Jolted by the Odebrecht scandal, investment into Colombia all but dried up after 2016. Now, however, with a revamped set of anti-corruption policies to protect investors, the country is looking to bounce back, as Lucien Chauvin discovers.

Colombia rail

Colombia’s ambitious infrastructure plans are back on track after a few years of doubts and a scandal that dried up project financing.

The $15bn national highway construction programme, known as 4G, is moving forward and the contract for one of the country’s largest single projects, the $4.3bn Bogotá Metro in the capital, should be awarded to one of six groups in October 2019. In addition to transportation, government agencies are working on projects for water and sewage plants, renewable energy, hospitals and urban renewal that will be offered in public-private partnerships.

A new confidence

This increase in activity is the result of series of changes that have returned investor confidence and unleashed financing from banks and multilaterals that had been stalled for nearly two years.

“We are seeing a [restoration] in confidence, which is creating positive effects,” says Gonzalo Vargas, investment manager for Europe at ProColombia, the government’s investment promotion agency.

The changes contributing to new levels of confidence include legislation in place since 2018 to protect investors in the case of corruption and the country’s acceptance into the Organisation for Economic Co-operation and Development (OECD). Colombia is the OECD’s 37th member and the third from Latin America, after Chile and Mexico. The late 2016 peace agreement with the Revolutionary Armed Forces of Colombia guerrillas, while still controversial, has also helped by pacifying areas that were no-go zones for decades and substantially reducing risks.

“Thanks to the OECD and the peace agreement there is more interest from equity funds and institutional investors in Colombia. Many of them did not look at Colombia prior to these two things,” says Paula Osorio, vice-president of the Colombian Association of Private Equity Funds.

Odebrecht albatross

The peace accords might have had a bigger initial impact if the signing had not come right before a huge scandal involving Brazilian engineering firm Odebrecht, which stopped investment in Colombia cold in 2017 and throughout a big chunk of 2019.  

“There was a before and after with financial closures [regarding investment in Colombia] because of Odebrecht. A dynamic existed for closures until the scandal and then everything was paralysed for nearly two years,” says Fernando de Miguel Velasco, administrative and financial director in Colombia for Spain’s Grupo Ortiz, which has several transportation contracts.  

The scandal began in Brazil in 2014 with the Lava Jato (Car Wash) investigation into bribes paid by construction firms. Odebrecht was at the centre. That scandal exploded in Latin America in late 2016, when Odebrecht reached a plea bargain in the US and admitted to paying nearly $800m in bribes in a dozen countries, including Colombia, to win contracts.

The fallout continues in Colombia, most recently in May with the five-year conviction handed down against Roberto Prieto, who ran former president Juan Manuel Santos’ campaign in 2014.

The most damaging revelation involved a 528-kilometre segment of the Rutas del Sol highway, the contract for which was won by Odebrecht. It was the most expensive highway segment, at $1bn, within the entire package of Colombia's transportation infrastructure.

The government annulled the contract for the highway, as well as for another high-profile deal to improve navigation along the Magdalena River. That contract was valued at close to $900m. A court decision in late 2018 banned Odebrecht from contracting with the Colombian state for 10 years and fined the Brazilian company $250m.

A halt in activity

The immediate impact of the Odebrecht scandal was felt in the financial closures of infrastructure projects. While eight closures were registered in 2016, only two were done in 2017. There were four in 2018 and one in the first quarter of 2019. Authorities are hoping to return to the 2016 rhythm.

“The impact from Odebrecht was strong. The Ruta del Sol, in addition to being strategic, was an emblematic project. Financial closures stopped and while banks did not withdraw, they were not willing to lend,” says Carlos Sandoval, vice-president of national development bank FDN.

The state responded with stronger legislation and regulations, revamped agencies and a new list of projects. Additional changes, such as withdrawing the finance minister from FDN’s board, were brought about to comply with OECD rules.

Mr Sandoval says anti-corruption clauses were introduced to bring improvements to contracts, while compliance teams were strengthened. The infrastructure law was reformed to guarantee that lenders were protected if a project developer was caught up in corruption. “It was a very difficult time, but we came out of it better prepared and investors are at ease,” says Mr Sandoval.

The FDN has $1.8bn committed to 4G highways, with another $300,000 going to other infrastructure projects. It accounted for 14% of financing for 4G projects between 2016 and the first quarter of 2019.

Bouncing back

This improved climate has allowed Colombia to start closing the financing for 4G projects that have been in limbo and moving ahead with new projects, including roads, port concessions and railroads.

“Our focus until now has been on getting done what was already on the books,” says Louis Kleyn, president of the National Infrastructure Agency (ANI). “The 4G has helped establish a model for offering projects in a package. This helps get more investors involved.”

Among project financing finalised in the first half of 2019 was the Mar I highway for $742m, according to the FDN. The financing came from a wide range of sources; from development banks, such as Spain’s ICO, Germany’s KfW and the FDN; multilaterals, such as the Inter-American Development Bank; international banks, including France’s Société Générale and Japan’s Sumitomo Mitsui Banking Corporation; and BlackRock.  

Partners in the 176-kilometre highway project, which will connect Colombia's interior to the Antioquia region and then to the coast, are Austria’s Strabag (37.5%), Spain’s Sacyr (37.5%) and Colombia’s Concay (25.0%).

The ANI on June 10 signed a contract for two ports, Bahía Colombia and Pisisi, both on the coast of Antioquia, that will form part of a transportation corridor with Mar I and Mar II, the other segment of the road offered under a separate contract. The two ports will be able to move 8.3 million tonnes of cargo annually.

Colombia’s PIO and France’s CMA CGM have the contracts for the two ports, which include $300m for Bahía Colombia and $133m for Pisisi.

Full steam ahead

The ANI has a new list of 11 highways beyond the 4G package worth approximately $3.5bn, but Mr Kleyn says the key to success is the multi-modal format that combines roads with railroads, waterways, airports and ports. He says the next big step is moving ahead with the National Development Plan’s priority on railroads.

In early June the ANI awarded a $29m concession to the Ibines consortium, formed by Colombian and Spanish companies, to improve and run nearly 860 kilometres of existing rails. “We are going to change the face of transportation in Colombia in the next three years,” says Mr Kleyn.

This would appear to be a tall order, however, given the country’s infrastructure ranking in the World Economic Forum’s Global Competitiveness Report 2018. Colombia ranks 83rd out 140 countries in infrastructure, 102nd for the quality of its roads and 125th for the efficiency of its train services. It performs better for airport connectivity (31st) and shipping connectivity (34th).

Bogotá bet

While the ANI is working on proposals for commuter rail services for different cities around the country, the decision most keenly awaited – given that the process has been ongoing for more than six decades – is the October concession to build the first line of the Bogotá Metro, which will be offered by the city government.

The above-ground line, which will run for 24 kilometres through the capital, will require investments estimated at $4.3bn. It will be the most costly individual project awarded in the country. Six groups, involving a long list of the world’s top builders and operators, are registered to bid on the project.  

Luisa Mesa, the head of investment for Invest in Bogotá, the city’s investment promotion agency, says the project is critical not only for the capital but the country as a whole. It is part of an integrated system that will include new north and south access routes to help ease the gridlock that is a big issue for the city’s 8 million people.

The most recent Traffic Index by Dutch tech company TomTom ranked Bogotá as the second most congested city out of 403 studied in 56 countries, beaten only by Mumbai in India.

“This is a strategic project for the country because of the engineering involved. International banks and multilaterals will be the foundation of financing,” says Ms Mesa. “International organisations are accompanying the project, which will help the financial closure.”

Getting moving

Other large projects, including public-private partnerships, public works and private initiatives, are also under review in a move that would allow Bogotá to achieve the goal of an intermodal transportation system, according to Annia Guatibonza, senior investment officer at Invest in Bogotá.

Larger projects include the La Sabana airport, located just outside the city, that would complement the existing El Dorado airport. The initial price tag is $3.2bn.

Two expanded roads will ease traffic and the time needed to get in and out of Bogotá. The southern access road is priced at about $400m, while the northern access road is expected to cost approximately $475m. Also on the drawing board is a major expansion of the existing bus system, the TransMilenio, which will require close to $850m. The expansion is designed to work in conjunction with the Bogotá Metro.

Ms Guatibonza says that the conditions are in place for all of this and more to come to fruition, including new hospitals and a $1.5bn wastewater plant to clean up the Bogotá River.

“This timing is right for the country, with our macro-economic, legal and political stability, human talent and accessibility through trade agreements. These are factors investors look for,” she adds.


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