An extract from The Projects and Construction Review, 10th Edition

Introduction

The year 2019 was a challenging year for the infrastructure sector in Colombia. Owing to budget constraints, and while new projects were being structured, the national government mainly focused most of its efforts in enhancing the progress of the projects that were already under performing, seeking to boost their social impact and to reduce the country's infrastructure gap. By the first months of 2020, while the government was exploring the development of new projects, it was forced by the the covid-19 pandemic to redirect its attention to adopting legal, budgetary and managerial measures to face the crisis. This has created uncertainty about when the public tenders for new projects will be launched.

Notwithstanding the foregoing, the country has already achieved important milestones in the infrastructure sector as it managed to reach the financial closing of several road projects; to execute new port concession agreements; and to award the first metro line project in Bogotá. The aim of the national government, as stated in the National Development Plan – Law 1995 of 2019, is to give the private sector a bigger role in infrastructure development through initiatives, seeking to extend the term of port concession agreements and to improve the timing and process for approving private initiative private-public partnerships (PPP). Nonetheless, the national government also acknowledges that not all projects are of the appetite of the private sector nor are subject to be awarded under a PPP scheme. Hence, it recently got Congress approval to reallocate part of the resources saved from the mining and oil royalties to be invested in the improvement and expansion of the road network serving rural zones of the country; this initiative will have to be coordinated with the recently taken measures of creating a fund to overcome the negative impacts of the covid-19 pandemic on the productive sector.

Other sectors, such as power generation, have been the focus for investors since the Ministry of Mining and Energy issued Decree 570 of 2018, which regulates public policies to implement long-term energy contracts for non-conventional renewable energy projects. In addition, the Mining and Energy Planning Unit is structuring the bidding process to select the company in charge of building the regasification plant on Colombia's Pacific coast, a facility that is expected to be operational by 2023, providing liquefied natural gas to the centre and south of the country.

Law 1995 of 2019 sets forth several rules aimed at improving the Colombian public procurement system, including provisions to overcome the administrative bottlenecks that seem to be hindering the approval and performance of private initiatives; for instance, it allows to cut in half the time required for the approval of private initiative PPPs, whose scope is the construction of public precincts such as stadiums, coliseums and conventions centres. This aligns with the policy of the current government to boost the growth of creative industries in the country. Moreover, the Law 1995 of 2019 emphasizes the importance of the natural gas supply projects for the country, enabling the development of new plants for the treatment of imported LPG.

The other areas of infrastructure projects that should be closely watched is social infrastructure, such as hospitals, schools, libraries and prisons. Regarding this last item, the National Development Plan allow prisons to be constructed under a PPP scheme. Further regulation is pending but it entails an opportunity to overcome the deficit of inmate capacity in the country.

Beyond the national level, other major infrastructure projects are being structured by local authorities. For instance, the city of Bogotá is structuring what has been defined as a regional metro network comprising two lines of heavy rail and three lines of light rail. The national government has announced its support for the rail projects and has included provision in the National Development Plan to guarantee the financial sustainability of mass transport systems along the biggest cities. Furthermore, Bogotá is undertaking studies and designs for the construction of several urban highways and new dedicated bus lanes and infrastructure for the TransMilenio system, which will require an investment of at least US$6 billion.

Another sector of interest relates to energy generation. Law 1715 of 2014 promotes investment in renewable energies (mainly wind and photovoltaic) and introduces tax breaks such as deductions in income tax, accelerated depreciation, exemption from VAT and a reduction of custom duties for equipment, machinery, supplies and services. These initiatives are complemented by regional and national transmission line projects being undertaken by the Mining and Energy Planning Unit, which are under tender, to transmit power generated in the northern part of Colombia.

The momentum of the infrastructure sector in Colombia will be put to the test by the effects of the covid-19 pandemic. However, as with most crisis, it may entail an opportunity to prove the robustness of the Colombian legal framework and the executed contracts, as well as the capabilities of the private and public agents to ensure the performance of the projects while managing the negative effects of the crisis.

The year in review

The year 2019 was marked by the execution of the concession agreement to build the first metro line project in Bogotá. After 70 years of studies and discussions around the construction of the mass transit project for Colombia´s capital, last year the District of Bogotá, financially backed by the national government, awarded the contract to build, operate and maintain the metro project for 27 years to a Chinese consortium. The notice to proceed of this project is yet to be subscribed, triggering the beginning of its preconstruction phase, which includes reaching the financial closing of a project valued at more than US$4 billion.

Along with the metro project in Bogotá, the regional government of Cundinamarca also awarded the first commuter light rail project in Colombia to a Chinese consortium. This commuter train, known as 'Regiotram', will connect the capital city with several towns in the neighbouring region of Cundinamarca, serving both as a tram within the urban centre and as light train in the outskirts of Bogotá.

Following the booming expansion and recovery of the once forgotten rails in Colombia, the mayor of Bogotá has already contracted the studies to expand the first metro line and build a second line. At the same time, it has supported the regional government of Cundinamarca to proceed in the expansion of a regional rail network comprising at least two more lines of the Regiotram's connecting the capital with the north and south of the metropolitan area. This current enthusiasm on rail projects has spread throughout Colombia's largest cities, including the plans for upcoming contracts for a third metro line in Medellin (Colombia´s second biggest city) and for potential metro lines in Cali and Barranquilla.

Regarding the road projects, the 4G programme has reached a stability point with most of its projects undergoing construction phase and the government playing a leading role to overcome the land, environmental and financial difficulties of those projects that still have not initiated works. Furthermore, considering the diagnosis of decades of backlog of investments in infrastructure sector, the Colombian government has announced the next generation of road projects, the '5G programme', which is aimed at providing the country with a full network of highways connecting the most important production centres with the exporting ports. Within the projects of this programme, the national government has announced its intention of awarding the construction of the second phase of the northern access to Bogotá; the road network of Valle del Cauca; the road connecting Medellin with the port city of Turbo; the Dique Canal project; the improvement of the navigability of the Magdalena River, among others.

Airport infrastructure will continue to attract a big part of the public and private investment in the next few years. El Dorado Airport is currently the focal point of several public and private initiatives. The current concessionaire has submitted a proposal for the construction of a third runway and expansion of the passenger terminals including, in the long term, the construction of a second terminal in the outskirts of Bogotá intended to serve low-budget flights and private aviation. In the short term, the government is undertaking the negotiations to relocate the fuel deposit and build more remote gates to serve the increasing traffic of the terminal. On the Caribbean coast, the studies for a new airport to serve Cartagena are close to be finished, hence allowing the start of the contracting procedure of a new and modern terminal that will receive the growing number of national and international tourist arriving to the historical city. In the same region, Barranquilla has set 2020 as the deadline for the opening of the expansion works performed in its international airport, upgrading the comfort, technology and number of services provided to the users of this airport.

In the energy field, the regasification plant near Cartagena is the first of its kind in Colombia; with investment of US$150 million (and significantly more with the inclusion of the value of the floating storage regasification unit), it is representative of the projects adopted by the national government to secure the country's energy and gas supply.

Despite the initial impetus with which the economy and the infrastructure sector started 2020, on 17 March 2020, through Decree 417 of 2020, the president declared a state of emergency throughout the national territory amid the covid-19 pandemic. During this period, the president will be entitled to issue decrees having the force of law aiming to overcome the crisis and to impede the extension of its effects. Some of those norms have been issued to address mostly the suspension of contracts, administrative procedures, and terms, as well as to regulate which activities can or cannot be performed during the mandatory preventive isolation also ordered by the national government. However, the extend and effects on the crisis are still unknown and it is yet to be seen whether the infrastructure sector and the projects awarded and currently under planning will succeed relies on a big part on the length of the pandemic crisis and the subsequent effects on the national and world economy.

Outlook and conclusions

Colombia continues its pursuit of reducing its infrastructure gap and the world seems to trust that the conditions are right in order to invest in such a project. With a better understanding of past experiences, the country continues to improve its legal framework seeking to compete with other nations that are either catching up or seeking to maintain their position as investment destinations. In this context, three key pieces of legislation were enacted by Congress: a bill that aimed to provide a specific legal framework for PPPs (approved in Law 1508 of 2012 and Decree 1082 of 2015); a regulation that aimed to resolve the main bottlenecks that had hindered previous infrastructure projects (approved in Law 1682 of 2013); and a regulation pertaining to security interests and enforcement of guarantees (approved in Law 1676 of 2013).

The country seems to be moving forward to overcome the difficulties associated with corruption practices in the past, a task that has been aided by the enactment of Law 1882 of 2018. Now, the national government through the enactment of Law 1995 of 2019 and its multiple regulatory decrees seeks to bring the experiences and lessons learned from the road projects to a broader range of projects including rail, public buildings, water sanitation and prisons. So far, it is still uncertain the magnitude of the effects unleash by the covid-19 pandemic, however, at present, the Colombian government has acted with promptness in addressing a range of matters that affect the performance of most infrastructure projects.

Therefore, if there is a prompt end to the pandemic crisis, 2020 will be marked by the beginning of activities in the long-awaited Bogotá metro project, as well as the Regiotram, and the award of the first public tenders for the projects of the 5G programme, including the tender for improving the navigability of the Magdalena River. If so, Colombia would potentially be about to see a real revolution in multimodal transport.

Footnotes