Infrastructure in the Pan Amazon: Public-private partnerships

  • Mongabay has begun publishing a new edition of the book, “A Perfect Storm in the Amazon,” in short installments and in three languages: Spanish, English and Portuguese.
  • Author Timothy J. Killeen is an academic and expert who, since the 1980s, has studied the rainforests of Brazil and Bolivia, where he lived for more than 35 years.
  • Chronicling the efforts of nine Amazonian countries to curb deforestation, this edition provides an overview of the topics most relevant to the conservation of the region’s biodiversity, ecosystem services and Indigenous cultures, as well as a description of the conventional and sustainable development models that are vying for space within the regional economy.
  • Click the “A Perfect Storm in the Amazon” link atop this page to see chapters 1-13 as they are published during 2023.

The concessionaire system in Peru is managed by the Organismo Supervisor de la Inversión en Infraestructura de Transporte de Uso Público (OSITRAN), which oversees investments in transportation infrastructure, while the electrical system is administered by the Organismo Supervisor de la Inversión en Energia y Minería (OSINERGMIN). Both of these regulatory agencies supervise joint ventures that have been organized by the Agencia de Promoción de la Inversión Privada – Peru (ProInversión), a government agency that conceives projects, attracts investment capital and administers the auctions that launch public-private partnerships (PPP).

There have been several high-profile PPP projects in the Peruvian Amazon, most notably the two IIRSA interoceanic highways that are operated by construction companies that allegedly co-financed their construction in partnership with the Peruvian state, the IDB and CAF. The term ‘allegedly’ is used because the construction companies didn’t actually invest a significant share of the capital upfront but assumed (partial and limited) liability for repaying debt raised in public capital markets.

The northern project (IIRSA Norte) shows the potential to leverage public and private capital for a development project. It was co-financed by the Peruvian state and the IDB, who together paid for feasibility studies, environmental review and the engineering design required to tender the project via a concessionary system. The construction was financed by infrastructure bonds traded in public markets that are to be repaid (in part) by revenues from highway tolls collected by the concessionaire. The concept has been hailed as an innovative financial product because it expands the pool of financial resources by legally obligating highway revenues to debt repayment.

Nonetheless, these bonds are still a form of sovereign debt and, if the business model fails, the state remains responsible for debt repayment. The IIRSA Norte project was completed on time and in relatively good fashion but at more than double the original cost estimate ($US 575 million vs. $US $250). The original budget was unrealistically low and there are multiple reasons to question the quality of the environmental review; nonetheless, the highway is an important transportation asset that links economically active areas in the northern part of the country. As of June 2020, the highway was generating significant revenues and OSITRAN listed it as income-generating asset.

Bridge on the Manu Highway. Credit: Rhett A. Butler.

In stark contrast, the southern enterprise (IIRSA Sur) is emblematic of the risks associated with a highway through a wilderness area conceived via an inadequate feasibility study with mediocre environmental review, deficiencies that were compounded and expanded by self-dealing and political corruption. This highway is at the heart of the Lava Jato scandal in Peru, and its principle contractor, Oderbrecht, has pleaded guilty to various forms of malfeasance.

The losses incurred by the project are much greater than the bribes paid to officials or the excess billing of avaricious companies because the final cost of construction ($US 2.5 billion) was vastly underestimated ($US 879 million). Unlike the northern project, the highway has not generated any revenue, which has forced the state to assume full responsibility for debt repayment.

The IIRSA Sur imbroglio has stained the reputation of the concessionaire system in Peru. Nonetheless, it is used to operate 16 highways, 22 airports (4 in the Amazon), 3 rail systems, and 10 ports (4 in the Amazon) and the Amazon waterway. The total investments channeled via the OSITRAN concession system add up to more than $US 9 billion, approximately double the amount lent to Peru for infrastructure by the IDB over the same period.

Peru also has a national development bank that finances private sector projects, the Corporación Financiera de Desarrollo SA (COFIDES) has multiple strategies for raising capital, including by offering sovereign debt in international bond markets. Some of these are part of the IIRSA portfolio, including IIRSA Sur -Tramo 1&5 (the non-Oderbrecht components) and others, such as the Gasoducto Sur Peruano, that fall outside the remit of the regional infrastructure integration portfolio.

COFIDES is active in the electrical energy sector and coordinates its investments with OSGERMIN and ProInversión. Within the Amazon watershed, hydropower investments are valued at approximately $US 300 million. This amount, however, is only a fraction of the OSGERMIN’s projected investments, which in 2020 showed the construction of sixteen hydropower plants with a total capacity of 2.7 GW at an estimated cost of $US 5.7 billion.

Construction in the port of the border town of Coca, in the Ecuadorian Amazon. Credit: Jeremy Hance & Tiffany Roufs.

In Brazil, highway and rail concessions are managed by the Agência Nacional dos Transportes Terrestres (ANTT), the electrical energy sector by the Agência Nacional de Energia Elétrica (ANEEL), and waterways by the Agência Nacional de Transportes Aquaviários (ANTAQ). All three agencies are key to the administrative procedures tied to the current administration’s policies to privatise strategic components of the national economy.

The expansion of the rail network in Brazil, outlined previously, is dominated by large corporations (Rumo/Cosan and VLI/Vale). The development of railroads is based on robust business models that have access to multiple sources of investment capital, including the Brazilian Development Bank. Depending upon the outcome of their environmental review, two additional rail concessions should soon move into the construction phase: Ferrograu (EF-171) and Ferrovia de Integração Centro-Oeste (EF-345). A third concession (Ferrovía Paraenese) is under development and state authorities in Pará have signed an agreement with a Chinese construction company to build the first phase of the project.

Because the project does not cross state borders, its developers may escape oversight by federal regulators; consequently, the project may proceed quickly in comparison to the more problematic Ferrograu. The concessionaire system for highways is less lucrative and, consequently, resembles the system described for Peru, where the concessionaire manages the transportation asset for a fee that is partially funded by tolls collected by the concessionaire.

In the Legal Amazon, privately operated highway concessions are both new and uncommon. As of 2020, there was only one: Roto do Oeste (BR-163), the strategically important corridor between the farm landscapes of central Mato Grosso and the logistical hub at Rondonópolis. The thirty-year, 600-kilometer concession was awarded in 2014 to Odebrecht Rodovias, which is contractually obligated to expand its capacity from two to four lanes over approximately half its length. These and other improvements are projected to cost R$ 5.5 billion, a reasonable sum to collect from the ~70,000 trucks that operate on the transportation corridor that moves agricultural commodities south and manufactured goods north.

Google Earth satellite image of the Belo Monte dam. Credit: Rhett A. Butler.

Four additional highway concessions in the Legal Amazon were being prepared for public auction in 2020 and, like the Roto do Oeste, all are important components in the truck-based bulk transport system that services the soy-maize complex of the Southern Amazon (Table 2.3). All four roads will be upgraded to accommodate heavy traffic, but only BR-364 in Rondônia is slated to be expanded from two to four lanes. Significantly, ANTT has stipulated that preparations for the terms of reference for BR-163/230 (MT/PA) should include measures that facilitate the eventual construction of the Ferrograu. All five projects are being supported by the PPI, a high-profile programme established in 2016 to fast-track private sector investment in strategic infrastructure.

Evidence of the current administration’s priorities was the inclusion within the PPI portfolio of financial support for the environmental reviews of projects delayed by social protests. The inclusion of BR-319 suggests that efforts to complete the highway between Manaus and Porto Velho will be successful; less notable, but of greater economic significance, are four highways in Mato Grosso that will improve farmers’ capacity to move their harvests to logistical platforms on the rail transport systems under development. Presumably, their inclusion within the PPI portfolio reflects a belief that they will pay for themselves and finance their construction via the concessionaire system.

PPPs are common in the electricity sector of Brazil and were used extensively during the administrations of Lula de Silva and Dilma Rousseff. Typically, the state is represented by a subsidiary of Electrobras as a minority shareholder in a joint venture with one or more private companies. The companies can be grouped into four categories: (1) construction companies who are contractors to the project; (2) pension or investments funds domiciled in Brazil; (3) metallurgical and mining companies seeking to ensure power for their processing mills; and (4) energy holding companies that acquire generation or transmission assets as part of their business model.

Energy holding companies, which attract investment capital from a variety of sources, are often characterised by complex corporate structures. For example, Neoenergia S/A owns ten per cent of Norte Energia (Belo Monte) and 51 per cent of the Tele Pires and Dardanelos facilities in Mato Grosso. Neoenergia is controlled by Iberdrola SA (51 %) a Spanish partnership with a large pension fund affiliated with Banco do Brasil (thirty per cent) however, approximately nineteen per cent of Neoenergias equity is a ‘free float’ that is held by investment funds from the United States and Europe.

Infrastructure projects supported by the PPI; values are projected cost of capital investments as reported by the PPI or based on methodology used by the Ministerio de Infraestrutura to calculate costs; values expressed in $US are based on exchange rates at the end of 2020.

Most of these energy companies also operate generation and transmission concessions without the participation of Electrobras. As of 2020, there were nineteen privately operated hydropower plants in the Brazilian (Legal) Amazon, ranging from the 1.1 GW mega-dam at Estreito ($US 2.4 billion) to the 20 MW power plant ($US 40 million) operated at the Pitinga mine near Manaus. Altogether, private companies operate about 3.6 GW of installed capacity that required approximately $US 5 billion in investment capital, compared to the 23 GW of capacity operated by PPP ventures that required between $US 30 and $US 40 billion. Legacy public-owned and operated power plants, such as Tucuruí, Balbina and Samuel, have a total of about 11 GW.

Between 2000 and 2020, the most important source of infrastructure finance in Brazil was the Banco Nacional de Desenvolvimento Econômico e Social (BNDES), a quasi-autonomous fund that extends loans and makes grants to both public and private entities. BNDES has a broad portfolio that supports infrastructure agriculture, technology, finance and manufacturing, as well as initiatives to reduce inequality and protect the environment. Total disbursements to projects in the Legal Amazon between 2002 and 2020 totalled R$ 171 billion (~ $US 78 billion); of this amount, approximately 65 per cent was allocated to infrastructure.

Although BNDES is autonomous, its authorities respond to policy priorities established by elected officials. The administrations of Lula da Silva and Dilma Rousseff embraced policies that stressed hydropower and the extractive industries, priorities reflected in disbursements made to finance a gas pipeline between Coari and Manaus (2007) and the dams at Estreito (2008), on the Rio Maderia (2009), and Belo Monte (2011, 2012). Investment in road construction and the electrical grid were present throughout the decade, including several regional highways in Mato Grosso (2012) and Pará (2005, 2006); investment in rail became a priority only after 2014.

The distribution of disbursements made to infrastructure projects located in the Legal Amazon by the Brazilian Economic and Social Development Bank (BNDES). Source: BNDES transparency portal:

BNDES also functions as an export-import bank by providing credit to facilitate the sale of manufactured goods; in addition, it has a specialised division that supports the export of engineering services. Between 2009 and 2014, the bank loaned $US 2.9 billion to entities that contracted Brazilian construction companies building hydropower plants in Ecuador, Venezuela and Peru.

The most noticable aspect of BNDES’ recent history is the decline in its lending activities after 2014, following the collapse of commodity prices that triggered an economic crisis: National GDP fell by 3.5 per cent in 2015 and by 3.3 per cent in 2016. The economic recession was exacerbated by the inability of BNDES to act as a counter-cyclical source of fiscal stimulus, due in part to a lack of revenue from non-performing loans embroiled in the Lava Jato scandal.

More important, however, was the macroeconomic environment that caused foreign investors to abandon the country’s capital markets, which limited BNDES’ ability to raise fresh capital. More recently, the Bolsonaro adminstration has imposed budgetary restraints and obligated the bank to return hundred of billions of reais to the federal government. Ironically, the government’s privatization policies may assist BNDES to renew its investment capital by liquidating its equity shares in Brazil’s flagship companies.

Conexión Pacífico 2 connects the Colombian region of Antioquia with the Eje Cafetero and the western part of the country. This road has been in operation since October 2021. Credit: Manuel Saldarriaga / El Colombiano.

In Colombia, the concessionaire system is managed by the Agência Nacional de Infraestructura, which has overseen approximately $US 12 billion in highway investment in the country since 2010. Most of that activity occurred in extra-Amazonian regions and only two concessions have been awarded within the Colombian Amazon. The Malla vial del Meta, which is operated by a consortium of Colombian construction companies, is an important transportation asset that provides access to the oil palm landscapes of Meta. Portions of this highway network constitute the northern component of the Carretera Marginal de la Selva and functions as a gateway to the coca frontiers that surround La Macarena National Park.

The other concession consists of the Santana – Mocoa – Neiva (R-45) corridor that connects Bogotá with the oil fields of Putumayo. This highway was originally adjudicated to a Colombian consortium, but was recently acquired by China Construction America, a subsidiary of the world’s largest construction company: China State Construction Engineering Corporation Ltd (CSCEC). The contract obligates the concessionaire to invest $US 21 million in its first year of operations (2021) and eventually reach a total target of ~ $US 440 million.

Like many Chinese corporations, CSCEC is a publicly traded company; nonetheless, it is closely associated with the government of the People’s Republic of China. Coincidentally, one of China’s state owned oil companies, Sinochem, has acquired a half dozen oil concessions in the Putumayo region. Both companies are considered to function as a branch of China’s military-industrial complex and to coordinate actions to advance the strategic interest of the Chinese state.

“A Perfect Storm in the Amazon” is a book by Timothy Killeen and contains the author’s viewpoints and analysis. The second edition was published by The White Horse in 2021, under the terms of a Creative Commons license (CC BY 4.0 license).

Read the other excerpted portions of chapter 2 here:

Chapter 2. Infrastructure defines the future