The Latin American infrastructure pipeline

Publication | May 2015


Vast tracts of land; liberalised, business-friendly regulatory regimes; major markets and a previously non-existent spending capacity – these are just a few of the factors which explain Latin America’s enhanced global competitiveness. The region was enjoying strong economic growth based on its raw materials production, propelled by China’s seemingly infinite demand: but all the signals now point to a slow, steady reduction in growth. Latin America’s development strategy – and its continuing flow of foreign investment – is now dependent on the development of its infrastructure.

Project finance declined across the globe in 2014. In Latin America, however, the pace of project finance and public-private partnership transactions increased, from 198 deals in 2013 to 222 in 2014, with a value of US$56.3 billion.

With more investment opportunities came a growth in confidence across many sectors. As a result, projects have not been solely reliant on debt finance: developers have been able to access finance through a range of sources including private equity, international financial institutions, pension and sovereign wealth funds.

Latin America’s infrastructure gap is widely recognised:

The OECD view – decades of low and inefficient public investment coupled with timid private investment (limited to the role of EPC contractors).

CG/LA’s 2018 data model – most countries in Latin America need to increase their infrastructure investment by 250 per cent over the next five years in order to meet the needs of their growing popularity.

The IDB and CAF – average investment per country in Latin America and the Caribbean must reach five per cent of GDP (double the current average) in order to eliminate, or diminish, the competitiveness gap with developed countries caused by sub-par infrastructure.


Despite the difficulty in generalising across the region, one can say that project developers and sponsors of projects in Latin America should aim to have measures in place to respond to the following scenarios.


The development of infrastructure projects in Latin America usually faces two types of socially-related challenge. By law, local communities and municipal authorities must receive full information regarding the specifications and effects of the projects. That does not confer a veto right on the community, but experience has shown that strong opposition to projects by local communities is usually a major factor of project overhead and delays.

Furthermore, by law, indigenous and traditional African- American communities must be consulted before implementing any infrastructure project that can affect them or which is developed on their traditional territories. Although similar to community consultation, the indigenous and African-American consultation requirement is subject to a stronger, more stringent legal analysis and a requisite in order to apply for an environmental license.

In general, the regulation of prior consultation in Latin America is poor. Time limits are usually not clear and there are no obvious legal remedies to overcome negotiation deadlocks. This has led to major delays in the development of projects. In some cases, sponsors have been compelled to conclude agreements with neighbouring community which seriously affect the investment return rates of projects.

Environmental issues

The procedure around granting environmental permits may be burdensome in infrastructure development projects in Latin America. In Colombia, for example, the Council on Social and Economic Policies – CONPES – established that 79 per cent of the 29 toll road projects they reviewed ran into difficulties through delays in obtaining environmental licenses. Delays are usually attributable to bureaucratic requirements, poor coordination among public entities that intervene in the process, and an absence of official industry guidelines.

The problem has been clearly identified, and those countries that are currently developing ambitious infrastructure programmes have over the last year all put in place regulatory regimes that allow for a faster, simpler request procedure.

Exchange risk

Financing choices affect the amount of exchange rate risk borne by different participants in the project. The UN’s Economic Commission for Latin America and the Caribbean (UNU/WIDER-ECLAC) project highlighted that, in particular, loans requiring repayment in foreign currency expose shareholders to a major exchange rate risk. To diminish that risk, most originating governmental entities have put in place some form of foreign exchange coverage mechanism.


Although all Latin American countries have an infrastructure programme, the most dynamic developments are taking place in Brazil, Colombia, Peru, Chile, Mexico and Paraguay. Project pipelines range across sectors and are varied in size, investment requirements, state involvement and contractual structure. All these countries share a policy that is open to private investment in infrastructure.



Brazil was not significantly affected by the global financial crisis of 2008 but in recent years its economic growth has slowed down. One of the contributing factors to that stall is the accumulated time of neglect towards its infrastructure and a lack of maintenance that has seriously affected its reliability.


To tackle this problem, various Brazilian state governments were early adopters of PPP mechanisms as instruments to develop expensive infrastructure projects. In 2004, the Federal Government passed a comprehensive PPP law. In 2006, the Government of the State of São Paulo approved the contract for Brazil’s first PPP for the construction and operation of the São Paulo Metro.

Under the Brazilian PPP regime, concession contracts range from five to 35 years in extension, and require a minimum private investment of at least BR£20 million (US$8.82 million); public sector contributions are limited to 70 per cent of the consolidated cost of the project. Public funding for infrastructure is provided by the government financial institution, Caixa Economica Federal, a promoter of urban development, and by the Brazilian Development Bank (BNDES), the main financing agent for development in Brazil.

Despite social unrest following the cost overruns on the projects required for the 2014 Fifa World Cup, the PPP mechanism is still the preferred choice for infrastructure development in Brazil. More than 65 per cent of the construction work under way for the 2016 Rio Olympic Games is linked to PPP.

At the same time, there has been a major review of the structuring mechanisms: most cost overrun risks have now been shifted from the state to the private sponsors.

Although the Brazilian construction and PPP market is largely dominated by local construction companies – which act as sponsors in most projects – there are opportunities for foreign players and financiers.


A principal energy tender anticipated is for the 6,133 MW São Luiz do Tapajós hydroelectric power plant (HPP) on the Xingu River, valued at US$9.2 billion. Brazil’s national power regulator – the National Energy Agency – plans a further 15,573km of transmission and hydroelectric projects over the next three years.

Transport sector

Most significant investment opportunities are likely to arise in the transport sector in Brazil. The country’s ports, railways, airports, roads and distribution centres are generally in poor repair, with extensive shortfalls in capacity. Brazil’s transport infrastructure suffers in particular from the lack of a national rail network. Upcoming railroad projects between Rio de Janeiro and São Paulo include the Vitoria– Rio de Janeiro railway, Uracu–Campos Freight Railway and Rio–São Paulo–Campinas High Speed Rail.

A number of major road projects have recently been announced: 103.8km Rodoanel Sul e Leste Highway, Rodovia do Progresso, Northwest Corridor of Campinas EMTU and the Acciona BR-393/RJ Highway PPPs.



In February 2010, central Chile was hit by a massive earthquake. As a result, the power generation, telecommunications and transportation infrastructure was badly damaged and required extensive rebuilding. At the time, the Chilean government estimated the cost of repair and rebuild at around US$1.2 billion.

Chile 2020

The Chile 2020 infrastructure programme – announced by the Public Works Ministry before the earthquake occurred – set potential investment at up to US$28 billion and included 25 PPP-based projects.

Chile had great success in the tendering of the concession of Santiago’s Arturo Merino Benitez Airport in February, 2015. With more 10 international companies interested including various newcomers to the market, the country demonstrated once again that its stable political and economic conditions are very attractive for investors around the world.

Major infrastructure opportunities in Chile, which will go to tender in the near future, include:

  • Building the Costanera Central highway; US$1.98bn.
  • Creating reservoirs, irrigation canals, shipping and a coastal road that will run for two-thirds of the length of the country.
  • The improvement and expansion of the dual access highway to Valdivia roads.
  • The express carriageway connection concession for connectivity improvements between routes 78 and 68 between Pudahuel and Maipú.
  • The La Serena–Coquimbo road which is a key project for the development of one of Chile’s tourist hotspots.
  • The development and expansion of Iquique’s Diego Aracena and Puerto Montt’s El Tepual airports which will require investments for the construction of new terminals, road improvements, parking lots and increased demands.
  • The construction and expansion of the Punilla reservoir which is likely to have a great influence in the development of agriculture on the basin of the Ñuble River.

Social infrastructure

Chile has run a number of prison PPPs in recent years and is making progress with some hospital projects (such as the Salvador Geriatric Facility) – despite initial resistance from the Chilean government toward PPP-based structuring.



Colombia probably has the greatest infrastructure needs in Latin America. Despite a stable political situation and a relatively large economy, its turbulent past and complex geography have taken a toll on the country’s competitiveness. In 2014, transporting a container from Colombia’s ports in the Caribbean to its inner (and larger cities) was found to be more costly than taking it from that same port to China.

4G programme

Colombia’s 4G programme (the ‘fourth generation’ of road concessions) aims to reduce the gap in infrastructure and consolidate the country’s national road network.

The government intends to grow the national highway system by more than 400 per cent: it plans to build more than 2600km of two-lane highways by the end of 2018 and a total of 6000km of new roads. The estimated value is US$22 billion; this will be jointly financed by public contributions and private funds obtained via equity and debt. A first group of projects in this ambitious package was awarded in 2014 and a second and third wave will follow in 2015 and 2016.

The projects will be carried out through PPP schemes with 20- to 30-year concessions awarded to project sponsors. The government has made significant efforts to ensure that real estate, environmental and social risks are mitigated to a level in which sponsors will be able to commence construction as soon as financial closing is ensured.

In January 2015, the National Infrastructure Agency published terms of reference for the 4G road concession project Bucaramanga–Barrancabermeja–Yondó. This has a 1.68 billion pesos investment estimate (approximately US$715 million) and includes works along 151.74km involving the construction of 22 bridges and two tunnels adding up to 5.96km.

The second wave of 4G programme projects has been structured and a set of pre-qualification terms published. These projects will be awarded in 2015.

The 2015 projects include:

  • Neiva–Girardot: 79km double-lane construction; 190km improvement; US$980 million investment estimate
  • Villavicencio–Yopal: 48km double-lane construction; 212km improvement; US$1000 million investment estimate
  • Rumichaca–Pasto: 80km double-lane construction; 212km improvement and maintenance; US$1000 million investment estimate.

The Bogotá subway

Bogotá’s subway system is considered to be the country’s single largest project opportunity. First line designs were unveiled in October 2014; they include 27km of track and an equal number of stations at an estimated cost of US$7.5 billion.

Environmental license approvals

The Colombian government is seeking to reduce the timeframe for environmental license approvals, in response to long-standing industry requests. These licenses are mandatory for oil, mining, energy and infrastructure projects.



Mexico’s PPP Law, enacted in 2012, regulates the involvement of private capital in the provision of public goods, services and technical innovation. It provides for a dynamic risk allocation on a case-by-case basis; and sets limitations in value and term of contractual renegotiation.


The national infrastructure fund, Fonadin, has promoted the development of the most recent infrastructure undertakings and provides a source of state finance.

Over the next four years, the government of Mexico plans to invest more than US$600 billion in its energy, transport, telecommunications, water and environment sectors, in order to support the country’s ambitious reform efforts.

Top 100

Five Mexican infrastructure projects were included in CG/LA’s top 100 strategic infrastructure projects under development in Latin America in 2014. Two projects that stood out were the construction of a new airport for Mexico City and the Mexico City–Toluca passenger rail line (estimated at a US$2.9 billion investment).

Social infrastructure

Mexico has run a number of prison PPPs in recent years and has used the PPP system for the construction and operation of a large number of healthcare facilities.



Paraguay depends heavily on land and water transport, but both modes of transportation require urgent investment in improvements, expansion and modernisation. Only 6.8 per cent of the country’s inter-urban network is paved, and waterways, especially the widely used Parana– Paraguay waterway, require urgent dredging and continued maintenance. The government has decided to structure a PPP model under a new law that will serve as the legal basis for future infrastructure projects.

One to watch

Little is known about the upcoming project pipeline, but it is clear that Paraguay will rapidly become one of the markets to watch.



Peru’s PPP Law regulates the involvement of private capital in the provision of public goods, services, public infrastructure and technical innovation. Peru’s project portfolio requires the investment of an estimated US$4 billion across all sectors.

Longitudinal de la Sierra

The road subsector Longitudinal de la Sierra road project, Section 4 – set to be awarded by the end of 2015 – involves the improvement and rehabilitation works of 117km, the regular initial maintenance of 311km and its subsequent maintenance and operation. The investment is estimated at US$178 million.

Lima Metro

ProInversión (Peru’s private investment promotion agency) conducted technical studies and promotion of private investment around the concession of the design, funding, construction, operation and maintenance of Lima Metro’s Line 2; this was recently awarded with an investment value of US$5075 billion.

The Peruvian Ministry of Transport and Communications, MTC, has commissioned ProInversión to conduct preinvestment studies for Lines 3 and 4, and to handle the promotion of private investment.

Social infrastructure

Peru has run a number of prison PPPs in recent years.

The consultancy hiring process is under way at the moment for the construction of new replacement correctional facilities in Lima and Cusco (Mujeres Chorrillos, Lurigancho, Miguel Castro Castro and Cusco). The government has not indicated the value of the proposed investment.

In Latin America, Peru has perhaps the most sophisticated PPP regime for the construction of social infrastructure. A notable example is the PPP-based project for the construction and operation of the Callao and Villa Maria del Triunfo Hospitals, in which IBT Group and Ribera Salud from Spain are currently involved.


Associated Press, Chile’s Earthquake-Delayed School Year Begins, March 8, 2010, Latin America must double investments in infrastructure, October 25, 2013 Strategic Top 100

Emerging Markets, Latin America: filling the infrastructure financing gap, March 2014

Infra Deals, country factbook, Brazil

Morningstar, Investing in Latin American infrastructure, January 12, 2011, Brazil, January 2015

OECD, Bridging infrastructure gaps through smart investment 2014 (United States Trade and Development Agency)

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