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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 |
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 |
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 |
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 |
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)