Peru has already awarded concessions to private firms for the construction and running of hospitals and is considering applying the public-private partnership (PPP) model across social infrastructure, including healthcare, tourism, education and prisons.

Seguro Social de Salud (EsSalud) is Peru’s equivalent of a social security programme and is funded by payroll taxes paid by employers (who must contribute the equivalent of 9% of their employees’ salary). The system has 11 million members, just under one-third of the Peruvian population. It covers everyone employed in the formal economy, about 43% of the working population. It runs a network of about 100 hospitals and 300 primary healthcare establishments and clinics throughout the country.

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PPP pioneer

EsSalud was the first public entity in the country to use PPPs in the healthcare sector. In 2009 it awarded a contract to a consortium called Salog – which has Brazilian investors – to build and run two medication storage warehouses in Lima and the neighbouring city of Callao; these also distribute medicine to many parts of the country.

EsSalud provided the land, managed the purchase of the medicine, covered the project’s commercial risk and determined the services standard. Salog invested $16m in
the infrastructure and equipment. It also provided know-how in the management of the warehouses and logistics and distribution processes. Bank of America provided Salog with lending to support the project.

The social security programme reimburses Salog a total of $12.7m a year for all the costs, including $3.4m for the infrastructure and equipment costs over an eight-year period and $9.3m for the operational costs over a 10-year period. The contracts could be extended by another 10 years. The consortium estimates that it will save EsSalud about $500m in the storage and distribution costs over an eight- to 10-year period.

Two’s company

In 2010, EsSalud also awarded two consortia – Callao Salud and Villa Maria del Triunfo, both led by Spanish multinational IBT Group – with 30-year contracts to construct and manage two advanced hospital complexes close to Lima, the first time in Latin America that the private sector had been invited to manage hospitals of such importance. 

The two hospitals – Alberto Barton Thompson in the city of Callao and Guillermo Kaelin de la Fuente in Villa Maria del Triunfo – opened in May 2014. The two have a total of 500 beds and serve 500,000 members of EsSalud. The consortia invested a total of $126m in the design, construction, and equipping of the two hospitals.

“What makes the two hospitals unique is that they are run under what in Spanish is known as a ‘bata blanca’, or ‘white robe’, system. In other words, the private companies hire and manage the doctors and nurses for a 30-year period,” says EsSalud president Dr Virginia Baffigo. 

The hospitals operate under a system known as the Alzira model, which originated in Spain and has four main pillars: public property, public control, public financing
and private management. 

Retaining control

EsSalud annually pays the consortia $5.4m and $5.7m, respectively, for the construction costs at Callao and Villa Maria, over a 15-year period. It pays $4.8m a year and $5m, respectively, in equipment costs over a seven-year period.

It also makes an annual payment of about $350 for every one of the 250,000 affiliates covered by each hospital for a 30-year period; this amounts to $88m a year per hospital. This covers all maintenance and operational costs. The hospitals have an integral or holistic approach and these sums includes the cost of all primary, preventative and rehabilitative healthcare. The consortia estimate that they have saved the state $1bn in total.  

“EsSalud retains control over the hospitals,” says Ms Baffigo. “Penalties exist if they do not meet all of their commitments and obligations.”

Extending the model

PPPs are being considered in several other important areas of the Peruvian economy, such as tourism, education and prisons. Peruvians have a high level of awareness of such partnerships that are already in place, mostly in infrastructure, and many are open to the idea of their application across other sectors.

“The public understands how these concessions function and that they are working well,” says Gonzalo Prialé, president of the National Association for Infrastructure Development (AFIN), a trade association made up of the country’s biggest construction companies. “In general, the public is very happy with the hospitals. I think we will now start to see the model extended to other social sectors.”

PPPs are already being used to promote tourism in remote parts of the country, benefiting the local communities. In 2014, ProInversion, commissioned by the Ministry of Foreign Trade and Tourism, awarded  a contract to the Kuélap Cable Car Consortium, formed by the French company Pomagalski SAS and the Peruvian Civil Engineers and Contractors Generales SA- ICCGSA, for the Kuélap cable car project in Chachapoyas in the remote Peruvian Amazonas.

The Franco-Peruvian consortium won the 20-year concession for the maintenance and operation of the 4-kilometre Kuélap cable car. The construction project started in August 2015, will take 15 months, and will be operational in 2016. It is expected to have up to 100,000 users a year.

“This project had an important social impact,” says ICCGSA chief executive Tito Pique Romero. “It improves access to the ruins and helps to develop the tourism circuit in the north-east of the country. We would like to become involved in many more projects that have a high social impact such as the construction of schools. We are trying to identify the best potential partners worldwide for these kinds of project.”

The Ministry of Education estimates that Peru’s educational infrastructure deficit stands at about $19.5bn. It has identified 173 state schools in the country that could be upgraded and maintained under the PPP model. 

Despite successfully applying the PPP model to social infrastructure, many more opportunities exist for its use over the next decade.