Foreign and Local Investment in Infraestructure
CHILE, A COUNTRY WITH OPPORTUNITIES FOR INFRASTRUCTURE INVESTMENT
The global flow of foreign investment in the world have changed substantially in recent decades. This is mainly related to geopolitical changes, the value strategies of large companies and accelerated technological advances. In this context, Chile needs foreign investment to diversify its productive matrix and improve its infrastructure.
At the beginning of 2021, Chile concentrated more than three quarters of its FDI stock, mainly in natural resources and services, and is committed to giving a decisive boost in public infrastructure, similar to what the country undertook more than 25 years ago, when the public-private partnership made it possible to generate investments of over US$25 billion that have definitively changed the face of the country.
We have given ourselves the challenge of achieving a per capita income of US$30,000 by 2030, and the infrastructure that we need for that can be found within Agenda 30 30.
Thus, we have a portfolio of initiatives being studied, developed and carried out of about US$15,000 million between 2020 and 2025, just regarding concessions.
In addition, as the Ministry of Public Works carries out its annual budget, this entails the development of works throughout the whole country and constitutes relevant business opportunities for both national and foreign private actors, in the areas of infrastructure construction, services and consulting.
Likewise, we have made progress in a new institutional framework in terms of concessions with the creation of the General Directorate of Concessions, in new financing instruments, and new standards in terms of quality of service and civil participation.
Here we present various instruments, regulations and rules that stipulate these investment alternatives to interested investors.
We invite you to learn more about these vast opportunities and the instruments for their materialization with the belief that this will not only be a positive business to implement, but also a substantial contribution to the development of society, economy and national territory.
ALTERNATIVES FOR PARTICIPATING IN THE PROJECTS OF THE MINISTRY OF PUBLIC WORKS
The Ministry of Public Works has a set of rules and regulations that establish the procedures for the participation of national and foreign private actors in the projects to be carried out both directly under its annual budget and through the public-private alliance, represented by the concession system.
We present here the main instruments that regulate private participation in the projects of the Ministry of Public Works, considering that there are two specific forms of such participation: as developer of works, studies, consulting, etc.; financed with the normal budget of the Ministry; or through the system of concessions to private actors.
Instruments such as the Public Works Concessions Law and Regulations, the Public Works Contracts Regulations and the Regulation for Contracting Consulting Services constitute key elements or tools of the normative and regulatory architecture of the Ministry of Public Works.
The updated and current contents of these regulations will be presented below for the information of national or international investors interested in participating in the projects of the Ministry of Public Works.
PUBLIC WORKS CONCESSION LAW AND REGULATION
The legal framework for the Concessions area is based in DFL MOP No. 850 of 1997, the Public Works Concessions Law (DS MOP No. 900 of 1996) and its Regulations (DS No. 956 of 1997). By virtue of this regulation, the Ministry of Public Works can grant a concession for all fiscal public works, and if the work to be commissioned is under the power of another State body, this body may delegate the power of granting the commissioned project to the Ministry. It is established that projects are generally awarded through a national or international public bidding. A call for national or international prequalification is required when the work has special characteristics of complexity, scale or cost.
It should be noted that, through the enactment of Law No. 20,410, the Concessions Law underwent relevant changes, such as: the incorporation of explicit service levels and certain technical standards in the tender term bases; the creation of a high-level Advisory Board in charge of advising the Ministry of Public Works in the development of new projects; an Interdisciplinary technical panel that intervenes in technical or economic disputes, prior to the judicial stage; and finally, new regulations regarding the modifications of contracts.
The Concessions Law and Regulation establishes the provisions that govern the contracts of fiscal public works concession; the functioning of the Concessions Council; the inspection and oversight of the administration; and the functioning of the technical panel for dispute resolution. Likewise, the award and formalization of the contract; and the rights and obligations of the concessionaire. These rules are part of all concession contracts.
In particular, the Regulation stipulates aspects related to contracts; bidding for private initiative projects; the bidding and award process; and aspects related to technical and economic offers.
It is specified that the winner of a contract must legally establish a Chilean concessionary company, or agency of a foreign company, with whom the contract will be understood to be signed for the purpose of the execution, repair, conservation and exploitation of fiscal public works under the concession system.
The winner of the concession must hold at least 51% of the rights and agree not to transfer them during the construction period, without authorization from the Ministry of Public Works, notwithstanding the provisions of relevant legislation. Likewise, the aforementioned Concessions Regulation also establishes eventual sanctions, as well as the guarantees of the contracts, the foreseen payments, the provisional and definitive commissioning, eventual modifications to the works or the contract, and the role and functioning of the Arbitration Commission.
Relevant elements to invest under the concession system in Chile
To participate in bids for concessions in Chile, it is NOT necessary to be a Chilean company. Only in the case of winning the bid, the bidder must be established in Chile.
In Chile, bids are awarded according to objective parameters, defined in the bases. This allows for the entry of new bidders.
The government offers various guarantees in contract bids. Among them, we can highlight guaranteed minimum income, which limits the demand risk of the projects and allows for fundraising.
Chilean banks can offer the service of financing for concession contracts.
Regulation of Public Works Contracts
Register of Contractors – Categories and Areas of Specialization
GUARANTEES OFFERED BY THE STATE OF CHILE
The tools and guarantees offered by the State of Chile are varied, highly flexible and ensure investments from different perspectives.
The concession contracts of public infrastructure works may consider Guaranteed Minimum Income and Income Sharing; Exchange Rate Hedging (Dollars and Euros); Income Distribution Mechanism (MDI) that allows concessionaire companies to stabilize their income expectations associated with additional works for the State; Mechanism of Award to the Lowest Present Value of Income (VPI), which makes the concession term variable and more flexible for a given income level; the Non-Displacement Guarantees that allows bank financing of projects based on the rights granted by the State; and the issue of Infrastructure Bonds that facilitates the participation of private agents in long-term financing.
The characteristics of this type of contract with long-term execution means that all the participating agents must necessarily agree on the way in which the projects are financed (concessionaires, insurance companies, financiers and banks). In addition, the presence of local capital market allows long-term financing and access to instruments that cover certain types of risks (SWAP, futures markets, options and insurance).
PRIVATE INITIATIVES IN THE PUBLIC WORKS CONCESSIONS SYSTEM
According to the Concessions Law and Regulations, any individual or legal entity may apply to the Ministry, as a private initiative, for the implementation of public works through the concession system.
In the first stage, the private initiative is reviewed by the Ministry of Public Works and the corresponding State bodies, to establish whether there is public interest in the project presented or if, on the contrary, it does not deserve such qualification.
In case of being rejected, the proponent will receive a letter to this effect, setting out the reasons. In case of being declared of public interest, the proponent will be asked to provide a bank guarantee or insurance policy to guarantee the obligation to complete the minimum studies for the private initiative and their sufficiency, which depends on the value of the project. The Ministry of Public Works will request various studies from the proponent, such as preliminary engineering, demand and social evaluation, environmental and territorial study, expropriations, legal, business design and economic-financial studies, among others.
REGULATION FOR PUBLIC WORKS CONTRACTS
The Regulation for Public Works Contracts governs contracts with national or foreign private companies, interested in participating in public works that are being bid under the current budget of the Ministry of Public Works.
This regulation is an integral part of all contracts for the execution of works entered into by the Ministry, the 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 must be registered, based on the estimated value of the respective contract. For certain types of works, the regulation permits the creation of a Special Register of Contractors.
In general, it defines requirements regarding experience, economic capacity and professional staff.
It also authorizes the participation of consortia formed by two or more contractors and the terms of the tenders. It stipulates that foreign companies or consortia may participate in bids. They are required to meet the same requirements as national contractors, or the equivalent in accordance with the legislation and regulation in force in their country of origin.
Applications for inclusion in the Register of Contractors of foreign legal entities assume the existence of a representative accredited in Chile and of natural persons with a professional qualification granted by a foreign university with an academic level equivalent to that in Chile and recognized in Chile. In addition, for the purpose of registration, foreign corporations must comply with the rules determined by Chilean law. Foreign contractors will be considered as Chilean in cases of disputes, interpretation of contracts and others.
REGULATION FOR CONTRACTING CONSULTING SERVICES
All studies, projects and consulting contracts signed by the Ministry of Public Works throughout Chile and related to the construction of infrastructure and all activities of the Ministry are governed by the Regulation for Contracting Consulting Services. These will be awarded according to the established public bidding system, in which any consultant registered in the corresponding area of specialization and category can bid.
There is a Register of Consultants in the General Directorate of Public Works, and special registration may be done under certain conditions. Any national or foreign individuals or legal entities who meet the requirements are eligible for the inclusion on this register.
National consultants are those individuals or legal entities incorporated in Chile under Chilean law.
A foreign consultant shall be understood as the foreign individual and the legal entity incorporated abroad, in accordance with the law of the country in which it was incorporated. Foreign consultants must have a legal representative in Chile.
The participation of consortia with duly registered members is permitted. In the case of consortia constituted by a foreign consultant, the Chilean consultant must have a minimum participation of 30% of the value of the contract. In any case, the consultant will be considered Chilean, even when it is not, for legal and regulatory purposes related to the contract.
CONTACT FOR FOREIGN INVESTORS
Rigoberto García
rigoberto.garcia@mop.gov.cl
Phone number: 56-2-24493205