BUENOS AIRES, April 24 (Reuters) - Argentina is set on Tuesday to unveil the bidders for six road projects that need around $8 billion in investment, in a big test of how public private partnerships (PPPs) can help cash-starved Latin American governments beef up infrastructure.
Since taking office in December 2015, President Mauricio Macri has focused on upgrading the South American country’s infrastructure after decades of under-investment. But growing public works spending has complicated another priority: cutting the budget deficit to 3.2 percent of gross domestic product this year.
“Argentina and many others are facing both budget constraints and financing constraints,” Finance Minister Luis Caputo said at the IMF/World Bank meetings in Washington last week. “It’s not a surprise then that PPP programs have taken the lead now in many countries.”
For Argentina, the road auctions mark the first wave of a total of $26.5 billion in PPP investment planned through 2022.
More than 17 countries in Latin America have PPP programs, and they account for roughly 40 percent of infrastructure investment commitments, according to the World Bank. For example, Colombia has attracted $18 billion investment in 32 toll road projects, and in Chile PPPs in renewable energy have led to more than $9 billion in commitments since 2012.
Under such programs, private companies finance the project construction and enter into a long-term contract with the state to recoup their investment.
Critics of PPPs say governments do not always get a good deal. In Latin America, several infrastructure projects have become ensnared in corruption scandals, largely involving Brazilian builder Odebrecht. Last year, Colombia’s government terminated an $861 million PPP river dredging contract that was led by Odebrecht.
The road contract winners in Argentina will be announced in mid-May, and the companies will take possession of the concessions in early June, a finance ministry spokeswoman said.
The government has expressed optimism about attracting bidders, re-scheduling Tuesday’s event to a larger venue “due to the size of the tender and the bids to be submitted.”
Local newspaper El Cronista, citing private sector sources, has reported that several large Argentine construction companies have expressed an interest, along with some Spanish and Italian firms.
Despite booming financial markets and international praise for Macri’s agenda, Argentina has struggled to attract the levels of long-term, brick-and-mortar investment needed for growth. Investors fear a potential return to populism in future elections, and double-digit inflation makes financing difficult.
The government has tried to address these concerns through the PPP structure. It will issue companies quarterly certificates entitling them to U.S. dollar payments based on construction progress, which companies can use as collateral to raise funds.
“Long-term financing had been seen as one of the main challenges,” said Candela Macchi, infrastructure ratings director at Standard & Poor’s in Buenos Aires. But, she added, the structure resembled successful PPP projects elsewhere in Latin America, such as the ongoing construction of Lima’s metro system.
“It could be a good option to obtain financing.”
Earlier this month, the government issued a decree exempting PPP operators from value-added tax. The operators will also be able to collect tolls.
The six projects of the first stage include more than 2,500 kilometers (1,550 miles) of roads, with $6 billion in upfront investment and $2 billion in later maintenance.
The largest project by investment value includes building or expanding some 390 kilometers of highway around the grains export hub of Rosario, seeking to alleviate massive traffic jams caused by freight trucks loaded with corn and soybeans during harvest season. (Reporting by Luc Cohen; Editing by Christian Plumb and Rosalba O’Brien)