Colombia’s ambitious fourth generation (4G) road programme is a key part of the government’s transport infrastructure development strategy. The programme aims to build 45 new highway links and upgrade and renovate existing stretches of roads across the country for a total investment of $24bn. Most of the concessions are public-initiative, public-private partnership (PPP) agreements, although some projects will be privately managed will little to no public funding. The country’s PPP laws were overhauled in 2012 to improve the legal framework for infrastructure investment, laying the framework for implementation of private initiative projects and strengthening transparency measures.
Road transport comprises around 86% of Colombia’s internal transport, making improvements to roads, tunnels and bridges a priority. Difficult terrain, limited rail connections, the degradation of roads and high levels of congestion all make moving goods and people expensive and time-consuming. To address these issues and lower transport and logistics costs, the 4G programme aims to create up to 5800 km of new highways to better link the country. The National Department of Planning (Departamento Nacional de Planeación, DNP) expects transport costs to fall by 15-20% and travel times by 25-30% under the plan.
4G: As of February 2017 a total of 32 4G road projects were awarded to contractors for construction. Although some have been delayed due to issues related to financing, community outreach or environmental consultations, many have moved on to the construction stage. While plans are advancing, delayed tendering and financial structuring of some of the projects may set the pace for a longer deadline for the finalisation of the plan overall. “The 4G programme might take longer to implement because of financing delays,” Ana Carolina Ramírez Pineda, director for economic affairs at the Colombian Chamber of Infrastructure, told OBG.
Economic Impact
Despite the financial commitments that will be needed to secure completion of the programme, authorities are banking on long-term economic benefits. With falling global commodity prices negatively impacting the country’s export earnings, Colombia is hoping enhanced road connections will increase competitiveness on an international scale and provide economic stimulus as the projects move forward. Authorities expect once the 4G plan is completed, transport costs will go down by 28%, while the country’s GDP is expected grow 1.5% as the payoff from lower logistical costs, improved trade and job creation trickle through the economy.
In addition to reducing operational costs and boosting employment, the improvements to the highway network are an important tool to support the country’s industrial sector, which has become increasingly integrated with the global economy after an array of free-trade agreements were signed in recent years, including agreements with South Korea that came into force in July 2016 and with the Pacific Alliance — a trade bloc that includes Chile, Colombia, Mexico and Peru — which came into force August of that year.
Three-Part Plan
The 4G road programme was launched by the government in 2014 with an aim to complete construction in eight years. Authorities released tenders in three phases. Bidding for the first phase ended in 2014. Under the first phase, 10 highway projects spanning 1630 km were awarded for a total investment of COP15trn ($4.5bn), according to the DNP.
Despite a slowdown in economic growth in 2014, as the country dealt with the effects of lower oil prices and the depreciation of the Colombian peso, all 10 projects in the first wave of 4G were able to secure the necessary financing by August 2016. Construction has begun on seven of these, including the 98-km Pacífico 2 Highway project, which represents an investment of $679m; the 185-km Girardot-to-Puerto Salgar Corridor, which is set to cost $757m and be completed in 2018; and the 82-km Río de Oro-Aguaclara-Gamarra highway, which will cost $396m and is expected to finish in 2019.
Six projects have reached the financial structuring phase in the second wave, which includes nine projects spanning a combined 1830 km. As of early 2017 two projects from this phase had begun construction. The first is a 442-km link between Santana and Neiva and the second is the 254-km Autopista al Mar 2, connecting Cañasgordas to Necocli in the Antioquia region.
Slower Uptake
While the first two waves of the 4G highway programme were mostly unaffected by the deterioration of the overall economic and fiscal conditions in Colombia, the third and final waves seem to be more affected. In early 2016 authorities announced that the third wave of 4G road concessions would be partially suspended due to shifting economic realities caused by falling oil prices impacting state spending. “It is wise to suspend some projects due to budget-related issues, even though it’s a painful decision,” Luis Fernando Andrade, president of the National Agency on Infrastructure (Agencia Nacional de Infraestructura, ANI), told local press. “If we have a solid and credible economy, we will be better able to finance them.”
The eight projects under the third wave were expected to be executed largely through PPPs for an estimated $12bn. “While six projects in the third wave have been suspended, they continue to be under study by the ANI, which is considering private initiative PPP options,” César Augusto Peñaloza Pabón, director for infrastructure and sustainable energy at the DNP, told OBG. “We believe the projects will eventually kick off.” The initial two projects of the third wave of 4G road concessions were tendered in 2016 with mixed results. The first of these, the 133-km Bucaramanga-to-Pamplona link in Santander, was awarded in April 2016 to Colombian contractor CSS Constructores. The $618m highway will include the construction of 28 bridges, 10 passing lanes and an interchange.
The second tender of the third wave of 4G concessions was a 62-km highway to link Pamplona and Cúcuta, a town bordering Venezuela. The initial tender released in May 2016 did not receive bids as investors were concerned about the effects of the worsening economic and social conditions in neighbouring Venezuela, and a 12-month border closure that was later lifted in August of that year. In the second half of 2016 authorities revised the project and increased the government’s financial contribution in order to make the project more appealing for the private sector before tendering it again. Three companies bid for the second version of the tender and in April 2017, Spanish firm Sacyr Concesiones was awarded the COP1.7trn ($510m) bid. The project will be divided into six segments and includes the construction of six tunnels.
Financing
The tendering difficulties experienced in 2016 highlighted the need for more innovative financing options, as Colombia’s wider economic challenges put a damper on PPP prospects. Out of the 29 projects awarded under the 4G scheme to date, 19 have secured a total of COP20.6trn ($6.2bn) in financing: the ten first-wave projects, the six second-wave projects and three private initiatives.
Authorities are now looking to boost private sector financing in the third wave of projects. “One of the major challenges for 2017 will be to successfully complete the financial structuring for the infrastructure projects,” Ramírez Pineda told OBG. “Colombia’s banking sector is already quite exposed to that first wave of 4G projects, so we aim to mobilise more international resources for the remaining projects.”
Despite some setbacks and delays, the mostly successful rollout of the 4G road programme has allowed the country to diversify its sources of domestic and international financing. According to ANI, investments in the project have come from a number of Colombian and foreign institutions, including the International Finance Corporation, which supplied $50m in direct financing and a $70m equity investment in the Fondo de Desarrollo Nacional, Colombia’s infrastructure development bank. The ANI also approved investments of COP2.36trn ($708m) from US investment bank Goldman Sachs, COP2.38trn ($714m) from local bank Davivienda, COP2.36trn from Bancolombia, COP2.34trn ($702m) from Japanese Sumitomo Mitusi, and COP2.25tn ($675m) from Banco de Bogotá.
The ANI expects several additional foreign investment funds will finance transport development projects to be finalised in the second half of 2017. “The good thing about Colombia is that we have a strong financial sector, as well as strong and capable contracting companies with the know-how to successfully execute projects,” Peñaloza Pabón told OBG. “We are open to foreign investment, but also have the domestic resources that grant us a degree of independence. The trick is to balance these.”
The progress of the 4G programme will be crucial for the country to improve its transport network and competitiveness. Not only will it lower transport costs as the new road connections become operational, but it will also be an essential element of a future multi-modal network, combining air, railroad, river and air transport, to more effectively move freight across Colombia.
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