Interoceanic Highway ©Odebrecht collection

Despite the huge sums of money that have been invested in physical infrastructure projects in Peru during the past decade, the country still has a vast gap to plug in financing infrastructure upgrades.

Between 2002 and July 2015, Peru awarded 83 concessions with a total value of $25.72bn, according to ProInversion, the country’s inward development agency. The majority of the projects – many in the form of public-private partnerships (PPP) – related to physical infrastructure: roads, electricity generation and transmission, ports, airports, natural gas, sanitation, irrigation and telecommunications.

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A major infrastructure upgrade has already taken place in Peru over the past 10 years but an additional $88bn must be invested by 2021 to fill the country’s infrastructure gap, according to the National Association for Infrastructure Development (AFIN), a trade association made up of the country’s biggest construction companies.

A further $33bn must be invested in the energy sector, $20.9bn in transportation, $19.2bn in telecommunications, $8.7bn in irrigation systems and $5.3bn in water and
sanitation, among other needs.

Many of the projects that have already been implemented have been self-financing or self-sustaining, but increasingly the government is having to provide at least some financial backing for new initiatives (an arrangement known as co-financing).

“In terms of investment value, only 36% of the PPPs were co-financed between 2008 and 2013,” says AFIN president Gonzalo Prialé. “During the next 10 years, up to 60% will have to be co-financed. The stock of self-sustaining projects has now been exhausted.”

Metro extension

Two of the biggest current projects are the $5.2bn investment in Line 2 of the Lima metro system and the $3.6bn investment in a new gas pipeline in southern Peru.

Line 2, which will stretch 35 kilometres from central Lima to the outlying district of Ate, and include a link to Peru’s international airport, was awarded in March 2014 to international consortium Consorcio Nuevo Metro de Lima, which is made up of the Spanish construction companies ACS (which has a 23% equity stake in the consortium) and FCC (19%) and the Italian civil engineering firm Salini Impregilo (19%).

The Peruvian engineering and construction company Cosapi and Italian rail transport engineering firm AnsaldoBreda – which will make the trains – are also members of the consortium. The Spanish metro operator Metro de Madrid is the project’s technical advisor.

“Huge infrastructure projects are complicated and their success depends on collaboration between firms that have experience in similar projects,” says Cosapi chief executive Javier Amézaga. 

Construction work began this year and the line should be fully operational by 2020. Peruvian president Ollanta Humala has described the project as the most important infrastructure initiative in Latin America today, which will transform the lives of many people. The project includes 35 stations, and the driverless trains will carry an estimated 600,000 passengers per day.

The initiative is being funded in three ways. First, the state will make a $3.6bn payment for the construction work and the cost of the trains. This will be disbursed in line with the progress of the building work. Second, the consortium will contribute the remaining $1.6bn and be paid back by the state over a 15-year period. The government will finance this mostly from Line 2’s revenue stream. Finally, the government will pay the consortium an annual fee for operating and maintaining Line 2 for 30 years.

In the pipeline

ProInversion awarded the Gasoducto Sur Peruano consortium the 34-year concession to build and run the 1080-kilometre southern gas pipeline in June last year. Its members include Odebrecht (see picture), the Brazilian construction company (which has a 75% equity stake in the special purpose vehicle set up to develop the project), and Enagas, the Spanish gas provider (25%). About $3.6bn will be spent on construction, although the cost could rise.

Huge infrastructure projects are complicated and their success depends on collaboration between firms that have experience in similar projects

Section a1 of the project involves the construction of a gas pipeline and/or polyduct from the existing gas transportation system between Malvinas and Chiquintirca to the province of Anta in the region of Cusco, in order to provide natural gas to the future Quillabamba thermal station. 

Section a2 of the pipeline will run from the town of Urcos in the Cusco region in the south of the country as far as Ilo on the Pacific coast in the Moquegua region, where an important petrochemical complex will be built. It will supply natural gas to the regions of Cusco, Arequipa and Moquegua, reaching more than 600,000 households. Section b of the project includes reinforcement works for the natural gas and natural gas liquids transportation system.

This project is self sustaining and the consortium has obtained project financing from major international banks to fund the construction costs. It is due to go live in 2018.

One of the biggest past projects was the $1.6bn Interoceanic Highway, a huge co-financed project involving the construction or upgrade of a network of 2600 kilometres of roads and 22 bridges. It connects the Peruvian ports of San Juan de Marcona, Ilo and Matarani with the Brazilian state of Acre. Five concessions were awarded in two tranches in 2005 and 2007.

The key to growth?

“In my view, Peru’s country’s infrastructure gap is expanding and it’s vital that new projects are executed rapidly. PPPs are the key to ensuring that the country continues to have fast economic growth,” says Hector Rene Rodriguez, concessions director at JJC, a Peruvian construction and engineering firm that was a member of the consortia behind two of the Interoceanic Highway’s main routes. 

“Personally, I prefer our firm to be involved in self-sustaining projects because they give you more freedom to do what you want,” says Gonzalo Ferrano, president
of Graña y Montero’s infrastructure division. Nevertheless, Peru has demonstrated that in Latin America, the quickest and most efficient way to complete major infrastructure projects is through a strong partnership between the state and the private sector.