EMERGING MARKETS: Infrastructure will underpin PPP boom

Private public partnerships will play an increasingly important role in meeting infrastructure needs

Public private partnerships (PPPs) will grow rapidly in coming years as Latin America moves to redress its weakness in infrastructure while its ambitious plans swamp the public sector’s ability to finance them.

Improved capacity in the public sector and a willingness by local banks and increasingly institutional investors to fund projects are also driving interest in PPPs.

But badly designed programmes, the reluctance of the public sector to allow in private companies and weak credit ratings are still hampering growth.

Uruguay is just the latest to announce a PPP deal. Last week CND, the country’s development corporation, said it was looking at two rail projects worth up to $500 million. Contracts will last for 25 to 30 years with payments of between $25-30 million to the government.

Luis Alberto Moreno, president of the IDB, said the region lagged behind in infrastructure. Asian countries typically invest twice as much as Latin America in the sector. Energy demand alone will increase 54% through 2025 in Latin America, he said.

Fabrice Henry, managing director at Astris Finance, which advises on infrastructure finance, predicted a boom in PPPs across the region.

He said Colombia and Mexico had particularly ambitious programmes and the former has extensively consulted with construction companies and banks on how best to structure the deals, a prerequisite for success.

However the global banking crisis and more recently Basel capital standards that impose greater restrictions on long-term investing limit international institutions’ role, said Mini Roy, head of export and agency finance at Sumitomo Mitsui Banking Corporation.

Marcos Siqueira Moraes, executive manager of the central PPP unit of the Brazilian state of Minas Gerais, said the main challenges included building capacity within the public sector and creating a sufficient pipeline of deals to attract foreign investor interest. For lower rated credits, managing the amount of subsidy that the government needs to provide is sensitive.

Minas Gerais has been developing projects in areas ranging from waste to energy and protecting the environment, said Moraes. In an interview with Emerging Markets, he said that the governments of 11 Brazilian states including Minas Gerais, Sao Paulo and Rio de Janeiro, were seeking to coordinate and devise common standards to attract more international investors.

The states would like volume to attract especially large investors such as Dutch pension funds and Asian investors. He said that while the dialogue had started between the states, it remained challenging to agree common standards.

Multilaterals will be able to help catalyze the area. The IDB tripled its portfolio of lending to the private sector between 2006-12 and can help in areas such as designing PPP projects and corporate governance. The Multilateral Investment Fund and the IDB’s Infrastructure and Environment Sector are launching a regional PPP advisory services program to enable governments to attract increased private sector participation and strengthen government capacity.

About admin

I've been researching and writing on Brazilian financial markets, industry and economy since 2006 for a wide range of specialist media, consultancies and investors. Before that I spent over 10 years in London and New York writing for and editing magazines and journals dedicated to finance, investment and economics in developing markets, mostly for the Euromoney Institutional Investor group and Thomson Financial. Areas of coverage Below are samples of areas that I cover and some of the common themes that I investigate. Capital markets BM&FBovespa markets *capital raising trends: via equities (IPOs and secondary issuance), debt and loans *the asset management industry: legislation and coverage of the key hedge, pension and investment funds * corporate governance: how the regulator is seeking to strengthen best practice and limitations * debt markets: the nascent corporate markets, attempts to boost liquidity and new insturments. * private equity market: why this market has been so successful, who’s involved. *electronic, high frequency trading and alternative trading platforms: what does the future hold? Banking *credit: the growth of consumer and business credit and competition between banks and models *Public versus private: the role and market share of public and private sector banks and the politicization of the industry * internationalization: which Brazilian banks are expanding overseas and where * investment banking: the growth of the domestic market and who’s winning which mandates *regional banks and development banks: what role they play in the industry and how they compete Mining *licensing: the complex process of obtaining environmental, water, land and operating licenses at a state and federal level. * capacity: the feasibility and sustainability of capacity increases * financing: how miners are raising finance in Brazil and abroad *competition: the interplay Vale, MMX and junior miners *logistics: rail, road and port connections Oil and gas: the fund raising issues related to the massive of pre-salt (link) Multilatinas: Who are they and how and where they are expanding Meatpacking: Are debt burdens sustainable, what are the different business models for areas such as branding and distrbution Agriculture: How are farms consolidating, what are environmental risks, how can foreign investors be involved. IT and software: Can Brazil take on India and build a viable long-term IT industry? For more information on clients and work, please see the media and consultancy sections.
This entry was posted in Articles, Emerging Markets. Bookmark the permalink.

Leave a Reply