What role does the ANI play in the overall development of Colombia’s infrastructure?
ANDRADE: ANI is in charge of our PPPs in the country, that is, the concession for roads, railways, airports, and ports projects. Today, we have been developing our infrastructure through a mix of PPP and regular public sector contracts, but going forward we will be leveraging much more the PPP model and ANI will be central to all of this process.
What are the major infrastructure projects that are currently being carried out in Colombia? How will future projects be financed?
ANDRADE: We have an initiative which impacts all dimensions. The most important areas from an investing point of view are the roads. We have currently 25 PPP contracts under development for roads and we are building new 4 lane highways at a rate of 300km per year, which is a record in Colombia’s history. However, the upcoming projects are very big and this is what we call the 4th generation of road concessions. It is a program of 40 concessions, each one between $400m and $1bn in CAPEX. Together this is about $25bn in investment and this may be the 2nd largest program in the world after India. It is very important to bring investors from the outside because of the magnitude of the program. We do not have enough equity in Colombia to finance these projects, nor do we have the capacity to finance the entire debt required by these programs. For this reason, we have been promoting projects all around the world. We are very happy because we have already initiated the first nine contracting processes. The first stage is the expression of interest, where we received the interests of 20 consortia made up of foreign companies and Colombian companies. There are 25 foreign companies interested in our program and these are the largest developers in infrastructure from Europe, Latin America, and Asia.
In the recent WEF Global Competitiveness report, Colombia received low rankings with regards to supply and overall quality of infrastructure. What actions is the government taking in order to increase the country’s supply of infrastructure? What initiatives is ANI currently implementing to enhance and improve the overall quality of infrastructure in Colombia?
ANDRADE: Unfortunately, what the WEF says is true. We have one of the worst quality road infrastructure systems in the world and in Latin America. That is why we are investing so much money to fix it. What we have calculated is that we need to increase the investment grade from 1% of GDP to 3% of GDP and keep it there for at least 10 years. That is what is necessary to bring the infrastructure to the level of an upper-middle income country, let’s say like Mexico. What are we doing about it? Well, we are already on our way there. This year we are likely to invest 1.5% GDP, so 50% more in comparison to the past. With this broad concession program and the concessions we have planned for rail, ports, and airports, we hope to continuously increase these investments, and from the year 2015 onwards, be at the magic 3% mark. That is going from investing $3bn a year to $10bn a year. The most important thing in infrastructure is not improvising, but planning properly. Unfortunately, in the past we made the mistake of not planning the projects efficiently and not doing enough designing before the bidding process and then we had unexpected surprises. The very first effort to improve the situation was in Ruta del Sol. These were 3 projects awarded in 2009/2010. What we are doing is taking the Ruta del Sol model and improving it. So we think that with proper planning and improvements in the legal framework, we will be able to have much better quality in this process. We also expect to give much clearer rules of the game to foreign investors.
Industry insiders have stated that in order for the government infrastructure initiative to succeed new projects need to attract both local and foreign investors to guarantee financial closing. What actions is ANI taking to attract further FDI to Colombia’s infrastructure projects? What initiatives are you currently implementing in order to promote public-private partnerships focused on the development of the country’s infrastructure?
ANDRADE: Prior to 2009, prior to Ruta del Sol, there were too many re-negotiations on existing contracts. That was one of the complaints that the OECD (Organisation for Economic Co-operation and Development) made when it was analyzing the way Colombia operated. Unfortunately, the government at the time found it more convenient to add more work on the existing contracts rather than initiating a new bid. That created a lot of discomfort in Colombian public opinion at large about the transparency with which these new works were awarded. For these reasons, we made a decision to bring the 4th generation of concessions through bidding processes, which will ensure more transparency. Two years ago, we also passed an anti-corruption law. The important aspect of the new anti-corruption law is that it determines the minimum level of planning and preparation that ought to take place before the project is brought to the market.
We also passed the PPP (Public Private Partnership) law. The PPP law is very important. It looked at what we did in the past, but also looks at the successful experiences of other countries in terms of PPPs. In Latin America, we looked a lot at Chile and Peru, and around the world we looked a lot at Canada and the UK. We passed this new law, the PPP law, which basically tries to borrow the best from the outside and learn from our successes and mistakes in the past. We have a lot of interest in these projects. As I mentioned, we have expressions of interest from 20 consortia made up of the best companies from around the world and from Colombia. We also have a lot of interests expressed, not officially, by institutional investors outside, such as infrastructure funds in the US, UK, and Canada. We are very happy about the interest in these projects that has been expressed by the international community. We think that these PPPs, not just in roads, but also in rail and in airports, are probably going to be the main driver of Colombian economic growth between now and the end of this decade because, as I mentioned, we are going to go from 1% of GDP to 3% of GDP in investment.
This means employment, as well as beneficial effects on industries that feed the construction sector, such as steal, cement, concrete, etc. Infrastructure is going to be a significant driver in the next 5 years, but the biggest benefit is more permanent, that is the competitiveness. A lot of these roads in Colombia are roads where trucks can only go from 30km to 40km per hour. This is because the roads are windy, or because there are only 2 lane roads, and you know, 5 axel trucks simply cannot go any faster. All these roads we are designing are going to allow these trucks to go between 60km and 80km an hour. So speed is going to double and on many of these roads the cost of operations is going to be cut by half. This means that the cost of shipping from the interior of the country to the coast is going to be around 30% less than what it is today.
Fitch Ratings has stated that historical absence of road planning has translated into a fragmented infrastructure and lack of intermodal connectivity in Colombia. What investments is the government making in order to improve Colombia’s intermodal connectivity? How do you see this progressing over the next 2-5 years and what impact will this have on logistics costs for Colombian companies?
I think Colombia has the largest, or one of the largest, portfolio of projects in the pipeline with private sector investors. I mentioned the $25bn in roads, but we also have about $3bn in railways and we have a couple of more billions between airports and ports. So we are talking about $30bn in projects that are defined and are in the process of coming to the market.
ANDRADE: That is why this program is very expensive, because this is a very mountainous country, we need to build a lot of tunnels, a lot of bridges, and we need to cut mountains. So it is an expensive undertaking, but it is what is going to make us competitive. Just think of going from Bogota to the Pacific Ocean, to Buenaventura. Here, in Bogota, you are at 2600m. You have to go down to the Magdalena Valley at 300m. Then you have to go up to 3200m in the Central Mountain Range and come down again to 2000m in Cali. Then you have to go back again to 1600m and then come down to Buenaventura. This is quite an undertaking for a truck. I think logistics is going to develop in a very significant way. One way is that the cost of shipping will go down, and you know, in any industry, if prices go down volumes goes up. So you are going to have a lot more volume and a lot more business.
The second thing is that we are going to rebuild the infrastructure that we have left behind, such as the Magdalena River and the railways. This is going to create a lot of opportunities for intermodal logistics, which I think is not only going to lower costs, but also provide opportunities for logistics companies. In ports, we have been doing quite well. We had a crisis in our port system in Colombia in the early 1990s when Colombia opened up to the world economy for trade. So at the time the government decided to privatize the ports and to build only terminals through the PPP system. This has worked really well. It is actually an example to follow now in the road system. So our ports are investing about $1bn a year in new terminals and on expansion of the existing terminals. Cartagena, for example, has become a hub for transshipment of containers in the southern part of the Caribbean and it is growing every year at double-digit rates. So we are very happy with the way things are working in the ports. The difficult thing for us has been to get the merchandise to the ports in an efficient way. That is why we are working on the railways, on the rivers, and the roads.
Regarding the airports, the largest airports in Colombia have been bid out under a PPP contract. The only one that we are re-bidding soon is Barranquilla, which is the 4th largest city in Colombia. We are starting the process next month. But we will also need significant expansion on contracts that were bid out before and we need to find a way to sort that out. For example, in the case of Bogota, as you can see, the nearby airport is about to be finished, but we have already found that it is going to be short for the country’s needs in a couple of years. So we need to build an alternative airport and we need to make some changes in the existing airport. We are already in the process of making these master plans. The location for the alternative airport has already been defined and we are starting to work on how to finance this new infrastructure.
How would you describe the economic climate in Colombia for potential foreign investors?
ANDRADE: I think Colombia has the largest, or one of the largest, portfolio of projects in the pipeline with private sector investors. I mentioned the $25bn in roads, but we also have about $3bn in railways and we have a couple of more billions between airports and ports. So we are talking about $30bn in projects that are defined and are in the process of coming to the market. So it is a huge opportunity. The second thing is that Colombia is a very stable country for private investors. The World Bank ranks us as the number 5 country in the world in terms of an economic friendly environment for investors to come into.
In Colombia, we respect contracts. It is the only country in Latin America that has never rescheduled its foreign debt. It is a stable place. You would also have assistance for resolving disputes that is very safe, as we use international arbitration, as opposed to the regular civil court. This ensures neutrality to the investors. We have a very transparent system for the process of awarding the new concessions. I think that it will be difficult for a private investor to find a place with so many investment opportunities in an environment which is also investor friendly. We did have a very serious problem with the communist insurgencies and the drug trafficking. Fortunately, we have improved that situation. If you look at the rate of homicides, for example, it is less than 40% of what it used to be in the past. The largest cities in Colombia are now much safer than many other cities in Latin America.
We are making progress, but we still have problems and we are working on improving these problems. The police are becoming more efficient every day, the army too, and we are trying to find a solution with a peace agreement with the communist insurgency to further improve the situation. Now, the best thing to do is to look at the facts. The fact is that today we have a lot of foreign companies investing in Colombia. We received $16bn in foreign investments last year. In most of our new projects in road building, we have foreign companies involved. So we do have problems, but these problems are manageable and we are improving the situation.