New book analyzes role of public-private partnerships in infrastructure development in LA and Spain

(Lima, July 1, 2010).– Infrastructure is one of the basic and urgent requirements for the territorial coordination of Latin America, and for raising competitiveness and the quality of life of its citizens.

This challenge requires considerable financial resources, a wide range of advanced technology, and enormous institutional and management capacity. Consequently, the private sector has to join the efforts of the State to generate synergies which maximize development of infrastructure.

This was one of the conclusions during the presentation of the book "Public infrastructure and private participation: concepts and experiences in America and Spain," prepared by CAF. The work collects concepts and experiences in development of public infrastructure and private participation in Hispano-America, aware of the need to promote such innovative cooperation schemes between the State and private companies.

Antonio Juan Sosa, CAF vice president of infrastructure; Eleonora Silva, CAF director representative in Peru; and Jose Manuel Vasallo, co-author of the book took part in the presentation of the text, with remarks by Jorge Leon, director and CEO of Proinversión, and Milton Von Hesse, director of the Master’s in Public Management at University of the Pacific.

Infrastructure: an instrument of socioeconomic cohesion

The book examines a large variety of management models in different social and economic contexts, and is an important reference work for those involved in designing and implementing public policies.

For several years, the countries of the region have been successfully developing infrastructure projects with the participation of public and private sectors, which has required, in addition to improvement of technical conditions, modernization of regulatory and institutional frameworks.

Spain has become one of the reference countries for construction and efficient management of systems of transport, energy and telecommunications, and a paradigm for implementation of concession models and public private partnerships (PPP) which have been exported to many countries.

The study finds that, although investment in transport infrastructure does not in itself guarantee economic and regional development, it is no less true that it cannot take place in its absence. Infrastructure is also an important instrument of economic and social cohesion, structuring of the territory, spatial integration and improved accessibility. It is also essential to have the capacity to absorb not only existing traffic of people and goods, but also heavy growth of traffic resulting from the liberalization processes of markets and globalization of the economy.

Infrastructure can also have a pull effect on the national economy since with the multiplier effect it becomes a countercyclical instrument during times of crisis, which is very useful for speeding up the process of reactivating the economy.

Accordingly, it is not surprising that this situation – in which infrastructure plays a key role and in which the public authorities have evident budgetary problems – has revived the old debate on the effects of public investment in the economy, now in the context of sustainable economic growth, competitiveness and employment.

The Peruvian case

In the case of Peru, the book considers that development of PPP and concessions for road infrastructure projects can be considered as an overall success, although in many cases it has only been possible to attract the private sector at the cost of the public sector assuming substantial risks, such as traffic and, in some cases, construction.

Although, from an international point of view, the PPP agreements being implemented in Peru are more for construction and maintenance than concessions as such. Their main advantage is that they have obtained a government commitment to guaranteeing the long-term maintenance and operation of infrastructure. This will undoubtedly change its social efficiency since much of it – which was built with good intentions years ago – has become unserviceable due to the lack of proper maintenance.

According to the report, Peru was the last country in the region to introduce PPP projects on a large scale since they began in the late 1990s; however, in recent years governments have made a strong commitment to this type of project.

In this respect, the report emphasizes the leading role of Proinversión as promoter of private investment with responsibility for the technical, legal, and financial structuring of the projects in the different sectors.

On the type of infrastructure managed through concessions or PPP, most countries in the region have used these schemes to finance road infrastructure. Chile, Colombia and Peru have also used the model for airports, and Peru and Colombia for railway freight and ports.

According to the book, the Hispano-American model of concessions and PPP have been broadly successful because: first, projects can be quickly launched through bidding processes – the open procedure - which is extremely efficient; second, the model has stimulated healthy competition between companies, which has transferred efficiency to end users; third, users have been involved in financing projects; and lastly, building, operation and maintenance of infrastructure have been integrated into a single agreement, which acts as a long-term guarantee.

Finally, the study concludes that the challenges that lie ahead in the coming years in PPP projects in Spain and America are: counteracting the lack of quality criteria in the agreements which improve the service for users, and frequent opportunistic renegotiations arising from inadequate bidding processes, in which concession holders - pressured by fierce competition - have submitted unrealistic bids.