Context
It is estimated that Columbia requires USD139 billion invested into its road system to meet infrastructure needs by 2035. Colombia’s 4G infrastructure program calls for increased public-private partnerships. A 137km stretch of existing highway between Sisga and Aguacian needed upgrading, including road surface reconstruction, construction of 4 bridges, overhauling of 15 tunnels, and stabilising work on 180 damaged zones.
Problem
- The original USD440 million contract for the Transversal del Sisga highway did not outline the 452 plots of land that the concessionaire would need to acquire. Acquiring this land was both expensive and time-consuming.
- Government termination of concession contracts reduced appetite to fund projects, as lenders suffered significant losses from these terminations.
Innovation
- Law 1882 of 2018 (Colombia) treats concessions as project finance contracts instead of corporate contracts. It also provides clear liquidation guidelines for lenders in case the government cancels a concession contract before a project is operating.
- This new law makes it simpler to acquire land plots for project development and standardises documents and the tender process.
- Colombia’s national development bank (FDN) accepted a greater role in financing 4G projects to boost confidence in the infrastructure sector.
Stakeholders involved
- Blackrock: The world’s largest asset manager, which helped finance the project through the private capital fund
- Financiera de Desarrollo Nacional (FDN): Colombia’s national development bank
- Instituto de Crédito Oficial: Public Bank of Spain
- Fondo CAF-AM Ashmore
- Credicorp capital: Project structuring agents
Timeline
Results and impact
- A 2018 procurement law reform increased investor confidence in infrastructure projects and allowed four Colombian highways to reach financial close in the first half of 2018.
- The improved regulatory regime led to increased institutional investment to help fill infrastructure gap: much of the Transveral Del Sisga project debt (USD166.4 million) came from Blackrock and Ashmore-CAF loans after the government enacted the new procurement law.
Key lessons learnt
- Legal reform to ensure lenders would be reimbursed in event of contract termination was an important step in rebuilding lender confidence in the sector, particularly after large contract terminations and project cancellations.
- Setting the liquidation value of a contract according to international standards leads to the inclusion of all costs, investments, and expenses for the contractor. This allows for greater security for financial institutions who lend to the contractors.
- National development bank involvement in infrastructure lending can help restore private institutional confidence in project lending.
Attachments & Related Links
Colombian PPP Regulatory Overview
