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Funding Public Transport in Latin America: Significant influence of China [free access]

January 1, 2021

By 2030, over USD48 billion is planned to be invested in rail-based transport systems in Latin America. These projects will be financed by governments at multiple levels, multilateral agencies, and the private sector.

 

Government funding


In Brazil, Chile and Mexico, governments at multiple levels are funding rail projects. Table 1 provides information about some key projects that are solely being financed by the government.

 

Table 1: Rail projects financed by government

Country

Project

Length (km)

Estimated investment (USD million)

Commencement of operations

Brazil

Curitiba LRT

40

TBA

TBA

Curitiba Metro

17.6

1,378

TBA

Cuiabá VLT- Line 1

15

660

TBA

Salvador LRT/ monorail- Orange Line

19.20

470

2021

Chile

Santiago Metro Line 8

19

4,000

2027

Santiago Metro Line 7

26

2,500

2026

Metrotren Melipilla

61

1,561.90

2025/2026

Santiago Metro Line 2 extension

5.1

476

2022

Colombia

Avenida 80 Subway

TBA

790.59

TBA

Mexico

Mexico City Metro Line 12 extension

4.6

483.97

2021

Note: TBA- To be announced

 

Source: Global Mass Transit Research

 

Key projects that have recently received government funding:


 

National governments announce investments to aid economic recovery 


The governments of Mexico and Chile have announced investments in multiple sectors (including the transport sector) to accelerate economic recovery from the effects of the COVID-19 pandemic. The Government of Mexico, in collaboration with the private sector, has announced plans to invest MXN80 million in three rail projects. The Government of Chile has allocated funds for 137 infrastructure projects under the Plan Paso a Paso Chile se Recupera. A total of USD92 million is planned to be invested in transport projects, of which USD32 million will be financed from the Government of Chile’s COVID-19 Fund. Projects include improvement of public transport in all regions (works include development of bus-only lanes and improvement of bus stops), development of bus-only tracks spanning 100 km in the Santiago Metropolitan Region, expansion and reconstruction of the Santiago Metro network, and development and improvement of commuter rail lines.

 

Participation by multilateral agencies


Rapid population growth, increasing urbanisation, increased rate of motorisation, and lack of proper transport systems in low-income nations have pushed the demand for rail-based transport systems in the region. These factors coupled with low rates of investment (expressed as a percentage of GDP) have drawn the attention of multilateral agencies and prompted their interest in funding rail-based projects in the region. Multilateral agencies have extended support for numerous high-investment urban rail projects in the region in the form of grants and loans (with and without sovereign guarantee). Key funding agencies include the World Bank, the Inter-American Development Bank (IADB), Corporacion Andina de Fomento (CAF), and Agence Française de Développement (AFD).

 

Table 2 provides information about the projects for which the World Bank has approved funding in 2019 and 2020.

 

Table 2: Funding approved for projects by the World Bank in 2019 and 2020

Country 

Project 

Scope of work

USD million

Terms 

Date of approval 

Funding from World Bank

Project cost

Colombia

Resilient and Sustainable Infrastructure for Recovery DPF 

Provide support to the Government of Colombia in its efforts to sustain access to critical infrastructural services for firms and households following the COVID-19 pandemic 

500 

500

Maturity period: 11 years
Grace period: 4.5 years 

September 2020 

Brazil

São Paulo Aricanduva Bus Rapid Transit Corridor 

Development of a 14-km-long BRT line, installation of a smart signalling system, and upgrade of the bus Operational Control Center  

97 

121.25

Maturity period: 15 years
Grace period: 5 years 

April 2020 

Brazil

Transition to Electromobility in Brazilian Cities 

Enhancing the technical, financial, and institutional readiness of  federal government agencies to transition to bus electrification as well as  support the preparation of electric bus pilots in select cities 

0.94 

0.94

Not available 

April 2020 

Brazil

Improving Mobility and Urban Inclusion in the Amazonas Corridor in Belo Horizonte 

Development of the Amazonas Express bus corridor, deployment of technology for the operations of the upcoming bus corridor, and restoration of sidewalks 

80 

100

Maturity period: 24 years
Grace period: 5 years 

March 2020 

Peru

Lima Metropolitano BRT North Extension

Construction of 17 new stations, one workshop, and one wastewater treatment plant along the 10.2-km-long Naranjal–Chimpu Ocllo Avenue route 

93 

123

Maturity period: 11 years
Grace period: 3 years 

January 2020 

Note: BRT- bus rapid transit; DPF- Development Policy Financing

 

Source: World Bank

 

Table 3 provides information about upcoming rail projects also being financed by multilateral agencies.

 

Table 3: Upcoming rail projects being financed by multilateral agencies

Country

Project

Length (km)

Project cost (USD million)

Multilateral agencies involved

Commencement of operations

Colombia 

Bogota Metro Line 1

24 

4,400 

World Bank, IADB, EIB 

2025 

Nicaragua 

Managua AGT

15 

522 

JICA 

TBA 

Managua LRT

20.1 

520 

JICA 

TBA 

Peru 

Lima Metro Line 2 and Line 4 (branch)

35 

6,500 

IBRD, IADB, Kreditanstalt für Wiederaufbau, CAF, AFD 

2024 

Panama 

Panama Metro Line 3 Phase I

25 

2,600 

JICA 

2024 

Note: EIB- European Investment Bank; IBRD- International Bank for Reconstruction and Development; JICA- Japan International Cooperation Agency; TBA- To be announced

 

Source: Global Mass Transit Research

 

The Central American Bank for Economic Integration (CABEI) is a recent entrant in the area of extending funding for transport projects. The agency actively funds projects in the areas of energy and production, rural development, development finance, and human capital in central America. In May 2020, the agency approved a USD550 million loan to develop an 85-km-long electric rail network in Costa Rica. The loan has a term of 25 years and a grace period of five years and carries no commitment fees. The proceeds of the loan will also be used to fund the procurement of equipment and the implementation of operations. The loan will be disbursed pursuant to the achievement of construction and operational milestones. The repayment of the loan will begin 12 years subsequent to the approval of the financing. In addition, the agency in its strategic framework for 2020–24 will promote initiatives to improve sustainable competitiveness. One of the key initiatives will include investments in rail modernisation and in public transport projects aimed at reducing fuel and carbon emissions.

 

China’s growing influence in the region


Between 2005 and 2019, the Government of China and financial institutes (in which the government has a substantial stake, including the Export–Import Bank of China, the China Development Bank, and CITIC Group) have collectively provided over USD141 billion in loans in Latin America and the Caribbean region, surpassing the combined annual lending of the World Bank, the Inter-American Development Bank (IDB), and the CAF Development Bank. The Government of China and its allied institutes have collectively loaned USD26.8 billion to the infrastructure sector in Latin America and in the Caribbean region. Argentina, Venezuela, and Trinidad and Tobago (the last from the Caribbean region) account for over three-quarters of the investment in the infrastructure sector. Figure 1 provides information about the investments in Latin America.

 

Figure 1: Infrastructure loans in Latin America


 

Note: Others include Costa Rica, Cuba, Ecuador, Guyana, Peru and Suriname

 

Source: China-Latin America Finance Database

 

In the case of the transport sector, the bulk of the investments are concentrated in Argentina and Colombia.

 

EXIM China and CDB’s investments in Argentina’s rail sector


Between 2010 and 2020, EXIM China and other Chinese financial institutions provided over USD15 billion as loans for the rail sector (including freight rail lines). The latest loan (valued at USD4.695 billion) was extended in December 2020 under the national government’s Rail Transport Modernisation Plan. The proceeds of this loan will be used to procure 266 diesel and electric rail cars for multiple rail lines (including commuter rail lines) and to reactivate services on multiple freight lines. Table 4 provides information about the loans extended for rail projects.

 

Table 4: Loans for rail transport* (2010–2020)

Project

Year

Amount (USD million)

Lender(s)

Borrower

Trade finance: 20 high-speed trains, 200 passenger cars, service and parts

2010

273

CDB, CITIC

Government of Argentina

Revamping Argentina’s train system

2010

10,000

CDB, others

Government of Argentina

Metro Line A rail car purchase

2014

162

Exim Bank

Buenos Aires local government

Rail cars for Roca Commuter Line

2019

236

CDB

Government of Argentina

Rail cars for multiple rail lines

2020

490

CRRC International

Government of Argentina

Note: *- excluding freight rail lines; CDB- China Development Bank; CITIC- CITIC Group (formerly known as the China International Trust Investment Corporation); Exim Bank- Export–Import Bank of China

Source: https://www.bu.edu/gdp/chinas-overseas-development-finance/, Global Mass Transit Research

 

China’s expanding presence in Colombia


Multiple companies owned by the Government of China have secured concession contracts to develop and operate two urban rail lines in Columbia. These projects involve a total investment of USD6.50 billion. China-based companies are expected to invest over USD1.40 billion in these projects.  Table 5 provides information about the rail projects in Columbia.

 

Table 5: Rail projects also being financed by Chinese companies

Project

Bogota Metro

Regiotram de Occidente (REGIO)

Project cost

USD4.40 billion

USD2.10 billion

Length

24 km

39.6 km

Concessionaire

METRO LÍNEA 1 SAS (owned by China Harbour Engineering Company Limited and Xi’an Rail Transportation Group Company Limited)

China Civil Engineering Construction Corporation

Other funding agencies

Government of Colombia, city government of Bogota, IBRD, EIB, IADB

Agencia Nacional de Infraestructura, Cundinamarca Department

Current status

Construction to commence soon

Construction to commence soon

Commencement of operations

2025

2023

Source: Global Mass Transit Research

 

Debt to fund rail expansion in Chile and Colombia


Empresa de los Ferrocarriles del Estado (EFE)/ the State Railways Company of Chile has financed its rail projects by issuing bonds in the domestic market. Between 2014 and 2019, its bond issues expanded at a compound annual growth rate (CAGR) of 7.3 per cent. Figure 2 provides information about its bonds.

 

Figure 2: Bonds issued by EFE (2014–2019) (CLP million)


 

Source: Annual reports

 

These bonds are backed by the national government and mature within 20 to 30 years. The national government is responsible for the servicing of the debt without the intervention of the company, that is, the government directly repays the bond holders of the company. As a result, the repayment of the debt is not shown in the cash-flow statement of the company. In addition, EFE has announced plans to invest USD3 billion to expand the rail network by over 500 km by 2027. In 2020, it issued bonds worth USD644 million in domestic and international markets and plans to issue bonds worth around USD1.62 billion in the domestic market by 2022.

 

Recent bond issues:


 

Furthermore, in August 2020, Empresa Metro de Bogotá (EMB), the developer of Bogotá Metro,  issued debt securities worth COP2.40 trillion on the Colombia Stock Exchange/ Bolsa de Valores de Colombia (BVC). This is one of the largest public debt issues in the country. The internal debt securities are in the form of payment certificates for execution/ Títulos de Pago por Ejecución (TPE), a financial security to fund the execution of the project. The financial instrument is guaranteed by the Government of Colombia. The TPEs will be held by EMB until it completes the contractual units, at which point they will be delivered as part of the payment.

 

Other key recent developments:


 

Conclusion

Population growth and an active pipeline of rail projects in the region are attracting investments from multilateral agencies and private sector players. The COVID-19 pandemic has adversely impacted the financial health of governments at multiple levels in this region. Tax revenue and other forms of financial support from governments at multiple levels are expected to be limited, as reduced levels of economic activity will curtail revenue collection in government coffers. With a recession already in the picture, governments will have to divert their financial resources to address other pressing issues. This is expected to drive increased investments from multilateral institutions.

 

China, the largest trading partner in Latin America, is expected to change its investment strategy in the region. The investments of the Government of China and its financial institutions declined in 2018, but are expected to increase in the post-pandemic period. Many governments in the region are expected to turn to the Government of China and its allied institutions for quick capital injections.  

 

(1 BOB [Bolivian Boliviano] = 0.14 USD; 1 BRL [Brazilian Real] = 0.19 USD; 1 COP [Colombian Peso] = 0.0003 USD; 1 CLP [Chilean Peso] = 0.001 USD; 1 MXN [Mexican Peso] = 0.05 USD)