Confidence is key for Colombia's infrastructure investment, says ex-official

Bnamericas Published: Wednesday, February 08, 2023
Confidence is key for Colombia's infrastructure investment, says ex-official

President Gustavo Petro's request to bury part of Bogota's metro line No. 1 has sparked concerns about possible changes to the terms of the contract, while a government decree issued in January freezing highway tolls could also undermine investor confidence in Colombia's infrastructure projects.

In this interview with BNamericas, former infrastructure deputy minister Olga Lucía Ramírez highlights the need to respect contracts and create an atmosphere of confidence to encourage investment, as well as the impacts of high-interest rates and inflation. 

BNamericas: What are the prospects for the infrastructure sector, and how could President Petro's request to bury part of line 1 of the Bogotá metro influence them?

Ramírez: Colombia continues to be considered a country with a stable legal framework and contracts that must be respected. The government, the transport minister, representatives of various entities have said that the contracts will be respected, but certain types of statements create uncertainty.

I would like to think that everything that has been signed will be respected. Line No. 1 of the metro has a contract signed and therefore it will be necessary to see what can be done within the legal framework, because the contracts have limitations in various aspects, one of which is the issue of additions.

Nothing can be added beyond what the law states – it's limited to 50% of the value.

We act within the law and the contract is ultimately what allows the confidence to continue. We have to continue trying to maintain confidence.

BNamericas: How has the freeze on tolls been handled?

Ramírez: It's another factor that adds uncertainty to the issue of highways, after the decree that establishes the freeze in toll increases, which has caused a bit of concern.

The issue is complex because projects and financial models are based on flows and increases, but the social reality has to be taken into account as well.

Considering that, the same decree establishes that the nation will respond. It's a measure taken from the social perspective and the important thing is that the government states in the decree that there will be compensation for the contracts.

What cannot happen is that the government fails to respond, because that would definitely take away the confidence of investors to continue investing in Colombia. I hope that the compensation measures in both the decree and the contracts are applied.

The finance minister said that the funds will come from either the contingency fund or even from the tax reform.

In the area of infrastructure, there are currently opportunities for the financial closure of projects, there are several open, and it is important to have them for interested investors.

BNamericas: What are the key projects looking for financial closure?

Ramírez: Canal del Dique; several highway projects that were awarded midway through last year, such as Accesos Norte 2, Alo Sur; the trunk highways of Magdalena Medio, which are the old Ruta del Sol; and Buga-Buenaventura, which is the road that connects the center of the country to Buenaventura port.

These are contracts that have been awarded, signed and there is an opportunity for financial closure, but what we mentioned about tolls has to be taken into account.

The government has talked about strengthening other modes of transportation and the airport mode is moving forward: the process to remodel and expand Rafael Núñez airport in Cartagena has already begun.

I know that the private project for San Andrés airport should be opened soon, and then there is the private project for the airports in the southwest of the country, where the most important airport is Cali, one of the busiest after Cartagena and Medellín. 

There should also be progress with the El Dorado airport. In the airport area there's a positive panorama for these projects to progress.

In railroads, Dorada-Chiriguaná is on the way, a project that is already structured and which still needs to be opened to bidding. It's a freight corridor in the center of the country that the government has said it is going to open.

On the other hand, there is line No. 2 of the Bogotá metro, a project that has been a joint effort between the region and the nation.

The Northern Regiotram [light rail line] is also progressing, which is being structured and is a project that is the responsibility of the Cundinamarca regional rail company. It should advance to signing the agreement with the nation and then the contracting will continue.

There is also the green corridor on Carrera Séptima, a much more local project in Bogotá, but one that's on the radar.

Another project that is coming is the Magdalena River, which the country needs, but the PPP tender was declared void, so it will now move forward as public work, under the responsibility of Cormagdalena.

BNamericas: What is the current state of this project?

Ramírez: All the solid works on the river have already been structured and the idea is to push it forward with specific works. It won't go out to tender under the concession scheme now, but it will be carried out by a private sector party of course.

The other large component of the river project involves dredging the access channel to Barranquilla. The aim is to build a dredger that meets the needs of that area and for now the funds are being sought, then we'll have to see who operates and maintains it, and it will have to be a private sector expert of course. That's another project that's on the radar.

BNamericas: What's happening in the water and sanitation sector?

Ramírez: Much has been said about working on social infrastructure and in sanitation there's a very important project, a wastewater treatment plant known as PTAR-Canoas. It's a fairly large project that the Bogotá water utility [EAAB-ESP] would contract. It's still being structured.

There's also a treatment plant in Neiva that is already structured, but they haven't been able to obtain financing for it, and there are some private projects. 

BNamericas: Taking into account the international situation, how might the high inflation and interest rates cause problems for the infrastructure sector, in addition to the domestic political issues?

Ramírez: In the case of PPPs, there is a risk to a certain extent that is transferred to private companies. For now, if you look at certain inputs, we haven't reached a point of imbalance that prevents us from continuing to execute the contracts.

Contracts and agencies have mechanisms to sit down and review the impact on the final prices of the works. In the case of public works, it will be necessary to see that what is actually carried out is paid for.

I believe that it's a matter of looking at each case regarding the real impact that macroeconomic variables and the price of inputs might have on the execution of contracts. I think that the contracting entity should look at the contracts and the realities to decide what to do.

What we have seen is that there have been increases in the prices of steel and other inputs, but it hasn't really reached the point where the execution of the contracts is unfeasible.

BNamericas: One of the issues that president Petro is interested in is the Pacific railroad corridor. What do you think about that project?

Ramírez: Regarding the planning in rail transportation, it's necessary to determine what makes a network and intermodality efficient and ensure that it has a positive impact. Colombia has planning tools such as the intermodal transport master plan, which includes the corridors that make sense from the point of view of intermodality. In addition, the railroad master plan also establishes the corridors that make sense where there is cargo to move.

We can't build the infrastructure first and make it work. The logic is to see the demand studies to determine how the infrastructure is going to be used. I know the government was working on a demand study.

Infrastructure is an issue that must be thought of holistically: What roads do I have? What ports do I have? What am I going to move? What are the needs? What is the planning? Where are the shortcomings?

Personally, I don't know about any studies that mention that corridor. If you look at the map of Colombia, it makes a lot of sense to connect the two oceans, but ultimately we will have to look at what I just said – the comprehensive planning of the infrastructure.

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