Inter-American Investment Corporation

Transferring Risk in Infrastructure Projects A Lenders Perspective

August 2013

www.iic.org

IIC Over 20 years of Lending and Investment Experience in LAC

Who We Are:
Part of the IDB Group 44 member countries and a presence in 11 countries in the region. Total assets of US$1.8 billion

What We Offer:
Financing for SMEs, Corporates and Greenfield Infrastructure and Power Projects:
Direct loans and equity investments Project finance for small infrastructure Technical assistance

Regional Presence in 11 Countries

Mexico and Central America: Costa Rica El Salvador Guatemala Nicaragua Panama Caribbean: Haiti Andean Region: Colombia Peru Southern Cone Region: Argentina Chile Paraguay Uruguay

Our Competitive Advantage Local Presence Project Finance Expertise

Extensive local presence and local markets knowledge Multiple financial solutions Loan products / equity / partial credit guarantees Specialized technical advisory services Technical assistance (pre/post investment) Proven financial soundness Low debt to net worth ratio and high liquidity Prudent loan portfolio management / adequate coverage Strong commitment from 44 member countries

Financial Soundness

AAA/Stable Risk Rating

Agency ratings:
Fitch: AAA, Outlook Stable S&P: Raised long-term rating to AA (07/2010), Outlook Stable Moodys: Aa2, Outlook Stable

Project Construction Completion Risk

Delays / Costs Overruns
EPC Contract EPC Contractor Social Risks Currency Exchange

Possible Risk Mitigations

EPC Contract
Fixed completion date / price DLDs to cover all loss or damage suffered due to delays Securities: Performance Bonds Advance PMT guarantee Wrap-around guarantee (in case of Split EPC Contract) Look closely: Change order provisions Definition of force majeure Include contingency and escalation amounts in original cost estimates

Insurable Risks
Construction and Erection All Risk
Acts of God Strikes, civil commotion Terrorism, sabotage Marine Cargo

Advance Loss of Profit ALOP Third party Liability

Workers compensation Employers liability Commercial general liability Pollution Liability

EPC Contractor
Social Risks

Parent company guarantee Involve community early in the process Hedge mechanisms

Currency Exchange

Risks and Mitigation Arrangements during Operating Phase

Project Performance
Technology Assurance
Prefer tried and tested technologies PLD payable by contractor if it fails to meet performance guarantee Securities: Performance Bonds O&M Agreement linked to performance Supply contracts specifying quantity, quality and pricing Match term of supply contract to term of project life. Experienced management team Performance Incentives and Penalties Training provided by equipment supplier

Market Risk
Demand Potential
Independent market assessment Offtake contract with minimum quantity and prices

Equipment Performance

Payment Risk
Sell output to creditworthy buyers Consider credit enhancements if not: Government guarantees Direct assignment of part of buyers revenue stream SBLC

Input Availability

Management Performance

Skilled Labor - Operator Performance

Risks and Mitigation Arrangements during Operating Phase (cont.)

Economic and Political Risks
Interest Rates
Fixed-rate financing Interest rate swaps Offtake agreement indexed Match currency of project loan to project revenues Swaps Long-term supply contract Output price indexed to inflation / commodity price Political risk insurance Involve multilateral development bank or other official agency in financing.

Insurable Risks
Operational property damage and machinery breakdown
Acts of God Strike Civil commotion, terrorism

Exchange Rates

Loss of Income during Business Interruption

Inflation

Political Risk

IIC Examples of Recent Projects Latin America

In 2010, Coriport built a new international passenger terminal at Province Guanacaste in Costa Rica. Coriport is headed up by Houston Airport System, the worlds sixth-largest airport operator. The IIC provided US$795 million in project financing, out of a total cost of US$43.5 million. The IIC has long-standing ties to the tourism industry in Costa Rica. Ten years ago, it financed construction of the first 5-star hotel in Guanacaste.

In 2011, the IIC approved a structured loan Carifresh for up to S.A. $10.5 million to finance the construction and operation of the Hidroelctrica San Lorenzo power plant, designed to generate 42.3 GWh of power a year from a renewable energy source beginning in 2013 - enough to power a town of 45,000 inhabitants. Hidroelctrica San Lorenzo's two generators will reduce current carbon emissions by approximately 20,000 tons per year.
Hidroelctrica San Lorenzo

Empresa de Generacin Elctrica Canchayllo S.A.C

In 2012, the IIC approved a loan of up to US$7.2 million to finance the development, construction, and operation an hydroelectric plant along the Pachacayo River, in the department of Junn, located in central Peru. The project itself is a 5.3 MW run of river power plant awarded with a Subasta Renewable Energy Resources ("RER") power purchase agreement at US $47.4 per MWh Canchayllo is owned by Cascade Hydro Limited ("Cascade"), Rurelec's 70% owned Peruvian power generation company..

Mountain Lodges of Peru S.A.C

In 2013, the IIC and Mountain Lodges of Peru, S.A.C (MLP) signed a loan agreement for US$3.0 million. The loan proceeds will be used to build mountain lodges for adventure tourism, benefiting communities of the Sacred Valley of the Incas, located in Perus Cusco Region. With this loan the IIC is helping establish a new cultural route to Machu Picchu, along which a series of small mountain lodges will be built. The project will benefit rural communities located along the route and help them form joint ventures to share in the profits of the lodges. Considering the projects need for services and labor, it will no doubt be a significant driver of local economic activity

Margarita Garca de Paredes (margaritag@iadb.org) Tel: + (202) 623-3932