LatinFinance - May/June 2017 - 37

sion making.
LF: Developers and financers have
considered Peruvian PPPs to be solid
investments, due in part to RPI-CAOs. If
you transfer more financing risk to the
private sector, what changes will you
make to RPI-CAOs?
AQ: RPI-CAOs have worked well to
provide guaranteed government payments
linked to construction milestones. But if
you look at the most advanced PPP frameworks in the world, payments are based
more on performance milestones than construction milestones. Our idea is to move
progressively from the current structure
to something that includes a combination
of RPI-CAOs and other instruments. The
RPI-CAO structure really limits the size of
what we need to do with PPPs. We want to
have something that is more leveraged on
the private-sector concessionaires and, at
the same time, better aligns the incentives
for operators with what the public sector
wants.
We're not planning to do anything drastic. We will still base things on RPI-CAOs but
we'll introduce pilot projects with the new
instruments. If they catch on, we'll increase
their proportion of the project portfolio.
LF: But will it create a gap in the
financing?
AQ: It's difficult to move from construction milestones to performance milestones.
Depending on the project, they will look
very much alike.
LF: Will you introduce the new
instruments for energy projects with
long-term offtake agreements, or will
you use them for toll roads?
AQ: We'll most likely try some pilot projects for transmission lines. But we haven't
yet decided what the projects will be.
LF: Developers like RPI-CAOs because they can securitize them and
sell them in the capital markets. Peru's
pension plans, or AFPs, and insurance
companies like to buy them because
they have government guarantees.
AQ: ProInversión has a large project
pipeline. We are looking to build the sheer
volume to allow us to satisfy the appetite of
the AFPs and insurance companies, with an
additional portion with different financing
instruments. If you look at what has happened the past three years, PPP deal flow
has not been more than $1 billion per year

ÁLVARO QUIJANDRÍA
PROINVERSIÓN

"THE RPI-CAO
STRUCTURE REALLY
LIMITS THE SIZE OF
WHAT WE NEED TO DO
WITH PPPS. WE WANT
TO HAVE SOMETHING
THAT IS MORE
LEVERAGED ON THE
PRIVATE-SECTOR
CONCESSIONAIRES
AND, AT THE SAME
TIME, BETTER ALIGNS
THE INCENTIVES FOR
OPERATORS WITH
WHAT THE PUBLIC
SECTOR WANTS"

on average. We aim to have more than $4
billion in the pipeline in 2017, go above $10
billion in 2018 and then maintain the level
between $10 billion and $15 billion. If we
manage to do that, then we can develop the
market for new instruments and still satisfy
the AFPs and insurance companies.
LF: What are the main sectors for
growth?
AQ: Transportation, including roads,
ports and subways, is important. The
transportation system in Lima is important
in terms of volume. In energy, we have
transmission lines and natural gas pipelines.
Water and sanitation is a critical objective
for President Kuczynski. In telecommunications, we have some projects to expand
access to broadband internet. We also have
three hospitals for next year and a group of
schools.
LF: Are you going to concentrate
the PPP pipeline in Lima and the more
developed parts of the country, allowing
the government to spend public funds in
less developed areas, or are you going to

spread the projects around the country?
AQ: If you look at the number of projects,
most of them are outside of Lima. The largest ones, other than the gas pipeline, are
part of the metro system in Lima and the
surrounding areas. We need to develop two
more metro lines, which involve more than
$12 billion in investments. The government
also plans to develop the tren de cercanías,
which is basically a suburban railway system that will go 300 kilometers south and
300 kilometers north of Lima.
LF: How do you balance the two? As
you ask the private sector to take on
more financing risk, you are also asking it to invest in less developed areas,
where people have less money.
AQ: Let me give you an example. Apurímac is one of the poorest regions in Peru
but it is also home to one of the largest
copper mines, Las Bambas, and another
three or four projects that are being developed. If you take the road to the ports in
Arequipa, which is also one of the poorer
regions in the country, you will see a long
line of trucks. That demand itself will serve
to finance the roads that these two regions
require.
In some areas, there might be the need
for cross-subsidies. In other areas, there
might even be a need for direct subsidies,
such as water treatment and sanitation
projects in poorer areas. Those projects will
need to be financed directly by the central
government.
LF: ProInversión will retender the
GSP concession, due to the Odebrecht
corruption scandal. When you discuss
Peru's PPP pipeline with developers
and investors, what kind of reaction do
you get? Are they enthusiastic or are
they skeptical?
AQ: They have questions about how
many PPPs will go to tender. We're sure it
can be done. The system hasn't been paralyzed by the corruption scandal. It's critical
to ensure that there are more anti-corruption measures, more transparency and that
the companies involved in corruption are
not going to be involved anymore. At ProInversión, we have created an internal unit
called the Office for Integrity, Transparency
and Corruption Prevention. It will basically mirror what the multilateral financing
institutions do to prevent corruption. We
are following the same model to assure
everyone that we are handling everything
correctly. LF

May/June 2017 - L ATINFINA NCE.COM 37
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