Best Practices in PPP Financing Latin America - e-Institute - World ...

Best practices in Public-Private Partnerships financing in Latin America
The problem of the federal government is that it does not
have very stable guarantees to offer, because of changes in the
legislation and increasing uncertainty. Currently, banks do not
have the support of the country to offer complete guarantees
for the FPG model (without leverage). States, especially
the poorest ones, face the largest difficulty in providing
guarantees that are reliable for the market. It is necessary to
suggest alternatives, allowing for the improvement of the
situation, which will require legislative modifications.
Regarding Peru, the Inter-American Development Bank (IADB)
granted a partial revolving guarantee for a value of US$ 60
million. Such guarantee allowed for the construction of the
Peruvian IIRSA Norte road, for a value of US$ 228 million.
According to Claudia Stevenson, the guarantee of the IADB
allowed for increasing the number of bidders, and improved
the project “rating”. This guarantee was activated in the event
that the Government failed to meet the payment of the CRPAO
(Certificates Acknowledging the Annual Payment for Work). These
documents were issued by the Ministry of Transportation as the
work progressed; they are irrevocable for the Government.
Non Financial Guarantees
Sergio Hinojosa pointed out that these kinds of guarantees are
aimed to mitigate risks associated with the incomes derived
from the project. The most commonly used guarantees are:
the guaranteed minimum income (IMG) and the guaranteed
minimum annual traffic (demand). Both types of guarantees
are predefined under the Concession Agreement. When the
guarantee is activated, the Government pays the difference
between actual income and predefined income (or the
difference between forecasted traffic and the traffic carried
out during the project). This modality has been used in Brazil,
Colombia, Peru and Chile.
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