South America: building the next decade
First published in Global Report: Construction Equipment 2016 as Rapid urban growth boosts South American road plans
South America is pulling itself out of the global economic crisis. David Arminas looks at what opportunities – and challenges – are on offer for road designers and contractors as well as construction equipment manufacturers
Road designers and construction equipment makers face some of the planet’s most daunting geophysical challenges in South America, a continent totalling more than 17.8 million km2 and home to nearly 400 million people.
Most of the eastern side of South America lies in the tropics with its massive annual rainfalls and ecologically sensitive landscapes where rivers such as the Amazon, Orinoco and Paraná flow.
- The Guianas
Meanwhile, the continent’s western side is dominated by the Andes Mountains, a natural barrier equal to North America’s Rocky Mountains and with similar rugged highlands and agricultural lowlands. South America’s highest mountain, Aconcagua in Argentina, rises to nearly 7,000m.
More than ever, as the world hauls itself out of a recession, a good infrastructure is important to South American governments which are trying to modernise as quickly as possible. Resource extraction needs good roads, and mining companies are going further into remote areas in search of their minerals. Tourism, too, especially eco-tourism, is quickly rising in economic importance for many, if not all, South American countries and good roads are needed to reach hitherto isolated provincial towns and regions.
Like the world in general, South American countries are becoming more and more urbanised, too quickly in many cases for the infrastructure to support the added populations. Improving city roads to boost commerce is a major opportunity for many international contractors as well as domestic companies.
Toll road construction and operation, using several types of public-private partnership arrangements, is very common, especially for driving new roads into those remote areas where no road has paved the way. Corruption has, in the past, hindered government-business relations. But many South American countries are tackling this ‘disease’ head on to garner international business interest in national road contracts, nowhere more so than Colombia through its recently revamped infrastructure agency, ANI.
Luis Fernando Andrade Moreno, president of ANI, left his job as a senior international director with business consultancy McKinsey & Company in Colombia to head up ANI in 2011, when it replaced the discredited National Institute of Concessions, INCO. Boosted by a more explicit public-private partnership law, the US-educated Andrade is focused on the 4G toll road programme for upwards of 8,000km of new highway.
To date, 27 of the 4G projects have been awarded with the average size around US$400 million for about $11 billion worth in total. The planned programme is worth nearly $15 billion, down from around $25 billion due to inflation, although in pesos it remains the same, at around 45 billion.
Also, contract management for 4G work is much more stringent than it was for the troubled 3G programme. Additions to contracts are limited by law and any changes are made in a transparent manner. The result, Andrade told World Highways, is more than 15 global contractors working with over 30 domestic firms using international site and financial standards. In the few instances of disputes, all have been settled out of court, he said.
Argentina’s toll road concession programme began when the government tendered about a third of the intercity road system to private operators in early 1990. A second wave of concessions was initiated in 1992, mainly for access roads to Buenos Aires, according to World Bank reports.
In early 1990, in the first phase of its road concession programme, 12-year concessions for around 9,580km of the country’s 28,000km intercity system were awarded to private firms, mainly domestic construction companies. The most important selection criterion was the highest fee paid to the government, but many other criteria were also used, such as lowest toll, highest quality and largest investment.
But longer concession periods are the norm now, 25 years and more and contracts are much more transparent. Also, last year Argentina joined the International Transport Forum, a transport policy think tank under the Paris-based OECD – Organisation for Economic Cooperation and Development.
Argentina is the second ITF member country from South America, following Chile in 2012.
In fact, Argentina has been actively involved with the ITF’s permanent working group on road safety, known as IRTAD, since 2009. It has been a leading force in establishing the Ibero-American Road Safety Observatory – OISEVI – for which IRTAD operates a Spanish language database with road crash information.
A major signature road project in the pipeline is the Agua Negra Tunnel to link San Juan in Argentina with Coquimbo in Chile at a cost of around $1.4 billion. The current Paso de Agua Negra road is the highest border crossing between Chile and Argentina. On the Argentine side, the Agua Negra Pass is 4,765m above sea level and 260km from the city of San Juan, in the province of San Juan in the north-west of the country.
The project consists of two parallel 13.9km tunnels, each comprised of two traffic lanes. The tunnels will have a maximum width of 11m but because the tunnels run through high mountains, the maximum incline has been limited to 4%. A number of Chinese contractors are showing strong interest in the project: China Harbour Engineering, China Railways Engineering, China Shangdong International Economic & Technical Cooperation and China Jiangsu International.
PPP road projects are well developed in Bolivia which announced in July plans for 10 road projects. The state-owned road operator ABC has started some of the projects, which involves investment of more than $588 million covering 493km.
China Harzone Industry Corporation is handling the $66 million project to develop the 38km Final Avenida Petrolera-Paracaya scheme in Cochabamba, a city in the centre of Bolivia. Sinopec International signed the deal for the 59km Puente Yapacani-Puente Ichilo project.
Bolivia has turned to China for other major road projects. Two other highways in focus are the 151km, $385 million link from Porvenir to Chive and the 254km, $600 million road from Chive to Ixiamas.
Should Chinese loans finance these highway projects, it is likely that Chinese contractors would carry out the bulk of the construction work. If so, the majority of the construction equipment would likely be sourced from Chinese manufacturers.
One road in particular is causing great social and political concern – the as yet only proposed 290km highway that would traverse huge tracts of the Isiboro-Sécure Indigenous Territory Ecological Reserve, called TIPNIS for short. It is the ancestral homeland of the Moxeño-Trinitario, Yuracaré and Chimáne peoples who collectively hold title to the land, one of the world’s most biodiverse regions.
Lowland indigenous groups are worried that TIPNIS highway would open up the area to deforestation and colonisation by migrant settlers, especially coca farmers already operating on the park’s southern border. But for the government and many businesses, the TIPNIS road is critical to Bolivia’s economy. It would cut travel time between the departmental capitals of Beni and Cochabamba from up to three days, depending on weather, to only four hours.
Optimism for more major toll road concessions is high in Brazil – the only Portuguese-speaking country in a sea of Spanish-speaking ones. Brazil is the largest state by area and population and occupies most of the Amazon basin.
One project in particular catching attention is the tender for managing the Rio-Niterói Bridge, officially the Herbert de Souza Bridge and formerly called the President Costa e Silva Bridge. Its 20-year management contract expires soon, according to the Brazilian Association of Highway Concessionaires (ABCR), which represents 58 private companies operating in 12 states. ABCR members have concessions for more than 16,300km of highways, or around 8% of the national paved road network.
The Herbert de Souza Bridge is a 13.3kmlong, 27m-wide box girder bridge crossing Guanabara Bay in the State of Rio de Janeiro, connecting the cities of Rio and Niterói. The bridge, named after sociologist and anticorruption activist Herbert de Souza, opened in 1974 and is one of the longest prestressed concrete bridges in the southern hemisphere.
ABCR said the choice of a new concessionaire is a milestone because it is the first case of renewal in the Brazilian Concessions Programme and confirms the model’s success.
The ABCR Activity index of traffic volumes on toll roads showed in 2014 a drop of 2.6% in the flow of heavy vehicles, indicating a slowing of industrial growth. Thanks to an increase of 4.2% in the circulation of light vehicles, the flow of toll-paying vehicles on the concession highways grew by 2.4% in the year, compared to 2013.
ABCR also noted that its associates plan to invest around $13.7 billion over the next five years in highway recuperation, expansion and improvement. However, Latin America’s largest economy will shrink 2.95% this year, according to analysts. Meanwhile, the government continues with controversial road building programmes in the ecologically sensitive interior Amazon River Basin rainforest area. Between 2004 and 2007, more than 50,000km of roads were built which, critics claim, contribute to deforestation and habitat loss.
Chile has been one of the more politically and economically stable countries in the region, and is even a member of OECD, Organisation for Economic Cooperation and Development, allowing good access to financing. Toll road concession programmes using the private sector started in the early 1990s. According to the World Bank, the country embarked on 12 major projects to upgrade 2,000km of expressways for a total investment of $3 billion. The result was positive, as well as a steep learning curve. However, only around 23% of Chile’s more than 90,000km of roads are paved.
Chile has extensive experience with toll road concessions, starting in the mid-1990s when all roads were publically owned and operated. When the concession programme was conceived, Chile’s highway network consisted of only 12,500km of paved roads.
The country’s Public Work Concession Law was passed in 1991, allowing concessions for most public works, including highways, airports and ports. PPP concessions are organised by the Ministerio de Obras Públicas (MOP). The winner must set up a special purpose vehicle to build and operate the project.
The Chilean government announced at the end of last year around 800 road projects for 2016, mostly linked to road concessions, costing about $1.44 billion. Schemes include those on the Autopista del Sol motorway, such as a third lane between Santiago and Talagante, an alternative access to Penaflor, improvements to the Talagante link and a control centre.
In addition, a $5.2 million stop-and-go tagtype toll payment system will be introduced for Autopista del Sol. It will be similar to ones on Ruta 5 Sur between Angostura and Quinta and also Ruta 68 between Lo Prado and Zapata. Another project involves a third lane for Ruta 5 Sur, from Peuco to Acceso Norte to Ranconcagua, costing $32 million.
Chile is also continuing to upgrade tolling infrastructure on its section of the Pan- American Highway, which in Chile is Ruta 5.
A subsidiary of Austrian company Kapsch TrafficCom has a new contract to provide a tolling system and an Intelligent Transport System for the first 15km section of the Ruta 5 Norte, just to the north of the capital Santiago and which is operated by Sociedad Concesionaria Autopista del Aconcagua (SCADA).
Among current public-private partnership projects being tendered are the Ruta R20 Nogales to Puchuncavi road, worth around $210 million.
Ecuador has been busy for the past year or so changing contracts, where it can, to focus on service levels, a move under a recent major infrastructure plan for roads, airports and ports.
“For the first time we have a master plan on mobility that allows us to define and plan the ways that have to be prioritised in terms of investment, so that we clearly know what we need to connect,” said the minister of transport and public works, Paola Carvajal in January last year. She said that in the past eight years the Rafael Correa government has spent around $8.22 billion, noting that the figure is five times higher than what had been invested by the previous three administrations combined. The result is an expansion of the state road network, now around 10,000km.
Under this announced Strategic Mobility Plan is the $877 million concession for the Rio 7 highway in Huaquillas. It entails the design, financing, construction, operation and maintenance of 95km of road connecting the north-east and north-west of El Oro province.
The project calls for an expansion to transform the road into a high-capacity highway, part of the E-25 corridor. To be awarded under a 30- year concession, the project will be developed as a public-private partnership (PPP).
Also, construction of the Collas Road, as well as an extension of the Panamericana – Ecuador Highway 35 – the Spondylus Route and Troncal Amazonica, have been priorities.
The Spondylus Route runs 850km along the Pacific coast from Esmeraldas in the north down to the Peruvian border. The government launched it in 2009 as an official tourist route, so it is generally well-kept and maintained. It runs through mountains and beach resorts.
Among other major road projects is the $62 million renovation of the 80km Buenavista – Zaruma Highway in the south-west of El Oro province. The Piñas canton region’s economy relies on agriculture, forestry and fishing; these sectors employ over half of the economically active population. Meanwhile, most of the working population of the Portovelo canton are employed in the mining and quarrying sector, with this area handling 60% of Ecuador’s extraction industry.
PPP work is new for Paraguay which announced in 2014 that it intends to spend 3.5% of GDP on all types of infrastructure work, although roads are a priority. Ramón Jiménez, minister of public works, has acknowledged that it will be “a big challenge for our construction companies, our engineering capacity and our project management.”
The basis for concessions is a PPP law approved in November 2013 and another, Law 5074, that lays out the requirement of bidders to satisfy financial aspects of their bids. Three major road projects are close to, or have been, tendered.
One is the $383 million Route 9 Transchaco, between Puente Remanso and Mariscal Estigarribia (Chaco). The contract calls for road widening, asphalt upgrades, milling of pavements and associated works.
Another is the $212 million road access and a control station project at the bridgehead of the second bridge with Brazil, in Alto Parana department. Work involves construction of 40km of access roads to the bridge over the Parana River between Pte Franco and Foz do Iguacu in Brazil. The project is expected to take a year.
The third project is 278km of paving along the Bio-Oceanic Corridor, between Carmelo Peralta and Loma Plata. The $315 million contract, one of two phases, will improve the road between Brazilian ports on the Atlantic Ocean and Chilean ports on the Pacific Ocean. Another contract is expected to be tendered, costing slightly more, for further road enhancements, according to the Directorate of Strategic Projects.
In Peru early last year, the government recognised concerns by the infrastructure association Afin that red tape and bureaucracy had been delaying many major road projects. Afin said that in some cases concessions have been held up by as much as 10 years. Business News Americas reported that so far, only around 12,445km – 15% – of Peru’s 78,000km road network is paved.
But progress has been made, according to the Peruvian Ministry of Transport and Communication. It recently confirmed that by July nearly 20,000km of the Red Vial Nacional national highway network will be paved.
The ministry also highlighted that regions such as Amazonas and Ayacucho will have doubled the number of paved kilometres since 2011.
Amazonas will rise from 36% in 2011 to 72% this year, while Ayacucho will increase from only 31% of their national network roads paved in 2011 to having 62% asphalted by the middle of this year. Dual carriageways in Peru totalled just 393km in 2011, with this set to increase to 1,180km by mid-year.
However, road operation excellence can rise to the top. In 2012 the International Road Federation presented a Global Road Achievement Award for programme management category to Concesionaria Interoceánica Sur Tramos.
The concessionaire provides maintenance and operates concessions on the Interoceanic Road, a 649km highway that crosses the Cusco and Madre de Dios departments in the southern Andean and jungle zones.
Oil-rich Venezuela has presented a problem for private foreign investors ever since the rise to power of president Hugo Chávez in 1998. This continues, according to BMI Research, under the helm of president Nicolás Maduro. Low economic growth and the government’s heavy-handed approach to damping political dissent and regulating the private sector have been characteristic.
According to London-based Urban Transport Agenda, Venezuela’s infrastructure is poorly developed and the country requires significant investment to enhance its competitiveness. About a third of the 96,000km of roads are paved, as of 2012. Even so, highways were the largest category in the infrastructure construction market in 2012, accounting for 41.5% of the market and valued at $5.7 billion given currency rates at that time. Although the road network is relatively extensive, road safety levels are among the worst in the world. Freight in transit is subject to frequent and often long delays.
Problems for foreign investors will likely continue, given low oil prices, high inflation and a poor business environment. The result means the country’s recession will stretch into its third year, 2016. BMI noted that few new infrastructure projects are in the pipeline and ongoing construction projects are often subject to extensive delays and rising debts as costs increase for key supplies. The operating environment will remain very precarious for foreign multinationals in the country, BMI reported.
The 160km Autopista Regional del Centro is one of Venezuela’s most important motorways, running between the country’s first biggest city by population, Caracas, and Valencia, the third largest. It also connects Charallave, Maracay and Guacara.
In April last year, The Ministry of Land Transport announced expansion plans for the Valle-Coche motorway in Caracas that will include the largest viaduct in Venezuela. The project, worth nearly $200 million, will involve work on 7km of road, an elevated section over the BusCaracas Los Ilustres bus station, bridges alongside the El Pulpo interchange and another bridge over El Valle River. Bridges over the interchange will have four lanes in each direction and a fourth lane will be added to the route leaving the city on to the Central Regional Highway.
For Uruguay, road investment is a question of catching up for lost years, according to a recent report conducted by the economic studies centre for the construction industry, Centro de Estudios Economicos de la Industria de la Construccion (Ceeic).
The report highlights a gap in road infrastructure investment between 2000 and 2013. The country invested around 4.5% of GDP in roads, equivalent to around $2.52 billion. But around 7% of GDP or almost $4 billion, should be spent to repair and maintain the national road network over the next five years. Overall investment between 2008 and 2010 was mainly for new roads, whereas a record figure of $250 million was spent on maintenance in 2013.
In fact, late last year, the government announced that work would start on Uruguay’s first PPP highway project. It was awarded to a consortium made up of Sacyr Concesiones (43%), Sacyr Construcción (8%) and Grinor (49%). The 24-year project will cost around $160 million and be for construction work, restoration and management of a 179km corridor connecting the cities of Nueva Palmira and Mercedes.
Uruguay’s Ministry for the Economy and Finance referred to the project as “an important milestone” that marks a “new direction” in the building of public works. Sacyr Concesiones chief executive Rafael Gómez del Rio said that “the project was an excellent initiative and one, moreover, that opens a new market for the company in the region”.
On the northern-eastern Caribbean coast of South America sit two small countries – Suriname and Guyana – and the French overseas department of French Guiana. Total population of the three past colonies of Europe is only around six million and road infrastructure remains poor.
French Guiana has no road connections with neighbouring Brazil, but not for lack of trying. The new but unopened cable-stayed Oyapock River Bridge spans the Oyapock River to link the cities of Oiapoque in Brazil and Saint- Georges-de-l’Oyapock in French Guiana.
The toll-free two-lane 378m bridge was a cooperative effort by the French and Brazillian governments to have a paved road from the Guiana capital Cayenne to the isolated northern Brazilian city of Macapa, population around 340,000. It was finished at a cost of $33 million in 2011. But it remains closed because Brazil has yet to pave the connecting BR-156 highway, an equally isolated 600km road through jungle to the bridge, a nine-hour drive.
Dutch-speaking Suriname, squeezed between French Guiana and English-speaking Guyana, has around 4,300km of road, of which only a quarter are paved – and driving is on the left. There is no road connection with Brazil to the south and only road-ferry connections with Guyana and Guiana. The Northern East-West Link in Suriname is a paved road through the capital Paramaribo that connects Albina on the eastern border with Guiana to Nieuw Nickerie near the western border with Guyana.
The less economically important Southern East-West Link is being renovated and there is the possibility of a bridge being built on the Courantyne River between Apoera in Suriname and Orealla in Guyana.
Guyana has more than 4,000km of road, of which most running along the Carribean coast are paved. Just over a half are interior roads that sometimes classify as tracks, but the government has been improving its road infrastrucrue over the past decade. Some roads around the capital Georgetown are four-lane.
The $5 million Takutu River Bridge across the Takutu River, linking Lethem in Guyana to Bonfim in Brazil was opened on 2009, and paid for by Brazil through the Initiative for the Integration of the Regional Infrastructure of South America. A crossover bridge allows drivers to change from driving on the left in Guyana to driving on the right in Brazil. Construction of a bridge across the Berbice River at Crab Island and D’Edwards on the east and west banks of Berbice River was completed in 2008.