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
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 email@example.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
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.