Core construction

08 May 2008

The IIRSA initiative was launched in 2000 when 12 South American presidents met for the first time in Brazilia. It has brought together the four ‘Southern Common Market’(MERCOSUR) countries ” Argentina, Brazil, Paraguay and Uruguay, and the members of the Andean Community of Nations (CAN) ” Bolivia, Colombia, Ecuador, Peru and Venezuela ” along with Chile, Guyana and Suriname, in an effort to provide the region with an integrated infrastructure base.

IIRSA, which has three core components: transport, energy and telecommunications, envisions two separate but related sets of initiatives.

In one, the concept of development axes will be used to identify regions where groups of interrelated projects would contribute to sustainable development. The other will focus on removing government red tape and streamlining the bidding and contract awards process.

The initiative is supported by three international funding organisations: the Andean Development Corporation (CAF), the

Financial Fund for the Development of the River Plate Watershed (FONPLATA), and the Inter-American Development Bank (IDB).

According to a CAF spokesperson the objective of the initiative is to “improve the competitiveness of the regional economy and its integration into the global economy, and promote sustainable socioeconomic development in these countries, especially through the modernisation and integration of their infrastructure and logistics in the transport, energy and telecommunications sectors.”

Although progress has been slow, in November 2004 the 12 countries approved a general concept for the “participation, consultation and public outreach program for the Initiative”. A portfolio of 335 projects in 10 ‘Integration and Development Hubs’(IDH) was agreed, with 31 ‘anchor projects’chosen to provide the launch pad for the initiative.

Development hubs

The hubs are the MERCOSUR ” Chile Hub, the Andean Hub, the Central intero-ceanic Hub, the Amazon Hub, the Escudo Guayanés Hub, the Perú-Brasil-Bolivia Hub, Capricorn Hub, the Southern Hub, the Paraguay-Paraná Waterway Hub and the Southern Andean Hub at an estimated cost of US$ 37.4 billion.

Mauro Marcondes-Rodrigues, IIRSA coordinator at the Inter-American Development Bank (IDB), told iC he expects US$ 11.1 billion of funding to come from the public sector; US$ 6.0 billion from the private sector and US$ 20.3 billion from Public Private Partnerships (PPP).

According to Mr Marcondes-Rodrigues the IDHs present different levels of economic and trade development. Each IDH will attend to the actual requirements ” roads, bridges, dams, ports etc. ” of the areas identified. The MERCOSUR-Chile Hub, for example, is the most consolidated Hub in the region, generating approximately 70% of South America's economic activity, according to the IDB. It includes 10 cities of more than one million inhabitants, including Santiago (Chile),

Buenos Aires (Argentina), Sao Paulo and Rio de Janeiro, (Brazil). It also includes South

America's main industrial centres, major agricultural areas and important ports on the Atlantic and Pacific Oceans.

Five of the 31 anchor projects ” three road, one rail and one energy ” are included. The road projects include expansion of Route 14 (Paso de los Libres ” Gualeguaychu, in Argentina), the Rio Branco ” Colonia Corridor (Routes 1, 11, 8, 17 and 18 in Uruguay) and reconstruction of National Route 168 in Argentina. The rail component will update connections between Los Andes (Chile) and Mendoza (Argentina), while the energy project will see expansion of the Itaipu System (hydroelectric) between Brazil and Paraguay

.

Funding of the IIRSA initiative is well underway, according to Mr Marcondes-Rodrigues. Last month (March) the IDB signed the latest agreement, a US$ 33 million loan, with Bolivia to improve its Northern Corridor Highway. The program is considered one of the key projects of the IIRSA's Peru-Brazil-Bolivia Hub.

“Discussions among member countries of IIRSA signal that Bolivia is in a strategic position, given its privileged location at the centre of the continent. The main physical regional integration routes necessarily pass through it.

“The Northern Corridor will provide interconnection between the state of Acre in Brazil and the departments of Pando in Bolivia and Madre de Dios in Peru, thereby opening up development prospects for a broad area in three countries,” said IDB team leader Rafael Acevedo.

Without jeopardising its ability to pay its international debt. (In 2003, the last year figures were available, the national debt stood at 58.5% of GDP.)

Road concessions

Brazil's 2005 budget sets aside BRL 6.5 billion (US$ 2.5 billion) for financing roads, ports and railroads, more than triple the amount budgeted last year, according to Paulo Sergio Oliveira Passos, executive secretary at the Ministry of Transport and Communications (MCT).

MCT plans to rehabilitate 17000 km of highway this year, which represents an investment of BRL 5.45 billion (US$ 2.1 billion). In 2004, the government invested approximately BRL 2.09 billion (US$ 807 million) in road conservation and rehabilitation.

However, with such an enormous debt the Government is increasingly looking to the private sector to help expand the network under PPP initiatives. To help this process the government and the IDB have created an infrastructure fund to finance projects under PPP. Called the Brazilian Infrastructure Finance Fund (BIIF) it will have an investment capital of US$ 575 million.

It is therefore no surprise that future investment is tied to concession agreements. Bidding for the second round of its federal highway concessions program, for example, will start in August with the contracts due for signing in October. However, the concessionaires will not be able to charge tolls until six months have passed from the time they take control of the highways, government news agency Agencia Brasil quoted the MCT's awards department director Fábio Duarte as saying.

“This interval is necessary because the concessionaire has the obligation to carry out works that involve recovery, restoration and widening,” he said. He added that total private investment in the eight stretches that will be put out to concession for 25 years will be more than BRL 12 billion (US$ 4.57 billion).

The highways to be put out to concession total 3039 km and are split into eight lots: BR-153 in São Paulo state (322 km); BR-116 in Paraná and Santa Catarina (407 km); BR-393 in Rio de Janeiro (201 km); BR-101 in Rio de Janeiro (321 km); BR-381 in Minas Gerais and São Paulo (562 km); BR-116 in São Paulo and Paraná (402 km); BR-116 and BR-376 in Paraná and BR-101 in Santa Catarina (368 km); and BR-101 in Espírito Santo (458 km). There are also two bridges, with an estimated cost of BRL 363 million (US$ 140 million). Some of these projects form part of the MERSOCUR Hub.

At present Brazil has more than 10000 km of highway under concessions and the market is estimated to be worth BRL 2.7 billion (US$ 1.05 billion) annually. The concessions launched this year are expected to be worth at more than BRL 7.2 billion (US$ 2.8 billion).

Hardly surprising then that here is widespread interest, both from domestic and international operators, in the operation of these concessions. Spanish companies Obrascón Huarte and Sacyr, for example, are currently competing to acquire Brazilian highway concessionaire Viaoeste. Both companies already operate several highways in Brazil, but aim at expanding their participation in this market.

Outlook

There is no doubt that the IIRSA initiative is nation building on a massive scale; the proponents of the scheme have allied themselves with the vision of Simon Bolivar in the pursuit of a United States of South America. However, opposition to the initiative from environmental campaigners, who fear the destruction of much of the regions natural habitat in pursuit of economic wealth for the few, should not be over looked.

What is certain is that investment on this scale requires joined up thinking, not only in terms of transport inter-modality but also in respect of financing. Private investment and the public purse, under the guise of PPP, and the region's lending agencies will all have their part to play if the IIRSA initiative is to be a success.

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