2003 R$ Billions 200420032004 / 2003 • SHARED TAXES 137,9 132,6 4,00% • INCOME TAX 106,4 102,6 3,65% • IDUSTRIALIZADE TAX 23,6 21,7 8,73% • CIDE (FUEL TAX) 7,9 8,3 (3,92)% • NON SHARED TAXES 172,9 148,8 16,21% • SOCIAL SECURITY 79,2 65,7 20,60% • FINANCIAL MOVEMENT 27,6 25,4 7,45% • NET PROFIT 20,3 18,5 9,66% • SOCIAL PROGRAM 20.1 19,1 4,89% • ( PRICES OF DECEMBER/04 – IPCA)

6. Favorable Institutional Environment for Investment

7. PPP/Bahia – Economic Growth GDP BRAZIL X GDP BAHIA

8. PPP/Bahia – Fiscal Indicators Fiscal Responsibility Law Personnel and Duties Public Debt * RCL = Net Revenue

9. Characteristics of Bahia’s PPP Law

10. Placing PPP’s Subject Lately existing legislative overview GENERAL AGREEMENT LAW (LAW 8.666/93) • Works, services and procurement to Public Authority • Payment as performed (monthly measured) • There is not private financing • Budgeting resources • Services: contractual terms no more than 5 years • The laws did not prevent PPP shaping • And neither did they stimulate it • Services and public works to the Public in general • Compensation due to service provision • Tariff system • Supplementary tariff absent GENERAL CONCESSION LAW (LAW 8.987/95)

11. Placing PPP’s Subject Concepts and Characteristics • Long-term agreement for service provision, entered into by the public sector and the private entity; • Private entity commits itself to provide a certain quantifiable utility: road kilometers, imprisoning positions, hospitals beds,. • Compensation according to performance indicators. • Financing: Private entity’s attribution • Payment: After the enterprise performance and according to its use and results, by means of tariff charges, which can be fully or partially supplemented by the State. • Typical modeling: The private entity designs, builds, manages and maintains it.

12. Traditional Public Agreement Public-Private Partnership (PPP) Agreement Payment based on performance (targets) No payment until the construction is completed Non-planned costs Non-planned Costs Delay Investment estimated costs Estimated Costs 5 10 15 years 5 10 15 years Construction Phase Operating Phase Construction Phase Operating Phase Placing PPP’s Subject Traditional modeling and PPP’s • FINANCING ACQUISITION

13. It is a concession agreement (Law No. 8.987/95), either as sponsored or administrated. Sponsored concession is the public service or work concession when it involves in addition to tariffs charged to users, a monetary consideration for services provided by the public partner to the private partner. Administrated concession is the service provision agreement in which the Public Administration is the direct or indirect user, even when involving completing the work or goods supply and placement. The common concession addressed in the Law No. 8.98795 is not a public-private partnership when no monetary consideration for services provided by the public partner to the private partner is involved. Definition How does the Legislative Bill define PPP agreement?

14. Context PPP’s Context • It was first used in England, in 1992. • Maastricht Treaty in 1991 and European Union • Fiscal Accountability Law - Brazil. • Fiscal constraint macro-economic environment. • Relative depletion of the investing capacity • The State is unable to fulfill the demands. • The construction of new concepts and practices for Public Authority performance is required.

15. Context PPP’s operating areas • Prisons and courts • Hospitals • Military facilities • IT Systems • Public lighting • Schools • Sports facilities • Roads and bridges • Light railways systems • Wastage management • Low-income houses • Universities • Government buildings

16. PPP projects already implemented: ‣ All United Kingdom countries ‣ Spain ‣ France ‣ Portugal ‣ Germany ‣ Greece ‣ Holland ‣ Italy ‣ Australia ‣ Sweden ‣ Norway ‣ Japan ‣ South Africa ‣ Hungary ‣ Mexico ‣ Poland ‣ Chile On going or in study PPP’s: ‣ Brazil ‣ Canada ‣ Singapore ‣ Malaysia ‣ Romania Context PPP, internationally

17. PPP-Bahia Essential Concerns Creation of a benchmark to attract private investments, aiming at strengthening the State infrastructure. To prevent the use of such benchmark to defraud the fiscal strictness and imbalance the State finance. To explore supplementary services to provide the project with better financial sustainability and to reduce the tariff impact.

18. Fiscal Accountability Limits for annual expenditure Expenses must not exceed 5% of the Current Net Income. In the Federal Law, 1% of the CNI ended by prevailing. the State is prevented to enter into new agreements if the established limit is exceeded.

19. PPP-Bahia Concepts, principles and transparency • Minimum amount: The monetary expression of an amount higher than R$ 20 million prevailed. • Total access to data and reports, including for any reviews. • Inclusion in the Quadrimester Report on Fiscal Management and submitted in Public Hearing;

20. Essential Clauses to PPP’s Agreements Essential clauses Sharing with the public administration of economic profits, resulting from the risk reduction of partnership financing, and of ascertained productive gains when performing the agreement; Pledged installment withholding, in the last years of the agreement, to ensure the wholeness of the enterprise, which will be released after the agreement termination.

21. PPP/Bahia - Guarantees Creditor’s Protection Pledged and personal guarantee or insurance; Issuance of performance certificates directly and in favor of the project financing institution; Financing entity allowed to receive payments trough the obligor fund.

22. PPP/Bahia - Guarantees Creditor’s Protection Obligor Fund. Association with State Resources, including the Royalties’ and CIDE’s, other than taxes. The contractor may collect receivables of the contracting party from third parties, other than taxes.

23. PPP/Bahia - Guarantees Obligor Fund • Creation of the Obligor Fund for the PPP of the State of Bahia – FAGE Bahia. • Guarantee with a contribution up to 30% of the annual obligations paid by treasury resources; • Sources: ‣ 20% from the Royalties, while the 30% is not reached and up to 20% after exceeding the ceiling or if equal to it; ‣20% from CIDE (idem Royalties); ‣ other budgeting resources and additional credits; ‣The Fund’s financial applications; ‣ Internal and external credit operations; ‣ donations, allowances, contributions and legacies.

24. PPP/Bahia - Control and Management Management Council - Composition • Management Council of the PPP Program: I - the Finance Secretary (Chairman); II - the Planning Secretary (Deputy Chairman); III - the Administration Secretary; IV - the Government Secretary; V - the State Attorney General; VI - up 2 members, at the Governor free discretion. • State Secretary Head Officers, with direct interest on a certain partnership;

25. PPP/Bahia - Control and Management Executive Department and Regulatory Agencies Executive Secretary for the Management Council, associated with the Finance Secretariat. Regulatory Agency Roles (AGERBA).

26. PPP-Bahia Priority Areas Education, health and social welfare; Public transports (roadways, railways, ports and airports); Sanitation; Safety, defense, justice and imprisonment system; Science, research and technology, including information technology; Agribusiness (irrigated agriculture and agricultural-industrialization); Other public areas of social or economic interest.

27. PPP-Bahia Major Projects to be Performed Ocean Outfall Roadways and Railways Prisons Child Custody Institution

28. A second Ocean • Outfall • Customer’s assistance • - Salvador • - Lauro de Freitas • - Existing Basin • Densifications Implementation of New Outfall and Supplementary Works TITLE BASIN LIMITS SYSTEMS’ LIMITS LIMITS BETWEEN OUTPOURINGS MUNICIPAL DISTRICT LIMITS RISING STATION PREVIOUS CONDITIONING STATION INTERCEPTOR PRESSURE PIPES OCEAN OUTFALL Implemented basins that contribute to the Rio Vermelho Outfall Implemented basins currently contributing (provisional) to the Rio Vermelho Outfall and final contribution to the Jaguaribe Outfall Basins planned to be implemented in the second phase which will contribute to the Jaguaribe Outfall

29. Implementation of New Outfall and Supplementary Works (CONTINUED) • Work Characteristics • Land outfall: • 1,509 m of extension and • 1600 mm of diameter • Previous Conditioning Station (ECP) to a flow of 3.m3/s • Ocean Outfall: • 3,648 m of extension • 5,9 m3/s capacity. • Investment: R$ 260 million TITLE BASIN LIMITS SYSTEMS’ LIMITS LIMITS BETWEEN OUTPOURINGS MUNICIPAL DISTRICT LIMITS RISING STATION PREVIOUS CONDITIONING STATION INTERCEPTOR PRESSURE PIPES OCEAN OUTFALL Implemented basins that contribute to the Rio Vermelho Outfall Implemented basins currently contributing (provisional) to the Rio Vermelho Outfall and final contribution to the Jaguaribe Outfall Basins planned to be implemented in the second phase which will contribute to the Jaguaribe Outfall

30. Enterprise’s Benefits • It will serve a population of approximately 1,900,000 inhabitants. • Implementation of the Jaguaribe system will provide sanitation services to an area of approximately 20,000 hectares. • Improvement of the users’ life quality and reduction of expenditure on the public health sector. • Possibility to fulfill all basin sanitation depletion with significant densification, in Salvador and its metropolitan region, without damages to tourism - major economic activity and attraction of such cities, as well as preventing the spreading diseases transmitted by water.

31. Other Depletion Systems

32. Roadways and Railways

33. PELTBAHIA Paths Towards Development Main Cargo Generating Sites GRAINS FRUIT-GROWING TOURISM INDUSTRIAL INFORMATION TECHNOLOGY PAPER/PULP

34. BA-093 Duplication- 23.3 km and Repair Services of de 81.7 km Entre Rios BR-101 Feira deSantana BA-093 Alagoinhas Araçás Catu BR-324 BR-116 Pojuca Candeias Camaçari Simões Filho SALVADOR Location: Road Junction with BR 324 (RMS) BR 101 road junction (Entre Rios). Extension: 105 km Works: • Duplication: Road Junction of the BR 324 -Dias D'Ávila – 23.3 km; • Repair Services: from Dias D'Ávila - BR 101 Road Junction BR 101 – 81.7 km. Investment: R$ 144 million.

35. BR - 415 Duplication Location: Ilhéus – Itabuna. Extension: 27 km. Works: • Duplication between Ilhéus – Itabuna. Investment: R$ 70 million (estimate).

36. HIGHWAY AISLE IBOTIRAMA - ITABUNA Location: Ibotirama – Bom Jesus da Lapa – Brumado – Vitória de Conquista – Itabuna Extension: 738 km. Works: Recovery and Suitability Estimate Investment: R$ 317 million

37. EAST-WEST RAILWAY Location: Luís Eduardo Magalhães Municipality to road junction with FCA line at Malhada de Pedras near Brumado. Work: New railway segment implementation with 575 km extension. Investment: R$ 1.07 billion

38. Penitentiary System Place Requirements in the Imprisonment System

39. Penitentiary System 1 prison unit in the capital 6 inland units (1) (1) Municipalities:Itaberaba, Vitória da Conquista, Seabra, Irecê, Santo Antônio de Jesus and Eunápolis.

40. www.sefaz.ba.gov.br BANNER