Regionalized Concession Project for Public Water Supply and Sewage Services in the State of Amapá

Project presentation October 28th, 2020 2 Agenda

1. Introduction

2. Project Overview

3. Engineering Studies

4. Financial Modeling

5. Legal Aspects

6. Performance Indicators 3 Introduction // Disclaimer

Conclusions presented here result from the analysis of quantitative and qualitative data, in addition to projections of future events, which are part of the expectations of the government of the state of Amapá, the Amapa Sewage and Water Company (Caesa) and their advisors at the time of the analysis. Such future events may not occur and results presented may differ from the actual numbers.

The use of different sources of information and the application of different data processing methodologies can result in differences between the content of this presentation and that of documents that have the same object of this work.

Information contained in this presentation is for reference only and should in no way be considered as binding information on future concessions that may be auctioned.

3 4 Introduction // Governance of studies

April, 2017 Project monitoring and decision making

A contract was signed between the state of Amapá and BNDES , Monitoring of studies governing the Bank's remuneration and reimbursement of its expenses with third parties.

Provision of Monitoring and Fieldwork and Delivery of information and management of information results validation of studies request June, 2017 assumptions

Financial Engineering coordinator and Legal coordinator coordinator BNDES hired the PWC/ Egis/Loeser PMO Blanchet Hadad Advogados to structure the project to expand private participation in the state sanitation.

CONSORTIUM 5

Project Overview 6 Project Overview // CAESA

The Amapá Water and Sewage Company is a state mixed economy society founded in 1969 and linked to the Infrastructure Secretariat. Currently it serves all 16 cities in the state with basic sanitation services.

POPULATION SERVED IN AMAPÁ ►Water: 289,541 inhab. ►Sewage: 59,258 inhab. TOTAL PERSONAL EQUIVALENT ► Total population: 829,494 inhab. ►414 people CONNECTIONS ►Water: 93,373 ►Sewage: 14,828 FINANCIAL DATA ►Total operating revenue: R$ 60.2 million NETWORK EXTENSION ►Realized investment: R$ 5.0 million ►Water: 1,074 km ►Sewage: 119 km Source: National Sanitation Information System (SNIS) - 2018 6 7 Project Overview // Proposed Business Model

Arsap Regulatory Agency for Public Services

Urban areas Private State of Cities Company Amapá

► The concessionaire provides the services of: • Water supply • Sewage collection and treatment • Commercial management with users ► Users remunerate the concessionaire by paying a tariff ► Arsap monitors contract performance and reports to the cities 7 8 Project Overview // Current Status and Universalization Goals

The current universalization goals for urban areas in the State's municipalities are as follows:

WATER 99% according to the deadlines below

Year 4 Year 7 Year 8 Year 11

Itaubal Macapá Amapá, , Mazagão, , , Pedra Branca, Municipalities Santana Vitória do Jari, Calçoene, , e Pracuúba

SEWAGE 90% according to the deadlines below

Year 17 Year 18

Laranjal do Jari, Amapá, Oiapoque, Mazagão, Porto Grande, Tartarugalzinho, Pedra Municipalities Macapá e Santana Branca, Vitória do Jari, Calçoene, Ferreira Gomes, Cutias, Serra do Navio e Pracuúba

Source: 1SNIS 2018 9

Engineering Studies 10 Engineering Assumptions // Diagnosis of existing infrastructure

Reports were prepared covering the headquarters, districts and rural areas of each city, containing basic information on the existing water supply and sewage systems

Engineers 16 headquarters of cities Field visits and main districts

Collection, ETAs, ETEs, Water and sewage Detailed reports reservoirs, EEEs, EEABs, infrastructure EEATs, networks

Licensing, existing Documentation Additional information projects, works in progress, TACs

ETA – Water treatment plant ETE – Sewage treatment plant 1 TAC – Conduct ajustment term 0 11 Engineering Assumptions // Diagnosis of existing infrastructure

General information on water and sewage systems

Existing systems General framework

Technical information Specific data on the capacity of Capacities of facilities the main units and equipment

Photo report Individual registration of the Condition of facilities main units and equipment 12 Engineering Assumptions // General Assumptions

WATER SUPPLY SANITARY SEWAGE

 Consumption: 152 L/inhab/day (Macapá  Return coefficient: 0.80 and Santana) and 135 L/inhab/day (other  Current service rate: 5.8% Municipalities)  Service-Goal Index: 90%  Current service rate: 35.8%  Infiltration rate: 0.5 L/s.km  Service-Goal Index: 99%  Current loss rate: 71.4%  Projected losses: 30% in 9 years  Hydrometering: 100% in 3 years and systematic replacement for an average useful life of 7 years 13 Engineering Assumptions // General Assumptions

Capex assumptions - parametric budgets based on works with the same characteristics

WATER SUPPLY SANITARY SEWER  Reservoirs: concrete  Compact and modular stations with UASB  Reservation volume: 1/3 of the maximum anaerobic reactor, except for Macapá and daily consumption Santana  ETA: same existing process  Macapá: change in the treatment process, with the implantation of an upflow anaerobic  Water pipeline: modified PVC reactor, maturation pond and drying beds  Networks: replacement of 15% of existing  Santana: UASB reactor followed by biological networks between years 2 and 4; average filter, secondary decanter and drying beds depth of 1.2 m  Average net depth: 2.0 m  HDPE booster line 14 Engineering Studies // Conceptual Design - Overview

Besides technical premises, conceptual projects were based on preliminar studies and on the projection of population growth

CAPACITY AND CONDITION Deficits of systems and works Size of demands OPERATING INSTALLATIONS required in existing systems

Water and sewage EXPANSION OF Required Works for expanding infrastructure SYSTEMS systems

GUIDELINES FOR CURRENT WATER: Up to 11 years Universalization goals SERVICE AND POPULATION SEWER: Up to 18 years Specific curves for each city 15 Engineering Studies // Conceptual Design - Overview

Conceptual projects were elaborated for each city, establishing the prognosis for the universalization of water supply and sanitary sewage systems

Surface collection ETAs PROJECTS Booster and Reservoirs Water supply pipelines Distribuition Wells network

Collecting network EEEB Sanitary sewer PROJECTS Collectors and ETEs emissaries

BUDGETS Capex Parametric based on similar works 16 Engineering Studies // Amapá - Population

Population Growth

1.400.000 1,265 thousand 1.200.000

1.000.000 781 thousand 800.000

600.000

400.000 295 thousand 200.000 188 thousand

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

Macapá Santana OutrosOther municipalities municípios EstadoAmapá State

Source: IBGE. Population distributed in the municipalities based on the 2010 Census. 17 Engineering Assumptions // Capex Breakdown

CAPEX breakdown

WATER SEWAGE ► Surface Water Collection ► Sewage Treatment Station ► Raw Water Repression ► Sewage Pumping Station ► Raw Water Supply ► Sewer Collection Network ► Water Treatment Station ► Home Connections ► Treated Water Pumping Station ► Sewer Booster Line ► Treated Water Supply ► Sewage Outfall ► Reservoirs ► Acquisition of Areas ► Water Supply Network ► Projects ► Home Connections ► Loss Control ► Acquisition of Areas ► Macro and Micro Measurement ► Projects 18 Engineering Assumptions // Expansion of Networks and Connections

Construction works – Water supply systems networks and connections (Amapá State)

YEAR 1 2 3 4 5 6 7 8 9 10 11

NETWORK (km) 0 254 263 273 280 288 260 144 75 75 76 CONNECTIONS (un) 0 31.216 26.993 27.982 28.691 29.528 26.496 14.308 6.923 6.941 6.963

YEAR 12 13 14 15 16 17 18 19 20 Up to 35 TOTAL

NETWORK (km) 41 40 39 39 38 38 37 36 36 435 2.767 CONNECTIONS (un) 4.119 4.058 4.000 3.938 3.875 3.813 3.747 3.678 3.605 44.096 284.971

Construction works – Sanitary sewage system networks and connections (Amapá State)

YEAR 1 2 3 4 5 6 7 8 9 10 11

NETWORK (km) 0 71 126 171 234 254 287 189 194 166 170 CONNECTIONS (un) 0 9.273 12.813 17.750 24.266 26.435 29.169 18.740 19.225 16.927 17.309

YEAR 12 13 14 15 16 17 18 19 20 Up to 35 TOTAL

NETWORK (km) 174 178 123 125 115 118 58 33 32 397 3.216 CONNECTIONS (un) 17.683 18.049 12.256 12.443 11.549 11.871 5.431 3.343 3.277 40.087 327.895 19 Engineering Assumptions // Expansion of Networks and Connections

Construction works – Water supply systems networks and connections (Macapá)

YEAR 1 2 3 4 5 6 7 8 9 10 11

NETWORK (km) - 163 168 174 179 185 190 93 27 26 26 CONNECTIONS (un) 0 19.602 17.957 18.554 19.139 19.712 20.273 9.892 2.837 2.790 2.746

YEAR 12 13 14 15 16 17 18 19 20 Up to 35 TOTAL

NETWORK (km) 25 25 25 24 24 23 23 23 22 272 1.717 CONNECTIONS (un) 2.703 2.663 2.626 2.585 2.545 2.504 2.461 2.416 2.368 29.033 185.044

Construction works – Sanitary sewage system networks and connections (Macapá)

YEAR 1 2 3 4 5 6 7 8 9 10 11

NETWORK (km) - 44 80 114 167 172 178 98 101 103 105 CONNECTIONS (un) 0 6.421 8.526 12.203 17.772 18.363 18.942 10.481 10.745 11.000 11.251

YEAR 12 13 14 15 16 17 18 19 20 Up to 35 TOTAL

NETWORK (km) 108 110 66 67 68 69 21 21 20 248 1.959 CONNECTIONS (un) 11.496 11.737 7.048 7.145 7.240 7.332 2.237 2.196 2.153 26.393 210.683 20 Engineering Assumptions // Capex

Projected investments – Water and sewage

WATER SEWAGE OPERATING SYSTEM Municipality Years 1 to 10 Years 11 to 35 Years 1 to 10 Years 11 to 35 Years 1 to 10 Years 11 to 35 Amapá 4.725 1.770 13.140 9.002 972 2.401 Calçoene 8.157 3.192 11.021 9.024 1.007 2.512 Ferreira Gomes 3.377 1.772 8.864 8.228 843 2.069 Laranjal do Jari 30.535 13.568 66.701 48.553 3.117 7.908 Macapá 341.801 176.026 763.345 458.979 12.953 40.182 Pedra Branca do 7.484 5.145 22.319 22.629 1.031 2.561 Amapari Porto Grande 7.208 4.056 22.344 17.288 1.452 3.607 Pracuúba 1.790 1.127 5.327 4.969 678 1.681 Serra do Navio 2.006 719 6.923 1.731 765 1.886 Tartarugalzinho 7.308 2.165 13.332 9.864 1.002 2.465 Vitória do jari 4.948 4.033 24.227 17.691 1.103 2.629 Cutias 2.029 1.532 7.562 6.829 759 1.868 Itaubal 2.290 860 5.284 4.653 664 1.640 Mazagão 3.548 1.965 13.799 8.550 677 1.659 Oiapoque 14.426 9.929 34.702 32.305 1.411 3.780 Santana 89.011 42.441 239.618 98.694 8.263 27.975

Note: Nonbinding reference values. In thousand R$ 21 Engineering Assumptions // Capex

Projected investments in the 35 years of concession (R$ thousand)

Operating Year Water Sewage Total System

1 18.138 4.807 16.995 39.940 2 141.724 29.651 257 171.633 3 66.818 263.821 282 330.922 4 55.335 197.482 784 253.601 5 50.613 147.750 1.074 199.437 6 75.178 164.496 13.087 252.761 7 62.288 109.666 1.773 173.727 8 31.266 132.101 672 164.040 9 17.322 114.384 942 132.647 10 11.961 94.347 830 107.137 11 to 15 57.871 352.111 20.610 430.592 16 to 20 55.009 239.083 19.534 313.627 21 to 25 52.078 62.962 22.114 137.154 26 to 30 53.951 55.903 21.396 131.250 31 to 35 51.390 48.931 23.168 123.488 22 Engineering Assumptions // Capex

OK

Water Sewage

CAPEX WATER SEWAGE 5 years - R$ 1 bi R$ 3 billion R$ 0.90 billion R$ 2.1 billion

Note: Non-binding reference values. 23 Engineering Assumptions // Opex Assumptions

Opex Assumptions

Caesa data and information WATER: 0.15 R$ / m3 → 0.13 R$ / m3 ELECTRICITY SEWER: 0.17 R$/ m3 → 0.15 R$/ m3 (5 years)

COAGULANTS, FLOCCULANTS, CHEMICAL PRODUCTS Caesa data and information FLUORINE, CHLORINE, LIME AND WATER POLYMERS 0.12 R$/ m3

CHEMICAL PRODUCTS Benchmarking indicators CHLORINE AND POLYMERS SEWAGE 0.02 R $/ m3

Benchmarking Indicators Sludge transport and disposal MISCELLANEOUS COSTS 250 R$/Ton 24 Engineering Assumptions // Opex Assumptions (Workforce)

Workforce

Water supply Sanitary sewer

Personnel sizing for the entire operation in the city, with the number of personnel per position/function and the values of base salaries obtained through the Sinapi table, benchmarking with other water and sewage concessions and CREA base salary for engineers.

Average unit cost of labor R$ 46,847/employee.year 25 Engineering Assumptions // Opex Assumptions (Others)

Others

Concessions, real estate rental, rental of machinery and equipment, Benchmarking Defined based on the insurance, advertising, laboratory structure designed for the services, graphic services, bank concessionaire's operation taxes, administrative and cleaning materials, licensing etc. 26 Engineering Assumptions // Opex Assumptions

City Year 1 Year 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year 20 Year 25 Year 30 Year 35 Amapá 744 774 775 783 791 1.343 1.389 1.409 1.422 1.435 1.447 Calçoene 611 652 674 694 710 1.391 1.444 1.468 1.449 1.501 1.516 Ferreira Gomes 744 755 740 737 736 1.172 1.210 1.286 1.304 1.324 1.340 Laranjal do Jari 2.969 3.309 3.289 3.340 3.453 5.085 5.475 5.665 5.938 6.329 6.410 Macapá 18.746 22.461 25.722 28.003 29.723 36.593 41.957 45.394 48.060 50.991 52.725 742 796 828 859 885 1.652 1.841 1.913 1.967 2.059 2.105 Porto Grande 909 979 1.021 1.060 1.091 2.010 2.128 2.185 2.222 2.297 2.327 Praacuúba 565 575 569 569 569 883 909 927 942 957 971 Serra do Navio 928 929 913 906 902 995 1.010 1.021 1.032 1.043 1.053

Tartarugalzinho 754 782 776 781 786 1.349 1.401 1.427 1.446 1.426 1.443

Vitória do Jari 1.190 1.212 1.175 1.170 1.169 1.927 2.129 2.240 2.295 2.386 2.429 Cutias 708 718 689 690 676 1.021 1.050 1.072 1.091 1.163 1.180 Itaubal 627 634 617 610 605 959 978 994 1.007 1.020 1.033 Mazagão 660 687 689 699 708 1.230 1.300 1.334 1.354 1.336 1.353 Oiapoque 1.163 1.252 1.302 1.352 1.393 2.348 2.588 2.802 2.875 2.982 3.110 Santana 6.778 8.316 9.616 10.595 10.932 12.002 13.401 14.083 14.612 15.368 15.853

In R$ thousand 27 Engineering Assumptions // Opex Assumptions

Operating Costs

Operating Costs (R$ Thousand)

► The main costs are represented by human resources, energy and chemicals, in addition to maintenance, uniforms, quality monitoring, fuels, repaving - water and sewage, office supplies, external services, telephony, etc. 28 Environmental Aspects // Environmental Licensing in Amapá

CONAMA Federal Resolution No. 237/97

 CONAMA Federal Resolution No. 237/97: defines the criteria and guidelines for environmental licensing; defines the competencies (spheres / bodies); determines the processes for licensing.

 In Amapá, only the municipality of Macapá has an administrative structure for carrying out environmental licensing.

 Licensing of local impact in other municipalities is conducted by the Amapá State Secretariat for the Environment - SEMA.

 Only Amapá and Cutias have an Operating License in force.

 CAESA is conducting the process of renewing operating licenses in other municipalities and the State Government is negotiating a commitment to regularize licenses related to existing structures. 29

Financial Modeling 30 Financial Modeling // General Assumptions

► Contract term: 35 years

► Projection on a real basis , i.e., without inflation effect.

► Applied accounting standard: ICPC01-R1 and OCPC05 (translations of IFRIC 12 ), which guide concessionaires on how to account for public service concessions to private entities. They consider the treatment given to goods linked to the provision of services, which in this case are recorded as intangible assets . 31 Financial Modeling // Revenue Assumptions

Average Water Consumption

► With the exception of Macapá and Santana, currently all other municipalities do not have water meters and the volumes consumed are 100% estimated, both for residential, commercial, industrial and public connections.

► Based on information from CAESA, an estimated initial consumption of 25m3 was adopted in the residential segment.

► In Macapá and Santana consumption was considered to be linearly reduced, stabilizing in the range of 16.5m3 in 3 years, after the implementation of hydrometers and an effective tariff collection system.

► For the other municipalities, given the smaller size of homes, the premise was adopted that consumption stabilizes in the 15m3 range in 2 years, after the implementation of water meters and an effective tariff collection system.

► With the installation of water meters, the ratio between estimated and measured connections is also modified.

► In modeling, it was considered that social connections represent a maximum of 25% of total residential connections.

► The dynamics of expanding coverage in residential connections considered that, initially, the expansion will be greater in the residential category (85% of the connections that would be considered social will, in fact, be just regular residential connections; the social connections will be implemented in the future) 32 Financial Modeling // Revenue Assumptions

Projected Quantity of Water Covered Connections

Municipality Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 10 Year 35

Macapá 58.935 80.497 100.250 120.660 141.712 202.766 230.943 262.879

Santana 17.243 25.105 29.982 35.004 40.169 48.927 55.206 62.235 Other 15.168 19.564 24.230 29.163 34.088 55.750 66.618 75.507 Municipalities Total 91.346 125.166 154.462 184.827 215.969 307.443 352.767 400.622

► Based on the number of savings shown in the table above, the 65% adhesion% is applied to calculate billed savings. This figure reaches 80% in the first two years, growing linearly over the next 5 years until reaching 85%. ► Universalization (99%) is achieved in the 11th year of projection, with specific curves in each municipality. 33 Financial Modeling // Revenue Assumptions

Projected Quantity of Sewage Covered Connections

Municipality Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 10 Year 35

Macapá 7.230 14.294 23.673 37.096 56.645 133.129 209.949 238.981

Santana 396 2.614 5.320 9.018 13.752 32.124 50.187 56.577 Other 892 1.683 3.575 5.890 8.148 32.824 60.561 68.643 Municipalities Total 8.519 18.590 32.568 52.004 78.545 198.077 320.697 364.201

► In the projections it is assumed that all water connections with adherence will have treated sewage. ► Macapá and Santana has sewage coverage started in the 4th year of projection while the other municipalities only in the 6th year. ► Universalization (90%) is achieved in the 18th year of projection. 34 Financial Modeling // Billed Revenue

Billed direct revenue (R$ million) 35 Financial Modeling // Revenue Assumptions

Indirect Revenues

► Based on data from CAESA and also observing data from the northern region of , it was considered that indirect revenue is equal to 4.3% of direct revenue at the beginning, decreasing linearly in 5 years to 3.6%, remaining constant from then on. ► It remains high in the first years, due to the substantial increase in new water and sewage connections and the exchange of water meters, then it gradually decreases until it stabilizes when the universalization of both services is achieved. 36 Financial Modeling // Revenue Assumptions

Total gross revenue (excluding construction revenue) (R$ million)

800.000

700.000

600.000

500.000

400.000

300.000

200.000

100.000

0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 Year 21 Year 22 Year 23 Year 24 Year 25 Year 26 Year 27 Year 28 Year 29 Year 30 Year 31 Year 32 Year 33 Year 34 Year 35

► On the 11th year, the company reaches the level of R$ 500 million in gross revenue. ► At the end of the projection, the company reaches a level of R$ 678 million in gross revenue. 37 Financial Modeling // Revenue Assumptions

Default rates

50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 1415 à 35

Based on Caesa’s default rates in recent years, it was assumed that the concessionaire would reduce from 44% to 10% by the 15th year, according to the curve above. The 10% target is due to the practice of demonstrating that the private partner has greater capacity to combat delinquency rates, as a result of more efficient commercial management. 38 Financial Modeling // Revenue Assumptions

Loss Index

70% 65% 65% 60% 60% 55% 50% 50% 45% 40% 40% 35% 30% 30%

20%

10%

0% 1 2 3 4 5 6 7 8 9 em9 dianteon

Loss rates fall more rapidly in the first 9 years, reaching 30% in the 9th year. 39 Financial Modeling // Revenue Assumptions

Operating Expenses R$ Thousand

Year 1 Year 2 Year 3 Year 4 Year 5 Year 10 Year 35 Operating Expenses 32.714 23.317 23.317 30.292 30.292 31.803 33.274

► Insurance Expenses ► Operational Insurance ► Engineering Risk Insurance ► Liability insurance ► Guarantee Expenses ► Proposal Guarantee ► Performance Guarantee ► Personnel Spending ► Regulatory Agency Inspection Fee (0.50% of NOR limited to R $ 2 million annually) ► Independent Verifier ► Reimbursement of BNDES Studies ► B3 Contract Refund ► Refunds for BNDES Studies and B3 Contracting must be paid before the contract is signed. 40 Financial Modeling // Revenue Assumptions

Accounting Amortization of Intangible Assets

► In accordance with the accounting records practices for the concession of public services, it was considered the amortization, within the concession term, of the investments that make up the intangible asset of the private operator. ► Below the amortization curve during the concession period.

R$ Thousand 41 Financial Modeling // Tax Assumptions

Indirect Taxes

► Regime: Non-Cumulative ► PIS: 1.65% ► COFINS: 7.60% ► ICMS: Exempt ► Costs and expenses with wholesale treated water, electricity, chemicals, system maintenance, laboratory analysis and sludge are subject to PIS and COFINS tax credits. Likewise, the accounting expense for the amortization of the intangible asset arising from the investments made was also deducted from the calculation basis. ► In addition, compensation for tax credits arising from investments in expanding the water and sewage network and operating systems was considered. 80% of these investments are taxable.

Direct Taxes ► Regime: Real Profit ► Income Tax: 15.0% + 10.0% on what exceeds R $ 240 thousand ► CSLL: 9.0% 42 Financial Modeling // Financing Assumptions

Referential Financing Conditions (Credit basket - approximately 50% public banks + 50% market)

Public Banks (BNDES and CEF): Market: Bridge Loan and Debenture • Grace period for beginning the amortization of the principal: 48 months; Bridge Loan • Financing amortization period (Constant • Amortization of principal and interest in a Amortization): 240 months; single installment, after the first 12 months; • Remuneration based on the CDI; BNDES • Spread: 5% per year; and • Interest rate: TLP + 2.45% per year; • Release fee: 0.50%. • Release fee: 0.50%; Debenture CEF • Grace period for beginning the amortization of • Interest rate: Reference rate + 9% per year; the principal: 36 months; • Release fee: 0.50%; • Financing amortization period (SAC): 144 months; • Interest rate: CDI + 5% per year; • Release fee: 0.50%; 43 Financial Modeling // EBITDA

EBITDA and EBITDA margin

Margin

► Average EBITDA Margin: 51,9% 44 Financial Modeling // Projected Cash Flow

Project Cash Flow 45 Financial Modeling // Tariff - Results

• Smaller consumers will pay less : monthly consumption of up to 15 m³ will pay a cheaper bill • Expansion of the social tariff : of the population will benefit from a 62% discount for consumption up to 10 m³ • Those who consume more will pay more : residential (above 15 m³), commercial, governmental and industrial clients • Consumers will pay for what they actually consume

Water Bill Currently (R$) New Value (R$) Change (%)

Social Tariff (up to10 m³) 22,63 15,40 - 32% Residential (up to10 m³) 59,55 38,60 - 35% Residential (up to 16,5 m³) 59,55 64,80 +9%

Average Tariff – Amapá: Residential 3,37 3,63 +8% (R$/m3) Average Tariff – Amapá* (R$/m3) 3,37 5,61 +66%

*Includes commercial, industrial and public categories 46 Financial Modeling // Tariff - Results

Water Tariffs Beneficiaries with Social Tariff: Unmeasured • From about 21% to 25% of residential Measured Consumer consumer social savings Category Estimated 3 11 – 20 3 3 3 Value 0 – 10m 3 21 – 30m 31 – 50m >50m Quota +70,64% Micromeasuring: m 3 (R$) (m ) • Currently few connections are 2,26 2,36 2,67 3,46 4,90 25,00 59,55 Residential hydrometered and consumers end up 3,86 4,03 4,56 5,90 8,36 25,00 101,62 paying for estimated quota - - - - - 25,00 22,63 Social Residential • The concessionaire should expand 1,54 - - - - 25,00 38,62 and renovate the water meter park, 2,67 5,34 5,34 5,34 5,34 15,00 53,40 Commercial C1 reaching all connections in up to 03 5,01 10,02 10,02 10,02 10,02 15,00 100,24 years 5,34 6,41 6,41 6,41 6,41 15,00 85,44 Commercial C2 10,02 12,03 12,03 12,03 12,03 15,00 160,39 • Consumers will now pay for actual 6,40 7,32 7,32 7,32 7,32 15,00 100,60 consumption Commercial C3 12,01 13,74 13,74 13,74 13,74 15,00 188,85 • The user who consumes 10m³, for 7,32 7,32 7,32 7,32 7,32 20,00 146,40 example, will pay R $ 15.40 in the Industrial 13,74 13,74 13,74 13,74 13,74 20,00 274,82 social residential category and R $ 14,64 7,55 7,55 7,55 7,55 35,00 259,65 38.60 in the residential category Public 27,48 14,17 14,17 14,17 14,17 35,00 487,41 • User benefited by the social tariff Differentiated - - - - - 10 26,70 (consumption up to 10m³) can have a Commercial - - - - - 10 50,12 reduction of up to 32% in the water Sewage Tariff +87,70% bill and the residential user with the THE VALUE OF THE SEWAGE RATE IS EQUAL TO 75.00% (SEVENTY-FIVE PERCENT) OF THE WATER same consumption can have a FEE FOR ALL CONSUMPTION CATEGORIES reduction of up to 35% in the water THE VALUE OF THE SEWAGE FEE IS EQUAL TO 100.00% (HUNDRED PERCENT) OF THE WATER FEE bill FOR ALL CONSUMPTION CATEGORIES 47 Financial Modeling // Tariff - Results

Residential tariff: from R$ 2.26 to 3.86 in the first consumption range. The social tariff will be applied to users who have the following conditions:  Beneficiaries: users of the Bolsa Família Program, about 25% of the urban population in Amapá.  Up to 10 m³ per month  Tariff = 38% of the estimated tariff for Range 1.  Final water and sewage bill, after readjustment, will be R$ 30.80 for consumption of 10 m³.

60

50

40

30 0-10m3 20 Social

10

0 48 Financial Modeling // Tariff - Results

IBGE Family Budget Survey (2017-2018)

Others Services – North Region Sevices - Amapá 10% Others Water and 16,8% Sewage R$ 3.15 9% Water and Sewage R$ 78.94 2,6% Electricity Electricity 46% 45,8% Household Household Gas Gas 14,7% 15%

Telephone, TV Telephone, TV and Internet and Internet package package Cell phone Landline 4,0% Cell phone Landline 8% 11% 1% 15,8% 0,5%

The value of user’s water account within the social tariff represents: The home user water account value will be:  1.47% of the minimum wage (R$ 1,045)  R$ 38.60 for consumption of 10m3;  2.0% of the estimated income for a family benefited by Bolsa Família classified as poor (R$ 758);  R$ 58,75 for 15m3 consumption  3.6% of the estimated income for a family benefited by Bolsa Família classified as extremely poor (R$ 423);  19.5% of the estimated average amount spent on energy in the first POF income bracket (family monthly income up to R$ 1,908)  32% reduction in relation to the current tariff, considering only water (quota of R$ 22.63) 49

Legal Aspects 50 Legal aspects // Macro themes

Concession of water supply and sewage services in the urban áreas of the municipalities of the State of Amapá

Deals with the institutional basis of the project and the legal relationship to be established between the State of Amapá and its cities. Legal-Institutional model

Conceptual view on central legal aspects of public notice, contract and annexes

Public notice and contract themes 51 Legal aspects // Concession Governance

Council of Independent ARSAP Holders Verifier

Associated Agreement Management

Municipalities State of Amapá Concessionaire

Monitoring Payment to the State of Amapá of a fixed grant amount of R$ Civil Society Users 50,000,000.00 , which will be distributed to the cities, in the Committe proportion of inhabitants, based on the IBGE. Services will be provided only to urban areas in the cities of Cooperation Agreement the State of Amapá Integrates Governance structure ensures: • Technical quality and exemption Concession Agreement • the participation of the holders relevant decisions within the scope of the concession Management Agreement DC1 - Informação de uso interno 52 Legal aspects // Legal Framework

Decision of the Holders + Legal Formalization (Cooperation Agreement and Management Agreement)

Decision to assign the exercise of powers to the State of Amapá (organization and provision of water supply and sewage services, including on a delegated basis, through a concession contract)

Delegation of regulatory and inspection functions to ARSAP

Only urban areas of the municipalities of the State of Amapá will be the object of service concession

Allocation to the State of Amapá of the responsabilities for (a) carrying out the project’s bids, (b) signing the concession agreement and (c) managing the concession agreement , including, even, carrying out any rebalancing (with the support of ARSAP)

Maintenance of planning activities with the holders: approval, by the municipalities participating in the concession, of the Municipal Basic Sanitation Plans 53 Legal aspects // Concepts of Public Notice and Agreement

► Judgment criteria: lower tariff adjustment

► Proposal guarantee of 0,5% of the contract value

Public ► Appeal phase at the end of the bidding process Notice ► Bidding held at B3

► Agreement signature preceded by the fulfillment of conditions:

. Incorporation of SPE, with payment of minimum social capital

. Proof of experience in senior executive positions at SPE

. Shareholder agreement

. Agreement performance guarantee

. Compulsory insurances

. Compensation to BNDES and B3

. Grant payment

. Choice of arbitration camera 54 Legal aspects // Concepts of Public Notice and Agreement

► Conditions of participation:

1. Fundraising certificate: Certificate issued by a public or private legal entity that proves that the Public Bidder or its Affiliate has carried out an undertaking in which it has raised at least R $ 200,000,000.00 Notice (two hundred million), to comply with financial obligations assumed

► The sum of certificates related to different projects is allowed, provided that at least one of the funding is at least 20% of the above amount, and certificates less than at least R $ 15,000,000.00 are not accepted (fifteen million reais)

► Quantities proportional to the percentage of participation of the Bidder and its affiliates, in the companies or consortium responsible for the undertaking object of the attestation

► The certificates will be considered in their entirety in the event that the bidder, or its affiliate, holds more than 50% interest in the undertaking object of the certificate

► The sum of certificates between consortium bidders will be allowed 55 Legal aspects // Concepts of Public Notice and Agreement

► SPE management structure:

1. Proof that, in the SPE management structure, at least, the senior executive positions equivalent Public to (i) operational director or superior and (ii) operational superintendent , will be occupied by Notice professionals with the following experiences:

. performance in positions of hierarchy and functions similar to those to be performed, for a period equal to or greater than 60 (sixty) months . company responsible for the operation of water distribution and home collection systems and sewage treatment . Direct provision of services to serve the population of at least 100,000 (one hundred thousand) inhabitants

► The experiences, to be proven for each professional, will only be allowed to refer to the services actually under their responsibility within the scope of the SPE

► The sum of experiences will be allowed for the purpose of proving the period, being able to refer to continuous periods or not ► Experiences can be proven through attestations of technical capacity or suitable documents 56 Legal aspects // Concepts of Public Notice and Agreement

► Concession object: regionalized provision of drinking water supply and sewage services, provided in the concession area, comprising the investments necessary for the expansion, operation, conservation and maintenance of the system

Agreement ► Concession area: urban areas of the municipalities of the State of Amapá, which are: Amapá, Calçoene, Cutias, Ferreira Gomes, Itaubal, Laranjal do Jari, Macapá, Mazagão, Oiapoque, Porto Grande, Pracuúba, Santana, Pedra Branca do Amapari, Serra do Navio, Tartarugalzinho and Vitória do Jari.

► Term: 35 years of operation from the date of issuance of the system transfer term

► Assisted system operation: up to 180 days from the conclusion of the agreement (CAESA responsible for the assisted operation; inventory of goods linked by the concessionaire)

► Expropriations: responsibility of the concessionaire for conducting the process and payment of indemnities (declaration of public utility in charge of the Granting Authority)

► Independent verifier: hired by ARSAP; benchmarking performance targets.

► Minimum share capital: the SPE will be required to pay additional minimum share capital if the discount exceeds 10% (ten percent) 57 Legal aspects // Concepts of Public Notice and Agreement

► Share capital: seeking to guarantee financial commitment aligned with the proposal presented at the auction, additional share capital will be required for discounts greater than 10%.

Agreement ► Incorporated subscribed capital for signing the contract of at least R$ 20 million; ► Additional contribution of R$ 1.8 million for each percentage point of discount above 10% of the reference rate ► In the case of non-integer values, the additional contribution amount will be calculated proportionally

► Minimum mandatory share capital: R$ 371 million ► Additional contribution of R$ 17 million for each percentage point practiced above 10% of the reference rate ► In the case of non-integer values, the additional contribution amount will be calculated proportionally

► Share capital integration ► R$ 100 million + additional capital paid up by the end of the year 1 ► Total capital until the end of year 4 58 Legal aspects // Concepts of Public Notice and Agreement

► The tariff readjustment will occur every 1 (one) year period, counting from the base date for readjustment, thus considering the delivery date of the COMMERCIAL PROPOSAL in the BIDDING, Agreement according to the following parametric formula:

BASE TARIFF = BASE TARIFF last year * READJUSTMENT INDEX (IRC)

► The IRC will consist of a weighting of 4 items that make up the Concessionaire's costs and investments:

IRC= [P1 x (Ai/Ao) + P2 x (Bi/Bo) + P3 x (Ci/Co) + P4 x (Di/Do)]

► P1, Ai e Ao: Labor; ► P2, Bi e Bo: Electricity; ► P3, Ci e Co: Industrial and Chemical Products; ► P4, Di e Do: National Construction Cost Index. 59 Legal aspects // Concepts of Public Notice and Agreement

Calculation of the Effective Tariff

EFFECTIVE TARIFF = Agreement BASE TARIFF * IDG + BASE TARIFF * ITS

► IDG is the reducing factor due to non-compliance with PERFORMANCE INDICATORS ► The minimum limit for the IDG is 0.9 ► If the concessionaire reaches the GDI below the minimum of 0.90 in two consecutive years or three non- consecutive times in less than 5 years, the contract may expire. Social Tariff ► Limited to 22.6% of total connections ► If, when the concessionaire takes over the operation, the number of social connections is greater than 22.6% of the total connections, the absolute number of social connections will be maintained until the 22.6% level is reached, depending on the operation growth / coverage expansion. 60 Legal aspects // Concepts of Public Notice and Agreement

Risks allocated to the Grantor:

► Failure by ARSAP and / or the AP State to fulfill its contractual or regulatory obligations. Agreement ► Delay in the fulfillment by the State of its obligations related to expropriation or administrative easement. ► Unilateral change that causes imbalance in the agreement. ► Edition of rules applicable to the concession or other ARSAP determinations that change the performance goals , as well as other conditions for the provision of services ► Prince's factor or Administration act that causes imbalance . ► Creation, alteration or extinction of taxes or legal charges, both for more and for less (except income taxes). ► Specific legislative change . ► Act of God or force majeure, which cannot be insured or exceed the limit of the insurance policies required in this Agreement. ► Delay in works and activities resulting from the delay in obtaining environmental licenses , not attributable to the concessionaire 61 Legal aspects // Concepts of Public Notice and Agreement

Risks allocated to the Grantor: ► Acts or facts, occurred before the transfer date of the existing system, that are not the responsibility of the concessionaire. Agreement ► Environmental damages, environmental assessments or legal actions related to possible environmental damages, as long as the concessionaire is in compliance with the performance targets. ► Judicial and administrative determinations to satisfy obligations originally imputable to the State ► Archaeological hazards , including the possible discovery of historic and archaeological sites. ► Electric power unavailability, due to facts attributable to the Granting Authority. ► Delays or losses in the performance of services resulting from interference caused by social movements and / or the presence of indigenous, quilombola populations and any other traditional peoples and communities. ► Extraordinary variation in the cost of specific inputs , thus understood the variation above 10% (ten percent) of IDglobal. ► Social events that affect the provision of services in any way, including strikes by public officials. ► Delays or suspensions in the execution of the contract due to judicial or administrative decisions , not attributable to the parties. 62 Legal aspects // Concepts of Public Notice and Agreement

Risks allocated to the Grantor: ► Supervenience of administrative, judicial or arbitration decision that prevents the concessionaire from charging tariffic , readjusting or rebalancing them. Agreement ► Risks related to the water availability of the system. ► Increase in the concession area due to the transformation of rural areas into urban areas; ► Variation in demand due to population growth or not , greater than 115% or less than 85%, in relation to the population projection considered ► Variation identified by the concessionaire above 15%, up to the 12th (twelfth) month after the end of the assisted operation, between the actual level of service in the water distribution system and the level informed in the signing of the contract and between the level effectively service of the sewage collection system and the level informed in the agreement signature 63 Legal aspects // Concepts of Public Notice and Agreement

Risks allocated to the Concessionaire:

► Variation in the demand for services , as a result of population density different from that predicted, Agreement default by users, existence of irregular connections, alteration of the housing profile or consumption pattern or composition of users, among others; ► Variation in the costs of operating and maintaining the system , including in relation to not obtaining the economic return expected by the concessionaire; ► Variation in the cost of labor that affects the execution of the Services, and the works to improve the system; ► Geological and climatic risks related to the execution of the works; ► Excess costs related to the provision of services, as well as losses resulting from inefficient management of services; ► Obtaining licenses, permissions and authorizations necessary to execute the object of the agreement; ► Up-to-date technology used in construction and service provision; 64 Legal aspects // Concepts of Public Notice and Agreement

Risks allocated to the Concessionaire:

► Perishing, destruction, theft, theft, loss or any other type of damage caused to related goods ; Agreement ► Unavailability of financing and / or increase in the cost of capital, including those resulting from increases in interest rates; ► Exchange rate variation; ► Failures in basic and executive projects , in the execution of works and in the infrastructure applied to services; ► Delays and additional costs in carrying out works to improve the system that are not attributable to the Granting Authority under the terms provided for in the agreement; ► Civil, administrative and criminal liability for environmental damage resulting from the execution of the works, the operation and maintenance of the linked assets and the provision of services; ► Losses caused to third parties , including users of services, by the concessionaire or its administrators, employees, agents or service providers or any other natural or legal person related to it, in the exercise of the activities covered by the concession; 65 Legal aspects // Concepts of Public Notice and Agreement

Risks allocated to the Concessionaire:

► Losses arising from risks inherent to business activity; Agreement ► Investments, payments, costs and expenses resulting from expropriations , institution of administrative easements, imposition of administrative limitations or provisional occupation of real estate; ► Expenses resulting from hidden defects in the linked assets; ► Occurrence of a collective bargaining agreement, agreement or convention or failure to supply materials and services by the concessionaire's contractors, as well as a strike by its staff; ► Responsibility for delays in conducting procedures for expropriating the areas necessary for the provision of services, and for the execution of works to improve the system. ► Act of God or force majeure, which are the object of insurance coverage required in the agreement, up to the limit of the policies . 66

Performance Indicators 67 Performance Indicators // IDgeral Calculation

Ten indicators were established to be monitored throughout the contract in order to guarantee the quality of the services provided and the achievement of the established goals.

► Any failure to comply with the indicators will give rise to discounts on the tariff charged to users and a consequent Monitored indicator Weight in IDG reduction in the concessionaire's revenue. Water System Availability 17,5% (IDSA) ► The indicators will be monitored by city, which have different Sewage System Availability weights depending on the size of each one (Macapá: 2.5; 17,5% Santana: 2.0; municipalities with more than 20 thousand (IDSE) inhabitants: 1.5; and the others: 1). Water Quality (IQA) 10% ► The indicators have different weights in the performance Supply Continuity (ICA) 5% index of the concessionaire. Distribution Losses (IPD) 10% Sewage Treatment Efficiency 5% = (IETE) Sewage treatment (ITE) 10% . - Weight of the performance indicator i; Micromeasure Update (IMA) 15% . - Performance indicator i; User Satisfaction (ISU) 5% . - Number of performance indicators. Sewage Service Continuity 5% (ICE) 68 Performance Indicators // Source of Data

External data (obtained from third parties) and internal data (generated by the CONCESSIONAIRE)

EXTERNAL DATA: INTERNAL DATA:

• National Water Agency (ANA); • Checks via field inspection; • Amapá State Secretariat for the • CONCESSIONAIRE ´s records; Environment (SEMA); • CONCESSIONAIRE's technical and • Brazilian Institute of Geography and commercial registration; Statistics (IBGE) - Demographic • Operational Reports; census or National Household • Physical-chemical, bacteriological, Survey (PNAD); microbiological analysis in the • Municipalities covered by the laboratory and in the field; Project; and • Record of environmental audits • National Sanitation Information performed; and System (SNIS). • Registration of complaints by the Call Center System. 69 Performance Indicators // General Aspects

Measurement procedures

► The calculations of IDG will be prepared by the Indicator Minimum limits Independent Verifier, the respective calculation Year 3 Year 4 Year 5 Year 6 Year 7 memory being sent to ARSAP and the State, with a copy for the contractor IDSA Measured by municipalities IDSE Measured by municipalities ► ARSAP will examine the calculations, and it must manifest within 10 days IQA 98% 98% 98% 98% 98% ► If there is no Independent Verifier hired, reducing ICA 85% 90% 95% 98% 98% factors will not be applied due to non-compliance IPD 60% 55% 50% 45% 40% with performance indicators IAM N/A N/A N/A N/A N/A IETE N/A N/A N/A 98% 98% Grace Period ITE N/A N/A 100% 100% 100% ► The indicators will only be measured from the 3rd ISU N/A N/A 90% 90% 90% year ICE N/A 97% 97% 97% 97% ► The availability of the Sewage System (IDSE) will only N/A – not applicable be measured after the 4th year for Macapá and Santana and after the 6th year for all other 6 9 Municipalities 70 Performance Indicators // Calculation Methodology 71 Performance Indicators // Calculation Methodology 72 Performance Indicators // Water Coverage Goals

Year Cutias Itaubal Amapá Macapá Santana Amapari Mazagão Calçoene Pracuúba Oiapoque Porto Grande Porto Vitória do Jari do Vitória Serra do Navio do Serra Laranjal do Jari do Laranjal Ferreira Gomes Ferreira Tartarugalzinho Pedra Branca do do Branca Pedra

N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Start Concession 1 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 2 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 3 38% 24% 88% 56% 85% 57% 55% 40% 29% 26% 25% 54% 68% 72% 43% 62% 4 45% 33% 99% 62% 89% 67% 65% 48% 37% 35% 34% 60% 78% 76% 50% 66% 5 53% 43% 99% 67% 92% 77% 75% 55% 46% 44% 43% 66% 88% 79% 57% 71% 6 61% 52% 99% 72% 96% 87% 85% 62% 55% 53% 53% 71% 98% 82% 64% 76% 7 68% 62% 99% 78% 99% 97% 95% 70% 64% 62% 62% 77% 99% 86% 71% 80% 8 76% 71% 99% 83% 99% 99% 99% 77% 73% 72% 71% 82% 99% 89% 78% 85% 9 84% 80% 99% 88% 99% 99% 99% 84% 81% 81% 80% 88% 99% 92% 85% 90% 10 91% 90% 99% 94% 99% 99% 99% 92% 90% 90% 90% 93% 99% 96% 92% 94% 11 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 99% 73 Performance Indicators // Sewage Coverage Goals

Year Jari zinho Porto Porto Navio Pedra Pedra Cutias do Jari do Gomes Itaubal Amapá Grande Ferreira Ferreira Laranjal Laranjal Macapá Santana Serra do do Serra Amapari Mazagão Calçoene Pracuúba Oiapoque Vitória do do Vitória Branca do do Branca Tartarugal

N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Start Concession 1 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 2 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 3 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 4 N/A N/A N/A N/A N/A N/A 20% N/A N/A N/A N/A N/A 20% N/A N/A N/A 5 N/A N/A N/A N/A N/A N/A 30% N/A N/A N/A N/A N/A 30% N/A N/A N/A 6 20% 20% 20% 20% 20% 20% 40% 20% 20% 20% 20% 20% 40% 66% 20% 20% 7 30% 30% 30% 30% 30% 30% 50% 30% 30% 30% 30% 30% 50% 68% 30% 30% 8 40% 40% 40% 40% 40% 40% 55% 40% 40% 40% 40% 40% 55% 70% 40% 40% 9 50% 50% 50% 50% 50% 50% 60% 50% 50% 50% 50% 50% 60% 72% 50% 50% 10 55% 55% 55% 55% 55% 55% 65% 55% 55% 55% 55% 55% 65% 74% 55% 55% 11 60% 60% 60% 60% 60% 60% 70% 60% 60% 60% 60% 60% 70% 76% 60% 60% 12 65% 65% 65% 65% 65% 65% 75% 65% 65% 65% 65% 65% 75% 78% 65% 65% 13 70% 70% 70% 70% 70% 70% 80% 70% 70% 70% 70% 70% 80% 80% 70% 70% 14 75% 75% 75% 75% 75% 75% 83% 75% 75% 75% 75% 75% 83% 82% 75% 75% 15 80% 80% 80% 80% 80% 80% 85% 80% 80% 80% 80% 80% 85% 84% 80% 80% 16 83% 83% 83% 83% 83% 83% 88% 83% 83% 83% 83% 83% 88% 86% 83% 83% 17 87% 87% 87% 87% 87% 87% 90% 87% 87% 87% 87% 87% 90% 88% 87% 87% 18 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 74 Performance Indicators // Operation Goals

Operation goals year by year

Year

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