30 years of concessions in Chile: What are the new challenges?

The works privatization system today has totalled more than 100 contracts and more than US$27 billion in works distributed throughout the country.

On April 8, 1993, the Public Works Ministry (MOP) awarded a public infrastructure initiative under the concession model for the first time. The construction and subsequent operation of the El Melón Tunnel, which connects the provinces of Quillota and Petorca in the Valparaíso Region, was left in private hands. Almost 30 years have passed since that milestone, and more than 100 contracts of this type for a total of more than US$27 billion to March 2022 have been awarded.

And although the works developed have greatly contributed to the connectivity of the country and the improvement of health and transportation-related public services, there are still several challenges for this and succeeding governments. This is not only in terms of the completion of new works that respond to current problems, such as the drought, but also to the re-legitimization of a system that has sometimes been harshly questioned by the public.

Looking back, Carlos Hurtado, former Public Works Minister and the person responsible for inaugurating this system during the term of former President Patricio Aylwin, highlights the success and strong acceptance of the concessions system by the public and private sectors, as well as the “transparency” that he points out has characterised public tenders. In this sense, it demonstrates progress in areas such as those related to drinking water.

And although he maintains that, in general terms, “the route is well defined,” he specifies that there are issues on which there is still a long way to go, such as the prison system, which causes him “a lot of concern.”

He also indicates that attention must be paid to Chile’s ports, particularly to “the efficiency of the distribution of cargo that reaches the ports destined for the interior, and vice versa.” And he points out the need to decongest large vehicle arteries, such as Ruta 5.

“The Public Works Minister and the President have a lot of issues to worry about. But there are a number of social needs in terms of housing, health and others that make it very difficult to obtain the resources to develop these projects. And that is why the area of concessions is so critical and important for this country,” Hurtado states.

Re-legitimize the model

At the Council for Infrastructure Policies (CPI), the view is similar. The council’s executive director, Carlos Cruz, points out that the incursion of the concession system into fundamental activities allowed the country to attract investments for projects that would have had to be done anyway, but “in a more relaxed manner over time.” And he states that “the incorporation of private parties into the development of public infrastructure has fulfilled more than satisfactorily what was initially thought,” and has even placed Chile “in a privileged position in terms of its infrastructure at the regional level.”

For Cruz, Public Works Minister between 2000 and 2002, the contribution of private companies to the main road network has implied “a high level of service.” He emphasizes the standard of the airport sector, which he says “is first world.”

Looking ahead to the coming years, he considers it urgent to finalize port interconnections, think about routes that can use the concession system for tourism purposes, and redesign the drinking water strategy. “Why build dams when there is no water? The main concern should be to think about a network of small reservoirs in the different watersheds,” as well as a more intense desalination policy, he comments. And he suggests promoting consolidated projects in order to extend their benefits to other sectors of the country.

Strengthening institutional structure

Cruz stresses that one of the challenges for this government is to retake the initiative for state infrastructure projects, as leaving the scheme “only in the hands of the private sector has been a tremendous mistake.”

In this context, he states that one of the challenges is “to find the way through which an industry that is being questioned has to re-legitimize itself.” He affirms that “the essential thing is to worry about how to ensure that you are working for people’s well-being and not simply to facilitate the profitability of a few companies.”

Cruz emphasizes that it is necessary to improve the system’s institutional structure by strengthening the Technical Panel, and giving the Concessions Council “a much more active role from the point of view of designing public policy.”

Source: Diario Financiero. 

If you are interested in finding out more about concessions system and investment opportunities in infraestructure in Chile, read this article.