Paraguay PPPs: Now it is time to consolidate a program.

Just before this past summer, a delegation from IDB met in Asunción with the government (Ministry of Finance, PPP Unit, MOPT and other procuring agencies) to help prioritize PPP project candidates.

As a result, at least two road PPP projects will be assessed and prepared during the following months: Ruta 1 and Ruta 6.

@IDB is strongly supporting the APP program of the country: firstly, by committing very significant resources in the financial structure of Rutas 2 y 7 (the first relevant brand PPP project of the country, led by the Spanish company Sacyr), and secondly, by  providing funds for capacity building (the first group of candidates of the PPP Certification Program has been trained by K-Infra last July and committing funds for the preparatory studies of these new projects.)

The first steps of Paraguay in developing a PPP program/pipeline have not been easy. Apart from the suspension of the APP tender process for the international airport, Ruta 2 y 7 suffered significant delays, to some extent due to a lack of preparatory work related to the expropriations process, as well as the complexities of closing a long- term project finance structure for the first time in the country.

Yet, the foundations are there. The PPP law (Ley 5102) is for us one of the best in the continent, establishing a clear path for the preparation and approvals of the PPP projects, as well as a very sound approach to control one of the main dangers of PPPs in the region, the fiscal risk. This is done by limiting the overall PPP fiscal exposure of the total PPP portfolio and also by the creation of a liquidity fund to ensure a high degree of budgetary flexibility to face contingent liabilities related to the risks retained by the government in the PPP contracts.

Not only is it the framework but also the approach to the structure of risks in the projects (talking about roads). We expect the model created in Rutas 2 y 7 to be maintained (and possibly improved). A model that is based on removing totally traffic risk from the private partner (by paying the SPV by means of availability payments, in addition to some fixed / irrevocable payments or “investment payments”) and retaining the property of the toll box, with the toll funds duly allocated in a fund and earmarked for the payments committed in the contract.

The response from the financial markets has been really positive, with Goldman Sachs satisfactorily arranging a project bond, in addition to the financing provided by @BID Invest.

Consequently, we really hope that with this precedent (eventually successful) and the needed improvements in the management of the projects by the procuring authority (right of way), Paraguay may consolidate a PPP Program and culture in the following 2-4 years (hopefully including other sectors other than roads) and attract more high standing investors / promoters to create a competitive and stable environment.