The Path to Prosperity - Colombia's 4G Highways

Shikun & Binui Ltd. The Israeli construction company has closed a USD 640 million infrastructure project in Colombia to build a 160 km long toll road to be built near the nation’s capital of Bogotá. The large contract value includes all the costs related to financing, construction, rehabilitation, operation, and maintenance of the new road in the state of Cundinamarca for at least the next 25 to 30 years.

The project is another important component of its so-called “4G” infrastructure overhaul that will pump billions of dollars into new transport network including highways, bridges, and tunnels over the next seven years.  The difficult transport logistics and extended travel times are a significant drain on the country’s economy, and experts have estimated that the 4G project, which touches virtually the whole country and scheduled to have some 8,000 kms of new roads to be completed by 2023, and is expected to cut transport costs by up to 30%.

The company, which won the tender offered through the Colombian Ministry of Transportation’s Government Infrastructure Authority, has already secured USD460 million in long-term funding via both Colombian and international sources, according to the company.

The Colombian government’s transport infrastructure programme promises to boost the country’s slowing economy. But the realisation of such expectations rests on how investable projects are and whether the $25bn financing required can be secured.

After five years in the planning, the Fourth Generation, or 4G, road concessions are now under way, starting with the first wave of nine projects.  The first three of these — Girardot-Honda-Puerto Salgar; Conexión Pacífico 3, and Cartagena-Barranquilla highways have been under construction since 2015.

Over the next eight years 4G is expected to deliver an additional 5,892km of roads in three waves via public-private partnerships, requiring investment of $10.7bn. Initiatives proposed by privately owned infrastructure groups worth $3.32bn are also planned. Improvements to roads, bridges and tunnels are the top priority, as Colombia depends on its road network for more than 80 per cent of internal transport. Previous attempts to overhaul transport infrastructure, under the second and third generation programmes, were fraught with delays.

Corruption and financing shortfalls were also a problem. The Girardot toll road expansion project in Bogotá suffered severe setbacks and eventually defaulted on its debt in 2004. Failure to meet deadlines has hindered progress. Institutional complexities concerning land acquisition, the allocation of environmental permits and consultation with communities cause bottlenecks.

The national infrastructure agency, ANI, argues it has addressed this with new laws aimed at streamlining processes and reassuring investors that projects will keep to schedule. 23 projects have been agreed for a total value in excess of $8bn at current exchange rates, and projects are being awarded at a rate of one a month. He expects that number to reach 35-40 projects by the end of 2016.

The real test will be whether enough financing can be found and the projects are well-structured and adhere to a solid legal framework.  This is important because under the 4G programme, in order to share the risk of projects and to ensure their completion, concessions are not granted until the project is operational and payment further depends on meeting service and quality requirements.  

The news that the likes of Goldman Sachs and Sumitomo banks have signed on as sponsors is likely to ease concerns. To date, bids have come in from Spain, Austria, China and Israel.