Social Revolution

Health, education and housing are the next infrastructure goals for the Government of Uruguay. Marina Formoso takes a closer look

Uruguay is planning a big 2017. It currently has a $430m education investment program, which involves the construction of 225 educational centers. Bidding on these schemes is expected to begin next year.

However, experts believe that this may be just the start. “This project can work as a pilot to be expanded in the future. Without a doubt we need more investments especially in the inland parts of the country, but I am not sure if the government has identified any more projects,” says Gonzalo Secco, partner at Uruguayan law firm Ferrere.

In November, the first fruits of this program emerged, with plans for a $57m school project to deliver 44 kindergartens and 15 nurseries under one P3 contract. Jointly procured by the Institute of Child and Adolescent of Uruguay (INAU) and the National Public Education Administration (ANEP), the project is currently out for public consultation, and at the time of going to press a tender was expected to be launched in December.

It will see new buildings across 16 departments, including Canelones and Salto, with the majority located in Montevideo, where population has increased significantly, especially in the suburbs. Through the overall plan, the government is seeking to make an annual investment in education worth 6% of GDP during 2015-19.

But the plan also has another ambition, as the improvement of educational infrastructure could contribute to the reclassification of depressed areas in the country. The construction and maintenance of the educational infrastructure must be seen both as part of educational policies and as part of a wider regeneration plan, the government claims.

Studies undertaken by Uruguay’s P3 Unit reveal that the P3 model is well suited to the government’s plans, on the basis that costs will be more competitive, maintenance policies will improve and plans for the Infrastructure Investment Plan 2015-19 will be fulfilled on the scheduled dates.

“I am convinced that the P3 model is a good option to deliver this school plan because historically the budget was very tight, to the detriment of the quality of the project. Now we can have first-class centers with fewer delays and better prices,” says Federico Formento, partner at law firm Fischer & Schickendantz.

Secco agrees. “The model works for Uruguay insofar as the country doesn’t have enough budgets to deliver this infrastructure by itself in the terms expected.”

However, the government’s decision to use P3 as the procurement mechanism for these projects also comes down to much more than a question of money. Like in many other countries, lack of proper maintenance has long been an issue in Uruguay, and experts now believe that the P3 model can help tackle that issue.

“The P3 model will help us reduce an historical deficit in maintenance of public buildings and therefore to deliver better services,” explains Thiago Tinoco, administrative coordinator at Uruguay’s P3 Unit.

But it is not just schools that are in the offing for investors in Uruguay. The country is continuing to look at a wide range of social infrastructure projects, with a pipeline that includes health and housing projects currently in the planning phase.

Some schemes in these sectors are currently undergoing feasibility studies. For example, there are plans to refurbish the University Hospital de Clinicas, an historic building dated from 1953 that is currently in a poor state of repair. The Ministry of Economy and Finance is considering the scheme, although it is still uncertain as to when it will be tendered.

In housing, meanwhile, the Ministry of Housing and Environment is planning to undertake a pilot program for housing construction worth up to $100m. More information on this plan is yet to be revealed, but it is hoped that details will begin to emerge in the new year.

The country is certainly making waves when it comes to the international investment community, too. It has good support from development banks such as the Development Bank of Latin America (CAF), which has developed a $350m infrastructure fund with the support of Uruguay’s Fund Management Pension Savings (AFAP). International support also comes in the shape of the World Bank’s Multilateral Investment Guarantee Agency (MIGA) and the International Finance Corporation.

And on the private sector side it also has high level support from banking giant JP Morgan.

Still searching

Such support in this nascent market offer hope of new projects coming through to create a wider pipeline of opportunities in a country that has only recently moved towards the P3 model. Its experiences to date are now starting to inform what comes next, but there remains plenty of room for the market to grow.

It was only relatively recently – July 2015 – that Uruguay signed its first P3 project. This was the Punta de Rieles penitentiary, which was awarded to the Spanish contractor Abengoa. In November the same year, another Spanish firm – this time Sacyr – was announced as the preferred bidder for the Corredor vial 21-24 road P3.

But these initial deals have raised questions, with some suggesting that contract terms and the approach to the model can be improved.

“I don’t think we have found a good contract model with a good definition of distribution of risks and contractual clauses friendly for both parties, not even in road projects,” explains Secco.

He is also critical of Uruguay’s P3 system more generally. “There is a general feeling that this is taking too long. However, we are in a moment of transition and with the new pipeline we will see if the government is to deliver better studies. Hopefully the following contracts will take advantage of the learning curve.”

Formento, however, is more optimistic and suggests that the slow pace of the pipeline is in part down to the Uruguayan government making sure it is doing its homework to ensure best practices are followed.

“Since the first project was awarded, the evolution of our P3 plan has been very positive. The technical level of our local contractors has improved as well as our legal framework and now the contracts are much more elaborate,” he says. “Also, in the past structural costs were very high because we had to hire international experts. Now these expenses will be lower since the procuring authorities have more experience.”

Acknowledging that it has not necessarily yet reached its optimum potential, the Uruguayan government has begun work to undertake an evaluation of its schemes to date, including how to take advantage of the lessons learned on current deals for the next stage in the pipeline. Experts believe this evaluation will prove an important step in improving the quality of future contracts.

Over the past year, Uruguay’s P3 framework has begun to mature and contracts have become clearer. Some major changes have already been made, such as the possibility to bid in US dollars instead of local currency – something that makes contracts more attractive and accessible to international players. For the first time, companies from abroad will be able to request a payment of up to 50% in US dollars.

“This improvement of the law helps to mitigate the risks of the type of currency for the concessionaire,” says Secco. “It also contributes to the approach of international firms and investors that with the old system would have never been attracted to our plans.”