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Latin Infrastructure Quarterly Issue 5 Latin Infrastructure Quarterly Issue 5 Document Transcript

  • XXXXXX XXXXX Latin Latin Infrastructure Quarterly 1 Infrastructure QuarterlyInfrastructure in Colombia:a multi-sector analysisRead from professionals at Darby Private Equity, Agencia Nacional deInfraestructura, Banca de Inversión Bancolombia, Ashmore ManagementCompany, Acciona Infraestructuras, Durán & Osorio Abogados, Inter-AmericanDevelopment Bank, and the Canada-Colombia Chamber of Commerce. Infrastructure The North REAL & American view: Infrastructure security EDC & OPIC Partners
  • 2 Latin Infrastructure Quarterly XXXXXX XXXXX
  • Latin Infrastructure Quarterly 3 ContributorsTo Our Readers: Andrade Moreno, Luis Fernando Agencia Nacional de InfraestructuraWelcome to the 5th Issue of Cardyn, Jean Export Development CanadaLatin Infrastructure Quarterly. Castellanos, Jorge I Darby Private Equity would like to begin this letter by pointing out that it has been one year since the release of the first Issue of Latin Infrastructure Quarterly. It has been a very in- García, Juan teresting journey so far. Thank you to everyone that helps out in this endeavor: Critical Infrastructure Consultant Nate Suppaiah, Arman Srsa, Tiffany Joy Swenson, and Lakshmi Narayanan.Thank you as well to all of our contributors and media partners. Giménez Mathus, Agustín FGM LawyersThis Issue covers primarily infrastructure finance and development in Colombia. Girardotti, Federico We have contacted and interviewed infrastructure practitioners from different sec- Faros Infrastructure Partnerstors and put together a comprehensive report of one of the most active infrastructuremarkets in the region. Harwood, Timothy Overseas Private Investment CorporationThis Issue also contains an article that links infrastructure and physical securitywhich is a topic that I have been meaning to cover for a while. We finally found an Kristin, Dacey expert on the field that offered some analysis. We hope to keep bringing you analysis Inter-American Development Bankon this highly important matter. You will also find an interview to a VP of Export Llamosas, Cecilia Development Canada and an article by professionals of the Overseas Private Invest- Vouga & Olmedo Abogadosment Corporation. López, Susana There are a number of other great articles inside for you to enjoy. REAL Infrastructure PartnersLastly, I would like to point out that I have been invited to speak about PPP project Marcus, Sara implementation in Latin America at the Second International Conference “Speed Overseas Private Investment CorporationuPPP Ukraine” which will be held in Kiev on April 11 and 12 of next year. It is com- Mendes, André mendable how the sponsors of this international conference are eager to learn about BNDESthe experience of other regions of the world such as Latin America, Western Europe,Asia, and North America. Ruiz-Mier Fernando International Finance CorporationPlease do not hesitate to contact me at patricio@liquarterly.com with feedback onthis Issue, questions, topics you would like to read about, events you would like to Sáez Martínez, José Damián promote, and practitioners, companies or projects you would like see featured. AccionaBest regards, Sanchez Garcia, Carlos Durán & Osorio Abogados Serani, Jean Pierre Banca de Inversión Bancolombia Soto Franky, Camilo ValfinanzasPatricio Abal. Trevino, Andrés Canada-Colombia Chamber of Commerce Villaveces, Camilo Ashmore Management Company (Colombia) Vouga, Rodolfo Vouga & Olmedo Abogados Wilson, Josh Staff Writer
  • 4 Latin Infrastructure Quarterly Sponsors
  • Contents 5 ContentsIssue Focus: Infrastructure in Colombia:a multi-sector analysisColombia: Infrastructure and Investment.............................................................6Colombia’s mastermind of infrastructure development.......................................10The role of investment banks in Colombian infrastructure development............14The view from Canada........................................................................................18Colombia: Insights on social infrastructure development...................................22Public Private Partnerships: A New Concept for the Colombian Law.................26Infrastructure and private equity in Colombia.....................................................31Acciona Infraestructuras Colombia....................................................................34Ashmore Colombia Infrastructure Fund.............................................................37SectorsAn Optimistic Outlook For Infrastructure, Transport And Logistics Services InParaguay..............................................................................................................41Social Responsibility and Infrastructure Development.......................................44Bringing projects to market: the view from a private sector advisor andinvestor.................................................................................................................46Real Infrastructure Capital Partners ...................................................................48The Overseas Private Investment Corporation and LatAm..................................52EDC - Canada’s export credit agency.................................................................54Choosing the Right Security Provider.................................................................59The New Renewable Energy Regulatory Framework of El Salvador.................62Local Content in the Brazilian O&G sector.........................................................66
  • 6 Latin Infrastructure Quarterly InstitutionsColombia:Infrastructureand Investment Josh Wilson, Staff WriterC olombia, the third most-pop- ulated country in Latin Amer- Colombia has appeared many times in previous issues of ica and the second amongst Latin Infrastructure Quarterly, most notably in the second Spanish-speaking countries and third editions, featuring the Colombian Infrastruc-throughout the world, is on path towardbecoming one of the region’s most friend- ture Chamber and the new Colombian Public-Privately destinations for foreign direct invest- Partnership Law, respectively. The current issue revisitsment. At the same time, the emerging na-tion is at a competitive disadvantage with this emerging global player with a series of new takes onrespect to its Andean neighbors due to a Colombian infrastructure development. This article takessignificant lack of adequate roads, high- aim at the current investment climate generally, focusingways, railroads, and quality ports. Thus,in Colombia, infrastructure presents both in particular on foreign direct investment.an obstacle and a real opportunity. Colombia cannot capitalize on its im- a significant infrastructure deficiency. funded, in part, through concession con-mense potential without addressing its The remedy may be simple – foreign di- tracts that will intimately involve the pri-infrastructure problem. The United States rect investment. vate sector. But concessions are only theCommercial service estimates that logis- The Colombian government seems to beginning of the story, as this edition oftical operation costs account for nearly agree. In 2011, it created the Colombian LIQ will illustrate.18 percent of the total cost of each Co- Infrastructure Agency (ANI) under thelombian business. The country’s infra- Ministry of Transportation to usher in a Foreign Direct Investment.structure ranked 85th out of 142 countries new era of infrastructure development.in the World Economic Forum’s Global By 2014, the government plans to employ Recent endorsement of FDI is not a newCompetitiveness Report 2011-2012. The more than USD 15 billion in investments phenomenon. The Colombian governmentquality of roads, railroad, port, and air on infrastructure projects and grant USD has shown a commitment to economictransport infrastructure, ranked 108th, 26 billion in concessions for highways liberalization since the 1990s, earning99th, 109th, and 94th, respectively. Ac- and railroads, according to GlobalTrade. the country a reputation as a stable andcording to that report, “inadequate sup- net. For example, plans are underway to market-friendly investment destination.ply of infrastructure” is the second most construct highways that will connect the It has signed various International Invest-problematic factor for doing business in major cities (Bogotá, Medellin, Cali, Bar- ment Agreements and ratified a number ofColombia, behind only corruption. The ranquilla) to ports on both the Atlantic Free Trade Agreements. In the years sinceproblem is clear – Colombia suffers from and Pacific Ocean. These projects will be 2002, the trend has gathered momentum,
  • Institutions Latin Infrastructure Quarterly 7resulting in an “investment grade” rating economy is positive. GPD per capita last year, all indications are that the over-by all three major credit rating agencies: nearly tripled in the years from 2000 to all business climate will continue to growStandard and Poor’s, Moody’s and Fitch. 2011, while inflation over the same pe- and improve steadily.Colombia’s FDI achievement in 2011 riod was reduced by two-thirds. The Eco- Political violence is on the decline asprovides evidence of such momentum, nomic In- tel- the government has made security a prior-as the country bounced back in the wake ity. Membership in illegal armed groups,of the global economic crisis by setting a such as the Revolutionary Armedhistoric total of over USD 13 billion Forces of Colombia (FARC),for the year. has steadily decreased. The The petroleum (“oil”) sec- International Institutetor is the largest recipient for Management De-of foreign direct invest- velopment (IMD)ment in Colombia. In ranks Colombia2011, by the Colom- second in Latinbian Central Bank’s America in per-numbers, FDI in sonal securitythe oil sector rep- and adequateresented nearly protection39 percent of all of privateFDI. The min- p r o p e r t y,ing sector came behind onlyin second at just Chile. Oneover 19 percent. can expectThese relative Colombiaproportions have to remainremained fairly secure andconsistent over the political vio-last decade. But oil lence to con-and mining are not tinue to decline.the only sectors to re- However, toceive FDI. Other notable date, the Colom-sectors include commerce bian government hasand hospitality (16%), and failed to adequately ad-transportation and communica- dress drug-trafficking andtion (13%), along with the sectors the organized crime that ac-who received much less – manufactur- companies the trade.ing, utilities, financial, construction and The potential investor should be awareagribusiness. The countries that have of the challenges presented by corruption.contributed most to Colombia’s FDI in- ligence Unit reports 5.9 According to the World Economic Forum’sflows from 2000-2011 were the United percent GDP growth in 2011. However, Global Competitiveness Index (2011-12),States, England, Spain, and Canada. the same group projects 4.3% average corruption is the most problematic factor GDP growth in years 2012-20 and 3.1% for doing business in Colombia. Transpar-Outlook and Risks. in 2021-30. While this means that the Co- ency International ranked Colombia 80th lombian economy would not continue to out of 183 countries in its Corruption Per-The general outlook for the Colombian see the same robust growth it experienced ceptions Index 2011. Foreign Direct Investment US$ Million 1990 1995 2000 2005 2011 Colombia 500 968 2,436 10,252 13,234 Brazil 989 4,859 32,779 15,066 66,660 Chile 661 2,957 4,860 6,984 -- Peru 41 2,557 810 2,579 -- Source: World Bank
  • 8 Latin Infrastructure Quarterly Institutions FDI Sector Comparison US$ Million 2006 2007 2008 2009 2010 2011 Total FDI 6,656 9,049 10,596 7,137 6,746 13,297 Oil Sector 1,995 3,333 3,405 2,428 2,781 5,125 Non-Oil Sec- 4,661 5,716 7,192 4,709 3,965 8,173 tor (Subtotal)Source: Central Bank of Colombia (Banco de la República de Colombia)* Note: There are minor discrepancies between the FDI data provided by the Central Bank and those provided by World Bank, as seen above. As with other problems, the govern- ry, often find themselves at odds with one Legal Framework.ment has attempted to address the cor- another. While the current administrationruption issue. President Santos signed the seeks to reform the judicial system, any The Colombian legal framework providesAnti-Corruption Statute into law last year meaningful efforts have been thwarted. a number of protections and incentives forwhich aims to shore up many transpar- The state of the judiciary presents foreign investment. It is guided by a prin-ency and accountability dilemmas. particular difficulties for the investor ciple of equal treatment and universality, Judicial deficiencies also present cause when resolving commercial disputes, meaning that the law imposes neither dis-for concern. Courts are underfunded and for example, when seeking to enforce a criminatory nor favorable conditions oninefficient. Civil trials can be delayed for contract. Colombia ranks 149 out of 183 foreign investors, and with a few excep-years. The Constitutional Court has con- economies for the ease of that process, tions, permits investment in all sectors ofsiderable discretionary authority to rule according to The World Bank Interna- the economy. Essentially, foreign invest-on the actions of the executive. The Su- tional Finance Corporation economy ment is permitted in all sectors except de-preme Court and Constitutional Court, profile on Colombia, Doing Business fense and national security and disposalroughly coequal branches of the judicia- 2012. of toxic waste. Only investment in mining
  • Institutions Latin Infrastructure Quarterly 9and hydrocarbons, and the insurance offinancial sectors, requires prior authoriza-tion by the Colombian government. Butin all sectors, FDI will invite some restric-tions particular to the investment activity,any number of which are too lengthy toadequately address here. The primary foreign investment pro-tections available are provided by legalstability contracts, international invest-ment agreements, double taxation agree-ments, and various free trade agreements.By 2014, thegovernmentplans to employmore than USD15 billion ininvestments oninfrastructureprojects andgrant USD26 billion in investment. In return, the laws applicable year, 91 different FTZs account for USDconcessions for to the investment will remain in effect for a period of three to 20 years, based on the 6 billion in investments and have created 43,355 Colombian jobs. type and amount of the investment. In summary, the Colombian govern-highways and Incentive schemes also make up a key ment welcomes investment and has taken part of the Colombian legal framework clear steps toward fostering a market-railroads. for business. The “free trade zone (FTZ)” is a mechanism provided by the Colom- friendly investment climate. The state of infrastructure in the country is such bian government to stimulate investment that it seems the next logical destination and domestic job production. These are for significant foreign direct investment. specific geographic areas that enjoy a spe- However, certain risks may continue to “Legal stability contracts” are offered cial tax and customs regime. Benefits of restrain Colombia’s ability to grow andto guarantee that the laws under which an the FTZ include, but are not limited to, a compete.investment is entered into will remain in 15 percent corporate profit tax and simpli- At the price of sacrificing much detail,effect over the life of the investment. In fied customs procedures. Among the vari- this article has attempted to cut a broadorder to receive a legal stability contract, ous requirements to qualify for a FTZ, an swath of the current state of the Colom-the minimum value of the investment investment project must meet a specified bian economy as it relates to investment.must reach USD 1.2 million and the in- minimum investment and create a mini- For more information, please refer to thevestor must pay a fee, determined by the mum number of domestic jobs. As of last articles that follow.
  • 10 Latin Infrastructure Quarterly InstitutionsThe Agencia Nacional de Infraestructura: 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 Colombia’s goals are ambitious and the financial and human resources needed to achieve them are great. The strategic plan calls for pri- vate sector resources to complement the public sector. In what ways does the ANI interact with the private sector? mastermind Some of the goals are that ANI is structur- ing 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 of 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 rec- ognized as an investor friendly environ- ment. For example, Colombia is ranked infrastructure 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 ap- plying the concession model. We have development been structuring concessions for transpor- tation 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 ar- bitration system to resolve conflicts that ensures objective and timely decisions. In Colombia there are two entities LIQ talks to 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 Luis Fernando the department or the major of the city at stake). Something that caught my attention is that the ANI expects to move forward Andrade Moreno, with “structuring a new generation of concessions under a lessons learned framework” (… estructuración de una nueva generación de concesiones bajo President un marco de lecciones aprendidas… página 10 del Plan Estratégico), what are the lessons learned?
  • Institutions Latin Infrastructure Quarterly 11 The lesson learned here is thatIn the past, most of the risk was assumedby the government as well as the financ-ing of the project. The government had asystem of paying in advance through “an-ticipated payments” to the private conces- the government can find a solidsionaire and with time there were somecases when the private would declare private investor and partner whoitself “without liquidity to continue theproject” so the government would end upfinancing the private sector and the proj- commits to build, finance andects would take more time to be finishedor not finished at all. The lesson learned operate the road or project athere is that the government can find asolid private investor and partner whocommits to build, finance and operate the stake and only after the projectroad or project at stake and only after theproject is operating does the government is operating does the governmentrecognize and starts paying off the privateinvestor through a system of infrastruc- recognize and starts paying offture bonds* that can be negotiated in thecapital markets. (*these bonds are beingdeveloped with the Ministry of Finance the private investor.together with ANI).How does the recently enacted PPP law The new PPP law also has a new in- • Incentives to private initiatives (un-favor the channeling of private sector centive for the private sector to present solicited proposals) for projects thatfinancial and human resources for the private construction initiatives (under do not require government funding.modernization, construction, operation the scheme Build, Operate, Mainte- • Introduction of a Pre-qualificationand maintenance of infrastructure assets? nance and Transfer) for those projects phase to limit the number of competi- that can be fully financed by a private tors to those most qualified during theThe PPP law 1508/2012 and its decree proponent and do not require public bidding process.1467/2012 introduced a number of ben- funds. These can be presented to the • Introduction of service levels as cri-efits that promote the participation of in- ANI as “private initiatives” and the teria to recognize payment for the in-frastructure funds for institutions whose initial private proponent will have the frastructure.investment had been relatively low in right to improve the offer in case that • Clarifications of regulations govern-concessions. throughout the selection process it ing additions to contracts, including The former law had two actors: the doesn´t win. With these private initia- a limit of 20% during the life of theGovernment and the Engineering Com- tives, the ANI is aiming to cover the contract.panies, the new PPP law includes a third most beneficial and innovative propos-actor in a protagonist role which is the als from the private sector. Within the ANI, there is a Vice-Presi-investors such as infrastructure funds and The most important features of the dency (Vicepresidencia de Planeación,pension funds. new PPP law are the following: Riesgo y Entorno) responsible for de- veloping pre-feasibility studies andIn terms of laws and regulations administering, evaluating and identify- ing risks of PPP projects. What sort of risk transfer are you planning for yourthat protect investors, Colombia PPPs? Given that much of the program is focused on economic infrastructure, do you plan to transfer volume/demandis widely recognized as an investor risk to the private sector?friendly environment. The general criteria for risk transfer will be that risk should be borne by the party who is in the best position to manage it. Accordingly, construction and availabil-
  • 12 Latin Infrastructure Quarterly Institutionsity risks will be transferred to the conces- Can you comment on the Fondo Finan- ects and support their preparation phase.sionaire, except in complex works, such ciero de Proyectos de Desarrollo (“Fon- Now we have two other funds such as theas long tunnels. ade”) as it seems to be one of the main Calamity Fund and the Adaptation Fund The Volume/Demand risk was mostly sources of financing for road projects? - recently created especially for projectsabsorbed by the government in the last related to recovering damaged transpor-road PPPs - Ruta del Sol and Transversal Fonade stands for Financial Projects´ tation infrastructure due to the strongde Las Americas. The government agreed Development Fund and it is an industrial winter season of the past two years.to pay the shortfall, if any, relative to the - commercial financing company of the These three funds cover the whole nation-initial revenue projections, at the end of state attached to the National Planning al territory through their lines of servicesthe contract. The Concessionaires took the Department. It was the only state com- which include project management, in-risk of the revenue distribution over time. pany with judicial, technical and financial vestment banking and project structuring,We will rely on the advice of our invest- faculties to negotiate development proj- formulation and evaluation.ment bankers as to whether we maintainthis scheme in the new concessions.The new PPPlaw also has anew incentivefor the privatesector topresent privateconstructioninitiatives forthose projectsthat can befully financedby a privateproponent anddo not requirepublic funds. Regarding “Force Majeure”, the gov-ernment will retain only those risks thatcannot be insured in the markets. Pareira, Colombia
  • Institutions Latin Infrastructure Quarterly 13How is your pipeline of projects fed?The projects are prioritized in the Nation-al Development Plan (for a Presidentialterm – 4 years) and this Plan is constantlydesigned by all the planning offices of theministries involved in each sector togeth-er with the National Planning Department(DNP). After the President of the Republictakes office and the national budget is de-termined for each year, those projects thatneed to be financed through Public Pri-vate Partnerships are sent to be structuredby the ANI. The ANI is also in charge of all thetransportation sector concessions that areabout to revert to the state, we structurethem to put out to bid for another termor if it is the case we analyze whether anextension may be granted to the currentConcessionaire.Can you comment on particular proj-ects in the port and airports sectorscurrently under study or being ten-dered?We grant concessions to bidders who re-quest the least financial assistance fromthe federal government to build, operate,and maintain new highways, ports, air-ports and railways. We also use ProjectFinance Initiatives with which the gov-ernment grants a concession to a privatecompany to design, finance, build, main-tain, and operate a road, port or airportagain awarding it to the bidder who re-quests the least amount of federal fund-ing, and the government pays them anamount that includes the amortization ofthe investment plus the amount necessaryfor the maintenance of the road. With respect to airports the conces- Luis Fernando Andrade Moreno, is the President of the National Infra-sions were formerly under the Aeronáu- structure Agency for Colombia (Agencia Nacional de Infraestructura)tica Civil but with the new PPP law they since August of 2011, appointed by President Juan Manuel Santos, afterare in the process of passing to the ANI. having presided successfully the consultancy Mckinsey & Company Colombia, the most important of the country, for almost 17 years. In that period, Mr Andrade advised the reorganization of the most im- portant companies in the country. He has also been partner of Mck- insey & Company in Sao Paulo, Brazil, and associate consultant for the same firm in New York. His career includes also an opinion column on management and business reorganization for the magazine Dinero, the most important of Colombia on the issues of finance and business. He is an industrial engineer from the University of Florida, with an MBA from Wharton School of the University of Pennsylvania.
  • 14 Latin Infrastructure Quarterly Infrastructure FinancingWhat’s your job as Vice-President of At Bancolombia´s investment bank- How do you see the MILA benefitingOrigination at Banca de Inversión ing division, over the years we have infrastructure financing? Is your BankBancolombia? developed the expertise to advice, act looking at infrastructure projects in as lead arrangers and bookrunners on a Peru or Chile?I lead the origination team in charge of great amount of financing deals on in-getting mandates for M&A, Project, Cor- frastructure. We have the largest team We believe that there is going to be aporate and Acquisition Finance, and Cap- in Colombia with the sophistication and positive impact on the mid-term. The par-ital Markets. The Bancolombia´s invest- technical knowledge to undertake any ticipation of the capital markets is criticalment bank division has a regional reach, infrastructure deal. Also, having the bal- because given the number of new projectscovering deals in Colombia, Peru, Central ance support from Bancolombia, which is needed to improve our infrastructure, theAmerica and the Caribbean. Colombia´s largest bank, gives us and our amount of funding they require and the clients the certainty that we can deliver. tenors of the loans, local and regionalCan you give us your opinion on the The reasons we see as competitive banks will have to work together with in-state of infrastructure investment in advantages over large international stitutional investors to find ways to allocateColombia? banks are: being close to our clients, capital more efficiently. Having the MILA, understanding their needs and the lo- with a more liquidity and a larger inves-Colombia needs desperately to improve cal environment, flexibility and speed tor base will definitively be very importantits infrastructure if it wants to be com- to execution (being able to reach finan- once the appropriate debt instruments arepetitive in globalized economy. The most cial closing before). However, given the developed (in the case of Colombia).The role of investmentbanks in Colombianinfrastructure Managing Director at the LIQ talks to Jean Pierre Serani,development Investment Banking Division of Bancolombia.critical problem is in our national and re- size of some of the infrastructure deals What is your opinion on the publicgional roads and public transportation on in Latin America, sometimes we need to sector agencies/ministries in charge ofthe main cities. But we also need large partner with some international banks, bringing to market infrastructure proj-investments on ports and airports. The with which we have developed a close ects? What things are they doing wellcountry needs to undertake large invest- relationship. and what things can be improved?ments if we aim to catch up with othercountries on the region such as Mexicoand Chile. The reasons we see as competitive The amount of work financing infra-structure development Banca de Inver- advantages over large internationalsión Bancolombia has done over the yearsis impressive, why would project spon-sors choose a domestic investment bank banks are: being close to our clients,over a major regional or internationalone? Please describe your competition in understanding their needs and the localthe fields of corporate finance and capitalmarkets. environment, flexibility and speed to The fields in which we are focusedare project finance, acquisition finance, execution.restructuring, M&A, private equity andcapital markets.
  • Infrastructure Financing Latin Infrastructure Quarterly 15The participationof the capitalmarkets is criticalbecause given thenumber of newprojects neededto improve ourinfrastructure, theamount of fundingthey require andthe tenors of theloans, local andregional bankswill have to worktogether withinstitutionalinvestors to findways to allocatecapital moreefficiently. Medellin, ColombiaThe current government has been very ity (budget, people); and to promote the to adopt international project financekeen in understanding how the infra- development of a legal framework to ex- standards for local deals. This is a pro-structure contracting could be improved pedite the acquisition of the required land cess in which we are converging progres-and we expect to see the results on the rights needed to develop the projects. sively. With this, we expect to have in thenext generation of concessions that are near future some kind of standardizationplanned to be awarded on 2013. Over the last five years, Banca de In- on terms and documentation. The first step to improvement has to be versión Bancolombia has structured In Colombia, international banks aretaken by the government agencies (ANI) various syndicated loan transactions to very active in deals that involve sectorsto develop contract terms that fit inter- finance infrastructure companies, were that get income denominated in US dol-national standards on both technical and there common characteristics in those lars (ports, airports, energy). Projects infinancial requirements for sponsor and loans and were there foreign lenders toll roads or public transportation havecontractors. Also the government needs to participating? peso denominated income, so its financ-focus on two other issues: strengthen the ing is mostly provided by local banks orother agencies like the ANLA (in charge All deals have been tailor made, so mak- international banks with a local opera-of awarding environmental licenses) in ing comparisons is difficult. I could say tion).order to add them more execution capac- that in the last years there has been a trend Banca de Inversión Bancolombia has
  • 16 Latin Infrastructure Quarterly Infrastructure FinancingIn Colombia, international banks are veryactive in deals that involve sectors that getincome denominated in US dollars (ports,airports, energy).also invested its own capital in operators other members of the consortium, con- tion that has allocated a good portion ofof infrastructure assets, what are the main cession agreement, granting authority’s its portfolio (of close to USD300 million)elements of an infrastructure asset opera- rights and obligations, permits, project’s in infrastructure assets. Being a finan-tor that you consider when evaluating an main risk management provisions when it cial investor the most important elementinvestment? (for example: sponsor’s op- comes to construction and operation). besides the attractiveness of the asset iserating expertise and equity commitment, We have a merchant banking opera- to find the right partner (usually an in- frastructure manager or a construction company). This partner should provide the expertise as a sponsor and construc- tion manager, and also it needs to share the same values and philosophy towards managing the asset, even though the roles and expectations are usually different. Let’s now turn to the capital markets and discuss the interest from insti- tutional investors for bonds of infra- structure related issuers, what were the recent issuances in which you partici- pated? So far, in Colombia there have not been local project bonds. Most of the experi- ence comes from some foreign issuances to fund greenfield energy assets (thermal power plants) or local issuances from operating projects or infrastructure com- panies. Currently, in Colombia, the gov- ernment is on the process of developing a new asset class to finance infrastructure. This process is on early stage, and we expect to have the final instrument (with the input from all the parts: institutional investors, banks, sponsors and govern- ment) next year, when the new generation of concessions are to be awarded. In those deals, were the institutional investors buying those bonds primarily domestic or is there interest from inter- national investors as well? Since the government is improving bothVilla de Leiva, Boyaca, Colombia the terms and requirements to award the
  • Infrastructure Financing Latin Infrastructure Quarterly 17next generation of concessions, and de-veloping a new asset class to finance in- Jean Pierre Serani is a Managing Di-frastructure, we hope that we will have rector at the Investment Banking Di-the right framework to attract local and vision of Bancolombia since Augustinternational institutional investors. 2011. In this position he is in charge of leading the origination team forWhat do institutional investors look for M&A, Project, Corporate and Acqui-in those bonds? (for example: rating, sition Finance, and Capital Markets.currency, interest rate, security pack- The Investment bank has a regionalage, applicable law, market in which reach, covering deals in Colombia,the bonds are traded, particular cov- Peru, Central America and the Carib-enants) bean. Before becoming a Managing Director, Mr. Serani was a Director ofDuring our conversations with local in- Corporate Finance, Senior Associ-stitutional investors about the character- ate and Associate at the Investmentistics of the new instrument that the gov- Banking Division of Bancolombia.ernment is designing, the main concern Prior to joining Bancolombia, Mr.is how to address construction risk and Serani worked as a portfolio man-availability payments from the govern- ager in charge of Corfinsura´s Co-ment. There is still a long way of discus- lombian Treasury Bonds portfoliosions, but we believe that instrument will of over $200 million (Corfinsura wasneed to incorporate credit enhancements Colombia´s main Investment Banksuch as the ones provided by monoliners, and it was acquired by Bancolombia in 2004).multilaterals or a government agency in Mr. Serani received his undergraduate degree in Business from Universi-order to mitigate these risks. dad EAFIT and his MBA degree from Georgia Institute of Technology.
  • 18 Latin Infrastructure Quarterly Institutions What would you tell an investor whose Colombia has the potential to be oneThe view from Canada views are built based on the bad news that came from Colombia all through the 80’s and 90’s? Is Colombia 2012 a of Latin America’s great success stories. Investors have to start seeing us like an emerging power with a diversified econ- safe place to invest? omy, with a growing middle class and a strong democratic government. The media continues to portray the ste- To conclude, I would tell an investor reotype and fails to present the true pic- what executives of foreign companies ture of what really takes place in Colom- with operations in Colombia have told bia today. During the 1980s and 1990s me: go, visit the country and see yourself Colombia was known for its drug cartels that now is the time to invest in Colombia. and the guerrilla conflict and it is true that many investors still continue to have this Please tell us more about the Canada- Trivino, President of the Canada-Colombia image in their heads. Colombia Chamber of Commerce. What some investors have not realized What are its goals? is that Colombia has been changing; now the country is recognized by experts as The Canada Colombia Chamber of Com- one of the world’s most dynamic econo- merce is an independent non-profit orga- Adrián Barrios of PwC talks to Andrés mies, with a robust democracy, healthy nization established here in Canada with institutions, social progress and full re- spect for the rule of law. The serious security problems we suf- fered are a thing of the past and now Bo- Now the country gota is considered safer than Washington. Colombia’s has grown at a rapid pace and is recognized by its current economic environment ranks as one the best countries for investment and is experts as one among the region’s best performers. Historically, economic stability has been Colombia’s differentiating advan- of the world’s tage when compared with other countries in Latin America. Inflation has been held most dynamic within single digits (2.3% in 2010), we economies, with a Chamber of Commerce 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 robust democracy, was primarily originated by the expansion of the oil and gas industry in the country. healthy It is important to note that this growth will only be sustainable if Colombia builds the institutions, social network of highways, railroads, airports and ports necessary to support the new activity. As a result, infrastructure will be progress and full one of the most important drivers to take Colombia to the next level. respect for the The World Bank recognizes Colombia as one of the most business friendly envi- rule of law. ronments in Latin America. Colombia has made important progress evolving its reg- ulation meant to incent both foreign and domestic investment. Today, the country ranks first in Latin America in terms of the purpose of fostering business rela- investor protection and fifth in the world. tions between the Canadian and Colom- All three rating agencies have upgraded bian business communities. the country to investment grade. Our main goal is to promote and facili-
  • Institutions Latin Infrastructure Quarterly 19tate investment and trade for and between Our top priority at this point is to pro- (ANI), responsible for packaging andmembers and support communication mote Colombian infrastructure projects to promoting infrastructure projects to thewith industry and government organiza- the Canadian business community. We in- private sector. This seminar will be antions. Our objective is also to support so- troduce investors interested in our coun- opportunity to hear firsthand the oppor-cial progress through programs aimed at try and assist them in obtaining appro- tunities for private sector participation inhelping Colombians in need. We pursue priate information; making contact with the Colombian government’s ambitionsour objectives by developing and enhanc- government officials and local partners. infrastructure plan. During that week theing contacts, and making their voices We do this either directly or through Co- ANI will also be meeting with key Ca-heard through our events and publica- lombia’s foreign investment promotion nadian investors, hedge funds, pensiontions. agency Proexport. We also work closely funds, infrastructure companies, engineer Our events have brought together de- with the Department of Foreign Affairs companies, construction firms and ser-cision makers, high-level representatives and International Trade Canada. vices providers interested in learning infrom business, government and academia. We actively host and participate in more detail about the recently launchedWe also organize international missions, various Infrastructure events and trade 4th generation highway PPP projects andwhich are the ultimate vehicle to achieve missions in Canada and Colombia. We prequalification procedures, as well as theresults. are hosting an exclusive event in To- standardized PPP and infrastructure bond Our chamber keeps close ties with key ronto on November 28th with the newly term sheets.stakeholders, primarily in Mining, Oil created National Infrastructure Agencyand Gas, and Infrastructure. We have alsoOur toppriority atthis point isto promoteColombianinfrastructureprojects tothe Canadianbusinesscommunity.developed some connections with large-scale finance and project management,engineering, professional services andsustainable construction.
  • 20 Latin Infrastructure Quarterly Institutions Are there international companies pro-The government’s plan involves viding infrastructure services in Co- lombia? Which countries are currentlynew inter-departmental represented? Various international private equity firmshighways, ports and airports have focused on Colombian infrastruc- ture and opened operations in Bogota. Brookfield is a good example as it has putas the primary element in the together a $400M million infrastructure fund. By the way, this is the largest pri-quest to make Colombia more vate equity and infrastructure fund ever raised in Colombia. Other internationalcompetitive. private equity funds active in Colombia are Ashmore, SEAF, Darby and the Swiss Investment Firm for Emerging Markets “SWIFEM”. We are also helping the Department of SNC-Lavalin, Nexen, Scotiabank, Petro- In 2011 SNC-Lavalin acquired Itansuca,Foreign Affairs and International Trade bank, Air Canada, Continental Gold, Bata a Colombian engineering firm focused on(DFAIT) to promote the Infrastructure Footwear, Kruger Paper, Enbridge, Presi- the energy sector. Odebrecht, form Brazil,trade mission to Colombia, Peru and Pan- dents Choice, McCain Foods, LaSalle is currently working on the construction andama with primary focus on energy, trans- College, and Mcleod Dixon. concession of the second sector of “Ruta delportation and water. The mission will take Canada’s FDI to Colombia is focused Sol”, a road that will effectively run fromplace on November 11-16. primarily on the extractive sectors. Co- Bogotá to the Caribbean coast. Other im- If you are interested in knowing more lombia’s mining and energy sectors re- portant Infrastructure and Constructionabout our chamber, events, trade missions, ceived about $12 billion in FDI in 2011, firms are Acciona from Spain, currentlyservices and how to become a member making it the largest FDI recipient coun- working on water sanitation and CamargoI encourage you to visit our website at try in Latin America as a proportion to its Correa, another Brazilian company also set-www.canadacolombiachamber.org. gross domestic product. ting sights on our country. As well, many Colombian extractiveWhat are the main Canadian compa- companies are listed in Canadian Stock Please tell us about infrastructure op-nies (e.g. mining) that currently invest exchange. By the end of April, there were portunities in Colombia. What are thein the region? five dual listings between Toronto Stock current priorities for the Government? Exchange and Bolsa de Valores de Co-Colombia’s strengthening economy, has lombia. There were 19 companies listed During the past two decades Colombiahelped create ideal conditions for high and on Toronto Stock Exchange and 43 com- failed to invest in Infrastructure, to thesustained growth, becoming a strategic panies listed on TSX Venture Exchange extent that investment in this sector ac-destination for Canadian companies, espe- with operations in Colombia. counted for only one per cent of GDP,cially in oil & gas, mining, manufacturing Canadian companies are also invest- which is much lower than the three perand financial services. ing significantly in other sectors such as cent that is touted as the right percentage Many Canadian companies are current- financial agricultural, pulp and paper, for developing countries. This said, is evi-ly active in Colombia such is the case of printing, shoe manufacturing, plastics, dent that there are plenty of opportunitiesTalisman Energy, Pacific Rubiales, Petro- education and forestry. in this sector.minerales, Brookfield Asset Management, Looking into where investment is likely to go, it is relevant to remember that in-It is relevant to remember that frastructure is one of the 5 key sectors for economic growth identified by President Santos’ strategy. The other four are hous-infrastructure is one of the 5 ing, mining and energy, agriculture and in- novation.key sectors for economic growth Improving the country’s weak trans- portation infrastructure is the governmentsidentified by President Santos’ top priority as the country enters into a new phase of international trade which de-strategy. mands more capacity. With 11 free trade agreements in effect, it is obvious that demand for better infrastructure is on the
  • Institutions Latin Infrastructure Quarterly 21 process. This is meant to create confi- dence and transparency for private-sector involvement. Currently ANI is working together with the Colombian ministry of Finance creating a new bond instrument that will increase the market’s liquidity. Us- ing these bonds pension funds will have access to investment in infrastructure projects. Andres Trivino is the President of the Canada-Colombia Cham- ber of Commerce in Canada with a primary role of offering an independent voice to pro- mote investment and trade be- tween the two Countries. With more than 15 years of profes- sional experience he worked for PwC Canada advising corpora- tions in Canada, Colombia, Bra- zil, Mexico, Venezuela, Cuba and Dominican Republic. As part of the PwC Latin American Re- structuring Group and the Deals and Consulting Group; he ad- vised companies in Corporate Finance, Corporate Restructur- ing, Mergers and Acquisitions, financial modelling and busi- ness valuations. His experience comprises the mining, energy, financial services, telecom, en-Cartagena, Colombia tertainment, and infrastructure sectors. Andres can be reachedrise. The government has also set out four significant additional support of approxi- at atrivino@canadacolombia-main directions for strategic planning in mately 30% of total investment from the chamber.orgterms of infrastructure projects: (1) sup- private sector through PPP to procure in-port for internationalization, and “eco- frastructure and private investment. Bynomic locomotive” sectors; (2) regional 2014, the government expects to investconnectivity; (3) adaptations for climate US$17bn to complete the four-lane roadchange; and (4) urban mobility. network and 50 per cent of railways. Foreign investors from Canada and Opportunities exist for roads, railways,elsewhere are expected to play a sig- airports, water sanitation and power,nificant role in upgrading Colombia’s among others. Colombia’s expanding oiloutdated infrastructure, to support the and gas industry has created the need forincreasing output from mines, oil wells, new pipelines to transport the crude andagribusinesses and other investments sub-products to the ports. The government’s plan involves new I think it is relevant to say that ourinter-departmental highways, ports and infrastructure sector is going through aairports as the primary element in the transition period, founded on the creationquest to make Colombia more competi- of the National Infrastructure Agencytive. Colombia is expected to invest ap- (ANI), and the enactment of the Public–proximately $55 billion in infrastructure Private Association Law, and the changesover the next 10 years, which accounts for in the rules for the infrastructure auction
  • 22 Latin Infrastructure Quarterly Infrastructure Financing Can you briefly describe the IDB’s portfolio of social infrastructure proj- ects in Colombia? Which are the main ones? T he IDB covers social infra-Colombia: structure projects in all of Latin America and the Caribbean in both public and private sector sides.  On the private sector side, we sup- port health and education infrastructure including the construction or expansion of hospitals, clinics, schools, universi- infrastructure ties, and daycare centers.  One example is the Centro Médico Puerta de Hierro in Mexico.  IDB provided 12-year financ- ing to help the company build two new hospitals, 40 beds each, in the central Pa- cific coast cities of Tepic and Colima. The IDB credits, which combine senior and development subordinated loans, total $12 million, denominated in Mexican pesos.  Another example is the Universidad Politécnica Salesiana, a socially inclusive Catholic university in Ecuador.  IDB approved a $15 million loan to finance its expan- sion, including the construction of new on social buildings, purchase of equipment, and the creation of a student loan fund.  We have identified interest in IDB financing Insights the construction and/or expansion of sev- eral hospitals, clinics, schools and other education projects to support Colombia’s social infrastructure. On the public sector side, the biggest education projects approved within the past 18 months are a $46 million loan to Colom- bia to reduce inequalities among schools located in different parts of the country; a $27 million loan for a program focused on early childhood learning in Paraguay; a $25 million loan also for early-stage learning in three provinces in Peru; and a $7 mil- lion financing for initiatives in Honduras to benefit schools serving the very poor. In the areas of social protection and health, a $66 million loan to Brazil will improve the Uni- fied Social Assistance System, including programs to combat hunger; a $35 million program to construct and upgrade hospitals in the department of Potosí in Bolivia; and a $50 million loan to Panama aimed at reduc- LIQ talks to Kristin Dacey, Senior ing infant and maternal mortality and ad- dressing chronic malnutrition and training Investment Officer at the Inter-American physicians and nurses. Moreover, the private and public arms Development Bank of the bank work hand in hand to help
  • Infrastructure Financing Latin Infrastructure Quarterly 23governments develop effective private- sectors and are continually in touch with receive financing from the Bank? If so,public partnership frameworks that can local private sector players active in the in your opinion, how much politics in-help generate a strong private sector re- social infrastructure space. fluences the granting of said guarantee? sponse and attract quality investors in theprovision of high-quality services in our I assume the demand for projects is Loans to sub-sovereign entities do notmember countries. great, what is the Bank’s criteria, when require a financial guarantee from the na- evaluating different projects, to go for tional government, but they do need theirLet start discussing the pre-investment one over another (long-term average non-objection. In making loans to pro-phase, how is the Bank’s pipeline of cost, NPV, IRR)? vincial, state or municipal governmentsprojects fed? That is, who identifies without a sovereign guarantee, the Bankpossible projects: the Bank, the nation- One of the main criteria we use to evalu- thereby assumes a degree of risk not as-al government, and/or the sub-national ate projects is the developmental impact sociated with sovereign-guaranteed lend-governments? of the project its alignment with the IDB’s ing, and thus charges different rates of goals.  As part of a deliberate effort to ad- interest and develops terms different fromThe IDB has offices in every country in dress sustainability issues in both private those applicable to sovereign-guaranteedLatin America and the Caribbean, and and public sector projects and invest- projects, on a case-by-case basis.uses this presence in the region to help ments, the IDB focuses on supportingoriginate the “pipeline” of projects pro- client companies as well as governments Lets now turn to the investment phase,posed for future financing. On the pub- to better balance the financial, social, and how does local procurement changelic-sector side, priority areas are identi- environmental performance aspects of when a project is to be financed by thefied through the preparation of Country their projects and operations. Bank?Strategies, publicly available documents As noted above, project programmingprepared jointly by the Bank and borrow- on the public-sector side is done in con- The Bank ensures best practices are useding-member country authorities at the be- junction with governmental authorities. in all of our projects, as reflected in theginning of their terms in office. Because Calculation of rates of return, both eco- Bank´s procurement policies for good,the IDB works closely with the national nomic and financial, is always included as civil works, and consulting services.and sub-national governments, we some- part of project appraisal and due diligence. When Bank resources are used to financetimes receive referrals from them for a publicly administered bidding process,private sector deals.   The IDB also has Do sub-national governments need a the Bank´s rules require that the competi-officers, like myself, who cover certain guarantee of the national government to tion be open to entities from all member
  • 24 Latin Infrastructure Quarterly Infrastructure Financing On the public-sector side, priority areas are identified through the preparation of Country Strategies, publicly available documents prepared jointly by the Bank and borrowing-member country authorities at the beginning of their terms in office.Bucaramanga, Colombia
  • Infrastructure Financing Latin Infrastructure Quarterly 25countries, with local and internationaladvertising requirements. The Bank re-serves the right not to finance activities When Bank resources are used tothat do not adhere to Bank procurement finance a publicly administered biddingpolicies.How does the Bank monitor the pro- process, the Bank´s rules require thatcurement of projects? the competition be open to entities from all member countries, withThe IDB is very active in the monitor-ing and evaluation of projects, princi-pally through the Country Offices.  Pro-curement plans and general and specific local and international advertising requirements.procurement notices are disclosed on theBank´s website for all sovereign-guaran-teed projects, as are contract award an-nouncements. Do you see social infrastructure pro- Last year, Colombia was raised to invest-Onto the operation phase, besides the curement and operation changing with ment grade, has this led the national andfinancing of works, does the Bank par- the PPP law recently enacted? sub-national governments to turn to theticipate in “capacity building” projects capital markets to finance infrastruc-for the public sector officials at a na- Generally there is optimism.  We have re- ture works? If so, has this decreased thetional and sub-national level responsi- ceived a few calls to discuss ideas, which demand for Bank’s resources?ble for executing the projects financed could be quite interesting.  Colombia isby the Bank? If so, can you describe the a dynamic growing market that has at- For social infrastructure, we have stillresults these projects have had so far? tracted the attention of many investors.  seen robust demand.  Many of the proj- It seems promising that the new law will ects are too small, or not the right fit forYes. The vast majority of Bank fi- allow more of the private capital to flow capital markets.  At the same time com-nanced sovereign-guaranteed loan into much needed infrastructure projects. mercial banks can’t offer the tenors thatprojects contain institutional capac- The PPP law is very recent and some make sense for social infrastructure proj-ity-building components, which are work still needs to be done with respect to ects. The IDB has worked hard across thecontinuously monitored and evalu- the interpretation of certain elements, but region to identify the right mix of financ-ated throughout the implementation we are hopeful that IDB’s work will sup- ing partners to achieve tenors and financ-phase. Capacity-strengthening is also port the creation of innovative approaches ing packages that promote social infra-accomplished through technical as- that align with the law and its objectives. structure investment projects.sistance grants provided by the Bank,and through the innovative Social En-trepreneurship Program administered Kristin Dacey is a Senior Investmentby the Multilateral Investment Fund, Officer originating social privatewhich combines grants and small-scale sector projects, mainly in health andloans to non-governmental organiza- education, for the Structured andtions, always including a capacity- Corporate Finance Department ofbuilding dimension. the Inter-American Development Bank (IDB).  Previously, Kristin spentIn your opinion, what are the main les- over 4 years syndicating IDB privatesons learned from developing social in- sector loans covering financial mar-frastructure in Colombia? kets, corporates, structured finance and the socioeconomic base of theThere is a great need for social infrastruc- pyramid.  Prior to the IDB, Kristinture in Colombia with many projects suf- spent almost 7 years at GE Capitalfering from lack of equity and/or sponsor in various roles, business lines in thesupport to get started.  Many existing US and Mexico. Kristin has a Mastersprojects in the health space suffer from in Global Management from Thun-long accounts receivable cycles.  Both of derbird, MBA from Arizona State,these aspects need to be mitigated care- as well as a BS and BA from Virginiafully in structuring of the financing pack- Tech.ages.
  • 26 Latin Infrastructure Quarterly RegulationAlthough Colombia has along history of infrastruc- Public Private Partnerships: A Newture projects privatelyfinanced, the concept ofPublic Private Partner-ships (PPPs) is completelynew for its legal system.Previous projects weredeveloped in the countryunder the concession con-tract model, a legal institu- Concept for thetion taken from the Frenchlaw in which the privatepart delivers a service onbehalf of the State. In that Colombiankind of contracts, the pri-vate part is not meant tobe a partner of the State,but its delegate. Law Carlos Andrés Sánchez García Durán & Osorio AbogadosU nder this model, the State re- the first article of the mentioned Law de- public organisations are not allowed part- mained as the last responsible fined PPPs as follows: nering even with partially State-owned for the public service deliv- “Public Private Partnerships are an corporations even tough those were in- ered through the concession instrument for private capital participa- corporated under private law. In that par-and therefore, Courts were always reluc- tion, materialised in a contract between ticular topic, both Constitutional Courttant to accept risk allocation as described a public entity and a person or a private (2007) and Council of State (2011) havein contracts, making the State liable for law corporation, in order to provide pub- been reiterative about the public naturewhat they called “unforeseeable risk”. lic infrastructure and the services related of corporations with public shareholders,As a consequence, concession contracts to it. It involves risk retention and trans- regardless the amount of the equity heldwere heavily controlled by the State, giv- ferring as well payment systems based on by them.ing little freedom to the private party for the availability and service level of the Private Capital Participation: Thedeveloping new and more efficient ways infrastructure provided or the service de- fact that the private party is in chargeto deliver infrastructure and public ser- livered.” of financing the whole project is almostvices. In fact, the concession model as- Based on that definition, it is possible unanimously considered as a key elementsumes that the State knows what it needs to identify the following elements as es- of PPPs (United Nations, 2008, Europeanand how to do it, but prefers to rely on sential for Colombian PPPs. Commission, 2005 and HM Treasure,private efficiency executing the required Parts: Contract parties must be a pub- 2003). The Colombian model does not ac-tasks. Unfortunately, such an assumption lic organisation and a private partner, and cept either sharing equity between publicis frequently far from reality. in consequence, unlike some European and private partner –mixed equity corpo- In that context, Law 1508 is a break- jurisdictions where public organisations rations have their own legal frameworkthrough for Colombian infrastructure. can partner State owned corporations and consequently are a different way ofLearning from its own experience and (e.g. Institutional PPPs under Spanish public-private cooperation– or soft loansconsidering international good practices, law), (Rebollo Fuente, 2009), Colombian or grants from the government, making
  • Regulation Latin Infrastructure Quarterly 27 Each partnership is almost uniquethe private partner fully responsible forthe project financing, hence transferringall financial risks to the private party. due to the design, technology Object: The object of Colombian PPPsmust include both infrastructure and ser- and project’s placementvices provision. This legal frameworkdoes not replace the public procurementlegal framework for building contracts or conditions, requiring a partnercontracting-out specific services. Payment Schemes: Availability pay-ments are now the rule for ColombianPPPs, moving from traditional modelswhere large lump sums or tolls or other capable of the project financing and operation, which is difficultfees where available for the private part-ner from the beginning of the contract. to procure.This kind of payments may act as a pow-erful incentive for private value addingall through the contract, as well as devel-oping more conservative capital struc-tures beyond construction phase (Runde,2010). operational performance, are often trans- hoc projects. Each partnership is almost However, “availability payments” do ferred to the private sector that would unique due to the design, technology andnot mean inflexible or not bankable con- ask a premium on its return for assum- project’s placement conditions, requiringtracts where a failure during operational ing those risks (Siemiatycki, 2010 and a partner capable of the project financingphase will easily expose lenders to a de- Benkovic et al, 2010). However, other and operation, which is difficult to pro-fault. On the contrary, Law 1508 under- risks such as political stability, civil war, cure. As a consequence, once the trans-pins availability on “levels of service” property of the land and cultural heritage action is closed it might be very difficultand “quality standards” making possible among others, are better managed by the –or very expensive– to find other privateto structure transactions in which a stable public sector and transferring them to the partner with similar characteristics, will-and secure stream of funds is unlocked to private partner would increase dramati- ing to take over the project if the selectedserve senior debt once the infrastructure cally the premium on the expected return. partner fails delivering what is expected.is available after the construction phase The combination of the elements men- From the private partner perspective, the(i.e. its levels of service and quality stan- tioned above give us other relevant char- public organisation turns into “the only”dards are measured and checked for the acteristics of Colombian PPPs. Since they client, since no other agent might be in-first time after its completion), while sub- are developed on a contractual basis for a terested in the same project. It is a perfectsequent payments are only released if the specific infrastructure and delivery of ser- situation for a “lock in” effect (William-private partner continues complying with vices related to it, PPPs will always be ad son, 1985; 53), thus for opportunistic be-the standards and levels defined in thecontract. Such financial structure avoidsvolatile payments, reducing lender’s ex-posure to operating and demand risks, In that context, structuringhence increasing project’s credit rate(Moody’s 2007) without renouncing to strong and detailed contracts isperformance incentives, since the privatepartner depends on maintaining its levelsof service and quality standards to obtain an imperative for Colombian publica return on its equity. Risk Allocation: PPP contracts must be organisations willing to embark in PPP contracts. They will requireconsidered as a risk allocation tool. Par-ties are entitled to define who will beareconomic consequences of specific risksassociated to the project, using economicand rational criteria –a risk would be al- technical, financial and legal advicelocated to the part that better can manageit–- (European Commission, 2003). In and must not deny contractingthat fashion, construction cost overruns,deadlines compliance, availability and experienced advisors.
  • 28 Latin Infrastructure Quarterly Regulationhaviour. tify the hazards arising from uncertainty, methodology for resolving unforeseeable Following Transaction Cost Econo- opportunism and asset-specification and outcomes (Poppo and Zenger, 2002 andmists, the best way for reducing oppor- craft complex contracts. Those contracts Carson et al, 2006). The more detailed thetunism is using a clear and well-specified might define in detail the roles of each contract, the less probable would be ancontract. They argue that, within the limits party, the expected outcomes and the opportunistic behaviour.of bounded rationality, managers (in our way to measure them, the consequences In that context, structuring strong andcase, public organisations) should iden- for foreseeable contingencies and the detailed contracts is an imperative for
  • Regulation Latin Infrastructure Quarterly 29Colombian public organisations willingto embark in PPP contracts. They will re-quire technical, financial and legal adviceand must not deny contracting experi-enced advisors. But even more, they musttake advantage of the new tools includedin Law 1508 and developed by Decree1467/12, such as prequalification process.They areproject financestructures, sincelenders have“non recourse”or “very limitedrecourse” tosponsor’s assetsor governmentguaranties, makingthe payment schemethe only sourcefor debt payment. That process, based on a shortlist of 2to 6 companies and not even similar to the Antigua Escuela de Derecho. Universidad de Antioquia, Colombiaendless European competitive dialogue,allows public organisations maturing project finance structures, since lenders for financial institutions (Kociemska,projects not only using a fluid dialog with have “non recourse” or “very limited re- 2009) and we might add, considering cur-the market, but also adding information course” to sponsor’s assets or government rent government plans and the size of Co-to it, since additional studies can be carry guaranties, making the payment scheme lombian financial sector, it must be a safeout during the process at the expense of the only source for debt payment. This transaction for pension funds. That condi-prequalified companies. This can be an particular characteristic makes lenders a tion would only be obtained if the projectinteresting way of capturing innovation, really relevant group. In fact, if lenders do meets the criteria of rating agencies forreducing uncertainty and addressing bud- not consider the project viable it would be investment grade, thus some basic ele-getary restrictions at the same time. impossible to carry on just with sponsor’s ments of credit rating must be considered We already highlighted the ad hoc na- equity, since the amount of money would (Moody’s, 2007, 2007b):ture of PPPs and its lock in effect. How- be too high and risk exposure too broad. • There would be a different credit rateever, it is relevant to mention another Based on the relevance of lenders for for construction and operation phase.effect that comes from the particular char- PPPs success, scholars claimed PPPs • The transaction is described in theacteristics of these associations. They are must be structured as a safe transaction contract, hence is the contract struc-
  • 30 Latin Infrastructure Quarterly Regulation Carlos Andrés Sánchez García - LLB, Universidad de los Andes, Colom- bia (2000); LLM Telecommunications Law, Universidad Carlos III, Ma- drid, Spain (2003); Master in Business Administration MBA (Beta Gama Sigma Award), Durham Business School, UK (2011). Junior Partner at DURÁN & OSORIO (2011 – currently). Associate at DURÁN & OSORIO (May 2000 – 2010); as a member of Durán & Osorio, he has been mem- ber of several multidisciplinary teams appointed by the Colombian government or international agencies for structuring large investment projects and/or advising on relevant transactions, such as Nor Oriente Airports, El Dorado International Airport, and Transmilenio. He has also advised public and private organisations on telecommunications regu- lation, including the Ministry of Finance on the merger Colombia Tel- ecomunicaciones – Telefónica Móviles, the Colombian Radio Spectrum Agency on spectrum pricing policy and several carriers. Lecturer of Telecommunications Law at Universidad de los Andes (2005 – 2010); ture the most important element of the construction risk to its private partner, As a conclusion, is possible to say that any credit rating. In fact, the payment as it is more capable to manage it, lend- Colombian legal framework provides structure, force majeure and early ter- ers would be keen to transfer that risk out what is required to make PPP at an inter- mination clauses account for 65% of of the borrower to the building contrac- national level, boosting Colombian econ- credit rating of a PPP project for its tor. A turnkey or EPC contract might be omy and increasing efficiency in public operational phase. included as part of the structure, as well spending. It is up to Colombian authori-• Volatile payment structures that ex- as counter-warranty requirements for that ties to define how to use the new set of pose lenders to operational or de- contractor. tools, stepping apart of old structures and mand risks, affect negatively the Overall, “safe transactions” are not risk- breaking paradigms of the early 20th cen- project’s credit rating. free transactions, but those that allow lend- tury administrative law. It is the time for• Early termination clauses may not ers to know what to expect from the project new contractual structures. punish the lenders. and particularly to assess to what extend the Since the public organisation transfers projects cash flow is enough to repay debt.BibliographyBenković, Slađana. Milosavljević, Miloš. Barjaktarović- structure Provision and Project Finance, Cheltenham, Rebollo Fuente, Andrés (2009), Experiencia Espa-Rakočević, Slađana (2010), private and public capital Edward Elgar Publishing Limited. ñola en Concesiones y Asociaciones Público Privadas,partnership in the financing of infrastructural projects, PIAPPEM – BID, retrieved 19th August 2012Megatrend Review; 2010, Vol. 7 Issue 2, p313-326. HM Treasury (2003), PFI: Meeting The Investment from: http://idbdocs.iadb.org/wsdocs/getdocument. Challenge, retrieved April 26th 2011 from http://webar- aspx?docnum=35822299Carson, Stephen J. Madhok, Anoop. Wu, Tao (2006), chive.nationalarchives.gov.uk/20100407010852Uncertainty, opportunism, and governance: the effects Runde, James. Offutt, J. Perry. Selinger, Stacie D.of volatility and ambiguity on formal and relational Kociemska Hanna (2009), Public-private partnership Bolton, Jennifer Sarah (2010), infrastructure public-contracting, Academy of Management Journal, Vol. 49, project success circumstances, Journal of Modern Ac- private partnerships re-defined: an increased emphasisIssue. 5, p. 1058–1077. counting and Auditing, Vol.6, No.11, p. 53-58. on “partnerships”, Journal of Applied Corporate Fi- nance; Vol. 22 Issue 2, p. 69-73.Council of State, Advising and Civil Service Chamber, Moody’s (2007), Rating Methodology: ConstructionConcept 1815, Mayo 31st 2011, Councillor: José En- Risk in Privately-Financed Public Infrastructure Siemiatycki, Matti (2010), delivering transportationrique Arboleda Perdomo. (PFI/PPP/P3) Projects, retrieved 6th August 2012 infrastructure through public-private partnerships: from: http://www.moodys.com/research/Construction- Planning concerns, Journal of the American PlanningConstitutional Court, Decision C-691-07, Magistrate: Risk-in-Privately-Financed-Public-Infrastructure- Association, Vol. 76, No. 1, p. 43-58.Clara Inés Vargas PFIPPPP3-Projects--PBC_106407 United Nations (2008), Guidebook On Promoting GoodEuropean Commission, COM(2005) 569 final, Com- Moody’s (2007b), Rating Methodology: Operating Risk in Governance In Public-Private Partnerships, retrievedmunication from the Commission to the European Privately-Financed Public Infrastructure (PFI/PPP/P3) 18th April 2011 from: http://www.unece.org/ceci/publi-Parliament, the Council, the European Economic Projects, retrieved 6th August 2012 from: http://www.mood- cations/ppp.pdfand Social Committee and the Committee of the Re- ys.com/research/Operating-Risk-in-Privately-Financed-gions On Public-Private aPartnerships And Com- Public-Infrastructure-PFIPPPP3-Projects--PBC_106479 Williamson, Oliver E. (1985), The Economic Institu-munity Law on Public Procurement and Conces- tions of Capitalism, The Free Press, London.sions. Poppo Laura and Zenger Tod (2002), Do formal con- tracts and relational governance function as substi-Grimsey. Darrin, Lewis. Mervyn K. (2004), Public Pri- tutes or complements?, Strategic Management Jour-vate Partnerships The Worldwide Revolution in Infra- nal, Vol. 23, p. 707–725
  • Infrastructure Financing Latin Infrastructure Quarterly 31Infrastructure andprivate equity inColombiaWhat are Darby’s activities in LatinAmerica at the moment and particu- As a private equity firm, what are the main indicators of a country’s economy LIQ talks to Jorge Castellanos,larly in Colombia? and financial markets that you evalu- ate? What is your reading of Colom- ManagingDarby has had a long history of involve- bia’s current indicators?ment in Latin America and particularly inColombia, dating back to its first PE fund Our general considerations may be grouped Director atin 1994. Currently, there are several fundsin the investment phase in Latin America.  in three categories: overall economic pros- pects, openness and fair treatment of private Darby PrivateIn addition, there have been several re- investors, and dynamic sectors requiringcent press releases detailing the success-ful exits from Darby Funds, including the equity and mezzanine financing.  Colom- bia ranks highly on these indicators, as Equitysale of three Colombian investments: Pe- evidenced by growing FDI inflows over thetrosantander, TEBSA, and Avantel. last few years, and the more recent interest in Colombian PE investments, both from domestic investors and from abroad.     A few years ago, Darby launched anMost of the time we look for infrastructure fund together with Col- patria. What sub-sectors within the in-projects rather than companies, frastructure sector have proven to be more appealing to the fund’s manage- ment?and we evaluate them first on theirsector, structure, and individual Infrastructure investments in Colombia and the immediate region are the main fo- cus, with a particular emphasis on trans-merits; complementarily, when portation activities. What are the main elements of an infra-sponsors retain a role, we evaluate structure asset operator that you consider when evaluating an investment? (for ex-their track record, governance, and ample: sponsor’s operating expertise and equity commitment, other members of the consortium, concession agreement, grant-operational abilities. ing authority’s rights and obligations,
  • 32 Latin Infrastructure Quarterly Infrastructure Financing Our preference is to invest in private equity or mezzanine structures, i.e. hybrid fixed income instruments with an equity exposure component. Bogotá cityscape
  • Infrastructure Financing Latin Infrastructure Quarterly 33permits, project’s main risk managementprovisions when it comes to constructionand operation) Large Colombian – Most of the time we look for projectsrather than companies, and we evaluatethem first on their sector, structure, and institutional investorsindividual merits; complementarily, whensponsors retain a role, we evaluate theirtrack record, governance, and operational private pension funds and insurance companies- aim toabilities.Do you consider both greenfield andbrownfield projects?  replicate a broad range ofYes, we do look at both opportunities,but due to the long gestation period ofinfrastructure projects, our emphasis is economic activities in their portfolio.on brownfield and greenfield projects ap-proaching the end of construction. Is it within the fund’s mandate to investin debt instruments issued by operators orinfrastructure related companies? If so,what do you look for in those bonds? (forexample: rating, currency, interest rate, of certain private equity firms, diver- ways to invest in non-listed securities.security package, applicable law, market sification benefits, volatility, long-term Lately they have looked to infrastructurein which the bonds are traded, particular revenue streams) funds to increase exposure in segmentscovenants) where public securities are not avail- Generally, our core objectives do not Institutional investors have different in- able, where analyzing them in house isinclude listed bonds.  Our preference is terests depending on the region and the not scale efficient, and where some as-to invest in private equity or mezzanine period in question. Large Colombian pects of the investment –e.g. governancestructures, i.e. hybrid fixed income instru- institutional investors –private pension or technology- require special expertise.ments with an equity exposure compo- funds and insurance companies- aim to For example, with most of the Colom-nent. replicate a broad range of economic ac- bian pension funds´ investments in infra-What do institutional investors find tivities in their portfolio, like that of the structure concentrated in electricity, in-attractive in an infrastructure fund? entire economy. Some of this diversifi- frastructure funds offer a diversification(for example: frequency distribution cation can be attained through public se- into other category segments.of returns, performance persistence curities, and in a few cases they may find Jorge Castellanos, Managing Director, Darby Private Equity Mr. Castellanos runs a regional infrastructure fund (FINTRA), has worked as investment and commercial banker (CEO of Bancafé, Correval Invest- ment Banking, JPMorgan, World Bank) and in public service (Director FOGAFIN, Banking Superintendent, Director Public Credit). He led the resolution of the Colombian 1998 banking crisis; created the Colombian treasuries (TES), other bonds and derivatives and private eq- uity funds, enacted financial regulations, restructured, turned around, and sold companies, and served in several boards of directors. He holds PhD and MPhil degrees from Columbia University.
  • 34 Latin Infrastructure Quarterly Projects What is the history of Acciona in Colombia? Acciona is well known around the world for the development, production and management of renewable energy, water and infrastruc- ture, in which of these sectors of the Colombian economy has LIQ talks to José Damián Sáez Acciona sponsored projects? Since the 1970’s Acciona has been a part of major engineering Martínez, General Manager projects in Colombia. Worth highlighting are the Santa Rita, Río Grande II and El Guavio dams, and, in the field of mass trans- port, the Medellín metro. Acciona considers three sectors to be strategic: Infrastruc-Infraestructuras ture, Water and Renewable Energy. Acciona has made a strong bet in the development of infrastructure and the whole water cycle in Colombia and we are waiting on a favorable regula- tory framework in the field of non-conventional renewable ener- gies such as wind and thermal solar, field in which Acciona is a world-wide leader. Acciona Infraestructuras is currently building hydrocarbon transportation lines for TGI and Ecopetrol and Acciona Agua is part of the consortium that will build the Bello water treatment plant for EPM, which will be the largest in Colombia. What is your opinion on the strategic plan prepared by the Agencia Nacional de Infraestructura (ANI) for the 2010- 2014? The strategic plan currently being structured by the ANI will mark a milestone in the development of Colombian road and rail infrastructure. Not only because of investment levels envisioned but also because of the basic change that means treating infra- structure with a medium to long term vision.Colombia While we acknowledge that given the magnitude of the proj- ect there is a chance of delays in the structuring phase and that social and environmental matters will have to be consider, at Acciona we believe that the ANI is laying a solid foundation to,Acciona once in for all, move Colombia forward in the field of infrastruc- ture development. Which of the projects listed in that strategic plan is Acciona considering/working on? At Acciona Infraestructuras we are paying close attention to the results of the projects structuring currently going on. This structuring will determine under what model (traditional pro- curement or concession) future road and rail infrastructure will be developed. It should be noted that Acciona Infraestructuras is a world-wide leader in developing infrastructure under both models. The medium to large sized projects and those that connect the main cities are the ones that are the most interesting for Acciona Infraestructuras. 4. What is your relationship with governmental authorities at a national and sub-national level? Although Acciona has very important clients in the private sector, it is clear that for the kind of projects we develop, the public sector is of critical importance for our business. We work side by side with public sector authorities at every level of gov-
  • Projects Latin Infrastructure Quarterly 35ernment in more than 30 countries. In Colombia we have beenfollowing the evolution of important projects at the national,departmental and local levels. Acciona Infraestructuras isCan you describe the agreement Acciona reached with Adif currently building hydrocarbon(Administrador de Infraestructuras Ferroviarias? transportation lines for TGIDuring the last decade, Spain has become a leader in rail in-frastructure development, particularly in high-speed rail, with and Ecopetrol and Accionathe AVE (Alta Velocidad Española). This ambitious engineeringproject developed by Adif, the state-owned Spanish company, Agua is part of the consortiumhas had Acciona Infraestructuras as a leader role in project de-veloping. that will build the Bello water Both Adif and Acciona understand that they can contributeall the knowledge acquired to rail projects in Colombia. This treatment plant for EPM.is why Acciona Infraestructuras and Adif last year executed anagreement for the latter to provide Operating Technical Assis-tance to those rail projects that we develop in Colombia. The Colombian financial market is currently in an excellent po- sition to finance infrastructure investments. This is why the localAs a project sponsor which have been your main sources of market has financed those projects currently being developed byfinance in the Colombian market? Acciona.Medellín Metro, Colombia
  • 36 Latin Infrastructure Quarterly Projects However, local capacity won’t be able to cope with the mag-nitude Infrastructure Plan currently being structured and that José Damián Sáez Martínez, General Manager of Ac-will begin being implemented in 2013 and so we will have to ciona Infraestructuras Colombia, was born in Ali-turn to the international markets: commercial banks, multilat- cante (Spain). He is a Civil Engineer from the Uni-eral banks, infrastructure funds, etc. These players are following versidad Politécnica de Valencia (Spain), a Master inColombia closely. Structures and Foundations from the l´Ecole de Ponts In my opinion, in order to mobilize debt and equity financing et Chaussées de Paris, a MBA from the Instituto deit is critical that the projects are properly structure and have bal- Empresa (Spain) and a Master in International Man-anced risk allocation. agement (in company) from the IESE (Spain). He has worked at Ac-In which ways do you work with the Colombian governmen- ciona Infraestructuras,tal agencies to minimize the environmental impact of the S.A., since 1992. He hasprojects you sponsor? worked in different po- sitions in the BasqueMore than one decade ago, Acciona adopted the motto: “Pio- Country, Canarias andneers in Development and Sustainability”. This phrase, which Castilla- La Mancha invalidity is reinforced every day, is a cornerstone of our business. Spain. Since 2010 he isThis is why it is worth highlighting the recent success, when it the General Managercomes to social and environmental matters, of the wind energy of Acciona Infraestruc-project in the Yucatán Peninsula (Mexico), developed by Ac- turas in Colombia.ciona Energía. At the same time, in the projects we are currentlydeveloping in Colombia, we work together with the client andthe respective governments to minimize the social and environ-mental impact and use of compensatory measures.
  • Infrastructure Financing Latin Infrastructure Quarterly 37AshmoreColombiaInfrastructureFundWhat are the main factors (eco- LIQ talks to Camilo Villaveces, CEO of Ashmore Management Companynomic, legal, institutional, financial)that have contributed to the currentlevel of infrastructure development sorbed this situation, because the compa- program was not able to attract inves-in Colombia? nies acting in the power sector were well tors with the capital required to absorb capitalized companies that were prepared the risks involved in the business of con-It is important to differentiate sectors. to absorb the shocks resulting from un- structing toll roads. Besides, ill struc-Colombia can be a model in the devel- expected changes in the business cycle. turing and even corruption affected theopment of infrastructure in some sectors Consequently, a sector that for years was sector. Right now it´s clear that the road(like power generation, transmission and the number one contributor to the fiscal concession program has to be awarded todistribution) and at the same time Colom- deficit of the country became a dynamic, companies that have both the capital andbia can be a model of how not to develop well structured sector that does not con- the expertise to perform according to theirother infrastructure sectors, particularly sume fiscal resources and at the same contractual obligations.roads and land transportation. time secures an efficient service to the Why have these sectors developed Colombian population. What is your role in Ashmore Colom-so differently? In my opinion, mainly The success story of the power sector bia Infrastructure Fund (the “Fund”)?because the regulation of the power is totally different than the failure storysector was thought and enacted to at- of the road concession program, full of I am the CEO of Ashmore Managementtract investors that have the capital and unfinished roads, court procedures, scan- Company (Colombia), general partner ofthe expertise to face the risks present in dals and corruption. Why? In my opinion, the Fund.these activities. For example, at the end because the toll road concession programof last century, the demand for power in has been carried out without the required What kind of institutional investorsColombia stopped growing and for a lim- capital. Because of ill structuring and also have commitments in the Fund? Hasited period of time capacity was higher because of the violence that affected Co- the Fund reached its target of commit-than demand. The sector successfully ab- lombia for many years, the concession ments?
  • 38 Latin Infrastructure Quarterly Infrastructure Financing We obtained commitments from pension funds, insurance companies, multilateral agencies, governmental agencies, family offices, as well as seed capital from the Fund´s sponsors. The Fund has reached its target and we are not doing any additional fund- raising in the short term. We will do fund-raising again after we can show the market our results (the value of the Fund´s unit has increased in 2.5 years from COP 10,000 to more than COP 15,000) and that the Fund is operated in Colombia with world´s best practices. We believe that being able to show the excellent track record we have will be the best way to launch new fund(s) in the near future, when we have invested the capital that we now have. We obtained commitments from pension funds, insurance companies, multilateral agencies, governmental agencies, family offices, as well as seed capital from the Fund´s sponsors. What do institutional investors find attractive in an infrastructure fund? (for example: frequency distribution of returns, performance persistence of certain private equity firms, diver- sification benefits, volatility, long-term revenue streams)
  • Infrastructure Financing Latin Infrastructure Quarterly 39Basically, infrastructure is an asset classthat provides low volatility and long termrevenue streams, quite adequate to insti-tutional investors that are growing signifi-cantly and do not want short term revenuestreams. On the other hand, institutionalinvestors that support the development ofinfrastructure protect themselves from thetemptation of governments to force themto invest in infrastructure. In other words,if institutional investors voluntarily fi-nance the development of much-neededinfrastructure, they reduce the risk of be-ing forced by the government to invest ininfrastructure projects.What have been your investments sofar?We have invested in power generation,logistics (ports and transportation) andtelecom. On the otherhand, institutional investors that support the development of infrastructure protect themselves from the temptation of governments to force them to invest in infrastructure.What kind of sources (if any) of debt fi-nancing have the Fund managers usedor intend to use in order to finance theinvestments?
  • 40 Latin Infrastructure Quarterly ProjectsWe have used the Colombian bankingsystem, as well as multilaterals. In later Camilo Villaveces received its rank of business administration in thestages of the projects, the capital markets degree Universidad de los Andes in Bogota and before holding the po-are also an attractive alternative. sition of president in Ashmore Colombia, he was Co-president of Inver- link S.A., company of which is founding partner.Do you seek control of assets? Mr. Villaveces initiated his professional race in 1979 like he is a credit officer in the Compañia Financiera Continental. In 1981 he created theNot necessarily. What we do need is a Compañia Mercantil Financiera S.A., dedicated to the financing of dura-management team that has proven track ble consumer goods , in which he held the position of Executive Presi-record in the area and with their interests dent.totally aligned with those of the Fund. If In 1984 the Bank of Colombia engages The First Boston Corporationthis requirement is fulfilled, we do not (today Credit Suisse) to carry out the process of valuation and sale ofrequire control, but if we do not have the companies that were part of denominated Grupo Grancolombiano,control we do need minority protections at that time the more important and big industrial and financial groupthat allow the Fund to exit in commer- of the country, in the process that is recognized as initiating the industrycial terms and to control specific areas in of investment banking in Colombia. Mr. Villaveces was recruited and re-which changes have to be done. In gener- ceived practical training in The First Boston Corporation, and acted asal, we prefer to team up with partners who a senior negotiator in several transactions, among them stands out theknow the business, and have shareholders sale of a controlling participation in Cabot Colombiana S.A., Leasing deagreements to protect the Fund´s position. Colombia, Palmas Oleaginosas Bucarelia and Palmeras de la Costa S.A., and others. We have used In March of 1986, after of the nationalization of the Bank of Colombia, Mr. Villaveces, along with other executives, decides to create Inverlink, and worked since then in quality of Co-president. In this organization the Colombian has had the opportunity to lead multiple valuation and buys and acqui- sition of companies in process different sectors. banking system, Between the transactions led by Mr. Villaveces they are included: (i) creation and capitalization of the private sector of Electricaribe, Electro- costa and Transelca, companies that today hold the functions of Corelca as well as and 9 distributing companies of the electrical energy Sector in the Atlantic multilaterals. coast (USD 1.235 million); (II) sale of Betania, Chivor, Termotasajero and Termocartagena (USD 1.173 million); (III) sale of 42% participation Promi- gas S.A. to Enron Corp. (USD 113 million); (IV) acquisition, many years later, In later stages in Promigas shares to Energy Prism the International and Corficolombiana (USD 510 million); (v) sale of 99% of the Bank of Colombia (USD 492m); (vi) of the projects, sale of Network Multibanca Colpatria (Colpatria Bank) to General Elec- tric (GE) in an operation in several stages (altogether, USD 700 million); (vii) sale of a participation shareholder of 49% in Electrical Company of capital markets is Sochagota (USD 50 million); (viii) sale of a participation shareholder of 50% in TermoCandelaria S.A. (USD 50 million); (ix) sale of 100% of the actions also an attractive of AFP Colpatria to BBVA Horizon (USD 62 million); (x) head of the advi- sory equipment of one of the greatest companies of distribution gas of the alternative. United States for the nonsuccessful acquisition of a Natural Gas participa- tion E.S.P; (xi) financial adviser of ISA for the acquisition of selected assets of electrical transmission in Latin America; (xii) financial adviser of Banco-How do you envision possible exits? lombia for a professional opinion (“fairness opinion”) respect to the fusion of Bancolombia, Conavi and Corfinsura; (xiii) financial adviser of ColpatriaIn the case of finite projects, for exam- in the evaluation of potential an acquisition of Granahorrar, including theple, concessions, they finish and there´s structuring of the supply and its financing, (xiv) financial adviser of Creditno exit as such; when we envision exit union in the emission and positioning of preferential actions in the localthrough private placements, we always market of capitals (USD 130 million); (xv) estructurador of the process byhave drag along and tag along rights that which Telecom was eliminated and Colombia Telecomunicaciones S.A.allow the Fund to exit when market con- was created. E.S.P., operation that is recognized national and internation-ditions are adequate; finally, there are ally like “standard” in processes of reconstruction of state companies insome projects that because of their char- badly been and, (xvi) financial adviser of Avianca in its bond emission withacteristics provide the opportunity to exit terms of 5, 7 and 10 years in the local market of capitals (USD 250 million),through the public market. among others.
  • Institutions Latin Infrastructure Quarterly 41Logistics Services In ParaguayInfrastructure, Transport AndAn Optimistic Outlook For Rodolfo Vouga and Cecilia Llamosas of Vouga & Olmedo Abogados Located at an equidistant position from sev- eral of the main financial centres of the re- gion (Sao Paulo, Buenos Aires, Santiago de Chile, Lima),Paraguay has a strategic loca- tion which makes it a strong candidate to de- velop into a services-based economy with a particular focus in services associated with transport and logistics. C onversely, being surrounded by land also represents a competitive disadvan- tage. 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 Par- aguay’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 en- sure the reliability of the network (ongoing maintenance), and; local policies oriented towards boosting transport and logistics services. Strong and reliable connectivity network Adequate infrastructure is a necessary condition for connectivity. Even though the quality of infrastructure on itself cannot be technically considered as a non-tariff bar- rier to trade, in the context of a landlocked country it has been identified as a most-im- portant barrier to trade. It has been shown that infrastructure explains 60% of transport costs for landlocked countries. The main areas which need to be taken into account in order to enhance connectivity
  • 42 Latin Infrastructure Quarterly Institutionsare: (i) dredging and signalling of navi- Communications (the “MOPC”), Enrique the Government is to foster public-privategable rivers and (ii) investment in rural Salyn Buzarquis, admitted that public partnerships (PPPs) for the developmentroads and expansion of the road network. resources are not sufficient and that at of new projects.Whereas air transport and railway trans- least USD 2,500 million a year should be Among the future transport infrastruc-portation are also inadequate, the main in- deployed on infrastructure investments ture projects are the building of aroundconveniences in terms of volume of trade in order to overcome the existing deficit 180 new bridges and viaducts, the com-involved as well as strategic importance situation. pletion of the first stage of the Avenidastem from deficient fluvial-maritime and On the same note, Minister Buzar- Costanera (Riverside Avenue) and theroad transport infrastructure. quis announced that the Government is beginning of its second stretch, as well as drafting a new bill for the concession of the Nu Guazu motorway and the ChacoDredging and signalling public works (the “Public Works Conces- aqueduct, to name a few. sion Bill” or the “Bill”). The Bill aims at Local policies oriented at boosting theThere is an overall deficit in the sustain- creating a new business climate to attract development of Transport and Logisticsability of navigation conditions: failure private investment in infrastructure, and Servicesto maintain minimum fairway (depth and Along with the announced Publicwidth), adequate signalling (use of bea- Works Concessions Bill, the release ofcons, lights) and a lack or deficiency ofnavigation control equipment. Notwithstanding the Master Transport Plan (the “PMT”) is soon to take place. The PMT is the re- As 80% of Paraguay’s foreign trade is sult of a joint investigation carried out bytransported through the water, effective the hindrances a Japanese consulting group and MOPCdredging and signalling of the navigable technicians, sponsored by the Inter-rivers will cut transportation costs con- its landlocked American Development Bank (“IDB”).siderably. Moreover the effects and costsrelated with the landlocked nature of the condition brings, The plan contains a series of specific in- frastructure projects and best practicescountry will be mitigated through an ef- recommendations for the implementationficient use of the navigable rivers. it is ironically of transport and logistics services plans (For further reference on this issueplease visit the prior publication of the Paraguay’s and policies, and it also sets out a pro- posed Action and Investment Plan for theauthors at http://www.liquarterly.com/47/ next 20 years.projects/paraguay-the-hidrovia-on-the- geographicparaguay-river.html.) Conclusion Investment in rural roads and expan- condition whatsion of the road network Paraguay possesses comparative advan- Regarding road infrastructure, official makes the country tages with respect to its neighbours as re-data shows that the sum of the additional gards the capacity to articulate and medi-costs generated by road transport amount the fittest territory ate flows of commercial exchange in theto around 20% of the amount of the total southern cone sub-region. Topped withadditional production costs in Paraguay. to articulate the advantage of its location are the low These costs may be directly linked to tax and labour costs the country is knownthe low quality of infrastructure, taking commercial traffic for. These factors combined make Para-into account that only 7.3% of the 55,973 guay an ideal investment target.km of road network is paved. and goods exchange In order for these advantages to come Given the competitive disadvantagethe country already suffers due to its land- between the Pacific into play, regard must be had to the fact that Paraguay still needs an effectivelocked condition, only a highly efficientroad network can compensate the overrun and the Atlantic. transport and logistics services planning in order to stand on an equal footing withcaused by the latter condition. its peers from the region on this regard, Resources and expertise to ensure the let alone stand out.reliability of transport networks (ongoing at the same time allows a better comple- Promoting service levels equivalent tomaintenance) mentarity of public and private capitals, those of the region is of paramount im- The intervention of the private sector remembering the many attempts to intro- portance as it will allow a better use ofmay play a major role in providing not duce private participation in public infra- the emerging global nature of the servicesonly adequate expertise but also suffi- structure works which have failed in the and manufacture network. This will signi-cient resources, innovation and efficiency past, such as the case of the airport con- fy an invaluable opportunity for Paraguayin infrastructure investment. cession. to turn into an active participant in the in- During an interview with a local news- The Vice Minister for Transport also ternational supply and value added chain.paper, the Minister of Public Works and expressed that the goal of the Bill and of With a grain production export that puts
  • Institutions Latin Infrastructure Quarterly 43Paraguay in the top charts of the worldand even more optimistic projections for RODOLFO G. VOUGA ZUCCOLILLO is a Senior Associate at Vouga &the coming years, it is an unavoidable Olmedo Abogados. He graduated with Honors from the National Uni-duty of the Government to implement ef- versity of Asuncion (J.D., summa cum laude, 2007) and was awardedficient logistics and transport policies, as a Masters in Law (LL.M.) degree from Columbia Law School (LL.M.,well as to provide the means to set forth 2010). He passed the New York Bar exam. His fields of expertise are:an adequate environment to foster the Litigation, Arbitration and Mediation; M&A; Foreign Investments; Cor-optimisation of costs and achieve better porate and Commercial; Capital Markets; Tax and Customs Law. Hesafety and service quality standards. has been actively involved in various projects related with foreign in- vestments. He is a former assistant professor in Legal Technique at the The competitiveness of the transport National University of Asunción. Languages: Spanish, English, Portu-sector and foreign trade services is vital guese, German.for any country to advance towards theimprovement of performance and reduc- CECILIA LLAMOSAS –is a Paralegal at Vouga & Olmedo Abogados.tion of operating costs. She is expected to obtain her law degree from at National University of Paraguay must take advantage of its Asunción, Paraguay / Katholieke Universiteit Leuven, Belgium this year.strategic potential and turn into a centre She speaks Spanish, English, German and Dutch and is a member of thefor transport and logistics services. European Law Students Association and Erasmus Mundus Alumni. She With the new Public Works Conces- is also a participant of the Roundtable on Renewable Energies of thesion Bill underway and the launch of the Paraguayan Ministry of Industry and Commerce.investment master plans for transportand logistics services (PMT), there is nodoubt this shift of Paraguay’s role in theregion is on its way.
  • 44 Latin Infrastructure Quarterly InstitutionsSocial LIQ talks to Fernando Ruiz-Mier, Senior Operations Officer at IFCResponsibilityand InfrastructureDevelopment ways realized because often local gov- ernments 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. Extrac-The Social Responsibility Forum This kind of information helps to justify tive companies can, as part of their Cor-for the Extractive Sectors has a pre- and stabilize the annual budget that com- porate Social Responsibility program,conference workshop that you will be panies devote to sustainability efforts. It engage with local governments helpingleading and in the workshop’s agenda creates incentives, within companies, to them build the necessary capacity to ef-something caught my attention, a mod- invest in their communities. fectively invest the revenues. They canel to estimate the financial returns of also support initiatives of local civil so-community investments. This is a very At said Forum, you also intend to ad- ciety organizations to build their capac-interesting concept, how does it work? dress the question of how can corpo- ity to engage their local government and rate social responsibility contribute to hold it accountable for the use of theThe Sustainability Planning and Financial the impact royalties and taxes have on revenues. In IFC’s experience, havingValuation Tool (FV Tool) for the extrac- local communities, how do you think companies and local governments worktive industries generates reasonable net companies and local governments can together in something as specific as en-present value ranges on the return from work together? suring that the available revenues arecommunity investments and calculates the taken advantage of, not only helps de-financial value of risks mitigated through Increasingly countries’ fiscal regimes liver benefits to the population throughsuch activities. This value can take the mandate that a portion of the revenues increased investment, but also adds aform of either value protection (i.e. value generated by oil, gas, and mining proj- dimension to the relationship betweenof avoiding risks) or value creation (i.e. ects, in the form of royalties and taxes, the local government and the companycash savings/productivity gains). The be transferred to sub-national govern- helping them know each other better andoutputs will enable the justification and ments (e.g. municipalities). Given that building trust.quantification of the business case for so- these revenues can be substantial, theycial investments, and provide a compara- constitute an important channel through How do you define “strategic commu-tive analysis of social investment options. which the presence of an extractive com- nity investment”?The tool is grounded in the assumption pany can contribute to generate benefitsthat a company’s community investments for local communities, provided that For IFC, Strategic Community Invest-can improve relationships between a they are well invested and respond to ment (SCI) involves contributions orcompany and community, which should the needs of the local population, in an actions by companies that go beyondreduce the likelihood of risks and as a efficient and transparent manner. How- compliance with country requirementsresult bring value back to the company. ever, the potential benefits are not al- and the standards set by IFC. It aims to
  • Institutions Latin Infrastructure Quarterly 45address the local development needs and promote local development. Our ac-priorities in ways that are sustainable and tivities focus on: a) helping to ensure athat support the company’s business ob- community’s capacity to participate and Fernando is the Regional Coor-jectives. benefit from large scale development dinator for Strategic Commu- Community investment programs are projects; b) building the capacity of local nity Investment projects in Latinevolving as companies move away from government and communities to manage America and the Caribbean. Hephilanthropic donations and reactive revenues; c) increasing local content in has been working on Strategicpractices to more strategic ways of plan- supply chains, and; d) disseminating Community Investment projectsning and delivering their programs. In line good practices on community develop- in IFC for the last 5 years, andwith this IFC places emphasis on viewing ment. IFC implements SCI project in has led the development of theSCI through the lens of risks and opportu- association with client companies and, approach and methodology IFCnities, and on creating “shared value” by when appropriate, involves local gov- applies in Revenue Manage-aligning business goals and competencies ernments and other organizations. Oc- ment projects.with the development priorities of local casionally, IFC also works at the sector Fernando holds a Ph.D. de-stakeholders. This includes a focus on level by sharing best practices with the gree in Economics from Purduebuilding social capital and local owner- industry and the national and municipal University. He has experienceship through multi-stakeholder processes; governments. in consulting, the public sec-factoring sustainability and handover tor, and academia. He held thestrategies into project design, and mea- How do you work with infrastructure position of Manager in Chargesuring and communicating results to op- project sponsors to adopt internation- of Reviewing Operations at thetimize the business value derived from ally recognized environmental and so- Andean Development Corpo-SCI. cial standards? ration (CAF) and headed the consultancy practice at KPMGWhat kind of advisory work do you do IFC’s Advisory Services in Public Pri- in Bolivia. His public sector ex-in the infrastructure field? vate Partnerships department (C3P) as- perience includes serving as sists governments (national, state or mu- Vice-Minister of Social PolicyGiven that infrastructure projects gen- nicipal) in the structuring, promotion and and Investment in the Minis-erally have a large footprint and impact bidding process of infrastructure projects try of Human Development, ason surrounding communities SCI work under PPP schemes. It covers core in- Vice-Minister of Public Invest-s very relevant for them. IFC’s work on frastructure such as transport (airport, ment and External Financing inSCI focuses on increasing community in- airlines, port, roads, railways), energy the Ministry of Planning and asvestments which enhance social, environ- (generation, including renewable energy, Vice-Minister for Monetary Pol-mental and, economic benefits where IFC distribution, transmission), water and icy in the Ministry of Finance, allhas investment interests such as natural sanitation and telecommunications as in Bolivia.resources, agribusiness, forestry and in- well as social infrastructure (health andfrastructure. education). Advisory work in SCI involves help- Does IFC advisory services in technical, financial and legal due dili-ing IFC clients develop a strategic ap- sustainable business work together gence on the investment projects beforeproach for community investment proj- with IFC investment services and/ taking them to market, including envi-ects that are consistent with their business or with government PPP agen- ronmental and social studies under IFCobjectives (e.g. manage site-level social cies in the field of infrastructure? standards, with the assistance of spe-and environmentally induced risks) and IFC’s C3P conducts a comprehensive cialized external consultants. Once the private sector party is selected through a competitive process, the IFC invest-Extractive companies can, as ment department may provide financing to such selected sponsor following IFCpart of their Corporate Social protocols to avoid any potential conflict of interest and with the permission ofResponsibility program, engage with the corresponding government client. IFC financing will required compliance of IFC Environmental & Social stan-local governments helping them dards.build the necessary capacity toeffectively invest the revenues.
  • 46 Latin Infrastructure Quarterly Infrastructure Financing Bringing LIQ talks to Federico Girardotti of Faros Infrastructure Partners (“Faros”) projects to market: or does it require a lot of information exchange with potential bidders? Our observation is that there is a good deal of in- formation interchange with interested parties, but there is variability on a case by case basis. We What kind of services does Faros provide and who have seen RFPs being designed and subsequently the view from a privatesector advisor and investor are its main clients? altered to fit the profiles of the most likely po- tential bidders. We should not forget that one of Faros Infrastructure Partners is a boutique asset man- the greatest fears of the tendering authorities is to agement and investment firm focused on transportation end up with no bidders. We have also been in pro- and energy infrastructure, and ancillary revenues. We cesses where the government does not listen and work with investors, project sponsors, private equity ultimately makes mistakes that cost the failure of houses, infrastructure operators, funds, family offices, the project. There have been both happy and horror and financiers looking to make investments or acquisi- stories. In our experience in Latin America, gov- tions. We work through the life cycle of the project: ernments have always been determined and indus- due diligence process, bidding, financial closing, take trious after making the decision to go ahead with a over, asset management, refinancing/exit. project. However, there seems to be an element of improvisation in many cases, and some degree of What is Faros’ experience in Latin American infra- politically motivated moves. structure development and finance? Is there a clear idea among public sector officials Faros started as a European focused group but rapidly about what governments can do to help (leaving evolved incorporating the Americas to the scope. We subsidies aside) projects be “bankable”? have an office in the New York Area and an associated office in Mexico City in addition to our London office. The short answer is generally not. In our experi- We have worked in the Americas from renewable ence, recent projects in Latin America have been energy in California, to toll roads in Mexico, to the designed to be bankable only through national de- recent airport privatization process in Brazil. velopment banks. No private bank could dare to In Mexico we have advised a conglomerate in bid- bear the large financing and construction risks that ding for a toll road, and financing it after winning the some projects entail. Greenfield projects in gener- tender. We have also looked into another toll road and al have been designed in a way that requires large have been involved in an airport project. We currently initial capital expenditures with revenues too far in manage a commercial infrastructure network focused the future, in banking time scales. Other projects on ancillary revenues. involving operating assets result more attractive to In Brazil we came in with a strategic investor to private banks, but winners tend to pay high mul- work in the recent airport privatization process. We tiples which can be difficult to distil into credible expect to participate in the potential second round of business plans. When markets are too hot infra- airports. structure projects are often considered as an asset class similar to classic private equity, but they are Do governments in the LatAm region know what not. Banks have picked this up from examples in they want when they bring projects to the market other markets, like Europe.
  • Infrastructure Financing Latin Infrastructure Quarterly 47What is the public sector’s approach towards shar- Governments tend to overlook the importance of this fac-ing risks with the private sector? tor, or believe that the attraction of some projects is beyond the details. Sadly, some investors run into the unclear tariffThis is a complex issue. Ultimately everybody knows system pitfall and end up with underperforming assets.that if the venture fails, the big loser is always the pub-lic sector. Private parties have ways to cut losses and What are the sectors that you have been analyzing inretreat, but the government is the one ending up with a Brazil?dysfunctional, incomplete, or broken project. However,in Latin America the private party is always perceived Most recently we have been focusing on the airport sector.to be bearing the highest risks. This is almost always We have been fully involved in the Guarulhos, Viracopos,due to weaknesses in the legal framework and distrust and Brasilia process and expect to participate in the nexttowards political systems that historically suffered wild round if and when the government decides to go ahead.swings from one side to the other in the political spec- We know that currently there is a great deal of discussiontrum. It takes quite a lot of thinking for the public au- around the rights and wrongs stemming from the experi-thority to design the right framework for each situation ence in the first round, and there is the expectation thatin order to share risks in a sensible way. In this field some radical changes will be implemented in the privati-the public sectors in several countries of Latin America zation process.have made good progress. There are excellent exam-ples in Chile where a relatively long history of stability Federico has over 15 years of experience in project devel- opment, financing and advisory functions in transport, en-We have worked in the ergy and infrastructure in Europe and the Americas. With Faros, he is directly involved in the due diligence, analy-Americas from renewable sis and development of business and investment plans for infrastructure transactions. He was part of the acquisitionenergy in California, to transition team at Belfast City Airport (where he also serves as a member of the Executive Committee) and co-led thetoll roads in Mexico, to the development and implementation of the business plan (aviation, commercial, airside operations, land-side opera- tions, organization, etc.) for the Sabiha Gökçen Airport inrecent airport privatization Turkey. He led the economic proposal for the Riviera Maya Brazil. Airport in Mexico. He co-lead the due diligence team in theprocess in acquisition of AirMall (BAA USA). Prior to Faros he worked as a management consultant for BAA, in Project Finance for Repsol, and in strategic planning for BP. Federico hashas derisked all types of PPP and concession projects. a Professional Industrial Engineering degree from UCA inPerú is also moving in the right direction. On the flip Argentina and an MBA from Yale University.side, any country where contracts have been violatedwill have a hard time selling itself as a secure invest-ment destination, at least in the medium term, no matterthe efforts that the public sector makes to share risks.Besides the technical and economic characteristics ofthe project, what are the institutional/legal elementsthat private sectors investor ponder when consider-ing bidding for a project in our region?In our recent experience in transportation deals, the keyelement has always been the tariff structure and regula-tion. For assets that are natural monopolies (or oligopo-lies) like toll roads and airports, a well laid off tariffsystem can define the success or failure of the PPP. Thisinvolves the setup of an independent regulator and theadoption of a sound tariff structure with a clear escala-tion method that can be unambiguously modelled. Asfairly simple as it sounds, this is not always the case.
  • 48 Latin Infrastructure Quarterly Infrastructure FinancingRealInfrastructureCapital artnersLIQ talks to Susana López, Owner and PartnerReal Infrastructure Capital Partners LLC (“REAL”) has announced the first wide range of technologies including re-closing of its Latin Renewables Infrastructure Fund, LP with approximately US newables: wind, hydro, geothermal, and$50 million of commitments.  The Fund will invest in utility-scale, renewable re- biomass, as well the major competingsource power generation - principally wind and hydro power - in Latin America, technologies of natural gas, oil, coal andwith an immediate focus on Central America. The target size of the fund is $150 nuclear.- $200 million. Juan was a Partner with New York- based private equity investment firm Conduit Capital Partners LLC (Conduit).What is the background of the profes- projects) in the Southern Cone based in For over ten years, and across three man-sionals that make up Real Infrastruc- Buenos Aires and Sao Paulo; and PSEG aged funds, he was responsible for man-ture Capital Partners? Global, where he headed Latin Ameri- aging and/or investing more than $420 can project development based in Bue- million of equity investments in variousOur Managing Partners, Stephen Pearl- nos Aires. Stephen’s development and energy-related assets in the Latin Ameri-man and Juan F. Paez have over 35 years acquisition transactions exceed $1 bil- can and the Caribbean regions. Juan’sof experience of investment, project de- lion of equity investment in transactions experience has involved all aspects of thevelopment, and operational and financial totalling more than $4.7 billion in value. private equity investment business in themanagement in the international energy His power generation experience spans a power sector in Latin America, includingand Private Equity business. The othertwo partners of the fund are RodrigoBarfield and myself. Stephen was President of the Americas There are two aspects of our target countries’ economies that weDivision of Globeleq, an acquirer, devel-oper, owner and operator of electric pow- closely watch and evaluate: fromer generation located in emerging marketscountries. Stephen served on Globeleq’sExecutive Committee, and was a boardmember of various operating subsidiar- a microeconomic perspective, costies. Prior to joining Globeleq, Stephenworked in a number of leading interna- of energy and energy mix; from ational and domestic power companies, in-cluding Suez, where he headed the North macroeconomic standpoint, GDP andAmerican Cogeneration business; Enron,where he headed the Integrated Projects population growth.business unit (large scale gas and power
  • Infrastructure Financing Latin Infrastructure Quarterly 49origination, investment, asset manage- infrastructure investments in Asia and the tive from a price standpoint against otherment and divestment of portfolio compa- Middle East, specifically involved with forms of energy in order for the invest-nies. His experience runs across all levels investments in energy and oil and gas ment to be successful in the long run. Theof ownership structures from minority services companies. Previously, he was countries we target have such conditions,interest to controlling positions. Juan an Infrastructure Finance Specialist at the where high prices make renewable inbrings to REAL in-depth operational and World Bank. most cases the low-cost energy providermanagement expertise in various markets We each bring in a very complemen- and therefore requires no subsidies oracross the region and across different tary and comprehensive set of skills to the futile governmental support that can betypes of power generation technologies. fund. Stephen’s extensive experience in short lived as seen even in mature econo-Additionally, He also brings extensive the market affords REAL the wisdom of mies (see the example of Europe).origination and investment experience somebody who has navigated many busi- Additionally, electricity demand is al-as well as direct, recent experience with ness and economic cycles in Latin Ameri- ways highly correlated to economic andthe regulatory dynamics and environment ca, he has pretty much “seen it all”. Juan’s population growth. Historically, in thepresent in each market in the region, as long experience both investing in and target countries, electricity demand haswell as extensive working relationship managing assets in the region, and work- grown at a faster pace than the countries’with different market participants that of- ing hand in hand with me, grants REAL economies, even during economic slow-fers a unique source of deal origination. the opportunity of bringing a solid team downs. There is a large amount of invest- Juan and I have very extensive experi- with extensive and successful experience ment directed towards manufacturing in-ence working together as a cohesive in- collaborating jointly in the market, while dustries, commerce and the exploitation ofvestment team for many years. I worked Rodrigo’s experience establishing new natural resources and mining in the region,as Vice President evaluating new invest- funds and fundraising perfectly comple- which are electricity intensive industries.ment opportunities for the Latin Power ments our investment know-how. Furthermore, economic growth combined There are two aspects of our target countries’ economies that we closely watch and evaluate: from a microeconomic perspective, cost of energy and energy mix; from a macroeconomic standpoint, GDP and population growth.Funds at Conduit Capital Partners, where As a private equity fund manager, what with sustained population growth and in-I evaluated and culminated investments are the main indicators of a country’s crease of middle class consumption drivein thermal, hydroelectric and other re- economy and financial markets that electricity demand and investment.newable power projects in Latin America you evaluate?and the Caribbean and was actively in- What do institutional investors findvolved in the development and manage- There are two aspects of our target coun- attractive in an infrastructure fund?ment of many of the Fund’s investments. tries’ economies that we closely watch (for example: frequency distributionI have also collaborated extensively with and evaluate: from a microeconomic per- of returns, performance persistenceWolfensohn Capital Partners as an Invest- spective, cost of energy and energy mix; of certain private equity firms, diver-ment Consultant evaluating opportuni- from a macroeconomic standpoint, GDP sification benefits, volatility, long-termties in the Renewable Energy, Forestry and population growth. revenue streams)and Green Chemistry sectors in global We at REAL believe in the evolutionEmerging Markets. of energy matrix in emerging economies Our fund combines the best components As for Rodrigo, he was a Director of towards a strong component of renew- of Infrastructure funds and of commonInvestments with Middle East and Asia ables. Nonetheless, we question the long Private Equity Funds. Our investmentsCapital Partners’ (“MEACP”) Asia Clean term sustainability of government sub- are similar to those of most InfrastructureEnergy Fund. Prior to MEACP, Mr. sidies and tax credits as mechanisms to funds in the sense that they provide longBarfield was a Deputy Director of Invest- substantiate the use of renewables over term revenue agreements, strong regula-ments for Emerging Markets Partner- other conventional sources of electricity. tory and contractual protections and com-ship’s IDB Infrastructure Fund, covering Renewable energy should be competi- monly consists of USD denominated (on
  • 50 Latin Infrastructure Quarterly Infrastructure FinancingWe question the long term Will you consider both greenfield and brownfield projects?sustainability of government Yes. As part of our investment strategy we have both the skill set and the willingnesssubsidies and tax credits as to enter into these types of investments so long as they meet our investment criteria.mechanisms to substantiate What are the main elements of an in-the use of renewables over frastructure asset operator that you consider when evaluating an invest- ment?other conventional sources of We look for long-term partnerships withelectricity. local developers that are sound investors and know their local markets very well.indexed) revenues streams. Nonetheless, Considering the Fund’s “immediate fo- Among the factors considered whenthey also give our investors an opportu- cus” in Central America, are you plan- conducting a project valuation whichnity to tap into the growth of these up and ning on raising funds from institutional are the ones you will scrutinize thecoming economies as is the case with the investors from jurisdictions in that most?typical emerging market Private Equity part of our region?funds; in consequence, we believe our We look for how the investment fits theinvestors enjoy the best of both worlds, Our investment focus is regional and op- country where it is located across all fac-substantial yield and capital appreciation portunistic in nature, so we will target tors, including from a technical, commer-with a very protected downside scenario those markets where we feel best fit our cial and environmental and social pointsdue to the contracted nature of the invest- strategy; we are targeting institutional in- of view. We feel every investment madements. vestors in countries that have a more de- needs to have a balanced overall risk re- veloped pension and endowment system turn profile.In what was a strong first closing, your such as the United States, Europe, Austra-Fund received capital commitments lia and Asia. We are of course also target- Going back to the Fund’s “immediatefrom institutional investors (IFC, ing institutional investors in other coun- focus” in Central America, does theDEG, FMO and SIFEM) in an amount tries in the Region, and we feel Central lack of comparables in some of the ju-close to US$ 50 million, what are the America is not yet ready for institutional risdictions that are part of our regioncompetitive advantages of Real Infra- investors to make these types of invest- affect your valuation processes whenstructure Capital Partners? ments so we are talking with industrial considering an investment, during the groups and family offices in that part of life of the investment and when exitingWell, first and foremost, the skill set and the Region. it?extensive experience of our team with aproven track record in the business; sec-ondly, but equally important, we are lasersharp focused on a very particular market The countries we target have suchand investment thesis. We target regionsand countries in particular, with a strong conditions, where high prices makedemand, sound regulatory environmentsand with conditions that make renewable renewable in most cases the low-energy competitive even in the absenceof any subsidies or indirect government cost energy provider and thereforesupport. We believe we were successfulin attracting these prestigious and very requires no subsidies or futiledemanding anchor investors because theyfelt our story, our strategy and our cre- governmental support that can bedentials were unique in the marketplaceand as a team we were poised to seize the short lived as seen even in matureattractive opportunities present in our tar-get countries. economies.
  • Infrastructure Financing Latin Infrastructure Quarterly 51Comparables are no longer as difficultas they once were; given our team’s ex- We believe our investors enjoy the best of both worlds, substantial yieldtensive experience, we have been able tolead many exits that have set many firstsin the region. Of course, valuations arehighly dependent on economic cycles, and capital appreciation with a veryof which there have been many in LatinAmerica; that is the reason why we wantto ensure that even during economic protected downside scenario due to thedownturns, our assets will still produceattractive yield. contracted nature of the investments.Do you see margins improving due tonew developments in the technology Yes there is; transactions happen all the presents a very attractive opportunity forthat goes into these projects? time with assets in all stages of devel- different types of investors. We expect opment and in commercial operations. that such secondary market will continueMore than improving margins, we have There are different players in the mar- evolving and increasing during the life ofseen a significant improvement in the ket place seeking different types of risk our fund.competitiveness of the renewable tech- profiles. As you know Latin Americanologies versus other forms of energy,and we expect this trend to continue; forinstance, solar power will be at some not Susana López is an Owner and Partner of REAL. Prior to joining thevery distant future competitive on its REAL team, Susana worked as Vice President evaluating new invest-own, while today is still heavily reliant ment opportunities for the Latin Power Funds at Conduit Capital Part-on subsidies and therefore not our invest- ners, where she evaluated and culminated investments in thermal,ment focus. Also the participation of new hydroelectric and other Renewable Power projects in Latin Americamarket entrants in the engineering and, in and the Caribbean and was actively involved in the development andparticular, in the equipment manufactur- management of many of the Fund’s investments. She has also collabo-ing sector should benefit the competitive- rated extensively with Wolfensohn Capital Partners as an Investmentness of the technologies as well as the Consultant evaluating opportunities in the Renewable Energy, Forestrypricing. and Green Chemistry sectors in global Emerging Markets. Prior to her investment career, she served as Director of International Finance forWill you consider co-investments? CIEE (Council on International Educational Exchange), the leading U.S. non-governmental international education organization, and as Fi-Absolutely. Many of our investors are nance and Administration Direc-already expressing their strong interest tor for World Monuments Fund,in co-investment. And we certainly wel- a private, nonprofit organizationcome the opportunity to collaborate with dedicated to the preservation ofinvestors that can move rapidly to analyze endangered architectural andopportunities and commit capital required cultural sites around the world.to take advantage of opportunities as they She also has extensive experi-present themselves. ence as Project Manager for in- formation systems development.Considering that the “Fund will take Susana holds a B.S. in Businessequity stakes in generation assets of Management and Administra-various stages of development”, what is tion from IFE (Universidad Au-your policy towards construction risk? tónoma de Madrid), Spain, and an M.B.A. degree with a major inWe will take such risk while participating Finance from Columbia Businesswith experienced and credit-worthy con- School in New York. Miss Lópeztractors capable of fulfilling their contrac- has lived and worked in Spain,tual obligations. the U.K and the U.S.A., is a native Spanish speaker and fluent inIs there a secondary market of equity English and Portuguese.stakes in generation assets in LatinAmerica?
  • 52 Latin Infrastructure Quarterly Infrastructure FinancingThe Overseas its potential. World Bank data show that only 22 percent of roads in Latin America and the Caribbean were paved in 2009, compared with 62 percent in East Asia,Private and 87 percent in Europe. Budget con- straints have limited the ability of Latin American governments to invest in their roads, ports and airports: public invest-Investment ment in infrastructure fell from 4.5 per- cent of GDP in the mid-1980s to just 1.5 percent in the 1990s, with no significant rise since.Corporation The absence of public investment cre- ates both opportunity and demand for the private sector. A 2011 World Economic Forum report stated that Brazil, Chile,and LatAm Colombia, Peru and Mexico were among the most attractive regions in the world in terms of their private infrastructure investment climate. The study measuredInfrastructure factors such as regulatory framework, institutional framework, fiscal sustain- ability, political risk, macroeconomic indicators, and the return on factors of production.By Timothy Harwood, with Yet in the wake of the financial crisis, American companies are exercising great caution in their investments. Althoughcontributions from Sara Marcus Latin America may look good on paper, investors are still hesitant to expand their businesses abroad. This is in part due to the persistent reluctance of private banksInfrastructure investment and development finance often to finance projects in the region. Despitego hand in hand in Latin America, where the need formodern roads, updated ports and airports, and state-of-the-art energy sources begs the involvement of the privatesector. The Overseas Private Investment Corporation(OPIC), the U.S. Government’s development finance in-stitution, is uniquely situated to help American businessesinvest in projects in Latin America, working in partner-ship with local companies.S ince it was founded in 1971, well as political risk insurance, and sup- OPIC has helped encourage the port for private equity investment funds. flow of private capital into re- The resulting projects provide important gions where the private sector developmental benefits for host countries,either lacks the confidence to invest or and in the process help American compa-is unable to find sources of funding lo- nies – particularly small businesses – tocally, even where genuine investment expand into new markets. It’s a virtuousopportunities await. OPIC supports these cycle that benefits all involved.projects with direct loans and loan guar- In Latin America, growth prospects areanties – often with longer terms than are promising, but the region needs to addressavailable through private lenders – as its lack of infrastructure in order to reach
  • Infrastructure Financing Latin Infrastructure Quarterly 53vast improvements in regulatory frame- nance at ADC&HAS Airports Worldwide mercial banks. OPIC reviews all projectsworks and economic indicators, Latin (ADC&HAS), the development, opera- to ensure they meet agency requirementsAmerican countries are still deemed risky. tions and investment subsidiary company regarding the protection of the environ- This is where OPIC steps in. By pro- of HASDC, believes the investment en- ment, social impacts, health and safety,viding long-term financing where it is vironment is improving in many Latin which are aligned with the standards ofotherwise not available and executing American countries, although OPIC’s international finance organizations suchsuccessful deals, the agency plays a valu- support is still an important asset. Af- as the World Bank and International Fi-able demonstration role for subsequent ter working in Costa Rica and Ecuador, nance Corporation.investors, showing them that they too can HASDC and ADC&HAS are enthusiasticrealize positive returns. So as capital be- about expanding its presence in the re- New OPIC focus: renewablegins to flow, OPIC not only contributes to gion. With OPIC, “you have the U.S. gov- energythe development of Latin American econ-omies but also raises investor confidencein the region. OPIC has invested more than $27.2 By providing As OPIC looks to expand its portfolio in Latin America, the agency is moving long-termbillion in 1,332 projects in Latin America beyond traditional infrastructure proj-since 1974. Latin America is OPIC’s larg- ects into the renewable energy sector.est regional concentration, making up 23 In June 2011, OPIC approved $123 mil-percent of its current $14.5 billion port- financing where lion in financing for the construction offolio, and its projects span all manner of two 20-megawatt solar power plants ininfrastructure, including housing, energy,transportation, and telecommunications, it is otherwise Peru, the first large-scale solar project in the country. The project is being spon-among others. sored by Assured Guaranty Municipal In January 2011, OPIC approved a not available Corp., a New York-based public finance$55 million loan to finance the expan- and infrastructure subsidiary of Assuredsion of Costa Rica’s Juan Santamaría In- and executing Guaranty Ltd. Peru has some of the high-ternational Airport. The loan is enabling est solar energy levels in the world, yeta consortium led by HAS Development successful only 30 percent of the country’s ruralCorporation (HASDC), a Texas non- residents have access to electricity. Thisprofit corporation and an affiliate of theHouston Airport System, to expand and deals, OPIC OPIC project seeks to harness the coun- try’s solar potential to help transitionmodernize the major Central American Peru to a lower-carbon economy whiletransportation hub. “Airports are impor- plays a valuable increasing energy access among its ru-tant assets for economic development in ral poor. In June 2012, OPIC approvedemerging markets, providing connectivity demonstration a second loan of $185 million for theto greater regions, and spurring growth,” construction of two more 20-megawattsaid OPIC President and CEO Elizabeth role for solar plants in Peru. The loan will al-Littlefield. “This expansion project will low Conduit Capital Partners, a privateenable Costa Rica’s international airportto accommodate greater traffic and there- subsequent equity investment firm, to finance the construction and operation of the Tacnaby support growth in sectors like tourismand manufacturing.” investors, and Panamericana solar energy plants in rural Peru. The two investments in solar Ecuador can also look forward to the energy reflect OPIC’s global priority toopening of an OPIC-supported airport showing them expand the renewable resource sector;this coming February in its capital city, in 2011, OPIC tripled its financial com-Quito. The existing airport, Mariscal Su- that they too can mitment to renewable energy projectscre International Airport, is located in the worldwide.center of the city surrounded by moun-tains, which restricts aircraft approach realize positive Latin America can look forward to a period of economic growth as itand take-off paths. The new airport willbe expanded and modernized and have a returns. continues to improve its investment climate, and even more so as it devel-more practical location, on a plateau out- ops its roads, airports, and other infra-side the city where it will be able to ac- ernment behind you when it comes to ne- structure fundamentals. OPIC, withcommodate more air traffic. This upgrade gotiations with your counter-party, which its innovative financial tools and itswill help elevate Quito’s status as Ecua- for us are foreign governments,” Huang longstanding mission to address thedor’s mainland center for tourism. said. He also noted that OPIC’s develop- world’s toughest development chal- Greg Huang, Vice President of Fi- ment mandate differentiates it from com- lenges, is here to help.
  • 54 Latin Infrastructure Quarterly Infrastructure FinancingEDC - Canada’sexport creditagencyLIQ talks to Jean Cardyn, such areas as power generation, water/ wastewater technology, engineering, healthcare, highways, airports, relatedRegional Vice President, South equipment manufacturing and supply, concessions and related investments.America, Export Development Canada (EDC), Canada’s export credit agency, has rep- resentatives in seven Latin American re- gions (out of 16 around the world). TheyCanadian companies understand that the potential for can help Canadian businesses and theirbusiness growth today is higher in emerging markets than trading partners access practical financ- ing and risk management solutions to fa-in the most industrialized ones. And while the neighbour- cilitate, expand and create new trade be-ing U.S. remains Canada’s main trading partner, in recent tween Canada and many Latin Americanyears Canadian companies have been increasing their fo- countries.cus on those faster growing economies -- many countries Latin America is quite a volatile re-in Latin America (LatAm) being prime examples. gion from an economic, political and institutional perspective; what are theT main concerns Canadian companies he Canadian construction in- some extent the U.S.), is showing interest have when considering doing business dustry, for one, which repre- in Latin America, both for construction there? sents around 12% of Canada’s and concession projects. Indeed, Canada GDP and has traditionally fo- is known for the quality of its infrastruc- Canadian exporters and investors doingcused on the domestic market (and to ture, and has leading edge expertise in business in LatAm share similar concerns
  • Infrastructure Financing Latin Infrastructure Quarterly 55as those from other countries doing busi- Canadian companies’ participation in in- In EDC’s website, under “commonlyness overseas. These include being able frastructure projects will often involve searched countries” we found listedto familiarize themselves with the local the supply of equipment and services on Brazil, Mexico and Peru; what arebusiness environment and practices, cul- sub-contracting opportunities with local some of the key opportunities and ac-tural differences, and concerns about the or foreign companies. tivities of Canadian firms in these andstability of the economic and political en- Canadians see a growing number other markets?vironments, including reliable legal and of Latin American countries, large andregulatory frameworks and institutions. small, that have strong economies, politi- Canadians are known to be very active inThey also seek sound labour laws, avail- cal stability and reliable legal, regulatory mining and oil and gas in Latin America, and institutional environments, along with but they are also very much present in oth- solid growth in recent years. All these ele- er sectors, such as information and com-Canada is known ments are driving Canadian companies to look for opportunities in Latin America. munications technology (ICT), resources, transportation, and infrastructure, includ-for the quality ofits infrastructure,and has leadingedge expertisein such areas aspower generation,water/wastewatertechnology,engineering,healthcare,highways, airports, Above: A major highway in Rio de Janeiro, Brazil Below: A modern regional Chilean Hospitalrelated equipmentmanufacturing andsupply, concessionsand relatedinvestments.ability of qualified manpower, competi-tive costs, reliable infrastructure and mar-ket access, transparency, sound corporatesocial responsibility practices and avail-ability of reliable partners. Canadian companies also want assur-ance that their contract structures and cus-tomers will be financially sound. Contractawards for infrastructure can take a longtime, and competition can be challenging.
  • 56 Latin Infrastructure Quarterly Infrastructure Financing The most important Canadianing power generation and transmissionlines. For example, EDC has many cli-ents in the infrastructure sector, such asequipment suppliers and service provid- engineering firms are well establisheders. The most important Canadian engi-neering firms are well established in vari-ous countries in Latin America; they have in various countries in Latin America;often started in the mining sector, thenexpanded into infrastructure. they have often started in the mining sector, then expanded into Many countries in Latin America havelarge infrastructure deficits that create infrastructure.bottlenecks to growth, and which theyare addressing. Countries like Colombia,Brazil, Mexico and Peru have announcedlarge infrastructure investment plans thatshould create better conditions for sus-tainable development, and this means op- sion models. A study commissioned by EDC assists Canadian exporters and in-portunities for Canadian exporters and in- the Multilateral Investment Fund (Mem- vestors in LatAm through a broad rangevestors. For example, Colombia recently ber of the IDB Group) shows that coun- of financing and risk management ser-announced a $100 billion infrastructure tries like Chile, Brazil, Peru, Mexico and vices, including project finance. Ourinvestment plan to help the economy Colombia present the best environment solutions can be made available not onlyachieve its target of sustainable 6% annu- for PPPs, and have the best institutional to Canadian exporters and investors, butal growth. Likewise, Chile announced it frameworks among LatAm countries. also to foreign buyers, and to Canadian,will tender for the construction of a num- Canada is today one of the most respect- international and local financial institu-ber of hospitals on a concession basis. ed countries in the world in successfully tions. Broadly speaking, our toolkit in-And Brazil has indicated that 5,700 km of implementing PPP projects. Our experi- cludes financing, credit and political riskroads and 5,000 km of railway lines will ence with this model began in the early insurance, loan guarantees, bonding, andbe opened to the private sector as conces- nineties, and many projects have been other risk mitigating products. Some 45%sions (many more are expected soon). As completed at the municipal, provincial of our business volume in Latin Americawell, Mexico’s National Infrastructure and national level. There are now more last year was done using our AccountsProgram identifies over 300 infrastruc- than 150 PPP projects at various stages in Receivable Insurance program.ture projects in multiple sectors repre- Canada, mostly in the health and trans- Often more than one EDC product willsenting over $300 billion, to be financed portation sectors. Our clients are bringing be involved in a single project or transac-using Public-Private Partnerships (PPP), this experience to LatAm. tion. An advantage EDC offers is beingwith significant Mexican public sector in- able to provide all these services undervestment. The list goes on, including in What are the usual types of solutions one roof, as well as working closely withcountries like Uruguay. (insurance, financing, bonding and private and public financial institutions to Most of these countries have regula- guarantees) that you provide to Cana- deliver the best solution to the client.tory frameworks to facilitate infrastruc- dian companies investing in or export- Another thing that differentiates EDCture development based on PPP conces- ing to those countries? from other financial institutions is our strong focus on helping local buyers familiarize themselves with Canadian capabilities. For this, we leverage theCanadian companies’ participation in financing relationships we develop with local companies, and organize market and matchmaking missions where like-infrastructure projects will often minded Canadian and local companies get to know each other. This helps theminvolve the supply of equipment identify new trade opportunities and hasand services on sub-contracting been important to grow Canadian busi- ness with key buyers in different LatAm markets. Our clients’ total business inopportunities with local or foreign Latin America (exports and investments) in 2011, using EDC’s services, exceededcompanies. CAD10 billion. Where local legislation permits, we may provide reinsurance to local surety
  • Infrastructure Financing Latin Infrastructure Quarterly 57firms to facilitate bonds for infrastructure • Large underwriting capacity, respon- plants, rail transportation, bulk and con-contracts that include procurement from sive and commercially focused; tainer port terminals, highways, airports,Canadian companies. We are now work- • Complementary PRI products, such training centers and hospitals, amonging to make this solution available in cer- as PRI for bank debt and non-honour- other social infrastructure. In LatAm (in-tain markets in Latin America. ing of sovereign obligations; cluding Caribbean), EDC has provided • Strong CSR credentials and environ- project finance for airports and hospitals,Do those solutions vary among said La- mental and social review standards as well as a gold mine.tAm countries? and bench-strength; and In addition to project finance, EDC • Selectively filling agency roles (tech- can provide corporate loans for a localThe mix of solutions available to our nical, environmental and social) in buyer’s general Canadian procurement,exporters and investors varies from one lender groups. and for specific projects. We have pro-transaction to another, reflecting local vided asset acquisition financing to Cana-market conditions and client needs. For dian investors in LatAm too. One suchexample, some markets are very liquid example was in Brazil where we provid-and do not require bilateral financing, Broadly speaking, ed a loan for the acquisition of a hydroor the buyer prefers to meet its financ- plant. In Colombia, we have done someing needs through the capital market as our toolkit reserves-based lending (oil & gas sector),opposed to bilateral sources. Our main and are looking to get involved in moreconcentration of financing is in the key includes financing, traditional infrastructure opportunities.LatAm markets, such as Mexico, Braziland Chile. In these regions, Canadian credit and political What is your relationship with regionalcompanies see little political risk, and and local development banks in Latintherefore often do not seek our political risk insurance, America? What kind of work do yourisk insurance (PRI); by contrast, PRI is do together with them?sometimes sought by financial institu- loan guarantees,tions in the region who want to expand We have worked with multilateral bankstheir business above their country or ob- bonding, and other active in LatAm, including IDB and IFC,ligor risk limits. We are also proactive in and are presently pursuing transactionsvarious other LatAm countries, such as risk mitigating in Brazil, Chile, Mexico Central Amer-Peru, Colombia, Panama, and Dominican ica and the Caribbean region. We haveRepublic, to name a few. products. Some protocols in place with the IFC and CAF, and have a close relationship with IDB,Let’s now expand on Canadian com- 45% of our focused on identifying opportunities forpanies’ participation in infrastructure joint support. We have also worked close-development and other projects in La- business volume ly with the Mexican-owned InfrastructuretAm; can you describe your project fi- bank (Banobras).nance services? in Latin America Multilaterals bring additional finan- cial capacity to the market to attract otherSome two thirds of EDC’s financing last year was done lenders and fill market gaps. The best op-last year went towards projects in Latin portunities are on the project finance frontAmerica. Our Project Finance team has using our Accounts where there is the need and potential forbeen actively engaged for the benefit risk sharing. Some industries, such asof Canadian exporters and investors in Receivable clean technologies, encounter challengesmultiple sectors throughout the region. such as the need for longer loan tenors.EDC seeks early engagement on project Insurance program. This type of industry is a natural fit forfinance projects, so that we can identify multilateral banks as they have more ap-the level of Canadian involvement, and petite for longer tenors than commercialparticipate in early discussions on project Can you comment on one or two infra- ones. Another area of increasing interestscope, and sizing and structuring of the structure projects in Latin America in is broadband infrastructure (ICT), which,financing plan. Notable features of our which EDC participated? by extending it to remote communities,project finance program include: can bring or improve services not read- EDC has provided project finance support ily available, such as new banking and• Full lead arranging capabilities and on many infrastructure projects world- healthcare services. track record in multiple sectors; wide, especially in the following fields: In February 2012, EDC signed a master• Committed, reliable partner bridging power sector (including thermal, hydro, cooperation agreement with IFC to iden- agency and commercial sources of some renewable energy projects and tify projects and initiatives for collabora- debt financing; transmission lines), mining, desalination tion and risk sharing, and for streamlining
  • 58 Latin Infrastructure Quarterly Infrastructure Financingthe lending process. IFC and EDC have Mr. Cardyn joined Export Development Canada (EDC) in 1979 andseen a deepening in their relationship, has held several leadership positions in the organization in the areasespecially in Latin America, including of lending, insurance, bonding, international relations, policy, and busi-projects in Mexico, Guyana and Chile. ness development. EDC also supported the IDB’s recent- From 1986 to 1991 he managed EDC’s lending programs for Southly launched Broadband Initiative, which East Asia, the Middle East, and East Africa. In 1991 he became Managerhighlighted the importance of broadband of Medium Term Insurance, Eastern Canada, and in 1995 he was ap-to development, while identifying the pointed Chief Underwriter, Contract Insurance and Bonding. From 2003major impediments to its proliferation to 2009 he assumed the role of Director, Policy and International Rela-in Latin America. EDC facilitated the tions, and in December 2009 he was appointed Regional Vice Presidentparticipation of Canadian companies in for South America in EDC’s International Business Development Group,consultations, ensuring that state-of-the- based in Sao Paulo, where he moved in June 2010.art Canadian broadband solutions and From 2003 to 2007, he was a member of the Management Committeeapproaches to the policy and regulatory of the Berne Union, the leading international association of private andenvironment were shared with key poli- public export credit insurers. He is currently a member of the Board ofcy makers. We also see opportunities for Directors of the Câmara de Comércio Brasil-Canadá.partnership on small cleantech project Mr. Cardyn graduated from Bishop’s University (Québec) with antransactions with the Investment Inter- HonoursDegree in Business Administration. He is fluent in French, Eng-American Corporation (IIC), a member lish, Spanish, and Portuguese.of the IDB group. EDC is Canada’s export credit agency, offering innovative commer- Another area of potential cooperation cial solutions to help Canadian exporters and investors expand theiris through the Canadian Climate Fund international business. EDC’s knowledge and partnerships are used byfor the Private Sector in the Americas in more than 7,700 Canadian companies and their global customers in upwhich Canada has committed $250 mil- to 200 markets worldwide each year.lion. This fund, managed by the IDB, EDC is financially self-sustaining andaims to promote private sector invest- a recognized leader in financial re-ment in climate change mitigation and porting and economic analysis.adaptation. We see an opportunity forCanadian companies to tap into this fund For more information on Canadianto invest in cleantech projects in Latin companies and EDC’s involvementAmerica and the Caribbean. in infrastructure in LatAm, visit: www. canadiansatwork.ca and www.edc.Do you participate in syndications ca/infrastructure. To find out morewith development and/or commercial about what EDC can do for you in Lat-banks?   in America, please do not hesitate to contact a representative in one of theEDC has worked well with international various offices across Latin Americabanks, LatAm-based financial institu- at: http://www.edc.ca/EN/about-us/tions and development banks. EDC contact-us/Pages/default.aspxseeks partnership opportunities and waysto leverage experienced PF institutions-- complementing each others’ servicesto help develop and structure viable fi-nancing solutions. As such, we haveparticipated in a number of syndicationsin Latin America in the past. EDC, forexample, is an active participant in theMexican syndication market, and we canact as Mandated Lead Arranger. We havebeen involved in recent syndications forAMX, PEMEX, CFE, Metalsa, and onefor an offshore platform. EDC also part-nered with the IFC in bank syndicatedfacilities for mobile telecom projects inPanama and Honduras.
  • Projects Latin Infrastructure Quarterly 59W ith the implementation Professional security services can act Choosing the Right of the United States-Co- as a counter-balance to the growing men- lombia Trade Promotion ace of crime against critical infrastruc- Agreement (TPA) on May ture. If properly run security can work15, 2012, Colombia joins the list of other effectively alongside, both law enforce- Security ProviderLatin American countries such as Costa ment and the military to secure valuableRica, the Dominican Republic, El Salva- markets and assets.dor, Guatemala, Honduras, and Nicara-gua as growing and important export mar- What to Look Forkets to the United States. Panama hopesto join said list as it is still in the process The first question to ask is, “what do Iof working on gaining trade agreement look for in a security company”? Likestatus with the United States. What does everything else you start by looking forthis mean? As these countries continue to reputable companies with track records ofexport millions of dollars worth of goods good customer service and performance.to the United States they will have to look Conduct some benchmarking of otherharder at increasing their security pos- companies similar to yours that employtures at maritime ports, terminals, com- contract security providers. Create a listpany facilities, and warehouses. of who is considered the best and start Security is a necessary evil that many ranking them, just like you would whencompanies do not like to pay too much interviewing candidates for an employ-for. Security programs do not produce ment position. Contact their clients andanything, especially profits. It is a bot- request some information on customertom-line expenditure that frequently is satisfaction, pricing, and performance.taken for granted until something happens. Once you do this set up a meeting withThroughout Latin America, countries are the perspective security providers.enduring guerilla insurgencies, narco-ter-rorism, and increasing transnational gang Hiring Practicesviolence. Criminal organizations look forevery opportunity to exploit, and extort The most important aspect of whethercompanies out of millions of dollars worth you are going to get good service is byof goods and services. Police forces in assessing hiring practices. By this I meanmany Latin American countries are over- look at a security company(s) core val-whelmed, under-equipped, under-funded, ues and see if they recruit and perform toand ill-trained to deal with the realities and those standards. It is not difficult to seescale of criminal / terrorists activities. and hear news reports of companies that Juan Garcia is an expert in physical security planning, security force training and operations, threat analysis & vulnerability assessments, and protective strategies.Puerto Santa Marta Colombia
  • 60 Latin Infrastructure Quarterly ProjectsSecurity is a necessary evil that many that defense is either going to hold up or crumble. Evaluate several areas;companies do not like to pay too much 1. the depth of initial trainingfor. Security programs do not produce 2. continual training programs and frequencyanything. It is a bottom-line expenditure 3. instructor certifications When it comes to the training instructorsthat frequently is taken for granted until it is not enough to verify certifications,something happens. but how current are the training qualifi- cations. It does you no good to have a training instructor that has nice certifica- tions that are 5 to 10 years old. Instruc- tors should undergo retraining at a mini-are alleged of employing questionable type of psychological and medical exami- mum every three years to maintain theirhiring practices in order to meet contrac- nations.? These are four key areas to asses skill-sets. Also consider training facilitiestual obligations. It recently happened to when looking to upgrade or start a secu- and training aids, are they up to date anda global security giant in preparations for rity program. If the right people are not professionally kept.the 2012 London Olympics. selected you are already fighting a losing battle. To find quality people the proper Supervisory OversightBackground Checks / Exams vetting process must be in place. If training is the first element in perfor-When it comes to hiring a security can- Training mance the second is effective supervisorydidate the top consideration should be oversight. Are the officers being held tohonesty and trustworthiness. First, is So how do we measure performance? It the standards and contractual obligationsthe company set up to conduct viable is a two-fold answer, one is training, and that you are paying for? Supervisors needbackground checks starting with police the other is supervisory oversight, which to be selected for their applicable experi-checks, and not only within the appli- will be addressed later. After the right ence in managing people and programs,cant’s current address, but going back 5 person is hired, training that officer to higher education, and professional back-to 7 years of residences? Second, does perform to the highest standard is critical. grounds. They also need to be continu-the company(s) check for valid addresses, In crisis situations people will fall back ally developed to ensure proper adher-birth certificates, diplomas, and court pa- on their training. Military personnel are ence to policies and procedures. Retiredpers? Third, does the company(s) conduct trained to muscle memory, they continu- military and law enforcement personnelany kind of reading, writing, and math ex- ally train to retain that muscle memory. make very good security supervisors dueams to gauge basic educational abilities? Security personnel should be no differ- to their vast experiences, and training.Finally, does the company(s) conduct any ent, they are the first line of defense and Don’t forget in order to get qualified and professional supervisors the pay-rate has to be in-line with the responsibilities.Global trading partners want to be Job Tasksreassured that their goods are reaching Now that you are moving closer to meet- ing your security needs with the right pro-their destinations, and that products vider what are the job competencies that you want the officers to perform? Areare leaving safely and intact. The only your security needs for basic roving pa- trol duties, entry control personnel / mate-way to help guarantee that this occurs rial / vehicle searches, fixed observation posts, and safety; or more in-depth secu- rity force operations? Establishing job-is by having and maintaining a robust task criteria and expectations is crucial to meeting performance standards, andsecurity program that evolves with sustaining those standards. Determiningchanging times. correct job-tasks will go a long way in determining the annual operating budget. Performance indicators can be utilized to
  • Projects Latin Infrastructure Quarterly 61determine gaps in security performanceonce job-tasks are defined, clearly under- Juan Garcia is a veteran with more than 28 years of tactical and security forcestood, and agreed upon. By maintaining a experience, both in the military and civilian realm. Mr. Garcia currently workssmooth operating security program, other within the critical infrastructure field. He is subject matter expert in physicalfactors such as attrition will be reduced. security planning, security force training and operations, threat analysis & vul-With continual and steady tenure valuable nerability assessments, and protective strategies. Mr. Garcia can be reachedexperience will be retained. Cohesion at garciajag@hotmail.com.and familiarity with operating processeswill be stronger.Summary 1. hiring the right company and peo- interests. Economic times are chal- ple lenging, by being a smarter shopperLatin American countries such as Mexi- 2. training them correctly to their you can still get a quality and com-co, Brazil, and Colombia are, or are be- job-tasks petent product. Too many times whatcoming major trading partners with the 3. providing competent and profes- people see are sloppy and ill-trainedUnited States and globally. The natural sional supervisory oversight. security officers. There is no way thatresources within Latin America are im- law enforcement and/or military forcesmense and still largely untapped to its full It does not matter if you contract out throughout Latin America are going topotential. Global trading partners want to security services, or develop your own defeat criminal activity all by them-be reassured that their goods are reach- in-house program, the principals men- selves. The answer is to augment pro-ing their destinations, and that products tioned still apply. This is just a quick tective services with quality and pro-are leaving safely and intact. The only snap shot at considerations when start- fessionally trained security officers.way to help guarantee that this occurs is ing or upgrading your program. There This will provide greater defense-in-by having and maintaining a robust secu- are many other considerations but fol- depth that any adversary will find hardrity program that evolves with changing lowing these simple principles will go to penetrate and overcome. Security istimes. It starts with; a long way to protecting your business your responsibility.Logistics inspection, Costa Rica
  • 62 Latin Infrastructure Quarterly RegulationThe New segments of generation, transmission, distribution and supply to competition. Taking advantage of the low oil prices of these days, the new private agents developed mostly conventional fossil-fuel thermal plants. But when oil prices began to climb in the past de- cade, the country began to experience firsthand the impact of higher tariffs on rate payers, particularly the poor, while at the same timeRenewable grappled with the challenge of covering the costs of fossil genera- tion, leading to a significant financial burden for the government. Not only energy costs were heading up, but also the liberal- ized market was finding increasing barriers to develop new gen- eration projects in a context of increasing demand – renewablesEnergy or thermal fossil. The second half of the 2000’s started a policy shift towards, on one hand, market stabilization and investment attraction based on a long term market contract development. The regulatory framework introduced long-term contract auc- tions allocated by the distributors to procure new generation capacity in which all technologies compete under the same bid-Regulatory ding process. On the other hand, the new policy introduced fis- cal incentives and soft loan programs to promote clean energy projects. In addition, the National Energy Council of El Salva- dor was created in 2006 embracing as one of its key objectives shifting electricity generation towards renewable sources.Framework Show me the cash flow Fiscal incentives and soft loans proved to be per se insufficient to level the playing field with the fossil fuel power plants and attract new clean energy projects. Although energy auctions of long term power purchase agreements are a powerful tool toof El Salvador Based on a renewable standard portfolio model, the newBy Agustin Giménez Mathus regulatory framework setN technology oriented energy otwithstanding the existence of an open electricity gen- eration market and the implementation of fiscal incen- auctions used to allocate long tives and soft loan programs, clean energy projects have been unable to capture El Salvador renewable energy term power purchase agreements to attract new non-conventionalpotential. This article summarizes the new renewable energy regu-latory framework that the Government of El Salvador has approvedthis year to develop distributed generation and non-conventionaltechnologies, addressing the binding constraints that are lagging electricity generation projectsclean energy projects behind. Based on a renewable standard port-folio model, the new regulatory framework set technology oriented connected to the public utilitiesenergy auctions used to allocate long term power purchase agree-ments to attract new non-conventional electricity generation proj- distribution grid.ects connected to the public utilities distribution grid. develop new generation projects, non-conventional renewableMarket reform and renewables technologies face additional constraints that impede them fair- ly participating and taking advantage of this framework. First,As most countries in Central America, at the end of the 1990’s El most of these technologies – such as wind, solar and small hydroSalvador liberalized and opened up its electricity sector moving plants – cannot provide firm capacity as required by these poweraway from a vertically integrated monopoly structure, opening the purchase contracts. Second, some technologies costs are still
  • Regulation Latin Infrastructure Quarterly 63above grid parity. Notwithstanding generation costs in El Salva- To address the challenge posed by the small projects that maydor are high by international standards, and clean technologies perceive the auctions as a transaction cost barrier too difficultare gradually getting more efficient, their costs are still higher to overcome, the regulatory framework contemplates a specialthan thermal generation costs, depending significantly on the mechanism that mimics a FIT model. Energy auctions should re-type of technology. Finally, the energy auctions are restricted to serve a special energy block to be allocated afterwards to smallthe wholesale market participants, barring the entrance of small projects and auto-producers under the same tariff resulting fromscale projects below five megawatts of capacity. the auction. International experience shows that renewable energy proj-ects face multiple technical, legal and financial barriers. In the Concluding thoughtscase of El Salvador, our assessment shows that the key bindingconstraint was the lack of a regulatory framework that allows Different from many other consulting experiences, this proj-the renewable projects to take advantage of the energy auctions ect went a long way from diagnosis and regulatory design toin place to allocate long term electricity contracts that support sectoral and Government approval and now is heading to thethe new investments. Once the long term contracts implementation field, with the first clean energy auctionsprovide a stable revenue stream to the projects, round foreseen for the end of this year.the developers can knock on the doors of the We took four key lessons learned from thisbankers, and then take advantage of the process:soft loan programs and fiscal incentives A stakeholder’s analysis is a key require-available. ment to develop a successful implementa- tion strategy. Although many times someDedicated renewable en- stakeholders analysis are subjacent or im-ergy auctions plicit behind the policy design decisions made, an explicit and methodologicallyIn Latin America, auctions have consistent stakeholder analysis providesproven to be an alternative to the tra- strategic clarity to the policy cycle andditional administratively set feed-in priorities setting.tariffs that have been responsible for the Implementation requires a solid allianceinstallation of thousands of megawatts of between the policy and the regulatory author-renewable forms of energy mostly in Eu- ity, supported by a clear participation channelrope. The leading countries in renewable for the rest of the key stakeholders. Implementingenergy promotion in the region are using auc- a renewable energy regulatory framework involvestions to fostering competition, pushing prices concerted actions of multiple stakeholders com-down in the entire supply chain, and therefore ing from the public and private sectors. One singlereducing tariffs to end-users, making the whole entity, working under a conventional hierarchicalprocess more sustainable. The basic concept structure, cannot handle the whole formulation, ap-behind El Salvador new regulatory framework proval, implementation and monitoring processes. Theis establishing dedicated renewable energy auc- stakeholders’ analysis showed from the beginning thattions, within the existing larger framework of de- without a strong alliance between the energy policycentralized long term contracts bidding processes agency and the independent regulatory authority, themanaged by the distributors with regulatory over- process will be doomed to failure. The use of an Advi-sight. sory Council to support the task force integrating the two Although the regulatory framework does not im- agencies was effective to provide a transparent participa-pose a mandatory renewable portfolio standard to tion channel with the key stakeholders.the distributors, the National Energy Council will The formulation process is as important as its out-establish periodically national renewable energy put. An Advisory Council was created from the outset,consumption objectives that the distributors would have to following up on the formulation process, which facilitates thecontribute to reach, proposing to the Regulator the portion of project ownership and works as a continuous reality check of thetheir future contracts that will be allocated to clean energy proj- proposals. Keeping some key stakeholders outside the Advisoryects through dedicated auctions. Council during formulation was later paid with long review and The dedicated renewable energy auctions could be technol- negotiation processes during approval.ogy specific or open the competition to different clean energy Preparing the approval and implementation processes couldtechnologies under the same bidding process. To address tech- be as important as the quality of policy design. In the policy cy-nical limitations, simplified non-firm contracts are envisioned, cle there is always a tension between process and policy design.oriented to projects under 20 megawatts of installed generation Usually policy design gets most of the policymakers’ attention,capacity connected directly to the distribution grid. In this sense, leaving the process management as an afterthought. A key suc-the regulatory framework is combining renewable energy pro- cess factor in this project was the attention and resources placedmotion within a distributed generation policy. in organizing the approval and implementation processes. Al-
  • 64 Latin Infrastructure Quarterly Regulation
  • Regulation Latin Infrastructure Quarterly 65 Agustín Giménez Mathus is a lawyer expert in governance and regulation of the energy sector. Since 1997, he has consulted widely in the public and private sectors in fourteen different countries of Latin America, Africa and Eastern Europe, un- dertaking a broad variety of consulting assign- ments involving private sector development, en- ergy sector governance and regulation, industry restructuring design, regional markets integra- tion, organizational design and institutional de- velopment, strategic policy planning, renewable energy promotion, drafting of laws, contracts and regulatory frameworks, and public programs de- velopment. Mr. Giménez holds a Master in Public Administration degree from Harvard University, with a concentration on regulation and industrialthough in this type of policy initiatives, implementation is not analysis and a Master’s degree in European Uniona lineal or coherent process but fragmented and hard to predict, Law from Universidad Autónoma de Madrid, Spain.paying more attention to the policy design could not solve the He is currently partner at FGM – a boutique lawchallenges of an effective management process. firm at the intersection of investment legal servic- The author likes to specially thank the contribution of Mr. es and infrastructure regulation – and professor atDavid J. Angelo, a bright summer intern law student from Uni- the Center for Energy Regulation (CEARE) of Uni-versity of San Francisco that joined the FGM team this year. versidad de Buenos Aires. In January, 2011, the National Energy Commission of ElSalvador (CNE) contracted Mr. Agustin Gimenez and Ms. LiliaPerrone for the Development of a regulatory framework for thepromotion of clean power projects, focused on renewable dis-tributed generation. The study was financed by the Energy andEnvironment Partnership with Central America, Central Ameri-ca Integration System (AEA- SICA, in Spanish). In September,2011, the Inter-American Development Bank (IDB) contractedMr. Gimenez Mathus to assist CNE with the implementation ofthe regulatory framework developed. The regulatory frameworkwas passed as Decree 80 of April 17th, 2012. CNE and theElectricity Regulatory Agency (SIGET) are planning to launchthe first energy auction for clean energy projects at the end of2012.Once the long term contractsprovide a stable revenue streamto the projects, the developerscan knock on the doors of thebankers, and then take advantageof the soft loan programs andfiscal incentives available.
  • 66 Latin Infrastructure Quarterly RegulationLocal How developed is the local supply chain of equipment and services in the oil & gas industry? Today one of the major challenges inContent Brazil is to develop a competitive sup- ply chain of goods and services in the oil and gas (O&G) sector. It is necessary to have huge demand for goods and services in this segment to develop a competitive supply chain. Due to the discovery of pre-in the salt reserves in the Brazilian coast, the demand for goods and services of supply chain will jump to another level in the fu- ture. Thereby, it will allow economies of scale, which is a necessary condition to justify the development of a competitiveBrazilian supply chain in the country. Addition- ally, several institutional measures are being undertaken in order to accelerate the growth of this industry, such as the local content policy in the concession of contracts for exploration and produc-O&G tion of oil and natural gas according to the regulatory agency (ANP). The main goal is not to develop an expensive sup- ply chain in the country, but certainly it is to develop a competitive domestic supply chain with the global market.sector What are the main obstacles affecting its development? Obstacles are nothing more than chal- lenges to overcome. Nowadays, there are many challenges. The good newsLIQ talks to André Pompeo do is that all challenges can be overcome with time. Clearly not all will be de-Amaral Mendes, Manager of feated in the short run simultaneously, and some will only be resolved in the medium and long term. Development isSupply Chain of Oil and Gas dynamic and not static. Not being able to overcome a particular challenge to-Department of Brazilian National day, does not mean that we will not be able to overcome it tomorrow. Nowa- days, the main challenges for develop-Development Bank (BNDES) ing a competitive chain of goods and services are: skilled labor, cost of capi- tal, an appreciated exchange rate, low productivity for some segments of the chain, and technological advances to some other chain segments. The chain is quite heterogeneous, so not all of the aforementioned factors affect all seg- ments of the O&G chain of goods and services in Brazil.
  • Regulation Latin Infrastructure Quarterly 67How does this affect the productivity of a competitive industry of high-tech goods of installed production capacity, workingthe oil & gas industry? and services in a medium and long term. capital, acquisition of technology and in- Thus, using appropriate processes, tech- vestments in research and developmentThose challenges affect the competitive- nology and sufficient scale to justify that, into new products and processes. In ad-ness of the domestic supply chain, espe- we will have an internationally competi- dition, BNDES conducted a cooperationcially in a short term, but we can work tive chain of high production in a satis- agreement with Petrobras and FINEPto surmount them over time. Nowadays factory term. Moreover, the O&G supply (Financiadora de Estudos e Projetos) tothere are several actions implemented to chain should not be simply turned to the launch a specific program - INOVA PET-overcome them. Besides, when measur- domestic market, but also to the foreign RO - to develop new products for O&Ging productivity in U.S. dollars, we have market in a medium and long term. sector, especially those focused on theto pay attention to a small detail. This How is the BNDES helping to further challenges to develop the fields of pre-saltmeasure is very sensitive to the exchange develop the local supply chain? in ultra-deep waters.rate. Nowadays, the devaluation of thedollar and the euro, due to American and The BNDES has elaborated a financing Has the BNDES had to deal with Bra-European banking crises, has undermined program specifically for the O&G supply zilian companies using cheaper im-the international competitiveness of in- chain of goods and services. This pro- ported goods and claiming to sell localdustries of some countries such as Brazil, gram is called BNDES P&G, which has content?which have their currencies appreciated reduced the financial cost, furthered theagainst the dollar and the euro, thereby access to credit and begun accepting con- Historically BNDES has financed only​​affecting their “productivity” in foreign tracts for delivery of goods and services goods and services made ​​ Brazil. The incurrency. On the other hand, regardless of as collateral. The BNDES P&G finances BNDES has always had a structure thatthe exchange rate, the goal is to develop the construction of new plants, expansion checks whether a good is manufactured
  • 68 Latin Infrastructure Quarterly Regulation
  • Regulation Latin Infrastructure Quarterly 69in the country or not. All loans are ac-companied financially, physically and au- Due to the discovery of pre-saltdited, so that there is no misuse under thefinancing contract. Therefore identifying reserves in the Brazilian coast, thewhether a good is really domestic or notis not new to the BNDES. Moreover, in demand for goods and services of supplythe current days in the O&G sector, theregulatory agency ANP requires the sub- chain will jump to another level in themission of a certificate issued by a localcontent independent certifier. So today it future. Thereby, it will allow economiesis quite easy to identify if a good is actual-ly domestic or not. It is worth noting that of scale, which is a necessary conditionthe methodology to quantify the percent-age of local content used by ANP (Agên- to justify the development of acia Nacional do Petróleo, Gás Natural eBiocombustíveis) was based on the meth- competitive supply chain in the country.odology of BNDES.What are international companies and tract, will have to comply with the agreed The federal government through its in-export credit agencies doing to deal minimum local content, otherwise they stitutions has been carrying out variouswith local content requirements? will be fined by said regulatory agency. actions in recent years to develop a local We are talking about a minimum local O&G supply chain. Some examples ofThe domestic or foreign operators of oil content and not 100% local content. Of these actions can be cited: local contentand gas sign a contract with the regula- course, to explore and develop an oil field policy, qualification of skilled manpow- is not possible to have 100% local content er by PROMINP, financing by BNDES, in a globalized world, nor is it the goal of INOVA PETRO Program for innovative local content policy. So there is plenty of products and processes for the develop-Nowadays, the room for foreign goods and services, and ment of pre-salt reserves and others ac- are sorely needed. Thus, the export credit tions. In the specific case of Petrobras,main challenges agencies can fund these foreign imported since the early 2000s the company hasfor developing a goods and services for the exploration, begun to direct the purchase of goods and development, and production of oil and services locally, in the cases they havecompetitive chain of gas fields in Brazil. existed in the domestic market at com- Besides, the oil price in the current petitive prices. Later, with local contentgoods and services are: level enables any investment in oil pro- commitments made ​​ the concession in duction in Brazil. In this scenario invest- contracts with ANP, Petrobras standard-skilled labor, cost of ments in offshore oil production will con- ized some platform projects to enablecapital, an appreciated tinue to exist even with the local content the achievement of long-term contracts policy. Additionally, it should be empha- for the purchase of certain goods. Thus,exchange rate, low sized that international companies are allowing economies of scale for local in- taking actions to develop local suppliers, dustry and attracting foreign companiesproductivity for some which did not occur before. to the country. As an example of this ac- tion, we can cite the installation of a turbosegments of the chain, How are the Federal government and generators assembly plant of Rolls Royce Petrobras incentivizing the develop- with 50% local content in the mediumand technological ment of a local supply chain? term in Brazil.advances to some otherchain segments. André Pompeo do Amaral Mendes is currently Manager of Supply Chain of Oil and Gas Department of Brazilian National Development Bank (BNDES). He has been at BNDES for 5 years. Before BNDES he worked at Petrobras for 7 years. In Petrobras André was a Business Consultant intory agency of O&G (ANP) to explore Strategy Department. André is an economist graduate at PUC-RJ and hasand produce oil and gas in Brazil. This a Master degree in economics and MBA degree in finance at IBMEC-RJ.contract has a minimum local content re-quirement. Therefore, all companies, thathave accepted the conditions of the con-
  • 70 Latin Infrastructure Quarterly PartnersPartners LatAm Chapter Connect | Unite | Inspire Advancing Transparency and Trust in LatAm Alternative Inves The Hedge Fund Association™ is a not-for-profit international group of industry professionals with a mission to provide a forum for thought leaders, innovators, practitioners and investors who are shaping the way business is conducted in the global hedge fund industry. With the maturity and institutionalization of the global hedge fund industry, the HFA advocates for the industry by giving voice to the issues affecting the industry through the education of investors, the media, regulators and legislators. Members of the HFA also serve the community at large
  • Institutions LatAm Chapter Latin Infrastructure Quarterly 71 Connect | Unite | Inspire Advancing Transparency and Trust in LatAm Alternative InvestmentsThe Hedge Fund Association™ is a not-for-profitinternational group of industry professionals with a missionto provide a forum for thought leaders, innovators,practitioners and investors who are shaping the way businessis conducted in the global hedge fund industry.With the maturity and institutionalization of the global hedgefund industry, the HFA advocates for the industry by givingvoice to the issues affecting the industry through theeducation of investors, the media, regulators and legislators.Members of the HFA also serve the community at largethrough a commitment to philanthropy.. Latin American Chapter Director Victor Hugo Rodriguez, LatAm Alternatives New York-LatAm Chapter Director Les Baquiran, Park Hill Group (a division of the Blackstone Group) Brazilian Chapter Co-Directors JOIN US AT HFA LatAm Marcia Rothschild, Citibank Latin America MEMBER BENEFITS: Otavio Vieira, Fides Asset Management Chilean Chapter Director  Exclusive Opportunity to be interviewed at Juan Luis Rivera, Moneda Asset Management Top Publications  Unique Private Events with Asset Colombian Chapter Director Allocators (Exclusive to Managers Daniel Osorio, Andean Capital Management Members)  Your Logo and Core Strategies Argentinean and Uruguay Chapter Co – Directors Description on HFA Web Site Michelle Furnari, LatAm Alternatives  Authorization to display HFA Logo in your Martin Litwak, Litwak and Partners firm literature  Private Invitations & Industry Conference Peruvian Chapter Director Discounts Carlos Rojas, Andino Capital Management  Access a network of leaders for Panama Chapter Director expanding professional opportunities Jose Abbo, SFC Investments  Introductory Annual Membership Pricing The Hedge Fund Association™ (U.S.) 1-202-478-2000 | info@thehfa.org | theHFA.org
  • 72 Latin Infrastructure Quarterly2ND EDITION - international conference on public-private partnerships in Ukraine public- RegulationIt is already the second edition of "Speed uppp Ukraine" - an international ppp 2013conference devoted to the development of PPPs in Ukraine and organized bythe most PPP-experienced organizations in the region - the Ukrainian PPPDevelopment Support Center and the Polish Institute for PPP. The honorarypatronage over the event is held by 4 Ukrainian institutions: 013 RIL 2 2 AP th⇒ 11-1 Ministry of Economic Development and Trade of Ukraine, KIEV,⇒ Ministry of Regional Development, Construction, Social Housing and Communal Services of Ukraine,⇒ State Agency for Investment and National Projects of Ukraine,⇒ Kiev City State Administration. Speed uppp UkraineCONFERENCE - Why to visit Kiev in April 2013?"Speed uppp Ukraine" is a perfect combination of knowledge & know-how transfer, mar- pppket intelligence and business networking with the most acknowledged decision makersand individuals form the PPP industry representing both the public administration as wellas private companies: i.e. high rank government officials, heads of local governments,mayors, investors, all sort of advisors and experts, bankers and financiers, developers,infrastructure operators, the building industry and many many more - mainly at the verysenior management level (CEOs, CFOs, managing directors, senior managers). ppp ppp pppCONFERENCE PROGRAM - aimed at the regional development through PPPsThe program of "Speed uppp Ukraine" has been designed to reflect the latest trends in the pppemerging PPP market of Ukraine as well as to present best international PPP practice:⇒ PPP and its role in regional development,⇒ international organizations and their role in regional development,⇒ promotion of PPP projects in Ukraine,⇒ mechanisms of PPP projects implementation,⇒ international experience of regional development based on PPP,⇒ international PPP Communities."Speed uppp Ukraine" also offers: ppp⇒ up to 40% reduced prices for accommodation at the city-center "President" Hotel****, MORE DETAILS at: at:⇒ networking area, excellent board, coctail reception, social events, ...⇒ compact exhibition space for your business and other sponsorship opportunities. www.speeduppp.com