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ENSURING A POSITIVE LONG TERM ECONOMIC OUTLOOK

ENSURING A POSITIVE LONG TERM ECONOMIC OUTLOOK. GUIDO MANTEGA MINISTER OF PLANNING, BUDGET AND MANAGEMENT Geneva January 29, 2004. Further increase foreign trade and reduce external vulnerability. Raise investment levels.

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ENSURING A POSITIVE LONG TERM ECONOMIC OUTLOOK

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  1. ENSURING A POSITIVE LONG TERM ECONOMIC OUTLOOK GUIDO MANTEGA MINISTER OF PLANNING, BUDGET AND MANAGEMENT Geneva January 29, 2004

  2. Further increase foreign trade and reduce external vulnerability Raise investment levels The conditions for sustainable economic growth have been settled. To consolidate this favorable prospect it is necessary to: MULTI-ANNUAL PLAN: • Electricity • Oil • Transportation • Communications • Water resources It is fundamental to increase investments in infrastructure

  3. Investments in infrastructure avoid bottlenecks and provide balanced growth of the economy. The government would not have enough funding for all necessary investments. The private sector is an essential partner: The PPPs are mechanisms to foster private sector participation in infrastructure projects.

  4. The concept of PPP: • Method of procurement in which the private sector participates as entrepreneur and the public sector as a complementary payer of the service. GOVERNMENT PPP Projects Selection PAYMENT MODEL: Contracting Authority (e.g. Ministry of Transports) Debt Service Public Payment SPV Special Purpose Vehicle Final Customers User Fees (Tolls) Equity Investors

  5. PPP INVESTMENTS BASIC FINANCING STRUCTURE: Equity Investors Capital Markets Building Contractor Project bonds SPV Special Purpose Vehicle Loan Financing Service Providers Private Banks Multilateral Agencies BNDES

  6. More flexible than existing mechanisms Concessions Law: The private sector can build and operate, but is not allowed to receive partial payments from the public sector. Procurement Law: The private sector is essentially a supplier for the government. It is not allowed to charge tolls and is limited to five-year contracts. Public-Private Partnerships (PPP): Allow different combinations of remuneration of services, for longer periods. Key institutional aspects of PPP in Brazil:

  7. Contracting procedures must comply with the Fiscal Responsibility Law. The payment of PPP contracts take precedence over other investments. Additional guarantees of payment will be created through a specific private-run fund with public assets. Financing will be facilitated by the BNDES, multilateral financial institutions and capital markets. Key institutional aspects of PPP in Brazil:

  8. EFFICIENCY GAINS: - Build lower cost infrastructure. - Offer quality public services more rapidly. • INVESTMENT VOLUME GAINS: - Make a wider range of projects viable - Facilitate overcoming bottlenecks and so stimulate other investments.

  9. Items Targets by 2007 Increase the generation of electricity in hydroelectric, thermal and wind power plants (installed capacity in 2003 = 84,654 MW) 14,085 MW Increase transmission lines (extension of existing lines in 2003 = 79,416 km) 12,425 km Universalize electrical power supply in rural areas – in consumer units reached (in 2003 there were 2 million rural homes without electricity) 1.7 million Electricity: reduce the risk of a supply deficit and universalize services

  10. Oil and Gas: reach self-sufficiency in oil by 2006 and become a net exporter in 2007 Items Targets by 2007 Increase in oil production From 1.6 million to 2.2 million barrels/day Expansion of oil refining capacity From 1.62 million to 1.85 million barrels/day 2,479 km 34.5million m3/day Expansion of the pipeline network Availability of gas

  11. Transportation and Logistics: better physical and operational conditions, finish ongoing works projects and start others that help overcome critical bottlenecks Targets by 2007 Items Highway repair/maintenance Annual maintenance 43,000 km Highway repair/maintenance Rehabilitation 23,000 km Highway construction 5,500 km Railway construction 2,400 km Waterway development – improving navigability 10,000 km Expansion of port capacity 200 million tons

  12. Water Resources: significantly increase water supply in semi-arid regions

  13. Example 1: PORT OF ITAQUI Location: São Marcos Bay, State of Maranhão • Characteristics: • Located in an area of rapid development of agriculture and heavy industry • Fundamental link in export corridor for iron ore, steel and soybeans, which are booming • Presence of major Brazilian and international corporations (i.e. CVRD, ALCOA, Baosteel, ACELOR) • 1,616 meters of potential dock quay, natural depth ranging from 10.5 to 20.5 meters • 70 million tons of cargo handling capacity in 2001

  14. Project Features: • Development of the Itaqui Port; • Extending the quay by 300m; • Enlarging the width of Pier 2 (leased to CVRD) by 8 meters for the execution of landfill works (250,000 square meters), aiming at general cargo and container operations with a potential cargo handling capacity of 180,000 ton/year. Estimated Investment: US$ 55 million Agency in charge: EMAP – Empresa Maranhense de Administração Portuária Implementation: 2004-2007

  15. Example 2: BR-101 Highway, NE Location: Crossing the states of Bahia, Sergipe, Alagoas, Pernambuco, Paraíba e Rio Grande do Norte • Characteristics: • Connecting infrastructure for the fastest growing tourism region in Brazil • Traffic volume ranging from 6,300 to 17,000 vehicles/day • Estimated cargo transported by 2011: 107 million metric tons • Potential synergy with real estate and tourism industry development

  16. Project Features: • Restoring existing infrastructure; • Building 770 Km of new lanes; • Development of commercial activities along the highway. Estimated Investment:US$ 675 millions Agency in Charge:Ministry of Transportation Implementation:2004-2007

  17. Example 3: NORTH-SOUTH RAILROAD, ESTREITO TO BALSAS SECTION Location: State of Maranhão • Characteristics: • Key infrastructure for the development of the eastern agricultural frontier; • Backbone of the Northern export corridor; • Linking the soybean production area of Balsa to the Port of Itaqui; • Strong improvement of soybean competitiveness in international markets

  18. Project Features: • Construction of 204km of railroad between the MultimodePlatform of Porto Franco and Balsas. Estimated Investment :US$ 230 million Agency in Charge:VALEC Implementation:2004-2007

  19. Example 4: JAIBA IRRIGATION PROJECT • Characteristics: • Favorable geographical position for irrigation development; • Irrigated soil in the area offers the highest productivity rates in the world for tropical agriculture (fruits, sugarcane, etc.) . Location: State of Minas Gerais.

  20. Project Features • Development of a new agribusiness area of 100,000 hectares; • Irrigable area: 63,000 hectares. Estimated Investment: ~ US$ 325 million Agency in charge:Codevasf / Ministry of Integration Implementation:2004-2007

  21. Example 5: IRECÊ Location State of Bahia • Characteristics: • Irrigation project serving small and medium producers; • 87.11 km of main channels and 31.61 km of secondary channels; • Irrigated soil in the area offers the highest productivity rates in the world for tropical agriculture.

  22. Project Features: • Development of a new agricultural area of 93,000 hectares; • Irrigable area: 59,600 hectares. Estimated Investment:US$ 308 million Agency in charge:Codevasf / Ministry of Integration Implementation:2004-2007

  23. Economic stability Macroeconomic responsible policies Long term development project Democratic Rule of Law Tolerance among competing political forces Social stability Reducing of inequalities Improving education Political stability A broad concept of stability and favorable investment climate:

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