Chile

The Chilean government began using concessions in the early 1990s to build and upgrade roads. 16The very first concession was awarded in 1993, for the El Melón tunnel, near Valparaíso. Concessions for sections of the main North- South highway, Route 5, and for other inter-city roads soon followed. In the late 1990s, concessions were used to upgrade airports; these concessions were relatively short and two, at Puerto Montt and Iquique, have already been reawarded. More recently, concessions have been used to finance jails, reservoirs, public buildings, and urban roads. Table 2 summarizes the concession program.

Most of the road and airport concessions contain revenue guarantees, which typically ensure that the concessionaire can collect revenue with a present value equal to about 70 percent of the expected present cost of the project. Although the revenue guarantees are not legally tied to the concessionaire's borrowing, they do facilitate it. A few concessions have also included exchange-rate guarantees that were linked to the concessionaire's foreign-currency debt. But none of the exchange-rate guarantees is in force now. Revenue and exchangerate guarantees are typically combined with rules that require the concessionaire to share revenue and exchange-rate gains. The concession for the El Melón Tunnel included a government guarantee related to the cost of constructing the tunnel. That guarantee and some of the revenue guarantees have been triggered. The amounts of the payments, however, have so far have been small relative to the size of the projects (Table 2 and Table 3).

Table 2 PPPs in Chile

Source: Engel, Fischer, and Galetovic (2009, 43).

Note: Port concessions, which are governed by a separate law, are excluded. The US dollar amounts are converted from amounts shown in Engel, Fischer, and Galetovic 2009 in UF (unidad de fomento, an inflationindexed unit of account used in Chile) at a rate of 35.72 USD per UF, derived from rates, on 27 April 2009, of 20,985.59 Chilean pesos per UF and 587.54 pesos per USD (www.bcentral.cl).

Table 3 Chile's expenditure on revenue guarantees, million US dollars

Source: Gomez-Lobo and Hinojosa (2000) for 1997-1998; Ministry of Public Works (via Ministry of Finance) for 2002-2008. See also Government of Chile (2007), which reports slightly different numbers for 2002- 2006.

Note: Amounts converted from UF to US dollars using exchange rates noted in Table 2. Amounts are gross payments, not payments net of revenue-sharing receipts. No data for 1999-2001 are available.

The biggest unplanned costs associated with the concessions have come from renegotiations of concession contracts (Table 2 and Table 4). Sometimes, a renegotiation occurs because the government wants the concessionaire to undertake additional work not required by the original contract. 17 At other times, it occurs because the construction or operation of the project runs into unforeseen problems. Compensation is sometimes in cash, but may also take the form of an increase in user fees or an extension of the term of the concession. The government also bears risks related to land acquisition, including in particular delays in acquisition, for which the concessionaire must be compensated. For urban roads, the costs of moving unmapped gas pipes, telephone cables, and other utilities under urban roads are shared between the government and the concessionaire. The government must also compensate the concessionaire if it chooses to terminate the concession before the concession's scheduled end. If the concession ends because of the concessionaire's default or bankruptcy, however, the lenders are reimbursed only from the proceeds of rebidding the concession, not by the government.18

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16  Chile's concession program is described by Gómez-Lobo and Hinojosa (2000); Cruz, Barrientos, and Babbar (2001); IMF (2005); Bitran (2007); and Engel, Fischer, and Galetovic (2009).

17  Gómez-Lobo and Hinojosa (2000, 16) refer to the "ex-post revelation of the demands of the numerous communities affected by a project," which may relate, for example, to "the placement of bus stops, pedestrian crossings, resistance to land expropriations and the effects of a project on the dynamics between hub and satellite towns and cities."

18  Engel, Fischer, and Galetovic (2009, 25); Cruz, Barrientos, and Babbar (2001, 6).