OEA/Foz

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	27787
Company name	Foz do Brasil S.A.
Country	Brazil
Sector	Utilities
Environmental category	B
Department	Infrastructure
Status	Pend PDS-IR

Date SPI disclosed	July 7, 2009
Projected board date	August 7, 2009

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The Project involves the financing of equity investments in municipal and industrial water and sanitation projects developed by Odebrecht Engenharia Ambiental (“OEA”, or the “Company”), Odebrecht S.A. (“ODB” or the “Sponsor”) environmental engineering subsidiary formed to own and manage the Odebrecht group’s water supply, sewage treatment and industrial waste management investments. OEA already has a substantial portfolio (9 projects as of May 2009). These investments may include (i) investments in existing water and sanitation assets in Brazil under public-private partnerships (“PPP”) and traditional concession structures; (ii) the expansion of activities by acquisitions and/or associations/partnerships; and (iii) the development of greenfield projects.

The Project will support a Company committed to increasing access to municipal clean water supplies in adherence to good practice environmental standards under a PPP model that significantly contributes to decreasing the sector’s financing gap.

Project sponsor and major shareholders of project company

ODB, the Project Sponsor, is one of the largest Brazilian private-sector conglomerates in terms of revenues and Brazil’s leading service exporter. Odebrecht has wide international operations employing almost 92,000 workers in five different continents. It controls Braskem S.A., the largest petrochemical company in Latin America, which exports to over 60 countries in all continents and owns 100% of Construtora Norberto Odebrecht S.A. (“CNO”), the largest Latin American engineering & construction company. CNO provides a variety of integrated engineering, procurement and construction services to clients in a broad range of industries, both within Brazil and internationally. CNO is engaged in the construction of large scale infrastructure and other projects, including highways, railways, power plants, bridges, tunnels, subways, buildings, port facilities, dams, manufacturing and processing plants, as well as mining and industrial facilities. CNO ranked 20th in revenues among 225 international contractors in 2007 and it is Brazil“s largest services export organization.

ODB also develops and manages infrastructure projects, focusing on public/private partnerships and concessions. In 2007, ODB founded ETH, a company in the biofuel sector that produces ethanol and sugar as well as energy through co-generation.

In response to ODB’s significant expansion (gross revenue reached more than $22 billion in 2008 versus US$4 billion in 2003), and seeking to better meet growth challenges at CNO, in 2007/2008 CNO carried out a shareholder restructuring and created 4 new 100% subsidiaries of ODB, which were originated from CNO spinoffs : (i) Odebrecht Investimentos em Infraestrutura (Infrastructure Investments), (ii) Odebrecht Engenharia Ambiental - OEA (Water and Sewage concessions and Waste Management), (iii) Odebrecht Realizaēões (Real Estate Development and Construction) and (iv) Odebrecht Óleo e Gįs (Oil & Gas services), each company with strong synergy with CNO’s business.

Total project cost and amount and nature of IFC's investment

OEA, through its existing and new subsidiaries, plans to invest approximately $1.1 billion over the next 3 years, the majority of which will be financed through limited recourse loans at the project companies’ level.

The proposed IFC investment is a local currency C loan to OEA for the equivalent of up to $50 million for IFC’s own account. The loan may entitle IFC to receive a share of OEA’s income and/or options to purchase OEA’s shares.

Location of project and description of site

OEA is headquartered in Sao Paulo, Brazil, and currently has contracts with eight municipalities in Sao Paulo, Rio de Janeiro and Espirito Santo, serving a total population of approx. 1.6 million habitants. Going forward, investments will initially be opportunistically made throughout Brazil. In a second phase, the Company may internationalize its water and sanitation activities, most likely in countries where ODB already has a strong presence

Anticipated development impact of the project

The Project is expected to have a significant developmental impact as it will contribute to increase the supply of drinking water and sewerage coverage in Brazil, will permit the Company to increase the efficiency of its systems, and will significantly raise wastewater treatment levels to reduce infections and sickness, mainly by:

Increasing the Provision of Water Supply, Sewage and Sanitation for the Population: The Project is expected to enable OEA to provide greater access to water and sanitation to the general population in its operating areas. Currently OEA is responsible for providing water and sanitation services to approximately 1.6 million inhabitants. Through the Project, OEA expects to increase the percentage of population with access to drinkable water and sewage collection, removal and treatment by increasing the number of connections and the extension of its services network managed by its existing operational subsidiaries and new projects.

Reducing Poverty. Clean water and safe sanitation services are regarded as directly reducing poverty because piped supplies from utilities liberate productive time otherwise spent in collecting and carrying water. The threat from water borne diseases to poor families, that are typically more susceptible to such illnesses, will be reduced through the Project. Increased access for poor people living in this region to good quality services will also have strong and direct correlation to improved economic opportunities and overall environmental benefits.

IFC's expected development contribution

IFC’s development contribution is expected to include inter alia: provision of long-term local currency, quasi-equity, holding financing, which is not readily available amid current market conditions in Brazil; guarantee the implementation of appropriate Environmental and Social policies by OEA’s subsidiaries; regulatory risk mitigation; and promotion of increased involvement of local private players in the water and sanitation sector.

Environmental and social issues - Category B

This is a Category B project according to IFC’s Procedure for Environmental and Social Review of Projects because a limited number of specific environmental and social impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria. OEA’s core business activities in water and wastewater treatment and waste management provide essential environmental services to the public. OEA is presently demonstrating the ability to effectively manage potential environmental and social risks from its business activities through the application of international accepted practices to protect soil, water and air resources.

For further detail please refer to the project’s Environmental and Social Review Summary (ESRS).

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