Key Paraguay infra works at risk due to rising debts

Construction of at least two key infrastructure projects in Paraguay is at risk of stopping due to mounting debts of the public works ministry (MOPC) with banks under a debt reassignment mechanism. 

One is the Asunción-Chaco’í road bridge (US$130mn, pictured), where works stopped last month but resumed on January 3 after MOPC pledged to pay at least half of the US$47mn that it owes banks for the project.

The bridge’s contractor, Consorcio Unión, is hoping that the payments will materialize during the second half of this month, José Heisecke, director of consortium member Constructora Heisecke, told daily ABC Color.

As of last week, the bridge was 78% complete and is expected to be ready late June, though Heisecke warned that the schedule could be upended if the debt issue remains unaddressed.

The debt reassignment scheme, which was launched in 2021, allows contractors to transfer the right to charge for work certificates to local banks, which in turn pay the construction firms. However, the mechanism requires the ministry to eventually pay the banks. 

The mechanism was introduced as the public sector faced difficulties to pay for new works because of the fiscal restrictions that emerged in the wake of the COVID-19 pandemic.

It is estimated that MOPC ended 2022 owing around US$300mn to banks that funded projects through the scheme. 

At one point, MOPC stopped launching tenders for new projects that required treasury funds and instead focused on those to be financed by multilaterals.

However, the ministry is now using multilateral loans to pay part of its debt with local banks. 

Another project being sustained by banks involves riverbank flood prevention works in the city of Pilar in Ñeembucú department. In November MOPC reached an agreement with Consorcio CTC to reassign 54bn guaraníes (US$7.3mn) worth of debt after the contractor warned that it was about to suspend works. 

As a result, public works minister Rodolfo Segovia said tenders for public works contracts will be more limited this year with the aim of paying at least half of the total, daily 5Días reported. 

At the same time, MOPC is also intensifying its use of the PPP model to limit public spending.

However, the construction sector expects a slow year overall for infrastructure due to the general elections scheduled for April 30.