Colombia - Private Sector Infrastructure Project

Report No. PIC2950 Project Name Colombia-Private Sector Infrastructure Project Region Latin America and The Caribbean Sector Infrastructure Project ID COPA35739 Borrower Republic of Colombia Beneficiaries Ministry of Finance and Public Credit (MOF) National Department of Planning (DNP) Banco de Comercio Exterior de Colombia (Bancoldex) Bank Financing Proposed US$300 million Financing Plan Not yet determined. Tentative cofinancing interest from CAF, IDB, JEXIM. Private sector financing may also be forthcoming Appraisal Date (Tentative) May 1996 Board Date (Tentative) November 1996 A. Background 1. Prior to 1989, the public sector was the primary provider of infrastructure (which includes highways, utilities, and gas transportation and distribution). The high costs and low quality of services provided by these entities had been a bottleneck for private sector development and economic growth. Infrastructure limitations had prevented enterprises from transporting goods to export markets at the expense of economic growth, as well as raising input costs. Since then, monopolies in shipping, railways, airlines, ports and agricultural marketing have been eliminated by allowing private sector entry, or by reorganizing or liquidating public monopolies. In addition, initiatives to establish appropriate frameworks in the power and natural gas sectors and to open these to private sector participation are in process. 2. With the deregulation programs underway, the role of Government (national, departmental and municipal) is shifting from a direct provider to a regulator of services provided increasingly by the private sector. However, large parts of Colombia+s infrastructure remain in public hands, including through state-owned energy and telecommunications companies, and municipality owned utilities. 3. The Government has established ambitious goals for the development of physical infrastructure in its program for the four year period from 1994 to 1998 (+El Plan de Desarrollo+). This development covers principally the power, petroleum, transport, gas, telecommunications and water sectors. The program gives a significant emphasis to private sector participation in the infrastructure projects to be developed. Of the US$32 billion programmed, the private sector is expected to finance over US$13 billion (including over US$5 billion in petroleum-related activities). This private sector participation is expected to occur within a variety of frameworks of project financing, including a large  role for concession schemes. (The whole process will be referred to as the concessions process). 4. While the regulatory and institutional framework for private participation in infrastructure is being completed, the Government has been using individual concession contracts with private investors. Initiated under the previous Government, concessions have succeeded in launching projects in a number of vital sectors, such as toll roads, ports, gas pipelines and power generation projects. Concession agreements have provided flexibility and speed to the program. However, a number of opportunities for improvement were identified, particularly in the management and allocation of risks and aspects of the design and implementation of the regulatory framework for concessions. In order to ensure the success and quality of the infrastructure program, as well as to encourage private sector interest in investing in infrastructure projects, the Government has undertaken a fundamental review of the concession process. 5. The review was recently approved by the CONPES (