Latin Infrastructure Quarterly Issue 2


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Latin Infrastructure Quarterly Issue 2

  1. 1. Companies Latin Infrastructure Quarterly 1China’sInvestmentIn Latin AmericanInfrastructure ValueBNDESProject Structuring Division for Money and PPPsAPM Terminals: EcuadorCosta Rica’s Largest InfrastructureInfrastructure Project pushed from the top
  2. 2. 2 Latin Infrastructure Quarterly
  3. 3. 3 Welcome to the second issue of Contributors Latin Infrastructure Quarterly (LIQ)! Adrian Barrios T PricewaterhouseCoopers he content and design of our first issue was object of great feedback Ana Fernández González from many practitioners so we are now bringing you the second issue hoping for it to be up to the standards set by LIQ 1. We have assembled Aniceto Zaragoza a second issue that covers a lot of very interesting issues and features a Foro de Infraestructuras y Servicios couple of new ideas. Antonio De Santiago We conducted insightful interviews with the Vice President of the Colombian Infrastructure OntarioInfrastructure Chamber, the Managing Director of APM Terminals Moin, and themanagement of the influential ForoPPP. Cesar A. Guimarães Pereira Added to the interviews we are bringing you numerous articles submitted by Justen, Pereira, Oliveira &practitioners from all around LatAm. These articles cover a wide array of subjects Talamini advogadosranging from project profiles in Central America and Paraguay to the growing partici-pation of China in the region and infrastructure development in Ecuador. Darin Bifani Puente Pacífico InvestmentAs was mentioned, LIQ 2 also features a couple of new ideas: Advisory Ltda.1. research on the Project Structuring Division of the BNDES and many of the Eduardo Zúñiga infrastructure projects it is currently working on; and Arias & Muñoz2. coverage of infrastructure development outside LatAm. It is our intention to of- Gustavo Morales Cobo fer in each issue going forward an outlook on the industry in one other emerging Colombian Infrastructure Chamber market and in a more consolidated market. LIQ 2 covers, through to the con- tribution of two experts, infrastructure development in Ukraine and in Ontario, Ignacio Galvez Canada. We feel that, as it happens in every other field, LatAm infrastructure Ineco practitioners can learn from the state of the industry in other parts of the world. Irina Zapatrina Personally, I am very excited to be presenting at the AgReturn InfraReturn Latin Ukrainian Public-PrivateAmerica conference on January and the Latin American Energy & Infrastructure Fo- Partnership Developmentrum on February and I certainly look forward to meeting you personally at any of Support Centerthose events. Jaime Jesus Betalleluz Fernandini Infrastructure, Government & Utilities Advisor Julian Sastre Foro de Infraestructuras y Servicios Luis Pedro del Valle Arias & Muñoz Patricio Abal. Ofilio Mayorga Arias & Muñoz Director & Editor Paul Gallie APM Terminals Rodolfo Guillermo Vouga Vouga & Olmedo Abogados
  4. 4. 4 Companies
  5. 5. Companies Latin Infrastructure Quarterly 5 CONTENTS Spain’s Foro de Infraestructuras y Servicios.................................................................6 The relationship between Spain and Latin America 16 The titanium industry in Paraguay (project profile).....................................................11 Infrastructure development in Ukraine.........................................................................12 A look at what is needed to attract the private sector. The Colombian Infrastructure Chamber.......................................................................14 An authoritative outlook of one of LatAm’s most active markets Ecuador: infrastructure pushed from the top................................................................16 Politics and infrastructure Value for Money............................................................................................................20 A necessary methodology Mexican Highways.......................................................................................................24 38 A comprehensive analysis on Mexico’s push to improve its road network Infrastructure debt funds and exchange rate risk..........................................................29 Ideas on risk management Chinese investment in Latin America Infrastructure....................................................32 Synergies, Opportunities and Challenges Ontario’s Infrastructure.................................................................................................38 A look at the most active infrastructure market in Canada The Moin Container Terminal......................................................................................42 APM Terminals’ project in Costa Rica The Brazilian Development Bank................................................................................44 48 A focus on the Project Structuring Division Company profile: Vestas...............................................................................................48 Guatemala – Generation Expansion Plan (project profile)...........................................53 Costa Rica – Reventazón Hydroelectric Project (project profile).................................55 Nicaragua – Brito Hydroelectric Project (project profile)............................................57 Infrastructure and Dispute Resolution in Brazil...........................................................59 The Compagás Case and Brazilian Arbitration 59
  6. 6. 6 Latin Infrastructure Quarterly Institutions Foro de Infraestructuras y Servicios LIQ speaks with Aniceto Zaragoza and Julian SastrePlease describe the purpose of the Foro place for discussion which would serve tion and a better working relationshipde Infraestructuras y Servicios (“Infra- as a meeting point for likeminded per- between the involved parties;structure and Services Forum”)(www. sons, and for the exchange of experiences • being aware of and amongst professions in a sector which is up-to-date data and informationAll agents involved in the development at the forefront of modern economies. for its members and those ex-of infrastructures and services are faced The main aims of the Infrastructure ternal agents who have a say inwith a new challenge, set out by a series and Services Forum are the following: these infrastructures and services.of guidelines, among which the scarcityof resources, the development of new and • promoting the development and shar- In order to achieve these aims, themore efficient management techniques, ing of knowledge and innovation Infrastructure and Services Forum hasthe incorporation of new technologies regarding new technologies which, undertaken a wide range of activitiesand the need to put into practice new fi- through the creation, management worthy of special mention: conferences,nancial instruments in order to guarantee and financing of infrastructures, may seminars and studies, appearances inthe constructions, operation and mainte- be of use to the agents involved and the mass media, the drafting of studiesnance of future projects cannot be stressed to the society which they serve; and reports on issues of its concern, theenough. • fostering the acceptance on the part creation of working-groups to analyze With this framework in mind, the In- of society of said infrastructures; specific problem areas, the promotion offrastructure and Services Forum was born • Provide criteria in terms of quality publications on issues relating to infra-as an independent and multi-disciplinary and profitability which aid efficiency structures and services, etc. The Forumtask force formed by sector professionals in the decision-making process and is based mainly on individual members(lawyers, economists, engineers, journal- thus affect the associated infrastruc- but institutions can also be partners ofists, etc.) with the aim of sharing these tures and services; the Forum.aforementioned concerns and creating a • striving towards improved coordina-
  7. 7. Institutions Latin Infrastructure Quarterly 7We are aware of examples of  Spanishbankers, architects and lawyers that, LatAm is a huge opportunity fordue to the current economic downturnaffecting  Spain,  are  developing busi-ness relationships  in LatAm. Do you private investors due to the culturesee that as a growing trend? How canthese professionals and their compa- of development based on PPPnies compete against local players?Indeed, the economic downturn is having projects, foreseeable economica significant effect on Spain, and Spanishprofessionals and companies are looking growth and urgent need.towards internationalization on an increas-ingly greater scale. Though fortunately ourmost important representatives in the busi-ness world already had a major presencebefore the recession. To quote from theirfigures, the following stand out: Spanish construction companies arepresent in 68 countries spread over allfive continents. Spanish companies hold seven of thetop ten places of the main transport con-cessionaries in the world. If we observe the worldwide rankingin terms of capital invested, Spain hasparticipated in US$133.677 billion divid-ed between 173 concessions, representing47.7% of the world top. In terms of percentage of the tendersoperating worldwide per country, Spainoccupies the first place on the list, with39% of the operations, following byFrance with 15% and China with 10%. Likewise, specific contributions fromSpain to LatAm are notable:• Aside from the technical ability which can be seen from transport, energy and hydraulic infrastructures, fields in which we are world lead- ers, a common language and cultural similarities make it easier for us to work together.• Also, the rapid economic growth of LatAm countries such as Brazil, Ar- gentina, Colombia, Peru, Ecuador and Mexico means that they urgently require infrastructural developments in order to prevent any stifling of this economic growth. This demand of be- ing able to carry out a project properly and swiftly has meant that these coun-
  8. 8. 8 Latin Infrastructure Quarterly Institutions tries turn to Spanish companies first. . Do you see  Spanish financial institu- tions (commercial and/or development banks)  partnering up with  Spanish professionals and companies when de- veloping projects abroad, particularly in LatAm? If so, can you name a couple of examples?      Of course we could name numerous ex- amples; however, I shall focus on Spanish institutions that are partners of the forum: • OHL is one of the world’s top 10 concessionaire companies and has a very strong presence in Argentina and Brazil. • INECO, the Spanish public sector agency for consultancy on trans- port infrastructure and engineering issues, is undertaking the transport master-plans in Costa Rica and Ecuador. • INDRA, with thousands of work- ers already operating in Brazil and Chile, for example, is at the fore- front of modern technology. • ALSA, a company with over one- hundred years of history, is another leading light in the transport sector, running services as far afield as Chile and China, and operating internation- ally for more than 20 years. Where do you see LatAm in terms of private sector involvement in  infra- structure development? LatAmis a huge opportunity for private investors, firstly due to the culture of de- velopment based on PPP projects, though also for other reasons which have already been touched on, such as its foreseeable economic growth and urgent need for infrastructures which can withstand the increase in mobility and consumption as- sociated with development. There is obviously room for improve- ment. Can you name some areas and give some examples?
  9. 9. Institutions Latin Infrastructure Quarterly 9The Regional Government of Madrid has signed with the IADB, the CRTM hasdeveloped a program of technical assistance which it lends to the Brazilian Gov-ernment as part of the definition of the integration framework of Line 4 of the Riode Janeiro Metropolitan Railway.In terms of transport: Underground Rail collaboration among Spanish companies in in the field of public transport. Its yearlyNetworks and BRT systems in the urban the field of internationalization. In any case, budget is EUR2.2 billion without takingand metropolitan areas, expansions of air- we would like more support on the part of into account investments, and it has aports and trains with the latest technology the embassies for Spanish companies. highly qualified and renowned technicaland features. The great challenge and way forward staff. This Forum’s Secretary, Mr. Dioni- Reservoirs and supply networks. for an even more pronounced presence of sio González, is the Technical Director of In terms of energy the range of pos- Spanish companies is by SMEs joining the CRTM.sibilities is extensive, including thermal forces and working together, rather than Through the collective agreementand nuclear power stations as well as re- working alone, as the effort required is ti- the Regional Government of Madrid hasnewable energy sources. tanic and not always fruitful. signed with the IADB, the CRTM has de-   veloped a program of technical assistanceNeedless to say, Spanish players have Can you tell us about the agreement which it lends to the Brazilian Govern-invaluable resources and experience, between the Inter-American Develop- ment as part of the definition of the in-what are the most suitable channels for ment Bank and the Madrid Regional tegration framework of Line 4 of the RioLatin American actors to reach out to Transport Consortium? de Janeiro Metropolitan Railway. Finally,those resources? (Embassies, forums studies are being performed into mobilitysuch as yours, banks, etc.) The Madrid Regional Transport Consorti- and the planned Quito Metropolitan Rail- um (CRTM) is the transport authority for way in association with the Madrid MetroFrom the viewpoint of state institutions, the the Madrid region and runs all the modes and Spanish companies such as TaryetICEX body of the Spanish Foreign Secre- of transport. It is a flagship throughout the and ETT- Deloitte.tary’s Office is making great strides towards world thanks to its major developments Tenth Anniversary of the Foro de Infraestructuras y Servicios More than one hundred professionals from the infrastructure and services sector in Spain met Monday, November 7, to debate the policies followed in this sector during the last ten years, with an eye to future challenges. The meeting took place as part of the events marking the tenth anniversary of the Infrastructure and Services Forum, with awards were given to outstanding projects undertaken in the sector. Held at the Association of Civil Engineers, the meetings attracted more than 100 attendees, all sector professionals keen to discuss the sector’s past, present and future. For this reason, the seminar’s agenda included specific addresses and three round-table discussion groups: one geared towards listening to the opinion of the different associations that constitute the sector (AERCO, ANCI, CNC, TECNIBERIA and SEOPAN) expressed through the thoughts of their MD’s; a second round-table in which Forum members highlighted the most relevant aspects of their professional activities over the last ten years; and, finally, a third table in which the political parties (Andrés Ayala-PP, Montserrat Candini-CIU and Rafael Simancas-PSOE) and the Trade Unions (Juan Carlos Barrero-UGT andVíctor Sánchez-CCOO) were represented, expressing their viewpoints on the poli- cies regarding infrastructure and services developed over the last ten years, and the possibility of new, future strategies. After the seminar came the moment for the prize-giving ceremony, with awards given by the Infrastructure and Services Forum acknowledging the most outstanding projects and workers from the sector. The award for the most outstanding professional in the sector was given to the MD of Albertis, while the Barcelona Eco- nomics Round Circle Award went to Salvador Alemany Mas, who was present to collect the award himself. The Saragossa Logistics Platform was considered the most outstanding infrastructure project, while the recognition for the best service fell to the team at Canal Isabel II, led by Adrian Martin. Finally, the 2011 Special Award was given to the former MD of the Spanish Transport Association and International Railways Union, Antonio Carbonell, who sadly passed away recently.
  10. 10. 10 Latin Infrastructure Quarterly Institutions Aniceto Zaragoza: Aniceto Zaragoza, Oficemen CEO, has a PhD in Civil Engineering from the Poly- technic University of Madrid (UPM). He has a Degree in Economics and Business Administration and a Degree in History from UNED . He is also associated profes- sor in the Transport Department at UPM. He has participated in over one hundred research projects and technical re- ports, co-authored 15 books, published more than 40 articles and given more than 300 speeches in 15 different countries all over the world. Among his major research projects, Mr Zaragoza has been the Project Director of GIROADS, with a budget of over EUR6 million, and of the Oasis Project, with a budget of over EUR30 millions. He is President of EUPAVE (European Concrete Paving Association), President of the Infrastructures and Service Forum, Vicepresident of PTECO2, former President of IVIA (Latin American Road Institute), former President of the ERF (European Road Federation) and former President of ITS Spain. In his previous role as Head of the Spanish Motorways Association, he took part in the beginnings of the development of Chilean concessions, which was a pleasure. Julian Sastre Julián Sastre González holds a PhD in Civil Engineering from the UPM, specializing in the fields of Transport and Town and Land Planning, and has twenty-five years’ professional experience. His career in the sector began at the Madrid Regional Transport Consortium (PTA of Madrid), where he worked from 1986 to 1989, later devoting his time to transport consultancy and assessment in diverse fields both in Spain and abroad (since early 90ths, Europe, Latin America, Maghreb and Asia). He speaks English, French and Portuguese. As well as being Vice-president of this Forum, he is also an independent consult- ant, mainly focusing on international projects, most importantly as a consultant for the IADB and the World Bank. Specializing in PPP projects, he has worked as advisor for projects such as the bullet train from Rio to Sao Paulo, various public and private partnerships for building intermodal stations in Montevideo and the Rosario city public transport network (Argentina) as well as projects in El Salvador. In Chile he has dealt especially with ITS issues applied to the field of transport since 2000. He is also the author of the following publications, among others: • Manual for the planning, financing and implementation of urban transport systems.” Madrid Regional Transport Consortium (June 2004). (ISBN: 84-86803- 60-8). • Manual for tramways, light rail networks and systems using reserved platforms. Design, project financing and implementation.” Madrid Regional Transport Consortium (2006). • Green Paper on Town Planning and Mobility.” Civil Engineering Association (2008). • Green Paper on Transport and Climate Change.” Civil Engineering Associa- tion (2010).
  11. 11. Projects Latin Infrastructure Quarterly 11The titanium industry’sinroads into ParaguayIn November 2010, David Lowell, CEO of CIC environment, experts already pointed out the dangers the pilot plant poses to theResources Inc., announced the discovery of what environment are minimal, not yet being ais thought to be the largest titanium deposit in the full-fledged plant. At this stage, the pilotworld, in the Paraguayan district of Minga Porã, plant will only wash the soil to separate the ilmenite and the clay, a process whichnear the border with Brazil.M in itself is not contaminating. Metálicos y No Metálicos Paraguay etálicos y No Metáli- The company invested US$5 million S.R.L. is now carrying out studies to ex- cos Paraguay S.R.L., in setting up the pilot plant. During the actly determine the project’s infrastruc- a subsidiary of CIC experimental period, the plant is projected ture and energy needs. The results are Resources Inc., has to produce 500 tons per month. However, due this December. If the studies show secured a permit to once the plant goes into full production, the project is economically viable and theexplore 30,000 has in the Minga Porã area production is estimated to increase hun- Paraguayan Congress gives it the greenand is concluding the construction of a pi- dredfold and reach 5 tons per hour. light, Metálicos y No Metálicos Paraguaylot plant to precisely assess the deposit’s Currently, the Project is in the process S.A. will enter into a concession contractreal prospects. The company started the of obtaining the approval for its Environ- with the Paraguayan Government.project expecting to eventually obtain be- mental Impact Study. Although some ob- This will in turn probably entail thetween 5 and 10 million tons of titanium jections have been raised fearing the pilot need for numerous infrastructure projectsore per year. plant might have a negative impact on the to supply the energy and transportation needs of the potential mine. Although LatAm has played a crucial RODOLFO G. VOUGA ZUCCOLILLO role in the mining industry for a long time, is a Senior Associate at Vouga & Paraguay’s mining potential remained Olmedo Abogados. He graduated unexplored until now. All of this is set with Honors from the National Uni- to change as the latest news from pros- versity of Asuncion (J.D., summa pecting efforts put Paraguay on the center cum laude, 2007) and was award- stage of the international mining industry. ed a Masters in Law (LL.M.) degree Between 2008 and November 2010, the from Columbia Law School (LL.M., Ministry of Public Works and Communi- 2010). He passed the New York Bar cations (MOPC) granted 14 permits to 10 exam. His fields of expertise are: Liti- companies for the prospecting of different gation, Arbitration and Mediation; areas showing mining potential. M&A; Foreign Investments; Cor- Mining projects are known to be porate and Commercial; Capital closely and almost inevitably linked to Markets; Tax and Customs Law. He very demanding energy and communica- has been actively involved in vari- tion needs, for which reason it would not ous projects related with foreign be surprising to expect that, assuming the investments. He is a former assistant professor in Legal Technique at mining efforts become successful, Para- the National University of Asunción. Languages: Spanish, English, Por- guay could become a hot spot for interest- tuguese, German. ing infrastructure ventures.
  12. 12. 12 Latin Infrastructure Quarterly Institutions Public-private partnership and its LIQ Speaks with I. Zapatrina: Chairman of the Board of the Ukrainian Public-Private Partnership Development Support Center U kraine is now taking its many normative-legal acts that regulate first steps in the devel- the procedures of preparation of the simi- of infrastructure opment of public-private lar projects, competitions, the selection partnerships (PPP). Today of winners, and the monitoring of PPP in Ukraine there is a lot of conversa- projects. We can not say the current leg- tions regarding the necessity to attract the islation is perfect. It contains a number private sector for infrastructure moderni- of contradictions, difficulties and conflict zation, and a number of normative-legal clauses. The most problematic issue in acts that regulate preparation of projects this field is absence of regulation of state in the form of PPPs have been adopted, as support, both methodological and institu- role in modernization well as mechanisms for their implemen- tional, for PPP projects. At the same time, tation. Currently, however, there are no projects in the form of PPPs could be pre- examples of successful PPP projects in pared and implemented in the conditions Ukraine. of current legal regulation. The legisla- tion could be improved later based on the Why is this so? What are the prerequi- experience of the implementation of such sites for changing the situation in this projects. field? Investment climate and political sta- It is well known that in order to prepare bility (succession of public authority) are and implement viable projects in the form much more problematic issues for poten- of a PPP it is not enough to have the leg- tial private investors that consider oppor- islation regulating relations in this field, tunities to implement similar projects in even though the availability of such regu- Ukraine. lation is certainly an extremely important element for the development of PPPs. Political Stability The most important factors for intro- duction of similar long-term, complicated Unfortunately, for the last 20 years, as a and high-risk projects are: investment cli- result of many political changes, the in- mate in the country, political stability and stitutional memory of public authority a well developed institutional environ- has been very weak, and there has been ment. These factors are now indeed the no succession of ideas, approaches and most critical for the development of PPPs management decisions. The priorities and in Ukraine. personalities among the authorities are changing all the time and this results in Legislation complications with the preparation and implementation of any strategic long- The laws on concessions, production term projects, in particular PPP projects. sharing and rent have been effective in Ukraine for more than 10 years. In 2010 Investment Climate laws were adopted on PPPs and the pe- culiarities of transfer into rent or con- The investment climate in Ukraine is cession of such objects as DH heating, extremely low according to the evalua- water supply and sanitation, along with tion of the international community. Our
  13. 13. Institutions Latin Infrastructure Quarterly 13country comes in last positions in the methodology, the preparation of training (1.5 years). But for such a short period,world ratings that appraise the environ- program and the development of commu- quite a lot have been done: a number ofment for business activity, taxation sys- nicative strategies. analytical researches and scientific andtems, court systems, corruption, etc. At In the current situation it is very im- scientific-popular publications on PPPthe same time, in 2010 the President of portant to attract scientists, professional issues have been prepared, a number ofUkraine,Victor Yanukovych, adopted the consultants and specialists to prepare the conferences and round tables on PPP is-program of economic reforms that covers methodological basis in the PPP field, as sues have been conducted and trainingswide circle of issues, including adminis- well as study the experience of infrastruc- for the representatives of the public au-trative, court, budget, tax, housing and ture project implementation in countries thorities have been held. It has startedregulatory reforms. It is very difficult to that have started the similar processes work on the development of pilot projectsimplement such serious reforms simulta- in conditions similar to Ukraine’s to- that will allow for the preparation and im-neously in many fields of economic activ- day, spreading the experience among the plementation of PPP projects in Ukraineity. It requires attracting highly qualified public authorities and population. In our in various different spheres of economicspecialists, experience conducting such opinion the most useful for our country activities and ensure its replication. Thereforms in the world, and of course time. could be the experience of LatAm, where Center actively cooperates with the Na-Yet there is optimism over the beginning the active implementation of PPP projects tional Academy of Sciences and publicof wide-ranging reforms of the economy started in the 1980’s. authority bodies in Ukraine and aboard,and social sector in Ukraine, with im- The establishment of the Ukrainian and it participates in international activ-provements to the climate for conducting Public-Private Partnership Development ity on PPP issues. The specialists of thebusiness, allowing the country to attract Support Center (, a Center have started serious scientific re-international capital in the near future for non-governmental, non-commercial or- searches on the development of public-the implementation of large-scale infra- ganization representing Ukrainian scien- private partnership in Ukraine. We hopestructure projects based on PPP. tists, was realized due to an understand- that our activity will make it possible to ing of the importance of attracting private speed up the creation of a favorable envi-Institutional Environment capital for infrastructure modernization in ronment for attracting of private business Ukraine. The center is still very young to modernization of economy of Ukraine.At the moment Ukraine is not ready in-stitutionally to actively promote PPPprojects. Only this summer, the Decree I. Zapatrina:of the President of Ukraine established aspecially authorized body on PPP issues, • Ph.D. in economics, 1985the Ministry of economic Development • Doctorate in economicsand Trade. There is still no regulation (finance), 2009of its work on PPP projects. The role of • Professor, 2011ministries in this process is not specified. • Member of the UNECE Team ofThe role of the institutions authorized in Specialists on PPP 2011 ,the PPP sphere regarding the objects of • Member of the expert councilmunicipal property is not determined. on macroeconomics, trans-(In Ukraine such objects include district formations, international andheating, water supply and sanitation sys- regional development (eco-tems, objects used for utilization of sol- nomic sciences) of the High-id waste, local electrical transport, city est Attestation Commission ofroads, bridges, etc.). The public author- Ukraine.ity lacks the knowledge and experience • The Honorary Award of the Nnecessary for the implementation of PPP ational Academy of Sciencesprojects, which causes over-expectations of Ukraine for assisting the sci-in this field and increases the probability ence, 2009making non-optimal decisions for society. • The Honorary Award of the National Agency of Ukraine on EnsuringCertainly, it is easier to change the situa- of Efficient Use of Energy Resources, 2010tion in this sphere than to implement eco- • The Honorary Award of the Ministry of Economy of Ukraine for many yearsnomic reforms. It requires a system and of diligent work related to economic policy implementation, 2011.weighted approach, the development of
  14. 14. 14 Latin Infrastructure Quarterly Institutions The ColombianLIQ Speaks with Infrastructure Chamber a significant number of projects, due to the technical weaknesses of the governmental agencies, is currently the main issue block- ing private sector investment in public in- frastructure. This issue could be solved with more generous incentives for the private companies that, at their risk and with their money, assume the task of preparing and structuring infrastructure projects. What are the sectors receiving most of the infrastructure investment money? The 10-year plan issued by the Santos´s Administration calls for an investment in roads of about US$31 billion, of US$21.1 billion in railroads, and of US$14 billion in urban massive transportation systems. What are the main projects in those sectors? And what projects are in the What´s the overall environment and think that the government agencies in works (planning, procurement)? reality for private sector participa- charge of the structuring of new projects The single most important infrastructure tion in the development of public – and of the monitoring and follow–up of project in Colombia in the next 10 years infrastructure? current projects – could be strengthened, will likely be the new subway for Bogotá, In general, Colombia´s government in so as to have better technical and manage- the capital. But this project still depends on the last two decades has been a friendly ment capabilities. We also think that in aligning the political will of the city admin- promoter of private sector participation in the case of “private initiatives” –projects istration and the national government. the development of public infrastructure. where the initial proposal and the viabil- In roads, the state agency in charge Since the early 90´s, Colombia has turned ity studies don´t originate from the gov- of promoting private sector investment to the private sector for the building, op- ernment but from private investors – the in public infrastructure (Instituto Na- eration and maintenance of roads, ports incentives regime is still not adequate cional de Concesiones, INCO, soon to and airports, with successful results. The enough. President Santos´s administra- be renamed as Agencia Nacional de In- current government is also a believer in tion is working on a new bill to improve fraestructura, ANI), is currently struc- the free market and in the benefits of rely- the current regulation on this subject. turing the upgrade of the corridor that ing on the private sector for tasks that can connects Bogotá with Buenaventura, free public resources for other vital state Other than legislative obstacles, what the main Colombian port at the Pacific duties, such as education and health care. are the main issues blocking private sec- Coast, and the construction of two high- tor investment in public infrastructure? ways that connect Bogotá with two dif- What´s your take on the current PPP Security and safety concerns used to ferent points of the Venezuelan border. framework in Colombia? What could be the main obstacles, but thanks to the be improved? strengthening of our law enforcement in- Who is mainly responsible for infra- Within a general positive take on the stitutions in the last decade, this is not cur- structure development: central or local current PPP framework in Colombia, we rently a main issue. We think that the lack of governments?
  15. 15. Institutions Latin Infrastructure Quarterly 15 The general policy on infrastructure, and Plan, the royalties from oil and mining (Ruta del sol), and (iii) a tunnel (La Líneathe execution of the main strategic infra- projects will also be a new source of fi- Tunnel) that will cut through the centralstructure projects (national highways, ports, nancing for infrastructure projects. mountain range, to connect the capitalrailroads, airports), is part of the central more rapidly with the Pacific Coast.government´s constitutional responsibili- Is there a specific political leader, par- On the local level, the expansion ofties. The local governments are responsible ty, NGO, think-tank, ministry, that has Bogotá´s massive transit system is thefor infrastructure with a local scope (streets, pushed for and/or is pushing for increas- main project currently under construc-provincial highways, mass transportations ing involvement of the private sector in tion. This does not include the subway,systems). In general, the legal framework the development of infrastructure? which is still in a preliminary phase.aims to promote coordination and joint ef- In general, the Colombian govern-forts. For example: Bogotá´s subway is ment, led by President Juan Manuel San-mainly a local responsibility, but it cannot tos, is the main promoter of increasingbe done without the financial and technical involvement of the private sector in thesupport of the national government. development of infrastructure. In pursu- ing this policy, the current administrationHave those governments made the is deepening a strategic vision that hasdevelopment of infrastructure with been promoted by various administrationsprivate sector participation a state in the last two decades. Congress has sup-policy? ported these policies, at least since 1993. At the national level, there is indeed The Colombian Chamber of Infrastruc-an explicit policy for the development ture, the main trade association that rep-of infrastructure with private sector par- resents the builders, consultants and con-ticipation. It has been in place since the cessionaires of infrastructure, has beenearly 90´s, and nowadays most of the an active participant and promoter of themain national highways are operated by public policy discussions in this area.private companies, as well as the airportsand ports. The new national development Last year we saw the launching of a few Gustavo Morales Cobo is aplan includes many provisions aimed to infrastructure funds in Colombia. Have lawyer. This year he joinedpromote public-private partnerships, not these funds allocated part of their capital? the Colombian Infrastructureonly in this sector, but also in education, What projects are they looking into? Chamber as deputy, and housing. We do know for certain that at least one He has also worked as deputy At the local level, some provinces of these funds has allocated some capital justice at the Colombian Con- stitutional Court, deputy C.E.Ohave also promoted private sector par- in one of the main highway projects cur- of the national insurance as-ticipation, in state highways, for example. rently under construction: the highway sociation, and legal coun-But they still depend mostly on traditional connecting Bogotá with Girardot, a port selor of various governmentalpublic works schemes that do not involve located on the shore of the main riverway agencies such as the Ministryrisk-taking from private companies. in Colombia, the Magdalena River. We of Finance, the National Plan- also know that some of these funds are ning Department and the Ministry of CommunicationsWhat are the main sources of fi- looking into new ports or the projected and Transportation.nance available for big infrastructure expansion of existing ones. At the endprojects? of September, the administration will an- The national state budget and the pro- nounce a set of new projects, specificallyvincial and municipal budgets are still structured with these kinds of funds orthe main sources of financing available other institutional investors in mind.for big infrastructure projects. But in thelast couple of decades, airports, ports What are the most important projectsand highways have financed themselves currently under procurement andthrough various schemes or private sec- construction?tor participation, such as tolls. Pension There are at least three very big impor-funds and private equity firms are willing tant projects under construction right now:to participate, but they feel the regulatory (i) the upgrade of Bogotá´s airport; (ii)framework needs some adjustments. Ac- the construction of a 1,000-kilometer high-cording to the new National Development way from Bogotá to the Caribbean Coast
  16. 16. 16 Latin Infrastructure Quarterly PoliticsEcuador:Infrastructure pushed from the topAs one of the most popular presidents in Ecuador dur-ing recent years, Rafael Correa began 2011 strong. Hisreferendums on constitutional reforms showed withouta doubt that there is popular support for an extensionof his mandate, which has August 2013 as a horizon,with the option of being re-elected until 2017.C orrea therefore has time work to improve the Pedernales-San Vi- to deliver one of the main cente highway for refurbishment, expan- concerns of the population: sion and maintenance. Also, the Montec- infrastructure investment. risti-Jipijapa highway should be finished As we mentioned in a pre- by this year.vious article in LIQ, economic develop- The country has around 40,000 km ofment cannot be achieved if infrastructure highways, of which only 20% are paved.development is not in place. Without Buses and even cheap taxis provide non-roads, bridges, ports, airports you cannot stop city transport for reasonable fares.export or import products. Without ef- The poor quality of the network has toficient infrastructure facilities, transport date hindered the country’s competitive-costs will increase and you will become ness. The trans-Ecuadorian railway, builtless competitive in the global market. towards the end of the 19th century and It seems that the Ecuadorian gov- terminated in 1908, unites Guayaquil, aternment has this clear. In March 2011, sea level, with Quito, high in the northPresident Correa announced that the gov- central Andes. This railway which ex-ernment is seeking US$7 billion in infra- tends for about 800 km needs renovationstructure concessions over the next five and is used mostly for freight purposes.years, with a focus on port, airport and Because of the significant changes inhighway concessions. terrain and altitude in Ecuador that make Highways will be necessary for the road travel slow and difficult, the use ofpotential development of the mining in- in-country flights is common. Ecuato-dustry. There are expected investments of riana, Saeta, and Tame are national com-at least five mining projects that involve panies that provide flight services withinCanadian, American and Chinese com- Ecuador and from the international air-panies. Ecuador is preparing the table ports in the capital Quito and the portfor these investment demands by setting city of Guayaquil to international routes.up an $800 million program of highway MTOP is seeking to invest nearly US$200projects. Ecuador’s transport and public million to overhaul airports under its na-works ministry (MTOP) is carrying out tional airport modernization plan.
  17. 17. Companies Latin Infrastructure Quarterly 17In March 2011, President Correa announced that thegovernment is seeking US$7 billion in infrastructureconcessions over the next five years, with a focus onport, airport and highway concessions.
  18. 18. 18 Latin Infrastructure Quarterly Politics The main ports in Ecuador are (PPP) projects. Judicial shortcomings to in 2001 setting out the structure of theGuayaquil, Manta, Esmeraldas and Puer- regarding concession dispute arbitration, new Quito International Airport. The Cityto Bolivar. Ecuadorian ports specialize contract enforcement and protection of of Quito accepted the proposal and signedin the movement of products related to investor rights could be especially prob- the concession and construction contractsthe action area: Esmeraldas movement lematic. There is always the concern of with CCC in 2002 for the design, financ-predominates in the northern part of the the risk of government expropriation. ing, construction, and operation of the newcountry, Manta specializes in sea prod- Regulations established that the eco- Quito International Airport, as well as theucts, Guayaquil in general cargo and Bo- nomic equation of a contract must be administration and operation of the currentlivar in banana transport (80% of Ecuado- maintained, paving the way for multiple Mariscal Sucre International Airport.rian banana production goes to Europe). contract renegotiations and excessive In 2005, CCC signed a $400 millionThe country’s largest port is Guayaquil, transfer of commercial risk to the state. contract to act as prime contractor for thewhich is facing problems with its access Still, the new 2008 state constitution construction of the New Quito Internationalchannel, which only allows the entry of made significant changes to the previ- Airport in Ecuador. Since then, the projectships with drafts (partially submerged in a ous frameworks. Article 314 states that has been expanded to over $400 million toboat) of 9.75 up to 11 meters. The move- the government is responsible for public accommodate increasing passenger trafficment of cargo into and out of this main and universal service provision, ensur- and demand for cargo space.port is around 70% of the total. Other ing “fair” prices. Article 316 of the con- Corporacion Quiport S.A. was a 100%smaller private terminals, such as Balao stitution states that “the state may, as an privately owned capital firm originallyand La Libertad, maintain the largest flow exception, delegate…exercising these formed by Canadian companies AECONof movement by transporting oil from services…out to private initiative”. Arti- and Airport Development Corporationeastern Ecuador. cle 318 points out that public water and (ADC), which later added U.S.-based Granted that there is a strong political drainage services and the supply of drink- HAS Development Corporation (HAS-will supported by the population to upgrade ing water will be rendered exclusively by DC) and the Brazilian Andrade Gutierrezaging and insufficient infrastructure, how state-owned or community legal bodies. Concessões (AGC). Quiport won the con-well prepared Ecuador is to fulfill this? These constitutional rules make ex- cession, which awarded a 35 year-conces- Ecuador states explicitly in its constitution and laws that water and sanita- tion services must be provided publicly, making any concession projects in this sector an exception rather than the rule. Ecuador must improve the consisten- isting concession initiatives highly vul- sion contract for the new airport and thecy and quality of its legal, regulatory and nerable to expropriation and obligatory management of the existing Quito airportinstitutional frameworks to better facili- contract changes, also decreasing the through the CCC. Since then, Quiporttate concession projects. Also, compared likelihood of developing new projects. claims to have invested more than $70to other countries in LatAm, Ecuador Better regulation will require the estab- million of its equity investment as well asmust improve its investment and finan- lishment of dispute-resolution options more than $350 million in international fi-cial climates. Ecuador states explicitly in for both the concessionaire and the state nancing for this US$650 million project.its constitution and laws that water and that will limit hold-up and expropriation On 2009 a decision by the transitionalsanitation services must be provided pub- risks, more reliable arbitration schemes, Ecuadorian Constitutional Court whichlicly, making any concession projects in improved criteria for awarding bids, more found that the financing plan for the con-this sector an exception rather than a rule. transparency and fairness for contract struction of the new airport found in theHowever, legal and regulatory frame- adjustments and better definition of risks original concession contract was partiallyworks tend to be more open to road, port that by law must be borne by the State. unconstitutional under the new constitu-and airport concessions. The Ecuadorian government has al- tion of 2008. Under the concession con- Another issue is that Ecuador is in- ready attempted to annul existing con- tract Quiport was supposed to pay loanscreasingly reluctant to recognize inter- cessions such as the Port of Manta, the to international lenders, recoup its invest-national arbitration rulings, which makes Quito airport and select drinking-water ment and make a profit through the fees itthe competitive playing field highly une- concessions. was given the authority to charge to airportven for private-sector firms that base their A concession experience: the New users both at the old Quito Airport, whichstrength on efficiency grounds, reducing Quito International Airport it also manages, and at the new airport dur-their incentive to participate in conces- The Canadian Commercial Corporation ing the life of the concession. Howeversions or in Public-Private Partnership (CCC) made a proposal to the City of Qui- the Constitutional Court ruled that the fees
  19. 19. Politics Latin Infrastructure Quarterly 19charged to airport users were actually taxes “technical objections.” Correa criticized under a PPP approach is higher than un-which could not be handled by a private the business model assumed by the Mu- der a traditional approach. But they forgetcompany under the new Constitution law. nicipality for the construction of a new air to quantify the amount of risks that a gov- Following the decision, the sides were terminal and said that there was minimal ernment would save by transferring themforced to enter renegotiations of the conces- investment made by the Canadian consor- through a contract to a private party. Thesesion contract. The Municipality of Quito, tium partner in the project. include environmental risks, design andwhich was set to receive US$1.5 million “Unfortunately, the news is not good construction risks, financial risks, opera-per year as a concession fee, took the op- with respect to the Quito airport, which tion risks, etc., many of them, if allocatedportunity to seek a larger share of the profits is being built by the Municipality, with to the private partner, would represent afrom the new airport. After 18 months of in- money from all Ecuadorians, by the way,” tangible relief to the government.tense negotiations, the parties successfully Correa said in his regular Saturday radio To talk about risk-identification andreached agreement on legal, commercial program. He also said that “it was a lie” risk quantification could be a matter forand financial terms for the project. that the Canadian partner of the Munici- another article, but part of the “PPP cul- In August 2010, during a ceremony pality is investing enough, since, accord- ture” that must be known and spreadwith President Correa, the Mayor of ing to the President, the bulk of the fund- around our infrastructure environment isQuito and a range of other high-level of- ing comes from revenues generated by that you cannot compare a PPP approachficials, the parties executed the strategic the existing Mariscal Sucre airport. with a traditional approach without quan-alliance agreement, an amendment to the Airport charges that travelers pay to tifying the transferred risks.concession contract and an affirmation exit the airport Mariscal Sucre are among Another thing of course is that a badof the investment protection agreement, the highest in the continent, with a value agreement was made between the gov-which set forth the renegotiated terms of exceeding $40, Correa recalled, stressing ernment and the private partner. A badthe concession for the Project. that this item is what, in his view, supports value-for-money analysis could certainly The new airport will have a 4.1 km truly the construction of the new terminal. be detrimental for a government’s inter-runway and be equipped to handle more “There is no foreign investment. The ests. But in this case, Correa’s commentsthan five million passengers and 270,000 investment is all from Ecuador. Maybe referred only to the “lack of investment”tonnes of cargo each year. The Ecuado- there has been US$40 or US$70 million of the private party without mentioningrian government is set to receive nearly from the Canadians over a proposed 600 anything about how the risk and responsi-$900 million from the concession. million” in total, added the President. bilities were allocated. But things from the top were not as Therefore, he reiterated that “in addition Despite this incident, we consider Ecua-smooth always. to an extremely questionable business dor a good prospectus for infrastructure in- President Correa was initially very model, the problem is that (the new air- vestment. It is a country that is pushing fromcritical to this project and made a typi- port) has serious technical limitations.” the top of the government an open agendacal mistake many government authorities However, President Correa did not to receive foreign investments (as Presidentcommit when they evaluate concession or mention anything about the transfer of Correa noted some months ago). PotentialPPP projects. risks within the contract and who was as- deals at pre-procurement stage also in- In 2007 Correa said that the new air- suming them. The typical (and sometimes clude mining (over US$6 billion), oil (overport in Quito, built by the Municipality of intentional) mistake of many government US$1.5 billion), ports (over US$300 mil-Quito in an area near the city, had several authorities opposing PPPs is that the cost lion) and tourism (over US$200 million).Author BiographyPwC Canada | Vice President, Infrastructure & Project Finance | Mon-treal Barrios has 10 years of professional experience in project finance,business valuation, mergers and acquisitions, financial modeling, feasibil-ity analysis, microfinance and financial audit. In the last 5 years he has ledmore than 50 business valuations and transaction projects in Canada,Peru and Ecuador. His experience comprises the mining, energy, financialservices, agribusiness, infrastructure and commercial sectors. He holdsan MBA from ESADE Business School and is BA in Economics from theUniversidad del Pacífico.
  20. 20. 20 Latin Infrastructure Quarterly Infrastructure Financing Value for Money When are PPPs the best alternative?
  21. 21. Infrastructure Financing Latin Infrastructure Quarterly 21AValue for Money may be used to indicate the cost of public The PSC is a hypothetical estimated provision and determine if the best pri- cost of a project under the public sector if growing number of vate sector quotation for a PPP contract the government runs it, and is also a cost countries have created is more profitable for the state in terms model (and in some cases an income mod- Public Private Partner- of optimizing the effectiveness and effi- el) associated with a project implemented ships (PPP) to promote ciency of spending. This is called value by the government based on the most ef- the offer of assets and for money (VFM). ficient method of providing a result that isservices of infrastructure by the private VFM is an analytical methodology that currently available to the public sector. Itsector. The experiences gained in dif- compares the cost of public infrastructure also takes into consideration the potentialferent countries could indicate that eco- development under the traditional imple- impact of risks on the costs (and revenues)nomic infrastructure is generally a more mentation approaches in charge of the associated with the project during its life.conducive environment for the creation public sector and PPP with private sector Developing the Financial Model will in-of these kinds of partnerships than social support. clude an estimation of the present value ofinfrastructure (e.g., health care and edu- The comparison is performed based costs for the Government to develop andcation) for three main reasons. on the total project cost over a period of maintain the project with exactly the same First, the solid project designed to time. Because the costs are taken into con- standards required for performance fromsolve obvious limitations of infrastruc- sideration for an extended period and the the private sector investor.tures such as roads, railways, ports and costs are incurred in a comparable man- Alternatively, private execution of anelectricity. The economic infrastructure ner by the public sector, under a tradition- infrastructure project is measured throughprojects usually have high rates of finan- al approach and under a PPP, the costs are a shadow bid, which represents the cost tocial profitability and therefore are attrac- expressed at net present value. The VFM run a project as a PPP and constitutes thetive for the private sector. Second, often also takes into consideration the risks, be- simulation of the cost that a bidder wouldthe collection of user fees becomes more cause the risks are an integral part of total propose, reflecting all costs that the pri-feasible and more convenient in econom- project costs. This analysis will integrate vate partner will assume:ic infrastructures projects. Third, usually the information from previous activities,economic infrastructure projects have a of the financial models prepared: the pub- • Design and construction costsmore developed market to combine the lic sector comparator and the test result • Operating Costsconstruction with the provision of serv- value for money. • Maintenance costs and life cycleices (e.g., construction, operation and The cost of implementing a project • Financing costsmaintenance of a toll road) than social in- under the traditional implementation ap-frastructure projects. Given these consid- proach is called determined by what is Inside the structure of the privateerations, it is not surprising that PPPs are called a public sector comparator. The partner entities there are several differ-used preponderantly for road infrastruc- cost of a project under a PPP approach is ent sources of funding. This should beture, as in several LatAm countries. given as a “shadow bid” or “shadow offer” reflected in the shadow bid, including any In general, the decision to make a PPP because it represents the cost that a bid- user fee or revenues from third partiesshould be adopted if it is properly justi- der may propose. The comparison of the that the private partner may receive.fied, which can follow a two stage proc- PSC and the shadow bid shows whether The description of the shadow bidess. The first stage consists of defining if or not there is VFM to run a project under must be from the technical project andit is desirable to undertake a particular a PPP. contain:project, based on solid investment plan- VFM is an analytical methodologyning procedures and evaluation of projects(e.g., using cost-benefit analysis). Animportant step in this first stage is clas-sifying all projects in order of importance that compares the cost of public infra-according to their profitability (economicor social) and decide which are accessiblefrom the fiscal point of view and worth structure development under the tra-undertaking. The second step is to decide whether ditional implementation approachesa project that is considered convenientshould be approached through a tradition- in charge of the public sector and PPPal procurement system or PPP. For thispurpose a public sector comparator (PSC) with private sector support.
  22. 22. 22 Latin Infrastructure Quarterly Infrastructure Financing • Project description and evaluation the remuneration in exchange for certain regarding both economic and social infra- horizon defined services that always comply fully structure development when determining • Description of the services to be with a battery of performance indicators. the best choice for development. In the contracted From the economic point of view APP particular case of Peru, the Law of Pub- • Schedule of work scheme presents significant differences lic Private Partnerships the DL. No. 1012, • Program investment and total with the traditional method as may be includes the extensive implementation of investment seen in the figure below: the methodology of VFM to all projects • Operation and maintenance That is, in the traditional scheme the of PPPs from 2012 with the application of program government pays from the start the work the Comparator Public Peruvian. • Structure of private financing and then the operation and maintenance • Description of the payment while the PPP scheme only pay for serv- JAIME JESUS BETALLELUZ mechanism ices when they are received (after the FERNANDINI • Analysis of risks and conclusion of the work). responsibilities. The test of value for money involves Infrastructure, Government & Utili- comparing both values to which they have ties Advisor In conjunction with the analysis of risks incorporated the most probable value ofand responsibilities, the shadow bid should the identified risks to determine if the PPP Business Administration, Master’sinclude measured services to be contracted contract would be more convenient for studies concluded, with over 15with the basic principle that responsibili- the government than traditional develop- years of professional experience, mainly in consultancy work, coun-ties and risks should be assigned to the en- ment methods. In the event that it would seling and teaching. Among thetity best able to develop them. not be beneficial to the state, other options main areas of professional devel- The result will be a document describ- should be explored that would yield simi- opment can be highlighted: or-ing the Project, the determination of serv- lar results. ganizational improvement, finan-ices to be contracted, the general descrip- The main objective of PPP projects is cial evaluation of projects and thetion of the payment mechanism and the to achieve a higher VFM for the public promotion of investment in publicestimated annual payment for contracted sector. This specific point is one of the infrastructure. Financial Special-services. most complicated in the structuring of ist of “El Metropolitano” project for Finally, the shadow bid must be based PPPs because, to properly determine the the Metropolitan Institute of Trans-on a partnership agreement (the PPP con- VFM, the costs must be well determined portation of Lima (PROTRANS-tract) that the public authority must pro- and the risk well localized and quantified PORTE). He has worked the pastpose to the market if the project was ex- to avoid reaching erroneous conclusions. three years as General Coordi- nator of Government Services inecuted as private sector participation. Public Sector Comparator is a tool that PricewaterhouseCoopers Peru, re- allows determine if you are getting value sponsible for the implementationValue for Money determination for money. The comparison to make is of projects for the improvement of shown in the figure below: public services and infrastructureFor a VFM analysis, the same discount It is worth noting that the essential development through PPPs.rate should be used to compare the cost of part of analysis is the initial estimate ofthe PSC and shadow bid both expressed investment costs by a technical advisor toas Net Present Value (NPV) calculated on the government, as well as the risks iden-the same date. The discount rate should tified. This will include an estimation ofbe based on the risk-free cost of funds ac- all investments according to the specifi-cessible to the public sector authority. cations required for the project, operating As already mentioned the PSC is the and maintenance costs. The cost estimatespresent value of all costs incurred by the should reflect various adjustments thatgovernment for services included in the will be determined in accordance with thecontract for the provision of long term accounting and tax treatment to considerservices for the duration of this, based on in the shadow bid. When the Public Sec-cost estimates that are affected to reflect tor Comparator performs the VFM test,the value of identified risks. the best alternative must correspond to For its part the shadow bid is the what generates a lower NPV.present value cost of the services con- Currently the implementation of thistracted to an investor. It is not the pay- methodology allows countries like Can-ment for work or specific activities but ada and Chile to make better decisions
  23. 23. Companies Latin Infrastructure Quarterly 23
  24. 24. 24 Latin Infrastructure Quarterly PoliticsMEXICANHIGHWAYSTowards a new service conceptMexico’s Infrastructure Plan ing considered, to be split as shown • Improving coordination among fed-(NIP) 2012 below: eral, state and local administrations. • MXN$33.06 billion Private • The Government’s goals for 2012 areIn order to attain its 2030 goal of being Investment the following:ranked in the top 30 of the World Eco- • MXN$8.7 billion National Infra- • Build or modernize 17,598 kilom-nomic Forum’ s Infrastructure Competi- structure Fund (NIF) eters of highways and rural roads.tive Index, Mexico has developed a new • MXN$5.33 billion Banobras: Na- • Increase from 72% to 90% the areastrategic plan that will steer the country tional Development Bank of federal highway network operat-into raising the coverage and quality of • MXN$147.2 billion National Budget ing in good condition according toits infrastructure net by 2012. international standards. According to that index, Mexico was A total amount of MXN$226 billion • Reduce the accident rate from 0.47ranked 71st out of 133 countries in 2009- will be invested throughout 2007- 2012, to 0.25 for every million vehicles per2010, with the following itemization: of which MXN$150 billion will be de- kilometer. AIRPORTS 56TH voted to roads. RAILWAYS 66TH The NIP establishes priority projects Highways Strategic Plan: BANO- PORTS 82ND and will increase public and private re- BRAS leading Role HIGHWAYS 57TH sources allocated to their development by TELECOMMUNICATIONS 65TH means of the following: Mexico has taken a decisive step in im- The aim of the plan is to increase proving its road network, which is vi-economic growth as well as permanent • improving the planning, prepara- tal for interconnecting the country’sjob creation by developing transporta- tion, administration and execution vast territory of nearly 2 million squaretion, communications, water and energy of the projects by considering tech- make Mexico one of the main logistic nical, economic and environmental The network now covers over 360,000platforms and promote regional develop- feasibility; kilometers, of which nearly 4,000 are tollment and tourism. • actively promoting public-private roads administered by Banobras. One of partnerships; these is the 148-kilometer main road join-• Regarding the financial requirements • eliminating unnecessary regulations and ing Guadalajara, the country’s second- for 2012, MXN$189.8 billion is be- simplifying contracting procedures; largest and second-most populous city, to
  25. 25. Politics Latin Infrastructure Quarterly 25the town of Colima, and finally to Manza-nillo, the most important port on Mexico’sPacific coast. The following strategies are to be fol-lowed in order to achieve the goals pre-viously pointed by the NIP ( Complete the modernization of the transversal and longitudinal road net- work (national corridors) that com- municates the country’s main cities, ports, borders and tourist centers with high-specification highways.2. Build inter-regional roads to improve communication among regions and improve connectivity of the highway network.3. Place special emphasis on the con- struction of bypasses and access roads to facilitate the continuous flow of vehicles.4. Improve the condition of all highway infrastructures and reduce the acci- dent rate. Banobras is the Mexican National De-velopment Bank in charge of financinginfrastructure, acting both as a develop-ment bank and as a Trustee of the Nation-al Infrastructure Fund (NIF). As a development bank, it providesclients such as municipalities with limitedpotential leverage capability, to pack theirinfrastructure projects in order to create abankable standard vehicle that eases loanrequirements. On the other hand, its project financehelps to reduce the risk on the first stages(with less cash flow) by offering financialguarantees and loan syndications, there-fore lowering equity requirements andpublic resources. As a trustee of the NIF, it promotesprivate partnership by supporting projectswith limited financial profitability andowning non-desired investor’s risks. To sum up, Mexico will guaranteemacroeconomic stability and financialmarkets development to proceed with theinfrastructure agenda, funding all projectsthrough Banobras and the NIF, thoughinternational investment is possible for
  26. 26. 26 Latin Infrastructure Quarterly PoliticsMexico has taken a decisive step in improvingits road network, which is vital for interconnect-ing the country’s vast territory of nearly 2 mil-lion square kilometers.