Ernesto Tejeda, President, Obrainsa: Interview

Interview: Ernesto Tejeda

To what extent can construction help reverse the decline in foreign direct investment (FDI)?

ERNESTO TEJEDA: Infrastructure and construction have already played a major role in supporting FDI. Given Peru’s political stability, fiscal surplus and low debt levels over the past 20 years, the country is an attractive destination for FDI. Regulation underpins legal and judiciary security, so Peru needs to focus on reducing bureaucracy to pave the way for investment. With such a huge infrastructure deficit, the potential for mega-projects is very high. The government needs to expedite big projects, such as the Lima metro and the Sur Peruano pipeline, to regain investor confidence and establish the basis for sustainable long-term economic growth.

How effective are financing mechanisms for infrastructure projects? Can regulations be improved?

TEJEDA: Financing has not been an issue, but regulation needs to be flexible enough to adapt in the shortest time possible. In the past two years the government has been focusing on improving the execution of public-private partnerships (PPPs), creating the Office to Facilitate Investments to study each project and see how it can be improved. There is still work to be done to enhance communication between the private sector and the public institutions involved in PPPs. Nothing is perfect and the truth is that PPPs are a new mechanism, not only in Peru, but also in the rest of the world, so regulations addressing them are a work in progress.

Does the importance attached to environmental and social issues unduly hamper project development?

TEJEDA: The fact that a new term, “tramitology”, has been coined to refer to the delays in acquiring permits speaks for itself. There has to be a balance between the environment, cultural heritage and economic development. Public servants need to understand that not everything revolves around environmental and social issues – they have to be considered as parts of the project. In the past few years, tramitology has delayed many projects and stalled economic growth. The Ministry of Energy and Mines has taken an active role in reactivating big mining projects, like Tia Maria or Cerro Verde, as well as drilling operations for oil and gas. This sets a good precedent for other public organisations.

Have initiatives such as the Works for Taxes scheme been effective in promoting infrastructure?

TEJEDA: The biggest limitation is that this initiative has potential only for small or maybe medium-sized projects. However, under current regulations, the only firms able to undertake projects are large ones, and this reduces the number of interested candidates to a very small figure. There have to be promoters for these initiatives to increase the interest of firms not currently involved in the construction industry. The reality is that, although the Works for Taxes programme is a useful tool for small projects and improves the social image of companies, it is not the answer to reducing the $90bn infrastructure gap. Private initiative has the greatest potential to reduce this deficit.

What more can be done to ease the process of applying for construction licences?

TEJEDA: The problem lies with the decentralisation of the country. The municipalities, which rank third in the hierarchy, behind the central and regional governments, have been given the authority to regulate with the status of central law. This leaves too much space for the districts to interpret the legislation, and they do not have the management capacity or skills to do so. This is perilous, as it increases the risk for corruption, given that there are more than 1800 districts in the country.

To decrease the level of bureaucracy and improve the process to obtain licences, the government needs to ensure that national laws take precedence and are enforced. This is a very complex procedure, as it can be regarded as centralisation and have high political costs.

Still, it needs to be done, especially if the country stands a chance of tackling the 1.8m-unit housing deficit.