How IDB Invest supports infrastructure PPPs in the region

With the objective of strengthening public-private partnerships (PPPs), the IDB group organized the 9th edition of PPP Americas, a meeting on May 15 and 16 in Punta Cana, Dominican Republic.

BNamericas spoke with Jaime García Alba, director of the mixed advisory and financing services program of IDB Invest, a branch of the group's private sector, about the portfolio of services offered and its work to facilitate PPPs in Mexico, Central America and the Caribbean.

ABOUT JAIME GARCÍA ALBA

Jaime García Alba oversees the IDB Invest mixed advisory and financing program to integrate sustainability into private sector investments in Latin America and the Caribbean.

Graduated in industrial and electrical engineering from the Pontificia de Comillas University of Madrid and the École Centrale de Paris, Jaime obtained a Master of Science in industrial engineering and a postgraduate in technology management from the University of California, Berkeley.

He previously served as director of sustainability reports and private financing for sustainability in the UN Global Compact. He also worked at the IDB, where he led the development of the bank's sustainability action plan.

BNamericas: What is the general scenario IDB Invest has found regarding infrastructure PPPs in Mexico, Central America and the Caribbean?

García Alba: IDB Invest is created as an IDB spin-off, and was launched in 2016. It is focused exclusively on the private sector and with a mandate to finance infrastructure projects in Latin America and the Caribbean. Projects were identified that were already mature enough to participate with investment and attract other investors, and mobilize more private capital. Many of those projects have obviously been funded as PPPs. In parallel, we have detected opportunities that are not yet mature but that we can begin to support so that they may be at some point. That is the part my team leads, providing technical assistance and advice, trying to bring new projects or shape ones that are half-done or still do not have the necessary maturity.

Initially, we focused on energy projects because this is where private financing is most consolidated. Then, we started to expand into the transport sector, which although it is not as mature, has a strong investment component from the private sector. From there we have an agenda to develop new opportunities in other sectors such as water and sanitation, a sector that is more traditionally associated with public financing, but with giant investment needs, and finally in social infrastructure, especially education and health.

BNamericas: What are the main challenges for the implementation of infrastructure PPPs and how do you solve them?

García Alba: It has to do with whether countries have clear regulations, either in terms of acquisitions or PPPs. In less mature countries, much of the work we do focuses on regulation, creation of PPP agencies and a framework that allows the development of this type of investment. Once that is established, the next job is to generate an investment portfolio, which has a financial planning component and a technical component on the type of investments, the cost-benefit and, in the end, the decision-making process. Based on an analysis of the most efficient way to carry out a certain work, this allows us to determine if the PPP format is the most appropriate or if another perhaps makes more sense.

In more mature countries, which already have an investment portfolio and certain ideas or projects have been identified, our work has focused on seeing what these ideas lack to be bankable projects. We have different types of advice, in some cases on legal aspects - how the contract is going to be, and how the risks are distributed within the contract - and in other cases it has more to do with the financial model. We also give advice on issues of environmental and social safeguards, especially for infrastructure projects that impact the territory. Something we see in great detail are aspects of climate resilience: we want to build infrastructure that is durable and that not only responds to the current climate context but can anticipate climate variability and prepare to respond to that more long-term context.

BNamericas: Who does IDB Invest advise?

García Alba: Sometimes the interaction is with the public sector, although sometimes it is with the sponsor, and sometimes with funders. With the public sector, the advice has to do with review of terms of reference for concessions, financial models, and also a lot of support on the environmental issues because this is one reason projects are more likely to fail, not anticipating environmental and social risks. This advice comes before tender launch and often also afterwards, in the adjudication phase and the operation phase.

What we do with the private  companies or groups that are awarded concessions, for example, as part of financing negotiation, is to support them so that they understand and prepare better for the regulatory context of the country, to advance environmental and social practices to compensate for potential failures in the country's capacity to monitor these aspects.

We also work on how to refine the product once the construction stage has passed to attract financiers to the project and be able to finance it through capital markets.

BNamericas: In which countries in the region do you have a presence and how is your portfolio of projects or services shaped?

García Alba: We have a lot of open conversations and a more limited number of deeper commitments. We have conversations in Guatemala, where there is an agency for PPP promotion, on the Puerto Quetzal-Escuintla highway, and also on the airport project. We also have more vague conversations about a cable car for Guatemala City.

In Mexico, we are seeing the Maya train, and informally advising mainly regarding aspects of environmental and social safeguards that are going to be key for the project to succeed or fail. Another example that is being worked in Mexico, and we believe is essential, is the Rosalito desalination plant, where we have been active since its structuring. It is a project that is justified in a climate context, in an area where water consumption has grown a lot and access to this resource is gradually decreasing. We have helped both in the traditional part of the financial and legal structure, as well as in the logic of why this project makes sense in that specific context and in the climate scenario we are facing. We also have a role in providing investment, where we can be an anchor that gives legitimacy to the project. We have had conversations for a waste management and power generation project for Mexico City. Some of these conversations have stopped a bit but if they are carried through they would lead to a very large flagship project.

We have talks in Jamaica and Trinidad and Tobago, the most advanced countries in the context of PPP financing. In Jamaica we have a very active conversation for the creation of a special economic zone, and we are also seeing water and sanitation projects. In Trinidad and Tobago we are seeing port projects.

There are other Caribbean countries where we also see an interest in investment issues in energy projects, and also in a more sporadic way, in ports and also waste management, which is a very specific problem of the islands due to their limited territory. We have active talks in Guyana, where for the discovery of oil fields, there will be a great need to build infrastructure. Possible projects there include the construction of a bridge across the Demerara river. Barbados is planning to divide the port of Bridgetown, which currently combines cruise ship activity with commodities transport, so that tourists no longer have to pass by the containers.

BNamericas: What strategy does IDB Invest have for these regions in the short and medium term?

García Alba: In the short term, our strategy is to create good examples and for that we are identifying those projects that are quite mature but are stuck, to advise and unlock them, and then finance them successfully. That is the first step to start creating a context called a witness network and for that it is important to have success stories. Then in the medium term, we will focus on diversifying our work to other sectors, becoming more active on issues of transport and water and sanitation.