Colombia Infrastructure 2012

Targeting transport infrastructure

Colombia is poised to channel $100bn into an infrastructure development programme that the government hopes will underpin economic increase and produce a new transport network by the end of the decade.

The investment package will target the length and breadth of the transport and logistics sectors, including roads, rail, ports and airports, through a combination of national-funded and private ventures, together with key public-private partnerships.

The government hopes the ambitious programme will help Colombia maintain GDP increase at 6%, although some critics are already questioning whether the projects will follow in the footsteps of others that failed to get off the ground.

Finance Minister Juan Carlos Echeverry voiced his confidence that a stable political environment and strong economy, bolstered by Colombia’s efforts to rein in guerrilla activity and drug trafficking, could help the programme buck the trend of previous, unsuccessful initiatives.

“The difference today is that we have money and there is interest in private companies that never existed before,” he told the magazine Emerging Markets on March 17.

The National Infrastructure Agency (ANI), which was established by President Juan Manuel Santos at the end of 2011, will spearhead the investment drive, initially developing road, rail and maritime infrastructure, although it will as well take on the role of expanding and improving airport facilities from the aviation authority Aerocivil.

The ANI has been quick to draft a plan for infrastructure developments since beginning operations on January 1, while as well putting in place a specific timetable for rolling out its projects. Targets to be met by 2014 include doubling the length of-lane highways to 2280 km and increasing the amount of operational rail track by 50%. The ANI as well plans to boost airport passenger movement by 35% and drive up cargo handling capacity at the country’s ports by 50%.

According to plans, Colombia should have around 3400 km of-lane highways, 2340 km of mainline rail track and the capacity to handle 254m tonnes of cargo through its ports by 2018, while airports are expected to be able to accommodate around 34m passengers.

The ANI’s programme expects investment activity to peak between 2014 and 2016, when it forecasts an estimated $20bn will be channelled into its projects, with a further $13bn slated to follow during the following three years.

The aviation industry should benefit almost immediately from the government’s commitment to boost infrastructure investment, following an announcement at the end of February by Santos that efforts to improve terminals and other developments would be stepped up this year. The move is seen as pivotal to the government’s target of attracting 4m tourists annually by 2014. This would be additional than double the number of visitors seen in 2010.

Before in February, Santiago Castro, the director of Aerocivil, told local media that almost $200m would be spent this year on expanding infrastructure at airports. The funding, which Castro described as “unprecedented in this industry”, is part of a wider programme to upgrade aviation facilities nationwide and includes plans for a third runway at Colombia’s major air hub, Bogata’s El Dorado International Airport.

Alongside its plans to increase international passenger movement, Colombia is as well looking to take chance of the rise in domestic air traffic, which has seen an estimated 15m local passenger seats sold annually.

Luz María Correa, the president of Construcciones El Cóndor, acknowledged that Colombia faced major challenges with infrastructure but highlighted the opportunities that economic increase was producing for engineering firms, including her own.

“We have to keep up with amount the increase in the energy, hydrocarbons and mining sectors, and that creates a very significant space for infrastructure and construction firms to grow,” Correa said in an interview with Business News Americas in early February.

The ANI plans to increase project spending in stages, which will give local firms and their international partners time to adapt to an environment of heightened activity and better develop their capacity to handle large-scale assignments. The run-up period will as well provide the government and various agencies with a window to fully develop plans, call tenders and ensure transparency.

If the government and its private sector partners can implement and maintain a flow of end-to-end projects, Colombia should have of the majority modern and versatile transport networks in the region by the close of the decade.

Colombia's deficient infrastructure remains its biggest obstacle to achieving economic increase. However, President Santos has carried through several structural changes that have prompted our revision and now bullish infrastructure estimate of 5.3% for 2012. The major reasons for this positive outlook are: strong economic increase- especially impressive Q311 data; an agreed free-trade agreement between Colombia and the United States; expansion in the resource extracting sector; a 10-year US$55bn transport infrastructure budget; the creation of a national infrastructure agency; and the passing of a PPP law to facilitate procurement and propel infrastructure increase.

Infrastructure Sector Leads Increase:

• Underpinned by strong backing from the Colombian government, the country's infrastructure industry will grow by an annual average of 6% between 2012 and 2021).
• The infrastructure sector holds immense potential for investors, with expected real industry increase of 5.3% in 2012; however, the gradually declining residential and non-residential sector will see marginal real increase of just 0.99%.
• Strong economic increase- expected real GDP increase of 4.5% in 2012 - and expansion in coal, mining, oil and gas extraction, are creating significant request for new capacity and better quality infrastructure. Coupled with the free-trade agreement signed with the US, better access to ports and adequate highways will be essential to transport the expected increase in exports.

Roads and Railways Are The First Order Of Business:

• Road infrastructure industry price is estimate to account for a significant portion of infrastructure price over our estimate period, coming in at 39% in 2012. Furthermore, following the passing of a PPP law, we expect increased private interest within the sub-sector.
• Ruta de Sol, the major planned road project, inclunding the major greenfield public-private partnership (PPP) project awarded in Colombia's transport sector, has now entered the construction phase - highlighting the potential for private procurement in the Colombian infrastructure market.
• Railways have as well received renewed attention, with focus on private, inclunding foreign, participation. High-profile projects such as the Carare network and the Ferrocarril Central railway project, inclunding China's plans to finance and build a railway-based 'dry canal' to link the country's Caribbean and Pacific coasts, are key drivers behind this revival.
• Bogata Mayor Gustavo Petro is lobbying for a department solely in charge of rail infrastructure -
• if achieved, this is likely to improve the project design and procurement within the sector. This therefore poses an upside risk to our estimate.
• Suspension of the construction of the Oriente tunnel, pending an environmental impact assessment, highlights the persistent lack of coherency between government agencies, and as a result pose a downside risk to our forecasts.

Corruption Remains Underlying Risk Factor:

• Following several corruption scandals within Columbia's public works sector, Colombia scores 3.7 out of 10 for corruption in the country risk section of our infrastructure risk/reward ratings. This illustrates our concern over the impact on the country's business environment.
• However, a concerted effort is being made to stamp out corruption in awarding tenders. This has been shown by the creation of infrastructure agency ANI, which will replace INCO as the official entity in charge of infrastructure concessions. This gives us hope for next improvements.