Plans to boost infrastructure opens path for private investment in Argentina



 

A paved road network extending almost 80,000 km, the largest train network in South America, 50 commercial harbours and 54 airports form Argentina’s transport system, which caters to 43m inhabitants and 500m-700m tonnes of freight each year. Though expansive, the Argentine transport network has a lot of room for improvement when compared to its regional neighbours. In its 2016 “Highways to Heaven: Infrastructure Determinants and Trends in Latin America and the Caribbean” report the IMF revealed that between 2006 and 2015 the quality of infrastructure deteriorated by 1.6%, while the region registered an average growth of 2.3%. The main areas that contributed to this decline were electricity supply, and the quality of roads, ports, air transport and trains, which suffered as a result of low government investment in infrastructure projects.

In order to reinvigorate road, rail, port and airport infrastructure, in 2016 the Ministry of Transport (MoT) announced plans to invest $33.3bn in the transport sector by 2019. This investment scheme is part of the National Transport Plan, which aims to decrease logistical costs and increase the competitiveness of local production. “Argentina has gone through a long period of stagnation in the logistics business, with little investments being made,” Eduardo Bastitta, CEO of domestic logistics company Plaza Logística, told OBG. “However, today there is fierce competition in the market, with a particular focus on industrial space rentals.”

Investing in transport infrastructure could boost Argentina’s overall economy, given the sector’s growing contribution to GDP. In 2017 the transport and communications sector represented 8.1% of GDP compared to 7.3% in 2016, according to the National Institute of Statistics and Census.

Roads

One component of the National Transport Plan is the Federal Road Plan, which aims to build 11,514 km of motorways and safe roads, in addition to the paving of dirt roads, and the resurfacing and maintenance of existing roads. The National Directorate of Roads published a list of public-private partnership (PPP) opportunities during the first stage of the plan, which runs until 2019, with a total construction value of $12bn. In the first eight months of 2017 a record amount of 60,242 tonnes of asphalt was used to construct streets, intercity roads, motorways, airport runways and Metrobús corridors.

In the first stage, two motorways will be prepared: the industrial corridor National Route 9 between Campana and Córdoba, and the forest corridor National Route 14 that runs from Zárate via the harbour of Posadas to the tip of the province Misiones. As works under the Federal Road Plan are concluded, new stretches of motorways and safe routes will be used by road trains. Guillermo Dietrich, minister of transport, told local media that “the incorporation of road trains and the new infrastructure configurations are a solution to the demands made by the manufacturing sector – especially those from regional economies, as well as local producers that have to transport large freight volumes over long distances – to lower logistical costs.” From April 2018 the National Directorate of Roads allowed road trains of up to 25.5 metres to use 13,000 km of motorway.

In the north-west and north-east, where demand for infrastructure is most pressing, 145 km of motorways were constructed in the provinces of Chaco, Formosa, Misiones, Jujuy, Salta and Tucumán under the Belgrano Plan, which is concerned with the long-term development of northern Argentina. Alfredo Vara, chief of staff of the Belgrano Plan, told OBG, “Taking into account the extraordinary costs of transporting products to markets and harbours in the central region, improving logistical infrastructure in the northern region is a priority.”

Rail

The freight train is one of the focal points of the government’s infrastructure investment plan. Train track renovations, railway equipment and the construction of bridges are some areas in which investments of over AR20bn ($1bn) will be directed. The largest share of investments is dedicated to rehabilitate the 1800-km Belgrano network, one of the railway branches administered by the government. In April 2018 the first stage of works, the renovation of 535 km of tracks in the provinces of Santa Fe, Chaco and Santiago del Estero, was almost completed. The following two stages include the repairing of over 600 km of tracks in the provinces of Salta and Tucumán. Vara stressed that “the increased capacity of the Belgrano Cargas – the cargo train running between Rosario, Salta and Tucumán – will have a big impact on the logistics in the north-west”.

Guillermo Fiad, president of Trenes Argentinos Infraestructura, the state company in charge of rail infrastructure, told local media in April 2018 that “because the railway was abandoned for such a long time, the whole operation needs to be restructured to enable the transport of more cargo. In one-and-a-half years we have produced $50m worth of machinery for track maintenance.”

The Belgrano Cargas has incorporated 3500 wagons and 107 new locomotives that will enable the transport of over 9m tonnes in 2020, according to Fiad. In 2017 the Belgrano railway branch transported 1.2m tonnes of wheat, cement and sugar, up 23% compared to 2016, the company reported. In the first three months of 2018 the freight volumes grew by 70% compared to the same period in 2017. While in 2018 only 4% of cargo is carried by train, the goal is to increase this number to 15% by 2030. The investment plan also includes railroad works to facilitate multimodal transport. For example, in the port of Rosario efforts are being made to strengthen the link between rail and fluvial freightage.

Ports

For the reconfiguration of the transport and logistics matrix, it is necessary to invest in systems that allow for the transport of greater quantities of merchandise, such as bulk containers. Measures implemented by the government prioritise the enhancement of port and waterway systems, encouraging investments in storage and processing facilities, trans-shipment centres, resources to receive larger vessels and new technologies.

Alberto Servidio, CEO of local shipping and logistics company Marítima Heinlein, acknowledged the importance of upgrading the country’s principal sea port, though suggested more could be done to increase its competitiveness. “The port of Buenos Aires will undergo a vital transformation to become a key part of the province’s and the country’s logistics development,” Servidio told OBG. “However, it remains unclear as to why there will only be one operator bidding for the management of the port. More operators could bring greater competitiveness.”

There are three principal strategies in the long-term vision of port development in Argentina. The first of these strategies is the rolling out of harbours in food-producing regions, such as the north. Under the Belgrano Plan, improving the connectivity of the Argentine north-east must be achieved through the Paraná waterway. Vara explained that provincial governments and federal authorities are aiming to restore and instrumentalise a series of harbours along the river Paraná – in Posadas, Itá Ibaté and Barranqueras – to be able to ship food products more efficiently. There are also plans to build new harbours in Lavalle and in Ituzaingó through PPPs.

The second strategy is increasing port and waterway capacities, which is imperative for the sector’s growth. The 1000 km of navigable waterways from Misiones down to Buenos Aires and the 3000 km of maritime coastline are fundamental for the development of multimodal logistical corridors in Argentina. Gustavo Anschutz, president of the International Association of Ports and Coasts Professionals, told local press in March 2018 that utilisation of waterways for the transport of general cargo and containers is still very low compared to bulk transport. “The facilitation of coastal trade vessels and feeder ships still needs improvement,” Anschutz said. Dredging works to permit the navigation of more and bigger ships are carried out through international calls for bids. Tenders to deepen and maintain river channels are publicly available through the MoT. They aim to “enable larger vessels with greater cargo capacity to navigate, thus reducing freight costs in order to boost regional and international trade and improve navigation safety, vessel traffic management and environmental protection,” Anschutz explained.

The third strategy is to use waterways for the enhancement of industrial activities. For example, in the port of Bahía Blanca, works are carried out to accompany the exploitation of petrochemicals in the Vaca Muerta oil and gas fields.

Aviation

The National Transport Plan also includes an air revolution strategy, which aims to double the number of domestic air passengers to 20m by 2020. The scheme revolves around three focal points: the growth of flag carrier Aerolíneas Argentinas, the establishment of new airlines and the modernisation of airport infrastructure. To strengthen the position of Aerolíneas Argentinas, domestic connectivity is being expanded, flight routes will be adapted to seasonal demand and passenger preferences, and existing offers will be enhanced by the addition of newer, bigger and more efficient aircraft. To this end, Aerolíneas Argentinas installed a new hub in Córdoba in April 2017 and increased the number of direct flights from and to Rosario.

Commercial air activity has grown as a result of the new government policy. For the first time in 11 years there were public hearings in which 660 routes were requested by newcomers to the air industry. Besides the authorisation of new international routes, to New York, Addis Ababa and Zurich, and more frequencies, to Madrid and Amsterdam, the air industry expanded with several new airlines offering domestic flights. For example, Avianca Argentina and the country’s first low-cost airline Flybondi started operations in late 2017 and early 2018, respectively, and by March 2018 had absorbed 5% of the total domestic market. Other carriers are expected to start domestic and international services later in 2018, including Norwegian Air Argentina and Polar Líneas Aéreas.

The last pillar of the aviation strategy is the upgrading of airport infrastructure to allow for the projected growth in passenger numbers. Since 2016 the Trelew, Tucumán, Mendoza, Buenos Aires-Ezeiza, Comodoro Rivadavia, Iguazú and Salta airports have had their runways, beaconing systems and IT infrastructure renovated. Moreover, the military airbase El Palomar in western Buenos Aires has been revamped to serve commercial flights with Flybondi.

Efforts carried out under the aviation strategy have already yielded positive results. In 2017 the number of passengers grew by 15%, with 13m travelling domestically, while the number of flights rose by 11%, according to the MoT’s Argentine Air Navigation Company. Between 2015 and 2017 the number of international routes increased by 260% and 11 new airlines had begun operations. One year after transforming Córdoba into a hub, the number of passengers travelling through the airport grew by 25%. In April 2018 Aerolíneas Argentinas and its subsidiary Austral announced plans to replace its Embraer fleet with larger aircraft and renovate its long-haul fleet to improve efficiency and increase capacity.

In a further bid to stimulate competition and help create a more inclusive market, in July 2018 Dietrich announced the elimination of minimum tariffs for domestic airfare, effective from August 15, 2018.

Public Transport

The government’s goal to increase Argentina’s connectivity also extends to public transport. In the city of Buenos Aires the Regional Express Network (RER) will connect all metropolitan train lines through the construction of a 20-km tunnel and new underground stations. The RER will link the trains coming from southern (Roca and Belgrano Sur lines), northern (San Martín and Mitre lines) and western (Sarmiento line) greater Buenos Aires, creating an extensive regional transit hub. The first stage of the project will be executed through PPPs worth $2.3bn, some of which will go towards the construction of a grand underground central station between the Obelisco de Buenos Aires and Avenida de Mayo. The station is expected to be 400 metres long and will physically integrate the available modes of public transport. During the project’s presentation in March 2018, the MoT estimated that the public transport upgrade will be completed by 2023 and used by 5m passengers.

Outlook

The government has demonstrated its intent on improving the transport sector, with ample investment and PPP opportunities present. Enhancing the connectivity of local industries to principal logistical hubs by road, railway, river and/or air will inevitably improve regional economies and stimulate Argentina’s overall economic and social development.

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