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Social Infrastructure Development: The Case for Private Participation in Potable Water Supply in Colombia

SECOND EDITION

Prof Juan David González-Ruiz
Faculty of Business Studies and Marketing
University Institution Esumer
Medellin, Colombia

Carlos Alejandro Arboleda, PhD
Profit Investment Bank
Bogotá, Colombia

and

Prof Sergio Botero
Faculty of Mines, National University of Colombia
Medellin, Colombia


ABSTRACT

The growing need for promoting the development of social infrastructure in order to close the gap in potable water supply requires an active participation of the private sector. Indeed, public policies are required to detect the critical aspects and challenges toward a reliable water supply for larger populations. This paper emphasizes the analysis and assessment of the current conditions of potable water supply sector in Colombia. In this context, we do consider potable water supply as an important component of social infrastructure taking into account the existing regulations for utility companies in Colombia and the current legislation (Bill 1508/2012), which promotes private sector participation in developing infrastructure. As a result of this analysis, new policies could be implemented by local authorities to foster new private investments in social infrastructure projects. In addition, new funding mechanisms could be explored to diversify the supply of financial resources, including those from capital markets and multilateral agencies. It is expected that this paper will contribute to define policies and best practices to increase the participation of the private sector in potable water supply taking into account the legal and regulatory environment in Colombia, which it is very similar to other developing countries.

INTRODUCTION

During the last decades, the potable water supply sector in Colombia has experienced little changes related to the way it operates and how it involves the private sector in the provision of this essential service. As a result of this condition, the gap in potable water supply coverage has not had a meaningful increase over time. Consequently, this has caused many environmental, economic and public health effects. For example, in rural areas (inhabited by the poorest segments of the population) polluted water sources and distribution networks in poor conditions have produced various diseases gastrointestinal disorders, which is responsible for 7.3% of infant mortality (Mejia et al., 2012).

For this reason, the central government must create mechanisms that encourage the engagement of private investors in the different social infrastructure projects, particularly in the potable water supply sector in order to improve and expand coverage of the service, especially at the poorest areas. In order to encourage the participation of the private sector, the Colombian government enacted in 2012 the Bill 1508 on Public-Private Partnerships (PPPs), which aims to regulate and generate mechanisms of participation and involvement of the private sector to develop public infrastructure.

This legislation and its implementing regulations were developed with the aim of accelerating the development of infrastructure, particularly in roads and other user fee based systems. In 2014, ten projects were awarded with total investments above US$ 5 billion. These projects and their investments will start by the end of 2015 once the financial closing is achieved. For public services provision, the government issued in January 14, 2015, a decree named 063 to regulate the particularities in the implementation and commissioning of Potable Water and Basic Sanitation projects.

Similarly, this paper addresses the challenges associated with finding appropriate funding for social infrastructure, particularly for potable water. In this context, the observed need for increasing potable water supply coverage confirms the requirement to create mechanisms to involve the private sector to provide infrastructure services of potable water. Therefore, it is necessary to generate strategies aligned with public policies leading to identify key challenges and critical issues. Furthermore, PPPs could define how both parties, the private investor and the public sector, align their interests towards developing projects that consider factors such as sustainability, accessibility, and reliability on potable water supply. Therefore, involving the private sector to provide potable water supply through schemes associated with the development of projects through PPPs and project finance as a mechanism for structuring and financing of projects must be promoted.

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To read entire paper (click here)

Editor’s note: Second Editions are previously published papers that have continued relevance in today’s project management world, or which were originally published in conference proceedings or in a language other than English. Original publication acknowledged; authors retain copyright. This paper was originally presented at the 2nd annual University of Maryland Project Management Symposium in College Park, Maryland, USA in June 2015. It is republished here with the permission of the authors and conference organizers.

 


 

About the Authors

 

pmwj39-Oct2015-Gonzalez-GONZALEZJuan David González-Ruiz

Medellin, Colombia

Colombia - small flag

 

 

Juan David González-Ruiz is an Associate Professor at the School of Management and Marketing, Institución Universitaria Esumer. He is Ph.D Candidate in the Universidad Nacional de Colombia, Facultad de Minas, where he received his B.S. in Management Engineering as well. He holds a Master’s degree in Financial Management at the Universidad Complutense de Madrid, and a Specialization in Management and Prospective Strategy at the Universidad Potificia Bolivariana. When he was studying in Spain, he was a research assistant of VICO Project with Prof. José Marti Pellon. He worked in Constructora Conconcreto S.A., a major construction company in Colombia as a Business Strategy Analyst. His experience includes significant know-how in financial modeling, capital market, business strategy, project investment, and experience in the infrastructure sector. He is co-author of the book “Principles of Modeling Financial in Excel”, which was written with Prof. Santiago Medina Hurtado. He has been advisor for companies in valuation, mergers and acquisitions, business plans, and debt restructuring. In January 2012, he was awarded a research fellowship by Universidad Nacional de Colombia. In 2015, he was awarded as the best teacher at the Institución Universitaria Esumer in the Project Management Specialization Program. His research area is water supply infrastructure based on Project Finance and Public-Private Partnerships. Juan David is based in Medellín-Colombia and can be contacted at [email protected] or [email protected]

 

Cpmwj39-Oct2015-Gonzalez-ARBOLEDAarlos Alejandro Arboleda

Bogota, Colombia

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Carlos Alejandro Arboleda is Civil Engineer from the Facultad de Minas (Universidad National de Colombia – Medellín), with a Master’s Degree in Civil Engineering from Universidad de los Andes (Colombia) and a Master of Science and Ph.D. in Civil Engineering from Purdue University (USA), with emphasis on infrastructure development and management and structuring of projects under Public Private Partnership. With over 20 years of experience in engineering projects, Alejandro has worked in Pedro Gomez y Cia as infrastructure and operations manager. He also worked for Constructora Conconcreto S.A. for over 10 years as project engineer and project manager for infrastructure projects. He is currently working as partner / director at Profit, an investment banking firm in Colombia with emphasis in the infrastructure sector. Alejandro has been a visiting professor at the Civil and Environmental Engineering Department at the University of Illinois – Urbana Champaign. Since 2010, he has been teaching a graduate course on Private Public Partnership at Universidad de los Andes in Bogotá where he is currently a visiting professor. Carlos Alejandro can be contacted at [email protected] or [email protected]

 

pmwj39-Oct2015-Gonzalez-BOTEROSergio Botero

Medellin, Colombia

Colombia - small flag

 

 

Sergio Botero B. is an Associate Professor at the Organizations Engineering Department, Faculty of Mines, Universidad Nacional de Colombia at Medellin. He holds a Doctor of Science degree in Engineering Management  – (Major: Energy and Environmental Management)  at The George Washington University, Washington, DC.,  a Master´s degree in Engineering Management at Catholic University of America, Washington, DC. and a Bachelor degree in Mechanical Engineering at Universidad Pontificia Bolivariana, Medellin, Colombia. His experience includes the following positions: Professor and Researcher in “Universidad Pontificia Bolivariana” (Medellín, Colombia), in the Energy and Thermodynamics Group, Focused in Energy Efficiency projects in Colombia. Consultant in the Inter-American Development Bank (Washington, D.C., U.S.A.), as a technical assistant of the “Sustainable Markets for Sustainable Energy” Program, which was focused in developing markets for energy efficiency and renewable energy in Latin American countries. Director of Turbogen department, “Motoplantas Bristol” (Medellín Colombia), marketing micro turbines in Colombia and power plants for rent. In his current position at Universidad Nacional he has worked in the following activities: Director, Organization Engineering Department. Director of the “Energy – Environment – Economy Modeling and Analysis” research group. In addition, he has been teacher in the following programs, Postgraduate: Doctorate in Engineering – Industry and Organizations. Master in Engineering Management, Specialization in Energy Markets, Specialization in Financial Engineering, Specialization in Management. Undergraduate: Engineering Management, and Industrial Engineering. Sergio is based in Medellín-Colombia, and can be contacted at: [email protected]