The London School of Economics reported in a blog post in July that mid-project abandonment was a problem in Peruvian infrastructure, which was being exacerbated by the Coronavirus pandemic. Probably true but amidst the predictable academic self-citation and questionable statistics, the authors briefly touch upon a critical industry trend – the emergence of Government-to-Government (G2G) technical assistance agreements.
In this brief note, we will separate the wheat from the chaff with some unbiased and informed local perspectives. It is a widely held belief that the main problem the Peruvian infrastructure sector is facing, is the complexity of its regulatory framework. A senior source at the Ministry of Economy and Finance certainly agrees, “We have such lengthy, bureaucratic laws and processes that are impossible to circumvent and following wide reaching corruption investigations e.g. Lava Jato, public officials are too scared to make decisions.”
A former director of Proinversión, the government agency designed to promote investment, quickly got to the root of the problem, “The underlying issue is that the state’s contracting law is unwieldy and needs to be rewritten.”
“The underlying issue is the state’s contracting law.”
Former director of Proinversión.
An interesting work-around has recently emerged in the shape of G2G agreements such as that signed between Peru and the United Kingdom (UK) to rebuild facilities in Northern Peru, damaged by El Niño.
Our source at Proinversión commented, “The government wants to get works out quickly and competently and with these G2G schemes that can be done. They are a political issue so lawsuits and suspicions of corruption are avoided and importantly, the state contracting law is by-passed.”
It is not surprising then that G2G’s are gaining popularity. The first G2G arrangement was with the UK to support the 2019 Pan-American games, but the Chincheros airport was also tendered under a G2G scheme in 2019 and there is another agreement with France for the construction of two hospitals.
“The PPP system needs a comprehensive reform.”
Senior official at the Ministry of Economy and Finance.
The pipeline is also filling up: lines 3 and 4 of the Lima metro and the central highway from Lima to Huancayo are both likely to be tendered under G2G’s. In parallel to this, the pipeline of Public-Private-Partnerships (PPP) is deteriorating. Our source at the Ministry of Economy and Finance explains the issue, “The big problem is the lack of symbiosis between the public and private sectors and the PPP system needs a comprehensive reform.”
With other Latin American countries, such as Mexico, openly stating their dislike of PPP’s, could G2G agreements be the future?