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International Association of Development Funds Second Conference on Financing Municipalities & Sub-National Governments Washington, USA September 30, 2004. Regional Roundtable Current experience, innovations and opportunities in Latin America: The Chilean Experience. PRESENTATION PREPARED BY:.

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International Association of Development FundsSecond Conference on Financing Municipalities & Sub-National GovernmentsWashington, USA September 30, 2004


Regional Roundtable Current experience, innovations and opportunities in Latin America:The Chilean Experience


Presentation prepared by
PRESENTATION PREPARED BY:

  • ING. ALEX CHECHILNITZKY ZWICKY

  • President of AIDIS

  • President of AIDIS - Chile

  • Presidente de Empagua S.A.

    • Sanitary and Environmental Consultants

    • Sanitary Services Developement, Management and Operation

  • E-mail: [email protected] - [email protected]


Chile in a few numbers
Chile in a few numbers

  • Population 15 million

  • GDP (Gross domestic product)2004E: US$80 Billion

  • GDP Per Capita :US$5300

  • GDP adjusted for PPP: US$10000-11000

  • GDP Growth 5% (2004E), average for 1990-2004 in excess of (5%)

  • Assets managed by the AFPs US40-45 billion, more than 50% of the GDP

  • Sovereign spread 80-100 basis points over treasuries


Historical evolution of sanitary services financing in chile up to late 80 s
HISTORICAL EVOLUTION OF SANITARY SERVICES FINANCING IN CHILEUp to late 80’s

  • National Budget and external help

  • BID, BIRF, other International Institutions, Regional Budget (States or Provinces)


THE SANITARY SERVICES IN CHILE: REGULATION AND CONTROL CHILE MAIN CONCEPTS IN THE LEGAL FRAMEWORK OF THE SANITARY SECTOR


Basic concepts of today s legislation
BASIC CONCEPTS OF TODAY’S LEGISLATION CHILE

  • SEPARATION OF THE NORMATIVE AND REGULATORY ROLES (WHICH REMAIN IN THE CENTRAL GOVERNMENT), FROM THE COMERCIAL AND PRODUCTIVE FUNCTIONS.

  • A TARIFARY SYSTEM BASED ON MARKET RATES THAT PROMOTES WATER AND WASTEWATER UTILITY EFFICIENCY AND FACILITATES FINANCING.

  • DIRECT SUBSIDIES FOR LOW INCOME USERS.


The legal framework of the sanitary sector in chile operating since 1990
THE LEGAL FRAMEWORK OF THE SANITARY SECTOR IN CHILE CHILE(OPERATING SINCE 1990)

  • General Law of Sanitary Systems

  • Tariff Laws

  • Law of the Superintendence of Sanitary Services

  • Subsidy Law for low income consumers of potable water and users of the sewage system services

  • Laws that create state-owned utilities as an exception


General law of sanitary systems
General Law of Sanitary Systems CHILE

  • The General Law is the legal backbone of the Chilean sanitary system:

    • Establishes minimum technical and operational standards.

    • Establishes minimum service quality.

    • Defines the conditions under which the concessions will be granted.


Sanitary services concession
SANITARY SERVICES CONCESSION CHILE

  • It’s an enabling title that constitutes a right established by law.

  • Allows a Company, created with that unique purpose, to be the only authorized provider of sanitary services in a determined territory.

  • On the other hand, concession owners cannot deny service within their territory.

  • Concessions are granted for an unlimited period of time.


Sanitary services concession four separate concessions are identified
SANITARY SERVICES CONCESSION CHILEFour separate Concessions are identified

  • Water Production

  • Water Distribution*

  • Sewage Recolection*

  • Sewage Treatment and Disposal

    * Must be granted simultaneously



Privatization process motivation
PRIVATIZATION PROCESS CHILEMOTIVATION

  • CAPITAL INTENSIVE PROJECTS REQUIRED BY THE SECTOR.(SEWAGE TREATMENT PLANTS)

  • PUBLIC RESOURCES NEEDED IN OTHER HIGH PRIORITY SOCIAL AREAS.


Chilean sanitary services sector structure in 2004
CHILEAN SANITARY SERVICES SECTOR STRUCTURE IN 2004 CHILE

  • 95% of the urban population is served by companies owned and/or operated by the private sector

  • 5% of the urban population is served by one municipal service in the Metropolitan area


The right side of the balance sheet of the chilean sanitary industry this century
The right side of the Balance Sheet of the Chilean Sanitary industryThis Century

Customers (via AFR)

Commercial Banks

AFPs

Insurance Companies

The Public

International Operators (Agbar, etc.)

Local Operators

AFPs

The Public

Liabilities

Equity



Financial information of main sanitary companies thousand dollars in december 31 2003
Financial Information of Main Sanitary industryCompanies(Thousand Dollars in December 31, 2003)



Bonds issuance
Bonds Issuance industry


Reimbursable financial contributions afr
Reimbursable Financial Contributions (AFR) industry

  • A certain amount of money that Operators can demand to new clients (persons, industries or real state investors) who demand growth or increase in sanitary services.

  • This amount is stablished in the Tariff Law and bylaw.


Reimbursable financial contributions afr1
Reimbursable Financial Contributions (AFR) industry

  • Money must be reimbursed within 15 years.

  • The annual interest rate payed today for this Contributions is tied to a local currency, inflation-indexed short-term market rate

  • The current rate being paid is 2.57% per annum plus CPI inflation

  • This obligations are publicly traded




Sanitary services in chile water quality
Sanitary Services in Chile THIRTY YEARS?Water quality

ACCOMPLISHMENT OF STANDARDS

BACTERIOLOGICAL DISINFECTION PHYSICAL CHEMICAL PARAMETERSPARAMETERS

LARGE COMPANIES 99,9% 99,9% 98,0% 97,4%

MEDIUM COMPANIES 99,9% 99,7% 98,2% 98,9%

SMALL COMPANIES 99,7% 99,8% 99,5% 97,7%

TOTAL (COUNTRY)99,8% 99,8% 98,3% 97,7%



Conclusions
Conclusions THIRTY YEARS?

• Stable regulatory framework, based in tariffs with a reasonable level that allow autofinancing, and are sostainable in the long term.

• Opportunities in both equity and investment grade debt

  • Spreads of between 80 and 150 basis points over Chilean sovereign debt (and therefore between 160 and 250 bp over treasuries)

  • Debt is mainly denominated in local currency with inflation adjusted fixed rates, to avoid currency exposure

    • In consequence the debt market is dominated by local investors


  • The end
    THE END THIRTY YEARS?


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