Real Estate & Construction

Partners in Progress

PPPs

Currently in the midst of a new wave of nationwide infrastructure development, Colombia revamped its PPP laws in an attempt to increase investment.

Enjoying a new period of peace and security marked by the recent end of Latin America’s longest conflict, Colombian officials recognize that the nation is in the midst of an ideal moment to develop much-needed infrastructure throughout the country. Colombia has long used concessions to fund infrastructural investment and development, but a collective understanding that additional regulatory structures were needed led the Colombian parliament to pass new legislation on PPPs in 2012. Championed as a necessary first step to rebuilding the nation’s infrastructure by President Juan Manuel Santos, the legislature eliminated the National Institute of Concessions and created a new National Infrastructure Agency. Colombia’s PPPs require an initial investment of approximately USD1.8 million to be funded either privately or by a mix of public and private funds. The PPP law caps concessions at a maximum length of 30 years, mandates transparency throughout each project’s lifespan in order to prevent corruption, and limits the amount of funding projects can receive. In designing the law, Colombian legislators looked to similar legislation elsewhere in Latin America and Europe to create a structure that encourages bidding and foreign investment while reducing waste, corruption, and inefficiency. In 2011, Colombia’s Ministry of Transportation introduced a transportation infrastructure plan that calls for USD50 billion in investment over the next decade in order to generate a 500% increase in highways, a 300% increase in railroads, and a 50% increase in air travel passengers.

The ambitious nationwide project has been one of the first major tests for the new PPP model, and early returns have been largely encouraging. One of the most important road projects in the transportation infrastructure plan is “Highways for Prosperity,” a five-part initiative that will construct 750km of new highways and cut travel times between major cities in half. Originally projected to cost COP5 trillion, it was revised to COP12 trillion due to a reassessment of the bridges and tunnels needed. The Colombian government agreed to finance up to COP10 trillion of the cost of the project. While the railroad infrastructure development program stands as one of the successes of the new PPP system, the difficulties the highway improvement project has faced demonstrate the issues that have some foreign construction firms wary of investing. So far, Colombia’s PPPs have worked best with regional companies with previous ties to the area and an understanding of how to navigate the nation’s regulatory environment, which, while much improved over the previous system, can still be cumbersome for outsiders. Rural projects frequently have to deal with environmental licensing and negotiations with indigenous groups, adding an element of risk and complexity to already-challenging projects. Still, international interest remains high, especially on the financial side, where banks like Grupo BTG Pactual and Goldman Sachs have been involved in financing efforts.

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