Latest P3 development: Guatemala

Guatemalan continues to struggle with inefficiencies in infrastructure and transportation. The government has repeatedly expressed its support towards a sustainable growth in those sectors, failing to overcome the difficulties in addressing the country’s needs.

Many countries in the region have turned to public-private partnerships (P3) as means to develop domestic infrastructure and mitigate the inherent risks associated with undertaking such projects on their own. Under a P3 model, the government partners with the private sector to undertake the design, construction, operation and/or management of an infrastructure project, often committing to share the costs of investment, as well as the project’s risks and benefits. This allows governments to capitalize on the knowhow of the private sector while sharing the risks associated with capital intensive projects. The tremendous upside potential has prompted a growth of P3 projects throughout the Latin American countries of which Guatemala is no exception.

In 2010, the Guatemalan Congress approved the Ley de Alianzas para el Desarrollo de Infraestructura Económica or “Law of Alliances for the Development of Infrastructure” (the “P3 Law”), establishing the country’s regulatory framework for implementing P3 projects.

Since then, ANADIE, the Guatemalan P3 Agency, has directed its efforts in developing six projects that range from the construction of toll-roads and public transportation facilities to the modernization of Guatemala’s international airport. Last year ANADIE successfully led the first P3 procurement process under the P3 Law awarding the project to Consorcios Autopistas de Guatemala. The project provides for the rehabilitation, operation, and maintenance of a 41.2km long toll-road connecting Escuintla and Puerto Quetzal, Guatemala’s most important maritime port located in the south Pacific coast of the country.

Despite such visible efforts and considerable interest from the private sector, in an overwhelming majority of the projects, the government has not been able to advance beyond the initial approval stages of implementation. This is partly due to the institutional setbacks that arose from political conditions within the country over the last years, as well as from a lack of intergovernmental cooperation and excessive formalities required under the current P3 regulatory framework, which hinder the processes.

All projects need to be approved by the the Consejo Nacional de Alianzas para el Desarrollo de Infraestructura Económico (“National Board of Alliances for the Development of Economic Infrastructure,” hereinafter “CONADIE”). CONADIE was established as the final authority in making decisions concerning the technical and financial feasibility of P3 projects in the country. The board is comprised by representatives all areas of the political spectrum with opposing political agendas, including ministries of government, directors of different government agencies, the president of CACIF[1], and the president of the Construction Chamber of Guatemala. This has become a bureaucratic roadblock for projects in the beginning approval stages.

Additionally, all P3 agreements must be approved by Congress after the project has been awarded. This adds a political component to the success of the procurement process. Moreover, the P3 Law does not impose any time limit for Congress to approve or reject the agreement.  The Escuintla and Puerto Quetzal toll-project has been in the Transportation and Public Works Committee[2] of Congress pending approval since October 8, 2018.  If it is approved, the first P3 project in the country will enter into effect. However, if Congress rejects the agreement, not only will Consorcios Autopistas de Guatemala have to be compensated in accordance with the P3 Law, but P3 development in Guatemala may be delayed as investors assess the county’s political risk.

Despite the existence of these stumbling blocks, there are positive signs of P3 development as various projects appear to be on the right track. Last year ANADIE published a request for comments on the prequalification process for the modernization of the International Airport La Aurora. The project is to be developed under a P3 model to be awarded through a procurement process that conforms to international best practices. It has been widely reported that several foreign investors have expressed an interest in developing the modernization of the airport and are already in talks with the government to discuss the following steps. The airport project is scheduled to be launched in 2019. Moreover, last month, ANADIE also made initial efforts to assess the feasibility of a mass public transportation project in Guatemala City[3]. This signals the government’s ongoing commitment to exploring P3s and the continued interest of international investors in such projects.

Guatemala has taken an important first step in making infrastructure improvement a political priority and identifying P3s as a means of achieving this goal.

For developing economies, partnering with the private sector is crucial to improving access to services such as electricity, air and ground transportation, and infrastructure. In order to thrive in such endeavor, Guatemala will have to ensure transparency, coordination across sectors and levels of government and effective management. The political will of the present administration to better current infrastructure conditions is sure to be a driving factor in strengthening the current P3 legal framework and engaging the international community in the country’s ongoing development efforts.

By Verónica Orantes

[1] Comité Coordinador de Asociaciones Agrícolas, Comerciales, Industriales y Financieras (Coordinating Committee of Agricultural, Commercial, Industrial and Financial Associations).

[2] Comisión de Comunicaciones, Transporte y Obras Públicas.

[3] On April 25, 2019, ANADIE launched a procurement process for the Feasibility Studies of a Massive Public Transportation Project in Guatemala City for the East to West Axis (Estudio De Prefactibilidad Metro Subterráneo Ciudad De Guatemala En El Marco Del Proyecto De Alianzas Para El Desarrollo De Infraestructura Económica "Sistema De Transporte Público Masivo Del Eje Oriente-Occidente Del Área Metropolitana De Guatemala).”