Interview: Fernando Castillo
What are the most significant challenges Peru faces in reaching its goal of covering 93% of its infrastructure deficit by 2021?
FERNANDO CASTILLO: The infrastructure gap has grown to approximately $160bn according to estimates from the University of the Pacific. Although part of this increase is because the new estimates look at a longer time frame, the gap should still be addressed by taking a range of measures over the coming years.
First, we need adequate planning to determine which projects should have the highest priority in the short term. All too often, projects are based on political considerations, rather than on social needs or economic benefits.
Second, projects that enhance social inclusion, such as education and health care infrastructure, need to be prioritised. This would facilitate the supply of these services to the people who need them the most. We can’t keep delaying these projects because this slows down the country’s development.
Third, the issue of project financing must be addressed. In cases where public spending alone cannot meet the entire cost of a project, schemes such as public-private partnerships (PPPs) and Public Works for Taxes or Obras por Impuestos in Spanish, can play a relevant role and need to be promoted.
Fourth, the public sector needs to adopt higher standards of budgetary efficiency. This is especially true in the case of the regions, where in many instances unspent funds have to be returned to the central government, even though these areas require significant investment.
Lastly, Peru needs to overcome the challenge of adequately distributing risks in PPP projects. At present, many projects have a restriction of “no addendum to contracts in the first three years of the execution of the project”. However, in order to attract more investors, this should be modified to achieve a better distribution of risk management.
To what extent can investment in education and health infrastructure become significant growth drivers for the economy in the coming years?
CASTILLO: There are plenty of opportunities in these sectors through Public Works for Taxes, not only in the construction phase of projects but also in the operation and maintenance of the infrastructures once they have been built. This scheme will not only guarantee the quality of the infrastructure over time, but also allow construction companies to better diversify their sources of revenue and develop a steady flow of income.
Which alternatives can be developed to bridge the gap for potable water infrastructure in Lima?
CASTILLO: Water management in Lima faces several challenges, starting with the fact that, currently, around one third of the water is wasted. Additionally, a significant amount of the water used is not being properly charged to consumers. The best way to address these problems would be to include private sector players in Sedapal and the other regional state-owned enterprises (SOEs).
This does not mean privatising ownership, but rather including private players in the management of services and introducing a realistic price scheme that can strengthen these companies’ finances. This would in turn allow SOEs to invest in infrastructure in areas that currently lack proper water access. This problem is being addressed by private developers, who are driven to build the infrastructure on their own. This increases the overall cost and can increase technical difficulties for the water system.
Lastly, there are also times when developers cannot build at all because of a complete lack of access to water infrastructure. Therefore, greater cooperation between the public and private sectors, as well as more efficient financial management of SOEs, can go a long way in tackling these complex issues.