Institutions

The Panama Canal

 

LIQ talks to Jorge Quijano, CEO of the Panama Canal Authority
 
What are the Canal's main sources of revenues?
 
The Canal derives its revenues mainly from providing transit services to shippers and shipping lines that move cargo through the route to reach producer and consumer markets in an expeditious and reliable way.
 
Primary sources of Panama Canal revenues include Canal tolls and other marine services.  In addition, the sale of water and electricity also provide important streams of revenue.  Even though transits might have slightly decreased throughout the years due to increase in vessel size, total Canal revenues have continued increasing due to rising cargo volumes.
 
 
Has the worldwide economic slowdown affected the Canal's revenues?
 
The waterway registered a slight decrease in tonnage during fiscal year 2009, but since then, it has resumed growth, with fiscal year 2012 setting a record of 333.7 million of PC/UMS tons, an increase of 3.6 percent compared to fiscal year 2011. Toll revenues, at B/.1,852.4 million, increased 7.1 percent, as a result of larger vessel transits.  In terms of transiting vessels, fiscal year 2012 registered 14,544 transits, a small 0.95 percent decrease from the previous year, with Panamax vessels recording 7,241 transits, 56.3 percent of oceangoing vessels.   Total cargo through the Canal registered 218.1 million long tons, a slight 1.9 percent decrease over the previous year.  
 
 
What are the alternatives to the Panama Canal?
 
There are several alternatives to the Panama Canal around the world, and two which stand out: the US intermodal corridor and the Cape of Good Hope.  Both serve the East Asia – East Coast US route for container vessels, the Canal’s most important market segment.  The US intermodal corridor implies a partial land route, with vessels from Asia unloading their cargo at several Pacific Coast ports in the United States.  The cargo is subsequently distributed to locations in the Midwestern and Eastern United States by rail/truck transport.  Meanwhile, sailing around the Cape of Good Hope provides an all-water alternative that is used by lines, mainly, in the return voyage. 
 
What are your thoughts on the project to revamp the Guatemalan railroad system to link the Atlantic and Pacific oceans sponsored by Korean firms?
 
From what we have read in the news, this railroad project seems to be part of a larger effort by the Guatemalan government to develop a “technological corridor” running north-south through the country.  The government plans to build a whole infrastructure network consisting of port facilities, oil pipelines, a four-lane, 372-kilometer highway in addition to a parallel railroad, entirely through the private sector. The ACP considers that any project that facilitates trade and transportation will be beneficial to the region, under correct estimates and premises of their market demand and supply.
 
Let´s discuss the Expansion Program (the "Program"). What works does the Program entail and what is the current status?
 
The Panama Canal Expansion Program consists of the construction of two new sets of locks - one on the Pacific and one on the Atlantic side of the Canal.  Each lock will have three chambers with water-saving basins.  Total progress for the locks project is currently at 36%. 
 
The program also entails the widening and deepening of existing navigational channels in Gatun Lake and the deepening of Culebra Cut, currently recording 82% progress, and the deepening and widening of the entrances to the Canal on the Pacific and Atlantic sides, with 97% and 99% progress, respectively.
 
In order to open a new 6.1 km-long access channel to connect the Pacific locks and Culebra Cut, four dry excavation projects were designed. The first three have already been concluded and the fourth phase currently registers 69% progress.  Additionally, the Expansion Program will improve the Canal´s water supply by raising Gatun Lake´s maximum operating level by 45 centimeters. 
 
As of November 30th, the total progress recorded for the overall Expansion Program was 50%.
 
For a program of this magnitude, how important is there for a state policy to be in place regarding the administration of the Canal to keep short-term politics maneuvers from obstructing the project?
 
This is of paramount importance, not only for the expansion, but for all activities undertaken by the Panama Canal Authority.  The Panama Canal has its own organic law, which was included in the Panamanian Constitution after being ratified by two consecutive administrations. The Canal is acknowledged by all Panamanians as the nation’s principal asset, and its organizational structure guarantees the concept of vital enterprise for world commerce and for Panama. To date, after its transfer to the Republic of Panama, the Canal has executed its role and regulations in compliance with article 310 of the National Constitution which bestows in it the commitment to manage, operate, preserve, maintain, and modernize the waterway, in a safe, uninterrupted, efficient and profitable manner.
 
In what ways will the Canal’s services be enhanced upon the completion of the Program?
 
The expanded Canal will improve the Canal capacity to satisfy an increasing transit demand with an adequate level of service for every segment. Allowing the transit of postpanamax vessels will reduce the number of transits required to transport the forecasted cargo volumes. This, in turn, will lower operation costs and decrease the amount of water used in the current locks. 
 
 
Can you provide us with a breakdown of the main costs of the Program? 
 
Estimated costs for the Expansion Program are:
(in millions)
 
Design and build of the Third Set of Locks   $     3,585 M
 
Pacific Access Channel                       $       477 M
 
Navigational channels improvements           $       800 M
 
Water supply improvements                    $         71 M
 
Management & Contingency                     $        317 M
                                             $      5,250 M
 
 
 
How is the Program being financed?
 
The Panama Canal Authority signed agreements with a group of bilateral and multilateral financing institutions to procure financing of up to $2.3 billion required to complete the expansion of the waterway. With the authorization of Panama’s national Cabinet Council, the Canal Board of Directors proceeded to sign financing agreements with these institutions as follows:
European Investment Bank  (EIB) $ 500 M
Japan Bank for International Cooperation  (JBIC) $ 800 M
Inter-American Development Bank  (IDB) $ 400 M
International Finance Corporation  (IFC) $ 300 M
Latin American development bank  (CAF) $ 300 M
Total financing: $2,300 M
 
 
How did you procure the main construction works?
 
The procurement for the construction of the major projects was accomplished through open public tenders. These bidding processes were based on best price and best value, whenever a more thorough analysis and weighed assessment of technical proposals were required, in addition to the best price. The design-bid-build approach was implemented for the majority of the construction projects and the design-build approach for the most comprehensive, complex ones. The ACP analyzed several options to better allocate the associated risks of each project. In the case of the Third Set of Locks Project, after the design & build model was selected, individual meetings with the bidders were scheduled to acknowledge their input before receiving the proposals.
 
Was the ACP involved in the design of the works or was it left to outside firms?
 
For the Third Set of Locks, the ACP worked along with external consultants in the elaboration of a conceptual design - which was provided for the bidding process- on which the bidders could base their proposals. All dredging and dry excavation contracts were designed by the ACP. The 2.3 kilometer dam that will separate Miraflores Lake from the new postpanamax channel was designed by URS Corporation.
 
 
What are some of the unexpected issues that had to be resolved during the execution of the Program?
 
Unexpected issues are associated with external conditions, which can indirectly affect the works, such as strikes by syndicated local construction workers and changes in local laws. Also, working with multinational consortia has proven to be a challenge. 
 
 
How are the environmental aspects of the Program being handled?
 
The environment is a priority under the Expansion Program. Along with its contractors for each component, the Canal requires the implementation of environmental mitigation measures through a dedicated management system in compliance with applicable regulations.  For example, wildlife rescue and relocations activities are conducted as work progresses in all areas in which projects are executed.  Mammals, reptiles and birds have been rescued and relocated to safe areas. Reforestation projects with native species are also being conducted by the ACP and in close coordination with the national environmental agencies. In this regard, to date, over half a million trees have been planted in 626 hectares. The Expansion Program management also includes an agreement with the Smithsonian Tropical Research Institute for the location and assessment of paleontological findings within the project areas.  In addition, regular contact is established with the communities in the vicinity of each of the projects to ensure that project impact is reduced to a minimum. All environmental activities are subject to independent auditing by local environmental organizations and all international financing institutions. 
 
Why do you think Panama is attracting so much interest from international infrastructure players?
 
Currently, Panama is experiencing major infrastructure investments in addition to the Canal Expansion Program.  A project to develop a metropolitan subway system, the expansion of Tocumen International Airport and improvements to Panama City’s metropolitan road structure are among the top civil projects currently under execution.  Furthermore, its international banking center along with increasing airline connectivity makes it convenient for investors to establish themselves locally and operate at lower costs.  Panama has maintained a steady rate of economic growth in the last decade, even in the midst of the current harsh worldwide financial crisis.
 
The Panamanian economy has expanded by more than 8% annually since year 2000.  Growth is particularly strong in the area of services, which accounts for nearly 80% of the country´s GDP.  Most of the growth is attributed to a series of policies of privatization, openness, and transparency that have been implemented since the year 2000.  New trade agreements, in particular with the US, are also opening a series of opportunities for new players, which require infrastructure.
 
Nevertheless, the principal driver has been the Canal expansion, which is not only increasing the opportunities for world commerce but is enhancing Panama´s Logistic Hub capabilities throughout the world.  In this spirit, we can say that shippers and shipping companies are discovering opportunities to optimize operations by taking advantage of Panama´s strategic location and its logistic/transportation infrastructure, which includes highly efficient ports in both oceans, a transisthmian railway as well as air and land connectivity.  At this point in time, when the US economy is growing at sub optimal levels and most of Europe is in recession, Panama provides a good opportunity for retail, exports, and transportation companies to optimize operations by realigning supply chains at a geographical location that has the best connectivity throughout the region in addition to be a secure, reliable and efficient transportation route.
 
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Overview of the Mining Sector in Argentina

Andrés Pezzutti

 
Infrastructure includes the physical and social capital that a country or community needs for its economic system to work properly in the provision of goods and services.  The social infrastructure refers to assets such as Educational, Health, Security and Recreational facilities, as well as Public Housing. Whereas, the economic infrastructure refers to Transport (e.g. airports, roads, ports), Communications (e.g. transmission, satellites, cable networks), Utilities (e.g. energy distribution networks, storage, power generation, water, sewage), and Renewable energy. The quality of a country's infrastructure plays a key role in determining its productivity and competitiveness, thus helping reduce the volatility of its growth cycle and the capital flows to which underdeveloped economies in terms of infrastructure are exposed.  
A wide and efficient infrastructure essentially binds production and consumption markets at a lower cost, both between regions from the same nation and with the rest of the world. In the absence of it, the contribution to determine the competitiveness of a country is often replaced by governments with the management of exchange rates in order to reduce the costs of internal logistics. But, given that they are highly dependent on the international context and the economic cycle, it restricts the sustainable development of the productive matrix onto other industries which soon find the size and efficiency of the infrastructure diminished. Direct foreign investment is essential for the local development of the mining sector, and infrastructure coupled with political institutions is one of the main factors for the development of the sector in the long term.
Mining in Argentina has grown exponentially during the last 10 years, hand in hand with the global growth of the industry. However, in order to strengthen this growth in the long term the challenges ahead are manifold.
 
Regional Overview
 
Precious metals’ prices are driven by many factors including money supply, sovereign debt levels, exchange rates, CDS spreads –default protection costs-, interest rates, inflation and production demand from other sectors such as jewelry and electronics. However, the global economic downturn and a renewed expectation that it will take longer than expected to solve, continues to feed greater risk aversion and less confidence in fiat money, thus causing portfolios to turn to quality (or greater allocation to precious metals).
This combination of lower consumer confidence with credit stress has led to a strong appreciation of precious metals together with a lower demand for base metals for industrial application. In this sense, investment demand has been one of the primary drivers for precious metals appreciation, mainly through ETFs as a primary investment vehicle, since investors regard them as a store of value in a context of dollar depreciation, as well as a general hedge against expected inflation. Central banks have also shifted their portfolios, and it is estimated that in 2011 alone, they bought about 208 T. of gold, almost 170% more than in the previous year.
According to the World Investment Report from UNCTAD, the value of cross-border M&A -net sales- in mining, quarrying and petroleum in 2011 hit its historical record (since 1990) worth USD123,000 M, being the only sector, from the 29 under study, which registered an increase during 2007-2011 (+14.5%) and also hit a record in the overall M&A market share, 23.4%, against a mere 2.1% and 12.4% in 2005 and 2008, respectively. Likewise, 530 cross-border M&A transactions were done in the sector, a 26% more than before the 2007 global crisis.
Mining companies base their uncertainties on the forecasted price of the reference metal, and the reasons for maintaining price levels have encouraged the companies within the sector, worldwide, to incorporate assets to their portfolios in new, low concentration, unexplored and underdeveloped areas (in terms of infrastructure) because at these prices they are economically viable areas.   
Additionally, those countries which are better developed in terms of mining infrastructure have seen their cash costs grow substantially per ounce of extracted metal as they have been the main hosts for investment at the beginning of the post crisis cycle, and they have a developed infrastructure and less business risk (demand and supply factors), political risk and regulatory risk (concessions, taxes, duties and tariffs). In early 2012, global gold production set a record of about 2,900 T, with South Africa and Australia recording the highest cash cost at USD/oz.750 and Latin America the lowest, at USD/oz.350. The shortage of rich areas and properties at a reasonable extraction cost in developed mining markets encourages investors to enter new ventures in underdeveloped/frontier mining markets, although they still have to deal with higher transaction costs, higher political and regulatory risks.
In this scenario, developing countries look to strengthen the sources of competitiveness in the long term, seizing the context of international crisis in developed countries, the high global liquidity available, the low interest rates and the global investors who turn their investment portfolios to developing countries with a greater potential for sustainable growth. Much of Latin America has been able to get rid of the growth vicious cycle oriented merely to exports through greater independent economic policies and by strengthening domestic economies, reducing the GDP and export related debt burdens, increasing reserve ratios to GDP and applying an iron grip on inflation, while announcing considerable infrastructure works. 
According to data from UNCTAD, foreign direct investment (FDI) in Latin America reached USD153,400 M, 31% more than in 2010, with Brazil accounting for 54% of the increase in flows into that region (3% from the GDP). In Chile, inward FDI/GDP reached 7%, well above the average of the region: 5.8% of GDP. Uruguay received 5% of its GDP, and Argentina, 2%.
As for the mining sector in the region, in Chile the main M&A transactions were done by Japanese businesses, Japan’s Mitsubishi Group and Sumitomo group, totaling USD 6,000 M, approximately. Now, the sector accounts for 12% of the Chilean GDP and 60% of its exports (or 4% of the GDP). In Peru, mining is considered the main FDI hosting sector, with investment projects worth USD 9,200 M for expanding existing projects, and USD18,016 M for new projects. South Africa’s Gold Fields and Canada’s Dia Bras made the largest transactions in M&A for a total of almost USD 700 M. In Colombia, BHP Billiton and Xstrata announced mining investments for a total of about USD 1,300 M, while in Argentina the mining sector accounts for 40% of the FDI and holds investment projects of about USD 18,000 M in 2011.
Aside from global and regional investment records, the mining sector is more exposed than ever before to the nationalization of resources and to new and heavier taxation, as the countries tax accounts keep shrinking in order to face the ongoing global crisis. Likewise, the search for new frontier mining markets owing to the increase in metal cash costs in developed mining countries, forces the sector to get a suitable infrastructure. 
 
Domestic Market
 
 
According to the Global Competitive Report ranking issued by the World Economic Forum, Argentina is in the 86th place, out of 144 countries, in terms of quality and efficiency of its infrastructure, and 138th in terms of the quality of its institutions, which is considered one of the milestones of competitiveness. Although the mining sector has grown exponentially after the law reforms of 1994 and even more during the last decade, several challenges lie ahead in order to secure the growth of the sector and the development of a proper industry-wide infrastructure.
As from 1994, mining exploration activities in Argentina increased and so did the development of projects which had been deferred until then, owing to the lack of a low term stability scenario; Law 24196 on mining investments created a framework of stability which long term, high risk investments require. Nowadays, the Mining and Quarrying sector is the most profitable one in Argentina, with a return on assets (ROA) of 27%, on average, according to financial statements, and of 36% for exporting mining companies. Between 2002 and 2012, the number of projects grew from 18 to 614, and the production grew tenfold, accounting for almost 5% of the GDP, with the North Western region of Argentina contributing the most to its added value with 48.2%. On the other hand, exports also multiplied from USD 2,140 to USD 7,300 in 2011, and gold and copper account for 60% of exports. 
According to the financial statements from the largest mining companies operating in the country, the cash cost per ounce reached USD 340 in 2011, in line with the region reference values, although growing at a faster pace than its peers, mainly due to domestic inflation in dollars. Although the ratio depends on several factors such as production scale and the ore grade of the extracted mineral, as Argentina is a market still far from being developed, these costs are seriously affected by the high domestic inflation in dollars, which besets the rest of the export industry. Additionally, recent regulatory changes governing the sector together with some restrictions on the available infrastructure may be limiting the potential growth of the sector in the mid term, given the vast resources available in Argentina and the still unexplored areas.   
 
Tax Stability and Foreign Exchange Settlement
 
In March 2002, by way of Resolution 11/2002 issued by the National Ministry of Economy and Infrastructure, mining companies were forced to pay export duties on the consumption of mineral products. Export Duties rates range from 5% to 10%, depending on the type of mineral, and the corresponding tariff code.
The moment Resolution 11/2002 was passed, several mining companies, which were producing at the time, were vested with the benefit of "tax stability for 30 years" granted by the Nation`s Mining Secretariat, within the framework afforded by Law 24 196 on Mining Investments, according to which mining ventures which fell under such regulations would be granted tax stability for thirty (30) years as from the moment they were subjected to a feasibility study.  Under Law 24 196, the benefit of tax stability comprises all "encumbrances", including direct taxes, duties and tax contributions levied on registered businesses, as well as customs duties, tariffs and further levies on imports and exports.
Thus, at the time Resolution 11/2002 was passed, companies were vested with the benefit of tax stability and were not bound to pay export duties because the National Government acknowledged such right. However, in late 2007, The Nation's Mining Secretariat issued Note 130/07 and the Domestic Commerce Secretariat issued Note 288/07, whereby certain companies, which had not paid export duties until then (because they were under the tax stability benefit), were no longer exempt from such payment.  Even when those Notes were not officially released (which gave rise to grounds for challenging their validity) National Customs Administration was forced to apply a withholding, as mining duty, on the amount exported by companies which were vested with the tax stability right. The National government justified this decision by claiming that “the revenues from mining projects had multiplied if compared with the original values on which they were realized, thus guaranteeing their continuity”.
The issuance of these Notes made it possible for the fourteen companies affected by the provision to file legal action against the National Government in order to enforce their right to tax stability, most of which are still pending before the Nation's Supreme Court of Justice. The implementation of this measure impacted negatively both on the companies which where, then, exempt from export duties, and on the mining industry as a whole. The "exploration" sector was badly hit by this measure because, at that time, 85% of the exploration activity in Argentina was undertaken by small investors who lacked the support, the funds or the operating capacity afforded by big companies. 
Likewise, during 2011 and 2012, controls on imports of goods for the industry and on the remittance of dividends abroad were stiffened, and this, in turn, meant that mining multinationals had to cut down on the remittance of profits by about USD 800 M, as a result of the decree-law 1722, dated October 2011, which ruled on the obligation to enter all the foreign currencies from export operations and trade them in the exchange market. These changes in the legal framework, without mentioning either their efficacy or correlation, affect the business and political risk when assessing projects, and translate into a risk premium additional to the discount rates for the assessment of local investment projects. Therefore, only those projects with greater ore grades would succeed. 
Argentina preserves one of the largest underdeveloped (or perhaps not developed) mineral reservoirs in the world, the sector is emerging and opportunities are vast as long as the country prepares its infrastructure and stabilizes the regulatory framework in order to host new investments in the mining sector.
 
Advances in Infrastructure for the Next Decades
 
Lithium is now one of the minerals with greatest potential in the world, given that it can be used to accumulate energy used in the manufacturing of basic products from the "new economy", such as batteries for smartphones, iPads, portable computers and electric vehicles; for the generation of clean nuclear power and the functioning of certain satellites; as well as in the pharmaceuticals industry. Bolivia holds 50% of the world's lithium reservoirs, followed by Chile with 25% and Argentina with 10% in the North Western region, along the provinces of Salta, Jujuy and Catamarca. However, Chile leads the way with 44% of all the lithium traded globally during 2011. Argentina is the second exporter, while the second great world's reservoir belongs to China, which owns 15% (global).
Thus Argentina's North Western Region (NOA) poses a great potential for the next decades as one of the main suppliers of one of the minerals with greatest industrial applications, and the transport infrastructure will play a key role when determining its competitiveness against the main regional players. Nowadays, lithium products are fully transported by truck to Chile, all the way through Paso de Jama, just as the most important supplies are shipped. The main factor to broaden the international market for this mineral will be the cost of transport infrastructure. The Belgrano railway, connecting the region with the main export nodes, would recover its key role by connecting the NOA region with the Chilean ports of Antofagasta all the way up to Asia.  It is estimated that the difference in sea freight between Asia-port of Rosario and Asia-Antofagasta is 35 USD/T. 
There have been substantive advances between the government of Salta and a Chilean private business to resume Ramal C-14 (Belgrano loads) from the NOA to the ports of Antofagasta and Mejillones. Although it is still under a trial period, the Argentine Government has undertaken to fund the improvement works needed in the railways. 
 
Outlook
 
Towards 2013, four substantial projects will begin in Argentina which will enhance the local mining sector: Pascua-Lama (Barrick Gold Corp.), Cerro Negro (Goldcorp), Don Nicolás (Minera IRL) and Lindero (Mansfield Minerals Inc.). Together, according to the financial statements, they will produce about 30 tons of gold and 340 tons of silver per year, during the first 5 years, thus accounting for an additional USD 1,800 M in annual exports; that is, almost an additional 20% if compared with 2011 exports. Likewise, advances in the resolution of infrastructure issues within the NOA region in order to enhance lithium production help us be optimistic about midterm mining development.
Nevertheless, changes in the sector's regulations analyzed above, regardless of their correlation, impinge on activity schedules in a sector where Argentina has a large potential. Yet, it still has strong competitors in the region which may serve as alternative hosts for investment in mining projects. 
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Costa Rica: Paving the Road for a PPP Reform

 

Decades of limited government investment, restrained fiscal environment, politicized project planning, and a limited promotion of private initiatives have widened an infrastructure gap that is seriously threatening the long-term growth sustainability of Costa Rica’s $42 billion economy.
 
In order to put things in perspective, it is important to take a closer look at the numbers. While the National Transport Plan 2011-2035 (NTP) estimates funding needs of $2 billion per year to improve and expand the road network, gas taxes ($160 million), property tax on vehicles ($90 million), and state-owned toll roads ($10 million) barely provide $260 million in recurring income to the National Road Council (CONAVI). Furthermore, the NTP points to nearly $600 million in annual investments towards port, airport, railroad, and public transportation infrastructure. Along similar lines, social sector institutions as the Costa Rican Social Security Fund –CCSS- ($1.5 billion), the National Water and Sanitation Company –AYA- ($1.8 billion), and the Ministry of Public Education –MEP- ($1.0 billion) are also urging resources for critical refurbishment and expansion projects. 
 
It is thus clear that promoting Public Private Partnerships (PPP) is a must-do task in order to attend the increasing infrastructure demand. However, fourteen years after Costa Rica enacted the Public Work Concession Law (1998 Act 7762 and 2008 Act 8643 reform), only three projects have materialized: $350 million San José-Caldera toll road, $35 million Liberia International Airport Terminal, and $992 million Moin Container Terminal (to break ground in 2013) . Therefore, it is imperative to analyze the critical elements to unlock bottlenecks to private investment and the establishment of a National PPP Policy.
 
1. Reliable Pipeline. Especially in the transport sector, Costa Rica lacks of a formal and reliable pipeline as project execution is basically a discretionary decision-making process by political authorities. A pipeline would provide an adequate timeframe and flexibility to structure and tender selected projects. It would also promote the optimization of public spending by avoiding executing infrastructure plans with significant deviations from forecasted demand (over-investing / under-investing). In addition, a long-term pipeline would strengthen public sector accountability and send a clear sign of government commitment, attractive to investors seeking for markets with growth prospects (not only isolated projects).
 
2. Life-cycle Model. As with project prioritization, the decision on whether to choose traditional or PPP procurement is susceptible to political and ideological postures of the current government authorities. Costa Rica requires mandatory guidelines for public sector institutions to analyze projects from a whole-life costing perspective, factoring construction costs, operation and maintenance costs, risk allocation, credit enhancement mechanisms, expected equity return, etc. Projects would be classified as "PPP-able" once a Value for Money (VfM) test indicates the present value of the whole-life cost of the private proposal is lower than that of the public sector (Public Sector Comparator –PSC-). While there will always exist some criticism about the subjective components of VfM analysis, it is definitely the right path to promote transparency and build up stakeholders’ confidence.
 
3. Availability of PPP Financing. A long tradition of project funding via government resources, credit from international financial institutions and non-reimbursable assistance has inhibited the development of a local market for PPP financing. Along these lines, a National PPP Policy would demand the Costa Rican government to provide credit enhancement mechanisms (i.e. traffic guarantees, subordinated debt funding) and have an active role as equity co-investor; all these actions are in line with VfM and contingent liability tests. According to the HM Treasury’s (2012) A new approach to public private partnerships, public co-investment ensures better alignment of private and public sector objectives, greater transparency and improved VfM. Furthermore, the success of PPP projects depends upon the promotion of institutional investors participation (i.e. pension funds) and the availability of risk mitigation instruments like credit guarantees, export credit guarantees, and political risk insurance (World Bank 2007, Review of Risk Mitigation Instruments for Infrastructure Financing and Recent Trends and Developments). 
 
4. Dedicated PPP Agency. Finally and perhaps most importantly, a reliable and effective PPP policy relies on an independent regulator. It must be shielded from political interference and endowed with the necessary technical expertise to ensure transparent tendering processes, adequate contract management and a long-term policy horizon to stakeholders. The Costa Rican National Concessions Council (CNC) faces criticism due to weak staff-knowledge management and limited regulatory capacity. Further, the CNC suffers from political interference as its Board of Directors (BoD) is composed, among others, by the Ministry of Public Works and the President of the Central Bank. Given this backdrop, a PPP reform must be founded on replacing the CNC with a dedicated Agency located at the Public Service Regulatory Authority (ARESEP), coupled with a BoD elected through competitive bidding. The Agency would pursue the following objectives: i) promote the efficient use of tax payer/user resources in infrastructure projects, ii) guarantee the principles of independence, accountability, and access to information, iii) guarantee competitive and transparent tendering processes, iv) provide training and technical support, and v) monitor contract management by the procuring public institutions. 
 
Like most developing economies, Costa Rica’s faces the challenge to meet an increasing demand for infrastructure services amid difficult fiscal conditions. At this juncture, it time for reliable and long-term oriented policies to replace improvisation and ideological intransigence.   
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Development of a Public Bicycle Rental Scheme Based on a Public-Private Sector Participation Model

 

1. INTRODUCTION
 
The implantation of public bicycle rental schemes (SBP) has spread rapidly throughout Spain since the year 2004, following the success of the Vitoria-Gasteiz scheme, one of the first cities to incorporate the bicycle into its public transport system to create a truly intermodal scheme. These projects, developed on many occasions through the use of public-private sector partnerships (PPP), must follow a series of criteria which allow for the provision of a service for the benefit of society, and so functional aspects as well as financial and environmental ones must all be contemplated. It is, then, a public service in which the Public Sector Administration has an important role, irrespective of whoever manages the system and the provision of private sector financing. From the days of the first experiences of European public bicycle schemes, various studies have been undertaken onto public bicycle rental schemes, propelled largely by European programmes such as Niches and Optimum2, the former entrusted with the role of creating promotional literature, and the latter to produce an inventory of European-wide initiatives . In Spain, as a consequence of the recent implantation of these systems, the development of integral policies on the bicycle has meant the need for drafting studies such as the “ConBici” document, in 2007. From the same year, we can also find the Methodological Guidelines for the Implantation of Public Bicycle Rental Schemes in Spain (IDAE, 2007), drafted by the Bicycle Club of Catalonia (BACC) in collaboration with the Institute for Diversification and Energy Saving (IDAE). Likewise, statistical studies were found on bicycle usage in different cities, such as EREN Castile and León, PRO-BICI or guides in Vitoria-Gasteiz. 
Within this framework of wide-ranging and recent experiences, research projects have been undertaken which analyse deeper certain aspects though lacking in others, such as financial, economic and social aspects (IMBIP, 2012). In this article we shall present some of the conclusions from the aforementioned research project, paying special attention to the evaluation of the PPP method in the development of the public bicycle rental scheme in Seville, the capital of Andalusia. 
2. STUDIES INTO PUBLIC BICYCLE RENTAL SCHEMES IN SPAIN
It was not until the beginning of this century when the first public bicycle rental schemes were introduced in Spain, with the oldest being that in Castellbisbal (Catalonia), followed by one the flagship projects, such as that of Vitoria, which still maintains to this day the majority of its initial characteristics. These projects entailed manual systems, most of which are currently locked in a transition phases, such as the case of Vitoria, where an automatic system is being backed, which also allows for an intermodal usage with the tramway and bus network, something which had not been seen before in Spain. This is largely due to the fact it would be something of a poor show should a city such as Vitoria, chosen as the European Green Capital for 2012, still have a manual bicycle rental system, which, although this was a landmark moment in its day, and has grown much more swiftly than in other cities, has, as time has elapsed, become seen as obsolete. Aside from these manual systems, from 2007 onwards automated systems began to appear, managed by companies such as Clear Channel. Worthy of special mention here is the role played by JCDecaux, the first advertising company which offered automatic bicycle rental schemes as part of their advertising contract on urban advertising spaces. The first city to have one of these was Cordova. However, these systems have not been expanded as they were bound to the conditions of the advertising contract. Recently, self-owned automatic systems have been begun to be developed, standing out amongst these being the ITCL project, which went into development in 2005 and followed by Domoblue, linked to the mobile telephone network. Currently, diverse agents from the public and private sector are developing manual and automatic systems to be put at the disposal of interested sectors of the population. 
 
 
Location of Spanish SPB 
In the image we can see a map with the location of systems in place, which allows us to view the concentration of systems in areas such as Murcia, the Basque Country, Andalusia and Catalonia (Barcelona, mainly).
 
As can be observed, in Spain the basic typology of public bicycle rental schemes are either manual or automatic. If, by the year 2007, half of these schemes were manual and the other half automatic, a shift towards a growth in automatic systems began to be noted at the end of said year. 
 
Over time, an increase has been seen in the number of automatic rental schemes, which has been influenced by the fact that most of these schemes were introduced post-2007, and so most municipalities opted for the installation of automatic rental systems. We must also taken into account that this situation is exacerbated even more as former manual systems are currently being replaced by automatic ones, notably in Vic (Barcelona) and Cartagena (Murcia).
At the current time, of the 75 public bicycle rental schemes in operation, only 18 of these are still operated manually, which means only 23% compared to 77% of automatic systems, with a total of 57 systems. 
Likewise, when analysing the information, we can state that the average age of public bicycle rental schemes is around 5 years. That means the majority of the systems have achieved the survival of the difficult first operational years and are reacting to initial adjustments.  
3. SEVICI SYSTEM IMPLANTED IN SEVILLE (SPAIN) 
Underneath we have outlined the main characteristics of the system: 
Definition and characteristics of SEVICI
 

Service Name

SEVICI

Concept

Automatic system which requires user registration to obtain a magnetic card. Each cycle is docked at a station which works as an interaction point between system and user.

Operational in

Seville

-          Inhabitants: 699.759

-          Surface area: 141 km2

Start-up date

July 2007

Operational system

Cyclocity, shared bicycle system managed by the Local Council, as delegated by its creator JCDecaux.

Other implantations outside Spain

Brussels (Belgium); Lyon, Paris, Rouen, Besançon, Marseille, Mulhouse, Toulouse, Aix en Provence, Amiens (France); Luxembourg (Luxembourg)

Geographical coverage area

Urban, prohibition of usage outside metropolitan area,

User costs

The user can pay an annual fee which gives them the right to free journeys of up to half an hour between SEVici points or through a weekly, short duration fee. Costs are deducted from the credit cards provided by the subscriber.

Card used

Fee

30 minutes

1st Hour

2nd Hour

Short term

11 €

Free

1 €

2 €

Long term

27.5 €

Free

0.5 €

1 €
 

 

Financing

Fee paying users

Public Sector: Seville City Council (offices)

Private Sector:advertising, although levels have fallen as a result of the economic downturn.

Agents involved in system management

Public Sector: Seville City Council

Private Sector: JCDecaux

Infrastructure

Number of bicycles: 2.500

Parking areas: 250

Parking stations:411. There are as many docking stations as bicycles offered. The operation is performed at the docking station itself. Each docking station has an interactive informative platform.

Cycle-path track length: 120 km

User statistics

Average user age:Mainly between 16 and 30 years of age

Motives:45% studies, 23% work, 29% others, 4% operational management.

Profession:59% students, 35% workers

Gender:67% Male. 33% Female

Marketing

Sponsorship by private sector companies:

Advertising:

·         On the bicycles: Cruzcampo brand beer crates designed as cycle baskets.

·         Adverts in classified and leisure magazines.

·         Publications: Brochure showing urban routes

Monitoring

Internal

Evaluation/Critique

·         Shortage of maintenance and lack of qualified staff to deal with unlawful and vandalism both to cycles as well as docking stations.

·         Impossibility of making contact with an operator on the complaints number, which is aggravated by the fact that said number is a 902 number and expensive for the user, the operating company has not provided a physical space where users can be received in person. This has been recently solved through the opening of a customer service office.

·         There is no simple method to report a mechanical failure on a bike.

 

 

 
4. FINANCING ANALYSIS
SEVICI is a public bicycle rental scheme which was implanted in the city of Seville in June 2007. The Seville City Council invited for public bids on the tender for the administrative contract involving the installation, management and maintenance of the system in the municipal region of the city which allowed for the creation of an individualised public transport system through the availability of public bicycles for short-term rental, as well as the implantation of docking stations where these can be parked. Finally, the contract for the development of the aforementioned public service for a period of 20 years to the French company JCDecaux whose awarding also allowed the company to use elements of the service and local area as advertising space. Said agreement, given the nature of the different services provided under the same, was drawn up into an official administrative contract, under the auspices of articles 5.2b and 8 of the Revised Text of the Law on Public Sector Administrative Contracts, as passed through Royal Legislative Decree 2/2000, of the 16th of June. This financing method proposed allows for the speeding up of the construction process and thus anticipate returns, contribute to budgetary stability, improve the performance of public sector resources through the incorporation of the private sector and shifting the majority of risks to the private sector by entrusting them with the infrastructure’s availability and quality of service. In this way, the aim of the tender contract, which was undertaken at the risk and danger of the adjudicatory party, lasting for 20 years from the date of its signing, entailed aspects such as project drafting, construction, maintenance and preservation, etc.
The feasibility of the project under the PPP method is necessarily due to the fact that the remuneration system compensates the risks borne by the private sector. With the aim of finding out to what extent the public bicycle system is proving profitable, a study has been undertaken on financial – economic profitability.
With this data available, two possible future scenarios have been proposed: 
• Optimistic Scenario: Supposing that demand levels for public bicycles in Seville will undergo growth over the next 20 years in the same proportion as has been seen in the previous year’s data (2011). Said variation currently stands at 1.03%.
• Cautious Scenario: Under this scenario demand for long term fee paying registrations will remain unchanged for four years from 2012 onwards, due to the decision to limit the number of new registrations as to avoid system collapse. Following this, an important increase is expected from 2017 onwards after an expansion of the service from 2,500 to 4,000 bicycles.  
 
The results of this model for the hypotheses taken as samples which deal with a profitable investment project, irrespective of the scenario we are operating in: 
 
Financial Profitability Optimistic Scenario TIR = 32%
Cautious Scenario TIR = 10,5%
 
5. SOCIO-ECONOMIC BALANCE
The cost-benefit model which provides information on socio-economic costs has been undertaken based on the differential effect of different modes of transport, in comparison with usage levels of public rental bicycles. For this reason, two types of external factors regarding this mode have been taken into account: 
 

NEGATIVE EXTERNAL FACTORS:  COSTS

POSITIVE EXTERNAL FACTORS:

BENEFITS AND SAVINGS

Initial investment

Operational Costs

Maintenance and development costs

External Costs
 

Accident rate

Pollution

Health
 
 
This model provides a TIR of 5.49% which is found to be below the discount rate listed as a reference (6%). In this case, a component of notable weighting in this analysis is the demand for service. As was stated at the end of the previous paragraph, this investment project is affected by the number of users requesting the public rental bicycle service. Likewise, for the project to achieve ideal returns, the average annual demand levels should reach to almost 30%. And so, to achieve the balance between the TIR and the considered discount rate (6%) based at the point in which the investment project begins to make a profit, demand would have to increase solely by 5%. 
 
Likewise, it has also been observed that demand, along with other variables to which the model used are sensitive, have the greatest effect, for example, health benefits being much more highly valued above savings  in journey time. 
 
6.  FINDINGS
To summarise, public bicycle rental schemes may be feasible:
• In a financial sense, through public and private sector partnerships based on compensatory measures through advertising contracts. However, they require the backing of well-designed and extensive systems which can handle high-demand levels. 
• The journey costs and that of tax-payer contributions in Seville are similar to those corresponding to bus travel in the city. 
• The socio-economic balance may be, in the scenario of highly positive usage, based mainly on environmental and public health factors. 
 
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Strengthening the not for profit sector in Colombia

 

The social and economic benefits provided by the not for profit ("NFP") sector in Latin America are becoming increasingly recognised. This creates an increasing focus on fostering economic and social development in Latin America within the public policy agenda as well as from private sector initiatives. NFP organisations have attracted significant investments into their capacity and infrastructure because of the direct engagement they take towards targeting specific issues. The complexity of the services offered by these NFP organisations is increasing. They deliver crucial services including training and education in communities, aid provision, and alleviating poverty.

 

NFP organisations typically develop to address given societal needs in the operational areas, and in the context of the local business customs. For this reason the NFP sector in Colombia is mainly linked to large family businesses and corporations. They benefit the public through their Corporate Social Responsibility (CSR) programmes. These organisations have built reporting and accountability mechanisms into their operations, increasing their transparency.

 

Support is provided by organisations like ANDI (National Business Association) who lead information forums and the development of CSR initiatives. Their aim is to foster sustainability and competitiveness while creating an active dialogue between the different stakeholders. Partnership working is key and infrastructure organisations like AFE Colombia (Corporate Foundations Association) exist to build and maintain a platform for joint action and effective sector leadership.

 

Although the trajectory of these foundations is long, the sector as a whole still presents low levels of institutionalisation increasing the risk of lack of transparency. A lack of transparency in an NFP organisation can make it difficult for the sector to show what contribution it is making towards social development. The regulatory and reporting practices differ based on the strength and complexity of institutions as well as depending on resource availability.  

                                                                     

To remedy this, a central register for NFP organisations was set up and is managed by the Association of Chambers of Commerce (CONFECAMARAS). A central register can be key to establish an accepted universal framework which guides and unify the operation of NFP organisations and charities in Colombia. By creating universal reporting structures and training individuals in how to adhere to guidelines, internal capacity is built and ‘best-practice’ models can be established.

 

Strengthening the NFP sector is a two-fold process that requires building the capacity of the individual organisations and developing a coherent framework to guide their operation. Capacity building and clear monitoring procedures increase transparency and build trust with the aim of contributing to a more efficient development agenda.Well-managed and sustainable not for profit organisations are better positioned to independently carry out their mandate and engage with the private sector, the government or the international community when aiming for coordinated action.

 

Recognition of these points is evidenced in the increasing appetite of funders to build capacity. In Colombia, organisations such as ‘Fundación Bolivar Davivienda’ and ‘Fundación Saldarriaga Concha’ place institutional strengthening as key part of their funding remit. This shows recognition of the necessity of capacity building to allow effective development of social programmes. The ‘Compartamos con Colombia Foundation’ was specifically created with the purpose of strengthening the social sector; working with over 180 foundations and 18 companies to aid the development of their corporate responsibility strategies or family philanthropy plans.

 

Despite this increased interest in institutional strengthening, the foundations are yet to work closely on investing collectively towards creating a central framework that allows capacity building and unified monitoring across the sector.A unified effort would not only allow a broader reach, but also more possibilities for knowledge transfer. ‘Compartamos con Colombia’ has started working aiming to build agreements and coordinate joint actions across organisations. International aid such as ‘USAID’ is also developing institutional strengthening programmes while international not for profits working in fostering transparency and best practices such as Fundación Lealtad from Spain and organisations like Kingston Smith LLP in the UK who act as private sector advisors to charities have also opened operations and dialogues with the different Colombian organisations.

 

Increases in both in the funding available for social programmes and the economic development of Colombia, with remaining challenges such as inequality, require organisations to find not only best strategies to thrive, but also to survive in a competitive market that looks for the understanding of the returns of community investments.

 

Capacity building in key areas will enable formalisation and accurate impact measurement. The creation of not only a central registrar, but a joint programme to foster best practices providing the tools for communication of actions and impact will also allow better monitoring and subsequent understanding of the sector. Among key areas to strengthen, one is promoting formalisation by making visible the benefits it brings – possible access to training and to funds from larger or international organisations. Alongside with formalisation, assessing and providing tools to strengthen the tax and fiscal regime affecting the sector is particularly important to avoid the use of the framework for fraud.

 

There may be a temptation to significantly increase the stringency of the regulation and monitoring of activities undertaken, however such temptation must be questioned as to whether such formal measures would benefit the charities, the donors to those charities and most fundamentally the beneficiaries of charitable giving. Robust regulatory frameworks can be brought to action through self regulation and capacity building.

 

In terms of capacity building, fundraising, governance, resource management and the provision of services through social enterprise structures are key topics to achieve sustainability. However effectiveness in the above fields only comes when an NFP is able to show it is meeting its stated outcomes.

 

Synergies between Colombia and the UK and US will facilitate knowledge transfer and quicker progress towards best practice. Strengthening NFP organisations will allow them to create actionable operational plans, better manage funds, and communicate their actions to access further funding. Building the capacity of organisations is central to strengthening the sector as a whole by providing tool to organisations to enable them to comply with the new registrar requirements and aiming to be able to implement monitoring systems they are able to fulfil. This creates a culture of trust that will be instrumental in both delivering social benefit and attracting the funding required to enable it. 

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Social Responsibility and Infrastructure Development

 

LIQ talks to Fernando Ruiz-Mier, Senior Operations Officer at IFC
 
 
1.     The Social Responsibility Forum for the Extractive Sectors has a pre-conference workshop that you will be leading and in the workshop's agenda something caught my attention, a model to estimate the financial returns of community investments. This is a very interesting concept, how does it work? 
The Sustainability Planning and Financial Valuation Tool (FV Tool) for the extractive industries generates reasonable net present value ranges on the return from community investments and calculates the financial value of risks mitigated through such activities. This value can take the form of either value protection (i.e. value of avoiding risks) or value creation (i.e. cash savings/productivity gains).  The outputs will enable the justification and quantification of the business case for social investments, and provide a comparative analysis of social investment options.  The tool is grounded in the assumption that a company’s community investments can improve relationships between a company and community, which should reduce the likelihood of risks and as a result bring value back to the company.  This kind of information helps to justify and stabilize the annual budget that companies devote to sustainability efforts. It creates incentives, within companies, to invest in their communities.   
 
 
2.     At said Forum, you also intend to address the question of how can corporate social responsibility contribute to the impact royalties and taxes have on local communities, how do you think companies and local governments can work together? 
Increasingly countries’ fiscal regimes mandate that a portion of the revenues generated by oil, gas, and mining projects, in the form of royalties and taxes, be transferred to sub-national governments (e.g. municipalities). Given that these revenues can be substantial, they constitute an important channel through which the presence of an extractive company can contribute to generate benefits for local communities, provided that they are well invested and respond to the needs of the local population, in an efficient and transparent manner. However, the potential benefits are not always realized because often local governments do not have the capacity to invest these revenues optimally, nor are there mechanisms for local communities to monitor investment activity and hold local authorities accountable.  Extractive companies can, as part of their Corporate Social Responsibility program, engage with local governments helping them build the necessary capacity to effectively invest the revenues. They can also support initiatives of local civil society organizations to build their capacity to engage their local government and hold it accountable for the use of the revenues. In IFC’s experience, having companies and local governments work together in something as specific as ensuring that the available revenues are taken advantage of, not only helps deliver benefits to the population through increased investment, but also adds a dimension to the relationship between the local government and the company helping them know each other better and building trust. 
 
 
3.     How do you define "strategic community investment"? 
For IFC, Strategic Community Investment (SCI) involves contributions or actions by companies that go beyond compliance with country requirements and the standards set by IFC. It aims to address the local development needs and priorities in ways that are sustainable and that support the company’s business objectives. 
Community investment programs are evolving as companies move away from philanthropic donations and reactive practices to more strategic ways of planning and delivering their programs. In line with this IFC places emphasis on viewing SCI through the lens of risks and opportunities, and on creating “shared value” by aligning business goals and competencies with the development priorities of local stakeholders. This includes a focus on building social capital and local ownership through multi-stakeholder processes; factoring sustainability and handover strategies into project design, and measuring and communicating results to optimize the business value derived from SCI.
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An Optimistic Outlook for Infrastructure, Transport and Logistics Services in Paraguay

 

Rodolfo Vouga and Cecilia Llamosas of Vouga & Olmedo Abogados
 
Introduction
 
Located at an equidistant position from several of the main financial centres of the region (Sao Paulo, Buenos Aires, Santiago de Chile, Lima),Paraguay has a strategic location which makes it a strong candidate to develop into a services-based economy with a particular focus in services associated with transport and logistics. 
 
Conversely, being surrounded by land also represents a competitive disadvantage. It has been shown that landlocked economies’ competitiveness relies not only on the implementation of local infrastructure plans, but also tend to be heavily dependent on their neighbours’ interconnection capabilities.
 
Notwithstanding the hindrances its landlocked condition brings, it is ironically Paraguay’s geographic condition what makes the country the fittest territory to articulate commercial traffic and goods exchange between the Pacific and the Atlantic, as well as between the Northern and Southern regions of this part of the continent.
 
In order to fulfil this potential transport and logistics-hub role, specific studies have identified some conditions which need to be satisfied, namely: a strong and reliable connectivity network; availability of sufficient resources and adequate expertise to ensure the reliability of the network (ongoing maintenance), and; local policies oriented towards boosting transport and logistics services.
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The View from Canada

 

Adrián Barrios talks to Andrés Trivino, President of the Canada-Colombia Chamber of Commerce
 
1. What would you tell an investor whose views are built based on the bad news that came from Colombia all through the 80’s and 90’? Is Colombia 2012 a safe place to invest? 
 
The media continues to portray the stereotype and fails to present the true picture of what really takes place in Colombia today. During the 1980s and 1990s Colombia was known for its drug cartels and the guerrilla conflict and it is true that many investors still continue to have this image in their heads. 
What some investors have not realized is that Colombia has been changing; now the country is recognized by experts as one of the world’s most dynamic economies, with a robust democracy, healthy institutions, social progress and full respect for the rule of law. 
The serious security problems we suffered are a thing of the past and now Bogota is considered safer than Washington. Colombia’s has grown at a rapid pace and its current economic environment ranks as one the best countries for investment and is among the region’s best performers. 
Historically, economic stability has been Colombia’s differentiating advantage when compared with other countries in Latin America.  Inflation has been held within single digits (2.3% in 2010), we have not defaulted on our debt, exports have quadrupled over the last seven years and Foreign Direct Investment (FDI) has boomed since 2001. This latter growth was primarily originated by the expansion of the oil and gas industry in the country. It is important to note that this growth will only be sustainable if Colombia builds the network of highways, railroads, airports and ports necessary to support the new activity. As a result, Infrastructure will be one of the most important drivers to take Colombia to the next level.
The World Bank recognizes Colombia as one of the most business friendly environments in Latin America. Colombia has made important progress evolving its regulation meant to incent both foreign and domestic investment. Today, the country ranks first in Latin America in terms of investor protection and fifth in the world. All three rating agencies have upgraded the country to investment grade. 
Colombia has the potential to be one of Latin America’s great success stories. Investors have to start seeing us like an emerging power with a diversified economy, with a growing middle class and a strong democratic government.
To conclude, I would tell an investor what executives of foreign companies with operations in Colombia have told me: go, visit the country and see yourself that now is the time to invest in Colombia. 
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The Agencia Nacional de Infraestructura: Colombia’s mastermind of infrastructure development

 

LIQ talks to Luis Fernando Andrade Moreno, President at Agencia Nacional de Infraestructura.
 
1. I went over the strategic plan for the years 2010-2014 that the Agencia Nacional de Infraestructura ("ANI") put together and found it really informative. ANI’s goals are ambitious and the financial and human resources needed to achieve them are great. The strategic plan calls for private sector resources to complement the public sector. In what ways does the ANI interact with the private sector? 
 
Some of the goals are that ANI is structuring and will award PPP contracts over the next two years in the amount of US$ 27 billion. The two most significant elements of the program are Road PPPs (US$ 20 billion) and Rail PPPs (US$ 6 billion).  The typical contract will have one year for pre-construction activities, 5 years for construction, and 15 years of operation and maintenance.
 
In terms of laws and regulations that protect investors, Colombia is widely recognized as an investor friendly environment. For example, Colombia is ranked by the Doing Business report of the World Bank as the 5th best country in the world in terms of Investor protection, and the best in Latin America.
 
Colombia also has a proven record applying the concession model. We have been structuring concessions for transportation infrastructure projects for 25 years. During this period we have a robust legal system that offers clear rules to investors. For example, we have developed an arbitration system to resolve conflicts that ensures objective and timely decisions.
 
In Colombia there are two entities which build and finance transportation infrastructure. One is ANI and the other INVIAS (in charge of public works -it co finances the roads with the governor of the department or the major of the city at stake).
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Colombia: Infrastructure and Investment

 

Josh Wilson, Staff Writer
 
Colombia has appeared many times in previous issues of Latin Infrastructure Quarterly, most notably in the second and third editions, featuring the Colombian Infrastructure Chamber and the new Colombian Public-Private Partnership Law, respectively. The current issue revisits this emerging global player with a series of new takes on Colombian infrastructure development. This article takes aim at the current investment climate generally, focusing in particular on foreign direct investment.
Colombia, the third most-populated country in Latin America and the second amongst Spanish-speaking countries throughout the world, is on path toward becoming one of the region’s most friendly destinations for foreign direct investment. At the same time, the emerging nation is at a competitive disadvantage with respect to its Andean neighbors due to a significant lack of adequate roads, highways, railroads, and quality ports. Thus, in Colombia, infrastructure presents both an obstacle and a real opportunity.
 
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Peru's National System of Pensions

 

LIQ talks to José Quiñones, Chief Investment Officer of the Previsional Normalization Office
 
1. Please provide us with a brief introduction explaining what are the ONP, FCR, and SNP and describing your work.
 
Way back in December 1992, the Peruvian Government, planning to reform the social security system by creating fixed contribution private pension plans, enacted a law (Decreto Ley N°25,967) creating the Previsional Normalization Office (Oficina de Normalización Previsional or "ONP"), entitled to administrate the National System of Pensions (Sistema Nacional de Pensiones or "SNP"). This was followed by the law N°26,323, enacted on June of 1994, detailing ONP’s functions. The SNP is the Peruvian fixed benefit pension plan covering near 480,000 pensioners and 2,900,000 workers created by law (Decreto Ley N°19,990) enacted on May 1973.
 
On April 1996, another law (Decreto Legislativo N°817) creates the Pension Reserve Consolidated Fund (Fondo Consolidado de Reservas Previsionales or "FCR"), meant to preserve the resources established to pay for pensions. FCR can not use its resources in any other way. The FCR is governed by a Board of Directors with the President being the Minister of Economy and Finance, and ONP acting as its technical secretariat.
 
The Board sets the investment guidelines and ONP manage the resources. The investment decisions are made by the ONP’s Investment Committee, integrated by ONP’s CEO, General Manager and Chief Investment Officer (Director de Inversiones). The Risk Officer and the Controller also participate in said sessions.
 
My work, as Chief Investment Officer, is to propose investment alternatives to the Investment Committee, as well as asset allocation and guidelines updates to present to the Board.
 
2. What is the current composition of the portfolio of the FCR?
The current FCR portfolio is made up of the following (in US$ MM): 
TOTAL PORTFOLIO: 2,953,299 
FCR Local Market: 2,346,345 
• Government (long term): 278,762
• Non Financial Corp. (medium term): 185,785
• Financial System (short term): 1,523,595
• Central Bank (short/medium term): 144,874
• Mutual & Investment Funds: 24,493
• Real Estate: 125,724
• Infrastructure: 63,112
FCR External Market: 606,954
• Merril Lynch 1-3 y. Corp/Gov. A (B110): 167,724
• Lehman Brothers Agg. Bond Index: 395,307
• Citigroup World Gov. ex-US Bond Index: 43,923
 3. Why do infrastructure investments make sense to the ONP?
There are two main reasons to invest in infrastructure: (i) these investments are designed for the long run and FCR, as a pension fund, must invest considering that time horizon, saving only for the short term the part that should provide the required liquidity to pay for pensions; and (ii) developing infrastructure helps Peru to grow countrywide, it contributes to the economic and social development of our country.
 
Let’s not forget that it also helps to diversify our portfolio and improves the expected return.
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Health PPPs: Rationale & Drivers

Paul da Rita – Global Leader for Health PPPs at PwC

 
Government spending on healthcare around the world is growing at a pace that is likely to be unsustainable unless new funding sources are found and more efficient delivery methods are sought.  As this reality dawns governments are increasingly looking to PPPs to solve the larger problems in care delivery that are driving spending.
Healthcare has been largely overshadowed in the PPP market by super projects in energy, telecommunications, and transportation. While estimated at only about 10% of all PPPs, healthcare projects are among the most complex and require a special understanding of the delicate balance in delivering such a critical public service. For example, in other types of PPP projects, the physical infrastructure is the desired end product and any provisioning to maintain and run it is secondary. Health systems are different. For health systems, a hospital is a small part of what keeps people healthy; the desired end result for government is better health for a population. 
To address this reality, health PPPs have evolved significantly over the last 20 years.  They started as a way for governments to build new or revamp crumbling hospital infrastructure in countries like the UK and Canada. More recently their scope has expanded from a primarily infrastructure-oriented model to a clinical services delivery model; some projects include both. Examples of such projects can be seen in Spain, Brazil, the Caribbean and the UK.
The trend has gathered momentum due to a number of reasons. Investment need and government budget constraints are foremost among them. Governments today are spending increasing portions of their budgets on health. Spurred by ageing, chronic disease and technology, as well as the growing expectations of the population, health spending will increase by over 65% over current levels by 2020. This will intensify the need for alternative methods of financing and care delivery. According to PwC estimates, the OECD and BRIC nations alone will need to spend $3.6 trillion on infrastructure over the next 10 years. However, health spending beyond infrastructure -- which represents 95% of health spending -- will total more than $68.1 trillion. This huge spend will become a target for government efficiency and create a market for private organisational investment and management. 
Chart 1: The more aspects of healthcare that are included in the PPP, the more the potential for savings increases
.             
As governments at central and local levels grapple with significant deficits following the global financial crisis, private investment and expertise have become even more vital to address health system needs. There is often wide divergence between public and private healthcare in developing countries; PPPs provide a way to harness the skills, knowledge and capacities of the private sector to achieve public policy goals. This in turn paves the way for a shift in the government’s role from provider to regulator. 
However, ultimately the scope and structure of health PPPs reflect specific needs and context. While some countries seek to add new beds, others require skills that are in short supply in the local/regional economy. For instance, PPPs have been used in the Turks and Caicos Islands and Lesotho as a way of securing access to not just infrastructure but also skills and technology.  
Payment mechanism
 
As in other infrastructure PPPs, the payment mechanisms in health PPPs are based on the contractual allocation of risk and the scope of services. However, the development of new models has necessitated the development of new models of payment which incentivise risk sharing.
 
Traditional payment mechanisms are availability-based, setting out the level of performance that is required by the private provider, how this will be measured, pricing arrangements and any volume or value guarantees. The incentives are largely punitive in nature, containing deductions that the private provider will face should it not provide the expected level of service or make the facilities available, as well step-in and termination rights for extreme cases of poor performance. These established models are still evident today in health infrastructure deals in projects all over the world including Brazil and Mexico.
 
However, with health PPPs now increasingly focused on better procurement and value for money, measurements of success are evolving away from simple availability toward better health outcomes. For instance, the Alzira project in Spain covers infrastructure and clinical services for hospital and primary care clinics and the government pays the hospital operator through a capitation payment. Under this system payments are based on the number of people to be served by the provider. The payer pays a monthly per-capita payment to the provider institution to deliver a package of services to consumers who subscribe to that plan or are resident in that region. The provider receives no extra payments regardless of whether a patient is hospitalized once in a year or 5 times. The payment mechanism hence creates a positive incentive to keep patients healthy and out of the hospital and shifts some of the demand risk to the private sector. 
 
Chart 2: Measuring success
 
 
 
 
More integrated projects may combine these approaches, creating mixed payment streams. As previously mentioned, the Turks and Caicos Islands project Includes 2 payment streams – one for the facilities (2 small hospitals) and funded by the government, and the second for the provision of clinical services on a capitated basis and funded through a new mandatory health insurance scheme. Both types of payments are subject to periodic review/adjustment and deductions for poor performance against a range of performance indicators. 
 
The Healthcare PPP market in Latin America 
Latin America has had an active PPP market for some time although healthcare projects have been relatively slow to take off. However, in common with many other parts of the world, we are now seeing increasing interest from Latin American countries who are looking to improve access to and the quality of healthcare for their citizens.
Brazil is one of the largest and most active infrastructure markets in Latin America. While PPPs provide an attractive avenue for the government to make progress towards its ambitious developmental goals, they are constrained by a variety of reasons that are also relevant across sectors. 
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The Canadian PPP model and its applicability in Latin America

Adrian Barrios - Vice President, Infrastructure & Project Finance - PwC Canada 

The Canadian model in Public Private Partnerships (“PPP”) is considered one of the most successful in the world, jointly with the numerous PPP projects in other jurisdictions like UK or Australia. During the last decade there have been around 100 infrastructure projects procured as PPP representing billions of dollars in investment. 
Is this a good model for a Latin American country to follow? How far is the Latin American infrastructure market with respect to the mature Canadian market? 
There is no doubt that Canada is an example to follow. In the western hemisphere, Canadian PPP development is ahead from the one in the United States. It has contributed to consolidate an infrastructure market that includes constructors, operators, financiers, public authorities, which now are used to high-level standards to fulfill. 
For Latin America, it is not just a matter of following a model. It is of trying to bring a market. 
The infrastructure market will go where there are the minimal conditions regarding returns and risks. When the market arrives, there will be more interaction between local and regional players with worldwide players. The public authority will need to understand the technical concepts and regard them as a new alternative to be used, that has proven successful in other latitudes.
Value of a PPP structure 
Often PPPs have been labeled as an alternative procurement method or a way for a government to fund infrastructure projects when government resources are simply not enough to meet the needs. Is this true, what is the true value that a PPP structure brings to the table according to the Canadian experience?
The adoption of a PPP is not a matter of the government having resources or not. The government could have the capital to finance entirely an infrastructure project, but a Value for Money analysis could indicate that the best procurement process is through a PPP. It is not exactly the same situation, but this could be compared with the decision of purchasing a house and choosing either paying 100% or getting a mortgage. If the rate of the mortgage is less than the opportunity cost of investing that money in an investment fund, a rational investor will get a mortgage. In a PPP a Value for Money analysis reflects the savings the government could get if transferring the risks of owning the infrastructure property to a private partner.  
A PPP can be summarized as a payment from the public authority to the private sector for performance. 
The effects a PPP market brings on the private sector are related to the long-term compromise a company or consortium must assume with respect to an infrastructure. An incentive is created to deliver the infrastructure project on time and on budget, and to comply with the required standards during all the lifecycle of the project. 
The effects on the public sector are that it becomes disciplined, where the requirements of a project must be clearly identified and defined, in order to avoid poor initial assessments. In the news we have seen many examples of infrastructure projects than were announced with an X budget and finished with a 3X or 4X budget. That also brings a bad political reputation. 
And yes, it is true that PPP procurement is a way of providing infrastructure without a public sector payment until the infrastructure is delivered according to the public sector’s requirements. It is an alternative way to control a project: if it does not comply, no payment. 
Lessons learned 
What have been the lessons that Canada has gained over the past 20 years that can benefit others wanting to follow the same path?
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Divergence in Foreign Direct Investment and Infrastructure Development in Latin America

Mathew G. Garver, Senior Advisor to Private Capital and Infrastructure Group, Patton Boggs LLP

 
In 2011, Latin American and Caribbean (“LAC”) inbound foreign direct investment (“FDI”) increased to US$ 153.5 billion, a 12% increase over its 2008 historical high water-mark, based upon the recent report published by the Economic Commission of Latin American and Caribbean (“ECLAC”).   The region has experienced increased FDI for several decades; however, it has not translated into higher productivity.  In fact, despite this increased investment, the region’s economic productivity has remained stagnant over this time.  
 
This article argues that, given the likelihood of an economic slowdown in China and recession in the Eurozone, increases in productivity will be essential for growth to continue in the LAC region.  Productivity will not grow without a substantial increase in infrastructure investment throughout the region over a sustained period of time. Leadership within the region must continue to attract and incentivize partnerships with the private sector to build a modern infrastructure, particularly in transportation systems, while commodity prices remain strong and FDI robust.  
 
In a recent interview with Luis Alberto Moreno, President of the Inter-American Development Bank (“IDB”) conducted by the Economic Intelligence Unit (“EIU”), Moreno remarked that “slow growth was a function of productivity in Latin America, which has stagnated for the last 15 years.” He continued, “productivity is closely linked to the region’s huge infrastructure gap. Logistics costs in our countries continue to range from 18% to 34% of the value of traded goods, compared with an average of 9% in the OECD countries.”  Moreno concluded “to close these gaps and build infrastructure…Latin America needs to spend the equivalent of 6% of its GDP on infrastructure.”  
 
Decades of Declining Infrastructure Investments and its Effects
Despite increased FDI flows into the region, discussed below, infrastructure investments have steadily declined as a percentage of GDP over the past three decades.  Investments into critical facilities such as transportation, logistics, ports, and other enabling infrastructure have consistently lagged FDI.  The resulting infrastructure gap is substantial.  
 
Based upon a joint report published in February 2012, entitled Infrastructure for Regional Integration by ECLAC and Union for South American Nations (“UNASUR”) it states, “infrastructure investments declined from 4% of GDP in 1980 to only 2.3% in 2008.”  The gap has been attributed to a consistent decrease in infrastructure investments over the past three decades, although several LAC countries have recently completed public private investments in airports, rail, and social infrastructure with noteworthy success .  
 
The effect of this declining investment is exemplified by Brazil, by far the largest beneficiary of 2011 FDI, with US$ 67B of the US$ 153B overall flow .  Brazilian worker productivity in the manufacturing industry has fallen 15% over the past 30 years as compared to an 82% increase in Chile, 17% increase in Argentina and 808% increase in China, according on the Institute of Applied Economic Research (“IPEA”) calculation of worked hours and number of employees in the industry.    Another effect of this gap is illustrated by the 2010 IDB report comparing logistics costs as a percentage of GDP of select LAC countries with the USA and OECD countries : 
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The State of Infrastructure Investment in Turbulent Times

Russell Duke, Managing Principal and Head of The Global Infrastructure and Government Group at National Standard Finance, LLC

The world has an infrastructure problem. Tightened global financial markets and the uncertainty engendered by the sovereign credit crisis spreading throughout Europe from Greece and Spain to Italy. makes this fundamentally a financial problem   Global governments find themselves fiscally strained by retracting economies, reduced tax revenues and greater demands for public assistance [entitlements, health care, welfare, pensions, unemployment benefits] and support of their populations amidst record unemployment rates and a global financial crisis.  Consequently, infrastructure spending and development has been delayed. The United States alone estimate over the next five years the federal government will need to spend at least U.S. $2.2 trillion (yes, U.S. $2.2 trillion) just to maintain, repair and build merely its most critical infrastructure. The United Kingdom has declared similar infrastructure needs, and has admitted that the UK government and HM Treasury do not have the resources to complete their infrastructure plans. Governments worldwide are in desperate search of infrastructure solutions to tackle their massive and growing needs.  
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The Chilean PPP Experience

LIQ speaks to Jose Miguel Hidalgo, International PPP Consultant 

What are in your opinion the main institutional factors that have led to so many years of uninterrupted infrastructure development?
 
I think that the most important factor is the credibility of the concessions model.  In Chile, the Public Private Partnership (PPP) system is focus of public policy extensively validated. There´s political consensus behind the system. Since the beginning of the model (in 1992 was the first call for tender), we have had five different governments, and the model has consolidated. Another essential factor is the Chile´s economical stability, transparency, credibility, legal system stability, and the subsequent confidence in the model shown by local and international consortia.
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The case of PPPs in Portugal, from problems to solutions

Mariana Abrantes, PPP Lusofonia

Considering that Portugal is currently suffering one of the most severe financial crisis in its history, and that it is one of the countries that has relied the most on PPP contracts to meet its public service and infrastructure needs, this paper examines to what extent PPPs have contributed to Portugal’s debt problems and evaluates how Portugal’s PPP contracts can be managed in order to contribute to the necessary solutions. 
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Costa Rica’s Infrastructure Challenge

Federico Villalobos, Senior Financial Analyst, E3 Capital Costa Rica 

Costa Rica, a 51,000km2 Central American country, has always been recognized as a solid democracy whose set of institutions and long-term oriented policies have provided remarkable results in terms of education access, healthcare coverage and environmental protection. However, when looking to the other component of the development equation, results are far from being impressive. Decades of limited government investment, restrained fiscal environment, continued project delays, and political blockage to initiatives seeking to unlock private sector’s potential are seriously challenging the long-run growth sustainability of this $35 billion economy.

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LatAm Infrastructure Outlook for 2012 and the role of PPPs

 

Jorge Celio – VP IOS Partners USA & Director General de IOS Partners SL Europe
 
The outlook for Latin America infrastructure is stable in 2012, reflecting the ongoing favorable demand dynamics despite the backdrop of a weaker U.S. economic recovery and concerns over Europe, according to Fitch Ratings.
 
The outlook encompasses the toll road, airport, social and power segments of the infrastructure sector, each of which individually has a stable outlook. Fitch expects ratings in larger economies in the region to be relatively resilient.
 
At IOS we expect regional growth to drive demand for infrastructure expansion through Latin America. In Brazil, the 2014 World Cup and 2016 Olympic Games is further boosting infrastructure investment. Even in the event of a 'hard landing in China' or a double dip recession in the US. 
 
Increasingly open societies and reliable monetary and fiscal policies favor the development of transportation and energy projects given population growth and latent demand for basic public services. 
 
Interest rate increases pose a potential risk given the long-term fixed rate debt financing nature of most infrastructure projects, although we expect the major economies to continue a trend of fiscal discipline, keeping financing costs relatively stable. Rating agency Fitch also believes that higher inflation in the near term is not a major concern for infrastructure projects in the region.
 
In the last two decades, investment in infrastructure projects that rely on private-public partnerships (PPPs) has steadily increased in Latin America, and the region is expected to invest US$450 billion in infrastructure assets between 2012 and 2015, mostly in the surface transport and energy sectors. 
 
The rise in infrastructure PPPs bodes well for the region. When one looks at countries that have allowed a fair amount of private investment from either construction firms or concession operators in infrastructure, one finds that these countries have better infrastructure and higher GDP growth. Infrastructure is incredibly beneficial to a country and its people. Getting it built is a good idea, and governments simply can´t build all of it with the capital constraint they all face today.
 
The backlog of infrastructure in the region needs government intervention through investments and public policies to reverse inefficiencies. One of the main challenges is to achieve greater coherence and coordination between relevant actors in the area of infrastructure. In particular, the need for such coordination between agencies of different institutions but similar levels of government, agencies from different levels of government, private and public actors. For example, better use of existing infrastructure such as transport reduces the cost of deployment of broadband networks. Better coordination of transport policies in the sector agencies should also be a must.
 
Greater efficiency in the public policy cycle infrastructure can achieve a higher level of development. To identify the bottlenecks that limit effectiveness of infrastructure policies, the process of policy development should be evaluated and reinforced in its different phases: prioritization and planning, implementation, operation and maintenance. This requires the definition of a framework and of regulations that establish checks and balances along with accountability mechanisms and transparency.
 
Although the success of PPPs depends to a large extent on public sector readiness and execution, questions remain about how and why private sector parties should invest. The answers vary from country to country, and depend largely on investment climates and financing conditions. A recent Economist Intelligence Unit (EIU) report rates such conditions across the region, finding that Chile scored best, “with 97.2 out of 100 for the PPP financial facilities category, leading the region with an almost perfect score.” Brazil, Mexico, Panama and Peru also scored relatively well. The EIU states, however, that there is vast room for improvement almost everywhere.
 
The general benefit of investing in infrastructure assets is that they tend to offer consistent returns. Infrastructure companies usually have solid fundamentals, hold concession rights or licenses that restrict competition and protect them against inflation, and are usually relatively immune to the economic cycle. Though there are high development costs, including design and construction, there are relatively low marginal costs for production, and little or no competition once in operation.
 
Risk-return will vary according to subsector, with greater risk-return for airport, seaport, and high-speed rail investments, for instance, than for investments in energy distribution or telecom.
 
There are other factors that increase risk, as well, such as unpredictable political factors; the possibility of overzealous governmental regulation and price-capping, or even nationalization; and the risks inherent in large markets. But in terms of the fundamentals that determine long-term risks, infrastructure companies tend to be strong.
 
We want to remark on the dependability of infrastructure investment. If investors want exposure to an economy like Brazil´s, it is better to be invested in infrastructure than, for instance, certain commodities, as the value of infrastructure is determined more directly by Brazil´s expanding economy. Investing in a big sugar or soybean producer, is not making a bet on the Brazilian economy. It is betting on commodity prices, which are very volatile.
 
There are several sources through which the private sector can finance the development of infrastructure.  We look at these sources, examining their unique roles.
 
Infrastructure funds purchase shares in infrastructure project companies and work with strategic investors such as operators and construction companies to maximize revenue and increase equity value over time. The performance of such funds is tied to their ability to extract dividends from the operating asset or through refinancing.
 
They may ultimately sell their shares to other owning members of the project´s consortium, a third party, or the public through an IPO. In recent years, several major infrastructure funds have emerged in Latin America. Examples include a fund established by Ashmore Investment and Inverlink in Colombia, Brookfield Asset Management´s Colombian and Peruvian funds and a Macquarie Group fund in Mexico.
 
The Brazilian investment bank BTG Pactual and the domestic conglomerate EBX have each announced plans to set up major infrastructure funds. And Celfin Capital, one of Chile´s largest investment banks, has an infrastructure fund, Celfin Infraestructura, as well.
 
Many countries in the region allow domestic pension funds to commit capital to infrastructure funds and hold long-term debt issues. In a recent report, the Banco Bilbao y Vizcaya Argentaria (BBVA) sums up the mutually beneficial relationship between pension funds and infrastructure PPPs in the Latin American context. From the point of view of the funds, for one, they are often interested in infrastructure funds because the long-term life cycle of infrastructure assets tends to match their long-term liabilities and “permits optimal planning.” At the same time, “It´s to be expected that the participation of pension funds in the infrastructure investment will reduce the political and regulatory risk, as one expects better discipline on the part of governments with respect to contracts and the rules of the game, if the wellbeing of local workers is at stake through private pensions,” says the report. Pension funds might also be attracted to the relatively good cost/benefit ratio of infrastructure projects. Lastly, the report notes that private pension funds “can garner public favor if the public sees that the funds are investing in projects that improve their daily lives as well as the returns and risk profile of their pension funds.”
 
Listed infrastructure shares in capital markets are seen by investors as an attractive option because of intrinsic characteristics of both the underlying business and the investment vehicle. They represent a dependable way to diversify portfolio risk. The highly local nature of infrastructure businesses and projects and their relative immunity from the economic cycle gives them a low correlation with broader stock trends.
 
In recent years, shares of Latin American infrastructure companies have outperformed their benchmarks: the S&P Global Infrastructure Fund; Macquarie Global Infrastructure 100 ETF; and the S&P Emerging Markets Infrastructure Index Fund.
 
We observe four reasons why investing in listed shares is particularly attractive: the efficiency an open market gives to asset prices; greater clarity of dividend yields; added liquidity; and higher standards of transparency and reporting than one finds with private equity deals. The last point can be especially important for a skeptical public sector. There is a correlation between the depth and breadth of country´s capital markets, on the one hand, and that country´s ability to expand economically. Brazil has benefited from São Paulo´s dominance as a truly world-class financial center, one of the few in the southern hemisphere. It´s clearly has been a huge benefit to the recent growth of their economy to have a domestic financial center with a great deal of scale and scope and international presence.
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INFRASCOPE: An interactive learning tool and benchmarking index

David Bloomgarden, Private Sector Development Specialist at Inter American Development Bank for PPPs in Infrastructure 

Dennis Blumenfeld, Private Sector Development Specialist - Inter-American Development Bank

Good infrastructure contributes to increased productivity and economic growth.  Yet constrained public-sector budgets inhibit the ability of many governments to meet the needs of their populations.  Under public-private partnerships (PPPs), private entities contract with the public-sector, assume risks, and provide investment, in return for gains from managing, operating, and/or providing services to a given project. Private-sector management techniques can contribute to increased efficiency, lower costs, and an increase in the quantity and quality of services.  However, for the abovementioned gains to be realized through PPPs, it is important that governments have adequate technical capabilities and the appropriate legal, regulatory, and institutional frameworks in place.

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Ontario's Infrastructure

Antonio De Santiago, Executive Vicepresident Project delivery - Infrastucture Ontario

The average age of Ontario’s infrastructure – and the continuing growth of its population – means that the province’s public infrastructure needs are some of the greatest in Canada. To address this infrastructure deficit, the Ontario government implemented a strategic investment plan to address the significant public infrastructure deficit and prepare for future growth.  This investment has been a tremendous success oday, Ontario is now the most active infrastructure market in Canada. According to the Conference Board of Canada, our government’s commitment to infrastructure development supported more than 220,000 jobs in 2010-11.

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IFC Infrastructure Advisory - Latin America

LIQ speaks to Paulo de Meira Lins, Investment Officer, Interational Finance Corporation

The International Finance Corporation (IFC) has been integral to the growth and spread of private finance initiatives (PFIs) and public-private partnerships (PPPs) for infrastructure projects throughout LatAm.  As a member of the World Bank Group, focused on building the private sectors of developing countries, it has been active in every country in LatAm and the Caribbean, particularly in those countries increasingly amenable to private-sector involvement in public works, such as Colombia, Peru, Mexico, Honduras, El Salvador and, recently, Paraguay.  

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The Colombian Infrastructure Chamber

LIQ speaks to Gustavo Morales Cobo, Deputy C.E.O., Colombian Infrastructure Chamber

1. What´s the overall environment and reality for private sector participation in the development of public infrastructure?
In general, Colombia´s government in the last two decades has been a friendly promoter of private sector participation in the development of public infrastructure. Since the early 90´s, Colombia has turned to the private sector for the building, operation and maintenance of roads, ports and airports, with successful results. The current government is also a believer in the free market and in the benefits of relying on the private sector for tasks that can free public resources for other vital state duties, such as education and health care.

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Public-private partnership and its role in modernization of infrastructure in Ukraine

LIQ speaks to Irina Zapatrina - Chairman of the Ukrainian Public-Private Partnership Development Center

Ukraine is now taking its first steps in the development of public-private partnerships (PPP). Today there is a lot of conversations regarding thenecessity to attract the private sector for infrastructure modernization, and a number of normative-legal acts that regulate preparation of projects in the form of PPPs have been adopted, as well as mechanisms for their implementation. Currently, however, there are no examples of successful PPP projects in Ukraine.  Why is this so? What are the prerequisites for changing the situation in this field? It is well known that in order to prepare and implement viable projects in the form of a PPP it is not enough to have the legislation regulating relations in this field, even though the availability of such regulation is certainly an extremely important element for the development of PPPs. The most important factors for introduction of similar long-term, complicated and high-risk projects are: investment climate in the country, political stability and a well developed institutional environment. These factors are now indeed the most critical for the development of PPPs in Ukraine. 

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Infrastructure and Services Forum: An interview with Aniceto Zaragoza & Julián Sastre

We are aware of examples of Spanish bankers, architects and lawyers that, due to the current economic downturn affecting Spain, are developing business relationships in LatAm. Do you see that as a growing trend? How can these professionals and their companies compete against local players?


Indeed, the economic downturn is having a significant effect on Spain, and Spanish professionals and companies are looking towards internationalization on an increasingly greater scale. Though fortunately our most important representatives in the business world already had a major presence before the recession. To quote from their figures, the following stand out:
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Privatization Models for Latin American Airports: Implications for Brazilian Airport Privatization

Andrew A. Bogan, PhD, Managing Member, Bogan Associates, LLC

Many countries across LatAm have privatized airports over the past 20 years and a wide variety of privatization models have been used.  In South America, Argentina granted a single concession for 33 major airports to a private consortium, Aeropuertos Argentina 2000, in 1998.  Bolivia privatized its three largest international airports in 1996, though all others remain in government control.   Chile granted a 15-year management contract for Santiago International and other airports beginning in 1997, and the concession renewal process is now underway.  Colombia began privatization with the airside of Bogota’s main airport in the late 1990s and privatized terminal operations there about a decade later.  In the past decade, Ecuador has privatized Guayaquil Airport and granted a concession for the construction of a new airport in Quito.  Peru privatized its largest airport, Lima, in 2000 and has more recently continued by privatizing two regional groups of smaller Peruvian airports. 

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Infrastructure Projects in Peru: Are Regional Governments Still under the Paternalism of the Central

Adrián Barrios, Vice-President Infrastructure & Project Finance - PricewaterhouseCoopers

Reviewing the amount of infrastructure projects that exist in various regions of Peru, one observes several factors that make the country a good place for exploring investment options: it has been growing steadily over the last decade; the risk ratings have improved; it has one of the better legal environments in LatAm for receiving and protecting foreign investments; and it maintains macroeconomic stability with low inflation and steady growth in its reserves. But this overall picture belies certain problems in the relationships between the central and regional governments that have inhibited infrastructural growth.  A decade ago, Peru adopted a new political and administrative structure, dividing into 26 regions. The regions have inherited the geographical layout of the former political division, the department, and the regional presidents have emerged as their respective regions’ keepers, with more powers and funds than those previously in charge, the prefects, who were appointed by the President of the Republic.

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Public Private Partnership in Chilean Hospitals: A new market in development

Roberto Tapia Hidalgo, Consultant, Health Care Projects, key areas PPP, Health Care Quality

Beginning in 2000, several PPP initiatives were developed for Chilean hospitals, but most of them failed to reach completion for technical or political reasons; only Maipú and La Florida Hospitals, both of them located in Santiago de Chile, are now under construction. These projects are intended as general hospitals, each with nearly 400 beds, and with a total budget of over US$300 million. The PPP aspect of these projects extends to most of the non-clinical support services and leaves out the medical equipment and clinical operations. The projects were initiated in 2006, tendered, and awarded in 2009 to the Spanish company San José–Tecnocontrol. The process has been a real test for applying the PPP model to Chile´s public health sector, and so far it has been successful in terms of the design process, bidding and construction.

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Spain's Infrastructure: P3 PROGRAM

Ana Fernandez, Ingeniera Caminos Canales y Puertos - CINTRA

A supplementary PPP Infrastructures Program was passed by the Spanish Government in 2010, in order to bring forward investments that would otherwise have been delayed due to the country´s current, well-known budgetary situation.

Besides promoting job creation, this program is meant to be a new productivity model for sustainable mobility, cutting transport costs and improving competitiveness and efficiency, mainly by stimulating various kinds of railway transportation.

This financial model aims to postpone its impact on the National Balance until the payment deadline in 2014, with the remaining expenditure to be paid during the life-cycle of the infrastructure – 25 years for railways, 30 for roads – through a unique annual fee comprising investment, maintenance, preservation and financial expenses

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