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Public-private partnerships market in Paraguay

Canada’s commercial relationship with Paraguay is modest. In 2020, Canadian exports to Paraguay were valued at Can$15.2 million. Paraguay is a small, emerging, agrarian economy that specialises in soybean production and hydroelectricity generation. The country has weathered the economic impact of the coronavirus pandemic the best in the region so far. The Economist Intelligence Unit (EIU) forecasts that Paraguay will be the first South American country to recover from the economic crisis, with real gross domestic product (GDP) returning to pre-pandemic levels—and even exceeding them substantially—in 2021. Real GDP is expected to grow by 4.9% in 2021, after contracting by 0.6% in 2020. Recovery in 2021 will be driven by the government’s ambitious US$2.5-billion economic recovery plan, which focuses on increasing investment in infrastructure and public works projects. The government heavily relies on alternate financing and procurement models.

According to the World Bank, Paraguay is an upper middle income country. Financing needs will remain high in the near term, but Paraguay benefits from a low risk premium compared with its regional neighbours.

Public-private partnerships environment

In 2013, Paraguay enacted two regulatory regimes to allow for private investment in public infrastructure development:

The law on turnkey projects provides a legal framework for the private financing and construction of those key infrastructure projects in which operations and services remain with the public sector. The government’s payment obligations are issued upon milestone completions and are granted with sovereign guarantee. In turn, the P3 law regulates long-term public-private partnerships for the design, construction, operation and maintenance of infrastructure projects and services. Projects may be presented at the initiative of the government but also by private parties. A 2020 decree improved issues related to the practice and management of P3 projects, such as the mandatory nature of prequalification and competitive dialogue stages.

The P3 Projects Unit of the Technical Planning Bureau (Dirección General de Proyectos de Participación Público-Privada [in Spanish]) is the specialised public office in charge of promoting and coordinating P3 projects among all involved government bodies.

The contracting administrations and the Ministry of Finance (Ministerio de Hacienda) are also involved in the P3 process.

Because Paraguay’s greatest deficit is infrastructure, the leading contracting administration is the Ministry of Public Works and Communications, (Ministerio de Obras Públicas y Comunicaciones) which is by law in charge of the development and execution of all P3s relating to:

The contracting administration, working with the coordinating P3 unit, is responsible for structuring, awarding and executing the P3 contract as well as exercising control and supervision of the contracts and monitoring parties’ compliance with their obligations.

The Ministry of Finance has the key role in evaluating proposals and risk assessments for P3s and ensures that future payments are included in the national budget. In addition, a trust fund is created for the sole purpose of guaranteeing payment and liquidity in relation to a P3 contract, and the Ministry of Finance acts as trustee in that trust fund.

Current and planned projects

Most of the current and upcoming P3 and turnkey infrastructure initiatives are transportation projects (highways, roads, bridges and waterways) aimed at improving domestic and regional connectivity. Three P3 projects have reached the international tender stage to date.

The first P3 project to be implemented in Paraguay is the US$507­­‑million route 2 and 7 highway roadworks (in Spanish), awarded in 2017 to a consortium comprising the Spanish firm Sacyr, the Portuguese firm Mota-Engil (which has since left the consortium) and the local firm Ocho A S.A. The works faced a delay due to resettlement / land acquisition issues but are currently in progress.

The second P3 project, launched in 2016, was to be a US$135‑million airport infrastructure improvement, operation and management project. This international tender attracted international players as Vinci, Iridium and Corporación América Airports but was cancelled following the recommendation of Paraguay’s controller general. It will most probably move forward as a traditional public tender.

The third P3 project, launched in 2018, was the US$500‑million Asunción Light Rail Project that would connect Paraguay’s capital city of Asuncion with a nearby suburb, Ypacarai. Six international consortiums submitted bids but the tender was cancelled due to financial issues. The project is now under review, with the support of the Korea Overseas Infrastructure and Urban Development Corporation (KIND).  

Two important P3 initiatives have been approved and, with concluded technical feasibility studies, are well advanced:

The latter is a private initiative project by Jan De Nul to be presented at a market sounding session on November 18, 2021, at the Canadian Council for P3’s Annual Meeting. It is a vital project for Paraguay’s economy, as well as a quite complex one, given the quantity and diversity of administrative bodies involved.

The Paraguayan government is also considering developing social infrastructure projects (health and sanitation) though P3s; these projects are still in the pre-feasibility stage.

The first project to be awarded under the turnkey law was the asphalt paving of Route 6 (Naranjal-San Cristóbal) to the local consortium Concret-Mix & Associates in 2017 (US$45 million). The Bi-Oceanic Road project is another important project awarded under this law. A consortium formed by Ocho A and Brazil’s Queiroz Galvāo is to construct a 277-km route, including 4 reinforced concrete bridges, in the Central Chaco region for US$443 million. The consortium issued the first international bond (US$732 million) to finance a Paraguayan infrastructure asset. The consortium received the 2019 Latinfinance Project & Infrastructure Finance Bond of the Year Award.

Main opportunities

Paraguay receives important support from international financial institutions such as:

The IADB is the main strategic multilateral partner of the country and a key resource to finance technical assistance and consulting studies. Most pre-feasibility studies of key infrastructure projects will be financed through IADB programs.

The Ministry of Public Work and Communications (Ministerio de Obras Públicas y Comunicaciones) relies on external consultants and advisors for the development of PPP projects. Since 2013 the ministry awarded a 3-year contract to Deloitte and advisory services to Chilean experts such as Carlos Cruz, General Manager of Chile’s Council on Infrastructure Policies Council and the company IDOM.

In the short to medium term, the Canadian Trade Commissioner Service foresees concrete opportunities for consulting engineering, public-sector advisory and financial services (Paraguay’s financial market is relatively small), as well as legal advisory services both to the government and private consortiums.

Canadian companies interested in the Paraguayan market should closely monitor IFI-financed tenders and build relationships with:

Challenges

The lack of a robust and predictable pipeline is a deterrent for international companies’ involvement in the market. There is a clear tendency to advance smaller-scale, design-build-finance (turnkey) projects rather than bigger and more complex projects, including operation and maintenance under the P3 framework.

Paraguay scores at the mid-range or lower in most competitiveness indicators. The World Bank’s Doing Business 2020 ranks Paraguay 125 out of 190 countries for ease of doing business. The 2019 World Economic Forum Global Competitiveness Index ranks Paraguay 97 out of 141 countries.

Judicial insecurity and corruption hinder Paraguay’s investment climate. Many investors find it difficult to enforce contracts and are frustrated by lengthy bureaucratic procedures, limited transparency and accountability, and impunity. Transparency International’s 2020 Corruption Index ranked Paraguay 137 of 180 countries.

Paraguay is committed to improving its infrastructure in various areas and is open to seeing more Canadian companies developing these projects. The decision is yours!

For additional information please contact Ana Fisher, Ana.fisher@international.gc.ca.

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