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Regulation for the treatment of the payment right by functional units on waterway projects

The Public-Private Partnership (PPP) regime was introduced in Colombia with the issuance of Law 1508 of 2012 and so the concept of functional unit for infrastructure projects.

It is important to recall that in PPP projects, the condition for the concessionaire to have access to its remuneration (economic exploitation of the project, disbursement of public funds or any other retribution) is conditioned to the availability of the infrastructure and the satisfaction of levels of services and quality standards in the different stages of the project. This arises so that (i) there would be greater certainty in relation to infrastructure deliveries; and (ii) the concessionaire would not be paid before the infrastructure had been delivered and in service, avoiding what is commonly known as “white elephants”.

For this reason, the concept of “functional unit” was introduced, which refers to the different structures in which a project is divided whose execution could have been performed or contracted independently or individually. Thus, an infrastructure project will be divided in various of them.

The legislation established a minimum investment value, determined in minimum wages (SMMLV), for each functional unit of the project, emphasizing in the abovementioned concepts of service and quality standards.

Decree 1082 of 2012, which regulates the PPP law, provides as a general rule that the minimum estimated investment amount for functional units should be equal or greater than 100.000 SMMLV.

However, the fact of determining a single parameter in relation to the minimum investment value for each functional unit has led to financial stress, to the point of becoming a straitjacket, which may result in the unfeasibility of the infrastructure project.

Moreover, there are specific sectors in which due to the characteristics of the infrastructure and its technical specifications, it is not feasible to structure the projects based on the definition of functional unit abovementioned. This occurs particularly with waterway and railroad projects.

Given the current circumstances and within the launch of the Fifth Generation of Concessions (5G) projects, on June 16, 2021, the President of the Republic issued Decree 655 of 2021, which adds Section 2 of Chapter 1 of Title 2, Title 2 of Part 2 to Book 2 of Decree 1082 of 2015, and through which issues associated with the estimated investment budget of functional units in waterway projects or navigable water canals are regulated.

The expedition of this amendment is key at this moment as it is important to remember that the 5G Programme is multimodal, which means that not only highways will be developed as in 4G, but also projects for other transportation modes.

The Decree aims for the implementation and materialization of the fluvial modality of transportation infrastructure, granting special treatment to functional units in PPP projects of waterways or navigable water canals.

We hereby present a brief summary of the most relevant aspects of Decree 655:

Functional units in a waterway or navigable waterway projects

The Decree provides that in those waterway projects developed under the PPP scheme, the right of payment may be agreed for functional units whose minimum investment value is equal to or greater than 5,300 SMLMV.

Transitory rule for Private Initiatives PPPs

Those waterway projects structured as a Private Initiative PPP that that at the entry into force of Decree 655, are NOT yet in the feasibility stage, may be subject to Decree 655.

Final remarks

As mentioned, the 5G Programme aims to foster multimodality in the country, and within the programme there are mainly two waterway projects of the uptmost importance for the country: (i) PPP Río Magdalena, which according to ANI will be released for public bidding in September and expected to be awarded at the end of this year; and (ii) Canal del Dique, who was opened for shortlisting last year but is currently suspended until August 31st while the processes of consultations with communities are finalized.

Under this context, we consider as a major breakthrough the materialization of the existing need of amending the regulation for satisfying infrastructure project’s specific needs, rethinking the concept of functional units and implementing it differently for each sector. This, without doubt, will contribute not only to a more adequate and efficient structuring of the projects but also make that the projects are more attractive to lenders, thus contributing to is financing.

It is still pending that this scheme is replicated for other transportation modes, such as railway infrastructure. The National Planning Department has recently published for comments and observations the project of the decree that will regulate functional units for this mode of transportation. Once the decree has been issued, we will refer to its main characteristics in a subsequent newsletter.

Authors

Portrait ofDaniel Rodríguez, LL.M.
Daniel Rodríguez, LL.M.
Partner
Bogotá
Portrait ofMaría Paula Sandoval, LL.M.
María Paula Sandoval, LL.M.
Senior Associate
Bogotá
Portrait ofPaula Andrea Gutiérrez
Paula Andrea Gutiérrez
Senior Associate
Bogotá
María Lucía Amador, LL.M.
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