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Entrevista de IFLR1000: Behind The Deal

05 July 2017 | by Rani Mehta

New York reporter Rani Mehta speaks with Hugo Berkemeyer and Martín Carlevaro of Berkemeyer Attorneys and Counselors about the Route 2 and Route 7 highway PPPs in Paraguay and the country’s evolving projects market

 

How did you come to represent the concessionaire, Sacyr-Mota Engil-Ocho, on these two highway PPPs?


Berkemeyer: When the public-private partnership (PPP) law was enacted, there was no experience with PPPs in Paraguay. So we got involved very actively with the team in revising the regulatory decree of the PPP law. We also put forth some suggestions. After that we did some seminars in Paraguay to make the law more available to our colleagues. And then we decided to see who the players were that might be interested in Paraguay. And some we [were] contacted because Martín had experience with his previous job, and some of the companies that knew about this new law contacted us and gathered some information about the country. Before making any decisions, they wanted to do some research in terms of what the situation was in the country. We had three or four potential clients, and after thinking it a good player to come to Paraguay for not only this one project but for other projects, we decided to go ahead with Sacyr.


What was your role in the bidding process?


Berkemeyer: Our participation in the bidding was in the pre-qualification. Then we advised the client in presenting all the documents for the bid, as well as the support in all the main project contracts. We also participated in the pre-financial agreements (term sheets) and continued advising the client in the post adjudication process including but not limited to the incorporation of the SPV for routes 2 and 7 (Rutas del Este S.A.), then the negotiation and closing of the PPP agreement. Now we are helping them with the start-up of the SPV and we believe next big challenge will be financing of the project which will involve US banks and multilateral agencies. It will be the first financing for a PPP project in Paraguay.


Can you talk more about your work incorporating this company?


Berkemeyer: This is the first SPV under the PPP law. So we’ve been working on the start up on the company, working on personals and contracts, working on EPC contracts, which is based on pre-EPC contracts, before the adjudication as well as O and M contract, technical assistance agreement, shareholders agreement, etc.
What is challenging is that everyone is learning about the process. The terms are more extended than the normal timing in the country because there is a lack of know-how in the administration. We’ve had to explain how this works and how it’s been successful in other countries.


How did you gain experience with PPPs?


Carlevaro: I have more than 15 years of experience in this field. I used to work in projects in Latin America and in the US. I worked in Peru, Colombia, Chile (mainly), Argentina, so with that experience and that knowledge we decided that we could give advice to the government in 2014 for issuing the regulation of P3 law. The Paraguayan PPP law is inspired by some other laws in Latin America such as Chile, Colombia and Peru. It’s very common for the government before publishing a decree to give it to the construction chamber and some specialised law firm, among other relevant players, to review the drafting of a future law and that’s what we did in this case.


What was the most challenging legal aspect of this transaction?


Berkemeyer: We had to change a lot because at first they had payments in the local currency so we had to negotiate to change the legal documents to have the payments from the government in dollars because we knew the financing would come not from the local banks (in local currency) but from US banks so there were some negotiations going
on there.
Carlevaro: The process was very long. From 11 pre-qualifications, we had only one offer and it was because the MIGA [Multilateral Investment Guarantee Agency] from the World Bank was originally going to support the process. If the country didn’t pay for the infrastructure, then the MIGA country risk insurance would pay instead and then, if that’s the case, MIGA would claim against the country. The MIGA, however, decided not to participate because the government did notwant to apply or it was difficult to apply foreign law as MIGA required (US or UK law). In order to change the applicable law Paraguay needed to issue a new law from congress and that was impossible to have and that’s why in the end MIGA didn’t [participate in] Paraguay’s P3 projects and so the project received only one bid from a consortium led by Sacyr.


How is the project financed? Is this how projects are typically financed in Paraguay, or does the PPP structure affect the financing?


Berkemeyer: The private sector will contribute $520 million to this project composed by 20% equity by sponsors (part of it was already injected in the SPV) and 80% debt to be provided by a mix of multilaterals and US banks. This is the country’s first experience in PPPs so I cannot say if this is normal or if this is the future, but in other projects, other US bonds were really active in financing in Paraguay. Many banks such as Bank of America, JP Morgan, Goldman Sachs, as well as UBS from Switzerland, are also interested in financing projects in Paraguay.


Will we see law firms grow their energy and infrastructure departments in the wake of these PPPs?


Carlevaro: Because the government is betting on developing infrastructure, the law firms will grow their teams in energy and infrastructure.
Berkemeyer: There is a pipeline of projects, not only PPPs but also German system projects which are as turnkey public works projects with private finance. These is a pipeline of projects that come to $15-20 billion in projects. In my opinion there will be a lot of law firms that will look to provide professional services; the market will have more players, and we see that as an opportunity to grow.


Will there be global firms in the market?


Berkemeyer: We have seen a lot of interest from international teams in relation to looking into Paraguay for these types of transactions. I suppose that in every jurisdiction, the more business there is, the more international offices are looking into the country. I don’t think this will happen right now, it will take a few years. Afterwards I would say that we will see one or two law firms in Paraguay that are international. We have a lot interest from these law firms, we are talking with more than 10 of them.


https://www.iflr1000.com/NewsAndAnalysis/Behind-The-Deal-Hugo-Berkemeyer-and-Martin-Carlevaro-Berkemeyer-Attorneys-and/Index/7131  

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