Gabriel Goldschmidt and Alejandro Silva from the International Finance Corporation (IFC) speak with Christopher Cooper about their activity in Latin America
A refined energy sector is on the agenda for much of Latin America. In December, the IFC was part of a group that invested nearly $400 million into Colombia’s energy sector. How does this type of transaction fit in the institution’s regional strategy?
GG: This $380 million investment in Colombia is related to a core terminal that is a liquids terminal for export and import of oil and derivatives. The transactions fits our regional strategy because it is related to the overall infrastructure strategy aimed at removing impediments for growth and reducing logistics problems. That’s the main driver of the infrastructure strategy in general but it is particularly true for transport infrastructure. So, this port terminal serves those two strategic aims. Most of the transport projects in Latin America fit the strategy of removing logistic problems. Other investments in the port sector largely relate to container terminals and in most cases multipurpose terminals in countries such as Brazil, Mexico, Peru and Colombia. They relate to investments in the airport sector and investments related to facilitating the movements of goods and services.
One gets the impression that you and your colleagues have made financing energy and infrastructure projects in the region a top priority.
As a development institution, growth and the twin goals of the World Bank, which are eliminating extreme poverty and boosting shared prosperity are directly related to the availability and quality of infrastructure. Therefore, investing in energy-related infrastructure is critical for countries to ensure sustainable growth, which is fundamental to eliminating poverty and boosting shared prosperity.
Which country in the region do you think is most dedicated to financing energy and infrastructure?
It depends on the opportunities that arise. As you know, the IFC focuses on the private sector, so we basically benefit from what others develop in terms of project preparation and then we look at the opportunities in the context of our strategy. We are very much takers when it comes to investment opportunities. In Mexico, in line with the energy reform, clearly private participation in the energy space is something that is now more broadly open than it was in the past and will clearly provide interesting opportunities. This is also an area we are keen to support. Most countries have a need to catch-up, so there is no particular country where we are trying to do something that is not doable. But, every country needs to push the envelope. It’s important to remember that the IFC finances private sector activity and there is more to infrastructure investments than the private sector’s activities. So, countries have choices between private and public sector investments and they do exercise those choices. Ultimately, what matters from the perspective of a development institution is that more and better infrastructure is on the ground the more that population benefits from its direct and indirect impact. So, that’s what really matters.
What are the most challenging aspects of developing Latin America’s energy and infrastructure market?
The challenges relate to the ability to generate projects that attract private sector investments. It is clear that the region needs to invest more in infrastructure than what it is currently investing. The key question as countries look at this challenge is, “What is the ability of the local or international private sectors to generate attractive opportunities for investments that are aligned with countries’ national strategies?” This is what I think is the most important challenge.
You’ve spent quite some time at the IFC dealing with infrastructure development in Latin America and the Caribbean. How has the region evolved?
The quality and quantity of opportunities available today to investors in Latin America’s energy and infrastructure is significantly better than what it was a decade ago. This is because of a number of factors including regulatory changes and technological advances. For example, Mexico undertook regulatory reforms to welcome private investors in its energy and infrasturcure sectors. On the other hand, technology changes, particularly in the area of renewable energy and in the oil and gas sector, have allowed the region to be more up-to-date. Technology advancement in the oil and gas sector has improved the potential that shale has to develop. So, the quality and quantity and breadth of opportunities today is significantly larger than it was 10 years ago.
What do you see happening in Latin America in the next five years? What do you hope to accomplish?
The big item on the agenda for the next five years for infrastructure and energy in Latin America is the incorporation of additional sources of private capital to finance energy and infrastructure projects. So, clearly every single country in the region needs to invest more in infrastructure than it is clearly doing, but for that to happen we need a confluence of more and better projects to address those needs as well as additional sources of capital. This is not to say that sources of capital do not exist, but they may not be geared to financing current infrastructure. So, the big challenge for the region is how to create the mechanisms, instruments and the ways in which more capital can contribute to financing infrastructure investments. There is some work that has already been undertaken to overcome this challenge. It will be a continuous effort that will go way beyond the five-year mark. The work has started and I am hopeful based on what is already being done on the ground with a number of countries seeing the need and benefit to develop infrastructure. That gives me hope.
What regulatory challenges does the IFC face when doing business in Latin America?
AS: We operate as any private investor, so we face the same regulatory framework and challenges as private investors. Regulators and their advisors across the region have become much more sophisticated than 10 or 15 years ago and, therefore, the regulatory frameworks and, in particular, the communication between regulators and investors, have improved significantly. Naturally, each country’s regulatory framework brings its own specific issues regarding structuring projects and investments. Environmental permitting, which is key in aligning our investments with our performance standards, is a major issue in the context of infrastructure projects, as generally there are a multiplicity of national and local agencies involved in the permitting process, with overlapping jurisdiction and permitting powers. To take a broader perspective, stability of the regulatory framework is always a key question which, depending on the relevant jurisdiction, may be more or less challenging. The risk of regulatory change sometimes is a bigger concern than the rigour or contents of the regulations per se.
Does the Latin American legal market meet your expectations in terms of depth, specialisation, projects expertise and delivery?
The legal market in the region has made significant progress on all of these fronts. It is relatively easy to find good, responsive and experienced lawyers practicing in many markets in the region. While 20 years ago firms prided themselves on having a small cadre of lawyers that had studied and/or worked abroad, the availability of lawyers with international training is now the norm in almost all the markets in which we operate. We are generally satisfied with the depth and delivery of our law firm partners in the region.
Do you rely on global or local counsel, or some combination thereof?
We have local counsel in all of our deals; they are an essential link in the legal risk management function. We would not do a transaction without the involvement of local counsel. We bring international counsel to transactions where we feel we need this additional support, as determined on a case by case basis. For example, on a limited recourse project finance transaction, with its typical extensive project and financing documents, we may involve global counsel to benefit from their experience and resources in handling massive projects. For some small and medium size projects we have used local counsel only, but with a broader scope of work; the additional responsibilities may include assistance with preparation of transactional documentation or running the whole transaction from term sheet to closing. In certain markets we see a blurring of the distinction between international and local counsel and we suspect this will continue now that more international firms are opening offices in the region’s main markets.
Senior manager for infrastructure in Latin American and the Caribbean
International Finance Corporation
Gabriel Goldschmidt is the IFC’s head of infrastructure in Latin America and the Caribbean. He joined in 1993 initially focusing on global infrastructure. Since 2007, he has been expanding the IFC’s support for infrastructure projects in Latin America and the Caribbean, first based in Brazil, and since 2010 in Washington DC. He is a member of the IFC global infrastructure and natural resources management team. Prior to joining the IFC, Mr Goldschmidt was deputy treasurer at Banque La Henin, a real estate specialised bank in Paris. Mr Goldschmidt holds a CPA from the University of Buenos Aires, a masters in economics from the University of Paris and an MBA from the Wharton School at the University of Pennsylvania.
Chief counsel for Latin America and the Caribbean
International Finance Corporation
Alejandro Silva is the IFC’s chief counsel and head of the legal department for Latin America and the Caribbean based in Washington DC. He worked at the IFC from 1994 to 1996 on power projects in Asia and the Latin America region. He returned in 2003, supporting debt and equity investments in a wide array of sectors and countries in Latin America and the Caribbean. In 2006 he moved to his native Bogotá as leader of the IFC’s legal team in the Andean Region, and was appointed to his current position in 2010. He is a member of the management teams of the Latin America and the Caribbean and Legal departments at the IFC. Mr Silva was managing partner of Silva & Piñeros Abogados in Colombia from 1997 to 2001 and counsel at the project finance practice of Chadbourne & Parke from 2001 to 2003. Mr Silva holds law degrees from Universidad del Rosario and Universidad de los Andes in Colombia.