MIGA’s support paves way for toll road
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March 19, 2009—A new road can have a tremendous impact, especially in an increasingly global marketplace where commerce is not limited by borders. Communities rely on transportation networks to connect with homes, schools, businesses, and health care. Trade depends on the ability to get goods to market. And with growing demand comes opportunity.
A new road can bring the potential for improved livelihoods. Such is the case for the owner of “Soda Escobal”, a small café shop selling staples in Costa Rica, along the new toll road corridor between the capital San José and the port of Caldera on the Pacific coast. “The new road will bring increased activity to what was a quiet area,” he says. “Our small shop is now close enough to the road to get better business and we hope to see new opportunities”.
His is not the only voice welcoming the new road. But a complex infrastructure project of this nature can also face challenges, especially when it comes to people and their potential resettlement. “Our client and the government have developed an effective consultation mechanism to involve community members at every step of the process,” says Mark Elton, a social scientist with MIGA, which is providing political risk insurance for the development of the road.
Elton recently visited the project to assess its progress and noted the government also welcomed the process. “The agency responsible for concession projects said that MIGA's policies on involuntary resettlement have influenced their approach and will be applied to other public works projects going forward.” David Gutierrez, a partner of BLP Abogados, the local law firm that represented one of the lenders Caja Madrid, echoed the government. “MIGA brought important social and environmental safeguard practices to the project, essentially helping to create a new and innovative model for future infrastructure projects.”
MIGA’s guarantees of $158.5 million cover an equity investment by FCC Construcción S.A. and Itinere Infraestructura S.A., and a shareholder loan by Caja Madrid. MIGA is providing 15-year coverage for the equity against the risk of transfer restriction. The debt will be covered for up to 18 years against the risks of transfer restriction, expropriation, war and civil disturbance, and breach of contract.
The new toll road, once completed, will connect the industrial/business heartland of the country to one of the main ports and will provide easier access to the capital city. It is expected to reduce transportation costs by reducing travel time by 1.5 hours for those who travel the full length of the corridor. It is also expected to reduce the number of road accidents. The Latin American and Caribbean region holds the highest per capita fatality rate from road crashes with 26 per 100,000 people--six times higher than in the developed world. It will also reduce the costs associated with heavy traffic conditions, such as gasoline consumption and deterioration of vehicle parts and tires. By providing easier access to the port of Caldera, the investment will help improve the country’s trade competitiveness and may reduce the price of imports.
The partners associated with the project say it was MIGA’s participation that helped negotiations between the government, the concessionaire, and the local councils achieve the first public-private partnership project in the country. “Everyone wanted the road and the partnership, but MIGA’s contribution was critical to make it happen,” says Gutierrez. “MIGA provided a degree of comfort and continues to do so, especially considering what has happened with financial markets.”
Indeed the project received plaudits in 2007 from Euromoney’s Project Finance magazine. The magazine noted it is the first PPP toll road concession in the country. “If this tentative deal can provide a model in what has been a decidedly difficult market, it will pave the way for not only future toll road deals, but may stimulate support for other, much-needed infrastructure development in the country.”
Latin America and the Caribbean region have registered strong economic growth in recent years—but the global financial crisis has exacted a heavy cost. Even before the crisis, infrastructure spending by countries in the region had fallen sharply. In Costa Rica, outmoded infrastructure has impeded growth. The country needs to spend an average of $75 million annually in road maintenance alone. The toll road project could help to change that in a number of ways. The tolls paid will be used for ongoing road maintenance to ensure top-quality condition of the road, allowing the government to spend elsewhere. “There’s a psychological impact,” says Gutierrez. “People are seeing development and there’s a general feeling that infrastructure growth is on the move again in Costa Rica.”
The project is aligned with the government’s own strategy, in conjunction with the World Bank Group, which includes supporting, rehabilitating, and maintaining key trade corridors. Nonetheless, construction of the toll road was politically sensitive, according to Ivan Illescas, MIGA’s legal advisor for the project. He notes it was one of the long overdue infrastructure mega-projects that the government of Costa Rica had been unsuccessfully attempting for more than 15 years. “This elevated the project’s exposure and caused it to be carefully scrutinized by all government agencies involved in the project, and closely monitored by the press, the local population and the international community.”
The project consists of the design, construction and/or rehabilitation, operation and maintenance of portions of the toll road linking San José to Caldera. This 25-year concession, with Autopistas del Sol S.A. as concessionaire, will be the first highway concession in Costa Rica to successfully reach financial closing and begin operations. By all accounts, the project is on schedule. For the owner of the “Soda Escobal”, it will not be too soon.