CURRENT STATE OF THE BUSINESS ENVIRONMENT · CURRENT STATE OF THE BUSINESS ENVIRONMENT...

CURRENT STATEOF THE BUSINESS ENVIRONMENT

Number 5March 2016

Public-Private Partnerships – PPPs

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CURRENT STATE OF THE BUSINESS ENVIRONMENT


CURRENT STATE

OF THE BUSINESS ENVIRONMENT

Number 5March 2016

JUAN GABRIEL PÉREZEXECUTIVE DIRECTOR

ADRIANA FOREROSTRATEGY MANAGER

JULIÁN RODRÍGUEZINVESTMENT CLIMATE OFFICER

MAURICIO ROMEROHEAD OF RESEARCH AND

MARKET INTELLIGENCE


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EDITORIAL

Public–private partnerships (PPPs) are instruments that enable actors

in the public and private sectors to work together toward common

goals by conducting projects. Although they can assume various

forms, generally these partnerships are established as collaborative

structures involving the sharing of responsibilities, technical expertise,

experience, and resources, thus different financing models are

combined and these reflect each party’s capacity to control and

mitigate the associated risks.

For more than two decades, the participation of the private sector

in infrastructure projects—especially transport—and in the provision of

public services has been vital for the development of projects that

could not have been executed under a public investment model due

to fiscal matter restrictions.

Therefore, the private sector’s participation in infrastructure projects in

the city of Bogota and the country of Colombia is a significant impetus

for company development, growth, and expansion.

Considering the importance of the issue in attracting investment and

generating reinvestment in the city and the social benefit it provides

to the people of Bogota and the country, we decided to dedicate

this ninth edition of the newsletter to presenting the scope, evolution,

challenges, and recommendations regarding PPPs.

“Invest in Bogota” would like to thank the National Infrastructure

Agency (Agencia Nacional de Infraestructura, ANI) and the National

Development Financing Agency (Financiera de Desarrollo Nacional,

FDN) for their information and valuable contributions that enabled us

to produce this newsletter.

* Newsletter No. 197 Observatorio Legislativo, Instituto de Ciencia Política.

*

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OVERVIEW OF BOGOTA’S BUSINESS ENVIRONMENT

The legislative framework governing PPPs is as follows:

• LAW 1508 / 2012 (January 10).

• Resolution 3656 / 2012 – National Planning Department

(Departamento Nacional de Planeación, DNP; December 20).

PPP Types/Models:

PPP projects based on public initiatives: A public entity proposes

the conceptual ideas for such projects, with participation from the

private sector. Project financing sources may include contributions

from public resources, the economic exploitation of the PPPs, or a

combination of both. However, in both cases, any additional public

payments may not exceed 20% of the pre-stipulated contract value.

PPP projects based on private initiatives: The private sector provides

the conceptual ideas for such projects. In this case, the private firm

assumes the responsibility for project structuring at its own risk and

expense; the public sector is under no obligation to contribute to

the associated costs. If the project requires reimbursement from

public funds, this may not exceed 30% of the estimated project

investment budget. In the case of road infrastructure projects, the

percentage in question cannot exceed 20% of the estimated project

investment budget.

They are subject to administrative function and procurement

principles, as well as the fiscal sustainability criteria.

•

•

•

Main characteristics of PPPs:

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They are applicable when the economic assessments, cost/benefit analyses, or comparative studies during a project’s structuring stage show that they are efficient or essential for project execution.

They must encompass efficient risk allocation, whereby each risk is attributed to the party that is most capable of managing it to enable the mitigation of potential impacts on the infrastructure and service quality.

The right to collect resources generated through the project’s economic development and to receive disbursements from the public purse or any other payments will depend on infrastructure availability and the fulfillment of service levels and quality standards across the different project stages.

Minimum investment amount for PPP projects: Six thousand (6,000) current statutory minimum monthly salaries (approx. COP 3.8 billion)

Maximum term of PPP contract execution: Thirty (30) years, including extensions

Additions and extensions to PPP contracts: Any additions or extensions to the contract must be directly related to its objectives and made after the first three (3) years of the agreement and prior to the elapse of three-quarters (3/4) of the period initially agreed upon in the contract.

Time-related restrictions on entry into PPPs: At the regional level, no contracts can be entered into during the last year of government. However, this restriction does not apply at the national level.

If the private-initiative-based PPPs require public funds, a public call is issued for the tender and the contractor who will be in charge of the project is selected through it. If public funding is not required, the project is announced on the Electronic Public Procurement System (or SECOP in the original Spanish document) to allow other parties to state their interest in bidding for and participating in the project, thereby initiating a competitive selection process.

•

•

•

•

•

•

•

•

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The National Planning Department (DNP) legally established and administered the Single Public–Private Partnership Register (RUAPP in Spanish), through which a record is kept of the projects that the central government or regional entities structure or evaluate.

For regional entities that do not require central government approval, state entities must present to the DNP or the corresponding planning body their technical justification for the project’s execution through PPPs rather than through a traditional public works project.

The law requires that a risk analysis, socioeconomic assessment, and justification of the procurement form be performed as part of project structuring.

•

•

•

Comparison of the estimated time required to structure

public-initiative-based PPPs vs private-initiative-based PPPs:

Source: DNP, Public–Private Partnerships.

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According to Infrascope, an annual report published by the Economist

Intelligence Unit (EIU) and financially supported by the Multilateral

Investment Fund (MIF) of the Inter-American Development Bank

(IADB), which evaluates the environment for PPPs in Latin America

and the Caribbean, Colombia’s capacity for developing PPPs has

improved in recent years and reached a point where the country is

now considered one of the region’s best prepared countries for such

an undertaking.

IADB estimates suggest that approximately 5% of GDP would have to

be allocated to overcome the region’s infrastructure lag. However, in

the last ten years, only 2–3% of GDP has been invested in infrastructure

development. Since 2009, there has been an improvement in both the

climate in the region for mobilizing private investment in infrastructure

projects and the global environment for PPPs. Several countries have

updated their legislation on PPPs and created specialized units or new

government agencies dedicated to the structuring of such projects.

Of the 19 regional economies assessed, Chile, Brazil, Peru, Mexico,

and Colombia lead the rankings.

Environment for PPPs in Latin America

* Encompasses 19 qualitative and quantitative indicators, classified in six categories: Legal and regulatory framework; Institutional framework; Operational maturity; Investment climate; Financial facilities; and Subnational adjustment factor.

*

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Public-Private Partnerships – PPPs8 Public-Private Partnerships – PPPs

Benchmarking index assesing the enabling

environment for PPPs in Latin America, 2014

Source: Infrascope 2014: Evaluating the environment for public-private partnerships in Latin America and the Caribbean. The

Economist Intelligence Unit, at the request of the Multinational Investment Fund (MIF).

2013

2014

59.6 to 61

Ch

ile

Bra

zil

Pe

ru

Me

xic

o

Co

lom

bia

Uru

gu

ay

Gu

ate

mal

a

Jam

aic

a

El S

alva

do

r

Co

sta

Ric

a

Ho

nd

ura

s

Par

agu

ay

Trin

idad

an

d T

ob

ago

Pan

ama

Do

min

icia

n R

ep

ub

lic

Ec

uad

or

Nic

arag

ua

Arg

en

tin

a

Ven

ezu

ela

01

02

03

04

05

06

070

80

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In the case of Colombia, the overall rankings over the last five years

indicate progress. Between 2013 and 2014, the country gained 1.4

points, thereby consolidating its fifth-place position among the 19

economies analyzed. According to the EIU, Colombia is included in

the group of countries having “developed” environments for PPPs.

According to the DNP, this may be largely attributed to the introduction

of the PPPs Law (Ley de APP), which has been internationally

recognized as a strategy that includes private capital in infrastructure

projects and their subsequent regulations.

Indeed, owing to its advanced legislation, Colombia is now recognized

as a pioneering country for private initiatives. Great progress has been

made in securing the confidence of private firms, resulting in the

presentation of more projects than in other countries with similar laws

in place.

Evolution of Colombia

on the Infrascope Index (2009-2014)

Source: DNP. Public–Private Partnerships, based on Infrascope 2014.

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Country-wise number of private initiatives for PPP projects

Colombia’s performance according to the Infrascope 2014 criteria

In three of the six categories analyzed in the EIU report, Colombia has

obtained an outstanding score:

Average annual private initiatives

Source: DNP. Public–Private Partnerships

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Colombia attained a score of 78.0 and was placed fourth, ahead of countries like Mexico and Brazil (fifth and sixth place, respectively). Although institutional investors do represent an option, the vast majority of infrastructure projects in Colombia generally require supplementary foreign investment.

Investment climate criteria:

Regulatory framework criteria

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While evaluating suitable environments for PPPs, one of the most important aspects to be considered is the regulatory and institutional framework. The countries showing the most progress in this category are Mexico (in first place jointly with Chile and Peru) and Colombia (fourth place), which have improved their PPP-selection and decision-making processes. It is mandatory to perform a cost/benefit analysis while selecting PPP projects in Mexico and Colombia.

Of the PPP systems in the region, those of Colombia and Mexico are the most decentralized. According to the EIU, each Mexican government and sectoral ministry level is responsible for the planning, implementation, and supervision of PPPs. No institution at the ministerial level supervises or establishes policies for the entire system. A similar situation is observed in Colombia, although the National Planning Department supervises investment across all sectors.

In many countries, the monitoring and supervision of PPPs are not distinct from general planning and implementation. A need to establish supervision institutions that act as counterweights and independent regulatory bodies that supervise service quality is observed in Colombia.

Institutional framework criteria:

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As mentioned earlier, PPPs are becoming increasingly important in the development of infrastructure projects in Bogota and Colombia. This may be largely attributed to Colombia’s significant progress on this issue in recent years.

The central government has utilized a prudential amount of time to

design the regulations that, despite criticisms, have been fundamental

in attracting foreign investments and stimulating the economic

development of Bogota and Colombia.

Adjustments to regulatory, institutional and financial framework

Healthy finances and robust framework conditions:Fiscal sustainability in the constitution as a key public policy element

Fiscal RuleLevel of investment

Source: FDN

MEASURES FOR AN IMPROVED BUSINESS ENVIRONMENT IN BOGOTA

2011

2012

2013

2014 - 2016

Creation of ANI

Reinforcement of ANLA

Law 1474 (Phase 2 Studies)

PPP Law (1508)

Legislation on budgetary matters(Law 1483)

Infrastructure Law (1682)

Standard 4G contract

FDN transformation

Expansion of future commitments in dollars

Viability of credit with resources from pension funds through Capital Funds

Expansion of banks’ exposure limits to 4G projects

FDN capitalization decisionand resources allocated toFONDES

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First Wave

SecondWave

ThirdWave

Private Institutions

Private Initiatives

TOTAL

TOTAL

9

16

9

45

9

29

2

COP $3.6

COP $3.7

COP $3.1

COP $13.6

COP $2.7

COP $9.4

COP $0.5

COP $13.1

COP $14

COP $11.8

COP $52

COP $11

COP $38.1

COP $2.0

COP $13.7

COP $14.7

COP $12.4

COP $53.6

COP $10.7

COP $39

COP $2.1

Source: FDN

As outlined above, although only national-level figures are available,

both Colombia and Bogota have an enabling environment for PPPs.

Based on information reported in the RUAPP, some of the projects

with the largest resource investment in Bogota are as follows:

Figures in billions of COP

Until now, the Ministry of Finance has approved 29 infrastructure

projects and awarded another 27 projects through the PPP mechanism;

a further 16 private-initiative projects are currently being considered by

the ANI.

Waves Equity CAPEX DebtNo. Projects

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1

2

3

4

5

6

7

8

9

10

11

12

13

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INITIATIVES STATE

Bogotá - Zipaquirá commuter train

Light rail transit in Bogotá - South Corridor

Light rail transit in Bogotá - West Corridor

Bogotá - Girardot highway

PI Calle 153 - La Calera

PI access roads - north Bogotá

PI Bogotá ring road

Urban tramway (east)

IP perimeter corridor (south)

Puerto Logístico de las Américas (logistics center) - porta - app

Central station

El Campín Coliseum

Infrastructure upgrade at Bogota’s El Dorado Airport

El Dorado Airport - PPP proposal for PI hotel, aeromall, business center and ancillary services

Pre-feasibility rejected

Feasibility study underway





Pre-feasibility study underway






Declared void

Awarded to Colombiana de

Escenarios S.A.S.

We are working with the Office of the Secretary of Health to identify

international companies experienced in PPPs to specifically develop

digital healthcare platforms and build hospital infrastructure.

This collaboration has yielded a list of over 20 companies, along with

various success stories; we hope to sponsor an event at which the

Secretariat will present the projects to the companies.

Along with the local governments, “Invest in Bogota” is also assisting

in numerous PPP-related processes:

•

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While working with the Offices of the Secretary of Government

and the future Secretary of Security, we are looking for international

companies to develop PPPs for the implementation of digital security

platforms for Bogota citizens, as well as command and control

centers.

We have identified approximately 25 companies and success stories,

and expect that the Office of the Secretary of Security will be created

soon.

In our collaboration with the ICT council, we have created a list of

companies who can develop telecommunications infrastructure,

digital contents (according to the local needs of SMEs and citizens),

and e-government solutions (to create a single digital platform for the

local government).

We are currently organizing an event about ITC public–private

partnerships with the intention of identifying future projects and

initiatives.

•

•

Among the multiple initiatives in this area, the city intends to form the

District Infrastructure Agency (ADI in Spanish), which will provide an

institutional framework that receives and evaluates the feasibility of

private-initiative-based PPPs, as the ANI does at the national level.

Furthermore, it is important to mention that, pursuant to the 2016–

2019 Bogota Development Plan’s draft provisions, the District

Administration is promoting the use of mechanisms that incorporate

private capital, such as PPPs, in social and productive infrastructure

projects.

PPPs “facilitate the long-term maintenance of public infrastructure and

assets, thereby enabling the inclusion of private-sector efficiencies

to provide citizens with better services and generate greater

competitiveness.

Thus, thanks to the advantages and benefits it brings, the PPP model

will be a fundamental instrument in the implementation and execution

of key elements in the current District Development Plan, which

requires high capital investment. As such, this model encompasses

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plans to execute major infrastructure projects, such as roads, metro

stations and TransMilenio portals, and housing and public service

infrastructure, among others. On the social front, PPPs will enable the

implementation of projects for new hospitals and schools, greenways,

and bicycle path facilities, as well as other relevant projects.

The following is the list of projects indicating potential candidates for

financing through this PPP model, categorized as those considered to

be either private or public initiatives.

Private initiatives:

Public initiatives:

Road infrastructure: Avenida Longitudinal de Occidente (ALO);

Avenida Norte expansion, connections between ALO and Av. Ciudad

de Cali westbound; Av. Boyaca and Av. 68; Autopista Norte; Calle 170

(Cota-Suba-Cra7); Calle 63; Calle 13; Salitre Canal section to Calle

92 and Avenida Norte-Quito-Sur; intermodal terminal from the north

and continuation of the southbound Road 10 (tunnel)

Parking lots: Plaza de Toros, Calle 136, and Av. 19; Plaza Calle 100

between Cra. 15 and Av. 19

Other projects: Relocation of Corabastos and the Modelo and Buen

Pastor prisons; exchange of areas for undertaking PPP projects

Traffic lights, public parking areas, hospitals, community

development centers, early childhood centers, cultural mega-

centers, and education service centers

Urban renovation projects: along roads, for infrastructure and

facilities, to improve public spaces, and for comprehensive

renovation projects”

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•

•

•

•

* Draft 2016-2019 Bogotá Development Plan.

*

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Source: DNP, Public-Private Partnerships.

In Bogota and Colombia, the sectors envisioned for PPP development

include the following: education; energy; justice; sports; public

buildings; trade, industry, and tourism; water and basic sanitation;

culture; urban transportation; agriculture; healthcare; defense; mines

and energy; and housing.

Finally, it is important to note that, unlike countries such as Mexico

and Brazil, the development of PPP projects in Colombia has been

approached from a national level rather than a regional one; hence,

Bogota’s involvement in approving and implementing the ADI is

important.

Domestic vs. International Experience

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CHALLENGES RECOMMENDATIONS

Improve infrastructure and urban facilities.

Expand the scope to new sectors in which PPPs have been proven to generate benefits.

Leverage economies of scale through national agencies.

Group regional entities together.

Provide relevant support to any new agencies that are created based on successful experiences.

Build capacities on a regional basis.

Provide education. Organize opportunities to provide information and training, and exchange national and international experiences and best practices.

Obtain financing mechanisms. Identify new sources to fund project structuring and implementation.

Consolidate PPPs as an easily accessible instrument.

Establish clear and simple procedures.

Commence dialogue with private enterprises before structuring initiatives.

Publish general project initiatives and guidelines in Spanish and English and disseminate them widely.

At present, PPPs are crucial instruments that improve the infrastructure

and urban facilities of our cities and the country as a whole. Therefore,

they are important for economic growth, social well-being, and

attracting foreign investment, which will ultimately give Bogota and

Colombia a competitive edge.

Various actors involved in the PPP field have proposed numerous

challenges and recommendations, including the following:

THE BUSINESS ENVIRONMENT: CHALLENGES AND RECOMMENDATIONS

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CHALLENGES RECOMMENDATIONS

Prepare and monitor standard PPP contracts.

Design a simple model contract.

Include mechanisms for resolving international disputes.

Establish permanent contractual monitoring and management mechanisms.

Provide an institutional framework to the districts when analyzing the feasibility of PPPs.

Structure and implement the initiatives of the District Infrastructure Agency (ADI in Spanish).

Ensure that project times correspond to service standards.

Establish suitable and rigorous structuring and financial closure for projects.

Strengthen planning at all levels.

Ensure that projects pursued through PPP mechanisms are included in development plans.

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ADI: District Infrastructure Agency

(Agencia Distrital de Infraestructura)

ANI: National Infrastructure Agency

(Agencia Nacional de Infraestructura)

ANLA: National Environmental Licenses Authority

(Autoridad Nacional de Licencias Ambientales)

CONFIS: Supreme Council for Fiscal Policy

(Consejo Superior de Política Fiscal)

DNP: National Planning Department

(Departamento Nacional de Planeación)

EIU: The Economist Intelligence Unit

GDP: Gross Domestic Product

ICT: Information and Communication Technology

IADB: Inter-American Development Bank

MHCP: Ministry of Finance and Public Credit

MIF: The IADB Multilateral Investment Fund

PPPs: Public–Private Partnerships

RUAPP: Single Register of Public–Private Investment

(Registro Único de Asociación Público-Privada)

SECOP: Electronic Public Procurement System

(Sistema Electrónico de Contratación Pública)

SMMLV: Current statutory minimum monthly salaries

(Salario Mínimo Mensual Vigente)

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