|Carlos Fradique Mendez||Cesar Rodriguez|
Despite the significant improvement in Colombia's economic fundamentals, some issues remain pending in the country's transport infrastructure. In response, the Colombian government has launched an ambitious public–private partnership (PPP) programme with an estimated investment of approximately $20 billion, which is generating an unprecedented demand on local financing sources and the need to adopt new approaches to project finance. Institutional investors, supranational and international financial institutions are likely to play a paramount role: traditional sources of banking finance are fairly limited given the dramatic increase in financing needs.
Although Colombian regulations provide certain flexibility to permit the participation of institutional pipeline investors in infrastructure, challenges remain regarding the way in which they can invest in PPPs.
Firstly, institutional investors face regulatory restrictions that limit their ability to invest in public instruments, essentially making it necessary that the securities they purchase are not structured or classified as public debt. Fiscal payments and toll revenues associated with projects must be recognised as a single source of revenue for payment of securities and payment should be conditional upon compliance with the particular PPP contract's requirements.
Secondly, under the new PPP Law, concessionaires will only have access to a project's revenues after specified project milestones are completed at levels of service and quality standards set forth in the PPP contract. Since this is related to the certainty of project revenues used to repay debt instruments, the PPP contract must provide for a clear mechanism to measure levels of service or quality standards compliance and cap any potential reductions to the payments made to the concessionaire.
Thirdly, institutional investors generally are not willing to assume any construction risks. Therefore, multilaterals or commercial banks will have to provide the initial financing and assume any construction risks. Nonetheless, it will be necessary to implement efficient mechanisms to ensure capital market take-outs, given that local banking financing is somewhat limited and usually cannot provide long-term loans.
All stakeholders agree that these challenges will ultimately be resolved to assure the beginning of long-term financing for Colombian PPP projects. The key to success will depend on how such issues are addressed in the various PPP contracts that are at their initial stages of negotiation.
Carlos Fradique and Cesar Rodriguez
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