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Colombia: Social infrastructure PPP projects

Colombia's most ambitious infrastructure programme commenced in 2012 with the enactment of Law 1508, which introduced public-private partnerships (PPPs). Later in 2013, the government launched its fourth-generation toll road programme (4G), the largest infrastructure programme in Colombia, aimed at reducing the country's lag in toll road infrastructure while promoting its development.

After four years of implementing the 4G toll road programme, government officials have recently stated that the next challenge is to develop social infrastructure programmes in Colombia, which comprise, among other things, the construction and financing of schools, museums, hospitals, prisons, and water and sewage systems.

This is certainly good news, but notwithstanding the importance of social infrastructure, there are several challenges that must be overcome to achieve a successful implementation of social infrastructure PPPs.

The main challenge when it comes to structuring social infrastructure PPPs in Colombia is funding. Social infrastructure projects lack a project-specific revenue source (from commercial exploitation) to fund the entire project and, therefore, they require public funding. Thus, public PPP social infrastructure initiatives must face the financial and budgetary constraints of the public sector, and private PPP initiatives are limited by strict restrictions on public expenditure, which render the latter virtually inapplicable. In addition, given the local component of social infrastructure projects, there is an important challenge as to the technical knowledge and sophistication of the public entities at the regional level (and their workforce). As such, the national government (which now has experience structuring PPPs) must provide technical support to the decentralised entities.

As a result, the structurers of the much needed social infrastructure projects in Colombia face difficult challenges. They must seek alternative and more innovative sources of funding, coupled with suitable risk sharing and risk allocation mechanisms in order to structure bankable and profitable social infrastructure projects. All this while fulfilling the public need for social infrastructure. In addition, amending the existing regulatory framework limiting public funding on private PPP initiatives could certainly support the development of social infrastructure PPP projects.

Carlos Fradique-Méndez and Natalia Arango Botero

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