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  • Private Financing of Public

    Infrastructure through PPPs in

    Latin America and the Caribbean

    Catiana Garcia-Kilroy Heinz P. Rudolph

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  • © 2017 International Bank for Reconstruction and Development/The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet:

    This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent.

    The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.

    Rights and Permissions

    The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given.

    Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail:

    Cover design by Shepherd Incorporated

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  • Private Financing of Public

    Infrastructure through PPPs in

    Latin America and the Caribbean

    Catiana Garcia-Kilroy Heinz P. Rudolph

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  • 1707596-Infrastructure_in_LCR_MainReport.indd 2 4/21/17 2:52 PM

  • iii

    reviewers Joaquim Levy (WBG Chief Financial Officer), Augusto de la Torre (Chief Economist for LAC), Loic Chiquier (Global Lead for Housing and Infrastructure Finance), and Cledan Mandri-Perrot (Head of Infrastructure Finance and PPP). Carlos Senon, Gonzalo Martinez Torres, Jorge Sabat, and Tae-Yoon Kim provided valuable research assistance. David Anderson, Larry Blain, Shalmraj Ramraj, and Carlos Senon helped with the editing of the report. Monzerrat Garcia and Maka Gabelia provided efficient administrative support. The report also benefited from knowledge products in the area of infrastructure finance produced under the SECO Global Trust Fund.

    The report benefited from most helpful and sub- stantive contributions, comments, and insights from World Bank Group (WBG) colleagues includ- ing Albert Amos, Abelardo Arroyo Rincon, Daniel Benitez, Francois Bergere, David Bot Ba Njock, Richard Cabello, Ana Carvajal, David Duarte, Lin- coln Flor,Yira Mascaro, Rui Monteiro, Miguel Toledo, Daniel Pulido, Joao Reye Sabino, and Satheesh Sundararajan.

    The report benefited from generous insights and candid discussions with public and private sector stakeholders including Fabricio Longhin, Gianluca Bachiocchi, and Charles Adams (Clifford Chance); Robert Dewing and Fuat Savas (JP Morgan); Doug- las Buchanan, Ivan Mattei, Armando Rivera Jacobo, and Maria Navarro (Debevoise & Plimpton); Mato

    This report was produced by a core team of World Bank staff and external experts led by Catiana Garcia-Kilroy and Heinz P. Rudolph. The report was conducted under the oversight and guidance of Alfonso Garcia Mora, Director, GFMDR, Zafer Mustafaoglu, Practice Manager, GFM04, and John Pollner, Acting Practice Manager, GFM04. Core team members contributing to the different chapters include:

    Chapter 1: The Macroeconomic and Financial Con- text of PPPs: Heinz P. Rudolph.

    Chapter 2: PPP Institutional and Regulatory Framework: Philippe Neves, Larry Blain, Jose Luis Guasch, and Luciana Guimaraes.

    Chapter 3: Banks and Infrastructure Finance: Javier Bolzico, Robert Sheppard, and Natalia Teplitz.

    Chapter 4: Capital Markets and Infrastructure Finance: Catiana Garcia-Kilroy and Daniel Bond.

    Chapter 5: Institutional Investors and Infrastructure Finance: Heinz P. Rudolph

    Chapter 6: DFIs and Infrastructure Finance: Catiana Garcia-Kilroy, Heinz P. Rudolph, and Daniel Bond.

    Appendix 1: A Snapshot of Infrastructure Finance in the LAC Region: Fernanda Nunez.

    This report benefited from detailed and substan- tive comments on the entire document from peer


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  • iv Private Financing of Public Infrastructure through PPPs in Latin America and the Caribbean

    Ugas (Goldman Sachs); Luis Fernando Perdi- gon and David Gonzalez (SMBC); Tatiana Preta (MUFG); Aitor Alava (Natixis); Jean-Valery Patin (BNP Paribas); Mauricio Gutierrez De Gregori and Franco Albertini (BTG Pactual); Willem Sutherland, Alex Bertram, and Jason Aingorn (ING Capital LLC); George Cherian, Glaucia Calp, and Sam Fox (Fitch Ratings); Emil Arca and Mike Matheou (Hogan

    Lovells US LLP); Mario Castro Dib (Sumatoria); Gonzalo Tamayo (Macroconsult); Owen Blain (CIBC Capital Markets); Oscar de Buen Richkarday (World Road Association); Leonardo Ferreira Leão de A. Oliveira (BNDES); Luis Alberto Gonzalez Torres (Andrade Gutierrez); Arturo Moreno Rey (ICA); and Bernardo Serafim (Vinci Concessions).

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  • v


    Acknowledgments iii Acronyms ix Executive Summary xii Key Conclusions xxii Key Recommendations xxiv

    1. The Macroeconomic and Financial Context of Public-Private Partnerships 1 1.1 Introduction 1

    1.2 Fiscal Constraint and Efficiency 1

    1.3 PPP Eligibility Framework 3

    1.4 The Role of the Financial Sector 5

    1.5 Participation of Foreign Investors 6

    1.6 Historical Context 8

    1.7 Main Conclusions 9

    2. PPP Institutional and Regulatory Frameworks 11 2.1 Introduction 11

    2.2 Elements of Successful PPP Initiatives 12

    2.2.1 Best Practices in PPP Frameworks 12

    2.2.2 PPP Frameworks in the LAC Region 14

    2.3 Procurement Process and Competitive Selection 16

    2.3.1 Best Practices in Procurement and Competitive Selection Process 16

    2.3.2 Procurement Processes and Competitive Selection in LAC Countries 18

    2.4 PPP Contracts and Risk Allocation 22

    2.4.1 Best Practices on Risk Allocation, Bankability, and Project Finance 22

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  • vi Private Financing of Public Infrastructure through PPPs in Latin America and the Caribbean

    2.4.2 Risk Allocation and Bankability in the LAC Region 24 A Greater Private Sponsor Risk Exposure in LAC Transactions during the Preconstruction Period 24 Project Finance: A Gradual Learning-by-Doing 24 2.5 Conclusion and Policy Recommendations 26

    3. Banks and Infrastructure Finance 28 3.1 Global Banks and Infrastructure Finance: The LAC Region in Context 28

    3.2 Domestic Banks in LAC and Infrastructure Finance 32

    3.2.1 Project Finance Skills Are Scarce 32

    3.2.2 Financial Sector Depth and Size Matters 33

    3.2.3 Long-term Financing Is Rare 36

    3.2.4 High Concentration of Banks and Financial and Economic Conglomerates 36

    3.2.5 High Presence of State-Owned Institutions 37

    3.2.6 The Level of Capitalization 37

    3.2.7 Public Debt May Crowd Out Infrastructure Finance 37

    3.3 Potential Roles for LAC Domestic Banks in Infrastructure Finance 39

    3.3.1 Direct Lending under Project Finance 39

    3.3.2 Promoting Syndicated Loans or Club Deals for Infrastructure Project Financing 40

    3.3.3 Financing or Providing Guarantees to the Sponsor 42

    3.3.4 Providing Advisory Services to Investors and Stakeholders 42

    3.3.5 Managing Special Purpose Vehicles (SPVs) or fideicomisos 42 3.4 Basel III and Project Finance in the LAC Region 43

    3.5 Conclusions and Public Policy Recommendations 46

    4. Capital Markets and Infrastructure Finance 48 4.1 Global Trends in Capital Markets and Infrastructure Financing 48

    4.1.1 Added Value of Capital Markets for Infrastructure Finance: Tenors and Competition 48

    4.1.2 Hybrid Capital Markets Instruments and Vehicles for a New Asset Class 49

    4.2 Capital Markets Instruments for Infrastructure Finance in LAC Countries 51

    4.2.1 Capital Market Innovations for Infrastructure Finance in the LAC Region 51 Infrastructure Funds for Equity and Debt Financing 51 Project Bonds 55 Direct Investments in Equity and Loans:

    Attracting International Investors 60

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  • Contents vii

    4.3 Minimum Capital Markets Prerequisites for Infrastructure Finance in the LAC Region 61

    4.3.1 Capital Markets Stage of Development 61

    4.4 Conclusions and Policy