1. PREPARED BY: Eric Bell, Keith Boom, Valerie Cupp, Bill Panagis, and Kim Rieck Aqua America in Brazil Foreign direct investment project focused on water infrastructure in Brazil

2. WATERBRAZILINVESTMENTDECISION Why Invest in Water? Foreign Direct Investment Growing global demand and decreasing supply of potable water in emerging markets In the last century water usage has grown at more than 2x the rate of the population Water use increases with a rise in living standards- implications for emerging markets Industrial processes are water-intensive Brazil: 14% of Earth’s freshwater supply but Northeast does not have access to adequate supply of potable water Brazilian Government investing in water infrastructure to prepare for 2014 World Cup & 2016 Olympics Source: Food and Agriculture Organization of the United Nations (FAO) and UN-Water 2.5% of Earth’s water supply is freshwater 70% of freshwater is frozen 39% of global population without adequate sanitation

3. CONS: Rising inflationary pressure WATERBRAZILINVESTMENTDECISION Why Invest in Brazil? Foreign Direct Investment Strong macroeconomic fundamentals Economic powerhouse: 10 th largest economy in the world; GDP ≈ USD$1.55 trillion; vast natural resources; large labor pool Robust Growth: Economy expected to grow faster than those of the G6 in next 50 years Regulatory Environment: Floating exchange rate, free capital flow, limited barriers to FDI, open capital markets Monetary Tightening: COPOM raises SELIC rate 75bps in April to 9.5%, 12.5% by 2011 Expansionary Fiscal Policy: Increased Government spending to cause additional pressure to curb inflation Declining Trade Balance: Current account deterioration likely in 2010; could be offset by rising commodity prices and increase in exports Source: World bank PROS: Strong economic fundamentals

4. WATERBRAZILINVESTMENTDECISION Investment Strategy Foreign Direct Investment Enter into joint venture with Miya Group to form Agua Brazil (AB) - owner and operator of a water treatment facility supplying the city of Mossoró STRUCTURE: Joint Venture; Aqua America (90%) and Miya Group (10%) TERM: 10 Years LOCATION: Mossoró, in the state of Rio Grande do Norte, in Northeast Brazil TARGET: Existing water supply infrastructure facilities currently owned and operated by state utility company—Caern Project Profile AQUA AMERICA: A+ Credit Rating, most efficient US water utility company, growth through acquisition strategy Miya Group: Leader in engineering and water optimization solutions Value Proposition INVESTMENT AMOUNT: USD$15MM (BRL$26.1) – 100% cash transaction TERMS: 51% ownership of facility; 51% of future profits as owner and operator STRATEGY: Reduce NRW loss rates, increase revenue by expanding customer base and gradual rate increases, lower costs through improved efficiency Financial Strategy

5. WATERBRAZILINVESTMENTDECISION Should we invest? NO Foreign Direct Investment Despite economic growth, improvements in efficiency and increased profitability, risks outweigh return potential FDI ClimateRisk CompetitionLow-Partnership with Caern to access water utility monopoly -High demand -Large customer base FinancialsHigh-Rate of return < risk free rate (opportunity cost) -Exchange rate could negatively affect exit strategy -Cash flow dependent on ability of low per capita income customers to pay RegulatoryLow-Low barriers to entry PoliticalLow-Current administration pro-social reform Social/CultureMed.-World Cup/Olympics; promotes social infrastructure projects - Corruption prevalent - Sanitation program inefficient