Latin America infrastructure outlook for 2018


Financier Worldwide Magazine

May 2018 Issue

FW moderates a discussion on the outlook for Latin America infrastructure between André Luiz Freire at Demarest Advogados and Vera De Brito de Gyarfas at King & Spalding.

FW: In your opinion, how robust is infrastructure development activity across Latin America? What major projects are underway or at the planning stage?

Freire: It is difficult to ascertain how robust infrastructure development is across Latin America. However, as far as Brazil is concerned, development is low. I would suspect the same in the rest of Latin America as Latin American countries are very similar. In Brazil, for example, the volume of investment in infrastructure is lower than 5.5 percent of our gross domestic product (GDP). From 2001 to 2014, average investment was 2.18 percent. In 2016, it was 1.7 percent. On the flipside, because of this huge gap, there are many opportunities in this area. In Brazil, the federal government has announced a series of projects to be implemented this year, with railroad and energy projects among the biggest.

de Gyarfas: Investment in infrastructure in Latin America has been stagnant since 2014, thanks to the decline in commodity prices. The Economic Commission for Latin America and the Caribbean (ECLAC) estimated that during the period 2012-2020 the region needs to invest 6.2 percent of its annual GDP into infrastructure projects, however the major economies of the region are falling short of this and are investing less than 3 percent. Estimates for 2018 seem much better, however, given the improvement in commodity prices and the political changes in the region which favour pro-investment legislation, particularly in Argentina, Brazil, Peru and Chile. Peru’s reconstruction policy to rebuild the north coast which was destroyed by floods a year ago is one such example. The plan involves the construction of roads, and potable water and sewage systems. Brazil’s infrastructure project ‘Crescer’, which involves port terminals, highways and railways, is being funded through public-private partnerships (PPPs), as is Argentina’s programme to develop motorways.

FW: In your opinion, which Latin American countries are offering attractive infrastructure opportunities? What strategies are companies and governments adopting to finance projects in the current economic environment?

de Gyarfas: Given the political shift to the right in the region, governments are establishing legal and regulatory changes which will allow private participation in infrastructure projects. Argentina enacted its PPP law in November 2016, establishing conditions to promote private investment in infrastructure projects that would have previously been undertaken by the state. The Argentine PPP law includes provisions that limit the state’s prerogatives under public law. For example, they limit the state’s right to unilaterally terminate a contract, protect private investors and favour financing, including economic equilibrium provisions, compensation in foreign currency, step-in-rights for lenders and the establishment of guarantees on state revenues.

Freire: In my opinion, Brazil is, because of its size, an attractive option for infrastructure investment. One of the strategies that the federal government and local governments are using to attract investors is to mitigate currency risk. In railroads projects in particular, but also in energy and road projects, this is a major risk. A good mechanism to mitigate risk is one of the keys to a successful project in Brazil.

Most Latin America countries have reduced barriers to foreign investment in infrastructure.
— Vera De Brito de Gyarfas

FW: Have any infrastructure projects had a particular economic, societal and environmental impact over the past 12 months? What lessons can be learned from how these projects were developed and delivered?

Freire: 2017 was an interesting year in Brazil. We had an impeachment process and a huge political crisis. Because of these issues, no significant projects were undertaken. That said, projects such as Belo Monte always present challenges. In Brazil, there is increasing intervention by oversight bodies on concession agreements. These control bodies demand more detail from our agencies during the modelling phase of projects. On the one hand, this is good, because we are planning better. On the other, we need to find equilibrium, because projects are taking more time to be implemented by government.

de Gyarfas: The development of renewable sources of energy in Uruguay can be described as a success story. Because Uruguay does not have hydrocarbons and had to import approximately 15 percent of its energy requirements, the government decided to limit the impact of the variation in petroleum prices and carry out an extensive programme to develop renewable energy under financing by entities such as EXIM and OPIC. The key was government planning and clear rules. In 2010, Uruguay implemented its national energy policy, aimed at reducing its dependence on fossil fuels. Through contracts awarded through tenders with UTE, the state utility, private entities are assured of a minimum return and fiscal incentives, tax credits and exemptions from value-added tax on the import of wind turbines and other accessories. The result is that currently between 97 percent and 100 percent of electricity comes from renewable sources, compared to 40 percent in 2012.

FW: Do Latin American jurisdictions present any specific due diligence and risk management challenges?

de Gyarfas: The greatest obstacles to the development of infrastructure projects in Latin America are the lack of planning, corruption and the renegotiation of contracts. The substantial legal instability of certain jurisdictions makes it difficult to have master plans which are maintained in time, therefore certain projects are awarded and then the opposition to the government questions their award and often projects are suspended for political reasons and a lack of long-term planning. This has recently occurred in Peru with respect to the award of the tender for the construction of a new major airport. Furthermore, Latin American countries do not generally establish a needs assessment prior to the tender, only Colombia does, nor do they monitor or report on the implementation of PPPs or on the results. Therefore, it is difficult to argue the benefits of these projects when they are attacked by different political actors based on political interests only.

Freire: In Brazil, it is important to understand that, as far as public agreements are concerned, especially concessions, public agencies have the power to change them, at any time, in the public interest. This is part of Brazilian tradition in contracts. The important thing here is to analyse the contract and understand properly all the clauses related to economic considerations. This is a right that comes from our Constitution, but the contract has to regulate it. Besides, it is very important to understand the risks related to environmental licences, which is always a problem in Brazil.

FW: How do legal and regulatory frameworks in Latin American jurisdictions affect infrastructure investment and development? What restrictions may apply to foreign parties looking to participate in projects, for example?

Freire: One of the major problems in Brazil is related to environmental licences and regulations. Our legislation, because of our complex federative structure, is always an issue for foreign investors. As a rule, we do not have restrictions on foreign investors, but in some industries, there are some restrictions. That said, in areas such as roads, railroads, ports, energy and sanitation, there are no restrictions at all.

de Gyarfas: Most Latin America countries have reduced barriers to foreign investment in infrastructure. In the 1990s, when most countries in Latin America began to lure foreign investors into their emerging economies, the legal and regulatory framework generally allowed for foreign investment in most types of infrastructure projects, except with respect to areas considered of national interest, such as oil & gas activities, telecom, ports and cabotage. Many of these restrictions are slowly being eliminated given that Latin America governments have realised that foreign investment is required in all aspects of the economy. For example, Mexico, through its energy reform, which was enacted in 2013, has opened its energy sector to foreign investment resulting in major investments by foreign entities in gas pipelines, power plants and upstream oil & gas activities.

In Brazil, at federal government level, there are many projects in the pipeline and good teams are leading them.
— André Luiz Freire

FW: What advice would you give to companies and governments in terms of planning and structuring a major infrastructure project?

de Gyarfas: The most important factor to take into account when undertaking a major infrastructure project is certainty. Regardless of the cost of the investment, companies need to understand the risks they are assuming and that the conditions under which the investment will be made will not change. As a result, companies need to carefully carry out due diligence in the target country to understand what they may encounter throughout the development of the project and, depending on the result, companies need to negotiate provisions that will ensure the stability of the investment. Additionally, companies should use appropriate vehicles, incorporated in countries which hold bilateral investment treaties with the target country, and ensure that the contracts clearly allocate risk and provide for international arbitration as the dispute resolution mechanism. Companies also need to agree on clear exit provisions which sometimes are difficult to negotiate given the concept of public service and public service infrastructure in civil law. On the other hand, governments need to understand the requirements of the companies and, to the extent possible under the law, provide the certainty that investors require.

Freire: If bidding documents, such as a public notice, are drafted by government, which is very common, it is important to analyse and comment. There are phases of public consultation before the bidding process, and comments provided by the private sector at this stage of a public consultation are very useful. In particular, comments regarding risks allocation are very important and help governments to improve documents.

FW: What are your predictions for infrastructure projects in Latin America through 2018 and beyond? Are there any particular trends or developments you expect to see which may help or hinder activity?

Freire: I am very optimistic about infrastructure projects in Brazil. We have a huge gap in infrastructure but there is political will to change this situation. Besides, our political crisis is in the past. Even with our upcoming elections this year, I believe that the federal government and local governments are conscious that we need to improve. At federal government level, there are many projects in the pipeline and good teams are leading them. We have some road projects, such as the Rodoanel project in the State of São Paulo, and railroad projects, such as Note-Sul railroad. I believe we will see good things this year.

de Gyarfas: We are bullish on Latin America during the next five year investment cycle. There has been a clear move in countries such as Argentina, Brazil, Peru and Colombia toward the promotion of foreign investment as a means of overcoming serious infrastructure limitations. The energy reform in Mexico will require huge infrastructure investments and despite the fear of the potential election of Lopez Obrador, it will be very difficult to amend the energy reform given that it was enacted via a constitutional reform. Additionally, the role of private equity funds is becoming more relevant and they are actively investing in infrastructure projects. PE deals in infrastructure-related sectors accounted for almost half of total regional investment in 2016, with more than US$3.7bn invested in energy, telecoms, transportation and logistics infrastructure.


André Luiz Freire is a widely-experienced lawyer and partner at Demarest Advogados in the infrastructure sector and a professor in the Department of Jurisprudence at the Law School of Pontifícia Universidade Católica de São Paulo (PUC/SP). His specialisations include concessions, PMIs (Interest Manifestation Processes), bidding procedures, administrative proceedings, sector studies and legal opinions. He can be contacted on +55 (11) 3356 2138 or by email:

Vera De Brito de Gyarfas is a partner in the corporate finance and investments practice group at King & Spalding. Ms de Gyarfas specialises in transactions involving energy projects in Latin America and Africa. She represents companies engaged in all kinds of energy projects, handling negotiations of host government agreements, as well as commercial agreements among companies in English, Spanish and Portuguese. She can be contacted on +1 (713) 495 8815 or by email:

© Financier Worldwide



André Luiz Freire

Demarest Advogados


Vera De Brito de Gyarfas

King & Spalding

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