Machado Meyer

Global Infrastructure Hub

Foreign Exchange Rate Risk for Infrastructure Investments:
Case-Studies
May 19th 2020
Disclaimer:
The findings, interpretations, and conclusions expressed in this report do not necessarily reflect the views of the Brazilian Ministry of
Economy. The Brazilian Ministry of Economy does not guarantee the accuracy of the data included in this work.
 CELSE – 1.5 MW LNG Powerplant (integrated to FSRU and
dedicated port facility, gas pipeline and transmission line)
Brazil Context Problem Innovation
• CELSE – Centrais Elétricas de Sergipe • Celse sold its power through 25-year PPAs • CELSE entered into local currency long term loans
1 S.A., is a joint venture between Golar under an A-5 2015 Auction in the regulated with the IFC and IDB, for 1/3 of funding needs, and
Power (Norwegian/English capital) and market in Brazil. Except for the portion of the local currency capital market financing for the
CELSE – LNG Ebrasil (local player). At the time it PPA price intended to remunerate the fuel remaining 2/3 of funds, through tax exempted
PowerPlant successfully commenced its operations, consumption, the remaining portion of the infrastructure local debentures
(integrated to FSRU in March 2020, it was the largest LNG PPA price is denominated in Brazilian
and dedicated port powerplant in Brazil. The integrated currency and indexed to local inflation • Local debentures were 95% guaranteed by SERV.
facility and project also involved the need of Through the underwriting of Goldman Sachs, the
transmission lines) • Brazil was still recovering from a major Brazilian currency denominated debentures were
constructing a dedicated 33 km
transmission line, a dedicated gas economic crisis. Local development bank fully acquired by an offshore trust who then issued
Innovation Type: pipeline connecting the plant to an (BNDES) had reduced its loan capability and NY law governed project bonds to the international
Local Currency Cross- FSRU, and the port terminal required to was no longer offering subsidized financing. market, backed up and secured by the debentures.
border MDB and Bond anchor the FSRU. It raised BRL 5.4 Local capital market had appetite for International investors had the option of either take
Project Financing simpler/ smaller renewable projects, but not on Brazilian currency risk, or to enter into FX
billion in financing in 2018
for large thermal plants. Cross border hedging instruments
Stakeholders Involved financing was needed, but FX risk had to be
addressed • Such project bond structure was the first of its kind
Useful Links:
CELSE • CELSE, and its shareholders Golar Power and EBrasil in Brazil. Although, IFC and IDB have already
• GE, as the turbine manufacturer (out of Switzerland, thus the Swiss
entered into a few Brazilian currency loans before,
this was the largest Brazilian currency deal at the
content) and the main EPC Contractor Timeline time
• Ocean LNG Limited, a JV between Qatar Petroleum and ExxonMobil,
as the LNG long term supplier March and
April, 2018 April, 2018 2018-2020 March 2020
• IFC and IDB invest, as project lenders
• Goldman Sachs, as the firm underwritter for infrastructure debentures
issued by Celse, and which back-up project bonds issued by an offshore
trust holding the debentures
Execution of Financial Closing of Construction and Commercial
• Pentágono S.A. DTVM, as fiduciary agent for the debentureholders
financial debentures and First subsequent Operation Date
• SERV – Swiss Export Risk Insurance, the export credit agency of disbursements
documents Disbursement of IFC 2
Switzerland, providing a 95% credit guarantee in respect of the and IDB loans
debentures, having Credit Suisse A.G. as SERV Policyholder Agent
 CELSE – 1.5 MW LNG Powerplant (integrated to FSRU
and dedicated port facility, gas pipeline and
Brazil transmission line)
1
Results/Impact Key lessons learnt
CELSE – LNG
PowerPlant
(integrated to FSRU • CELSE has been successfully constructed and entered Under appropriate conditions, and properly
and dedicated port developed projects, MDBs, ECAs and other
facility and commercial operation in March 2020
international investors may be willing to take on local
transmission lines)
• Efficient LNG plants such as CELSE help to diversify currency risk
the Brazilian power generation matrix, reducing the
Innovation Type:
Local Currency Cross-
dependency of Brazil on hydro sources and mitigating
border MDB and Bond the risk of wind, solar and biomass projects which do
Project Financing not have a stable/ flat generation profile throughout the
year or even during the day MDBs provided only 1/3 of the funds, but were key to
structure the financing in the first place and leave room
• Although benefiting from low prices of LNG globally, in for a structured capital market solution
Useful Links:
CELSE the long run these thermal projects may shift to locally
produced natural gas, including high volumes which
are expected to be produced in the pre-salt region

• CELSE paved the way for other large LNG thermal

Despite the successful financing and implementation of
projects, such as GNA 1, GNA 2 and others to come
the project, the innovative and multisourced financing
required a long structuring and negotiation process

3
 Line 4 (yellow) of São Paulo Subway
Context Problem Innovation
• Executed on November 29, 2006, Line 4 was • Direct payments from the State of São • To mitigate FX risk arising from mismatch between
the first PPP (public private-partnership) in Paulo and tariff revenues are
Brazil debt service on IDB financing and local currency
Brazil, in a strict sense, i.e, governed by Law denominated in Brazilian currency and revenues of the project, a relevant portion of such FX
11,079 of 2004 and thus relying on some level indexed to local inflation risk is objectively allocated to the Granting Authority
of financial contribution of the Granting Authority
2 (the State of São Paulo), as opposed to the • Nevertheless, debt service on IDB • Objective risk allocation was an innovation of the then
more traditional common concessions (relying financing was denominated in US new PPP legislation. Such objective allocation is
Line 4 of São Paulo solely on tariffs from end-users) dollars. IDB finance to the automatic and does not require a long and less
Subway concessionaire consisted originally of a predictable contractual revision process which would
• Such PPP was based on the sponsored USD 128.9 million A-loan, combined necessarily result from the traditional economic
modality, pursuant to which the concessionaire with a USD 213.2 million B-loan equilibrium rebalancing doctrine
Innovation Type: is entitled to direct payments from the
FX Risk partially and government, complementing revenues derived • At that time, as the first PPP project and • Section 12.3.1 of the Concession Agreement
objectively allocated to from tariff collected from end-users the first private concession of a subway expressly attributes to the Granting Authority the risk
Granting Authority,
under the relevant
line in Brazil, local sources of financing of “variations in the foreign exchange rate of the
• With a stated value of BRL 790 million at the were not available at an affordable cost. Brazilian Reais against the US Dollar, which may
Concession Agreement time of its execution, and an original term of 30 IDB had international experience on cause an impact in the payment of foreign currency
years, it was also one of the first private financing other subway lines, had
concession of subway lines in Brazil (*). debt”, within the limits and conditions set forth in the
Useful Links: already helped the State of São Paulo Agreement. The FX Impact must be demonstrated by
Concessionaire was responsible for providing on prior phases of the project and was
ViaQuatro
the rolling stock, relevant systems, and the the presentation of an opinion of a qualified auditor.
IDB Info committed to support the PPP The agreement also provides for additional conditions
operation of the line. State of São Paulo
remained responsible for the excavation and for the recognition of the Concessionaire right to
claim for the rebalancing of the agreement
construction works Timeline
Stakeholders Involved May December November May May
2004 2004 2006 2008 2010
• CCR, the controlling shareholder of Via Quatro, the
concessionaire of Line 4.
• State of São Paulo, as the Granting Authority
• Companhia do Metrô de São Paulo, the state-owned Enactment of Enactment of Execution of Approval of Commercial operation
company of the State of São Paulo responsible for the the São Paulo the Federal the PPP IDB of the first segment:
operation of the other lines in the São Paulo subway system State PPP Law PPP Law Contract financing Faria Lima - Paulista
• IDB, as the main lender for the project, on an A-B Loan 4
(*) MetrôRio was, in 1998, the first private concession of a subway line in Brazil.
structure
 Line 4 (yellow) of São Paulo Subway

Brazil
Results/Impact
2

• Line 4 is currently operating through 10 stations, from Key lessons learnt

Line 4 of São Paulo
Subway
Luz to São Paulo-Morumbi, being one of the most As a general rule, financing and FX risks are to be handled
important lines in the Sao Paulo subway system. It is by the private concessionaire. Nevertheless, in projects that
expected to be fully completed in the near future, when are highly strategic for the Government or population; are
Innovation Type: it will achieve a 12.8 km of extension very innovative; which present relevant social and economic
FX Risk partially and
externalities, and/or where local sources of financing are not
objectively allocated to • As the first PPP in Brazil, it paved the way for many
Granting Authority, available at affordable costs, partial allocation of FX risk to
other PPPs under Law 11,079 regime
under the relevant the Government may be justified
Concession Agreement
• It also offered a more suitable structure for the private
concession of other subway lines (as well as urban The generic right to rebalance the agreement to restore its
trains) in Brazil economic equilibrium in many cases will not offer sufficient
Useful Links: mitigation to FX risk so as to attract foreign lenders and
ViaQuatro
• The objective FX risk allocation was only one of its investors (as such right, in most cases, will not offer
IDB Info
innovations. The PPP also innovated in many other sufficient predictability in terms of actual monetary
aspects, such as on its guarantee scheme (to secure compensation and time to complete such contractual
the revenues payable to the concessionaire), revision)
centralized tariff collection on a clearing house
responsible for the sharing of the revenues among Line
4 concessionaire, the Companhia do Metrô de SP and MDBs and foreign lenders may not only offer more affordable
other operators etc. costs, in times of local funding scarcity, but they may also be
more prepared to take risks in innovative projects
• In a large metropolis as Sao Paulo, the expansion of
the subway system offers huge social and economic
externalities
5
 São Paulo State PIPA Toll Road (Piracicaba – Panorama Segment)
Innovation
Context Problem
Brazil • The concession was awarded to the bidder who offered the
• The State of São Paulo has one of the • As the largest toll road concession in highest premium over the minimum fixed amount of the
most successful program for the Brazil and part of a round involving signing bonus (valor de outorga). On the other hand, the
3 concession of toll roads in Brazil other important road concessions in concessionaire must also pay a variable signing bonus,
the State of São Paulo, without consisting of 7% over the gross revenues of the concession,
• As part of the 4th round of concessions, prejudice to toll roads also being
PIPA Toll Road is the largest road under throughout the concession term
São Paulo State offered to the market by the Federal
PIPA Toll Road concession in Brazil, with 1273km Government and other states, there • If so elected by the concessionaire at the commencement of
was doubt as to whether there would the concession, it would be allowed to have the right to
• The 30-year contract was signed in
be sufficient local sources of project deduct from the variable component of signing bonus
2020. It was awarded to a consortium
Innovation Type: financing to meet the huge funding instalments allocated to the mechanism (up to 3% of gross
Contractual risk allocation led by local fund manager Patria, with
needs of the Pipa Toll Road Project revenues) the adverse impact of FX variation in relation to the
contemplating the reduction the participation of GIC, the sovereign
or increase of the signing fund of Singapore principal amount of foreign currency indebtedness (but not
• The State of São Paulo and interests) assumed by the project company up to the limit set
bonus variable component,
ARTESP also wanted to increase forth in the tender documents (USD 500 million of principal
payable to Granting • Such consortium offered a premium of
Authority in instalments competition, and attract potential amount) and duly evidenced to the granting authority
7,209% over the minimum bid, i.e., a
throughout the contractual investors beyond the consolidated
signing bonus of BRL 1.1 billion. Total
term, depending on the players • The mechanism works both ways, though. Upon such
required investment is estimated in BRL
impacts of FX Fluctuation election, the concessionaire may also be obliged to pay an
on the concessionaire 14 billion
additional amount of variable signing bonus, up to a total limit
indebtedness
of 6% (3% + 3%), corresponding to any gains arising out of
Stakeholders Involved such FX variation in connection with the principal amount of
Timeline its indebtedness (i.e., in case of appreciation of the Real)
Useful Links: • State of São Paulo, as the Granting Authority
Parcerias SP • January 2020 May 2020 January 2021
ARTESP, the state regulatory agency in charge of transportation projects October 2019
• Pátria, the local fund manager responsible for the largest infrastructure
funds in Brazil, as the leader of the winning bidder consortium and, thus,
the main shareholder of the concessionaire SPV
• GIC, the Singaporean Sovereign fund, holding a relevant participation in Tender documents Opening of Execution of the BNDES approves BRL 3
are officially the Bids Concession billion financing covering
the SPV
released (Auction) at Agreement approximately 58% of
• BNDES, has already approved financing for part of the debt required for funding needs 6
B3
the project (BRL 3 billion)
 São Paulo State PIPA Toll Road (Piracicaba – Panorama Segment)

Results/Impact
Brazil

• The concessionaire of PIPA Toll Road has not yet elected to

3
trigger the FX mitigation mechanism. It has two years from
the date it commenced to operate the road and so far it has
São Paulo State only announced a local financing from BNDES Key lessons learnt
PIPA Toll Road
• However, even if the election is not made, the mechanism
was very well received by the market and seems to have Contractual mechanisms may offer relevant mitigation
Innovation Type: contributed to a strong competition for the concession to FX and other risks, without necessarily impacting
Contractual risk allocation (which resulted in a 7,209% premium over the minimum governmental budget
contemplating the reduction
bid)
or increase of the signing
bonus variable component,
payable to Granting • At a minimum, it serves as an insurance for the private
Authority in instalments investor. If BNDES had not approved the financing, cross- Even when not absolutely necessary, proper FX risk
throughout the contractual border financing might be a necessity mitigation may increase competition, bring new
term, depending on the
impacts of FX Fluctuation investors to the table and result in better bids to the
• As opposed to an open-ended government guarantee, the
on the concessionaire government.
mechanism is limited to the variable component of the
indebtedness
signing bonus and, therefore, cannot cause adverse
impacts to governmental budgetary funds (such as general
tax collections), nor it qualifies as public debt
Useful Links: Innovative mechanisms may be replicated and
Parcerias SP • Although offering only partial mitigation, simulation tests generate positive effects beyond the project for which
show that, in practice, as designed, it would cover most they were originally conceived
scenarios of FX devaluation

• The innovative mechanism was replicated into the federal

road concessions, starting with the BR-153 Highway
(Tocantins – Goias), awarded in April 2021 to the 7
consortium led by Ecorodovias
 Jacaranda Solar Power (Atlas) Project
Context Problem Innovation

• Atlas Renewable Energy is • Atlas is an international developer and • Following a 2019 law that reinforced the right of companies
Brazil developing the 187MWp wanted to access international funding for to freely allocate risks in contracts entered between
Jacarandá Solar Project, in the the project themselves (the Economic Freedom Law), and a general
Municipality of Juazeiro, State of recognition that certain offtakers (e.g. exporters) may also
4 • However, power generation projects in benefit from US dollar indexation in their long term
Bahia
Brazil generate Brazilian currency contracts (as corroborated by several bills of law in that
• It will count with 450 solar revenues, usually indexed to local inflation direction), Atlas and its offtaker relied on an interpretation
Jacaranda Solar
Power (Atlas) modules and produce sufficient (IPCA) of existing legislation (Section 2, V, of Decree-Law 857/69),
Project power to meet the nees of a city to conclude that, on certain conditions, it would be
of 750,000 inhabitants • PPAs to supply power to the captive permissible for their PPA to remain denominated and
market, through distribution utilities, must payable in Brazilian currency, but indexed to US dollar FX
• The project required financing of follow standardized terms, set forth by the variation
Innovation Type: approximately USD 70 million for Government/ regulator (the so-called
PPA long term revenues regulated market), without flexibility for • In the case of Jacarandá project, there were several
were indexed to US
its implementation
adjustments elements of connection to justify the US dollar indexation
Dollar
(project finance all in dollars, foreign sponsor, offtaker an
• PPAs to large consumers (the free market) exporter and subsidiary of foreign company etc.)
may be negotiated between the parties, but
the market has traditionally interpreted • There are at least 3 bills of law in advance stages of
Useful Links: Brazilian laws as prohibiting foreign legislative process aiming at, among other purposes,
Project Website currency indexation in contracts between expressly clarifying the possibility of such foreign currency
IDB Info Brazilian parties indexation in long term energy or infrastructure related
agreements with exporters
Stakeholders Involved
Timeline
• Atlas Renewable Energy, the sponsor
• Jacarandá Solar Complex, formed by 4 generation plants 2017 June 2020 October 2020 February 2021
called Juazeiro V, VI, VII and VIII
• BID Invest, acting as project lender, and manager of the
Clean Technology Fund and Canadian Climate Fund
• DNB Bank ASA from Norway, acted as co-lender Execution of Execution of USD
Launching of Installation of
• A Brazilian subsidiary of Down Inc., as the offtaker Altas Renewable 15-year PPP 67 million 14.8y
first trackers 8
Contract Project Financing
 Jacaranda Solar Power (Atlas) Project

Brazil

Results/Impact Key lessons learnt

Jacaranda Solar
Power (Atlas)
• Jacaranda Project is being successfully implemented, Foreign currency financing may not only be cheaper than
Project
full force ahead local financing for certain projects and on certain
circumstances, but may also offer other benefits, such as
• Atlas has already announced a new and larger project,
Innovation Type:
non-recourse features, faster deployment, attraction of non-
having Anglo American as its offtaker, adopting a
PPA long term revenues recurrent players more sensitive to local currency risk etc.
similar structure. Atlas Casablanca, in the State of
were indexed to US
Dollar Minas Gerais, will have total capacity of 330MWp and
800 thousand modules
In many cases, there may be room for innovative
• According to press articles, many other investors are approaches without the need of specific changes in law
also considering to replicate the structure, which may
Useful Links: have high attractiveness to foreign lenders
Project Website
IDB Info

Nevertheless, clarity in the law and legal certainty may

permit the larger dissemination of good practices and
structures that may permit projects in Brazil to access cross-
border financing in a cost efficient way

9
 RenovAr Program – Chubut Norte III y Chubut Norte IV Wind Farm
Context Problem Innovation
Argentina • The program launched in 2015 • The Chubut project secured a USD 131 million financing agreement
aims to shift the source of 20% of • Difficult scenario in terms of
foreign investment, due to with KfW bank
the energy consumed in Argentina
5 to renewable sources until 2025, by macro-economic conditions
which entail high levels of • The bankability of the projects within the scope of the RenovAr
promoting renewable projects Program was strengthened by several key features, of which we
necessary to produce 1.2GW per institutional risk, currency
fluctuations, and sovereign debt highlight the following:
RenovAr Program – year
risk • PPA tariffs in US dollars, but payable in local currency (ARS)
Chubut Norte III and
Chubut Norte IV • RenovAr was designed to mitigate • Compensation triggered by payment default or convertibility
Wind Farm relevant risks faced by investors in • Currency devaluation,
international monetary defaults, restrictions in the form of a put option granted by the
renewable energy projects
and strict regulations to deal Government of Argentina and payable out of a pre-funded
Innovation Type: • Wind farms Chubut Norte III (57.66 with FX risk have been common liquidity and guarantee fund (FODER)
Financial structuring - MW) and Chubut Norte IV (83 MW) occurrences in Argentina, thus • Optional World Bank guarantees in the event that the above-
PPA long term revenues affecting potential investments
developed in the scope of round 2 mentioned compensation is not paid or in the event of
indexed to USD
of the program came into operation inconvertibility or non-transferability
in 2021 with the capacity to
annually produce 669,100 MWh of • State-owned company, CAMMESA, acts as offtaker under PPAs,
energy supplied to the Argentine being therefore responsible for the acquisition of the generated
Useful Links:
RenovAr Info Interconnection System (SADI) energy and the sale and distribution of the energy to the consumers
Genneia Info (in pesos)
IFC Report Stakeholders Involved
• FODER is responsible for mitigating liquidity and offtaker credit risks
• Genneia and Pan American Energy (sponsors)
•
by providing guarantees and direct financing for the projects
Government of Argentina (granting authority and
responsible for the program) Timeline
• Fondo para el Desarrollo de Energias Renovables - July October August February
FODER (guarantor and financing provider within 2015 2016 2016 2017 2021
RenovAr generally)
• Compañía Administradora del Mercado Mayorista
Eléctrico – CAMMESA (offtaker)
• World Bank (guarantor) RenovAr is Chubut Norte III and IV 10
• KfW (lender) Round 1 Round 1.5 Round 2
launched commercial operation
 RenovAr Program – Chubut Norte III y Chubut Norte IV Wind Farm

Argentina

Results / Impacts Key lessons learnt

RenovAr Program –
Chubut Norte III and Although the government did not initially want to take on
Chubut Norte IV • Chubut Norte III and IV, awarded in Round 2 of the
Wind Farm RenovAr Program, with 32 wind turbines, already some of the risks, it eventually acknowledged that this was
generate 140 MW of power, with a total installed necessary to attract investors and create the positive track
capacity to produce 669,100 MWh of renewable record required to advance the program and perhaps
Innovation Type:
energy per year for SADI improve the overall conditions, reduce the risks allocated
Financial structuring - to the Government of Argentina at subsequent phases
PPA long term revenues
indexed to USD • Despite the very adverse macroeconomic
environment in Argentina, the Program was able to
attract international investors and to make those
projects economically viable at an acceptable cost The RenovAr program is still ongoing, on its 4 th round of
Useful Links: concessions, but macro-economic issues and
RenovAr Info governmental decisions are lowering the construction
Genneia Info
rhythm and amending original guidelines. Government’s
IFC Report
commitment to infrastructure projects is essential to
ensure legal security for the market players

11
 Road Interconnection Concession: Vial Santiago –
Valparaíso – Viña del Mar, Route 68
Innovation
Chile Context Problem
• As one of the first and most relevant PPPs in Chile, the
• The Santiago-Valparaíso-Viña Del • Direct payments from the Government
6 project financing was structured through a bond issuance
Mar toll road project consists of the of Chile and tariff revenues are
with an innovative “multilateral wrap” model with IDB
construction and operation and denominated in Chilean peso and
maintenance of a total of 141.36 km, indexed to local inflation • This was the first cooperation of a multilateral institution
Vial Santiago –
Valparaíso – Viña del
contemplating 4 tunnels, 16 bridges, with a private monoline insurer. IDB was the guarantor of
22 interchanges and 14 crossings • At that time (late 90s), structuring and
Mar, Route 68 record before bondholders and Financial Security
and additional 19.6 km of rural financing of similar projects were
Assurance (FSA) co-guaranteed the remaining amount,
service streets especially challenging due to the lack
benefitting from IDB’s preferred creditor status. The
of long-term local funding and lack of
structure is analogous to IDB’s A/B loan structure
Innovation Type: • With an original term of 25 years, the long term foreign exchange hedging
FX Risk partially and concession favors the fluid instruments available • The issuance amounted to 11 million Unidades de
objectively allocated to transportation of cargo and Fomentos (UF) (USD 300 million equivalent). UF is a
Granting Authority, passengers and allows easy access • In addition, as the Concession System
under the relevant Deference unit readjusted to cover inflation
to the port of Valparaíso and other was only gaining initial traction, the
Concession Agreement project companies and
inner cities, also improving • A relevant portion of FX risk was objectively allocated to
accessibility to Gran Santiago concessionaires expected more the Granting Authority through a public insurance
governmental activity and support available at the time, to compensate the concessionaire
Useful Links: for the adverse impact on the debt service of
Project Page depreciation against the US dollar by more than 10%
IJGlobal Info relative to a rate locked in at the time of the debt
Stakeholders Involved placement
Timeline
• Sociedad Concesionaria Rutas del Pacífico S.A., as the
February May August April
concessionaire and its shareholders Vias Chile S.A. and
1998 1998 1999 2002
Abertis Autopistas Chile III SPA
• Government of Chile, the Ministry of Public Works, as the
Granting Authority
• IDB as guarantor
Economic Decree officially Beginning of Financial
• FSA as guarantor
Offers Opening granting the the Concession Closure 12
Date Concession Term
 Road Interconnection Concession: Vial Santiago –
Valparaíso – Viña del Mar, Route 68
Chile
Results/Impact

6 Key lessons learnt

• Route 68 Concession is currently operating and has had a

Vial Santiago –
Valparaíso – Viña del
Mar, Route 68
Innovation Type:
FX Risk partially and
• As one of the first PPP in Chile, it paved the way for many
objectively allocated to
Granting Authority,
under the relevant
Concession Agreement • The objective FX risk allocation was only one of its
Useful Links:
Project Page
IJGlobal Info
• The success of the concession program of Chile and the
significant impact on the way of life for a large portion of the
Chileans, since it is the main route responsible for
connecting two very populous urban areas of the country:
Gran Santiago and Gran Valparaíso, constituting the busiest
land route in Chile
other PPPs under Decree No. 900 of 1996, responsible for
the regulation of the Concessions System in Chile
innovations. Due to the public insurance available and used
at the time, the Government would cover the local currency
depreciation against the US dollar by more than 10% and, in
the other hand, the concessionaire would pay to the
Government if the local currency appreciated by more than
10%. With such structure, the private entity could be ensured
that it was protected against the foreign exchange risk upon
currency devaluation and against the inflation variation
during the term of the Concession
economic stability of the country enabled subsequent
projects to access cross border financing at attractive rates
without the need for Chilean government to assume any FX
risk
As a general rule, financing and FX risks are to be
handled by the private concessionaire. Nevertheless,
in projects that are highly strategic for the
Government or population, including initial projects
under a new program or investment regime, as the
present case, partial allocation of FX risk to the
Government may be justified
Despite the successful structure of a public insurance
protecting the private entity from the foreign exchange
risk and inflation variation, considering the low variation
of the Chilean currency over the years, the Government
does not currently provide any government support in
respect of FX risk, leaving the foreign investors to find
in the market the necessary tools to protect their
investments and financing
In addition to the mitigation of FX risk through the
private banking market and usual hedging strategies, it
is also legally permitted under Chilean law for
companies to enter into short or long-term contracts
and transactions denominated or indexed in US dollars
or other currencies
13
 Second Concession Arturo Merino
Benitez International Airport (Santiago)
Context
Chile
• The Arturo Benitez International Airport in
• Direct payments from the Government of
Santiago is the main air terminal in the country,
7 Chile and tariff revenues are
concentrating the largest movements of both
passengers and cargo. In 2013, the Chilean
Ministry of Public Works designed a plan to
2nd Concession
increase airport capacity and make the airport
Arturo Merino
Benitez the most modern in South America
International Airport
(Santiago) • As part of the second concession, the project
• Challenge of structuring a new
involves the renovation of existing installations
with the redesign and extension of the existing
terminal and the design, build and finance of a
Innovation Type: new 175,000m² terminal for international
FX Risk partially and flights, doubling the airport's capacity to 30
objectively allocated to million passengers by 2030. The term for the
Granting Authority,
second concession is of 20 years
under the relevant
Concession Agreement
Stakeholders Involved
• Sociedad Concesionaria Nuevo Pudahuel S.A. (SCNP), as
Problem Innovation
• Structure of a multinational consortium with
access to capital and industry experience
and expertise, being also responsible for
denominated in Chilean currency and
providing amounts in equity upfront
indexed to local inflation. Certain
revenues (duty free and certain
• Execution of different multisource financing
international fees) might be correlated to
agreements with local and foreign banks,
foreign currency
denominated both in US dollars and Chilean
pesos to match the concessionaire’s
income generation. FX mismatch risk was
concession for a previous project already
mitigated via derivative agreements
granted to the private sector, with the
purpose of providing new resources and
• According to the terms of the Concession
carrying out necessary expansion works
Agreement, the concessionaire and the
and projects to better serve the final
State would share the commercial income
users and also to increase the relevance
of the Concession and the airport tariffs
and importance of the International
Airport in Latin America from the passengers boarded by 22.44%
and 77.56%, respectively

Useful Links:
the Concessionaire, constituted as a joint venture composed of Timeline
Aéroports de Paris (45%), VINCI Airports (40%) and Italy’s
Project Page December
InfraPPP Info Astaldi (15%). March October July
• Government of Chile, the Ministry of Public Works, as the 2015 2015 2016 2022
Concessionaire Annual
Report Granting Authority
• Santander Chile, Banco Bice, Banco de Crédito e
Inversiones, Itau Corpbanca, Penta Vida Compañía de
Seguros de Vida S.A., Seguros Vida Security Previsión S.A. Concession Beginning of Financial Estimated
was awarded the Concession Closing commercial
(local lenders)
Term operation 14
• Banca IMI, Credit Agricole, Societe Generale, Banco
Santander Spain and CaixaBank (foreign lenders)
 Second Concession Arturo Merino
Benitez International Airport (Santiago)
Chile

7
Results/Impact Key lessons learnt
2nd Concession
Arturo Merino
Benitez Considering that Chile has been successful in
• In an important country as Chile, the modernization and
International Airport maintaining economic stability, with a very low volatility
(Santiago) expansion of its main International Airport offers huge
of its local currency, long term FX hedging is available
social and economic externalities. The investments
at feasible costs. Investors are also keener to face on
planned are aimed at the consolidation of an important
risks that would not be acceptable in other emerging
hub for pan-Pacific traffic
economies
Innovation Type:
FX Risk partially and • Expansion works are currently in progress
objectively allocated to Due to favorable macroeconomic conditions, private
Granting Authority, entities in projects structured in Chile usually mitigate
under the relevant their FX risks through the private banking market. In
Concession Agreement this specific case, the concessionaire entered into
derivatives agreements in order to protect itself from FX
risk and from variable interest and inflation variation

Useful Links:
Project Page
InfraPPP Info
Concessionaire Annual
Report

15
 Pacífico 3 Toll Road 4G
Context
Colombia • The project includes the improvement
and construction of 146km of roads as
well as tunnels, bridges and viaducts, to
8 connect the regions of Antioquia, Caldas,
and Risaralda. Following construction,
the project will be operated by the
concessionaire for 25 years
Pacífico 3 Toll Road
4G
• The Project is part of the first wave of
Colombia’s National Infrastructure
Innovation Type:
Agency 4G (Fourth Generation) program
Improved PPP
Framework,
under PPP scheme, which aimed to build • Due to the limited capacity of local
Project financing – or expand 8,000 km of roads
Issuance of bonds
internationally and
FDN credit
enhancement
Useful Links:
Stakeholders Involved
GIHub Info
Bonds&Loans Case Study
• FDN - Financiera de Desarrolo Nacional
S.A. (state-owned development bank,
lender)
• ANI – National Infrastructure Agency
(Granting Authority)
• Conexión Pacifico Tres S.A.S.
(concessionaire)
• MHC Constructora, Meco, El Condor (as
shareholders/ sponsors)
• Goldman Sachs (book runner for bonds)
Innovation
Problem
• 4 Generation PPPs resulted from an improved legal
• Prior private investment initiatives had framework, starting with the creation of ANI, the National
not accomplished great results in Infrastructure Agency
Colombia due to inefficient institutional
• Under 4G PPPs, risk is shared between public and private
framework, risk allocation and
parties. Once defined functional units of a toll road are
contractual structure completed, concessionaire shall be remunerated by a
combination of tolls and payments by ANI (part of which may
• The Government had limited financial be indexed to US dollars), including payments to mitigate
resources for the investments needed risks of construction and demand
and, thus, Colombia had to rely on
private investment • In case of early termination, concession agreement secures
indemnity payment sufficient to pay outstanding debt
investors, the 4G Program had to be • The financing structure used in this project (total of
attractive for foreign investments as well approximately USD 650 million) included a USD 260 million
144A/Reg S note, which was the first overseas bond for a
• An increased sector-concentration and Colombian toll road
emerging regulations restricted
• The complete multi-tranche, dual-currency, hybrid financing
commercial banks’ capabilities to provide
package includes three separate loan tranches along with a
the financing for infrastructure projects credit enhancement facility provided by Financiera de
Desarrolo Nacional (FDN), a Colombian state-owned
economic development bank
• The introduction of the FDN was one of the main institutional
Timeline innovations. FDN grants subordinated loans and liquidity
guarantees, and at the same time may finance the
September February structuration of projects and advice regional governmental
2014 2016 Apr 2020 entities
• Although revenues of the project were in local currency, based
on the overall structure, risk sharing and credit enhancement
Date of Completion of of FDN, foreign investors buying USD denominated notes
Concession Tesalia Tunnel
financial were willing to absorb FX risk 16
was awarded closing drive
 Pacífico 3 Toll Road 4G

Colombia
Key lessons learnt
8
Results/Impact

Constraints in domestic infrastructure investment

Pacífico 3 Toll Road • The financing raised enabled a relevant improvement
4G
capabilities may be mitigated by issuing bonds in
in the road, including two tunnels and several bridges overseas capital markets. To the extent that projects
may secure to index a portion of their revenues into
Innovation Type: • The Conexión Pacifico 3 Highway was the first project hard currency, project bonds issued abroad may be
Improved PPP in Colombia's 4G program to reach financial closing. It
Framework, denominated in such hard currency (at least in the
Project financing –
paved the way for other successful projects under the same proportion of foreign currency indexed revenues)
Issuance of bonds 4G Program
internationally and
FDN credit • Approximately 3,000 direct and indirect jobs were Improvements to PPP frameworks, risk sharing and
enhancement created by the project and its associated spillover credit enhancement mechanisms to mitigate investor
effects risks can increase appeal of PPP solutions for foreign
investors
Useful Links: • The government increased its support for private
GIHub Info sector participation in infrastructure development,
Bonds&Loans Case Study Opportunities may exist to mobilize untapped domestic
improving the country’s PPP framework and providing
incentives for investors institutional investors as well, such as pension funds by
issuing bonds tailored to their needs (e.g., long tenor
and inflation indexation)

17
 Bogota Line 1 PPP Project
Innovation
Context Problem
• Empresa Metro de Bogota awarded a single concession for the
Colombia • The project seeks to improve access • The Project is too big for a private construction of civil works, rolling stock and railway systems, as well
to jobs and quality transit for public concessionaire to finance its full as its partial financing, operation and long-term maintenance
9 transport users in the area of construction cost, but Government
influence of the Metro Line of Colombia needs an • The Concessionaire was responsible for financing only USD 1.1 billion
experienced private out of total project costs. The difference will be financed by EMB itself
• It will stretch over 24km, and include concessionaire to undertake and then paid to the concessionaire throughout the construction phase
the construction of 15 stations and overall construction, operation and (a portion of which in US dollars)
Bogota Line 1 PPP acquisition of 23 trains each able to
Project
maintenance with required • The Colombian Government is providing most of the funding to EMB.
carry 1,800 passengers, with a efficiency Nevertheless, EMB will also resort to project finance from IDB, IBRD
maximum capacity of 72,000 and the European Investment Bank (EIB) amounting to around
passengers per hour • Segregation of the project in USD 1.7 billion (guaranteed by the Republic of Colombia)
Innovation Type: different concessions could
Combination of • Bogota Line 1 PPP Project is the jeopardize the coordinated and • The multilateral loans are intended to cover initial costs of the project.
public and private largest infrastructure project ever integrated development of the Given the mismatch between multilateral financing ( in USD) and
financing, and undertaken in Colombia, with a total project project revenue (in COP), the parties resorted to hedging mechanisms
appropriate risk
construction cost in excess of put in place to prevent Empresa Metro de Bogota from taking
sharing between
state owned USD 4.3 billion devaluation risk. Multilaterals helped borrower to access currency
company and swaps in a more efficient manner
concessionaire Stakeholders Involved • More recently, in July 2020, Empresa Metro de Bogota issued COP-
denominated bonds on the Colombia stock exchange as part of its
• China Harbour Engineering Company (sponsor, leader of the finance package for construction phase. The 23-year bonds are
APCA Transmimetro Consortium, awarded with the concession) Timeline guaranteed by the Government and were designed as a new type of
Useful Links:
• Xian Metro Company (sponsor) local bond, denominated “títulos de pago por ejecución”
IJGlobal Info
The Asset Info • Bombardier (subcontractor)
World Bank Report • European Investment Bank (EIB) August October
Bond Issuance Info • Inter-American Development Bank (IDB) July 2020 2028
2018 2020
• International Bank for Reconstruction and Development
(IBRD)
• Government of Colombia
• Empresa Metro de Bogota (the borrower, a state-owned Loan approval from Expected
Beginning of Issuance of commercial 18
company in charge of implementing the project and its overall World Bank, IDB construction local bonds
and EIB operation.
oversight)
 Bogota Line 1 PPP Project

Colombia

9
Results/Impact
Key lessons learnt
Bogota Line 1 PPP • The combination of financing to a state-owned company
Project and private financing, under a properly designed Multilateral financing for initial stages of the project was
concession structure, with appropriate risk sharing, used as a strategy by Empresa Metro de Bogota to
made it possible to develop the largest infrastructure demonstrate the project’s efficiency and attract
Innovation Type: project ever in Colombia commercial capital and private finance for the remaining
Combination of stages of implementation thereof
public and private • The multilaterals US dollar funds will be disbursed
financing, and between 2020-2025 and may result in around
appropriate risk USD 300 million being converted into COP annually,
sharing between reason why the Government of Colombia has asked the
state owned While large and complex projects may still need
multilaterals (IBRD, IBD and EIB) support in managing governmental funds and public financing, a
company and
concessionaire the cross-currency swap market combination of public and private financing, through
• This was the first project financed by EIB in Colombia, appropriate risk sharing between public and private
under its Climate Action and Environment Facility and parties, may secure the best of both words, in a true
Useful Links: aimed at promoting climate change mitigation by public private partnership
IJGlobal Info
fostering the use of public transport and helping to
The Asset Info
World Bank Report
reduce pollutant emissions
Bond Issuance Info
• Empresa Metro de Bogota intends to use those US
dollar based funds to make payments to the
Concessionaire which are associated with the acquisition
of rolling stock and imported equipment, thus mitigating
FX risk for all parties
19
 Jegurupadu Combined Cycle Power Plant

India Context Problem Innovation

• The Phase I of the project involves
10 217 MW of gas-fired combined cycle
power plant comprising three gas
turbines of 52.8 MW and a steam
turbine of 77 MW. It was one of the
Jegurupadu Project
first power plants developed with
private investment
• Power generated by the project is
Innovation Type: entirely sold under a take-or-pay
Financial Structuring – regime to Andhra Pradesh
FX risk attributed to Transmission Corporation (AP
offtaker Transco), the state-owned utility and
offtaker in Andhra Pradesh
• Financing for the project came
primarily from the IFC, the Nordic
Useful Links: Investment Bank and a syndicate of
Project Info (Country Study) Indian commercial banks (total of
USD 181 million)
Stakeholders Involved
• Andhra Pradesh State
• GVK Power and Infrastructure Ltd (sponsor holding
40% of the project)
• Asia Infrastructure Fund (25% shareholder)
• IFC (lender and shareholder with 10%)
• AP Transco (state-owned utility, offtaker and 2%
shareholder)
• Nordic Investment Bank (lender)
• Mitigation of (i) FX risk for hard • FX risk is passed through under the fixed cost component of
currency denominated the PPA tariff. Basically, FX risk was attributed to AP
financing and (ii) AP Transco Transco (offtaker) up to the point of remittance of foreign
risk as entire output is sold to exchange for debt service. FX mitigation was not limited to
the SOE under the 18-year indebtedness. The PPA provided that the return on equity for
PPA, which is a key contract the foreign exchange component of total project equity was
for bankability referenced to exchange risk, shifting further FX risk on to
the government
• The Government of India issued a counter-guarantee in
September 1996 covering repayment of “external
commercial borrowings” up to USD 77.7 million, effective as
of 1997
• The project also obtained a guarantee from the Andhra
Pradesh government in March 1996 backing all of AP
Transco’s payment obligations under the PPA
Timeline
February
1993 1996
1997
Phase I Financial
PPA
Commercial Closure of
executed
Operation Phase I
20
 Jegurupadu Combined Cycle Power Plant

India Results/Impact Key lessons learnt

10 Government of India acting as guarantor for foreign debt

• GVK pioneered private power development in the Andhra was a determinant factor for ensuring the Project’s
Pradesh State bankability. Project was constructed mainly on balance
sheet by the sponsors due to delays in the issuance of
Jegurupadu Project • The Jegurupadu Project displays farsighted design features the counter guarantee by the Government of India,
that enhanced operational efficiencies and minimize mainly caused by a resistance from public officials to
environmental impact. The plant has consistently operated issue the guarantee while a lot of controversy was taking
and obtained high ratings for environmental performance, place around the Dabhol project (a LNG project
Innovation Type: with emissions below the standards set by the Government developed by Enron in the state of Maharashtra).
Financial Structuring – Accordingly, IFC refused to make disbursements until
and onsite wastewater treatment
FX risk attributed to the formal issuance of the counter guarantee
offtaker
• Due to depreciation of the Indian rupee against the US
dollar, the capital cost of the project increased. AP Transco,
as offtaker and bearer of FX risk, was responsible for
approval of the increased capital cost, but it is reported that
Useful Links: AO Transco has failed to absorb such risk, imposing a later
Project Info (Country Study) renegotiation of the terms of the PPA and reducing the
margins derived from the project from sponsors

• Overall, however, the project provided positive investment

outcome (even though not at the expected 16% return),
leading the GVK Group (sponsor) to move forward with an
expansion of the plant (Phase II). The 228 MW CCPP Phase
II commenced operations in 2009

• Following generations of projects faced a lower perceived FX

risk in India, to that point that this governmental guarantees
21
became much less frequent
 Jasa Marga Komodo Bonds
Indonesia Context
• Notwithstanding the growing demand
11 for further investment in infrastructure,
SOEs and projects have difficulty to
access a broader variety of funding
sources, especially from foreign
Jasa Marga Komodo
investors, due to the inherent foreign
Bonds exchange risks
• That was the case of Jasa Marga
Innovation Type: Persero Tb, the state-owned toll road
Financial Structuring - operator in Indonesia which aimed at
Local Currency Cross- doubling their operating toll road by
border Bond Project 2019. Its expansion plan required the
Financing company to look for funding
alternatives and the SOE opted to
issue rupiah-denominated bonds (also
known as Komodo bonds) on the
Useful Links:
International Securities Market of the
Project Page
LSE Report on Komodo B London Stock Exchange (LSE)
onds
Stakeholders Involved
• Jasa Marga Persero Tbk (Issuer)
• HSBC and Mandiri Securities (joint global co-
ordinators).
• Deutsche Bank and Standard Chartered Bank (joint
bookrunners).
Problem
• Need to seek alternative
sources of funding from foreign
investors to meet local demand
for financing. Prior to the
development of the Komodo
Bonds, sponsors have relied in
US dollar or other hard
currency denominated capital
markets. Upon the devaluation
of the local currency, however,
sponsors struggled to honor
their obligations
Timeline
December
2017
Issuance of
Komodo
Bonds
Innovation
• Jasa Marga was the first Indonesian company to issue
Komodo bonds in the LSE and raised USD 295 million
for its expansion plan. This funding source allowed Jasa
Marga to access the broadest and deepest possible
range of investors globally. The bonds were subscribed
by 15% of local investors (Indonesia), 40% Asian
investors, 26% US investors and 19% European
investors
• Komodo bonds are denominated and hence traded in
rupiah, but investors subscribe in dollars. The issuer
then converts these dollar proceeds to rupiah and
purchases the dollar equivalent to meet its coupon
payments
• Unlike foreign bonds that are predominantly
denominated in US dollar, Komodo bonds are an
intriguing alternative of financing because they mitigate
foreign exchange currency risk for issuer, and
simultaneously shift it to the investors. For investors,
Komodo bonds are means to diversify their portfolio
December
2020
Final Maturity
of Komodo
Bonds 24
 Jasa Marga Komodo Bonds

Indonesia

11
Results/Impact Key lessons learnt

Jasa Marga Komodo • IDR 4 trillion (USD 295 million equivalent) raised in the Komodo bonds may be used for future infrastructure
Bonds issuance, with a coupon of 7,5%, 3 year maturity date financing, given the size of the investor pool and
(demand had in fact reached IDR 15 trillion) absence of currency risk for the issuer. Demand for
Komodo bonds may increase as US interest rates
Innovation Type: decline – investors are also cautious with the country’s
Financial Structuring - FX volatility and this concern is reflected in pricing
Local Currency Cross-
border Bond Project
Financing Komodo Bonds as a reliable source of financing that
may also be explored by other local companies, other
than SOEs. SOEs, however, are in a more privileged
position, due to their government backing and low
Useful Links: liquidity risk
Project Page
LSE Report on Komodo B Since Komodo bonds have been issued offshore, the
onds
additional cross-border withholding tax could present a
potential cost hindrance

25
 Local currency financing at the sub-
national level in Mexico
Context Problem Innovation
Mexico
• Mexican sub-national governments faced • Upon use of the well-developed Mexican peso
• Such issues and constraints resulted in a
challenges in obtaining financing due to swap market, IBRD was able to efficiently provide
pricing structure for IBRD loans that was
12 various market conditions and regulations, Mexican peso financing to the Guanajuato State
unattractive to sub-nationals in Mexico
such as the requirement that states may for investment in the State plan which included
and an inefficient allocation of foreign
borrow exclusively in local currency from projects in the toll road and sanitation sectors
Local currency exchange exposure for the government.
local financial institutions and the spread
financing at the Domestic banks were essentially the only
sub-national level in charged by the local financial intermediary • The transaction was structured as follows:
sources of debt financing for sub-
Mexico (BANOBRAS) over the cost of funds from • When borrower submits request to withdraw
nationals
ultimate lender. The conditions thus funds, IBRD executes swap transactions with
resulted in an uncompetitive overall cost • IBRD wanted to create a mechanism to an international financial intermediary
efficiently provide Mexican peso financing • An initial exchange of USD into pesos is
• The financial intermediaries had
to Mexican sub-nationals at a competitive carried out under the swap transaction
Innovation Type: traditionally hedged FX risk through a
cost and, at the same time, reduce the
FX risk transferred to foreign exchange trust fund created by the • The peso amount is disbursed to
currency and interest rate risks to
the market, reducing the Ministry of Finance, which effectively BANOBRAS, which then services and
risks to borrower, BANOBRAS and the guarantor (the
concentrated all FX risk relating to foreign repays that disbursed amount in pesos
guarantor and final Government of Mexico)
currency borrowing by sub-nationals in the • Pricing shall depend on the price IBRD gets
beneficiary
hands of the federal government from the market
• BANOBRAS then adds its own lending
spread and passes the cost to the final
Timeline beneficiary (the sub-national government)
Useful Links:
World Bank Study Stakeholders Involved
Project Page June December
World Bank Report • International Bank for Reconstruction and Development 2004 2009
(IBRD) (lender)

• BANOBRAS (state-owned development bank, acting as local

financial intermediary/borrower) IBRD Loan Financial
Approval closure
• Sub-national government – Guanajuato State (sub-borrower) 26
 Local currency financing at the sub-
national level in Mexico
Mexico
Results/Impact Key lessons learnt
12

• The Mexican peso loan (equivalent to USD 108 million) was The combination of financial products allowed the sub-
Local currency national government to obtain financing at an attractive
financing at the intended specifically for the Decentralized Infrastructure
Reform and Development Project by the government of the cost
sub-national level in
Mexico Guanajuato State

• The project was the first local currency IBRD loan

• IBRD’s Mexican peso financing resembles a line of credit
Innovation Type: denominated in US dollars that is disbursed, serviced, and
FX risk transferred to repaid in pesos. The structure transfers foreign currency risk
the market, reducing the from the borrower to the market. Consequently, the currency
risks to borrower, and interest rate risks to the borrower, the guarantor, and the
guarantor and final final beneficiary are drastically reduced
beneficiary
• This was a multi-sector projects since funds were applied by
the State of Guanajuato in four project components: (i)
component 1 funds the road transport sector strategy; (ii)
component 2 finances the water supply and sanitation sector
Useful Links:
strategy; (iii) component 3 finances the low-income housing
World Bank Study
Project Page
sector strategy; and (iv) component 4 finances the technical
World Bank Report assistance component for the State Government apparatus,
including strengthening the mechanisms to screen, prioritize
and monitor public investments, among others
According to the World Bank, a multi-sector swap
structure in a single transaction may not be practical
because it requires significant effort to design and
supervise and an in-depth understanding of each
sector, with availability to engage in policy issues within
sectors, therefore elevating related costs
The overall strong performance of the governmental
agencies indicates that at least some Mexican states
have the capacity to successfully implement Bank-
financed projects. Infrastructure support to the states is
both important and feasible, therefore the World Bank
concluded it should continue to pursue the sub-national
infrastructure agenda in Mexico, however a new and
more efficient structure for delivering such support
needed to be formulated

27
 IIRSA Norte Toll Road
Innovation
• Upon completion of certain construction milestones, the
Peru Context Problem project receives CRPAOs (Certificados de
Reconocimiento de Derechos del Pago Anual por
13 • Peruvian government had an • The government faced a shortage Obras), which represent an unconditional and
ambitious plan to rejuvenate 955 km of financial resources to meet the irrevocable payment obligation of the Peruvian
of roads connecting the fluvial port of cost of the project due to its government. The CRPAOs were then used to back up
Yurimaguas with the Pacific port of reliance on the cyclical prices of project bonds issued on international markets to raise
Paita, aiming at promoting economic commodities capital for construction
IIRSA Norte Toll growth in remote areas of the country
Road • There were no local sources of • USD 60 million partial credit guarantee from IDB to back
• The project is also part of a wider plan long term financing available in the financial obligations of the Government under the
to better integrate infrastructure Peru for larger projects concession, including under the CRPAOs (IDB receiving
Innovation Type:
Project financing –
networks across South America, in a counter-guarantee from the Government)
Debt – bonds this case between Peru and Brazil • Thus, the government needed to
guaranteed by attract private investment to the • This was the first Peruvian company to raise financing
unconditional country’s road network via SEC Rule 144-A bonds, denominated in USD and
government payment governed by NY law. Buyers included US and European
obligation
bondholders

Stakeholders Involved • The proceeds of the bonds were invested in Morgan

Useful Links: Stanley credit-linked notes to create a return on the
GIHub – IIRSA Norte Tramo • Construtora Norberto Odebrecht (sponsor) proceeds until these were invested in further
LatinFinance IIRSA Norte • Odebrecht Investimentos em Infraestrutura Timeline
IJGlobal IIRSA Norte
construction works leading to additional CRPAOs
(sponsor)
• Grana y Montero (sponsor) June August
• Construtora Andrade Gutierrez (sponsor) 2005 2005 2011
• IIRSA Norte (project company)
• IDB (guarantor)

Agreement Financial Full length route

signed between closure inauguration
the parties 28
 IIRSA Norte Toll Road

Peru Key lessons learnt

13
X
• As a general rule, financing and FX risks are to be handled by the
private concessionaire. Nevertheless, in projects that are highly
Results/Impact strategic for the Government or population, including initial projects
under a new program or investment regime, as the present case,
IIRSA Norte Toll partial allocation of FX risk to the Government may be justified
Road
• USD 213 million financed through the issuance of SEC • The government scheduled payments to the project sponsor are
Innovation Type: Rule 144-A bonds, guaranteed by CRPAOs ensured irrespective of traffic volumes, thus eliminating the risk that
Innovation Type: toll-income would fall short of projections. This has caused CRPAO-
Project financing –-
Project financing (certificados de reconocimiento de pago anual de
backed project bonds to have very favorable reception with investors
DebtDebt
– bonds obras)
guaranteed by
unconditional • Travel time from Yurimaguas to Paita reduced from 36 • Bonds were denominated in US dollars and governed by New York
government payment law, therefore being attractive to international investors and allowing
hours to approximately 18 hours
obligation the concessionaire to access a larger pool of capital at better terms
Useful Links: • First year of operation of the toll road experimented a
GIHub – IIRSA Norte Tramo • The experience with CRPAOs has allowed the Peruvian government to
traffic increase of 41.5% compared to the previous
LatinFinance
Useful IIRSA
Links:Norte develop and refine the model for existing and future projects, thus
IJGlobal IIRSA Norte year shifting to a similar RPI-CAO1 (Remuneration for Investments —
GIHub – IIRSA Norte Tramo
LatinFinance IIRSA Norte Certificate of Progress of Works) financing structure
IJGlobal IIRSA Norte • The Peruvian government has not missed a single
payment so far, building confidence in other CRPAO • The RPI-CAOs are not materialized in certificates and have been
schemes (or their successors) designed as irrevocable but contingent obligations: Government is only
obliged to make payments to the concessionaire to the extent that
project revenues toll below a guarantee level (top up obligations)

29
 Rustenburg Water Services Trust (RWST)
Innovation
Context Problem
South Africa • First application of project finance structure in the water
• Expansion of mining operations in the • A lack of sufficient available sector in South Africa. The financing was in local currency
Rustenburg region in South Africa governmental funding for (ZAR), which itself was used as a mechanism to mitigate
14 eventually led to strong population improvement of the local water any currency risks associated with the project
growth and shortened the treated infrastructure
water capacity and availability – which • Private, commercial and public financing – under a
Rustenburg Water had long been constrained • Insufficient water capacity and special purpose vehicle (the RWST) – for improvement of
Services Trust balance the Rustenburg water and wastewater infrastructure. The
PPP • The inefficiency and lack of capacity establishment of a Trust, with revenues ring-fenced from
of the sewage treatment works in the the municipality and strong operating arrangements,
region led to pollution of the Bospoort provided comfort to the lenders. Public funds were used
Innovation Type: Dam mainly to help structure the transaction
Water efficiency
solutions, creditworthy • Use of non-potable treated sewage for industrial purposes
vehicle and strong with long-term offtake agreements with local mines, thus
revenue stream creating a strong revenue stream

Stakeholders Involved • Rustenburg Municipality was the sole beneficiary of the

Useful Links: RWST, thus avoiding political issues typically faced in
World Bank Group • ABSA Bank (local commercial bank, lender) PPPs
Water Scarcity Solutions • Development Bank of Southern Africa (in
Case Study Publication
collaboration with ABSA) (lender) Timeline
• Rustenburg Local Municipality (granting December January
authority and also provided public funds for the 2003
2003 2004
project’s development)
• Anglo Plat and Impala Plat (major platinum
mines acting as offtaker by purchasing the non-
potable wastewater produced) Presentation of Financial Construction
the Request for closure works
Proposal 30
 Rustenburg Water Services Trust (RWST)

South Africa

14
Results/Impact Key lessons learnt

Rustenburg Water Possibility of replication of this investment model, in

• The offtake agreement with local Platinum mines
Services Trust which private investors may secure a predictable long
PPP secured 50% of the project’s revenue streams
term stream of revenues through long term offtake
• Limited recourse loan from ABSA to finance the water agreements (in this case, for the supply of water for
and wastewater infrastructure upgrades and industrial purposes), especially in areas with strong
Innovation Type:
Water efficiency expansion, with a 20-year term, worth ZAR 280 million industrial activity
solutions, creditworthy (equivalent to USD 37 million)
vehicle and strong
revenue stream • Establishment of a sustainable bulk water and sewage Private financing in joint efforts with public sectors/
system with cash reserves worth USD 12 million after authorities is key to fund-raising and carrying out
7 years of operation important infrastructure projects, even in less
Useful Links: economically relevant municipalities
World Bank Group • Increase of available potable water and imported
Water Scarcity Solutions freshwater used for domestic purposes by the
Case Study Publication Creation of the ring-fenced trust led to avoidance and
Rustenburg Municipality mitigation of political risk to the Project by
determining the Municipality as the sole beneficiary of
• The Project has been successfully operating since
the RWST
and has met all of its debt commitments and
obligations

31
 Gautrain Rapid Rail Link PPP
Context
South Africa • The development of the high-speed
80 km-long rail link project results
15 from local needs in reducing traffic
congestion, increasing environmental
sustainability and creation of
employment opportunities
Gautrain Rapid
Rail Link PPP • The transportation demand relating
the 2010 World Cup held in South
Africa also contributed to the inception
Innovation Type: and development of the project
Financing structure –
Alternate allocation of FX • The PPP scheme included a 19.5-
risk in different project year contract for the construction,
stages operation and maintenance of the
Gautrain
Problem
• Variable interest and foreign exchange
rates
• 28% of development period costs were
denominated in foreign currency and
hedging costs in connection therewith
were high
• National Governmental guidelines
provided for denomination of costs in
local currency
Innovation
• The South African Government funded 50% of the
development costs of the project and the remainder of
the costs were funded through, among others,
provincial borrowings, private sector equity and private
sector borrowings (including IFC, the African
Development Bank and commercial banks).
• During the development phase, payments by the
Government were partially indexed in foreign currency
– other than for the portion of the private party’s costs
for which local content was required. For such
purposes, in the financial modeling for the project,
foreign denominated costs were converted by the
granting authority into local currency at a spot rate in
2006. FX rates were then fixed until 2011. The National
Treasury acted as a currency swap counterparty to the
Gauteng province, eliminating the additional cost for
currency hedging.

Useful Links: Stakeholders Involved • During the Operational Period, FX hedging costs were
Gautrain Management Ag undertaken by the concessionaire.
ency - Case Study
IFC Info • Bombela Concession Company (Pty) Ltd
Gautrain Management Ag (concessionaire) Timeline
ency – 2019/2020 Annual
Report • Gauteng Provincial Government (granting authority,
Centre for Public Impact public partner in the PPP)
• National Treasury and National Treasury 2005 2006 2012 2012-2027
Department of Transport (main financiers)
• Gautrain Management Agency (special agency
created to manage, coordinate and oversee the
Project was Necessary Formal end of
Gautrain Project during the Operational Period) Operational
approved by the federal funding construction
• IFC, African Development Bank and commercial Period
government was approved 32
banks (lenders)
 Gautrain Rapid Rail Link PPP

South Africa

15
Results/Impact Key lessons learnt

Gautrain Rapid
Anticipation of future needs and risks relating to the
Rail Link PPP • Creation of the first state-of-the-art Rapid Rail Link project by preparing a financial model design which
project in Africa, which contributed to social-economic accurately indicates allocation of the project’s funds is
growth by creating jobs and enabling economic paramount to ensure the success of a project.
Innovation Type: empowerment.
Financing structure –
Alternate allocation of FX • Increase in tourism-related revenues, due to the Private financing in joint efforts with public
risk in different project sectors/authorities was key to obtaining financing and
stages transportation availability, in the Gauteng Region.
properly mitigating project risks, such as FX risk, which
• The Gautrain has met its main objectives and by 2015 was undertaken both by public and private contracting
(i) there were nearly 60,000 daily individual journeys parties in alternate periods of the project. The definition
Useful Links:
Gautrain Management Ag and the number of journeys exceeded 1.4 million per of clear dispute solution mechanisms was also important
ency - Case Study month; (ii) it was estimated to have replaced about to maintain the cooperation and joint efforts between
IFC Info 21,300 daily car trips, thus reducing their carbon public and private parties.
Gautrain Management Ag
ency – 2019/2020 Annual footprint by 52% per trip; and (iii) more than 4,600 local
Report jobs had been created and retained from 2000 to 2015. Projects can benefit from strong political support and
Centre for Public Impact
commitment from the government. The South African
Government, in this case, provided a great part of the
funding and acted as an important agent in mitigating
key project risks, such as variation in foreign exchange
rates.

33
 Başakşehir Çam & Sakura City Hospital PPP Project (also
known as Ikitelli Integrated Health Campus) Innovation
Turkey • JPY 163 billion (USD 1.5 billion equivalent) loan co-
Context Problem financed by JBIC and other Japanese financial institutions
(financing in Japanese currency)
16 • İkitelli Integrated Health Campus Project • The integrated campus required
is a PPP project designed to serve the experienced sponsors due its complex • JBIC provided political risk guarantee for part of the
European side of Istanbul and intended construction and operation features financing whereas NEXI provided insurance for the
to serve 60,000 visitors per day remaining part of the financing
Başsakşehir PPP • Revenues are in local currency and
• It involved the design, construction, • MIGA provided political risk insurance for the Sojitz
Project include (i) quarterly availability
Corporation subsidiary investing in the project (Sojitz
financing and operation of a health payments from the Ministry of Health; Hospital PPP Investment B.V.)
campus, with an investment period of 3 (ii) monthly service payments; and (iii)
Innovation Type: years and operation period of 25 years commercial revenues, which the • In Turkish healthcare PPPs, FX risk is mitigated
Financial structuring – concessionaire is free to collect according to a very complex formula within the PPP
FX risk mitigated by • Core medical services and staff are agreement. In summary, the formula provides for a
comparison between FX provided by the Ministry of Health, but comparison between increase in inflation vs. increase in
rate and inflation. the concessionaire provides foreign currency
maintenance and operation services
• Therefore, if there is an increase in exchange rate that is
• The project was a cooperation between higher than the increase in inflation, the difference is
the Turkish and Japanese governments reflected in an increase to the availability payment and
and private investors the opposite is true as well. However, the availability
Useful Links: payment shall never be higher than the cap nor lower
Ikitelli – SPV Website than the floor (both of which are also determined in the
JBIC Information agreement)
Stakeholders Involved Timeline
MIGA Information
Sojitz Information • Rönesans Healthcare (sponsor)
• Sojitz Corporation (sponsor) January July May
• Japanese Bank for International Cooperation (JBIC) 2016 2017 2020
(lender)
• Nippon Export and Investment (NEXI) (insurance provider)
• World Bank’s Multilateral Insurance Guarantee Agency
Agreement signed between Financial Official
(MIGA) (insurance provider)
the project company and the closing inauguration 34
Ministry of Health
 Başakşehir Çam & Sakura City Hospital PPP Project
(also known as Ikitelli Integrated Health Campus)
Turkey

16
Results/Impact
Key lessons learnt

Başsakşehir PPP • The project was awarded with Thomson Reuters “PPP
Project The FX mitigation mechanism allows the projects to
Deal of the Year” and was the first hospital PPP remain bankable while also providing more long-term
supported by Japanese companies and JBIC sustainability and financial health, which has enabled
Innovation Type: the government to attract many foreign investors to
Financial structuring – • Part of the hospital complex opened early, in April
the country’s healthcare PPP sector
FX risk mitigated by 2020, given the rising number of COVID-19 patients in
comparison between FX Istanbul
rate and inflation. The Turkish Treasury has been closely monitoring the
• The USD 1.8 billion landmark PPP project is projects and preparing budgetary and financing
recognized as the world’s largest seismically isolated reports so as to constantly monitor risk exposure
building, with over 2,000 seismic isolators stemming from the PPP projects

• The project has contributed to the progress of the

Useful Links: hospital business led by the Turkish government in Well structured PPP projects are able to transform a
Ikitelli – SPV Website
addition to promoting the participation by Japanese country’s healthcare facilities system, thus improving
JBIC Information
MIGA Information companies in overseas infrastructure business the services available to its population
Sojitz Information
• The Project was critical for establishing a large-scale
integrated hospital in Istanbul and responding to the
increasing demand for medical services as a result of a
rising population and economic growth

35
Thank you

machadomeyer
globalinfrastructurehub