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1.1 Introduction

In December 1997 the Chilean Government obtained approval from Congress for a new law which provides for the establishment of ten independent Empresas Portuarias (“Port Companies”) to own the port assets formerly held by Empresa Portuaria de Chile (“EMPORCHI”). Although the Port Companies will continue to be state-owned, the law provides for the necessary investments in the port terminals to be made through the award of concessions to the private sector.

Since legislative approval, the government has taken all of the steps required to implement the law, including already having completed the establishment of the ten Port Companies. Currently three of these Port Companies, Valparaíso, San Antonio and San Vicente, are well advanced in the process of tendering initial concessions in those ports. These three ports manage more than 63 per cent. of the total cargo that is handled by state-owned ports.

1.2 The Chilean port sector

There are 35 ports along the Chilean coast, of which 24 are privately-owned and the remainder state-owned. The state-owned ports transferred 71 per cent. of the total cargo moved through Chile’s ports in 1997 (not considering the cargo moved by non-public access privately-owned ports).

Chilean port system

Cargo hand led in 1997 Privately-ow ned

p orts/ p u blic u se

29% State-ow ned

p orts/ p u blic u se 71%

Source: DIRECTEMAR and EMPORCHI

Chile’s volume of external commerce will benefit from its position as an ideal platform for trade between South America and the Far East and other countries of the Pacific basin (e.g. Canada, US, Mexico, Central American countries, Australia and New Zealand).

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Table 1.1: Chilean maritime cargo traffic by destination

Destination Tonnage transferred

(million tonnes)

Far East 16.9

USA (Pacific Coast, Atlantic Coast, and Gulf Coast) 9.1

Northern Europe 5.3

South America (West Coast) 3.3

South America (East Coast) 3.2

Rest of the World 13.2

Total 51.0

Source: Cámara Marítima y Portuaria de Chile A.G.

Geographic location plays an important role in the Chilean transport system and therefore has a significant impact on its economy. More than 90 per cent. of Chilean foreign trade is directed/channelled through its maritime ports. This market share is likely to be maintained since other means of transportation can only compete efficiently with the service offered by ocean shipping for restricted types of cargo.

Total volumes of exports and imports handled through Chilean ports grew at 8.93 % per year in the period 1993 - 1997. 13,514 21,771 13,968 26,737 14,509 27,546 18,159 29,528 18,547 30,144 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 '0 0 0 t o n n e s 1993 1994 1995 1996 1997

Foreign Trade: Volume handled by Chilean ports

Imports Exports

Source: Cámara Marítima y Portuaria de Chile A.G.

1.3 The Concessions

The shift to a more open and competitive Chilean economy began more than two decades ago. Policies were implemented to diversify Chile’s export sector, reduce trade barriers and open the economy to foreign investment. In addition, plans were developed to privatise public-sector companies, balance the Government’s budget and reduce inflation.

In initiating a process to grant concessions for port operations, the main objectives of the Chilean Government are:

• reduction in the total cost of the transport chain by incentivising efficient and low-cost port operations; and

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• increase in the efficiency of the operations and development of the state-owned ports.

The Port Companies are responsible for the management, exploitation, development and preservation of the ports and terminals assigned to each of them, as well as for the assets owned, which allow them to undertake any activities related to the port operations. Therefore, they will be allowed to perform projects and to execute construction, renovation, repairs and preservation works. For many of these works, the Port Companies are required to involve third parties in port operations through: the granting of concessions; lease contracts; or, the creation of joint ventures.

However, in the case of terminal (“frente de atraque”) operations, the participation of third parties will be achieved only through the tendering of concessions.

A decision has been made to offer the following four concessions through public tender during the first quarter of 1999:

• Valparaíso - Terminal 1: comprising five berths which currently handle container and multipurpose traffic, for a 20 year period (extendable to 30 years);

• San Antonio - Molo Sur: comprising three berths which currently handle container and multipurpose traffic, for a 20 year period (extendable to 30 years);

• San Antonio - Northern Terminal: comprising one jetty with dry bulk unloading facilities, for a 30 year period; and

• San Vicente: comprising three berths which currently handle multipurpose and container traffic, for a 15 year period (extendable to 30 years).

Further concessions, possibly in the ports of Arica and Iquique, may be tendered starting early in the next year.

1.3.1 Valparaíso

The Port of Valparaíso is located 110 km to the north-east of the capital city, Santiago. The port principally handles containerised cargo, general cargo1 and vehicles, mainly for distribution to the heavily populated Metropolitan Region. The main imports by volume handled through Valparaíso are raw materials for manufacturing industry, chemicals and minerals. Among exports, the most significant are fruit, food products, agricultural products, copper and fish and seafood products.

The port is in deep water, naturally protected from southern and western winds by a headland, Punta Angeles. A 1,000m man-made breakwater provides additional protection from northern winds for the majority of the berths. There is ample room and water depth for ships to turn and manoeuvre within the harbour limits. The approach channel to the harbour is a straight two-way channel with a natural depth of over 60 metres.

The Port of Valparaíso covers a total area of 36.1 hectares. It has approximately 2,015m of berths, comprising ten berths. However, only berth Nbr. 1 to Nbr. 9 are fully operational. The total length includes 420m of newly reconstructed and operational berths (berth Nbr. 2 and Nbr. 3) and a further 200m of berth that are currently being reconstructed and will shortly be operational (berth Nbr. 1). The

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Port has approximately 33 hectares of paved area and 42,800m2

of covered shed space. The area of the port which is intended for the

Concession is Terminal 1, which comprises berths Nbr. 1 to Nbr. 5 and their backup areas. These berths are currently used for handling of containers and general cargo. Terminal 2, or the Espigón, which comprises berths Nbr. 6 to Nbr. 8 and is outside the Concession, is mainly used for general cargo, although containers are also handled. During the fruit season, reefer ships call at any of berths Nbr. 1 to Nbr. 8, although most frequently at the Espigón area. In the eastern part of the port, Terminal 3, or Muelle Barón, which comprises berths Nbr. 9 and Nbr. 10, was repaired in 1993. Both berths are exposed to swell, with berth Nbr. 9 rarely used and berth Nbr. 10 out of commission.

Table 1.3: Valparaiso’s traffic by type of cargo in 1998 (tonnes)

Terminal General Cargo Containerised Cargo Total

Terminal 1 1,265,900 2,324,659 3,419,507

Espigón 617,187 394,058 1,207,906

Muelle Barón 17,251 921 39,399

Total 1,900,338 2,719,638 4,619,976

Source: Valparaíso Port Company

1.3.2 San Antonio

The Port of San Antonio is the largest port in Chile, with over six million tonnes handled in 1997. It is located in the V Region of Chile, less than 100 km west of Santiago. Due to its location near the centres of consumption and production, and in an area of unusually sheltered waters, the port of San Antonio is today one of the two leading Chilean ports.

The port is in deep water, naturally protected from northern storms by a headland, Punta San Antonio or Punta Panul. A 900m breakwater provides additional artificial protection from southern and westerly storms. There is ample space and water depth for turning and manoeuvring within the harbour. The marine approach to the harbour is in natural water depths of over 30m.

The port has a total land area of 82 hectares, of which 24 hectares are used for commercial activities, including the nine berths and their respective storage area, and 14 hectares are used for the fishing industry and other commercial activities. The port has approximately 1,575m of berths including 565m of newly reconstructed container berths (southern part of berth Nbr. 1, berth Nbr. 2 and berth Nbr. 3). The berth infrastructure of the port is clearly defined by three different areas: Molo Sur Terminal (comprising berths Nbr. 1 to Nbr. 3), Espigón (comprising berths Nbr. 4 to Nbr. 7), and Northern Terminal (comprising berths Nbr. 8 and Nbr. 9).

Table 1.2: Berths at Terminal 1 Berth Nbr. Length (m) Depth (m) 1 200 12.0 2 200 12.0 3 220 12.0 4 200 10.0 5 165 10.0

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The concessions to be granted are:

• the area covered by berths Nbr. 1, Nbr. 2 and Nbr. 3 and their back up areas, or Molo Sur Terminal. These berths are mainly used at present for handling of containers and some general cargo. • Berth Nbr. 8, Northern Terminal, which is located

at the north end of the harbour and is designed to handle solid bulk. It has a back-up area on the shore which is being expanded at present.

The following table shows the traffic by type of cargo transferred through San Antonio during 1998: Table 1.5: San Antonio’s traffic by type of cargo (tonnes)

Terminal General cargo Containerised cargo Dry bulk / Liquid bulk Total Molo Sur 483,401 3,011,039 702,379 4,196,819 Espigón 456,906 935,835 656,205 2,048,946 Northern Terminal 496 - 1,112,963 1,113,459 Total 940,803 3,946,874 2,471,547 7,359,224

Source: San Antonio Port Company

1.3.3 San Vicente

The port of San Vicente is located 520 km to the south of Santiago and 18 kilometres from Concepción, capital of the Bio-Bio Region (the second largest Chilean Region in terms of population). In 1997 the port throughput was 2.8 million tonnes of which over 70 per cent. comprised wood pulp, wood chips, sawn timber, paper, logs and fibreboard. A rapidly increasing number of containers are also handled through the Port.

The port is in a large bay, Bahía de San Vicente, which gives protection from southern and northern directions. A 600m artificial breakwater protects the berths from western winds. The port comprises three berths which are designed for all kinds of ship, with a maximum draft of 12.2m. The port has 603m of berths, all of which are in regular use. The port covers a total area of 40 hectares of which 17.2 hectares are hilly or unsurfaced. There are 3.2 hectares of covered storage space in large high-sided warehouses.

The area to be concessioned is the entire existing area of the port together with areas related to potential infrastructure developments.

Table 1.4: Berths at the Port of San Antonio Berth Nbr. Length (m) Depth (m) 1 210 10.4 2 250 10.4 3 250 10.1 4 and 5 341 9.2 6 and 7 321 7.9 and 6.2 8 200(i) 10.4 9 1901 10.3

Source: San Antonio Port Company Note (i): maximum length of ship which can use the berth

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The berths can accept simultaneously one ship each and are not dedicated to any type of cargo. All the berths are generally used with equal frequency.

Since 1992, the Port of San Vicente has reached a stable level of approximately 3,100,000 tonnes transferred through its berths. In 1998, the port handled 2,408,725 tonnes of cargo, implying a 33.5 per cent. market share in the VIII Region.

1.4 Bidding process

The Port Companies are seeking to attract technically qualified and financially sound investors to establish single purpose concessionaire entities to operate each of the four terminals to be concessioned. Prospective investors may bid individually or a group of investors may elect to bid as a consortium. One set of Terms of Reference are being issued in relation to each of the four concessions. Only parties who have purchased the Terms of Reference for a given concession, or consortia in which at least one member has done so, may present bids for that concession.

A due diligence process will include:

 availability of information on the ports and their markets, through one or more data rooms;  individual visits to the terminals and a review of other related infrastructure; and

 meetings with the management of the respective Port Company.

A voluntary qualification process has been designed to help bidders to demonstrate that they fulfil the requirements established by Port Companies.

Bidders will be provided with drafts of the concession contracts and other legal documents. They will be given the opportunity to provide comments, in writing, on these drafts. Definitive versions of the documents will be issued to the potential bidders prior to the deadline for submission of bids. The content of the documentation will have to be agreed and signed by bidders’ representatives prior to the deadline for submission of bids.

For each concession, bidders will be required to present their bids in two separate parts containing a Technical Proposal and an Economic Offer, together with a bid guarantee for the amount of US$ 5 million, for each of the individual concessions that the bidder applies for.

Port Companies will assess and compare the technical proposals and will announce which technical proposals have been accepted. The Economic Offer will then be opened. The Port Companies shall award the concession to the bidder or consortium whose technical proposal has been accepted and that makes the best economic offer for the respective concession.

The intention of the Port Companies is to establish a rent, as a function of tonnes transferred, and to award the concession to the qualified bidder offering the lowest maximum tariffs, measured by means of an index or average tariff.

Table 1.6: Berths at the Port of San Vicente Berth Length (m) Dredged depth (m) 1 160 11.7 2 221 11.3 3 222 12.2

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Timetable

Set out below is the indicative timetable for awarding the concession to operate the port terminals. Table 1.7: Indicative timetable

Date Event

31 March 1999 Terms of Reference available 23 April – 10 May 1999 Presentations by interested parties

16 May 1999 Deadline for submission of questions

3 May – 22 July 1999 Due diligence

9 July 1999 Deadline for distribution of the definitive version of the concession contracts 9 July 1999 Deadline for voluntary qualification proposals

27 July 1999 Deadline for legal documentation submission 29 July 1999 Submission of bids (technical and economic offers) 27 August 1999 Deadline for bid award date

30 November 1999 Deadline for execution of contracts 1 January 2000 Deadline for delivery of concession

The process described herein and the timetable may be changed by the Port Companies, at any time and at their sole discretion. A description of the process and timetable more detailed than that contained in Section IX of this Information Memorandum is included in the Terms of Reference, and shall be deemed to supersede the description contained in this Information Memorandum, insofar as necessary.

1.5 The Republic of Chile Background

For the last fourteen years, Chile has experienced sustained economic growth transforming the country into arguably the most stable free market economy in Latin America. This favourable economic and political environment have paved the way to attractive opportunities for private investment. In 1997, the World Economic Forums Global Competitiveness Report placed Chile among the world’s 13 most competitive nations. The sustained growth in GDP, the expansion of international trade, as well as low inflation, are part of the reasons for investing in the Chilean ports. The following is a description of Chile and its financial and economic performance.

Economic overview

The Chilean economy, with an estimated GDP of US$ 73.5 billion in 1997 (US$ 67 billion in 1996, and US$ 58 billion in 1995), has considerable natural resources, a modern, export-orientated manufacturing sector, and a sophisticated services sector. On a Chilean peso GDP basis, the Chilean economy grew by 7.1 per cent. from 1 January to 31 December 1997, following 7.4 per cent. growth during the same period in 1996.

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Political environment

Chile has a democratic political system and a consensus regarding its economic policies, which include promotion of a strong private sector, encouragement of export-orientated growth and fostering of a stable environment for foreign and domestic investment.

The Chilean Constitution (the “Constitution”), approved in a national referendum in 1980 and amended in a plebiscite in 1989, provides for a tripartite system of government: an executive branch headed by the President; a legislative branch in the form of a bicameral Congress; and a judicial branch, of which the Supreme Court is the highest authority. The Congress consists of a Senate, with 46 Senators, of which 38 are elected by popular vote and 8 are designated by other institutions, and a Chamber of Deputies, with 120 members. Under the Constitution, former Presidents have the right to become Senators for life, thereby potentially increasing the number of Senators. Senators are elected to staggered eight-year terms and Deputies to four-year terms.

1.6 Investment considerations

The proposed concessions of four Chilean port terminals (the “Concessions”) represent a unique opportunity to participate in an attractive business with growth potential.

• Favourable investment climate in Chile

Chile offers a stable economic and political environment, with substantial growth potential. It has a solid legal framework (Decree Law 600 of 1975 or Foreign Investment Statute) which guarantees the protection of investments and the ability to operate in accordance with normal business practice. Chilean financial markets are well developed, with a high domestic savings rate that has resulted from the establishment of a private pension fund system. Chile’s external debt is rated A- by Standard & Poor’s. Appendix A contains further information on Chile’s political and economic environment.

• Excellent growth and potential for trade

An open economic development model has been the key to Chile’s growth over the last fourteen years. Imports were 29 per cent. of GDP, while exports represent 25 per cent. A 16 per cent. compound annual growth rate in trade has been achieved over the last four years. Trade flows are diversified with roughly similar shares to and from the rest of Latin America, Europe, the Far East and North America. Chile is a party to various multilateral, as well as bilateral agreements, that are expected to continue to lead to increasing volumes of trade. Improvements to road and railway interconnections with neighbouring countries may also lead to increasing bi-oceanic integration. Appendix B contains further information on Chilean trade.

• Importance of the state-owned ports for Chilean trade

The terminals being offered under concession have a dominant market share in Chile. The Port Companies that are offering the Concessions handle more than 60 per cent. of the cargo passing through Chilean state-owned ports in 1997. In turn, the state-owned ports represent approximately 71 per cent. of all cargo handled by ports for public use. Due to limited availability of harbours and protected waters in which to develop new ports, the state-owned ports can be expected to maintain a competitive advantage.

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• Government fully committed to modernise state-owned ports

As part of a broader plan to improve infrastructure (e.g., roads, airports, railways) with private sector involvement, the government of Chile is committed to modernise the state-owned ports. Private sector operators will develop and operate cargo terminals, which will be offered as concessions. The Port Companies are otherwise precluded from investing in the terminals. The resulting improvements in service quality and efficiency, together with the overall reduction in the transport chain costs, are expected to benefit the concessionaires and end-users.

• Opportunity to improve performance by investing

Near term investment opportunities to improve performance at the port terminals include providing modern equipment and technology. During the concession period, improvement and expansion of infrastructure may provide further opportunity for increased productivity and profitability.

• Skilled workforce

Trained workers are available, and labour regulations and work practices are fair. State-sponsored training programmes for new workers are available, for all workers and particularly for stevedores.

References

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