Public-Private Partnerships: Vital to Latin America Development

This slower growth is limiting the investment capacity of national and local governments for infrastructure projects in the region, which is key to comprehensive development of societies.

Against this backdrop, private-public partnerships (PPP) represent a strong tool to keep up the pace of investments in infrastructure and development projects, which are essential to improving the quality of life of millions of Latin Americans.

The advantages of PPPs are clear: they provide additional funds for governments, which traditionally rely only on public monies, to invest in development projects, while leveraging the technical and managerial knowledge of the private sector, adding value and greater technical efficiency.

Infrastructure is one of the areas that can benefit most from this investment modality, especially due to the fact that if Latin America intends to join the league of developed regions, it must mobilize funds that the public sector today can hardly disburse by itself.

Investments in infrastructure help boost productivity, international competitiveness and social well-being, according to the report “Public-Private Partnership in Latin America: Learning from experience.” In short, they can boost national economies.

“Public-private partnership models represent one of the greatest innovations in Latin America’s infrastructure sector in recent years, building on the experience of other countries, such as Spain and England, to develop such collaborations in the region,” says the report prepared by CAF—development bank of Latin America.

In Latin America, infrastructure investments have focused on the areas of transport (particularly on roads), electricity (power supply and generation), telecommunications and public facilities. The report states, however, that water and sanitation and urban transport have been somewhat neglected.

Success stories in the region

Chile stands out as a Latin American success story. This country fostered investments in transport infrastructure by combining public capital and domestic private funds. This combination has produced one of the most advanced transport infrastructures in the region, benefiting commuters and private investors alike.

Mexico is another example of the evolution of concessions and PPP models to introduce private ventures in infrastructure, despite the problems faced by concessions in the early 1990s, as part of the National Highway Program.

In recent years, several countries in the region, such as Brazil, Mexico, Colombia, Peru, Ecuador and Chile have advanced ambitious infrastructure development plans. By all accounts, PPP-based contracts are effective tools to raise the funding and resources needed to drive project development.

The report concludes with 12 PPP challenges in Latin America in the coming years:

1. Demonstrating that PPP projects add value compared to other conventional tender procedures.
2. Ensuring that PPPs are used to implement only socially-relevant projects, in order to avoid significant budgetary burdens in the future.
3. Providing public sector PPP managers with good training and encouragement.
4. Fostering the use of PPPs as project management methods at regional and local levels.
5. Ensuring greater participation and competition in tendering processes.
6. Making the risk transfer to different project stakeholders as sensible as possible in order to create added value.
7. Limiting contract changes after concession award to those strictly necessary in the public interest.
8. Open financing of PPP projects to all possible sources available in the market.
9. Encouraging society to value PPP projects through strong communication.
10. Implementing streamlined mechanisms to settle disputes, involving independent technical staff.
11. Shifting grantees’ revenue models to more service-oriented approaches.
12. Improving transparency in information.