The region has almost three decades of experience in the implementation of Public-Private Partnerships, or PPPs. These countries were among the innovators in the PPPs they launched.
Undoubtedly, the implementation of PPP programs and projects is a dynamic process. To illustrate this point, take the United Kingdom, where its Project Finance Initiative (PFI) has undergone several changes and adjustments since its creation in 1992. In New Zealand, the government learned from its first two PPP projects and through this experience, redesigned its institutional framework to make it more solid and establish standardized PPP contracts.
In Latin America, we have seen similar adjustments in several countries: in Mexico, for example, the bankruptcy of highway concessions during the 1990s left lessons learned that served to implement adjustments during the creation of the National Infrastructure Fund in 2008, as well as during the process of defining the portfolio of projects that could be implemented by this fund under the PPP scheme. In the case of Colombia, the country implemented its fourth round of highway concessions, considering the experience accumulated in the previous three rounds.
Given this, here are some noteworthy innovations currently being implemented in our region to promote the development of PPPs:
Chile: Infrastructure Fund
In Latin America and the Caribbean, Chile has the widest experience in the development of PPPs. This has allowed the country to identify an opportunity derived from the $9 billion in profits generated by its oldest concessions. In this way, in late 2018, Chile created an Infrastructure Fund, which is constituted as a state company whose objective will be to develop financing and investment activities in infrastructure projects, especially in those sectors where concessions are less developed, such as railroads or irrigation projects.
The resources of the fund will initially come from the Ministry of Public Works of Chile (MOP) through a planned transfer of concessions whose contracts will soon end in the future, if the fund generates profitable projects, its resources could increase. While there are other countries in Latin America that have public resources to invest in infrastructure projects, none uses the profits of completed concessions to generate more PPP projects— and this is where the innovation of this fund lies.
Uruguay: La Jacinta solar plant
One of the biggest challenges facing the development of PPP projects is currently obtaining long-term financing for private sponsors. Most commercial banks show little appetite for credit terms greater than 10 and 15 years. On the other hand, after the crisis of 2008, capital markets have been reluctant to invest in infrastructure. These two factors directly affect the availability of financing in our region and have particularly affected the development of projects that can only be financed in local currency.
Faced with this challenge, project sponsors of La Jacinta solar plant together with IDB Invest proposed an innovative scheme for its refinancing . Through IDB Invest’s involvement in the financial structure, it was possible to provide financial certainty and mobilize capital markets to place a long-term bond of $68 million. The use of these type of bonds (A / B bonds) and their long tenor (24 years), represented an innovation in the market and it is expected that this model can be replicated in other countries.
Mexico: Public street lighting
On many occasions, the development of PPPs in new sectors becomes a difficult challenge. Even when development of roads, urban transport projects or energy generation are already consolidated, there are still sectors in which great opportunities remain for the development of PPPs.
Such is the case of the project to change . This project had difficulties in accessing financing because it had no technological precedent and therefore its risk levels were high, and the amount of CapEx was not attractive to commercial banks. In response, IDB Invest granted concessional resources for financing through a guarantee of first losses and a senior loan.
In exchange for this support, the developer implemented measures that promote gender equity, including hiring women in technical areas and obtaining a Certificate of Equality in the Workplace. This innovative model has been replicated in other countries, promoting on the one hand the mitigation of greenhouse gases through the implementation of LED technology; and, on the other, to boost more equitable labor markets.
Overall, the changes, adjustments and innovations in the development of PPP projects and programs have been and continues to be a viable model, not only in our region but throughout the world. At the PPP Americas 2019 forum, we will discuss innovative projects and companies, and how our region prepares to face the most pressing challenges in regional infrastructure.
Join us in the Dominican Republic on May 15 and 16, and let’s continue the conversation.■
Published with permission by IDB Invest.