Nicaragua , Guatemala , Honduras , El Salvador , Belize , Costa Rica and Panama

CentAm development bank has 'many projects on the table'

Bnamericas Published: Tuesday, July 07, 2020
CentAm development bank has 'many projects on the table'

While the coronavirus pandemic caused several construction delays in Latin America, the Central American Bank for Economic Integration (Cabei) still hopes to launch several railway, energy and water projects this year with an estimated US$2.2bn in financing. 

The region has an abundance of projects to choose from, but railway projects have become the trademark of the development bank as it predicts that they will help make the Central American economy more competitive, Cabei executive president Dante Mossi (pictured) told BNamericas. 

According to the Honduran economist, the bank's presence in the region has grown stronger than ever, to the point where it now represents 50% of the financing for all infrastructure projects in the five countries that founded the bank in 1960 – Guatemala, Honduras, El Salvador, Nicaragua and Costa Rica.

Mossi told BNamericas more about Cabei's signature projects and the opportunities and challenges that await the region this year.

BNamericas: How did the coronavirus pandemic change Cabei’s plans this year?

Mossi: We made very tough decisions when the pandemic arrived. Even though we already had a plan that was discussed and agreed upon, we had to modify the strategy and presidents made very specific requests about what was needed in the short term. They proposed that we accompany them during this new challenge. In that sense, Cabei quickly prepared a contingency plan for US$1.96bn in first response aid. Out of all banks, I think Cabei was the first to react.

We donated US$1mn to each country for the initial effort. Since we have South Korea as partner and there was a shortage of test kits for COVID, we used government connections as well as Cabei's financial connections with South Korea to acquire 182,000 test kits for the entire region, which were distributed very successfully.

In essence we had to create a program that did not change the objectives of the governments but did push them forward, hoping to minimize the duration of the economic slowdown to control the pandemic. However, plans continue and we are moving forward with our signature projects. 

BNamericas: Countries such as El Salvador and Panama have not fully reactivated their construction sectors, while other countries are betting on infrastructure to counter the economic fallout from the pandemic. What is the bank's position on the reopening of this industry?

Mossi: We respect the rules each country has. There are countries where there was an absolute and complete shutdown, but in other countries the suspension was not so drastic. 

In the northern triangle of Central America it was very drastic, the southern triangle was more selective in terms of its suspensions due to political will or the legal possibilities of each country. But within this it should be noted that, for example, in El Salvador we are financing a dam that concluded its curtain in the middle of the pandemic. So the government was strategic about which projects should and should not stop.

In the case of the Dominican Republic, where we are also working on another large dam, works that could not stop did not stop. The biosafety regulations in the country establish certain maximum numbers of people who could work. So construction activity slowed down a lot but didn't stop.

Nicaragua, on the other hand, did not stop. Adjustments were made to biosecurity standards so that workers could work in a safe environment, because the first thing is to save lives.

In Costa Rica, we are now in the phase where the government is waiting for its national assembly to [approve the US$1.5bn interurban light train]. In Panama, we continue to work on the strengthening of its public-private partnership capacities for road projects. And in El Salvador, Guatemala and Honduras we are working on public-private partnerships for their respective electric freight trains.

We are also nearing completion of our regional gas strategy.

In other words, everything that has to do with studies and designs has not stopped. 

For example, South Korea made a donation of US$50mn for project planning and this gives you a sign of what we are doing in the region. We use the projects that we already had and those that were in the pipeline to use them as a tool to get out of the global recession that is obviously going to severely affect Central America. We see construction as the stimulus package. 

So regardless of whether the closure has been absolute or partial, we see in terms of portfolios that different countries continue to allocate funds – although it is less now than before. Unlike natural disasters, COVID-19 is a storm that does not damage infrastructure and one can keep on building.

BNamericas: Can you give us examples of other projects that did not stop and some that did?

Mossi: Honduras had the construction of the Palmerola airport underway, which is the new Tegucigalpa airport in the Comayagua valley – about 40km from Tegucigalpa. This airport is essential for Honduras. But due to sanitary measures, works stopped completely and there was no alternative but to wait. Later, Honduras had a smart reopening and works continued, especially since the area where the airport is being built is not considered of high risk. 

In Nicaragua, for example, we had a series of projects that were still going, but there was one that required machinery that came from France. Given that France had its economy shut down, this electromechanical equipment was not available, leading to certain parts of our works in the country stalling not because of the Nicaraguan contractor who was still working, but because the supplier of these resources was in Europe. But overall we have noticed a recovery.

Today, we are seeing how these works resume their new normality.

BNamericas: Cabei approved a US$550mn loan for Costa Rica's interurban light train in May, but this project has to be approved by the country's legislative assembly. If that loan is not approved, where would Cabei allocate those funds?

Mossi: We respect the national processes of each country…I would expect common sense to prevail. We can build more and more roads, but the method of transportation in Costa Rica is reaching a limit where roads are not solutions. So, public transport is the best bet not only for Costa Rica but the entire world. So I would expect the entire assembly to put the public interest first before any other issue. It is a highly profitable project, with support not only from Cabei but also the Green Climate Fund (GFC). Costa Rica is a country that generates renewable energy.

If it was not approved by the assembly, we will continue working on the other train. We have another freight train in the Caribbean of Costa Rica called Telca, which Cabei is supporting and is a project in pre-feasibility studies. And behind that is the El Salvador electric train, the Guatemala electric train, the Honduras electric train, so there is no lack of projects. I think we are going to learn a lot from Costa Rica. I think many eyes are watching the debate. But if that doesn't work we will continue with other things. In Costa Rica, to be more precise, we are now about to approve US$450mn to improve the San José aqueduct and an additional branch to a dam in San José for electricity and drinking water, and also to provide drinking water to some Pacific islands in Costa Rica. We are not going to stop with the government's strategy, and we are going to support what we can, obviously respecting the rights of each country. There are many projects on the table and the government has its priorities that we are ready to support.

BNamericas: Why is the region betting on railways?

Mossi: Central America invests a lot in roads, and the truth is that the roads in the region are getting better and better. However, the average speed is still extremely low. The average is 40km/h. Where does the cargo stop? What is the logistics problem in Central America? In general, the problem lies with customs. Someone could say "the transport mode does not resolve the waiting mode," but it turns out that it does. If you solve it. It is as we have worked with railway strategies to obtain another mode of transport available for freight because the volumes and weights of the loads are not enough. And it is a way to reach more pragmatic border agreements, so that the cargo that leaves Costa Rica and has to leave through Honduras in Puerto Cortés, that cargo leaves in better times. The congestion in some Central American capitals like Guatemala, San Salvador, San José, Panama is really bad. The congestion in these capitals is making their economies less competitive.

There was a pursuit [for rail transport] and that pursuit was abandoned 150 years ago for several reasons. The few railway operations that remained in the region were coincidentally in Costa Rica and despite everything in San José, the company [Costa Rican railway institute Incofer] continues to provide quality service to the residents of that city with the terminals it has. So modernizing this method of transportation makes all the sense in the world by giving the region another means of transport to improve its competitiveness because [congestion] is killing the region's competitiveness.

ALSO READ: Railroad rumblings in Central America

BNamericas: Which new projects could you start this year, not necessarily construction, but planning or studies?

Mossi: In addition to the railway projects, which are in their first stage of planning and then will move to pre-feasibility study and then feasibility study stage, we have in our design portfolio irrigation and water projects for the entire Central American dry corridor area, which is a strip along the Pacific Ocean where a large and poor population is concentrated, where there are events of drought or extreme rain in the rainy season. We have designs for projects being finalized by UN agencies that have been hired for the reactivation plan of these areas that include the management of the water resource through the use of small dams. I would expect more infrastructure works this year, perhaps not many large dams, but many small dams. And many of them do in fact have confirmed financing from Korea Eximbank, which is a GCF line that offers 40-100 year grace periods and interest rates as low as 0.18%. So they are quite interesting projects.

Also, in the case of Honduras, we are working with the government to reopen the electricity sector and this implies the entry of gas as an innovation to the industrial zone in the northern triangle where gas has been used very little and is now required to do more. 

Let us remember that there are thermal companies that are ready for a transformation, a transition from fuel oil to natural gas. And there is a lot of interest in this Central American gas strategy that I think we need to start with another gasifier in the region. 

Cabei partially financed the AS plant in Panama very successfully and we would like to finance an equivalent project in Puerto Cortés, Honduras. And once gas demand is anchored, we would like to plan a Central American gas pipeline that would bring gas from the southern US. 

Those are projects that are already in hand…throughout the Central American region. For example, the [train] in Costa Rica that I think will be inaugurated in two months, and Nicaragua has many storage projects, aqueducts. Guatemala is launching the construction of five primary hospitals with our financing and El Salvador, when it opens, has many road infrastructure works on its agenda. So we are quite active.

ALSO READ: Spotlight: Cabei's infrastructure financing

BNamericas: How many projects are in Cabei's portfolio this year?

Mossi: We have 90 projects today. There are some very large and others very small, and while some are coming in, others are leaving. My intention is perhaps to have fewer larger projects, leveraging more with private, external financing for other projects.

We are amid a capitalization. Our capital is receiving US$5-$7bn. That means a 40% increase in our capital and gradually our availability to our countries will grow more or less US$400-$600mn per country and year.

The San José interurban train I think is the best example. It is a US$1.5bn project. We are financing US$550mn, which is the public part. But Cabei is also ready to finance that private part of the winning company if that is what they desire. 

Our idea is to focus more on these larger projects. We are a small bank, even though we have more than US$12bn in assets. We have no more than 300 people distributed in all Central American capitals and now in the Dominican Republic, and soon in Taiwan and Spain. So, our idea is not to become a heavy institution, rather an agile one that can handle larger projects.

Today we are putting more or less about US$3bn a year in projects.

BNamericas: How much financing does the bank plan to allocate this year?

Mossi: If everything goes as planned, it will be just over US$2.2bn from our own funds. Obviously, it is always a little more because we make alliances with many partners in Europe and Asia. This year, for example, we are in very advanced negotiations with the US International Development Finance Corporation (DFC), formerly Opic, where for the first time we are negotiating a US$100mn loan directly from Opic to Cabei to work on productivity infrastructure projects for smaller medium-sized companies in the northern triangle of Central America. Many of our projects do not go alone, they are leveraged by old friends.

Cabei, approximately and in round numbers, provides 50% of the development financing of its five founding countries. Cabei is really the financial hub of the region. Additionally, we are an AA-rated financial institution. We are a benchmark in the region.

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