IDB's latest boost to PPPs in Latin America

Wednesday, November 29, 2017

Earlier this month, the Inter-American Development Bank (IDB) rebranded its private sector unit, the Inter-American Investment Corporation (IIC), as IDB Invest as part of the bank's "expanding private sector focus and its goal to reposition as the solutions bank for Latin America and the Caribbean."

BNamericas spoke with Javier Rodríguez de Colmenares, head of IDB Invest's Infrastructure & Energy Division, about the unit's goals, the current scenario for public-private partnerships in Latin America and how IDB plans to promote this mechanism in the region.   

BNamericas: What motivated IIC's rebranding as IDB Invest?

Rodríguez: What we want to reflect through the new brand is, on the one hand, IDB brand's attributes, which are widely known in the region, and therefore show the connection with member countries. To that we must add the regrouping process of all private sector products and services that was executed on January 1, 2016.

We want to offer solutions to our customers that go beyond the mono-product that existed previously, which was long-term financing through offshore dollars, and to have the possibility to offer financing in local currencies, as we do in Mexico, Brazil, Paraguay, Colombia and soon in Dominican Republic. We want to adapt our products and to develop new products at the infrastructure division, developing local and international debt markets to finance infrastructure in the region, as we have been doing during 2017 and we expect to do more intensely in 2018. 

IIC wasn't a particularly recognizable brand, and until 2016 it only attended medium and small markets without a specific sector outlook, and that's what we wanted to change, because now we're focused on many more sectors. In infrastructure, the IDB group has always been very strong in energy and transportation, but not so much in water and sanitation nor social infrastructure. These two sectors are key to us and where we want to develop private sector participation.

BNamericas: What concrete water and social infrastructure initiatives is IDB Invest interested in?

Rodríguez: We have several ongoing transactions in the water and sanitation sector. We've closed operations in Brazil in local currency and we're also closing a transaction to finance the integral water and sanitation service of the city of Guayaquil with Interagua, which we expect to close by the end of the year.

Our water and sanitation strategy has two approaches. On the one hand, over 90% of the water and sanitation sector in Latin America and the Caribbean is in public hands. What we want is to have more PPPs, more concessions, more management services, more private sector management contracts, and because of this we finance private water and sanitation concessions.

However, public companies are the target of our support as well. And in that regard we want to work with companies that have one of two problems: they either don't fulfill the requirements to receive loans, and in that case we help them so they can be financed without presenting a public sector guarantee; or they don't have governance or corporative government that is independent from politics. In that case we help those companies so they can get that governance, so that, for example, auditors aren't picked by the current mayor, but rather have a directorial board with independent members and field experts. That way we can help them finance investments that have important economic and social returns.

As for social infrastructure, our current focus is education and health.

BNamericas: IDB Invest's first agreement after the rebranding was to promote Colombia's 4G program. How do you evaluate that initiative?

Rodríguez: That agreement isn't just limited to the 4G roads. In future we'll use that money to finance water, sanitation and social infrastructure. As for 4G, Colombia reached a point when local banks had incorporated a lot of risk derived from these highways in their balance sheets. On the other hand, the effects of the Lava Jato scandal in Brazil, the spillover to Colombia, the investigation into Odebrecht and the cancellation of the Ruta del Sol concession ended up scaring the markets. So the 4G program reached a point where, despite being good projects and having several financial institutions lining up to finance them, they couldn't get their financing closed, so we stepped in to close off the financing in pesos and give positive momentum to the program.

Now it's not that banks in Colombia face high risks, it's that they were concentrating most of the risks in the highways.

BNamericas: Right now there are contrasting views on PPPs in Latin America. On the one hand several governments are pushing for them, but the model has also been questioned. Do you think the current circumstances favor the use of the mechanism in the region?

Rodríguez: The process that we see now with PPPs is not unique to Latin America. Europe also had its ups and downs regarding the application of PPPs, and in some countries there was more scrutiny and more political intervention than in others. Personally, I believe that Latin America is in a good moment to develop PPPs. What it needs is a political consensus between countries. If PPP laws change with each passing government and the legal framework isn't stable, it will affect these projects' success. The more stable the legal framework is, the more bankable they will be.

PPP's are used by governments for two things: either when they need to develop infrastructure projects but don't have the fiscal capability, or when they need to transfer risks to the private sector, which can manage them better and much more efficiently than the public sector.

Argentina has a US$26bn infrastructure plan that will begin with road PPPs, in which IDB Invest is advising the government on how to take this program forward so it can become bankable, in a context in which Argentina hasn't financed projects in 18 years, and how to make sure these PPPs receive market financing. What we're going to do is mobilize the international capital market to finance those PPPs. I believe the Argentine government wants to make sure these road PPPs go well enough to gain momentum and the trust of the markets. They're doing it well and there are some countries with less PPP experience that could learn from Argentina's example.

Chile, on the other hand, has the most advanced and consolidated concessions system in Latin America and the Caribbean, to the point it has been exported to other countries in the region. Even with the current government, which has leaned more heavily towards the left, the system has had a very institutionalized approach to concessions. I don't believe [left-wing alliance] Frente Amplio's presence in the lower chamber of congress will change that in the case that [conservative Sebastián] Piñera wins in the second round [of the presidential election in December], as it is the executive branch that sets the concessions agenda.

About Javier Rodriguez de Colmenares

Javier Rodríguez de Colmenares has headed the Infrastructure & Energy Division at IDB Invest/IIC since August 2016. Prior to that he was deputy chief risk officer at Banco Santander Brasil and before that, global head of project & acquisition financing at the Santander group based in Madrid. His current focus is transportation, energy, PPPs, social infrastructure, energy and water and sanitation. 

About the company

IDB Invest, a member of the Inter-American Development Bank (IDB) Group, is a multilateral development bank committed to supporting the private sector in Latin America and the Caribbean. Formerly known as Inter-American Investment Corporation (IIC), it has an US$11.6bn portfolio under management and 330 clients in 21 countries.