from a gover MINI-CASE 13.1 Aguaciudad in the Philippines - International Finance Corporation (a private Aguaciudad SA is a Spanish public company business finance subsidiary of the World Bank involved in water treatment projects. 10-year US$90 million loan at 8% interest repay. In November 2009 it was involved in nego- able in six instalments after the fourth year tiations with the municipality of Manila in the - Export credit from Spain: 8-year loan of Philippines. Following the negotiations a proposed con- US$100 million, with interest at 5% refund- tract was submitted, as summarized below: able after the second your . Aguaciudad will build a waste water treatment - Asian Development Bank: local currency plant of 500,000 cubic meters/day capacity 10-year loan of 3 billion pesos at 10%, inter- and serving 2 million people, via a joint ven- est repayable straight after 10 years ture company created with the Manila Water . The contributions of shareholders to the joint Authority (to put in a 10% stake), and a private venture are the following: local conglomerate, the San Jose Conglomer- - Aguaciudad: US$60 million cash ate (30%% stake), with Aguaciudad holding 60% of the capital. The joint venture operates as - Manila Water Authority: the capitalization a concessionaire of the project under a BOT intangible assets of the licence to operate contract (US$1 million) plus US$9 million cash . The capital cost is estimated at US$200 million - San Jose Conglomerate: US$30 million of imported equipment and services + 8 billion . The cost of operations and maintenance with pesos of local costs (rate of exchange is $0.02 out depreciation and financing is estimated at to the peso) US$14 million/year plus 340 million pesos . The financing of the project is: . It has been agreed that the joint venture will - Shareholders: US$100 million charge for water at 27 pesos/m'. Questions 1 What are the risks in this project for Aguaciudad? 2 What do you think of the financing of the project? 3 Aguaciudad shareholders request a 15% return on risky environments. Will they approve the project