PPPs: Guatemala's bet to improve its public infrastructure

Thursday, November 2, 2017

In an effort to improve its infrastructure and increase associated investment, Guatemala passed a public-private partnership (PPP) law in 2010. As a result, the government established Anadie, a specialized agency tasked with developing this type of projects.

Although the agency has yet to launch the construction of a PPP project, it has an ambitious portfolio, with the first initiative close to materialize.

BNamericas spoke with Roberto José Sagastume, Anadie's executive director, to learn more about the challenges and opportunities surrounding the implementation of PPP models for infrastructure, as well as the most important initiatives of that kind currently being pushed in Guatemala.

BNamericas: What are some of Guatemala's main infrastructure needs and what type of projects could address these needs?

Sagastume: Guatemala needs infrastructure that can adapt to the current needs arising from international trade. The infrastructure needs to be efficient, with the best service standards, so that it can provide and facilitate all the procedures and processes that the economy demands.
Guatemala is currently going through a consolidation process in terms of infrastructure development. I believe that any alternative models the state may have to develop public infrastructure are worth boosting and promoting.

In Guatemala, due to different circumstances, road infrastructure has been deteriorating for the past 5-10 years. One of the country's challenges is to 'rescue' its road infrastructure and then devise a long-term model that can help develop the type of infrastructure that is needed for Guatemala to improve its competitiveness. 

Regarding its ports sector, Guatemala's infrastructure is working and operative. Although there is always room for improvement of course, right now the infrastructure responds to the country's needs. In the medium term, more investment will definitely be needed to expand and upgrade the country's port system.

As for the airport system, it also responds to the country's current needs. However, more investment to improve the sector will be required within the medium term.

When it comes to the urban transport sector, one of the main demands of people living in the [Guatemala City] metropolitan area is to develop an efficient mass transport system that can help solve the mobility problems facing the area. Transport infrastructure is a very important area of growth, opportunity and improvement within Guatemala.

BNamericas: How would you describe the legal context and investment climate that Guatemala offers to those companies interested in investing in PPP projects?

Sagastume: In the past few weeks, the political situation has been a little complicated, which does affect the perception of international investors. However, despite these challenges, we believe that PPP projects have a possibility to become a first-level alternative to develop infrastructure projects. Companies are interested in investing. They are looking for well-formulated projects, in which all potential risks are covered and clearly addressed in the contracts. 

The country's legal framework to develop PPP is very thorough, which provides legal certainty for investors as to participating in a process with clearly defined rules, and well-structured technical and financial aspects.

In addition, there are other macroeconomic factors the country offers which could be attractive for investors, such as the exchange rate. In Guatemala, the [US dollar-Quetzal] exchange rate has remained stable during the past 15-20 years.

Moreover, local banks have an appetite for risk when it comes to financing public infrastructure projects, which I believe is very important. We have approached the local banks and they are very receptive to learn about our project proposals and establish partnerships with private companies. I think all the aforementioned factors can be an incentive for international companies interested in participating in tender processes. 

BNamericas: What are some of the main projects in Anadie's portfolio?

Sagastume: In Guatemala, the public-private partnership model is still in a consolidation and early implementation phase. Our current portfolio of projects includes six initiatives. Two of them are related to road infrastructure. The rehabilitation of the Escuintla-Puerto Quetzal highway is a brownfield project. We are aiming for this project to be at the forefront of our portfolio.

We are also working on a new highway for the metropolitan area. The project, also known as Vía Exprés, is part of a beltway that the government wants to develop in the area. 

We are also working alongside the civil aviation authority on a project to upgrade, modernize and expand the country's airport system under a PPP. With that project, one private operator could, under one contract, modernize the country's main airport and other airports within the country.

With regards to public transport, we are developing a project to create the first mass transport system line in Guatemala City, which would connect the city's northern and southern corridors and would link to other transport system options in the capital.

BNamericas: What is the current status of these projects you just mentioned?

Sagastume: The most advanced one is the Escuintla-Puerto Quetzal highway. Earlier this year, we selected five pre-qualified participants and we are planning to launch a tender in November, so that bids can be submitted during the first semester of 2018. The second most advanced project is the one related to the airport, followed by the other highway project I mentioned. However, given that said road would be a new one, securing the rights-of-way for the project can become an issue.

BNamericas: What are some of the main achievements Anadie has attained since its creation?

Sagastume: Our main accomplishment is to have consolidated a first cohort of PPP projects. Our first two years of operation were very complicated. Starting from 2016, our main achievement was the consolidation of a feasible project portfolio. Our current challenge is to move on to the tender phase of those projects. This is not only an internal challenge, but a joint task that we share with public sector institutions.

BNamericas:  What is the estimated amount that Guatemala seeks to invest to develop PPP projects?

Sagastume: The six projects in our portfolio require a combined investment of US$1.5bn. Some 60-70% of that investment would come from private funds, while the remainder will be provided by the state.

BNamericas: Has the agency considered the possibility of implementing unsolicited proposals for PPP projects? 

Sagastume: This is definitely something that we have considered, although it would require an amendment to the current PPP law. I do believe it would help to boost the number of PPP projects. 
We are willing to improve our procedures and processes. As the projects in our portfolio move forward, authorities could be more willing to consider amending the law. Our challenge is to move forward with these six projects and once we progress, any talks about potential amendments could be more feasible.

BNamericas: What strategy has Anadie devised to boost the development of PPP projects for infrastructure?

Sagastume: We are focused on moving forward with our first cohort of projects. Once we do that, we will look at a potential strategy to attract more investment at a faster pace.

BNamericas: Earlier this year, you received bids to carry out a study to structure a public-private partnership project to operate and maintain the so-called Barberena bypass. What is the status of that project?

Sagastume: That project used to be in our portfolio. Currently, the communications and infrastructure ministry is analyzing whether to develop it under a different model. In Guatemala, there are different legal alternatives to develop projects. So this one is currently on standby, but I think that within a few weeks we will already know if we will continue developing it, or if the ministry has decided to execute it under a different legal model.
The bids that were submitted did not comply with the requirements, so the tender was declared void. 

BNamericas: Have you already awarded the contract to carry out feasibility studies on the project to modernize the country's La Aurora international airport?

Sagastume: We will be signing the contract with the selected company shortly, but we already started working with them in early September. The contract's winner was a Spanish-US consortium comprised of companies Deloitte and Tetra Tech. They will be doing consultancy work to structure the project. They are already working alongside us and the national civil aviation authority so that we can have a better idea of the project that we will be developing early 2018.

BNamericas: Is there an estimated date for the structured project to be ready and launch a tender?

Sagastume: We are expecting that the project will be structured by the end of the first semester of 2018, with hopes of eventually launching a tender during the second semester of that year.

This initiative will be a landmark for the country, and I think it will be very interesting for international companies. 

BNamericas: The last time an Anadie representative spoke with BNamericas, we talked about to tender Anandie's first infrastructure project, a US$25mn logistics zone along the Mexican border. What is the status of that initiative?

Sagastume: The project was reactivated four months ago, and we are currently tasked with developing it. It is likely that we will make some progress over the next few months. The project is still on and we are currently engaged in talks with Mexican authorities to implement the first phase of the initiative, which has to do with rehabilitating a railway interconnection that used to exist at the border with that country. 

BNamericas: Is there something else you would like to share with our readers?

Sagastume: Guatemala is going through a process of change in terms of how to develop public infrastructure. This process has no turning back. Private participation in the provision of public infrastructure is eminent and necessary, and I believe it will occur within the medium term. There are good opportunities for international firms to look at here in Guatemala.

About Roberto José Sagastume

An engineer, Roberto José Sagastume has over 10 years of experience working in the public and private sectors in Guatemala. He served as project manager at the national competitiveness program (Pronacom) from 2009-2012. After joining Anadie in 2013, he was appointed as project manager for the Tecún Umán II logistics port initiative, and then named as the agency's deputy director for contracting and structuring. He has served as Anadie's executive director since January 2017.

About the company

Guatemala's National Agency on Partnerships for Economic Infrastructure Development
(Anadie) is a decentralized agency created to develop and coordinate plans, policies and standards for the development of contracts in the form of public-private partnerships for public institutions in Guatemala.