CHILE, A COUNTRY OF OPPORTUNITIES FOR INVESTMENT IN INFRASTRUCTURE
Chile, the best evaluated emerging economy in Latin America, is seeking to take a decisive leap forward in public infrastructure, similar to that on which it embarked 20 years ago when a public-private alliance opened the way to investments of over US$20 billion that changed the face of the country.
We have set ourselves the challenge of achieving a per capita income of US$30,000 by 2030 and, through what we have termed our 30 30 Agenda.
To this end, we have a portfolio of initiatives being analyzed, developed or implemented that, just in concessions to private companies, represents a total investment of US$12,95 billion between 2014 and 2020. In addition, through its annual budget, the Ministry of Public Works develops infrastructure throughout the country, projects that also represent important business opportunities for private companies, both local and from overseas, in construction of the infrastructure, services and consultancy.
In the context of this national effort, we are working to achieve broad consensus on the development of a new institutional framework for concessions, new financing instruments such as an Infrastructure Fund and new standards for service quality and citizen participation.
Thinking of investors interested in tapping into these many opportunities in public infrastructure in Chile, this publication explains the different instruments, rules and norms that regulate these investment alternatives.
We invite you to learn more about these opportunities and the instruments for their materialization in the belief that they represent not only a profitable business prospect within a framework of stable rules of the game but also a chance to make a substantial contribution to the development of the country, its economy and all Chileans.
The Ministry of Public Works has a set of norms and rules that regulate the procedures for the participation of private players - local or from overseas - in the projects it implements both directly under its annual budget and through the public-private alliance of the concessions system.
This set of norms and regulations constitutes a harmonic whole under the principles of transparency and efficiency in the use of the public resources involved.
This publication explains the main instruments regulating private participation in public infrastructure projects. This participation can take two specific forms: the implementation of infrastructure or studies or the provision of consultancy or other services financed out of the Ministry's normal budget or, secondly, through the concessions system. The later includes a mechanism for proposing projects for implementation under the system providing they are judged on their merit as being of public interest
Key elements or tools of the normative and regulatory architecture of the Public Works Ministry include instruments such as the Regulation of Public Works Contracts, the Regulation of Hiring of Consultancy Services and the Public Works Concessions Law and Regulation.
For the information of local or international investors interested in participating in Ministry of Public Works infrastructure projects, the current provisions of these norms are explained below.
The Regulation of Public Works Contracts governs contracts with local or overseas private companies interested in participating in infrastructure projects financed by the Ministry of Public Works.
This regulation is an integral part of all contracts for the implementation of infrastructure signed by the Ministry, its general directorates and services. It defines the functioning of the General Register of Contractors which is administered by the General Directorate of Public Works and establishes the categories in which bidders in a tender must be registered according to the estimated value of the respective contract. For certain types of infrastructure, the regulation permits creation of a Special Register of Contractors.
In general, it defines requirements as regards experience, economic capacity and professional personnel. It also authorizes the participation of consortia formed by two or more contractors and the terms of tenders. It stipulates that overseas companies or consortia of which they form part may participate in tenders, establishing the same requirements as for local contractors or their equivalent under the legislation and regulation in force in their country of origin.
Applications for inclusion on the Register of Contractors of overseas legal entities implies the existence of a representative accredited in Chile and of individuals with a professional qualification awarded by an overseas university with an academic level equivalent to that in Chile and recognized in Chile. In order to register, overseas corporations must also comply with the norms established for this purpose under Chilean legislation. Overseas contractors will be considered as Chilean for purposes that include claims and the interpretation of contracts.
Regulation of Public Works Contracts
Register of Contractors - Categories and Areas of Specialization
Instructions for Large Infrastructure Contractors
Application Form for Contractors Register
The Regulation of Hiring of Consultancy Services governs all contracts for studies, projects and advisory services signed by the Ministry of Public Works throughout Chile that are related to the construction of infrastructure and the Ministry's own activities. They are awarded through a system of public tenders in which any consultant registered in the corresponding area of specialization and category can bid.
The General Directorate of Public Works has a Register of Consultants and, in certain conditions, may create special registers. Local and overseas individuals and legal entities are eligible for inclusion on this Register providing they fulfill the requirements. Local consultants are individuals or legal entities established in Chile under Chilean legislation.
An overseas consultant will be understood to be a foreign individual or a legal entity established overseas in accordance with the laws of the country in which it was established. Overseas consultants must have a legal representative in Chile. The participation of consortia whose members are duly registered is permitted. In the case of consortia formed by an overseas consultant, the local consultant must have a stake equivalent to at least 30% of the value of the contract. In any case, the consultant will be considered Chilean, even when this is not the case, for legal and regulatory purposes related to the contract.
Details of the Regulation of Hiring of Consultancy Services
Instructions for Consultants
Application Form for Registration of Consultants
The legal framework for the Concessions area comprises the Decree with force of Law of the Ministry of Public Works (DFL MOP) N° 850 of 1997, the Public Works Concessions Law (Supreme Decree MOP N° 900 of 1996) and its associated Regulation (Supreme Decree N° 956 of 1997). Under this legal framework, the Ministry of Public Works may award a concession on all types of fiscal public infrastructure and, if the infrastructure to be concessioned falls under the powers of another state body, this body may delegate the power to award a concession to the Ministry of Public Works. Projects are awarded through a local or international public tender and, when warranted due to the infrastructure's special complexity, scale or cost, a local or international call to prequalify is issued.
It is important to note that the Public Works Concessions Law was significantly modified by Law N° 20.410 through changes that included the introduction of explicit service standards and certain technical standards in tender term sheets; the creation of a high-level Consultative Council to advise the Public Works Ministry on new projects and an Interdisciplinary Technical Panel to intervene in technical or economic controversies prior to the judicial stage; and the introduction of new regulation on the modification of concession contracts.
The Concessions Law and its associated Regulation establish the provisions that govern contracts for the concession of fiscal public infrastructure, the functioning of the Consultative Council, the administration's inspection and oversight and the functioning of the Technical Panel for dispute settlement as well as the award and formalization of the contract and the concession holder's rights and obligations. These norms form part of all concession contracts.
In particular, the Regulation governs aspects related to contracts, the tender of projects proposed by private players, the tender and award process and aspects related to technical and economic bids.
It is important to note that the winner of a contract must legally establish a Chilean concession company or agency of the overseas company with which the contract will be understood to be signed for the purposes of implementing, repairing, conserving and exploiting fiscal public infrastructure under the concessions system. The winner of the concession must hold at least 51% of the rights and undertake not to transfer them during the construction period without the authorization of the Public Works Ministry, notwithstanding the provisions of the corresponding legislation. The said Concessions Regulation also establishes possible sanctions as well as the guarantees on contracts, the payments envisaged, the provisional and definitive start of operation of the infrastructure, possible modifications to the infrastructure or the contract and the role and functioning of the Arbitration Commission.
Guaranteed Minimum Income and other tools to facilitate financing
Public works infrastructure concession contracts may include a Guaranteed Minimum Income and Income Sharing; Exchange-Rate Hedging (US dollars and euros); an Income Distribution Mechanism (MDI) to stabilize concession companies' expected income from additional work for the state; a Mechanism of Award to the Lowest Present Value of Income (VPI) to adjust the concession period to a set level of income; a Non-Possessory Lien to permit bank financing of projects on the basis of the rights granted by the state; and the issue of Infrastructure Bonds to facilitate the participation of private agents in the long-term financing. The characteristics of contracts of this type with a long lead time mean that all the agents involved must necessarily be in agreement about the way projects are financed (concession companies, insurance companies, financers, banks). In addition, the existence of a local capital market permits long-term financing and access to derivatives for hedging against certain types of risk (swaps, futures, options, insurance).
Under the Concessions Law and its associated Regulation, any individual or legal entity may propose to the Ministry of Public Works, as a private initiative, the implementation of infrastructure under the concessions system.
Such initiative is first reviewed by the Public Works Ministry and the corresponding state bodies to assess whether the proposed project is of public interest or whether it does not warrant being qualified as such. If it is rejected, the proponent will receive a letter to this effect, setting out the reasons. If it is declared to be of public interest, the proponent will be asked to provide a bank guarantee or insurance policy to guarantee the obligation to complete minimum studies for the private initiative and their sufficiency, which will depend on the project's value. The Public Works Ministry will ask the proponent for different studies such as the preliminary engineering, demand and social evaluation studies, an environmental and territorial study, a study of compulsory purchase orders, and legal, business-design and economic-financial studies.
Public Works Concessions Law and Regulation
Private Initiatives in the Public Works Concessions System