China Construction America to take over Colombia road project

US$1 billion project had been stalled after being initiated in 2016

China Construction America (CCA), a local unit of China State Construction Engineering Corporation, has taken over the construction and ownership of the stalled Santana-Mocoa-Neiva road concession project in Colombia.

The US$1 billion project was initiated in the second half of 2016, but work was later suspended because the concessionaire, Aliadas para el Progreso, could not get the necessary financing. Around 62% was held by Grupo Solarte.

The National Infrastructure Agency initiated a process to terminate the contract, given that a default had occurred. Only around 5.2% of the work has been completed on the road, which is part of the fourth generation (4G) roads programme.

Colombian entity Ethuss Group requested several times to take over the works on the road, but only presented a non-binding offer.

Within the framework of the concession agreement, the original concessionaire is able to present a remedial plan under which it can put forward another company to take responsibility for completing the road.

In February 2019, ANI declared the serious breach of the obligations of the concession contract. But Concessionaire Aliadas para el Progreso has now delivered the remedial plan, and the binding offer from CCA filed to ANI. Particularly in light of the financial strength of CCA, the Colombian government has said that it favours CCA Colombia involvement.

An official from ANI told local newspaper La Republica that it has begun a series of working groups with CCA to review the considerations of the offer. ANI is giving CCA around six weeks to complete the offer, and if all goes well construction activity will restart in January 2020. 

The new concessionaire would be given three years to complete the 456-kilometre highway. According to ANI, the objective of the PPP project is to consolidate a corridor for the mobilization of passengers and cargo from Ecuador and southern Colombia with the center of the country, improving competitiveness and promoting the development of the departments of Huila, Cauca and Putumayo.

The importance of the project is illustrated by the fact that its revival was personally announced by Colombian President Ivan Duque, during a visit to the municipality of Pitalito.

"From the first moment we arrived at the government, we assumed the challenge of reactivating the program of the 4G highways. Today we can tell the country that we managed to give viability to one of the most complex projects," he said.

Duque was elected in August 2018. In July this year, he made an official visit to Beijing and met with Chinese President Xi Jinping. During the visit, Duque announced that a loan from China Development Bank had been agreed for another 4G road project called Mar 2.

A consortium led by China Harbour Engineering Company Limited has put in place approximately US$658.2 million of multicurrency funding for the Concesión Autopista al Mar 2, which is a toll road project.

The financing is the first private investment made by a Chinese construction company under Colombia’s 4G highway infrastructure program, and also marks the first financing made by China Development Bank under the 4G program.

The syndicate of lenders comprises SMBC, Colombian development institution Financiera de Desarrollo Nacional, and China Development Bank. The lenders were represented by law firm Paul Hastings. 

Colombia's Cuarta Generacíon (4G) road infrastructure program is the largest road program in Latin America, consisting of 29 toll road projects to be constructed and operated throughout the country by various private developers, and the Autopista al Mar 2 project consists of over 254 kilometers of highways connecting the city of Medellin to the Caribbean coast. 

The project is being developed by China Harbour Engineering Company and the Colombian construction companies S.P. Ingenieros S.A.S., Unidad de Infrastructura y Construcciones Asociadas S.A.S., and Termotécnica Coindustrial S.A.S., and involves approximately US$1 billion in capex, with debt commitments of approximately US$652 million in a dual-currency Colombia peso-US dollar financing. This is one of the first PPP projects to be financed in Latin America with a Chinese sponsor.

Date

4 Dec 2019

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