Planning for Success

18 April 2017 One of the biggest barriers to success in P3 projects has often been a lack of sufficient planning. Marina Formoso discusses how these issues can be resolved with a group of experts from across Latin America

Planning can often be the step that is forgotten in many sectors, and infrastructure is no exception. Governments regularly announce and launch infrastructure programs, but the often short-term nature of the political cycle and economic pressures can see them missing out vital early steps, which can lead to white elephants, overruns, discontent in the population and a lack of credibility with the private sector.

Steps undertaken prior to the bidding process will help to figure out basic things such as what projects are needed and why, as well as deciding which are a best fit for a P3 model.

Even Latin American countries with strong traditions in P3s such as Chile and Colombia, are not exempt from finding obstacles during the course of projects. Others, such as Uruguay and Peru, have recently upgraded their P3 laws and launched pilot projects.

P3 Bulletin has asked experts from Mexico, Uruguay and Colombia for their recommendations to plan an infrastructure pipeline.

Among their responses are to highlight the need for good economic and territory analysis, as well as planning pilot projects to analyze possible weaknesses in the system and rectify if need be, and to include the pipeline in the government’s priority plans to provide security to foreign investors.

Colombia

Luis Andrade, president, ANI

In order to plan and develop an infrastructure portfolio, technical, economic and strategic elements are required.

On the one hand, good planning must take into account the historical context, the current environment, and the possible projections of business. A transport masterplan, whose elaboration includes the consultation of regional and local needs, allows the identification of the projects that are considered necessary for the economic and social development of the country.

In this sense, the main criteria to choose them and not to fall into white elephants or politicized portfolios, is based on the identification of the benefits and the zones of influence, as well as the potential impact as activators of the economy.

On the other hand, a correct development of the projects should be based on a constant monitoring of the elements that can affect it and the ability to identify, manage and mitigate risks.

Likewise, the most efficient way to generate credibility and relevance is through results. Hence the pay scheme implies that the works are paid when they are completed and the contracts are designed in such a way so that the concessionaire's incentives are aimed at finishing the project as quickly as possible.

To overcome barriers like 'rights of way', experience tells us that the legislative framework can be modified to facilitate the timely availability of property for the project.

On the other hand, it is possible to improve the contract with the contractor and to coordinate with the local authorities.

On risks, the guiding principle of their allocation in concession contracts indicates that each risk should be assigned to the party that is best able to control, manage and mitigate it. In Colombia, the policy of risk allocation in concession projects has been reflected in documents of the National Council of Economic and Social Policy (CONPES).

As the country has gained experience in managing large-scale projects and matured the capacity of agents and the market, the distribution of risks has evolved. As a result of the better description of contractual terms and their adaptation to the new market conditions, today a system of sharing of risks in projects that favor the successful development of projects has developed.

To achieve good infrastructure planning and development, long-term plans must be developed to create trust and credibility to both national and international investors.

Uruguay

Federico Formento, partner, Fischer & Schickendantz

To commit, or not to commit – that is the question. The global P3 market is facing a major challenge: political changes by which capital has been completely volatile, and thus, changing the way governments focus on infrastructure projects.

A successful P3 programme requires conditions at governmental levels: reasonable and credible regulatory arrangements, a consolidated legal and policy framework (more than four years of implementation) and a favorable investment climate.

In addition, projects must count with relevant partners, adequate revenue stream, and the most famous formula: efficient allocation and management of risks.

Latin America, with Uruguay as clear evidence, reveals the trend. For a country which has only ever successfully procured two single P3 projects, 2016 has shown that it is possible to mix social infrastructure projects with ambitious industrial and commercial centers.

Key matters were undertaken by adapting a balance between the scope of works and costs to promote competition, taking advantage of the experience – and costs – of the first P3 developed projects, and thus, reducing the expense of bidding and advisory costs, defining the existence of a clear agenda with relevant agents representing the private sector versus the vast number of public organizations involved.

Neighbors such as Chile, Peru and Colombia applied this successful model. Argentina has recently passed a modern P3 Act.

Learned lessons arise from experience, always preceded – and followed – by commitment.

Mexico

Daniel Vieitez Martínez, executive director of the Program for the Promotion of Public-Private Partnerships (PIAPPEM)

Any P3 project should be framed in the development plans of the government to ensure that the scheme is a priority. Actually, it would be highly recommended for the government to consider a complete P3 pipeline involving several projects, especially if it is their first experience with P3s.

This set of projects can be identified as a P3 pilot program that promotes this public policy tool for the development of infrastructure and it will highlight challenges and new opportunities for the private sector. If the first projects to be procured are successful then the model can be replicated in the future.

Therefore, the P3 authority should make sure that the projects in the pipeline are consistent with the plans of the government before any approval. This will be the starting point for the justification of the project.

Prior to any decision, however, socioeconomic studies that prove the projects are socially profitable would be needed. If so, then the project has potential to be structured as a P3. This planning process would involve legal, technical and economic studies as well as a good preparation for the procurement process (bidding, adjudication and financial close). Maintenance and conclusion of the contract also need a specific focus, not just execution of the works.

Assuring that the purpose of the project in question is aligned with government plans and programs, it also should be aligned with the policies, rules and procedures of the public investment system.

While preparing a pilot P3 program, the P3 unit should:

• Choose the type of projects to be developed, whether this involves roads, water, sanitation, urban improvement, hospitals and education, amongst others;

• Choose the specific modality, or modalities, of P3 to be promoted;

• Ensure the project is subject to available public finance;

• Consider the minimum investment amount, either by project or by a set of projects, which may be attractive to potential developer investors, which can promote efficiency and economies of scale and allow for an appropriate transaction cost;

• Consider financial market conditions for infrastructure projects.

This page was last updated on:
15 June 2017.

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