Urdaneta Holguín, Colombia, South America
Bill Barton has kindly tasked me with writing a brief article for this newsletter on the construction business perspective from Colombia. As any Colombian, I’m very much aware of the bad press we get in mainstream media as a rule, but I posit that such exposure masks a large, stable economy, open to reliable dispute settlement mechanism such as international arbitration, and a comparatively unregulated and thus competitive construction industry.
Colombia is a civil law country, and except for a brief intermission from 1953 to 57, has held elections periodically since it became independent from Spain in 1819. This makes it a democracy older and more continuous than Germany, France, or any in Latin America, including Chile, to mention a few.
Inflation has been in check for some forty years, currency devaluation moves broadly in tandem with inflation, and with the exception of COVID induced negative growth last year and three quarters of negative growth in 1999, it’s had an ever expanding economy for over 70 years. 2021 growth is projected at 4.8% and for 2022 at 3.8%. GDP hovers around USD$300 billion. The national government budget around USD$90 billion.
Vaccination is proceeding apace, but we’re going through an extended “fourth peak” of contagion due to multitudinous demonstrations last month, sparked by a tax increase bill introduced by the government. Such protests, promoted by opposition parties and on which piggyback all sorts of vested interests, from disgruntled unemployed youth to cocoa growers, are likely to flare up again before the next elections take place in May and June of next year. They are, much like the Yellow Vest protesters in France, mostly aimless and bound to fizzle out. As a result of protests, the tax reform bill was withdrawn and therefore the country’s credit rating was downgraded just below investment grade by S&P, with Fitch and Moody’s maintaining investment grade so far. Public debt, which spiraled with COVID, remains comfortable if compared to any European market, at 64.8% of GDP.
Total territory is 1.1 million square kms. The western half of the country, where most modern economic activity takes place (except for oil extraction), is highly mountainous, yet we have few tunnels, and obsolete single carriageway two lane roads linked to modern double carriageway highways in the valleys in between. There’s no national railway system, only isolated regional operations.
There are two main government sources of contracts: the national government and large cities. At the national level, most projects are channeled through the Agencia Nacional de Infraestructura (ANI: www.ani.gov.co) although there are there are several other agencies developing projects, as well as state-owned oil, pipeline and energy transport companies with large investment budgets.
Corruption is not unheard of (most notoriously on a large highway project being developed by Odebrecht a few years back, who had contributed illegally to previous President Santos’ campaign financing), but it is by no means the rule.
Most national level infrastructure is privatised: roads, ports, airports, electricity generation… New projects are structured as PPPs in competitive bids, in waves of contracts called “generations”. The government is still putting out fourth generation (4G) contracts and beginning to roll out some 5G ones. Some USD$8 billion has been invested in 4G already, in 22 road PPPs out of some 40 contemplated, amounting to 8000km of roads, of which 1370 are double carriageway, with some 160 tunnels. Some USD$5.5billion is contemplated for a first wave of 5G, which includes some previous generation PPPs that have gone awry (like the Odebrecht highway).
All share the same project finance structure: after the contract is awarded, some time is allowed for a financial closing of the project, based on income generated by the project itself, some contributions from the national budget, and contractor’s equity. As with 4G no government contribution is contemplated for contractors until the PPP enters into operation. Local financing has been obtained for up to 18 year terms. 4G and 5G’s main differences relate to community involvement and environmental commitments. Minimum income guarantees are contemplated. Bidding requires large consortia with financing capacity, and can be structured in many different ways, on a case by case basis. It usually involves local banks (for which a strong local partner is usually required), multilateral institutions, bond issuance, equity and government guarantees and/or actual resources.
If not interested in the tender process, it is possible to keep abreast of PPPs awarded to come in as a sub-contractor. Added value is a key issue, as there are multiple local suppliers of most standard civil engineering inputs (think specialised equipment or processes, such as tunnel boring machines).
At the local level, Colombia’s population is pretty distributed among some large cities: Bogotá (some 8M within city limits and 11M in the extended urban area), Medellín (some 2M and 4M), Cali (2.4M), Barranquilla (1.4M and 2.3M) and Bucaramanga (600k and 1.4M), with the rest of the population of some 50M spread out in smaller towns and about 18% still rural.
Of those cities only Medellín has a mass rapid transit system (elevated). Bogotá awarded a contract for a first 27 kms elevated line only recently, due 2028, to a Chinese company. Chinese presence in the country, though, is still rare.
 Colombia is a party to the New York Convention of 1959 among other award recognition instruments, and foreign awards are routinely recognized by the Colombian Supreme Court.
 Regulated by laws 1508 of 2012 and 1882 of 2018.
These are the views of the author and not of Barton Legal, and should is not to be treated as advice or guidance