Transport and sanitation lead Peru’s infrastructure investment needs
Alberto Ñecco Tello talks through ProInversión's portfolio of Peruvian PPP projects
ProInversión is Peru’s private investment promotion agency. It recently completed an international roadshow promoting a portfolio of 50 public private partnership projects, to help plug Peru’s $160bn infrastructure gap. In the second part of our video roadshow, Executive Director Alberto Ñecco Tello talks us through the projects in the agency’s portfolio: from transportation, through water and sanitation, to mining and energy. He also points towards the future PPP projects that may come out of active collaboration between ProInversión and other ministries of government. The roadshow continues The New Economy with an exploration of ProInversión’s sustainability, and started at World Finance with Peru’s macro outlook.
European CEO: Let’s talk through some of those projects in your portfolio: 40 percent is in transportation.
Alberto Ñecco Tello: Yes, we have a very interesting portfolio in transportation; mostly because a large portion of the $160bn estimated gap in infrastructure comes from that sector.
We are expecting to award projects amounting to about $4.4bn for the next few years until 2020. And that doesn’t really take into consideration some of the largest projects are in the formulation stage. That could even go up to $21-24bn, once we incorporate the metro lines and the proximity trains that we are working with the ministries to take to our portfolio.
So that’s a very interesting sector to work in; also a very challenging one, but the one with the most opportunities to offer.
European CEO: Now some of your most important projects are in water and sanitation.
Alberto Ñecco Tello: Correct; there’s a large gap in terms of wastewater treatment plants in the country. And we’re actively working with the ministry of housing and sanitation to cover that gap.
We have a portfolio of around 20 different drinkable water or wastewater works, for about PEN 6bn – that’s something around $1.7-1.8bn. And we will be taking this to the market in the coming two to three years.
European CEO: Now, earlier this year, one of your mining projects was awarded to the Southern Peru Copper Corporation.
Alberto Ñecco Tello: That’s right; that’s the Michiquillay project, and that’s… it’s very interesting, because it is one of the last, large, high-grade deposits of copper in the world, actually, that was available.
We ran a very competitive process, and I must say also a process where we took very carefully our work with the communities. We devoted a lot of time and effort to communicate and work with the communities ahead of the project, so that there was social acceptance to the whole thing. And that, I think, that’s one of the reasons it became such a successful process.
There were two bidders, and Southern Peru Copper Corporation – which is part of Grupo Mexico – won the bid by offering $400m in cash payments that will be paid in instalments for the next few years, and a contractual royalty, that at an estimate net present value, amounts to something around $700m in terms of economic value for the government. Which will be shared with the communities, actually: 50 percent of all of that will go to a social fund for works in the community, and ensure acceptance and viability of the project.
European CEO: Peru is also looking to expand and improve its broadband and energy networks.
Alberto Ñecco Tello: Yes, we have been working very intensively in the last few years to extend our broadband coverage. And we have six more projects coming to the market by the end of this year.
With the initial phase of this, we will have covered 21 out of our 24 departments in Peru with broadband.
The remaining three are located in the Amazon jungle, which are much more difficult to reach. And we are working vigorously with the ministry of telecommunications and transport to find technical solutions that we can take to the market three more projects, next year, to bring broadband to these locations.
And in terms of energy; it’s very important to point out that Peru right now has a surplus of electric power generation capacity that could cover easily the demand for the next five years. But that means that we need to strengthen – and continually keep strengthening – our transmission grid. Because that increasing capacity from generation or generating plants, needs to be covered by an increased capacity to transmit that power. So in that sense, every year we take to the market five or six different projects – whether it be transmission lines, substations, transformers or regulators. We are constantly working on improving and strengthening the grid.
European CEO: And I understand you’re working with different ministries in government to expand your portfolio into other areas of the economy?
Alberto Ñecco Tello: That’s right: a large portion of the infrastructure gap also comes from what we call social sectors. Whether it be education, healthcare, or even prisons. So we are working with ministries in those sectors to identify and prioritise projects, and provide technical assistance, to help them bring these PPPs to the market.
We are very focused now on project readiness; due to recent changes in legislation, we are now obliged to have the projects better prepared. Because contractual amendments are forbidden for the first three years after signing. So that means that if we don’t pay much closer attention, or we don’t have much more finalised or perfected structures before we actually award them; since the contracts cannot be changed, banks or the capital markets will not finance them. So the pressure on structuring properly the deals has moved into the structuring – as it should be.
Social sectors need to be very well into the fabric of the country, so we are working with them in identifying these projects, and also in better preparing them for the market; as we do for the whole portfolio.
European CEO: Alberto, thank you very much.
Alberto Ñecco Tello: Thank you.