ANALYSIS: How is the P3 model faring under Colombia’s new government?

When the Gustavo Petro government took power last August, marking the first leftist administration in the country, some feared it was the end of Colombia’s status as South America’s pioneering P3 hotspot. But a year on, were their fears overstated?

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"We are very, very concerned about what this government is doing,” says one advisor in Colombia on condition of anonymity. “We believe that they do not understand the impact of the changes that they want.”

Concerns like this are rife - stemming from a number of major changes that the new administration has put forward. Perhaps the most symbolic of all is the dramatic changes that president Gustavo Petro plans to make to the country’s flagship P3 project, the Bogota Metro Line 1.

Widely regarded as a triumph, the project has been making progress and acquiring land to build Bogota's first metro line, one that will stretch 23km over the city's districts. The change wanted? Make part of it underground. Needless to say, this is a huge fundamental change to a project that was very skillfully put together - an estimated $3bn+ change to an already signed project.

“The implication from that, beyond the project, is the message you send to the market,” the advisor says, exasperated. “To the banks, investors and funds, what’s the message?”

Furthermore in the P3 space, Petro has announced plans to freeze the price of tolls, but without identifying who will cover the changes for concessionaires, or where the money will come from.

“This is huge,” the advisor continues. “When you factor this into the financial model, it’s a multiplier effect when you build it up over the 30 years. The impact of the uncertainty of not knowing where these funds are coming from is huge; it’s tremendous.”

These incidents are major challenges to Colombia's reputation and the confidence that the market has in it, but the country does have a lot of reputational credit in the bank to draw on.

A regional leader, Colombia has spearheaded the South American rally for P3s and concessions, innovating along the way and delivering projects like the aforementioned metro P3, as well as huge roads programs, and exporting ideas such as bus rapid transit.

Also, during the pandemic, the public sector responded well to the challenges facing the industry, with one advisor calling it a “responsible counterparty” that helped support public services during the crisis.

“The tremendous growth and maturing that Colombia has is like no other in the region,” says the advisor, pointing to over 30 projects delivered. To lose that momentum would be a “great shame”.

A couple years back, many international contractors and investors told P3 Bulletin that they were opening offices with the country’s enormous potential firmly in their sights - and the proof was in the pudding, with many formally entering the race for projects.

However, in the last year bidders for a number of major projects have been lackluster, notably Canal del Dique (which did successfully sign with Sacyr, the sole bidder) and the River Magdalena (which failed to pull in any bidders). Nonetheless, from more recent conversations, these international players are still viewing the country positively albeit with with an extra dash of caution.

Also, importantly, other major players such as multilaterals, which bring vital liquidity to the market, are in place. Having the support and the industry already inside the tent is a huge advantage for the country’s pipeline, even if it is changing course somewhat.

The reasons for positivity are well founded too, considering the pipeline that is being unveiled. There are many projects and plans that are coming down the line, from bundles of airports to industrial parks to enormous railway P3s.

“This is good news,” says the advisor. “We are going to be able to have a pipeline by next year.”

The fact that concessions and P3s are still in the frame does show that the country is still a positive for private involvement in infrastructure. Although it may be different from the Colombia the industry has known for the last few years, it’s imperative that the model delivers on its apolitical benefits; delivering public sector infrastructure.

Some heavy sectors, such as oil and gas, have been put under a lot of pressure by the new administration, but P3 has not.

“We do not have that message in infrastructure,” the advisor says. “No more P3s? That is not the message in Colombia.”

However, delivering these projects will require the government to be a positive counterparty. As part of this, offering its guarantee - as it did for the Metro Line 1 - will likely be very important in bringing all the market resources together.

P3 Bulletin understands that the vital government guarantee had been used as leverage in the negotiations for the much delayed second metro line project coming to market.

The effect of these machinations behind the scenes makes the financial landscape choppy, adding extra elements of risk at a time when lowering the cost of capital is a key aim.

“For new projects coming to market,” warns the advisor, “it’s just going to be more difficult to get to financial close.”