genolet

Road Maintenance Concessions in Argentina: 

Road Maintenance Concessions in Argentina Presentation by: Ruben Darío Genolet General Manager -- Servicios Viales

Road Maintenance Concessions in Argentina: 

Road Maintenance Concessions in Argentina PART I: General Aspects of the Program PART II: Servicios Viales S.A.: An Operator´s Perspective PART III: A Comparison of Financial Structures PART IV: Conclusions

PART I: 

PART I Road Maintenance Concessions in Argentina

ARGENTINA’s economic situation at the end of 1980: 

ARGENTINA’s economic situation at the end of 1980 (In billion Dollars) 1990 1998 GDP 188 288 Annual Inflation 290% 0.7% Bonds IR 42% 12%

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ROAD NETWORK CONDITION IN 1989 ROAD NETWORK CONDITION FOR ROADS TO BE CONCESSIONED IN 1989 CONDITION INDEX (CI) 4,67

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BID PARAMETERS FIXED PARAMETERS Toll Rate: U$S 1.50 every 100 km (December 1989) Duration of Concession: 12 years Minimum rehabilitation works/schedule Toll rate adjusments according to dollar and industrial price index VARIABLE PARAMETERS (to be offered by bidders) Lease fee (payment to Government) Additional Improvement works Services to Users

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RISKS TAKEN BY THE CONCESSIONAIRE: Traffic Other Risks FLOATING POLICY (INSURANCE) TAKEN BY THE STATE: Non-fulfillment on part of the Concessionaires

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PRIVATE ANALYSIS OF INVESTEMENT Traffic’s Study Evaluation of road infraestructure condition Rehabilitation and Additional Works needed Calculations of the NPV and IRR Calculations of the Lease Fee that will meet the desired NPV

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ECONOMIC CONTROL AUDITS TECHNICAL CONTROL RESULTS CONDITION INDEX (CI) (Road Conditions) * Classification 1 to 10 * Threshold: 6 * SI at the end : 7.5 PRESENT SERVICEABILITY INDEX (PSI) (Measure of comfort) * Classification 1 to 5 * Threshold : 2.8 PENALTY CAUSES * Non-compliance with CI,PSI and their parameters * Non-compliance with construction schedule (beginning/ending dates) * Non-compliance with conservation works ROAD EVALUATION

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RENEGOTIATION 1992 WHY: Contractual increase of toll rate unacceptable (US$2.4 per 100 km in 2 years) Reduction in toll rate to US$1.15 with planned increase to U$S 1.40 in 3 years Lease fee eliminated and Government compensation to restore financial equilibrium Toll rate adjustment based on 80% of LIBOR Rescheduling of improvement works Concession extended one more year (13 years)

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RENEGOTIATION 1999 WHY: Non-compliance by Government with toll adjustment and compensation Contract extended 3 years in substitution for Government debt and reduction of future compensation Toll rate adjustment, according to Construction Index (when increase > 5%) Rescheduling of improvement and additional works Reassessing of needs every two years Pending Government´s approval

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PRIVATE ROAD NETWORK MANAGEMENT ACHIEVEMENT

OVERALL EVALUATION OF THE PRIVATE ROADS MANAGEMENT: 

OVERALL EVALUATION OF THE PRIVATE ROADS MANAGEMENT 67.3 % 23.7 % 5.1 % 4.0 % POSITIVE REGULAR NEGATIVE NA Users’ opinion survey done by : Mora y Araujo Consultants (1998)

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PART II SERVICIOS VIALES S.A.: an Operator´s Perspective

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Servicios Viales S.A.

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VISION WE HELP PEOPLE TO TRAVEL

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MAIN INDICATORS Annual Revenue U$S 67 M Road Network Extension 1,173 km Duration of Concession 13 years Constructions Investment U$S 320 M Average Daily Traffic (7 tollgates) 39,300 veh Client´s Satisfaction (1998) 88%

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CLIENT´S SATISFACTION (1994/98)

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NEW TECHNOLOGIES OPERATIONS AVI Toll Toll payment video control Simulation of Toll station location CONSTRUCTION Microsurfacing asphalts modified with polymers Cold Microsurfacing asphalts Hot Microsurfacing asphalts SHRP specifications for asphalts mixtures New treatment of reflected cracks

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PART III FINANCIAL STRUCTURES A comparison between Maintenance Concessions and BOT’s projects

Road Maintenance Concessions: Servicios Viales* : 

Road Maintenance Concessions: Servicios Viales* Financial Structure - Key Factors Investment Cash Flow Evolution - Debt Guarantee and Risks * Incorporate

Servicios Viales : 

Servicios Viales Investment Magnitude determine financial structure Start-up expenditures Relation between revenues and capex

Financial Structure S.V.: 

Financial Structure S.V.

BOT project: Ausol: 

BOT project: Ausol Investment Typical Project Finance. Large initial investments. Project doesn’t generate cash flow early in its life.

Financial Structure AUSOL: 

Financial Structure AUSOL

Servicios Viales : 

Servicios Viales Cash Flow - Debt/Equity Ratio Low D/E ratio. Financial Debt is 20% of total resources. Ratio Evolution. YEAR D/E 1991 1992 1993 1994 1995 2.8 1.5 0.9 0.5 0.8

Ausol (BOT) : 

Ausol (BOT) Cash Flow - Debt/Equity Ratio High D/E. ( Debt up to 70% of resources) The greater leverage, the higher ROE. The more debt, the less financial flexibility Covenants reduce the company’ value YEAR D/E 1995 1996 1997 1998 1999 2.6 3.7 3.9 3.4 2.7

Servicios Viales : 

Servicios Viales Guarantee Sponsors guarantee during the Bridge Loan (8 month). Fiduciary Assignment of Toll Collections(up to 30%)

AUSOL (BOT): 

AUSOL (BOT) Guarantee The security package is different for each stage of the project. Sponsors intend to isolate the project in order not to affect their financial capacity.

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PART IV CONCLUSIONS

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FINANCIAL CONCLUSIONS Cash flow projections Project finance structures Their impact on the Company’s value

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Private Road Network Management: Strength and Weaknesses Strengths: Fiscal Justice Resource mobilization secured Strict control incentives Control & Operation separated Focus on users’satisfaction: Parameters under PSI Additional services Weaknesses: Imperfect user rate structure Operation costs (+ insurance) Traffic delays in Toll stations Additional Consequences: Strict control of heavy trucks Road safety improvement Fiscal progressiveness(spill over)

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COST- BENEFIT FOR USERS N° Toll rates TYPE Category basics Benefits Savings % toll rate U$S Costs Cars 1 1 3.65 1.83 1.82 99 Buses 4 3 21.03 5.49 15.54 283 4 axes Trucks 5 4 12.5 7.32 5.18 41 More than 4 axes 6 5 12.0 9.15 2.85 31 Trucks Done by: Economics Science Faculty (Buenos Aires National University (1998)

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Client - oriented Company Benefits Better acceptance of toll system by the community/users Satisfaction of road user´s needs Goverment Support Banks Support