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TEXT-Fitch: Colombia's infrastructure concessions must attract investors
September 17, 2012 / 4:42 PM / 5 years ago

TEXT-Fitch: Colombia's infrastructure concessions must attract investors

Sept 17 - Colombia's $40 trillion COP infrastructure concessions, scheduled
to be announced Sept. 19, set the stage to increase the country's economic
growth potential if they are designed to attract institutional capital,
according to Fitch Ratings.  

'The government has to connect the dots. Supportive legal framework, 
well-designed concession contracts and auction processes, and financing that 
addresses risks and mitigants have to be aligned in a way that matches the 
demand with sophisticated capital,' said Maria Paula Moreno, Director of Global 
Infrastructure Group at Fitch.  

Fitch expects the concessions to be supported by Law No. 1508 of 2012 (PPP), the
Colombian public private partnership law passed in January 2012, which is 
designed to draw the required capital and experience.

PPP broadens the scope of qualifying projects and adds new elements meant to 
provide greater project assurance including availability payments, financial 
equilibrium assertion, enforceability of security interests, and outstanding 
payment security for lenders. 

Increased investment in Colombia's transport infrastructure could reinforce the 
country's positive investment cycle and enhance economic growth over the medium 
term. That higher growth trajectory could benefit fiscal accounts and reduce the
gap between Colombia and 'BBB' Fitch rated sovereigns in terms of per capita 
GDP.

Modern infrastructure could enable Colombia to take full advantage of its 
improving global trade relations, which could translate into higher growth and 
momentum for exports, especially those in non-commodity sectors. Colombia's 
exports have room for growth because the country's economy is relatively closed 
in comparison to 'BBB' peers.

Concession contracts should establish a clear compensation framework that aligns
interests. Considering the long-term, complicated nature of these transactions, 
sponsors' compensation should not be entirely dependent on service levels in 
order to avoid the perverse incentive to abandon projects falling short of 
requirements in order to collect termination fees.(New York Ratings Team)

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