Chile’s US$15bn concession plan ‘has sparked a lot of interest’

As part of efforts to stimulate the economy and attract private investment, Chile’s government this year unveiled a 2021-25 concessions plan involving around US$15bn in associated outlay.

The bulk of the total corresponds to highway projects: US$11bn. Hospital, airport, cable car and tram projects, as well as the re-tendering of jail projects, are also encompassed.

To find out more about the plan and touch on the associated issues of financing and dispute resolution – as well as green hydrogen – BNamericas spoke with Manola Quiroz, partner at Chilean legal firm NLD.

Namericas: Chile has a 2021-25 concessions plan that involves investment of around US$15bn. How much interest is it generating among potential investors?

Quiroz: The concessions plan has sparked a lot of interest, especially in projects associated with highways, orbital roads and hospitals. It is reflected in the number of investors who purchased bidding rules and presented offers in the different processes, which was greater than in previous years. For example, in the international bidding process for the Biobío hospital network, five offers were received from large consortiums for a construction and operation project that involves investment of more than US$318mn and is due to be awarded in the third quarter of this year.

In the immediate term, for the period 2021-22, the concession portfolio involves calls for bids for 15 projects in the spheres of roadworks, airports, hospitals and public buildings, for estimated investment of US$3.7bn. As indicated by the minister of public works, a change is observed compared to the past 10-12 years, when an average of US$750mn in concession tenders was promoted annually.

BNamericas: Are there types of projects, highways, hospitals, etc., that are particularly attractive to investors?

Quiroz: Currently, the projects that are most attractive are the highway projects and the hospital network, considering the number of investors who have shown interest in participating in the processes associated with these areas, and the fact that some of the highway projects are private concessions initiatives in force as of January 31, 2021, for example, the Santiago Orbital Sur project or the Chiloé Longitudinal project.

In contrast, in terms of airport concessions, the contingency associated with the pandemic, the consequent drop in demand and particularly the dispute between the [ministry of public works] MOP and the Arturo Merino Benítez [Santiago] airport concessionaire have resulted in less participation in this sector. The fixed-term concession scheme and the losses due to lower demand for services have put pressure on compensation formulas and extensions of the concession term. This is reflected in the Austral airport network concession to remodel the Carlos Ibáñez del Campo airport and expand the Balmaceda aerodrome, which only received an offer from a single bidder, Consorcio Austral de Aeropuertos.

BNamericas: Regarding the issue of financing of infrastructure projects in Chile, are there trends regarding the type of financing, such as debt or equity, that sponsors are looking for?  

Quiroz: Certain limitations have been observed in access to financing via the capital market. The placement of bonds has been difficult in view of the recent withdrawals of pension funds, since the main buyers of these debt instruments are the pension fund administrators and the insurance companies, which have had to liquidate current investments to address the withdrawals of funds [following the passage of early pension savings drawdown bills], so there is no certainty in the short term of having funds in this market.

Given this, investors have had to resort to bank financing with fluctuating interest rates on account of the country's election period, financing that is not necessarily the most attractive. In this context, and because of the current limitations of the Chilean market, alternatives such as tapping the international capital market are being explored.

BNamericas: Regarding Chile’s technical concessions panel, the body’s former president Catalina Binder said it urgently needed reform. Is there consensus among the players in the infrastructure sector on this issue?

Quiroz: The relevance of the technical concessions panel is recognized – a non-jurisdictional and technical body that fulfills the role given to it, that is, making non-binding technical recommendations on technical and economic discrepancies. 

Challenges concerning the panel center on the need to strengthen its powers and grant it greater resources, as well as technical support to anticipate conflicts. This is due to the fact its recommendations frequently do not materialize and things end up going to arbitration bodies.

There is consensus on the need to move toward the incorporation of new mechanisms for the early resolution of disputes, which allow for solutions to be sought during the execution of the works, before the problems translate into extension of deadlines and inefficiencies, allowing the provision of support, from the start of the contract, to the parties by independent third parties, who can recommend best practices, resolve queries, and provide informal support.

BNamericas: Regarding green hydrogen, is there movement in the market? In other words, from your perspective, is it attracting interest from local and/or international investors? If so, are they looking for financing, legal advice on the regulatory landscape, for example?

Quiroz: Yes, there is a lot of interest in projects related to green hydrogen, associated, for example, with the development of pilots in transport and generation, as well as with projects of greater scope, such as green hydrogen production plants or mining railway projects.

Faced with this interest and in the absence of clear rules, the government found it necessary to recently issue a guide on how green hydrogen projects should be presented in order to obtain authorization. 

However, it is still necessary to continue advancing in the development of an ad hoc regulation that allows for clear rules for making investment and that establishes processes with uniform and more agile criteria.