CURRENT ENVIRONMENT: BANK DEBT CONDITIONS REMAIN RESTRICTIVE

1. FINANCING OF PPP’S: GLOBAL SHIFTING FINANCING ENVIRONMENTEnrique Fuentes, Development Director FerrovialChairman PPP Workgroup European International ContractorsPPP’S in Asia, the story so farAsian Development Bank / CICAManila, March 2010

2. CURRENT ENVIRONMENT: BANK DEBT CONDITIONS REMAIN RESTRICTIVE Loan Market • Market strongly focused in refinancing / re-structuring • Bond markets have become an alternative for loan financing • Around 55% of loans refinanced in 2009 done through bonds Pricing &Structures • Conditions in the loan markets have shown first signs of easing • Market still focused in short term, but 5 year tenor is back for some good rating corporates • Pricing is tightening but still well above pre-crisis maximums, and increases considerably with maturity • Typical structures: short term with specific take-outs and step-up pricing Banks – Current Situation • Liquidity has increased but Banks’ balance sheets are still highly leveraged • Uncertainty about removal of support measures press liquidity prices up and maintain risk aversion • Underwriting appetite in the loan market is still low but improving ACCESS TO BANK LENDING RESTRICTED FOR PPP’S (specially riskier ones: i.e. greenfields)

3. BANK DEBT PRICES STILL HIGH • … and likely to remain so, as banking sector is still under stress EMEA Investment Grade Price: Quarterly Margins Source: Thomson Reuters LPC/DealScan

4. BANK DEBT MARKET FOCUSED ON SHORT TERM • Market share of short term in historical records • however demand for 5 year loans is appearing • As of December 2009, 7% of investment grade loans structured as five-year, 27% as three-year, and 40% as one-year EMEA Investment Grade Loan Market: market shares by tenor

5. … AND ON REFINANCING • Refinancing market shares in historical highs • Of the $ 44.2bn in syndicated loans announced so far in 2010, $ 18.3bn (41%) is for the purpose of refinancing existing facilities. • In 4Q 2009, refinancing loans accounted for 34% of total loan volume, the highest quarterly proportion since 2Q 2005.

6. CURRENT ENVIRONMENT: BOND MARKET IMPROVING, BUTNOT APPLICABLE TO MANY PPP’S • Bond margins have decreased, but are still above pre crisis highs • Low interest rates compensate margins (for now) • but less so in longer tenors, which are the ones needed for PPP’s • Yield differentials between 10 and 30 yrs 407ETR bonds well above average • Reduction in long term interest rates much smaller than in short term • Bonds are a difficult instrument to fund PPP’s (particularly riskier ones) • No certainty of funding at time of committed offer • Disappearance of monoline insurers • Requires combination with bank bridge financing Δ risk & cost of financing Source: Merril Lynch: European bond market report, March 2010

7. CURRENT ENVIRONMENT: EQUITY LOOKS ABUNDANT BUT WITH CONDITIONS • Limitations of traditional developers to maintain the rythm of investment • Access to debt • Equity markets still difficult for raising capital • Increasing importance of pure financial investors • Infrastructure funds: “dry powder” in existing funds: US$ 71,5 Bn • … of which US$ 21,4 Bn are allocated to European assets • Increasing interest from final investors (Pension Funds, Sovereign Funds, Family Offices) in investing directly in assets • Financial investors have specific issues regarding risks and return • Averse to construction and significant operating risk • Brownfields preferred to greenfields • Association with traditional developers to mitigate those risks • Significant equity IRR requirements (above 12% for mature projects) • Require not only IRR but also cash yield • Limitations on debt capacity • Higher project IRR’s • In many cases, limitation on maturity • Most infrastructure funds have tenors of no more than 15 yrs • Require absolute transparency and predictable regulatory frameworks • … and are in a position to compare internationally • Potential development of a secondary market in which projects promoted by traditional developers are sold, when mature, to financial investors

8. NEW INSTRUMENTS: Transportation Infrastructure Finance and Innovation Act (TIFIA) -(USA) • Three instruments: • Direct Loans. • Guaranteed Loans • LoC facilities • Target: attract private funds to the Federal Transportation System to “leverage” the Govt funding • Main features: • Eligible Projects minimum size of 50M$ • Up to 33% of the investment. • Senior Debt must be BBB- • Subordinated in cash flows & tenor, but not in collateral (springing lien) • Repayment profile highly back-loaded • Interest accretion.

9. NEW INSTRUMENTS: PAB’s- Private Activity Bonds (USA) • SAFETEA-LU law to allocate up to 15 bn $ to private bond issues tax-exempt to finance infrastructure in USA • Key aspects • No zero coupon could be used. • Up to 33% of the investment with PABs • Projects eligible for TIFIA are as well eligible for PAB’s • Advantages: • Tax exempt is applicable to the bondholders. Lower rates than free market levels(100-140 pbs) • Interest are tax deductible for the issuer • Disadvantages: • No refinancing / re-gearing allowed • No zero coupon structured could be used.

10. Annual Average Daily Traffic Banking Base Case Cash flows LGTT Worst Case Y/Z -1 ≤ LGTT Trigger level Annual Average Daily Traffic Observed Z Y Restored ADSCR 1.21 Effective ADSCR 1.10 Max. availability of LGTT Reimbursement of senior debt (10% of senior debt) Senior Debt Service Senior Debt Service post LGTT drawdown and refinancing Years T0 Tr 10 15 20 25 To: Start-up of project operations Tr: Refinancing date NEW INSTRUMENTS: E.I.B. - Loan Guarantee for TENs Transport (LGTT) and Direct Loans. (Europe) • Main features: • Amount: up to 10-20% of senior debt • Availability: 5–7 years after completion • Senior debt rating improves • Liquidity facility is provided by commercial banks. • The amount of each draw down will be used to reimburse senior debt and converted in to subordinate debt (junior) • Subordinated credit facility fully guaranteed by EIB • Covers any shortfall during the ramp up period, due to deviation in revenue figures

11. RECENT EXPERIENCE: SH 130 ,TEXAS, 2008 • 50 yr concession to build 64 Km of toll highway around Austin • US$1.36 Bn investment • Significant Govt. support via TIFIA loans (soft loans provided by US DoT) • Amount: US$ 430 millions plus capitalized interest • 10 years of interest accretion (construction + 5 years after completion) • Tenor: 35 years, since completion • Cost: Federal Bonds 40 years + 0.01% (4.6% aprox.) • Reduced pressure on private Debt • Bank loan for US$ 685,8 million • 85% (Debt to Equity) • 50% (PrivateDebt to Equity + Govt. Finance) • Tenor: 30 years • Cost: Libor + 130-170 basis points

12. RECENT EXPERIENCE: NORTH TARRANT EXPWY (NTE), TEXAS, 2010 • Reconstruction of 21 Km. of highway, adding 4 tolled express lanes • 52 yr concession • Total construction Capex above US$ 1.8 Bn • Paid by tolls • Fully electronic • Escalation linked to capacity utilization and avoidance of congestion • Concession conditional to financial close • Substantial support for the financing • TIFIA loans (soft loans provided by US DoT) • 35 yr tenor • 10 yr interest capitalization • “soft” interest: 40yr UST Bond + 0.01% • Tax exempt Bonds: interest is tax deductible for holder • Cuts interest rates by 100 – 140 bp • Subsidies Total = $2.1 billion

13. RECENT EXPERIENCE: A1, POLAND, 2010 • Construction of 96 Km of new highway and refurbishment of 84 Km of existing highway (total: 180Km) in main North – South corridor • 35 year concession (conditional to financial close) • Toll Road, but with traffic risk mitigation (availability payments) • Total Construction investment: €1.4 Bn • Innovative financing support by EIB: Loan Guarantee for Trans European Networks, subordinated credit facility to cover revenue shortfall • Availability: 5–7 years after completion • Can repay senior debt to improve Cover Ratios and allow refinancing • Despite support, no financial close: project & risk too big for markets • Availability of Commercial debt and EIB & EBRD project facilities insufficient to cover required debt • EIB could only provide shortfall through Government facilities • FX risk was key: financing in € vs revenues in PZL

14. ADAPTING PPP’S TO NEW REALITY • Reduce risk: PPP’s do not finance the projects Governments want, but those acceptable to private sector & financial markets • Focus of Government should be to mitigate risks that the market cannot assume at reasonable costs • Role of multilaterals should be to advice on risk/return acceptable to markets and to provide financing and risk coverage • Co-operative approach with multilaterals to design risk coverage tools • FX risk!!! • Maximize competition and focus it in project IRR and in quality and efficiency • “Evolutionary” approach: risk coverages decrease as experience and development of the country increase • Focus on efficiency • Private Party should be given flexibility, under clear legal framework based on performance indicators, to run the project efficiently • Management of initial investment and of ongoing Opex & Capex • Easier to fund smaller projects: reduce investment & funding • Combination of public & private funding • Imaginative use of Govt guarantees or funding allow to maximise “leverage” of public resources

15. ADAPTING PPP’S TO NEW REALITY • Bidding process: certainty of financing no longer exists • Avoid long post preferred bidder phases (obtain approvals before) • If not possible, introduce flexibility to re-adjust conditions • Adapt projects to international financial investors standards • Transparent regulation and consistent behavior of granting authority • Change orders • Delays in payments • Tariff escalation • Resolution of conflicts • Regulation should facilitate financing: creation of guarantees, step in rights, change in ownership • Combine user paid schemes with risk mitigation • May allow for efficient pricing of the public service • Create alternative to traditional taxation • Where tax revenues can be unreliable, user paid schemes may end up being more attractive financially • Risk can be mitigated through minimum revenue & other clauses • … but most of these issues were there long ago, particularly in emerging countries • PPP’s in emerging economies have been stagnant since late 90’s

16. ROLE OF MULTILATERALS: CURRENT PARADIGM • Different departments in different phases • Experts in financeability only involved in the later phases • Difficulty to combine Public Finance with Private Finance Multilateral (advisory private sector) or Private Advisor Multilateral (Private Sector) Multilateral (Advisory Department) Multilateral (Credit Commitee) Funding / Guarantees Advice Advice PPP’s Tender Project Developer Infrastructure Programme Government Publicly Funded Project Funding / Guarantees Multilateral (Public Sector)

17. ROLE OF MULTILATERALS: NEW PARADIGM • Private sector experts with knowledge on financeability to be involved in early stages • Allow to define feasible PPP’s from the outset • Credit Commitee involved in early stages, allowing Public & Private Sector Depts to provide pre-approved “stapled financing” • Combination of Public & PPP funding Multilateral (Advisory Department, including Private Sector) Multilateral (Private Sector) Multilateral (Credit Commitee) Funding / Guarantees Advice Facilitated PPP’s (with financing & guarantees attached) Infrastructure Programme Government Project Tender Developer Funding / Guarantees Multilateral (Public Sector)