3 Executive Summary Perus 2003 growth of 4% was among the highest in the region. For 2004 we project again GDP growth of 4% Strong economic fundamentals have allowed Peru to weather the regional and international turmoil Peru is undertaking measures to ensure sustainable economic growth by promoting private investment and fostering regional and output diversification The strengthening of the tax collection system has accounted for additional revenues of 1% of GDP in Recent tax measures should further increase tax collection by 0.8% of GDP 2004 growth will be driven by: Camisea Gas Project, growth of textile industry fostered by ATPDEA and recovery of the international economy
5 Perus economy has grown consistently over the past two years Monthly GDP Growth (% yoy) GDP Growth - Comparative Analysis (% yoy) Toledo Administration Transition Gov Source: INEI (above) and JPMorgan (below)
6 The recovery has been broad-based across different sectors Source: INEI, MEF
7 …while expanded ATPDEA benefits are expected to boost non-traditional exports even further ATPDEA benefits granted by the US to Andean countries are expected to increase Perus exports to the US by an average of 13% per year between 2004 and 2006 Recent participation in Mercosur provides easier access to exports to the Brazilian market Camisea´s cheaper energy will increase competitiveness and turn oil-related trade accounts into surplus Peru is expected to start FTA negotiations with the US in 2Q_04 Destination of Perus Exports (% of total exports) Source: MEF
8 …and private investment has started to recover Source: Central Bank, MEF Global Supply and Demand (% change yoy) Private Investment (% yoy)
9 Higher non-traditional and mining exports are pushing the trade balance into surplus Source: Central Bank, MEF Evolution of Imports and Exports (US$ BN)
10 The current account deficit is mostly financed by long-term capital inflows Current Account Deficit and Long-Term Flows (US$ MM) Source: Central Bank * FDI figures exclude privatization proceeds
11 Inflation remains within the 1.5% to 3.5% target range Source: Central Bank (above) and Moodys and S&P (below) Inflation - Comparative Analysis (% Dec/Dec, 2003E) Inflation Evolution (% LTM) 3,4
13 Prudent monetary policy has reduced interest rates while maintaining price & FX stability Nuevos Soles Interbank Lending Rate (%) Source: Central Bank 2,5
14 The Nuevo Sol has been resilient to the pressures experienced by other Latin American currencies Latin American Currencies (Jan =100) Source: JPMorgan (%)
15 Perus external liquidity position continues to strengthen, while FX reserves are growing Net International Reserves (US$ BN) Months of Import Coverage - Comparative Analysis (In months, 2003E) Source: Central Bank (above) and S&P & Moodys (below) 10,5
16 Financial sector indicators continue to strengthen... Source: Superintendencia de Banca y Seguros Non-performing Loans (% of total loans) Banking Sector Profitability (%) Net Interest Income / Interest Income Return on Assets (%) 5,8
17 …as bank lending in soles increases... (PEN MM) (US$ MM) Source: Central Bank Bank Lending US Dollars Soles
18 …and domestic issues become largely oversubscribed Domestic Issues (PEN MM) Interest Rates (multiple maturities) (%) 2004 May (10/04) May (1/05) Jun (6/05) Jun (6/10) Jul (6/05) Jul (6/08) Aug (8/06) Sept (6/08) Source: MEF Oct (10/07) Oct (8/06) Issue Date: Maturity: Issue Date Maturity Nov (08/06) Nov (10/07) Dic (7/08) Dic (12/13) Mar (6/04) Abr (10/04) Ene (1/14) Ene (708) Feb (8/06) Feb (2/09) Mar (3/10) Mar (2/09) 2009
20 On the fiscal front, the ongoing efforts to boost tax collection are yielding impressive results Tax measures implemented in were aimed at widening the tax base, and curb evasion by strengthening the tax collection agency As a result of past tax measures, revenues are expected to increase by 1% of GDP on an annual basis Recent tax measures are expected to increase revenues an additional 0.6% of GDP for 2004 Internal Tax Collection (% change yoy) Source: SUNAT 11,1
22 The macroeconomic framework points to a consolidation of the economic recovery Source: MEF & Central Bank Macroeconomic Framework F2005F2006F GDP growth rate (%, yoy) Current account (% of GDP) Inflation (% change, Dec-Dec) Exports of Goods and Services (%-change, yoy) Non-Financial Public Deficit (% of GDP) Primary Balance (% of GDP) Total Public Sector Debt (% of GDP)
23 Peru has a flexible and manageable financing plan for 2004 Source: MEF
25 TRADE PERU-UK The UK is Peru's first trading partner in the EU and second market for Peruvian exports after the US, with 12.32% in Exported value is US$ FOB m in Main Peruvian exports during 2003 have been gold (89.52%), refined copper (2.16%), fishmeal (1.99%), tin (0.84%), grapes (0.71%), asparagus (0.65%), coffee (0.56%), mandarines (0.27%), avocado (0.21%) and zinc oxid (0.21%). BILATERAL TRADE PERU-UK 2003 (in m US$) EXPORTS (FOB) IMPORTS (CIF) BALANCE TOTAL TRADE ,
26 BRITISH INVESTMENT IN PERU The UK is the second source of long term investment for Peru, after Spain. The framework for British investment is the Bilateral Investment Treaty of In2003, British investment was US$ 2,734 m, 22% of the accumulated stock. In 1990, UK investment was the third and rose from 7.54% of total stock beginning the 90s, to 22%. UK investment is mainly in mining, communications, finance, trade, industry, service, energy, tourism, transport, agriculture, construction, housing and oil. The UK supported recently the IADB financing for the Camisea natural gas project.
27 BRITISH INVESTMENT IN PERU Total UK %Gth %FDI Rank , º , º , º , º , º , º , º ,280 1, º ,076 1, º ,475 2, º ,907 2, º ,604 2, º ,273 2, º ,396 2, º
28 YUNCAN HYDROELECTRIC CENTRAL Enersur was awarded, by offering US$ 205 m, the contract of use for Yuncan, signed on Feb The payments are US$ 57.6 m as contract right, US$ m in 17 years as use right to pay the Japanese Bank for International Cooperation and US$ 23 m in 17 years as a social contribution for the development of the Pasco Department. The use contract was signed on February 16, Located 340 Km north-east Lima, consists of the construction of a Hydroelectric Center with 130 Mw installed power, including 3 generators of 44,5 Mw each, to produce 901 Gwh per year, as well as building 50 Km of 220 Kw Transmission Lines for interconnection with the National Electric System. During the final stage of construction the awarded bidder will make a number of advance payments to finance the contribution of the Peruvian State. Such payments shall be made monthly, from February 16, 2004 up to July 30, 2005 (date of deliver). The State guarantees the user a refund of the advanced payments if the contract is rescinded for failure to deliver the central within the maximum term established, that is, within twelve months after the planned delivery date.
29 BAYOVAR PHOSPHATES Phosphate concessions located on the Northern Coast, 1,000 Km from Lima. Reserves estimated at 816 million tons, equivalent to 262 million tons of phosphoric rock concentrates with 30% content of P2O5. Potential reserves are estimated at 10 billion tons. Mining concessions cover 74,059 hectares in the phosphate zone, which include 6,300 Ha in the underground water extraction area. There is access to the mine through a road from Piura and Lima, direct access to the National Power Grid, water available in the zone, facilities for the construction of new port, labor force available in the area. A pilot treatment plant is available, with an annual production capacity of 80,000 metric tons of phosphoric rock (30.5 % P2O5), which includes a 72-hectare treatment area. Information Memorandum is available to the interested parties. The invitation for bids is expected for the second quarter of 2004.
30 LAS BAMBAS COPPER PROJECT Located in Apurímac, 260 Km from Cuzco by road, altitude between 4,400 and 4,650 m above sea level. Comprises the Chalcobamba, Ferrobamba, Sulfobamba and Charcas deposits, with an area of 31,798 Has. Copper deposits are skarn type, with sulfides, oxides and iron. Gold mineralisation exploring potential. Proven reserves of 40.5 million tons, grades over 2% copper and 500 million tons exploration potential. Las Bambas is connected by road with Cuzco, has access to ports San Nicolás in Marcona and Matarani in Arequipa, is powered by National Interconnected Grid. The Camisea project is in the area of influence and skilled labour is available in the area. 14 bidders have already qualified and the awarding criterion will be the offered royalty. A diamond drilling program (2,500 m) is under execution to provide better geological knowledge to the bidders. Social agreements with local and regional authorities have been already signed in order to support the private investment promotion process of this project. The public bidding is due on 2 July 2004.
31 ROAD SECTIONS OF MULTIMODAL AMAZON AXIS OF IIRSA Peru takes part in the twelve-country Initiative for Integration of South America Regional Infrastructure (IIRSA for its Spanish acronym) agreed upon at the 2000 South American Chiefs of State Summit. Three axis of four in this plan connect our country with Brazil, the largest internal market of South America, providing increasing opportunities for investment, trade, tourism and strategic alliances. On the other hand Brazil would be able to trade with Asia via the Pacific Ocean. The southern axis will allow integration between Bolivia, the Brazilian states of Acre, Rondonia, Matto Grosso, Matto Grosso do Sul and the Peruvian Southern Macroregion. The northern axis would allow integration of our North Amazon and Central regions with Brazils Amazon State and the industrial city of Manaos.
32 NORTH: PAITA- PIURA- CORRAL QUEMADO- RIOJA- TARAPOTO- YURIMAGUAS The North Amazon Multimodal Axis includes the road sections between Paita in the coast and Yurimaguas in the Northern Amazon –960 Km–, as well as investment on the river ports of Yurimaguas and Iquitos. This will allow navigability in the Huallaga and Marañón rivers connecting Yurimaguas and Iquitos with Brazil. The private investment promotion process for this project started on March 8, 2003 and the call for bids in the International Public Tender to give the project in concession was published on August 25, The concession will be awarded to the bidder submitting the lowest economic proposal. The payment schedule includes an annual payment to the State –minimum 10 years– and payment for operation and maintenance during a 20-year period. The estimated investment amount is US$ 134 million, maintenance and operation expenses are close to US$8 million a year. The call for bids was issued on August 25, 2003, the project may be awarded in the third quarter of 2004.
33 CENTER: LIMA- RICARDO PALMA- LA OROYA- CERRO DE PASCO- HUANUCO- TINGO MARIA- PUCALLPA The Central Amazon Multimodal Axis includes the road sections between Lima and Pucallpa (867.2 Km), as well as investment for the Pucallpa River port providing navigability in the Ucayali River between Pucallpa and Iquitos. The project includes rehabilitation of the San Alejandro–Neshuya road section, care of critical points in the section Pumahuasi Bridge – Chino Bridge and maintenance for all road sections. In addition, the concessionaire may be given the option to develop a second stage of connection between the Ricardo Palma Bridge to the Ramiro Prialé Road, if approved by the Ministry of Transport. There is also an option to develop infrastructure for the Pucallpa River port. The concession will be awarded to the bidder submitting an economic proposal considering the lowest present net value of revenues from toll collection. The estimated amount of investment is approximately US$ 59 million, the maintenance and operation expense will average approximately US$ 8 million per year. The call for bids was issued on October 16, 2003 so that the project may be awarded in the fourth quarter of 2004.
34 EL CHACO - LA PUNTILLA TOURISM PROJECT Design, construction and operation of a Tourist Complex adjacent to the Paracas National Reserve, located on government land, approximately 27.8 Ha, facing Paracas Bay, approximately 250 Km from Lima, 10 minutes from Pisco International Airport and 15 minutes from San Martin port. This scheme divides the land in five independent areas, each one having a front to the Pacific Ocean and the opposite side facing the Pisco-Paracas road. Plot A, with an area of 11, m 2 for a lodge, Plot B, with an area of 17, m 2 for a hostel, Plot C, with an area of 62, m 2 for a resort, Plot D, with an area of 176, m 2 for a vacation housing development, Plot E, with an area of 6, m 2 to be transferred to the Paracas town for construction of a wharf. Economic proposals must consider a social contribution to be offered for Plot A, Plot B or Plot C. The estimated investment for Plots A, B, C and D is US$ 6 million approximately. The invitation to bid has been published during first quarter 2004.
35 REGIONAL AIRPORTS Peru is a country with important tourism potential. One million tourists visited Peru in 2001 and our goal for 2006 is three million. The countrys geographical location is ideal for a Latin American trade hub link with Asia Pacific. This project involves modernisation of a set of 19 airports and airfields throughout the country, managed by the Peruvian Corporation of Civil and Commercial Aviation (CORPAC). Likewise, Law Nº issued in October 2001 assigned to Proinversion the task of updating Final Feasibility Studies for a new airport for the town of Chinchero - Cuzco, which was carried out by the British Consortium Currie & Brown/ Masons, selected by international tender, during the first half of The government will set service, quality and safety standards to be met by each airport and will transfer them under the DBFOT (design, build, fund, operate and transfer) system. For contract awarding, the main factor will be the lowest contribution by the State. The duration of concession contracts is 25 years. Total investment required for the 19 airports that were suggested by Currie & Brown/ Masons was estimated at US$ 153 million. Awarding of bids for the first airport package should take place during the second quarter of 2004.
36 LIMA ELECTRIC TRAIN The municipality of Lima is promoting the building concession for the first phase of the Lima Urban Train, from Villa El Salvador to the 2 De Mayo Hospital Station (21.5 Km), including a 33 year concession contract, 3 years for project completion, commitment by the private operator, transfer to the private operator, for use and usufruct of existing operating assets, partially constructed civil works and detailed engineering for the stretch to be constructed. A significant part of the infrastructure has already been built and will be provided as part of the concession: 9.85 Km of double line, of which 1.96 K, is elevated, 7 stations, 120 m length platforms can accommodate 6-car trains. Also five 6-car trainsets plus 2 spare cars, supplied by Fiat-Ansaldo-Breda, 22 motor cars and ten trailers, all in new condition, maintenance yard with control center, car cleaning facilities, emergency power plant with 3 Mw capacity and a 60/20 Kv substation. The bidding process will be conducted by Cepri Lima, a special unit created by the Municipality to promote private investment in infrastructure projects. It will be a single round - sealed envelope process and will include technical and financial pre-qualification of operators, a draft of concession contract, and bid and performance bonds. The prequalification process will last until May 2004, the tender offer will take place during the second half May 2004 and the process will close on June 2004.