Crowding-in public and private resources can maximize development impact in Argentina´s infrastructure sector. Public-Private Partnerships (PPPs) can be a vehicle to foster greater investor participation in infrastructure projects helping governments to spend more and better, while freeing up public funds for other development purposes. PPPs, however, require an efficient risk allocation among parties that are better suited to handle and mitigate them. When correctly done, users and taxpayers can find that PPPs facilitate better infrastructure service delivery. There is a role for Multilateral Development Banks (MDBs) to assist governments in optimizing public finance instruments to de-risk projects. Last July in Hamburg, G20 finance ministers approved the Principles of Crowding-in Private Sector Finance to give MDBs a common framework for increasing private investment in support of countries’ development objectives.
Argentina is moving ahead with an ambitious infrastructure investment program, which requires fixing the enabling framework and creating instruments to combine public and private resources. Infrastructure investment was neglected over the past decades as demand continued to grow. Closing the infrastructure gap is urgent, but government coffers nowadays do not offer enough resources. So how can the backlog of critical infrastructure needs be financed? Attracting private investment can only be done with strong prospective investment opportunities, brought to market under a clear, robust legal framework, that are structured to meet the risk appetites of diverse international investors.
Not surprisingly, roads are taking the lead in Argentina’s infrastructure investment program. Roads are the primary transportation mode, carrying nearly 90 percent of total long-haul goods transported in 2015. As a key lifeline of economic activity, primary roads concentrate two thirds of total traffic volumes, facilitate trade and enable greater access to both rural and urban areas. Therefore, efficiency gains achieved in the primary road network are crucial to enhance overall transport sector performance. However, the network is constrained in terms of capacity and quality, hampering accessibility, increasing logistics costs, and hindering Argentinian products competitiveness. In fact, logistics costs in Argentina are nearly double the OECD average. To respond to sector challenges and overcome these structural limitations to growth, the Government of Argentina has adopted the National Transport Plan, envisioning about US$48 billion in investments, with a strong focus on private sector participation in transport infrastructure and logistic services. Indeed, the private sector will have a crucial role to help address the challenges in transport, bringing not only financing, but also innovation and efficiency to road asset management.
Sponsors and investors are looking with high expectation at the results of the bidding process for the first six, out of fifteen, road PPP projects launched in early February. There is more to come, as the investment program spans to transmission lines, renewable energies and other economic and social infrastructure. The World Bank Group (WBG) and the Global Infrastructure Facility are assisting the Argentinean authorities with the new institutional and legal framework, prioritization processes, business model options for road concessions that can attract a new set of investors, and providing support to the first pilot projects in contract management.
This year as the leader of the G20, Argentina has an incredible opportunity to attract investment to critical areas of the economy. The question is, will we be ready to maximize the opportunity? The PPP framework recently introduced is the first step, but we need to work quickly to build the robust system that investors are looking for. We need to make sure that as we move forward, the emphasis is placed not only on quantity but on quality of investments and infrastructure services, maximizing the potential for development finance. On this front, the WBG will continue to prioritize infrastructure governance issues, with a long-term vision for Argentina.
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