Public Sector Enterprises and the State Ownership Function in Panama September 2011

1. Public Sector Enterprises and the State Ownership Function in PanamaSeptember 2011

2. Economic Performance 2002-09 Share of GDP (% total) Source: Instituto Nacional de Estadistica Source: INDESA Panama achieved Investment Grade status from the three major rating agencies between March and June of 2010. Since that time, Panama has continued on a path of growth and development.

3. Economic Performance Better economic performance contributes growth of trade activity and decreasing in the unemployment rate, since it stimulates new jobs. Source: Instituto Nacional de Estadistica y Censo

4. Economic Performance Foreign direct investment (FDI) remains one of Panama´s main driver for growth. FDI inflows reached US$1.7 billion in 2009, or 7.2%

5. Background • The program to privatize State-owned was launched to increase enterprise • efficiency and production capacity. • A framework law was adopted to regulate the process and a Privatization Office • (PROPRIVAT) under the Ministry of Economy and Finance. • During this period, only small enterprises such COBANA, COBAPA, Citricos de • Chiriquí and Cemento Bayano. 1991-1994 • In June, the sale of 49% of the share of the National Telecommunications Institute • (INTEL) to UK company Cable & Wireless concluded. • The Hydraulic Resources and Electrification Institute (IRHE) was divided into 4 • generating, 3 distribution and one transmission company. State, through • COMVA, sold 49%-51% of stake from generating and distribution companies. The • GOP retained control of the transmission company (ETESA). • Privatization also encompassed the port sector, the ports of Balboa and Cristobal • were transferred to Panama Ports Company under a concession, where Stake • keeps 10% of state. 1997-1999 2003 • Tocumen International Airport was converted into an autonomous company, but the • shares continued to belong to the GOP. 2006 • GOP established an electricity-generating company as a public enterprises.

6. Background NOWADAYS Established in September 2009. New projects and actions are taken in order to improve the governance in the PPP, as the Code of Conduct and supporting of DICRE assists the Directors (GOP) with information and replace them, when they are not available, to assist to BOD through a proxy.

7. Public Sector Enterprises Government of Panama (GOP) is shareholder in several companies and sector industries. Government of Panama OWNER 100% of stake Sector: Infrastructure, utilities, toll roads and others CO – OWNER 50% or less stake Sector: Utilities, pipeline, telecom and ports TOTALLY OWNED PUBLIC PRIVATE PARTNERSHIP

8. Public Sector Enterprises Responsibility for the determination of strategic goals depends on the level of ownership. TOTALLY OWNED • Administration Staff and Board of Directors (BOD). • BOD are appointed by Government. • Both manage and determine the strategic goals. • Both coordinate with government officer and Ministry of Economics and Finance ( • MEF) all new sensitive actions programs. PUBLIC PRIVATE PARTNERSHIP • Operator or partner companies are in charge of the management. • Strategic planning, Budgets and important decisions require approval of the BOD. • Government is represented by two members in BOD and a representative from • DICRE, this last one has right to speak. Management Team is responsible for achieving their goals, in both kinds of companies.

9. Public Sector Enterprises Coordinating strategic planning between enterprises and policy makers. Management and BOD GoP regulation offices & MEF TOTALLY OWNED • Manage the company. • Set strategic plans according to best • practices of corporate governance. • Regulated field has to inform to • governmental office. • Keep open communication with MEF • authorities. Management BOD • Directors • 3 from Int’l Operator • 2 from GOP PUBLIC PRIVATE PARTNERSHIP • Manage the company. • Set strategic plans • according to best practices • of corporate governance. • Present strategic plan to • BOD. • Approve plan strategic • and other issues, that • establish incorporation • deed.

10. Public Sector Enterprises Balance between commercial and non-commercial objectives. TOTALLY OWNED • Set goals on a balance of commercial and non-commercial • objectives are carried with no major difficulties. • Both objective can be decided by one part. PUBLIC PRIVATE PARTERNSHIP • It is harder but achievable to reach an agreement on • sensitive matters like balance of objective, but always both • parties have been able to arrive at consensus.

11. Public Sector Enterprises Privatization strategy and implementation MEF is responsible office of privatizations COMVA established FDD COMVA lead privatizationprocess COMVA sold share of utilities companies MEF created COMVA Currently, MEF doesn’t have a program or strategy to privatize other companies or services, so far. Privatization Process (1997-1999)

12. Public Sector Enterprises Private-public dialogue is through DICRE and government’s directors in each company. DICRE (MEF) & Directors from GOP Board of Directors Management Team

13. Public Sector Enterprises Representing the state interest, modalities and responsibility for governance PSE Directors are appointed by GOP BOD DICRE DICRE assists government directors with reports, analysis and evaluations so the positions adopted are well informed and discussed. Besides, DICRE is in charge of the coordination with each company, representing the State interest as shareholder, and given that they are in different industries, there are different regulators and control offices, which are in direct and constant communication with each PSE, including Ministries and Authorities. MEF created in Sept. 2009

14. Government as shareholders • The Government owns 100% of stakes of some companies and participates in their BOD. Net Income 2010: $963.9M 100% GOP’s stake Net Income 2010: $0.25M 100% GOP’s stake Net Income 2010: $59.1M 100% GOP’s stake Net Income 2010: $11.7M 100% GOP’s stake • During 2010, these companies have contributed to National Treasury in $845 millions approximate.

15. Government as shareholders in private sector • The Government evaluates the possibilities to consolidate its shareholding in public companies private. EBITDA 2010: $108.4M 48% GOP’s stake (ESEPSA, EDEMET, EDECHI) EBITDA 2010: $99.7M Value: $300M according to Citi 49.9% GOP’s stake EBITDA 2010P: $272.3M Value: $742M according to Goldman Sachs 49% GOP’s stakes EBITDA 2010: $58.8M 48.25% GOP’s stake EBITDA 2010: $15.9M 50% GOP’s stake EBITDA 2009: $7.5M 49% GOP’s stake EBITDA 2009: $105.6M 10% GOP’s stake EBITDA 2009P: $113.4M 50.5% GOP’s stake • According to EBITDA multiples (5 to 8x) the Government position value in these enterprises is between US$ 1,634 millions and US$ 2,614 millions approximate. • MEF, throughState’s Investment, Concessions and Risk Office (DICRE), is planning a strategy in order to maximize the government stakes value. • GOP is evaluating an effective way to consolidate and maximize its stakes, through a Sovereign Wealth Fund.

16. Thank you