Inflation, political uncertainty and concessions to mark Chile’s 2023 infra agenda

The first tenders for concessions under the Gabriel Boric administration, high inflation impacting construction firms and highway tolls, and a second attempt to write a new constitution will be the main factors marking Chile’s infrastructure sector during 2023. 

Following intense negotiations after voters rejected an initial draft constitution in September, a new process will kick off this month as congress chooses the members of a panel of experts that will draw up a preliminary document that will be used as the basis by a separate elected body.

This new body, which will be called a constitutional council rather than the previous constitutional convention, will have 50 members, as opposed to the 154 that drafted the version rejected in the referendum.

The councilors will be chosen in April, and like in the September plebiscite, voting will be mandatory. They will begin deliberations in May and a referendum on the new draft will be held on November 23. 

The first draft – to replace the 1980 constitution drawn up during the military regime – did not have specific provisions regarding infrastructure, although it gave a larger role to the State in the economy, included strong environmental protections and replaced water rights for administrative permits that would not have constituted private property. 

INFLATION BITES

On the macroeconomic front, a recession is expected this year with GDP shrinking by between 0.75% and 1.75%, while inflation is forecast to come down from over 10% in 2022 to around 3.6%, according to the central bank’s latest monetary policy report.

Despite the inflation slowdown, investment in the construction sector is expected to drop 5.3% in 2023, which would mark five consecutive years of contraction, according to a report from the country’s construction chamber CChC.

Some of the causes cited include tighter financing requirements for firms, steep interest rates, high costs for container transport at a global level, and cost increases for construction materials, which CChC warned could force companies to postpone projects.

Inflation is also expected to hit infrastructure users, as the New Year brought increases in highway tolls, which are index-linked.

To prevent a sudden 13% jump, concessionaires and the public works ministry (MOP) reached an agreement to increase tolls by 6.7% as of January 1 and a similar hike in July.

Tolls have been a controversial issue for several years, with protests against concessionaires leading to road blockades. 

CONCESSIONS AGENDA

Unlike previous governments, while providing a list of projects expected to be tendered this year, the Boric administration did not set a schedule for the launch of each concession auction, as MOP believes there could be delays.

The goal for this year is to launch 14 tenders involving US$4.6bn, which aside from highways and airports will include rail lines and cable cars.

No new tenders have been launched since Boric took office last March, and one project scheduled for 2022 – the new US$718mn concession for the Santiago-Los Vilos highway – has still not been awarded.

Other major projects in the 2023 agenda can be seen here.

In the meantime, MOP’s concessions office has been working to adapt contracts to higher environmental requirements, saying that it wants to prove that high investment levels are compatible with sustainability.