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Private participation in Infrastructure in Colombia

DEPARTAMENTO NACIONAL DE PLANEACION. Private participation in Infrastructure in Colombia. José Leibovich Deputy Director National Planning Department April 2005. DEPARTAMENTO NACIONAL DE PLANEACION. Overview. Private Participation in Infrastructure Policy - PPI Background Strategy

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Private participation in Infrastructure in Colombia

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  1. DEPARTAMENTO NACIONAL DE PLANEACION Private participation in Infrastructurein Colombia José Leibovich Deputy Director National Planning Department April 2005

  2. DEPARTAMENTO NACIONAL DE PLANEACION Overview • Private Participation in Infrastructure Policy - PPI • Background • Strategy • Decision making • Experiences by sector • Public – Private Participation scheme (PPP) • Results • Challenges and Perspectives

  3. PPI Policy Experience by sector Challenges and Perspectives Background Strategy Decision Making Before PP, State owned companies presented difficulties such as: • Lack of governance, accountability and transparency • High cost union agreements • Deficient Organizational Structure • High rotation at the executive level • Inadequate financial structures • Low productivity investments • Due receivables • Bailout operations with fiscal impact

  4. PPI Policy Experience by sector Challenges and Perspectives Background Strategy Decision Making The Constitution of 1991 allowed… (Art. 333, 334, 365, 367, 369, 370) • private participation in the provision of public services, maintaining subsidies within the State’s responsibility. Additionally, an adequate framework was established for each sector. • Government concentrated its efforts in policy making, regulation and supervision.

  5. PPI Policy Experience by sector Challenges and Perspectives Background Strategy Decision Making Colombia's evolution in PPI Beginnings 1885-1920 Private Initiative Public companies 1920-1960 80’s Crisis 1975-1990 Private Participation 1990-2004 State acquisition Owner Regulator Lender & guarantees Regulator Public and Private agents Regulator and user

  6. PPI Policy Experience by sector Challenges and Perspectives Background Strategy Decision Making Strategic actions that stimulated PPI • Legal reforms • Mid term policy definition • Independent and efficient regulatory structure • Micro conditions for private investment • Allocation & Risk Management (Transparency, structured contracts, due diligence, competitive processes and availability of quality information) • Strong legal framework for: public utilities, energy, transport, assets sale, fiscal contingencies • Security Policy

  7. PPI Policy Experience by sector Challenges and Perspectives Background Strategy Decision Making The Decision Making process for infrastructure investment is in head of the different Ministries and the National Planning Department… Investment feasibility • Economic, social, environmental, technical and • operational evaluation • Technical, environmental and financial convenience • Public policy decision Long term vision (Priorization) • Public Participation: project size, social role, no income or no potential market Main criteria depending on investment nature • Private Participation: access to information, access to technology, efficiency, income, allocation and risk management

  8. PPI Policy Experience by sector Challenges and Perspectives Public – Private participation scheme Results PPI schemes used in Colombia Management & Maintenance contracts Water & Sanitation Airports Electricity distribution Works & Services Contracts Meters installation and technical equipment for loss reduction Commercial management Mixed partnerships or “Joint Ventures” Oil Pipelines Fixed Telephony and long distance Exploration Concessions and similar Water & SanitationRoads Ports Railroads Exclusive areas Natural gas Communication's licenses Bus Rapid Transit Systems Full Privatization Electric Generation and distribution (Capitalizations) Higher Risk Transfer

  9. PPI Policy Experience by sector Challenges and Perspectives Public – Private participation scheme Results PPI projects (1991 – 2003) Sector Projects Est. Investment (US$ MM) Oil** N.A 8.423 Telecom 4 4.268 Mining 3 4.247 Electricity 13 1.797 Gas 2 1.383 Toll-Roads 17 759 Water & Sanitation 24 426 Seaports 14 274 Railways 2 183 Airports 3 107 Urban Transportation* 2 81 Total 84 21.948 *Projected according to BRTS policy documents **Estimated investments (2004), considering contracts subscribed in last three decades (1970-2000) Total: US$ 22 Billions Source: DNP- DIES

  10. PPI Policy Experience by sector Challenges and Perspectives Public – Private participation scheme Results Even under fiscal restrictions, public and private investment in infrastructure has been present in Colombia’s economy… Public – Private Participation in infrastructure as GDP’s percentage Source: DNP

  11. Total investment in infrastructure by sector as GDP’s percentage PPI Policy Experience by sector Challenges and Perspectives Public – Private participation scheme Results Private capital has been a strong infrastructure investment generator… Source DNP

  12. PPI Policy Experience by sector Challenges and Perspectives Public – Private participation scheme Results PPI main results… • During the period of 1993-2003, PP represented 45% of the total investment in infrastructure • Capitalizations have attracted aprox. US$ 3.000 millions • 3 mobile companies created and more than 10 million users • 41% of users are attended by private energy distributors • 55% of electric generating capacity is provided by private investors • 2.900 Km. (out of 16.000 Km.) of roads under concession contracts

  13. 89.6% PPI Policy Experience by sector Challenges and Perspectives Public – Private participation scheme Results Access to Electricity (National Interconnected System) Source: UPME

  14. Natural Gas Households PPI Policy Experience by sector Challenges and Perspectives Public – Private participation scheme Results Access to Natural Gas 69% rise in number of users in last 5 years Source: MME (Sept. 2004)

  15. 10.437 Fixed lines 7.417 Millions of users Mobile lines Source: SSPD & Asocel PPI Policy Experience by sector Challenges and Perspectives Public – Private participation scheme Results Mobile and Fixed Telephony • Sustained growth in both services • Higher growth in mobile telephony

  16. PPI Policy Experience by sector Challenges and Perspectives Public – Private participation scheme Results Access to Water & Sanitation Water Sanitation Source:DANE (ENH-ECH). Estimated by DDUPA - DNP

  17. PPI Policy Experience by sector Challenges and Perspectives Public – Private participation scheme Results PPI main difficulties… • Some projects showed technical weaknesses during the 1990’s • Compensations generated due to unvalued guarantees • Arbitration processes and contractual disagreements • Tariffs not always support required investments, due to a limited payment capacity from users (e.g. access to fixed telephony, water & sanitation) • Limited capability to reach full cost recovery (e.g. Bus Rapid Transport Systems – Transmilenio)

  18. PPI Policy Experience by sector Challenges and Perspectives Public – Private participation scheme Results The government is still paying for compensations generated in its early PPI projects… Investment vs. Compensations (1991-2003) Source: DNP *Investment in Electricity includes Hydroelectric and thermoelectric sales and capitalizations. Compensations are attributed to Power Purchase Agreements established during 1992.

  19. PPI Policy Experience by sector Challenges and Perspectives Public – Private participation scheme Results Given the high risks assumed in the first PPI projects, a stronger legal framework was developed to lower contractual contingencies… • Law 448/1998: Created the Contingency Fund and specified how contingent obligations should work • Fiscal framework defined acknowledging contingent obligation in projects • Valuation for contingent obligations defined, establishing adequate provisions • Obligation to budget contingencies

  20. PPI Policy Experience by sector Challenges and Perspectives Public – Private participation scheme Results Risk management evolution - Case Study: Road Concessions *Contingent obligations can be agree prior to the bidding process

  21. Illustrative PPI Policy Experience by sector Challenges and Perspectives Public – Private participation scheme Results Alternatives for risk allocation in road concessions EXPECTED INCOME vs FIXED TERM PROGRESSION INVESTMENT vs FIXED INVESTMENT The term is variable and the concession reverts to the nation when the concessionaire obtains the expected income Investment Demand Traffic Estimated term 16% TOTAL TOTAL Rate of return (%) Excess capacity Lower service level years 10 15 20 25 30 Source: Booz Allen & Hamilton – Inverlink Concession term (years)

  22. PPI Policy Experience by sector Challenges and Perspectives Expectations Future Challenges • Further solid contractual and regulatory developments are required (tariffs and convergence) • “Contracts are to be fulfilled” • Enhancement and diversification of financial markets • Improve corporate governance in companies where the state is a minority shareholder • “The most expensive service is the one not provided”

  23. DEPARTAMENTO NACIONAL DE PLANEACION Private participation in Infrastructurein Colombia José Leibovich Deputy Director National Planning Department April 2005

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