Challenges and opportunities of PPP contracts in Ecuador

The infrastructure financing needs in the cities of Ecuador call for additional efforts beyond the traditional processes in order to manage investments efficiently. In this sense, although they have not always worked properly, public-private partnerships (PPPs) are an efficient tool to sustain the pace of national and local investments during periods of modest economic performance.

Against this backdrop, CAF -development bank of Latin America- prepared the Guide on Public-Private Partnerships for Regional and Local Governments, intended to promote understanding of the model and define how it should fit into strategic planning instruments for urban settings.

During the presentation of the Guide in Quito and Guayaquil, Bernardo Requena, director-representative of CAF Ecuador, referred to the rapid growth of cities in Latin America and their resulting greater need for infrastructure and public services for an adequate quality of life. For this reason, Requena argued that PPPs can be considered as an alternative source of financing that should be properly structured and analyzed because not every project may apply to the model.

Álvaro Maldonado, Secretary of Productive Development of the Metropolitan District of Quito, said during the presentation of the Guide that the development model of the current administration calls for public investment complemented by private investment for the purpose of improving economic climate and attracting investments. In this context, he mentioned the work developed by the municipal government to generate interest in public-private partnerships, and referenced successful cases in the city such as the Quito airport.

Meanwhile, Eduardo Egas, executive president of the Corporation for Export Promotion and Investment, stressed during his presentation in Guayaquil the importance of establishing a public-private production pact that allows us to look ahead from the same perspective and that may lead to better terms and a better future for productive activity.

The “PPP Guide for Regional and Local Governments and Adaptation of the Model to Urban Environments,” was developed in collaboration with the Center of Specialists in public-private partnerships in Smart and Sustainable Cities (PPP for Cities) at the IESE Business School of the University of Navarra. The document presents basic notions for a better understanding of PPPs, how to evaluate the use of the PPP model with respect to other possible formulas and how to deal with the process of structuring a model contract, designed for urban projects, typically with a high social component, where economic profitability is not always feasible without public contributions.

This was explained by Mónica López, PPP Program Coordinator of the Vice Presidency of Infrastructure of CAF, who also commented on the actual PPP cases included in the Guide, such as the Kuélap cable car system in Peru, in which the added value of projects and stages was analyzed prior to the contract; or El Realto aqueduct in Mexico, which included an analysis of financial instruments; and VLT Carioca-Rio Tramway in Brazil, a case of governance and renegotiation.

In this manner, CAF continues to propose initiatives to underpin public sector capabilities, with the objective of making regional administrations better prepared and able to cope with challenges that arise during the project management phase.