The simple cost of getting exports to port and onto a ship can
make a crucial difference to a country’s
competitiveness. It’s a problem
that’s not lost on many Latin nations, where
authorities are painfully aware how decrepit infrastructure
remains one of the main impediments to the sustainable growth
of their economies.
Colombia is one such country; it has for years pondered a
range of options to improve its infrastructure. In mid-2013 it
announced plans to privatize a power company, to raise cash to
pay for better transport links. The move followed the setting
up of a national development bank aimed at better deploying
much needed financial resources, while also promoting a road
building effort unprecedented in its scale.
The trick, finance minister Mauricio Cárdenas told
LatinFinance, lies in balancing private and public
participation. "The government’s money is going to
work as a lever in order to bring in more private investment,"
he said of the development bank. "We want to make sure
infrastructure development is not constrained by limitations on
the part of commercial banks to extend long-term loans."
Across Latin America, governments are grappling with similar
issues. Ports, bridges, railways and pipelines may be dreary.
But they are vital for Latin America’s sparkling
growth to continue. Policymakers understand that, but must find
the best way to mix public and private sector financing for
Private investors want stability, not just in a country, but
also in its rules. That is especially true for projects with
long tenors. Countries with more stable regulations and
investment frameworks – such as Chile, Colombia and
Mexico – have been successful in welcoming investors.
The choices these and other countries make about private and
public investment based on their own social parameters go
beyond the politics of their next elections and will frame
their investment environments for the long-run.
"Ultimately, each country will see what works and as you see
throughout the region, it’s not one size fits
all," says Gabriel Goldschmidt, senior manager for
infrastructure in LatAm at the International Finance
Corporation. "Different countries manage this continuum of
public and private investment in different ways, and different
ways can work."
Security and stability
Financing infrastructure in Latin America has evolved
significantly over the past 25 years. Take the Antamina project
finance loan, signed in 1999. The Peruvian copper and zinc mine
raised $1.32 billion from 23 lenders – but to get
done, the deal also brought in eight political risk insurers
The following year, an Ecuadoran pipeline signed a $900
million project loan. Coming soon after the
sovereign’s default, the introduction of the
dollar, and a military coup attempt, the package was an effort.
Contracts known as "hell or high water", ship-or-pay agreements
helped the deal succeed. Under those contracts, the shippers
taking the oil from the end of the pipeline agreed to pay for
it, at a set rate – regardless of whether the project
was expropriated, or even completed.
Today, the challenges are vastly different. In the wake of
the 2008 and subsequent eurozone crises, many commercial banks
cut lending in LatAm. Development banks and other public
agencies stepped in, structuring far beyond previous
transaction volumes, says Jean-Marc Aboussouan, chief of the
Inter-American Development Bank’s infrastructure
Regional banks such as Colombia’s Bancolombia
and Brazil’s Itaú started to take a bigger
role, he says, as did BNDES, the Brazilian development bank.
But the sheer size of Latin America’s
infrastructure needs means that investment must come from a
wider range of sources than bank lending.
Indeed, today, a growing array of projects are bond-funded:
project bond sales picked up in 2011 and 2012 and are poised to
keep advancing, says Taisa Markus, a partner at law firm Paul
Hastings. LatAm’s first wind energy bonds
– $298.7 million of notes for Acciona’s
Oaxaca II and IV units – were sold in 2012.
Mexico has pushed infrastructure for some time, privatizing
telecommunications, ports, airports and rail in the 1990s to
bring in commercial investment. The spur continues today.
Enrique Peña Nieto’s administration
unveiled in 2013 a push for transport and communications
infrastructure, and has laid out reforms to the energy
"Looking at the next 10 years, one of the biggest stories
could be the liberalization of the Mexican oil and gas sector,"
says Isaac Deutsch, managing director and co-head of
specialized finance at Sumitomo Mitsui Banking Corporation.
Investors’ high confidence in
Mexico’s economy allows for infrastructure funding
innovations. In May 2013, Mexican toll road Red de Carreteras
de Occidente sold the first peso-denominated project bond
internationally, raising 7.5 billion pesos ($603
Internationally placed local currency infrastructure notes
have also emerged from Brazil, where the 2014 World Cup and
2016 Olympics have pushed the government to make an extra drive
to attract infrastructure investment. Again a toll road
operator was the first to make a splash. Concessionária
Auto Raposo Tavares (CART) sold the first large infrastructure
debenture overseas in December 2102, a 750 million
real ($357 million) issue.
A tax change in mid-2013, affording all Brazilian debt
issues the benefits once exclusive to infrastructure
debentures, looked set to make CART a rare deal, however. And
BNDES remains a central source of funding, although some
question how long it can keep up the pace as amid continuing
heavy infrastructure needs.
That is not to say Brazil has neglected infrastructure
financing. The privatization of its electric and telecom firms
in the late 1990s was designed to open the industries to
private capital and investment.
It passed public-private partnership laws in 2006 –
where funding comes from a mix of government and private sector
money – in another turning point for the
country’s infrastructure development. And in 2010,
then-president Luiz Inácio Lula da Silva launched a $526
billion investment plan targeting energy, transportation and
ports, among other sectors.
Peru, as with other countries, has struggled with social
unrest over the development of some of its big infrastructure
projects, notably in the mining sector. But public-private
partnerships in transportation, energy, water and waste sectors
are of growing appeal to investors.
In 2006 and 2007, authorities devised a creative solution to
finance a large-scale road concession projects, using
government-issued certificates called Certificados de
Reconocimiento del Pago Anual de Obras (CRPAO) to take out bank
debt. The fact investors were taking on sovereign risk made
them comfortable on financing the highway development.
A capital markets reform bill in the works and new
regulations to speed up infrastructure projects are among the
measures policymakers hope will keep growth high.
As countries across Latin America search for the best way to
entice private infrastructure investment, Colombia is
scrutinizing a broad range of possibilities. Investors are
waiting to see the details on the country’s fourth
generation (4G) road concessions. The package, of unprecedented
size, covers around 30 projects under a public-private
partnership program of around $20 billion.
Its history marked by financial malaise and terrorism,
Colombia has also struggled with a complex geography that
hinders easy transport, particularly by rail.
Under Juan Manuel Santos, the president, the country has
intensified a push to increase competitiveness by improving the
transport networks. "What this government did well is they
planned for the long run," says Juan Pablo Acosta, financing
products manager at Bancolombia. "The idea is that the next
government can continue that plan." LF