Draft Law for the Promotion of Investment in Strategic Infrastructure for Development with Social Welfare

The Draft Law seeks to consolidate a coordinated investment model between the State and private parties, focused on long-term projects with economic and social impact, particularly in sectors such as transportation (including road and railway infrastructure), energy, water, connectivity, and urban development. In this regard, the legislative proposal aims to establish a regulatory framework for investments intended for infrastructure development with well-being; provide for the creation of vehicles to channel resources through investment, co-investment, and financing mechanisms involving public, private, and social sector participation; regulate Strategic Investment Agreements; and establish the Strategic Planning Council for Infrastructure Investment.

Within the Draft Law, we highlight the following aspects:

• It defines mixed participation schemes as mechanisms through which public entities participate, directly or indirectly, together with private or social sectors in the financing, development, and operation of strategic projects, sharing risks, costs, and benefits in accordance with the public interest and applicable legal instruments. Notably, the Draft Law establishes that State participation may be majority or minority, direct or indirect, providing significant flexibility in project structuring;
• It establishes that the determination of strategic projects and their eligibility will be carried out in accordance with the procedure set forth in the law, with the involvement of the Strategic Planning Council for Infrastructure Investment, which will issue opinions on their technical, financial, economic, environmental, and social viability, as well as participate in defining priorities for their recognition as Eligible Projects and their potential development under the investment mechanisms provided;
• It defines as mechanisms for project development: (i) Long-Term Contracting, (ii) Mixed Investment, and (iii) specific schemes provided for in other laws, such as in the energy sector, through co-investment mechanisms, partnerships, assignments, contracts, joint ventures, financial vehicles, or any other permitted modality;
• It assigns to the Ministry of Finance and Public Credit the authority to issue technical and financial guidelines, as well as to define requirements, resource limits, and oversee the budgetary impact of projects, in accordance with the applicable public finance framework;
• It provides for the use of Special Purpose Vehicles for project execution, which may be established through trusts, mandates, or commercial companies, with public, private, or social participation and subject to specialized management and external auditing mechanisms;
• It requires that projects demonstrate technical, economic, financial, environmental, and social viability through a comprehensive evaluation that includes analyses in these areas, in accordance with the criteria established in the law, as a condition for their approval and implementation, and that they comply with the applicable budgetary framework;
• It establishes that strategic investment contracts for the development of long-term public infrastructure projects shall have a term of no less than four years and no more than forty years, including extensions, allowing for the structuring of schemes for the execution, operation, and maintenance of infrastructure;
• It establishes public bidding as the general rule for awarding projects, under the principles of legality, free competition, objectivity, impartiality, transparency, and publicity, allowing participation of both domestic and foreign legal entities in accordance with applicable legislation;
• It provides mechanisms for dispute resolution in technical or economic disputes, prioritizing the use of alternative dispute resolution methods and, where appropriate, arbitration;

An important point is that, within the explanatory memorandum, financial profitability is subordinated to social profitability. This is reflected in the legal text in that project analysis must consider social, financial, and economic profitability. It appears that a project must be both economically and socially viable to be considered feasible.

From a structural perspective, the Draft Law points toward financing schemes that promote coordinated participation among the public, private, and social sectors, through mechanisms that allow resources to be channeled into strategic public infrastructure projects aimed at development with well-being.

Likewise, the Draft Law emphasizes the need to promote efficient use of public resources, strengthen the planning and evaluation of strategic infrastructure projects, and establish conditions that encourage responsible participation by private parties, within a framework that ensures proper risk allocation and the achievement of development objectives with well-being.

In terms of its market impact, the Draft Law allows private sector participation in the development of strategic infrastructure projects, particularly in sectors such as transportation, including road and railway infrastructure, under schemes that combine public and private investment, with a focus on long-term viability, institutional coordination, and the economic and social impact of the projects.

Notwithstanding the foregoing, there are issues that will require further in-depth analysis, such as State ownership of infrastructure and the para-statal nature (or lack thereof) of corporate vehicles (e.g., commercial companies) formed with the State as a partner.

Authored by Alberto de la Parra, Carlos Ramos, Miguel Angel Mateo, Rene Arce, Federico de Noriega, Carlos Sámano, and Luisa Tagle.