Philippi Prietocarrizosa Ferrero DU & Uría partner Ronald Fernández-Dávila speaks with Rani Mehta about advising on Lima Metro Line 3 in Peru and trends in the country's energy and infrastructure markets

How did you win this mandate?

The government issued a request for a proposal for a consultant. A consortium was hired to advise the government on this matter, and such consortium requested our help to deal with legal matters. 

Were you involved in the previous two Lima Metro lines?

Yes, we have. We worked with a consortium for Line 1 of the Lima Metro and have been working with them for a couple years regarding day-to-day activities, financing, and other matters. We were involved in the bid for Line 2, but our client did not submit a bid. 

Did the previous lines establish a precedent for this type of transaction, or were you working from scratch? 

Line 1 was structured differently than Line 2. For Line 1, the government originally planned to have a concession for the construction and operation of the line, but at the time, under the conditions offered
by the government, no bids were submitted. The government then decided to build Line 1 as public works, instead of a concession. A concession was later granted for the operation of Line 1 and to provide rolling stock. In Line 2, the bidding was for the design and construction of the Line, as well as the provision of rolling stock.

In Line 3, the structure is something similar to Line 2. This project will not start from scratch, as much experience from Line 2 will be used. It will be important to have the opinion of all the parties involved and all the stakeholders involved in Line 2, not only the bidders, but also the banks that financed the project and the government in order to use the best experience from Line 2 and avoid repeating what did not work.

What can be improved on this time?

The project should be awarded in 2018, so we’re still in the early stages. The consultant is more dedicated now to the technical aspects and the feasibility of the project. Of course there are several things that can be improved, and it’s clear that the delivery of the land is one of the main issues because the concessionaire needs to have security that they will get land in the right moment to build the project and develop it as planned. We will also have to work on how the co-financing will be paid by the government taking into account the government’s budget capabilities.

What is the most challenging aspect of this transaction?

I think the most challenging aspect whenever you are dealing with a concession of a project and counseling a consortium who is on the side of the government is balancing the requirements of the private sector and the possibilities that the government has to create a successful project. You need to understand what the government can offer and the risks the private sector can take. The biggest challenge is to balance the interests of all stakeholders and reflect them in one concession agreement.

Do you correspond with the firm's other offices for project deals like these?

Yes. We also have offices in Santiago and Bogotá, as well as a strong relationship with our partner Uría Menéndez, and we interact a lot with all the offices. We have conversations, conference calls, and when
we have big projects we use experience from the other jurisdictions. 

The countries have developed different projects in different moments. There are 4G projects in Colombia, and the experience in Chile with airports expansions.

What trends have you noticed in the energy and infrastructure sectors?

Right now, we are in a transition period regarding the projects and infrastructure in Peru. We have had several changes, several legal changes, in structure and in how these projects are going to be developed.

The gap of infrastructure in Peru is very significant, so the government is trying to push for new projects and new concessions, as well as looking for new players investing in Peru. So in the next semester of this year, I think we’ll start to see new projects coming out and new faces in infrastructure. Also the process of reconstruction due to the heavy rains and floods that the country has suffered will be an opportunity to develop infrastructure, to rebuild highways, and to develop 

What trends have you noticed in the mining sector?

The last years haven’t been great for the mining sector. However, it looks like it’s recovering, and it seems the next few years will be better for the sector. Peru is based a lot on commodities, so mining is a very important sector. I hope we will see projects in Peru that have been stagnated for the last couple years be active again.

If you could amend one national law which relates to project development, what would it be?

I’m not so keen about changing more laws. I think we have a pretty solid framework regarding infrastructure and energy. I would prefer to start implementing the laws we have so we can make the energy and infrastructure changes be real and start going ahead with more infrastructure projects. I wouldn’t make more changes - I would work with the regulations we have.


Lima Metro Line 3

This deal record is from IFLR1000 Deal Data.