Fundamentals of project finance applied to private public partnerships in Colombia

Author:Mónica Liliana Ibagón
Pages:3-15
SUMMARY

PPPs, structured under Project Finance standards, form a system determined by a normative complex organized by subsystems and interacting and interdependent elements conditioned by a process of control and communication. This systematic nature has an effect on the legal configuration of the content of the PPP contract. It was shown that financing depends, on the one hand, on budgets that condition it and, on the other, it acts as a determinant of other elements of the system; so that there is a close relationship between the financing of the project and the challenge of contractual management. The correspondence between the components of the project finance system is of reciprocal conditioning and is determined by the communication between its parts.

 
CONTENT
Fundamentals of project finance applied to private public … 3
PUBLIC LAW
FUNDAMENTALS OF PROJECT FINANCE APPLIED TO
PRIVATE PUBLIC PARTNERSHIPS IN COLOMBIA1
Mónica Liliana Ibagón2
ABSTRACT
PPPs, structured under Project Finance standards, form a system determined by a normative
complex organized by subsystems and interacting and interdependent elements conditioned by a
process of control and communication. This systematic nature has an effect on the legal configuration
of the content of the PPP contract. It was shown that financing depends, on the one hand, on budgets
that condition it and, on the other, it acts as a determinant of other elements of the system; so that
there is a close relationship between the financing of the project and the challenge of contractual
management. The correspondence between the components of the project finance system is of
reciprocal conditioning and is determined by the communication between its parts.
INTRODUCTION
The theme of this paper is the "Fundamentals of Project Finance applied to
Public Private Partnerships in Colombia”; this choice is based on several
assumptions that justify it, concerning mainly the future of financing public
contracts with linking of private capital. The paradigm of such linkage are the PPP
contracts that have been structured to finance infrastructure projects in Colombia.
It should also be taken into account that PPPs have been specially structured for
the provision of public road transport infrastructure; this justified a second
thematic limiting. According to the latest Report of the Public Private Partnerships
(RUAPP), of the total PPP projects currently underway, 60% are from the transport
1 A more extensive version in Spanish of this paper was published in: La financiación de
contratos públicos: el modelo innovador de asociaciones público-privadas en Colombia (the financing
of public contrats: the innovative model of public private Partnerships. In: Montaña/Rincón (ed.).
“Contratos Públicos: Problemas, perspectivas y prospectivas”. Bogotá, Universidad Externado de
Colombia, 2017, pp. 159 – 201.
2 Professor, Department of Administrative Law, Universidad Externado de Colombia. Doctor in
law (Ph. D.), Freie Universitaet Berlin (Germany). Email: monica.ibagon@uexternado.edu.co
Law Review vol. VIII, issue 2, Jul
y
-December 2018, pp. 3-15
4 MÓNICA LILIANA IBAGÓN
sector, led by the National Infrastructure Agency (ANI) and the District of Bogotá.3
For the structuring of these PPPs, the principles set out in Law 1508 of 2012 on
PPPs have been incorporated and the Fundamentals of Project Finance have been
applied.
1. BANCABILITY AND CONTRACTUAL MANAGEMENT
In Colombia, the 8 road transport infrastructure projects that have achieved
definitive financial closure4 have demonstrated that the financing of the projects
supposes that the concession contract is configured in a bankable way (that is, it
can be financed). The concession contract is then a determinant of the financing of
structured infrastructure projects under Project Finance standards.
A. PPP AS DETERMINANT OF FINANCING
PPPs, as a cooperative administration instrument, are defined in Law 1508 of
2012 as "(...) a private capital linkage instrument, which are embodied in a contract
between a state entity and a natural or legal person under private law, for the
provision of public goods and their related services, which involves the retention
and transfer of risks between the parties and payment mechanisms, related to the
availability and level of service of the infrastructure and / or service "(Article 1
Law 1508 of 2012). The Law 1508 of 2012 establishes that "the concessions
paragraph 4 of article 32 of Law 80 of 1993, are included within the Public
Partnership Private schemes " (Article 2). The concession is, therefore, a type5 of
PPP.
Among some of the elements that make PPP contracts for road infrastructure
bankable are, for example, payment for availability. Meaning that the right to
receive remuneration is conditioned by the availability of the infrastructure to the
3 Republic of Colombia, Departamento Nacional de Planeación, Informe Trimestral del Registro
único de Asociaciones Público-Privadas (RUAP), Num. 12, second trimester of 2017, p. 1-7. Available
online under: https://colaboracion.dnp.gov.co/CDT/Participacin%20privada%20en%20proyectos%
20de%20infraestructu/Informe%202T%202017.pdf
4 Here we must make a distinction between ANI financial closure and final closure. Financial
closure is defined as « (…) the achievement of a minimum amount of Debt Resources for the Project
projects (…)» (Republic of Colombia, Ministerio de Transporte, Agencia Nacional de Infraestructura,
Contrato de concesión bajo el esquema de APP, Parte General, clause 1.23. Available online under:
https://www.ani.gov.co/sites/default/files/u233/contrato_parte_general_4g.docx). The ANI
Financial Closing is credited by submitting to the ANI the documents that prove the financing to the
Concessionaire. (Ibidem, Clause 3.8.). The definitive financial closure consists of the effective
disbursement of resources (E. R. Yescombe, Principles of Project Finance, 2 ed, Elsevier, Amsterdam,
2014, p. 87, 386 following).
5 On other models of PPP see: Carlos Oliveira Cruz, Rui Cunha Marques, Infrastructure Public-
Private Partnerships, Springer, Berlin, 2013, p. 2 ss. ; Stefano Gatti, Project Finance in Theory and
Practice, Academic Press, 2008, p. 1 s.
Fundamentals of project finance applied to private public … 5
fulfillment of service levels and quality standards in the different functional units
or stages of the project (Art. 5 Law 1508 of 2012 modify by Art. 37 Law 1553 of
2015). The functional unit of infrastructure is the set of engineering structures and
facilities essential for the provision of services with functional independence
(Art. 2.2.2.1.2.2. Decree 1082 of 2015). The right to remuneration of the
concessionaire starts with respect to each functional unit from the subscription of
the respective certificate of completion of functional unit.6
The division of the project into functional units is not only important, from the
point of view of remuneration, but also of financing, because in the public
securities market, financing can be obtained by securitizing the cash flows from the
income of each functional unit. This element of contractual structuring made it
possible, for example, for the Pacifico III and Barranquilla-Cartagena projects to be
financed through bond issues.
In order to maintain the stability of the cash flow, PPP road infrastructure
contracts, as a general rule, provide for the ANI's duty to make payments of
economic compensation for unlikely precaution.7 This is the difference between the
present value of the effective collection of tolls versus the value of the projected
collection accumulated until year eight (8), thirteen (13) and 18 (...)”8.
Another very good structuring element, since the project must, in many cases,
meet its foreign currency credit obligations, was the approval of the payment of
futura force9 in US dollars.
In determining the project's bankability, not only are relevant payments due
for differences in collections, futura forces, toll collections, but also payment for
early termination10. The Infrastructure Law (Law 1682 of 2013) and the PPP Act
6 ANI, Contrato de concesión bajo el esquema de APP, Parte General, op. cit., Clause 3.1.
7 On the minimum traffic guarantees see e.g. Court of Arbitration of Concession Santa Marta
Paraguachón S.A. v. National Institute of Roads, Invías, Arbitral Award of 24.08.2001, Section II 2.4.
(unpublished); Court of Arbitration of Concessionary Road of the Andes S.A. - COVIANDES S.A.
against the National Agency of Infrastructure - ANI, Arbitral Award of 17.11.2016, Section B 5.3.1
(unpublished). Bogotá D.C., seventeen (17) of November two thousand sixteen (2016).
8 Contrato de concesión bajo el esquema de APP, Parte General, op. cit., Clause 1.47.
9 Futura force „Is authorized to assume obligations that affect the budget of next lifetimes may be
ordinary, the execution starts affecting the budget of the effect in progress and outstanding, whose
duties affect the budget for fiscal years future and have no appropriation in budget the effect that the
authorization is granted and are approved by the CONFIS » (ANI, Glosary. Avaible unter:
https://www.ani.gov.co/glosario/letter_v).
10 « Early Termination of Contract at any stage, will result from the occurrence of any of the
grounds provided for in Section 17.2 of the General Part. In any case, the res pective means configured
causal only when: i) the parties agree to the occurrence thereof, or -of not agree when this point- so
6 MÓNICA LILIANA IBAGÓN
(Law 1508 of 2012) prescribe that it is mandatory to include in contracts that
develop transport infrastructure projects, "(...) a clause in which the mathematical
formula that determines the eventual reciprocal benefits in case of being
terminated in advance” (Art. 13 Law 1682 of 2013 and Art. 32 Law 1508 of 2012).
This early termination formula is a crucial determinant of the bankability of the
project because, in the event that the early termination of the contract is declared,
the guarantees provided in the credit agreements must be made effective.
Another element that makes PPP contracts of road infrastructure bankable is
the shared assumption between the concessionaire and the ANI of environmental,
predial11 and relocations of networks12 risks.
In addition, the law of PPP establishes the obligation to constitute an
autonomous Equity13 (Art. 24 Law 1508 of 2012). With the duty to manage all the
resources of the project by means of an autonomous patrimony, the possibility is
excluded that the concessionaires use the same unit of cash to grant loans to
consortia and temporary unions that are part of the financial framework.
Another very good structuring element in PPPs is the following: three words
were eliminated from the National Development Plan and this would mean a
boom in regional PPPs in the near future. The Constitutional Court ruling declared
(in the sentence C 346 of 2017) unconstitucional the expression "of the national
order" contained in article 31 paragraph 4 of the plan law, which amended Article
5 of the PPP Act. In this way, it is now possible for regional representatives to
recognize real property rights as a source of project funding.
As noted, these elements are a concretization of various standards that form
part of the reference areas of the administrative law system and therefore are also
state in firm statement, the Arbitration Court, ii) if necessary to issue an administrative act for
configuring the causal, when the latter is in accordance with the provisions of the Applicable Law, or
iii) firm when the ANI notify the Concessionaire's decision that treats section 17.2 (d) of the General
Part ». (ANI, Glosary. Avaible unter: https://www.ani.gov.co/glosario/letter_t).
11 Here is imporant to defined Predial management. “They are the obligations of the
Concessionaire related to the acquisition of land for the project and plan the implementation of socio-
economic compensation » (ANI, Glosary. Avaible unter: https://www.ani.gov.co/glosario/letter_g).
12 Network « (…) relates to the transport infrastructure and utilities supply, telecommunications,
hydrocarbons and in general, any fluid or cable. Networks within the concept of the "Networks and
assets" as defined by law 1682 of 2013 are understood included ». (ANI, Glosary. Avaible unter:
https://www.ani.gov.co/glosario/letter_r).
13 Autonomous Equity « (…) is the autonomous patrimony that must be the dealer by holding
the commercial trust with the Trust Agreement. Patrimonio Autonomo be the center accounting
allocation of the project and therefore all economic events the project will be recorded in this
heritage ». (ANI, Glosary. Avaible unter: https://www.ani.gov.co/glosario/letter_p).
Fundamentals of project finance applied to private public … 7
structuring components of all PPP contracts that are held for the provision of
public infrastructure.
B. FINANCING AS A DETERMINANTS OF PPP
Most PPPs are configured based on Project Finance standards.14 Project
Finance is defined as a "financing structure that depends on future cash flows from
a specific operation as the primary source of loan repayment"15. This structure has
two main characteristics: On one hand, the assets and rights of the project are part
of a special purpose vehicle or vehicle company. From the accounting point of
view, the financing is reflected in the balance of the vehicle company and not in the
balance of the sponsor or promoter.16
Project Finance is a system in which the elements that integrate it are
interconnected.17 One of the elements, which are part of the overlapping project
finance regulatory framework, is the network of contracts that, for the
configuration of the project financing, celebrates the vehicle company (SPV) and
regulate legal relationships among project participants (SPV).18 These contracts link
the financiers, the intervener, the public entity, the public entity, the fiduciary, the
builder (EPC-contractor), operating companies and maintenance (O & M), insurers,
suppliers, etc.19
The following chart shows the basic contractual system for the structuring of
road infrastructure programs in Colombia in which the theory of project financing
has been applied:
14 Eduardo Engel, Ronald D. Fischer, The Economics of Public-Private Partnerships, Cambridge
University Press, Santiago de Chile, 2014, p. 93.
15 Trade Finance Consultants, Project Finance: Financiació n de proyectos internacionales, Instituto
Español de Comercio Exterior, Madrid, 2002, p. 16.
16 Ligia Catherine Arias Barrera, “Perspectiva legal de la financiación de proyectos Project
Finance y el manejo del riesgo”, in Revista de Derecho Privado, Universidad Externado de Colombia,
Num. 23, 2012, p. 206.
17 Stefano Gatti, Project Finance in Theory and Practice, op. cit., p. 267.
18 Ibidem.
19 Trade Finance Consultants, Project Finance, op. cit., p. 21 following.; Ignacio M de la Riva,
“Nuevos modelos de financiación de infraestructuras públicas”, in Revista Digital de Derecho
Administrativo, Universidad Externado de Colombia, No. 17, first semester of 2017, p. 202. Avaible
under http://revistas.uexternado.edu.co/index.php/Deradm/article/view/4835/5698
8 MÓNICA LILIANA IBAGÓN
Source: Colombian Treasury Departament, Unit of Financial Regulation.20
Because, as a system21, Project Finance consists of communication, these
contracts are, then, communicative acts of consensus-building. In this vein, the
parts of the project financing system act interdependently through communicative
processes and are constantly in a reciprocal relationship.
It was shown that the PPP contract is a determinant of the financing of public
infrastructure projects. Due to the relationship of mutual interdependence between
the elements of the system, funding can also have repercussions in shaping the
financial and contractual cycle of PPPs. In this way, it has been argued that some of
the obligations provided for in the PPP contract should be modified in order to
achieve a reduction in the time needed to obtain the financial closure of the
projects.22 Others should be included, as the financing acts as a determinant of
contractual management.
20 Laura Ruiz, Camilo Hernández, Estudio sobre regulación prudencial de Project Finance para
financiación de infraestructura, Ministerio de Hacienda, Unidad de Regulación Financiera, 2016, p. 4.
Avaible under: http://www.urf.gov.co/urf/ShowProperty?nodeId=%2FOCS%2FP_MHCP_WCC-
061702%2F%2FidcPrimaryFile&revision=latestreleased
21 Niklas Luhmann, „Die Wirtschaft der Gesellschaft als autopoietisches System“, in Zeitschfit
fuer Soziologie, vol. 13, No. 4, octuber of 1984, p. 311.
22 Financiera de Desarrollo Nacional (FDN), Clemente del Valle, “La Financiación de las obras:
Avances y retos”, conferencia en XIII Congreso Nacional de la Infraestructura, Cartagena, 25 of
noviember of 2016 (unpublished).
Fundamentals of project finance applied to private public … 9
It has been argued that one of the reasons for the delays in securing the
financial closures of the 4G projects is the way in which the contractual and
financial cycle of these projects is currently structured: one of the main contractual
costs of the concessionaire during the pre-construction phase is to obtain financial
closure.
The fulfillment of the duty to prove the financial closure must be carried out in
parallel with other contractual obligations, such as the adjustment of the designs to
phase III, socio-environmental management and predial management.
Because most of the information and studies that are collected after the
conclusion of the contract, such as adjustments to phase III designs, are required as
input for banks to develop due diligence23, it has led to the times between the
award and the financial closure oscillating between 19 - 22 months.24 Thus, it is
necessary that the valuation of the bankability of the project is carried out at an
early stage of the contractual procedure.25 The challenge of shaping the contractual
and financial cycle is to extend the award line to a later stage of the cycle, so that
the contract is concluded when a good number of premises have already been
acquired that are required for the execution of the interventions in the first
functional unit, all the environmental licenses, permits and concessions are
available and the designs have been adjusted to phase III.26 Due diligence will be
carried out when all required documentation is ready and will reduce the
temporary gap, currently existing, between the administrative awarding act and
obtaining the financial closure.27
It was demonstrated that there is a relationship of mutual interdependence
between the elements of the system that make up Project Finance. In this way, the
PPP contract is a determinant of the financing of public infrastructure projects and
financing serves as a determinant of contractual management.
II. SOURCES OF PPPS FINANCING
The conclusion of a PPP contract as a (partly) rational decision of the
administration is the result of a process of interaction, not only of the elements of
the Project Finance system, but also of the framework of contracts celebrated by the
23 Due diligence consists of a process of verification of the technical, legal and financial
information of the project (Trade Finance Consultants, Project Finance, op. cit., p. 63).
24 FDN, Clemente del Valle, “La Financiación de las obras: Avances y retos”, op. cit.
25 Frank Littwin, Hans Wilhelm Alfen, Public private partnership im öffentlichen Hochbau: Handbuch,
Kohlhammer, Stuttgart, 2006, p. 310.
26 FDN, Clemente del Valle, “La Financiación de las obras: Avances y retos”, op. cit.
27 Ibidem.
10 MÓNICA LILIANA IBAGÓN
SPV, but also determines and is determined by the communication of the elements
and participants of the system with its environment28, under normative,
institutional, technical, economic and financial aspects, both nationally and
internationally.
A. STRUCTURE OF THE SOURCES OF FINANCING
The regulatory context applicable to PPPs is, for example, 1) Art. 26 of Law
1508 of 2012 on future forces for PPP projects, 2)Decree 765 of 2016 (Articles 10, 12
and 14), by which the Pension Funds were allowed to commit up to 1% of the
value of the moderate or higher risk fund in the purchase of securities issued for
the financing of projects for the fourth generation of road concessions (4G) during
the operation and maintenance phase, 3) Law 1676 of 2013 on securities
guarantees, 4) Art. 63 of Law 1739 of 2014 (incorporated in the text of the current
tax reform law), which reduced the withholding rate at the source to 5% of the
value of the payment for concepts of interest arising from loans for the financing of
infrastructure projects under the PPP scheme, 5) provisions of the infrastructure
law, such as Art. 28, which provides for the early delivery by court order of real
property declared of public utility for infrastructure. 6) in addition, as part of the
regulatory context, we have Decree 816 of 2014 that facilitates the financing of
projects as the individual quota increases for credit institutions up to 25% of their
technical assets and that of the FDN in one 40% provided that it does not capture
public resources (Art. 2.1.2.1.2).
The regulatory, economic and financial context and the configuration of a bank
concession contract have promoted that, to date, 25 of the projects of the
infrastructure PPP program have been accredited ANI financial closure, of which 8
have definitive financial closure by value of $ 12.57 billion COP. According to the
FDN, for the financing of these projects, local banking has been the main source
during the construction phase by mobilizing 48.9% of total funding, international
sources approved 21.9% of total funding, the capital market mobilized 20.6% of the
financing with institutional investors such as the Infrastructure Funds and 8.6%
was financed by the FDN.29
It is important to make a distinction here between the concepts of source of
funding and source of remuneration or payment. Fourth generation (4G)
concessional funding sources have so far been capital markets, multilateral banks,
the banking system (local and international) and the FDN. The sources of
remuneration are project revenues that are perceived at the stage of operation of
28 Niklas Luhmann, op. cit., p. 311.
29 FDN, Clemente del Valle, “La Financiación de las obras: Avances y retos”, op. cit.
Fundamentals of project finance applied to private public … 11
the respective functional unit. The sources of remuneration, foreseen in the
contracts of road concessions 4G are the collections of tolls, the revenues by
commercial exploitation, the future vigencias and the differences of collection.
Administrative law applies not only concepts of the social sciences, but also of
economic science. Administrative law requires, therefore, not only to integrate
forms of private public collaboration in its dogmatics, but also to deal with models
of development and financial instruments as new tools for directing social
processes.30 These instruments, together with those regulations, personnel, budget,
organization and procedure, form a kind of regulatory structures.31 Thus, in the
debate on the reform of administrative law, "mixing of instruments" and the
postulate of administrative law as a science of management.32
B. FUTURE OF FINANCING
There are a number of challenges that are conditioned by changes in the
system environment that are likely to influence the alteration of the composition of
the project finance structure.33 To overcome them, administrative law, and
especially the public procurement system, must be prepared to develop strategies
of the economic sciences and therefore, be able to preserve the functionality of state
actions.34
The challenge of PPPs in the specific case of the transport sector is that
feasibility has been given to the projects of the next decade for which $ 130.1 billion
COP is required, of which $ 30.1 billion COP is needed to leverage the debt of the
4G projects without definitive closure.35
Assuming that the banks concentrate approximately 10% of their commercial
portfolio in infrastructure projects, if the FDN participates in financing with all its
leveraged resources, it could cover approximately 56% ($ 72.8 billion COP) of
resources required to finance the program.36
30 Eberhard Schmidt-Assmann, “Cuestiones Fundamentales sobre la reforma de la Teoría
General del Derecho Administrativo”, in Javier Barnes (ed.), Innovación y reforma en el derecho
administrativo, 2 ed., Global Law Press, Madrid, 2012, p. 47 following.
31 Ibidem, p. 48. About the types of direction: Jan Philip Schaefer, Die Umgestaltung des
Verwaltungsrehts, Mohr Siebeck, Tuebingen, 2016, p. 97.
32 Eberhard Schmidt-Assmann, “Cuestiones Fundamentales sobre la reforma de la Teoría
General del Derecho Administrativo”, op. cit., p. 47.
33 Tomás Serebrisky, Ancor Suarez Alemán, Diego Margot, María Cecilia Ramirez, Financiamiento
de la infraestructura en América Latina y el Caribe: ¿Cómo, Cuanto y Quien?, Banco Interamericano de
Desarrollo, Nueva York, 2015, p. 21.
34 Jan Philip Schaefer, op. cit., p. 3.
35 FDN, Clemente del Valle, “La Financiación de las obras: Avances y retos”, op. cit.
36 Ibidem. These figures are part of a prioritization exercise with specific assumptions and
parameters based on the projection of the Intermodal Master Plan projects, whose effective
implementation depends on the political and fiscal situation.
12 MÓNICA LILIANA IBAGÓN
Achieving the 50% official goal of bank-local infrastructure financing in the
future will entail significant challenges. According to the National Association of
Financial Institutions (ANIF), these challenges have to do with: ((i) the greater
macro-financial tension of the country, (ii) the persistence of legal risks in projects,
particularly with regard to problems of consultation with communities; (iii) recent
uncertainty in the infrastructure sector, on account of the Odebrecht corruption
scandals (Ruta del Sol-II and Navegabilidad del Río Magdalena), Conalvías and
the expiration of the Line Tunnel contract, (iv) The strict financial regulation
imposed by Basel III, especially in relation to liquidity requirements.37
With this scenario, Asobancaria38 has stated that "it is necessary for the
Government to adjust the current legislation, clearly defining issues related to rules
of inability occurring during the course of the Bidding Process, nullity of a PPP
contract, environmental, social licenses and prior consultation
with the indigenous and Afro-descendant peoples”39.
Some of these aspects would be solved with the reform to the public
procurement law and the infrastructure law that is being processed by Congress
and that there are still two debates remaining to be promulgated.
Another complementary solution to the problem could be found in the capital
market.40 It is necessary to deepen this market using instruments such as
securitization, bonds and refinancing and with an increase in the participation of
institutional investors.41
In addition, it is essential to create other types of financing instruments, such
as Mini Perm credits. These are instruments that will allow the refinancing of
short-term loans. In this way, mini perm credits would be used in the construction
phase, which is the risk phase of the project, which would then be replaced by
37 ANIF, “Crédito Bancario e Infraestructura Vial en Colombia: Exigencias de Basilea III y
Concesiones 4G”. July 2017, p. 45. Avaible under: http://www.anif.co/sites/default/files/
investigaciones/anif-bancolombia-infra06172.pdf
38 Colombian financial association.
39 “Banca debería limitar financiación a proyectos de infraestructura“, in: Portafolio, 30.07.2017.
Avaible under: http://www.portafolio.co/economia/infraestructura/banca-no-deberia-seguir-
financiando-proyectos-de-infraestructura-508247
40 Bolsa de Valores de Colombia, Juan Pablo Córdoba, “Financiación de la infraestructura a
través del mercado de capitales: Balances y retos”, conferencia en XIII Congreso Nacional de la
Infraestructura, Cartagena, 25 de noviembre de 2016 (unpublished). These figures are part of a
prioritization exercise with specific assumptions and parameters based on the projection of the
Intermodal Master Plan projects, whose effective implementation depends on the political and fiscal
situation.
41 Ibidem.
Fundamentals of project finance applied to private public … 13
bonds issued during the stage of operation, during which time the project
generates cash flows.42
A complementary tool to mobilize alternative sources of financing could be the
configuration of standard real estate investment vehicles - or infrastructure - such
as REITs. The proposal of the Stock Exchange of Colombia is the following: The
grantee and the initial financiers contribute to the Trust Fund the rights to flows to
20 or 25 years of the project, in exchange for money or securities (with circulation
in the secondary market). The Fund sells the flows and issues standardized
securities representing these flows to investors who pay the Fund the price for the
securities and in the end receive the return.43 This would have the advantage of
reducing the liquidity risk by allowing the conversion of a non-liquid asset into a
liquid one and would allow lenders and concessionaires to fully or partially
participate in the development of the project.44
It is further assumed that foreign multilateral and governmental financial
institutions may eventually replace some of the funders.45 This would be the case
for development banks such as the European Investment Bank and the
Kreditanstalt für Wiederaufbau (Institute for Credit for Reconstruction) for certain
sectors.
The funding of PPP projects with a source in private financial market resources
further raises the question about the feasibility of configuring lege ferenda
Crowfunding models in Colombia. Crowdfunding consists of "(...) new form of
financing through the use of small amounts of resources of several individuals to
donate or finance, projects through a platform with internet connection."46 Only in
2014, 3 billion EUR was raised in the European Union through Crowfunding.47
Under this model, in Germany, for example, projects were financed for the
construction of schools, school restaurants, renewable energy, etc.48 The direct
42 Ingo Walter, The infrastructure Finance challenge, New York University, New York, 2016, p. 59.
43 Bolsa de Valores de Colombia, Juan Pablo Córdoba, “Financiación de la infraestructura a
través del mercado de capitales: Balances y retos”, op. cit.
44 Ibidem.
45 Stefano Gatti, op. cit., p. 115.
46 República de Colombia, Comisión Intersectorial de inclusión financiera, Estrategia Nacional de
Inclusión Financiera en Colombia, Comisión Intersectorial de inclusión financiera, Bogotá, 2016, p. 31.
Avaible under: http://www.minhacienda.gov.co/HomeMinhacienda/ShowProperty;jsessionid=zk
yr4ADmpOZ7jDzXNms6VMlS4zsYaCOuzYgndvKKAMW-
CwqTcg6I!203701145?nodeId=%2FOCS%2FP_MHCP_WCC-
041673%2F%2FidcPrimaryFile&revision=latestreleased
47 Sonja Kay, „Crowdfunding – Tatsachen und Rechtsfragen einer neuen Finanzierungsmethode
für kommunale Infrastrukturprojekte“, en JM (Juris: die Monatszeitschrift), 2016, p. 178.
48 Sonja Kay, op. cit., p. 182.
14 MÓNICA LILIANA IBAGÓN
participation of the citizens in the financing of the project could help mitigate
certain risks, such as social and political. This could be an alternative option for the
financing of public infrastructure in Colombia.
CONCLUSION
The financing structure of PPP projects in Colombia was described. This is a
response to the question of how to set up financing structures that allow public
entities to have access to economic resources from the private financial market for
investment in public infrastructure. It was demonstrated that PPPs, structured
under Project Finance standards, form a system determined by a normative
complex organized by subsystems and interacting and interdependent elements
conditioned by a process of control and communication. The classical theory of
direction, represented by the linear relationship between the subject and the object
of direction, gives way to a model in the form of a network that takes into account
economic influences.
The systematic treatment of the financing of the PPP contracts is the element
that makes it novel in front of the public works and the concession as classic
techniques of financing of public infrastructure.
It was shown that this systematic nature has an effect on the legal
configuration of the content of the PPP contract. It was shown that financing
depends, on the one hand, on budgets that condition it and, on the other, it acts as
a determinant of other elements of the system; so that there is a close relationship
between the financing of the project and the challenge of contractual management.
The correspondence between the components of the project finance system is of
reciprocal conditioning and is determined by the communication between its parts.
It was found that the project financing system also determines and is
determined by the communication of the elements of the system with its
normative, institutional, technical, economic and financial environment, at the
national level (as, for example, Art. Law 1508 of 2012 on future vigencias for PPP
projects) and international (such as the new Basel III regulation).
PPPs, then, would be part, in Luhmann's words, of a system closed political
self, insofar as Project Finance produces the elements of which it is composed, but
at the same time it is open, because that own reproduction can only be carried out
in relation to its surroundings.
Fundamentals of project finance applied to private public … 15
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