Social infrastructure in Latin America - present and future
Social infrastructure in Latin America - present and future
Social infrastructure projects are booming in Latin America. Certain innovative tools such as public-private associations (or alliances) are becoming more relevant as an increasingly attractive option to materialize such projects, by guaranteeing the efficiency and quality of the hospitals, roads and education centers, etc. delivered. We provide details on the current situation and future prospects of social infrastructure in Chile, Colombia, Mexico and Peru.
One of the most important aspects of the public policy promoted by the new Government of Chile and undertaken in March 2022 will be the tender for infrastructure projects for social purposes. The depth of these projects is yet to be determined in the changing constitutional scenario that is presently taking place in the country.
In addition, the 2021-2025 concession agenda of the Ministry of Public Works includes a long list of infrastructure projects in areas with urgent social needs, such as health, connectivity and sustainability.
In the area of health, for example, in the first quarter of 2022, a tender will be called for the "Northern Metropolitan Hospital Concession". This project will be located in the area of Colina, in the north of Santiago de Chile and involves the construction of a medical center, maintenance of the infrastructure to be developed and the acquisition, maintenance and replacement of medical equipment and clinical and non-clinical furniture and fittings. The official budget for the project is UF 5,888,000 (approximately USD247 million).
Due to the current water crisis in Chile, a public tender will be called for the “Zapallar Dam Concession” project, located on the Diguillín River, in the Ñuble Region of central-southern Chile, involving the construction of a dam with a capacity of 424 hectares. It is estimated that the dam will service an irrigation surface area of 10 thousand hectares, benefitting approximately one thousand properties. The official budget for the project is UF 8,517,254 (approximately, USD 357 million) and the call to tender is expected in the third quarter of 2022.
During 2023, the call to tender is expected for the Caternu Dam Concession project, which consists in the building, maintenance and operation of the Caternu Dam, located in the Region of Valparaíso. The dam will mainly cover irrigation needs in the area and occupy a total surface area of approximately 500 hectares. The project is based on the integrated perspective of the basin, which will benefit farmers and users and guarantee water for human consumption and irrigation. It is estimated that the project will benefit 26,577 hectares. The official budget is UF 11,117,760 (approximately USD 466 million).
In relation to transport and with the aim of promoting connectivity solutions that are sustainable for the entire population, two public transport projects involving electrical vehicles can be highlighted. Firstly, the project called “Metro – Pudahuel – AMB Airport (Pajaritos-AMB Tramway) Light Electric Public Transport System, which involves a light electric vehicle similar to a tram to provide transport to the International Airport of Santiago. With a length of 12.5 km, it will connect the stations of Pajaritos and Barrancas on the Santiago Metro line to the Merino Benítez International Airport in less than 18 minutes. The official budget for the project is UF 10,151,279 (approximately USD 425 million) and the call to tender is expected in the second quarter of 2022.
The other project related to transport is the "Coquimbo – La Serena Connectivity Upgrade via public transport". The project consists in the development of an LRT (“light rail transit) electric tram system that uses an exclusive track between the cities of Coquimbo and La Serena, thus enabling the connection of the cities. The approximate length will be 13.69 km with 19 stations. The official budget for the project is UF 7,992,381 (approximately USD 335 million) and the call to tender is foreseen in the fourth quarter of 2023.
The infrastructure sector in Colombia is planning for major developments thanks to an increase in the Government's investment budget as part of its "Commitment to Colombia" plan which aims to reactivate the country's economy in the wake of the pandemic. This venture includes 78 transport sector projects, and of those, eight of the ten megaprojects with the biggest budgets are due to begin construction this year. Also this year, twelve new fifth generation (5G) projects are set to be awarded for roadworks, railways, rivers and airports, while fourth generation (4G) road and highway projects have continued and are 65% complete, including four of these concessions which have now completed the construction phase.
Furthermore, there has been a recent rise in infrastructures with a social purpose, particularly in the case of small and medium sized construction projects such as urban roads, community facilities, hospitals, prisons and solutions for the supply of drinking water and basic sanitation. All of this has been made possible through policies such as the Program to Enhance the Development of Social Infrastructure and Habitat, designed to create infrastructures which will be instrumental in improving the economic, cultural and social development processes for the Colombian people. Additionally, one of the current Government's goals is to increase construction of social infrastructures, and so this year it hopes to initiate the operation and maintenance of 439 social infrastructure projects in the country. These include 65 markets, four storage centers, six transformative production centers, three community areas for ethnic communities, 171 rural roads and 191 urban thoroughfares, among others.
Finally, an effective tool for developing this type of project in Colombia can be found in public-private partnerships or alliances (PPP) regulated by Law 1508 of 2012, by means of which private investment is facilitated to ensure efficiency and quality in delivering construction works. In this regard, the Bogotá Health Secretariat recently awarded the tender for the Bosa Hospital Project, which is the first social infrastructure of its kind in Colombia to be developed through a PPP structure. This attracted 150 million USD in foreign investment, with financial closure supported by local banking, and is currently under development.
The success of the Bosa hospital project anticipates a rise in other PPP projects for social infrastructure such as prisons, health centers, schools, aqueducts and waste water treatment plants (WWTP), all of which the country desperately needs.
In Mexico these instruments, known as public-private partnerships (PPP), are a widely used means of implementing social infrastructure projects such as hospitals, roads and highways, and also prisons.
The PPP and the contracting processes are regulated by the Public-Private Partnership Law of 2012. According to the law, PPP projects are those carried out through the establishment of a long-term contractual relationship between public sector bodies and the private sector for the provision of services to the public, wholesalers, intermediaries, or end users, which make use of infrastructure provided totally or in part by the private sector, with the aim of increasing social welfare and investment levels in Mexico.
The provisions of this law apply to public-private partnerships that carry out projects concerning (i) premises and facilities of the Federal Public Administration; (ii) Federal Public Trusts that are not deemed semi-public bodies; (iii) Federal bodies with public entity status and with autonomy deriving from the Political Constitution of the United Mexican States and (iv) Federal, municipal entities and their public bodies with federal resources.
Given the nature of these social infrastructure projects, they are dependent on the government electing to use PPP. These contracts were subject to government review and currently it is no longer continuing to promote them, which has created uncertainty regarding future construction projects. Nonetheless, PPP provides a legal framework for social infrastructures which facilitates their implementation and viability for the future.
Education is one of the basic pillars for progress in society and it plays a key role in disseminating technical knowhow, ethics and civil values capable of creating a national identity, forged through respect and honesty. However, this vital component is thin on the ground in some developing countries, thus eroding any expectations of achieving technical knowledge, ethics and civic values in society.
This is partly due to a combination of scant investment in the education sector and the COVID-19 pandemic, which has led to an even greater reduction in the range of educational opportunities available to Peruvian students, and as a result the education gap persists and is set to become worse over time. We can see that the country's future growth will depend in large part on our institutional capacity to implement an educational system that will instill technical knowledge, ethics and civic values in young people.
According to the National Infrastructure Plan for Competitiveness developed in 2019 by the Peruvian government, it has been estimated that the infrastructure gap of basic access in Peru would exceed 98,000 million USD, which is due to the lack of investment in national public infrastructure in the education sector and the areas of health, sanitation, and drinking water, among others. Unquestionably, COVID-19 hindered progress in the most important projects in the country’s infrastructure and impacted the tender procedures for the sorely needed national public facilities that were underway when the pandemic struck.
One particular sector that was hard hit by the uncertainty caused by the pandemic was the schools and education sector which was badly affected. According to data from the National Institute of Statistics and Information (INEI), as a result of the COVID-19 pandemic, over 400,000 students had to give up schooling and classes completely in 2020.
There is clearly a need to reduce the impact of the pandemic in the education sector through public and private investment in educational infrastructure, for example through public-private partnerships, and in addition, through High Performance Schools (COAR). The COAR are public schools run by the Ministry of Education (MINEDU) and designed to host outstanding high performing students between the third and fifth years of secondary education (the antepenultimate and the final academic year of secondary school). These schools are characterized by their advanced level of education in order to encourage the academic talents of the most outstanding students in public secondary education at a national level.
Construction and operation of new COAR schools in the short and midterm could counteract the long-term impact that the COVID-19 pandemic has had on some students, particularly those who are academically gifted, in addition to the scant public investment in educational infrastructure. However, to date there are only 25 COAR at national level, and they offer only a limited number of places, 2,695 in total, according to the MINEDU. This figure represents a mere 0.67% of the 400,000 students who gave up schooling completely in 2020. Clearly, the numbers of COAR at a national level are insufficient to cover the current demands of pupils and mitigate the effects of the COVID-19 pandemic for these 400,000 students.
As a result, an additional and viable alternative to public-private partnerships - the ideal public tender instrument that often tends to exceed the terms initially established for the startup and operation of the construction and/or tender awarded - is the "Government to Government Agreement" (G2G Agreements) and "Public Works for Taxes" (OxI). Through G2G Agreements, the Peruvian government contracts goods, services or works, which are loaned by another government without the contracting procedure being regulated by customary Peruvian state tender and contracting regulations. These agreements make the selection procedures for public works easier and more flexible, without in any way detracting from the rigorous conditions that the construction and completion of the works require.
Some successful examples of this type of contracting procedure in Peru include the public infrastructure for the Pan-American games of 2019, and the government project for the Reconstruction with Changes within the framework of reconstruction of national infrastructure affected by the El Niño phenomenon of 2017, which managed to speed up the construction of essential public works.
Similarly, the Works for Tax system provides a private investment mechanism through which private companies pay some of their income tax in advance for the purpose of financing and directly executing public investment projects that have been prioritized by the Peruvian state, thus managing construction with greater speed and efficiency and without prejudice to the educational services provided by the MINEDU.
As the educational deficit in Peru is so huge, and yet education has such a fundamental role in the country's development, we believe that the State and the private sector should promote and activate all the aforementioned mechanisms in order to increase national education infrastructure, including promoting public-private partnerships.