“Economist Impact“, the communication and research media that is part of the English group “The Economist“, with the support of the Inter-American Development Bank (“IDB”), has recently published a study on the capacity of the countries of Latin America and the Caribbean to carry out infrastructure projects under the tool of sustainable public-private partnerships (“PPPs”). The analysis and content of this study covers the period February 2021 – September 2021.
In general, the results of the analysis show that efficient risk allocation is key to the bankability of PPP projects as well as applying the lessons learned not only within the country but also relying on good practices from other countries. At the same time, issues related to climate change, sustainability, control and monitoring of projects, inter alia, were addressed.
Specifically, the study called “The 2021/22 Infrascope” provides brief information on PPP regimes in 26 countries in Latin America and the Caribbean, including Paraguay. Regarding our country, the study refers that, although the execution of infrastructure works under PPP has been limited, given that to date only the expansion and duplication project of ROUTE PY02 was completed under this modality, the Current legislation on PPPs stands out for its strength and soundness. We recall that the PPP tool was regulated in 2013 by virtue of Law No. 5102 on “Promotion of investment in public infrastructure and expansion and improvement of goods and services by the State”, in turn regulated by the Decree No. 4183/2020 that replaced Decree No. 1350/2014 and significantly expanded the regulatory framework for PPPs.
As a positive point, first of all, said study points out that, with Decree No. 4183/2020, different government institutions are involved in projects under PPP, such as the Public-Private Participation Projects Unit of the Technical Planning Secretariat, the General Directorate of Public Investment of the Ministry of Finance and the Executive Committee of PPP Project Authorities formed by the Minister of Finance, the Minister of Public Works and Communications and the Executive Secretary of the Technical Planning Secretariat.
It then highlights that Decree No. 4183/2020 has especially strong characteristics regarding competitive and fair bidding processes and openness in the modification of contracts. It also highlights that it introduces several new mechanisms aimed at reducing investment risks, such as: i) the “competitive dialogue” as a compulsory procedure that takes place prior to publishing the tendering process and is meant to integrate concerns from prequalified bidders, thereby ensuring optimal distribution of risk and social and financial gains, and avoiding renegotiations or financial modifications during later stages; ii) the “preparatory phase” as an instance prior to the construction phase that begins with the signing of the PPP contract; iii) the definition of “financial closing” as the signing of agreements or financing contracts between the specific purpose company and its financiers, by virtue of which the terms and conditions are stipulated for funding or total financing will be obtained for ensure compliance with the object of the PPP contract, and iv) the “variable term” of the contract subject to certain variables related to economic and financial issues, helping to ensure sponsor’s expected return on investment.
Finally, it is added that, in order to further strengthen the institutional aspect, Paraguay would benefit from expanding the technical capacity of the agencies involved in PPPs, mainly with regard to the ability to conduct pre-investment studies and coordination across institutional bodies for project preparation. It is also recommended to include climate and social equitability considerations into selection procedures.
In short, the study leads to the conclusion that Paraguay has paved the way to continue planning and bidding projects under the PPP modality, given its good regulatory and institutional quality.
Having said this, it is appropriate to mention that the prequalification under the PPP modality for the duplication and improvement of Route PY 01 for an amount between USD 250 million and USD 350 million is expected to be launched between August and September 2022. Additionally, the bidding process via PPP for the waterway project from Asunción to the Apa River, presented as a private initiative by the Belgian company Jan de Nul, is also in an advanced stage. This last project has an estimated investment of USD 120 million.
For more information, please contact Adriana Ocampos (adriana.ocampos@berke.com.py) and/or Martin Carlevaro (martin.carlevaro@berke.com.py).
