A new era: Connecting the country is a key priority of the current government

A common complaint among Colombian transporters is that bringing goods from Bogotá or Medellín to the port of Buenaventura is more expensive than shipping it to or from Tokyo. High transportation costs have become so institutionalised that they are often likened to a 10% to 15% tax. While Colombia’s geographical layout has always been challenging to navigate, corruption, militancy and shifting government priorities have resulted in a severely deficient infrastructure network.

LIMITED ACCESS: According to the Colombian Chamber of Infrastructure, in 2010 the country counted 377 km of paved roads for every million inhabitants, compared to 1604 km in Argentina, 1363 km in Venezuela and 897 km in Peru. While Colombia’s topographical layout leads to some distortion of this ratio – some 90% of the population is concentrated in the western part of the country – it underlines the significant work that lies ahead. Roads are not only few, but quality is also lacking. The 2013 “Global Competitiveness Report”, published by the World Economic Forum, ranked the quality of Colombian roads at 126th out of 144 countries, far below regional peers such as Chile (23rd), Mexico (50th) and Peru (100th) and below the position it occupied in the previous two years – 108th. This is mainly due to low construction standards and weak institutional support for construction and maintenance.

According to a 2011 diagnostics report by the Ministry of Transportation, more than half of the nearly 8000 km of paved roads overseen by the National Institute of Roads (Instituto Nacional de Vías, INVÍAS) is of average (28%) or bad (23%) quality. Attention also needs to be directed at the secondary and tertiary roads managed by regional departments, municipalities and private owners, which constitute more than 80% of the country’s network. Improvement of these roads is an essential component in the efforts to reduce economic inequality between rural and urban areas.

CHANGING FORTUNES: The administration of President Juan Manuel Santos has identified infrastructure development as a key pillar of its inclusive economic development policy and has committed to increasing investments from 1% to 3% of GDP. Investment allocations in the national budget have more than doubled in recent years, exceeding COP7trn ($4.2bn) in 2012 and 2013. By 2020, the government expects to have invested some $50bn. Public sources will be used for funding but the bulk will come from the private sector.

To this end, the government has sought to implement far-reaching changes to institutional and legal frameworks to prevent mismanagement and corruption.

The private sector’s initial reaction has been positive.

Following a new law on public-private partnerships (PPPs) that regulates private sector proposals, 16 offers including 12 road and four railway projects valued at COP13trn ($7.8bn), had been received by the National Infrastructure Agency (Agencia Nacional de Infraestructura, ANI) by September 2012. Together with a slate of projects the government will launch over the next few years, the country is hopeful that it is finally catching up with its regional peers.

Expansion and improvement of the road network ranks at the top of Colombia’s ambitions for infrastructure development. Since coming to power in 2010 the Santos administration has taken the lead on stalled projects and drafted plans for new ones.

The first priority was to fix existing contracts, many of which had run into problems due to bad designs or questionable concessions. The highway between Bogotá and Buenaventura, for example, a primary transportation artery, comprised 16 contracts, 15 of which had problems. In other cases, such as the Bogotá-Girardot connection, significant delays occurred, allegedly due to corruption by the winning consortia. Resolving these issues and re-awarding the deals has taken up much of the administration’s first two years in office.

REPAIR & MAINTENANCE: The second focus has been on the improvement of damaged roads and their expansion into double lanes. As a result of deficient maintenance and overuse, the national police found that, in the 26 departments surveyed, a total of 133 roads were either entirely or partially inaccessible in 2012 and, on an average daily basis, 165 stretches were restricted due to bad conditions. While this was an improvement from 2011 figures, it still caused a significant amount of money and time to be lost. According to the 2010-14 national development plan, ANI and INVÍAS will be overseeing improvements to more than 800 km of double lanes and construction of more than 1000 km of new ones. The plan also includes the regular maintenance of some 50,000 km of tertiary roads, the construction of 155 bridges, the addition of 800 km of paved roads and 13,000 metres of tunnels. After an audit by the National Planning Department in September 2012, progress on most of these had exceeded 25%, while 70% of the planned tunnels had already been completed.

MAJOR PROJECTS: These goals form an initial yardstick for development plans up to 2020 and touch upon a variety of national and regional project bundles. The most prominent of these are the so-called fourth-generation concessions, which include some 30 primary road improvements and construction projects at a value of $26bn. According to President Santos, the initiative will see more roads being built in the next two years than the country has seen in the past two decades. The package is split into five regional groups. The centre-south concessions link La Dorada, where the Magdalena River originates, to Mocoa, close to the border with Ecuador. The centre-west section connects Bogotá to the primary cities on the south-western coast such as Buenaventura, Cali, Popayán and Chachagüí. The centre-east section connects Bogotá with surrounding urban areas, including Villavicencio, Granada and El Secreto, and establishes two links towards the border with Venezuela crossing the eastern plains. The northern section runs parallel to the Atlantic coast from Manaure in the north-east to Tolu in the west. Besides improving the connection between the key coastal cities of Santa Marta, Barranquilla and Cartagena, the planned roads also link these cities to the inland parts of the Córdoba and Antioquia departments. Finally, the centre-north-west section connects Bogotá to urban areas in Santander department, including the cities of Bucaramanga, Cúcuta and Pamplona.

In February 2013 the prequalification phase for the first four projects was announced, comprising road connections between Barranquilla and Cartagena, Girardot and Puerto Salgar, Mulaló and Loboguerrero, as well as a link between the central towns of Cáqueza, La Calera and Sopó. The total value of the contracts was estimated to be COP44trn ($26.4bn).

PROSPERITY CORRIDORS: Another project that has been prioritised is the Corredores de Prosperidad ( Prosperity Corridors) projects linking the department of Antioquia and its capital city Medellín to the Caribbean coast, the coffee growing regions and the area surrounding the port of Buenaventura. The project covers 21 segments over a distance of 1160 km. Overseen by ANI, the works are being awarded through a public tender valued at $7bn, co-funded by the central government, the department of Antioquia and the city of Medellín. While the plans had been in development for decades, work finally started in August 2012 with positive signs for continuous progress over the next 15 years – the time expected to complete the project.

The roads come at an important time for the department as significant foreign investments – in particular in Medellín – have raised the need for efficient countrywide connections. The economic benefits of upcoming free trade agreements will be largely dependent on the efficiency of the region’s infrastructure network. Besides the availability of highly skilled workers, foreign investors rank adequate road connections at the top of development needs to expand their business and encourage the establishment of supporting industries.

SUN ROUTE: Another project is the Ruta del Sol or sun route, valued at $2.7bn. The 1071-km road connects Bogotá with other large urban areas in the interior such as Villeta, La Mata and Bosconia and, ultimately, Ciénaga on the Atlantic coast. As with most infrastructure projects, the Ruta del Sol has been on the drawing board for a substantial period of time and was initially conceived as a single project. It wasn’t until recently that the project was divided into three individual segments to help ease the financial and technical requirements, and mitigate single operator risk.

Significant progress was made when the third and final section was awarded in July 2010. The 25-year concession, valued at $1.3bn and won by a consortium led by Italian engineering firm Impregilo, comprises the modernisation, extension to four lanes and management of two motorway sections, between the cities of San Roque and La Ye de Ciénaga, and the cities of El Carmen de Bolívar and Valledupar. Returns will be generated from tolls and a public contribution of $1.7bn.

According to an interview in the local media by Luis Fernando Andrade Moreno, ANI’s president, work on section two, connecting Puerto Salgar to San Roque is progressing at 2-3 km per week. Provided works continue at the current pace, some 220 km of the section’s 528 km will be finished before the end of 2013. However, the first segment, 78 km connecting the cities of Villeta and Puerto Salgar, has been delayed by a dispute between the concessionaire and the environmental agency, which is demanding a modification of the originally planned route. At the time of publication, this matter had yet to be resolved.

RAILWAYS: Rail projects are typically tied to mining activity and predominantly connect producing regions and privately owned ports along the Caribbean coast. Due to the near saturation of the main rail connection between Bogotá and the Caribbean ports of Cienaga and Santa Marta, a slate of private and public initiatives have been proposed to expand the current line and build new ones. This is encouraged by the government’s ambition to increase cargo movement by rail from a current level of 35m tonnes to 90m tonnes by 2018.

In pursuit of this, efforts are under way to create 1340 km of rail by 2014 and an additional 1000 km four years later. Moreover, better rail connections mean lower costs for mining companies. At present some 80% of domestic coal production costs are linked to its transportation to the coast. Several proposals are currently on the table. The first consists of a second rail link to the Port of Santa Marta, where most of the mining output finds its way onto vessels.

BID PROCESS: Other expected proposals include bids from mining groups MPX and Votorantim, which seek to expand or build rail connections from production sites to functioning lines. As stipulated in the new PPP law, ANI will assess submitted proposals for a period of up to three months. In case of approval, the promoter will then carry out a feasibility study and undergo a financial and technical assessment. After each submission is delivered to ANI, the authority will have six months, plus an additional three if necessary, to evaluate the proposals and determine whether to go forward with the project or create a new procurement process.

Besides the private initiative projects, ANI has structured several public projects that are expected to come up for tender in the next two years. As with the private projects, the majority of the public plans target construction and expansion of connections to the coast.

ANI’s short to medium term priority is the improvement of more than 800 km of tracks affected by flooding in 2010-11. Two areas of importance are the segments from La Dorada to Chiriguaná and Bogotá to Belencito. Contracts are to be awarded before the end of 2013 and completed within 24 months. Other projects include new single-lane connections from Zipaquirá-Barbosa (166 km), Belencito-La Vizcaína (354 km), Chiriguaná-Dibulla (310 km) and Chiriguaná- Cartagena (270 km). In addition, a bid for a 45-km line along the Chiriguaná-Santa Marta segment is planned.

PACIFIC RAILWAY: A project that enjoys countrywide attention is the improvement of the Ferrocarril del Oeste (Western Railway), a 196-km freight-only rail connection between the port of Buenaventura on the Pacific coast and the city of Palmira, located north of Cali. Given its connection to the country’s biggest port on the Pacific, the benefits of this line go beyond those of the mining industries. After passing through the hands of various owners since the line’s privatisation in 1998, Colombia Rail Investors Corp (CRIC) – a joint venture between US-based and Colombian-Israeli investment companies – obtained the right to improve the railway in July 2012 with a budget of $700m.

The line’s reopening one month later as the Ferrocarril del Pacífico (Pacific Railway) attracted national attention, including that of President Santos, who attended the inauguration event. Besides optimising its load factor, CRIC has plans to extend the line by 300 km to La Felisa, and eventually to Medellín where it would connect with the Atlantic network. In the long term, the line is to be converted from its current single-track narrow gauge (914 mm) composition to a North American standard gauge (1435 mm) allowing for bigger load capacities. The project value is estimated at around $3.3bn. While in December 2012 the company managed to move some 25,000 tonnes of freight – including cement, steel, grain and sugar – its objectives are to reach 1m tonnes annually by the end of 2014.

AIRPORTS: Even though airport projects rank lower in priority than those in road and rail, significant funds have been allocated for concessions on new and expanding facilities. The Ministry of Transportation has reserved more than $500m for the modernisation and expansion of some 25 national and regional airports.

A notable recent achievement has been the opening of Bogotá’s El Dorado International Airport in November 2012, replacing the previous facility in place since 1959, which, with a capacity of 8m, was both out-dated and overused. The new international terminal has a capacity of 15m while the domestic terminal – scheduled for completion in early 2014 – will boast a similar size. Construction of a new cargo terminal had been completed in 2011 and, with a capacity of 620,000 tonnes, is the biggest in Latin America.

The project originated nearly a decade ago and was supposed to absorb the rapid rise in passenger traffic passing through Bogotá. The number of domestic and international passengers doubled between 2006 and 2012 when it reached 22.5m, making it the region’s third busiest aviation hub, after São Paulo and Mexico City.

According to Operadora Aeroportuaria Internacional (OPAIN) – a consortium of local construction companies specialised in airport concessions and the Zurich Airport Company, which oversees construction and management of the new airport – the added capacity will accommodate growth in the years to come. However, over the past few months some operators have publicly expressed concern that passenger traffic has outmatched calculations, due in part by the long duration of the project. Current estimations indicate that by 2016 some 30m passengers will travel through the facility and by 2026 this will have increased to 46m. Meanwhile, OPAIN has announced possible expansion of the new facilities by 2016. “We have accounted for a possible expansion in the layout of the airport,” Victor Manuel Cruz, president of Odinsa – a member of the OPAIN consortium – told local media.

Aside from the terminal’s capacity constraints, operators have expressed concern about the marginal expansion of parking spaces. Executives of Avianca, the country’s biggest carrier and primary customer of the airport, and VivaColombia have commented that their airplanes still need to dock in remote parts of the airport and bus their passengers to the terminal.

Competition to El Dorado may come from a new airport. In April 2013 President Santos announced that studies will be undertaken for the construction of an alternative airport within the next two years and that it will be operational by 2018 at the latest.

REGIONAL AIRPORTS: Other upcoming bidding rounds include the airport of Barranquilla, which since February 2012 is controlled by Aerocivil, the civil aviation authority, following the suspension of its private operator for having failed to meet necessary standards. ANI has invited the private sector to bid for the COP250bn ($150m) contract, which includes modification and exploitation of the facility. Similar concessions are also planned for the airports of Armenia, Popayán and Cartago. Meanwhile, Aerocivil and Aerocali – the operators of the airport of Cali – signed a memorandum of understanding for the construction of a new international terminal, modernisation of the domestic facilities and extension of the landing strip. The project, which is due to break ground in late 2013, is valued at COP120bn ($72m), equally divided between both entities.

CARGO HUB: Ambitious plans also exist for the airport at Flandes. The regional facility is set to undergo upgrades worth some COP10bn ($6m), including the addition of an international cargo terminal, a free zone and a multi-modal logistics hub connecting the airport with the Ibagué-Bogotá highway. This will allow for comparatively swift connections to the northern and western coastlines, the Magdalena River and the planned extension of the Atlantic rail network. The surface will span 800 ha and, according to the department’s administration, the airport could become Colombia’s primary multi-modal cargo hub. The national government has committed to funding 20% of the project while the remainder is to come from private investors.

PORTS: In anticipation of a rise in foreign trade as a result of free trade agreements and the expansion of mining output, practically all main ports dotting Colombia’s Pacific and Atlantic coast are either undergoing or planning expansions (see Transport chapter).

Similar to railway infrastructure, existing port capacity is largely defined by mining output. Higher levels of security paired with governmental ambitions to ramp up annual coal production have encouraged the country’s biggest producers – Cerrejón, Drummond and Prodeco – to allocate around $1.3bn for the modernisation and expansion of their ports. The allocations incorporate provisions for new environmental regulations that require direct loading of minerals from land onto vessels – as opposed to transfer by barge – to minimise spillage into the sea.

As such, US-based Drummond – which has previously faced fines and suspension following a breach of these rules – is investing $450m in its private port near Santa Marta. Meanwhile, Prodeco, a subsidiary of the Swiss trading company Glencore, saw the inauguration of a new port near the town of Ciénaga in May 2013. The facility, named Puerto Nuevo, has been built at a cost of $500m and includes an 8.5-km-long and 20. 5-metre-deep access canal allowing for vessels with load capacities of up to 8000 tonnes. Cerrejón, a joint venture between BHP Billiton, Anglo American and Xstrata, is expanding capacity of Puerto Bolívar, its private port located south of Barranquilla. These efforts are paired with an expected increase in coal production from around 30m tonnes per year presently to 40m tonnes by 2015. Meanwhile, expansion is ongoing at the country’s main multi-purpose ports, including the Caribbean ports of Cartagena, Barranquilla, Santa Marta and Buenaventura on the Pacific coast (see Transport chapter).

Significant investments are being made at the port of Buenaventura, the only multi-purpose facility on the Pacific coast and a key connection for shipments to and from Asia and the west coast of the Americas. The facility also has the closest connection to the “golden triangle” – consisting of Bogotá, Medellín and Cali – where the highest concentration of population and industrial activity are located. The concession, which includes UAE-based DP World, is currently rolling out a $450m investment plan due for completion by 2034. Among the various improvements, pylons and moorings are being reinforced to accommodate post-Panamax vessels. In addition, higher-capacity cranes will be installed and the access canal deepened. The goal is to raise installed capacity from 13.5 tonnes per sq metre to 22.8 tonnes per sq metre, which would allow the port to process a volume of 27m tonnes per year by 2032.

Aside from expansion of the currently installed capacity, a new facility is being built next door. Works on the Agua Dulce port started in June 2013 and completion of access roads connecting the future port to the cities of Cali, Medellín and Bogotá were expected in the next few months. Construction and management is in the hands of Philippines-based port operator International Container Terminal Services. Once completed, the port will be equipped to handle more than 400,000 containers and 2m tonnes of bulk and coal cargo.

OTHER WATERWAYS: Another high point on the agenda for 2013 is the recovery of navigability on the Magdalena River. At about 1528 km it constitutes the primary fluvial artery connecting Puerto Salgar, close to Bogotá, to Barranquilla on the Caribbean coast. Despite a long history of commercial exploitation, a lack of active dredging and investment in river ports has reduced its navigability. Freight barges of a maximum of 7000 tonnes leaving the coast struggle to reach as far as Barrancabermeja, 630 km to the south.

Despite some marginal participation by cargo companies, Ecopetrol, the state-owned energy company, is the primary river user. The Regional Autonomous Magdalena River Corporation, which oversees the waterway’s commercial exploitation, aims to revive its share in national transportation by increasing its capacity and diversifying the nature of cargo carriers. Its objective is for annual transported cargo to reach 6m tonnes by 2014. The government has announced plans to develop the river through a PPP model. A 10-year concession will comprise study and designs, dredging and construction of channelling works, as well as the operation and maintenance of the waterway.

By April 2013, nine bids had been received, including domestic and international firms such as China Harbour Engineering, Power Construction Corporation of China and several consortia made up of Spanish, Belgian, Canadian and Colombian companies. The offer includes dredging activity from Puerto Salgar to the mouth of the river in Barranquilla for a period of up to 10 years at a value of $680m. By the end of May 2013 three bids had been shortlisted, including the consortia Navega Magdalena, Consorcio Desarrollo Río Magdalena and PSF Navelena, all Colombian companies partnered with foreign construction and engineering firms with proven expertise in waterways. The final selection is expected for the second half of 2013.

HydroChina was also contracted in May 2011 to draft guidelines for preventing the river from flooding – as has been occurring with greater frequency – and exploiting its potential as an electricity source. Results are expected before the end of 2013, after which the concession process will begin. While the Magdalena River offers the most significant and advanced investment opportunity, the government has also expressed interest in studying the navigability of other major arteries such as the Putumayo and Meta Rivers, OUTLOOK: With a 2012 law governing PPPs and a revamped national infrastructure organisation, the Santos administration has attempted to create the appropriate environment to attract the amount of investments needed to meet its ambitious goals, placing Colombia at the start of what could be the most productive and investment-heavy period it has seen.

Success will hinge on the coordination of investments. The much sought after intermodal transportation network will be realised only if the high variety of projects is rolled-out within the framework of a countrywide blueprint. This includes roads, rail, air, river and maritime ports, but also supporting facilities that have not yet appeared on the government’s agenda such as distribution centres, storage facilities and dry docks. Even though these are still the early days, the political commitment towards infrastructure development and a strong appetite to put the private sector in the driver’s seat bode well for a significant improvement in Colombia’s domestic and international connections.

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The Report: Colombia 2013

Infrastructure chapter from The Report: Colombia 2013

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