New construction law supports greater foreign participation in Argentina

With the goal of improving domestic quality of life and increasing the competitiveness of production, Argentina’s government is working to boost infrastructure, with plans to attract $26.5bn in public-private partnership (PPP) investment over the 2018-22 period to support inclusive development. As part of these efforts, the authorities introduced the PPP Contracts Law, No. 27328, in November 2016. The two previous attempts to introduce such a bill were not fruitful: in the 1990s the market was completely liberalised, which was harmful for local players. Driven by President Mauricio Macri’s centre-right government, Argentina now has a more inclusive regulatory framework with this law.

The Secretariat of PPPs was subsequently established in 2017, operating under the Ministry of Finance, to oversee an anticipated 60 projects in energy, mining, transport, communications, technology, water, sanitation and housing in the coming years. The federal PPP scheme aims to motivate local, provincial and municipal governments to adopt similar initiatives.

Road Development

The Federal Road Plan (Plan Vial Federal, PVF) is the government’s $35bn, three-stage initiative to improve road transport over the 2015-27 period. The project entails $35bn of investment for the construction of 7500 km and revitalisation of 13,000 km of roads and highways. The first stage, which received bids and commenced construction in early 2018, is a 15-year, $8.06bn contract to build 2560 km of roads. The second stage began in July 2018, and the final segment was set to receive bids in September 2018, with implementation scheduled for the following month. The first five years of the PVF should see the completion of 7300 km of routes.

As such sums of money are not available in the local market, international private investment will be necessary to meet these goals. Following an extended period for technical bids for road construction and refurbishment due to high demand, in April 2018, $6bn in contracts were granted to 10 consortia – composed of 19 domestic and seven international companies – for the PVF in the 2018-22 period. The significant interest in these works should help the country capitalise on both international and local skills.

Challenges

This first round of road construction tenders demonstrates international interest and has created a frame of reference for prospective PPPs, but the system is still in its early stages of development. “The business community needs better channels of communication to ensure the correct implementation of PPP projects,” Gonzalo Monarca, CEO of local real-estate developer Grupo Monarca, told OBG. “Although the regulatory framework is in place, Argentina needs to see more examples of successful PPP projects to attract more private sector investment.” In support of efforts to regain the confidence of foreign financiers, the PPP law does not allow the government to break contracts without legally valid grounds, with disputes to be settled by technical boards or through international arbitration, bypassing the overloaded local courts.

While the local PPP framework was built based on other successful regulations in the region, securing financing remains comparatively difficult. Argentina does not have the same local investor base that neighbours such as Peru have, making it much more dependent on international financiers. While the country’s reputation has improved radically since the $100bn national debt default in 2001, many foreign players remain hesitant to make large capital outlays.

Considering the state’s fiscal consolidation agenda, PPPs will be vital to the completion of public works. Having only re-entered international capital markets in 2016, the country must guarantee to private investors that PPP rules will endure regardless of future administrations. In any case, this new commitment is a step towards more market-friendly infrastructure development. The PPP plans of President Macri’s government aim to fulfil its ambitious construction agenda, which should support expansion throughout the economy.