PPP: An unrealised resource for national highway development

Carlos Camacho and Carlos Ubico of Arias & Muñoz in Costa Rica look at the possibilities for using PPPs for transport infrastructure

Costa Rican highway development situation

It is time for Costa Rica to develop a public-private partnerships (PPPs) program as an essential and necessary tool for both rescuing the national road network and building up other essential areas of infrastructure and related services. In Costa Rica, the lack of support for enacting public policies on PPPs has slowed down infrastructure construction, resulting in constant traffic jams whose real victims are road users and the environment.

This huge infrastructure backlog has built up because of several factors, such as the lack of: enforcement capacity, coordination, resources, and trained experts in planning and executing road works and infrastructure projects. Thus, this indicates that the government needs to seek the support of professionals experienced in design development and in the construction works industry. Therefore, this is a good time to push both for developing very important infrastructure projects and for improving the existing PPP legal framework.

Economic situation of the country and infrastructure investment

Costa Rica’s external debt not only aggravates the fiscal deficit, but also poses a threat to infrastructure investment. Which leads us to the next question. Can the Government, with its existing funding mechanisms, respond to our national road network’s impairments and needs? The answer is no! International funding is no longer a viable option for solving this situation nor is there a budget for undertaking the infrastructure backlog; therefore, we choose to seek the private sector’s help and use the PPP model.

An introduction to PPPs

Through PPPs, it is possible to develop projects expeditiously because the private sector partners with Government and responsibilities are properly distributed between the two sectors. In those project cases in which PPP is possible, the state sets the project’s guidelines and private enterprise handles the design, construction, operation, and financing. Consequently, and importantly, the PPP model helps the country become an attractive investment location.

PPP´s implementation mechanism

If we want to implement PPPs successfully, the public sector should have a clear understanding of the private sector’s needs and possess a sound knowledge of contract development. In addition, success requires setting up proper internal procedures and having both the necessary human and technical resources to plan and implement projects.

Nevertheless, not all infrastructure projects can be undertaken through partnerships. But, by creating a public policy, the state can demonstrate its political commitment to both the program and its processes and responsibilities and the policies governing the various projects. In addition, the project must be bankable and meet the state’s objectives and policies. The government should analyse the most urgent projects and determine whether it could execute them with the private sector’s help.

When we refer to a bankable project not only must we consider the economic aspect, but also the various social benefits achievable through partnerships.

Costa Rica’s National Road network and its relationship with PPPs

The Government should take the necessary measures to meet Costa Rica’s road infrastructure needs, and a PPP represents the most effective mechanism for achieving this objective. Moreover, the Government’s intentions to improve the infrastructure must be translated into action.

Therefore, it is important to ask if the PPPs’ real problem is solely because of the current legal framework that hinders innovative PPP projects from moving forward or whether there are other reasons that render the Government unable to respond and cooperate. The answer to these two questions is yes. Although, Costa Rica has a soft legal environment within which to regulate PPP models, the existing model could still work if it were not for excessive government bureaucracy and tender process errors.

PPP's Legal framework in Costa Rica

Because Costa Rica already has an existing legal framework for building infrastructure projects – in addition to road infrastructure – such as airport infrastructure, port development, and water supply systems projects, among others, the government, by applying the PPP model, could provide a much-improved and quality public service.

Examples of current infrastructure built and financed under this model have been listed, and the numbers are steadily growing. They include: the José Maria Castro Madriz Route 27 highway, the Daniel Oduber Airport, the Sardinal water pipeline, the Moin Container Terminal (TCM), and the major Pacific port, Puerto Caldera.

The PPP model originated out of and is governed by several laws that are embodied in: the Law on Concession of Public Works with Public Service Law No. 7762 and its regulations; the Regulation for Private Initiative Public Works Projects concession; or the concession of Public Works with Public Service No. 31836. But other standards for more specific areas are also used to regulate PPPs, such as: the Urban Planning law, No. 4240 article 38, and also a supplementary regulatory body, the Public Procurement Law No. 7494 and its regulation.

Unfortunately, the applicable laws are insufficient both for regulating all the PPP characteristics and their objectives and for utilising all the benefits of modern public-private Collaboration. PPP Projects in Costa Rica would be boosted if the country had the appropriate legal environment in place in other areas such as urban development, energy and utilities, water supply, and environmental development.

Legislative commentary and conclusion

Overall, for Costa Rica to improve and further build the national roads network, airports, ports, and any other infrastructure works, our country needs to partner with the private sector. Additionally, for the country’s future economic development, Costa Rica must first provide a general law to regulate the PPP model if the Government intends to stimulate infrastructure projects.

The Public-Private Associations’ by-law, that is in process and awaiting approval, will provide a legal certainty and strengthen the basic principles of public bidding by regulating all PPP proposals. The general law’s mechanism would produce positive effects for projects between the public and private sector, such as coordination, access, and cooperation, and would also help to attract future investment schemes and opportunities.

Carlos Camacho

Junior partner

Arias & Muñoz

San Jose

Carlos Ubico

Junior Partner

Arias & Muñoz

San Jose