Patient payment

SACYR wins hospital construction project in Chile, but what are the risks?

Earlier this month, SACYR won the tender to build and equip a USD 120 million hospital in Buin-Paine, Chile, the sixth hospital it has constructed in the country over the last 24 years.

There has been strong recent interest from foreign investors in the health sector in Chile, particularly private participation in bids for construction and operations of hospitals. An investment director at a large family office explains, “After President Bachelet failed to suspend all hospital concessions, private participation will continue to be essential to address the expansion of hospital coverage. Chile is trying hard to reduce the hospital deficit.”

“Chile is trying hard to reduce the hospital deficit.”

Investment director, family office, Chile

The opportunity is there but what about the risks? For the time being, let’s put social and political unrest aside.

This is Latin America so most international investors’ first concern is around corruption. In Chile, the corruption risk is low, a director of a major construction company in Chile reassures, “The bidding processes are conducted under the watchful eye of many competitors and the authorities. Historically, there is no record to suggest irregularities in tender processes.”

Instead, our sources believe the primary risk is related to government bureaucracy. The director explains, “Few companies that come to Chile expect or have the capacity to effectively navigate state bureaucracy. Hospital construction is overseen by the Ministry of Public Works, the bureaucracy there is notorious.”

“Few companies that come to Chile expect or have the capacity to effectively navigate state bureaucracy.”

Director, construction company, Chile

Government relations can be complex and knowing how to properly engage with the bureaucrats without crossing the line of what is considered prudent and appropriate is crucial. A manager at an international construction firm with experience in Chile confirms, “It is important to know how to interact with the authorities without creating unforeseen reputational risks or delays.”

A board director of a large Chilean construction company reports that compliance by the State, around both the conditions of contracts and payments, is also a risk, “On-time payment is a particularly sensitive issue.”

Payments are processed by ministerial administrators with lists of payments to approve and they have some discretion on priority. An executive at a local construction company warns, “Being on bad terms with those officials responsible for payments can create very damaging delays.”

This may sound like a common problem for experienced infrastructure investors, but our sources affirm that government relations in Chile is especially complex, as one advises, “You have to do your homework.”

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