Quito — Ecuador’s Congress in March rejected and shelved a bill aimed at creating an investment law proposed by President Guillermo Lasso, and one of its chapters focused on public-private partnerships (PPPs) as an attempt to update the 2015 law that regulates such alliances.
Despite the bill’s failure to become law, the government’s Secretariat for Public-Private Partnerships and Delegated Management has not abandoned the strategy, and is currently working on mechanisms to strengthen it through legal instruments and a new portfolio of projects.
A reform to the regulations of the current law is planned via a presidential decree, as well as an updating of the portfolio of 58 projects in which private companies can participate, the value of which totals $38 billion.
The head of said Secretariat, Roberto Salas, and who is currently accompanying Lasso on his visit to Israel, spoke to Bloomberg Línea about the PPPs already in the pipeline, and others that are about to be finalized.
Bloomberg Línea: The legislature rejected the investment bill that included a chapter on PPPs, so what alternatives is the government working on to boost the use of this mechanism of investment in the country?
Roberto Salas: The bill was solid, and captured the best that has been done to date in PPP legislation to update or modernize the 2015 law. Unfortunately, Congress opted for another path, but we can’t abandon this PPP strategy, based on the premise that a bill can be shelved, but a state policy cannot be shelved.
Congress opted for a different route, but we can’t abandon this PPP strategy, based on the premise that you can shelve a bill, but you can’t shelve a state policyRoberto Salas, head of Ecuador's PPP and Delegated Management Secretariat
This policy of generating employment and improving the country’s infrastructure through the partnership of the state with private companies is gaining more and more strength, and what we are seeking is to substantially improve the regulation of the existing law via decree and achieve the objectives we have for improving the processes, to make them clearer and, above all, more efficient.
In addition, we want to increase transparency in the bidding processes to generate more confidence and also improve the structuring of contracts. For example, in the handling of disputes we want to offer more instances of conflict mediation without having to go to arbitration. We are also seeking to strengthen the rights of financiers, thus generating more confidence in the risk.
The other thing we are doing is increasing the portfolio of projects that could have more possibilities of being bankable and then executed, and that are not so complex or that generate high levels of risk for bankability. We are incorporating some highway and hospital infrastructure, for example.
Regarding the reform of the rules, is there a date for that to happen, or what is its current status?
It is quite advanced now, but it depends more on the presidency itself, but it is a matter of in the very short term.
Is there any plan to relaunch the project portfolio?
More than relaunching it, we have to update it. It was launched at the end of November, and we are in the process of validating it with the ministries involved.
Will the update be ready soon?
Yes, we are working on it, on the regulation and the publication of the updated portfolio. We have removed some projects that were not management delegation, but other types of contracts, and we have incorporated others that were not originally there, such as some highway concessions that are easier to manage. We have incorporated a more urgent project, three new hospitals to be built through PPPs. We are updating in three sectors: infrastructure, hydrocarbons and health.
Is the proposal to place tendered projects in a single portal still on the table?
Yes, we are choosing the platform for the registry of delegated management projects, which is also promoted by the United Nations and multilateral companies. We will have it available before the end of the year. In the portfolio are all the initiatives promoted by the government, while in the registry will be the projects that are coming up, and which enter a process of garnering public interest.
Although things can progress without the new law, what issues are irremediably harmed by it having been shelved?
The great benefit of the law was that, that it was a law, which provides much more legal certainty, especially to investors and financiers. The very fact that the law has not been modernized is already a major impact. There are things that can be done by regulation, and other things that cannot, one of them is the access to the PPP modality by public companies. The proposed law stipulated that access would be much more open, any public institution could have access, and this cannot be done by regulation. The approval of the law would have generated a very positive impact on the perception of country risk.
Do you believe the bill was thrown out as a political act, or was there a lack of discussion and dissemination of it?
Such bills, which are drawn up urgently, do not allow for an exhaustive discussion, but there were confusions, such as people saying that it was a privatizing law, but we managed to make it clear that the delegation of management, or public-private partnerships, have nothing to do with privatization.
In the wording of the final document, a prohibition to sell the assets to be built through PPPs was expressly included, which is reiterative because PPPs were invented precisely to avoid privatizations, but it was included in the final document, yet it was not analyzed by the legislature. There was already an agenda to not accept the government’s proposal. There were political interests that took precedence over the common interest. But we have to insist that this is the way forward, and the best way to do it is to strengthen the portfolio and improve our capacity of execution so that citizens start to feel its benefits.
There was already an agenda to not accept the government’s proposal. There were political interests that took precedence over the common interest.Roberto Salas, head of Ecuador's PPP and Delegated Management Secretariat
In the PPP model, the state remains the owner of the assets....
At the end of the contract, the new assets are always transferred to the state, and during the term of the contract that asset cannot be mortgaged or pledged as collateral because it does not belong to the private company involved in the PPP. And when it is a pre-existing asset and the company invests in it, that asset remains the property of the state, always.
Are there any PPPs in progress in Ecuador that are advancing at a good pace?
In the electricity and mining sector I see the interest of investors as intact, in fact there will be an important milestone in a few weeks with respect to three renewable energy projects that will sign investment and concession contracts for almost $500 million, and which will give a lot of confidence for what is to come. Up to the first quarter of 2023, three more projects in the energy sector for $1.8 billion will also be signed.
We are also supporting the structuring of five highway projects, and we are initiating the long-term planning of the state’s railroad model for freight, not only for passengers. We hope that this year or early next year we will be able to put it out to bid and find an operator. The other thing is that by the end of this year we plan to launch bids for three new hospitals through a PPP that will allow us to start construction next year.
All these projects are in the updated portfolio; we also expect that in the hydrocarbons sector projects will get a boost so that participation contracts expected to increase oil production, which should start to be launched in the second half of the year, can be implemented.
How did the government rethink its investment strategy?
This time that has passed has been important in order to make a create a strategy to establish a good portfolio, to prepare studies that support decisions in order to be able to launch well controlled and transparent bids.
Today there is an expectation of a much faster recovery, but in this type of initiative there are no short cuts; short cuts normally take their toll on the quality of the contracts because the necessary studies have not been carried out. The important thing is to establish processes that must be fulfilled, and that is why we think that by the end of 2023, and in 2024 and part of 2025 there will be a period of ‘harvest’, in terms of contracts being signed and work starting.
In this type of initiative there are no short cuts; short cuts normally take their toll on the quality of the contractsRoberto Salas, head of Ecuador's PPP and Delegated Management Secretariat
Are the companies that are most interested in PPPs local or foreign?
Most of them are international companies, 90% of them, because they are the ones with the technology and more financial resources, but obviously there are local companies that are their allies or their representatives here. In these projects there is a productive linkage effect, because the large international company that carries out a project subcontracts a lot to local companies.
Any names you could mention?
In the case of energy we are seeing Spanish companies such as Solarpack, and there are other companies interested in geothermal energy, for example. For the railroad there are about five firms that are interested in participating.
Why are PPPs important for Ecuador?
If you want to have better infrastructure, first-world infrastructure, or at least much better than what we have today, collaboration through partnership with the private sector under well-made contracts is necessary.
What message did the bill being shelved send to companies?
That a state policy is above a specific event and, therefore, the government has alternatives to maintain the level of confidence, the legal certainty and the capacity to execute public projects where it is inviting the private sector to get involved. The opportunities of the portfolio have been strengthened, today we have a portfolio worth $38 billion, comprising 58 projects.
There was one message that was not good, that the country needs to mature in its political culture; however, the opportunities continue, the government maintains its conviction and there are alternatives in order to offer good partnership contracts, robust enough to take the risk and take advantage of these opportunities that the country is offering.