The
largest obstacle to further accelerate economic development and growth of
investment in our country is undoubtedly the notable lag in infrastructure;
this has a negative impact on all sectors of production and, ultimately, reduces
the competitiveness of Colombia.
The
previous public procurement system, specifically the concession - based model, had
serious limitations which would have made it difficult to meet the ambitious
goal set forth by the Government to overcome this infrastructure lag. It meant
disbursement of considerable amounts of public funds, including advance payments,
additions and extensions that far exceeded the initial value of the contract
and the results did not differ substantially from those of public work
contracts. The projects implemented were not designed to create effective investment
and financing plans; neither was risk allocation efficient in most projects. Added
to all this, corruption permeated much of the system and altered its substance.
In
an effort to overcome this lag quickly and foster private investment in Colombia’s
infrastructure, the legal framework to implement Public - Private Partnerships
in our country was approved and became effective in 2012. The result was Law
1580 of 2012 and its Regulatory Decree 1467 of 2012.
In
practice, this new legal framework became effective as of February 2013 with
the publication of the first four Invitations for Prequalification by the newly
created National Infrastructure Agency (Agencia
Nacional de Infraestructura), which form part of the initial group of
projected “early victories” of the Fourth - Generation Concessions Package.
Within
this context, it is still too early to identify the specific strengths and
weaknesses of the young legal regime; these strengths and weaknesses will gradually
be revealed as the legal framework is applied and tested through the processes which
has just started.
At
any rate, there are some features that are worth underlining, and can provide an
idea of what advantages and disadvantages are likely to become apparent throughits
application. For greater details and information, it is suggested
to read and apply the recommendations set out in the report of the
Infrastructure Committee, which were given to the Colombian Government and the
industry more generally,as of last October 2012.More information can also be
found in the Study on Public Private Partnerships in Colombia: Strategy for
Canadian Businesses, prepared for the Canadian Embassy on the Colombian PPP
model and process.
Strengths
The
first feature which can be interpreted as a strength is the guarantee of
disbursement of public funds for the total duration of the project. The Law
includes the possibility of approving future periods of general national or
regional authorities’ budgets for all tax years corresponding to the duration
of the project, provided that availability, service levels and stipulated
quality standards are complied with.
Another
strength of the scheme which is one of its most important features and marks a
break from the old system of corruption that occurred in many projects by some concessionaries,
is the mechanisms established in the legal framework which guarantee
transparency and efficiency in the bidding process and in the implementation process
of concessions.
These
guarantees are embodied in the legal limits set for additions and extensions to
these contracts, which may not exceed 20% of the initial term and budget.
On
the politically contentious issue of land acquisition, especially in transport
infrastructure projects, I consider the manner in which the issue has been
dealt with to be a strength; although it is a critical issue, it is being
carried out to enable numerous actions in the near future so that it stops
being a bottleneck.
On
the one hand, the standard contract published by the National Infrastructure
Agency adopts a cost-sharing approach between the entity and the dealer that
reduces the burden and risk for the latter. In any case, proponents must carry
out a land inventory prior to the bidding process in order to assess risks and
problems.
Additionally,
a new procedure was adopted in the reform of the Code of Civil Procedure, which
includes a measure allowing whoever initiates the process of expropriation of a
property to request its delivery provisionally before the ruling is issued.
A
Bill of Law was also filed at the Congress on March the 22nd, 2013 “whereby
measures and provisions are adopted for transport infrastructure projects”,
including special provisions on acquisition of properties which are intended to
facilitate and accelerate judicial and administrative expropriation.
Finally,
another important advantage of this regulation is the incentive system created for
Private – Public Partnership projects with a private initiative, whereby the
originator is assigned a score of between 3 and 10% of the total score during the
bid awarding process. This system most undoubtedly encourages submittal of
these projects and potentially attracts private capital to them.
Weaknesses
As
for the characteristics of the system which may be understood as weaknesses in
term of their application, we found that the main concerns are related to issues
which directly affect infrastructure projects, but that are not regulated by
the Public Private Partnerships Act or Decree. Such issues include the prior consultation
process with communities, as well as lags and difficulties in issuing
environmental permits, in particular as regards the determination of the party whereupon
the risk of costs and delays in management shall fall.
Regarding
environmental licenses, the infrastructure bill presented by the Ministry of
Transport above regulates the environmental variable for projects from their pre-feasibility
stage, containing the necessary input to manage the environmental license such
as the Environmental Diagnostic of Alternatives and during the feasibility stage,
the Environmental Impact Study.
However,
delays in issuance of these permits are related to the difficulties of an
institution which is in the making; thus it is a challenge which will be
overcome, once institutions reach their highest level of activity.
Another
constant criticism from all sectors involved in this sector, is the limit established
for Public - Private Partnership projects of a private initiative, under which they
may only have a 20% share of public funds investment on the value of the
project.This prevents private stakeholders from submitting private initiatives
for social infrastructure which require a greater amount of public resources
and in many cases, 100% of the investment.
It
seems as though this has been precisely the intention of policymakers, i. e.
that of avoiding the risk that private agents may define the agenda of the
public sector by means of the submittal of their projects and, consequently, avoid
a private share in the execution of its budget.
Another
aspect of the law which has generated debates is the regulation of the Functional
Infrastructure Unit: The availability – based payment system, service levels
and quality standards stipulate that during the construction phase
concessionaries shall receive no payment until the infrastructure is fully available
and operational.
The
legal system created the Functional Infrastructure Unit in order to mitigate
this drastic situation. Said units must by definition be independent and
autonomous, they shall meet service standards and quality levels and have an
estimated budget of investment of at least 175,000 minimum legal monthly
salaries (about US55 Million).
Whilst
the Functional Infrastructure Unit is necessary to prevent concessionaries from
being forced to go through the whole construction phase of the project without any
cash flow, it is also true that the large sum required as estimated investment
budget for each functional unit has been controversial. In practice, it is
assumed that these payments can be widely deferred over time, thus threatening project
funding.
With
regard to the award procedure, in accordance with the system adopted in the
Colombian legislation, the list of prequalified bidders may be up to ten.
Canadian experience in the development of Public- Private Partnership projects
shows that the prequalified bidder list is usually a list of up to three
bidders with whom the remaining stages are developed, and the terms of the
contract are defined.
A
smaller group of prequalified bidders has developed in Canada because preparing
the proposal is a costly process, and also because there is a possibility that there
may be too many proponents in the list of prequalified bidders, thus discouraging
private stakeholders from participating. Additionally, collaborative meetings are
carried out in the post - prequalification process in order to find the optimal
version of the project based on the needs of the contracting entity; this would
be a difficult process with such a large number of participants.
Another
obvious weakness of our system is lack of regulatory mechanisms to start a Public-
Private Partnership that is derived from a higher agreement between governments
(Government to Government Agreements). Nowadays, countries like Canada have
very high interest in contributing private capital from their jurisdictions pursuant
to Government to Government agreements for infrastructure. Initial funding of
projects by foreign governments with a subsequent inclusion of private capital is
another great alternative needed by infrastructure development in Colombia.
As
recommended by the Committee on Infrastructure, along these lines of thought it
would important to regulate the rights of use of works, as well as such sensitive
issues as the guarantees which governments would assume with regard to compliance
and stability and availability of infrastructure. The
truth is that, pursuant to the very definition of a Public- Private Partnership
contract under Law 1508, a party must always be a natural person or legal
entity at private law. In the fourth –generation of projects bidding processes,
in order to overcome the argument of whether or not the Prequalified may be a
foreign state entity, it has been established in the invitation to prequalify
documentation, that “public entities are considered Entities at Private Law for
purposes of this prequalification”. Clear and enabling regulations are
recommended, rather than interpretations of this sort.
We
hope these weaknesses, which briefly reflect the main concerns raised by
stakeholders in the development of ongoing projects as well as forthcoming ones
in the near future, are overcome with the bill of law on infrastructure submitted.
This bill of law contains regulations on land acquisition, environmental
licenses, transfer of utility networks and conflicts with mining permits, as
well as the statutory law for prior consultation and the issuance of decrees which
adapt the system in order to achieve more effective implementation thereof.
In
sum, there is a clear institutional will to overcome the lag in infrastructure
as well as the vices and difficulties of the previous concessions system.
Within this context, it is important for existing institutions to be willing to
“listen” both to the domestic and foreign private sector, verify their processes,
contract the best bidders into a well-paid public sector, and interpret and
apply the new regulations in a way that is most efficient and beneficial for the
Country.
