Columbia – Govt to expand 31 airport

The Government is undertaking the most ambitious infrastructure programme in Latin America. Worth USD 70 billion and extending to 2035, the plan includes 101 basic road projects covering more than 12,500 km, 52 projects aimed at integrating nearly 7,000 km, more than 1,600 km of new railway track, maritime projects on eight rivers that cover 5,000 km, 31 airport expansions and port developments, and a scheme to reduce the country’s housing shortage by 50%. To that end, the 20-year Intermodal Transport Master Plan was developed in 2015 between the Government and the Colombian Infrastructure Chamber, a business association that includes concessionaires, construction companies, and engineering firms. “To reach the Government's goal, it will be necessary to invest at least 2% of GDP per year, equivalent to USD 6 billion,” says the former President of the Colombian National Infrastructure Agency ANI, Luis Fernando Andrade, who until August had presided over the country´s infrastructure programme. “The bulk of these investments will be done through public-private partnerships (PPPs).” The Fourth Generation (4G) is the latest iteration of a string of PPP regimes that the Government has rolled out in recent years. It was masterminded by ANI, which in 2011 replaced the former governmental agency overseeing the planning and funding of infrastructure, Colombia National Institute of Concessions (INCO). ANI adopted a more forward-thinking approach with the 4G regime, placing greater emphasis on finance. Specifically, the agency wanted to attract both local and international financial institutions to fund some USD 25 billion of transport infrastructure – primarily roads, with some railways, airports, and ports. ANI looked to emulate what had worked in other LatAm countries. For example, it turned to Peru to borrow the country’s innovative payment instruments – CRPAOs and RPI-CAOs – that successfully attracted many local and international investors to its milestone-based infrastructure projects. ANI adapted the concepts for its 4G programme creating ‘vigencias futuras’ (payments by the Government that are based on reaching certain milestones during a project’s development). However, the 4G programme has not been without its growing pains and international financings have slowed in the past year. Some projects have been delayed by environmental or technical difficulties, while others have been impacted – directly or indirectly – by a corruption scandal involving Brazilian construction firm Odebrecht, which in December 2016 admitted to paying USD 11 million in bribes to win Colombian public works contracts between 2009 and 2014. “The Odebrecht issue is an important one for investors and commercial banks,” says Jaime Ramirez, a member of the global energy, project and infrastructure finance group at law firm Milbank, Tweed, Hadley & McCloy. “It’s the most recent test of a concession regime in Colombia in this context, particularly as it relates to the termination payment.” The first phase of 4G is currently being executed, involving the 4G Highway PPP Programme. The airport component is well under way as well, with the expansion and modernization of all airports in the country's main cities aimed at keeping up with passenger traffic growth that has swelled from 36 million to 60 million per year between 2011 and 2016. The cumulative investment during the period was USD 3.5 billion. The most ambitious project is the expansion of Bogotá's El Dorado Airport, a USD 400 million investment which should be delivered in the fourth quarter of 2017. As for airports, the headline project is the second airport in Bogotá, valued at approximately USD 1 billion (#1002.21). “During the next 12 months, the Government also plans to award the expansion of the Cartagena and San Andres airports,” adds Andrade. Much has been done by the Government to attract foreign investors, particularly the provision of stable and predictable payment streams that can support international financing – for example the vigencias futuras, which contain a dollar-linked part that allows projects to easily tap international markets. The Government also put a termination payment within contracts that should be sufficient to cover the project’s debt and maybe even the sponsor’s equity, with the amount of the termination payment dependent on whether the concessionaire or the Government is at fault. Those efforts have paid off, according to Ramirez. “The fact that so many projects have attracted international banks is testament to the effort and time the Colombian government spent in designing the programme,” he says.
The foreign lenders comprise three European banks (Credit Agricole, Caixa Bank, Banque de Commerce et de Placements), three Asian banks (Mizuho Bank, Sumitomo Mitsui Banking Corporation (SMBC), Korea Development Bank), two U.S. Banks (Goldman Sachs, JP Morgan) and two multilateral banks (InterAmerican Development Bank, Central American Bank for Economic Integration). “The Colombian market is attractive because it is sizeable and there is a large pipeline of projects for the upcoming years,” says SMBC’s head of project finance for Latin America, Luis Fernando Perdigon. #1060.24