| Work Detail |
The dilemma of public works: who is responsible for financing?
The national States investment in infrastructure development in the different jurisdictions of the country fell by 86.1% year-on-year in real terms; what works were left on hold and what options are proposed to obtain resources?
National State investment in public works in the provinces – not counting interjurisdictional cases – fell by 86.1% year-on-year in real terms in the period from January to May, while in the districts real investment collapsed by around 60%, also in real terms, that is, after adjusting the amounts in pesos for inflation.
In this context, Javier Mileis administration is moving forward with the transfer of projects to the provinces, a process that will not be accompanied by resources. Since the current administration took office, it has accumulated around $1 billion in funds derived from the fuel tax and the PAIS tax that are specifically earmarked for different types of works, but it is not executing them and, by law, cannot redirect them to other purposes. In this context, the business community is analyzing alternatives to re-boost activity in the sector.
In light of the governors demands to replenish funds in the face of the spending cuts made by the national administration, there are no details on how they will finance the works, even when they sign the transfers. It must be taken into account that the budgets must be updated and that, in addition, the contractors demand payment, but the payments have been halted for months. These aspects are not included in the framework agreements that have been signed so far.
A particular case is that of Highway 19, which links the city of Córdoba with San Francisco. Governor Martín Llaryora signed the transfer of the project, which is missing 65 kilometers; the estimated investment is US$120 million and the province would complete it in exchange for the toll.
According to official figures accessed by LA NACION, out of a total of 2,650 works in progress as of last December, the Public Works area is considering “prioritizing” 345. It expects to pass 882 on to the provinces. Of these, 130 are from the “Argentina Hace” program created during the government of Alberto Fernández, and are for drinking water, sewage and new rural roads in municipalities. Eight hundred works from that plan will be directly discontinued, as well as another 440 considered “low priority.”
In the city of Concordia, in Entre Ríos, a project to transport and distribute water to the population is not finished; at the beginning of December the previous government stated that 90% of the work was done.
In the city of Concordia, in Entre Ríos, a project to transport and distribute water to the population is not finished; at the beginning of December the previous government stated that 90% of the work was done.
Ministry of Public Works
Of the total portfolio, between 20% and 30% has international financing, according to estimates from sources in the sector. If the agreements with the World Bank, the IDB or the CAF are not complied with, in addition to having to repay the loan, there are penalties.
The agreements signed with the governors of Catamarca, Misiones, Santa Cruz, Chaco, Chubut, Córdoba, Entre Ríos, Jujuy, Mendoza, Neuquén, Salta and Tucumán include a list of the works with the level of progress, the contractor and the balance as of December 2023. And it indicates whether there is international financing. The texts specify that, within the framework of the emergency declared by the Nation, the Casa Rosada decided to “transfer the financing and/or execution of certain public works, provided that the provinces are “in a position to assume said commitment.”
Furthermore, it is mentioned that if certain works cannot be “assumed” by local administrations, the contracts “will be terminated by mutual agreement.” For those that have international financing, it is indicated that the pertinent “steps” will be taken so that the provinces can continue them “without this generating any responsibility” for the Nation. The governors will be the ones to negotiate with contractors and municipalities.
In addition to the accumulated debt with companies in the sector – the Argentine Chamber of Construction estimates it at $400 billion (including the $150 billion whose prices must be redetermined), the impact of the slowdown is on employment. It is estimated that some 100,000 formal jobs were lost. The governors are closely watching this data and that is why they say they will try to restart them.
Strategic works
The largest number of works are in the province of Buenos Aires, governed by Axel Kicillof. His Minister of Infrastructure, Gabriel Katopodis, met with the Chief of Cabinet of the Nation, Guillermo Francos, to request the reactivation of the works. In conversation with this newspaper he stated that the government will not sign the transfer agreement: “We are taking charge with our own resources of the works corresponding to the 22 universities that there are in the province and the health centers. We are asking for the restart of the works on the Presidente Perón highway, in the section between Merlo and La Plata. We had relocated families and paid expropriations and, if it remains abandoned, there will be land occupation.”
The highway project to link the cities of Córdoba and San Francisco is missing 65 kilometers; Governor Martín Llaryora signed the transfer of the project from the Nation to the province; an estimated investment of US$120 million is needed
The highway project to link the cities of Córdoba and San Francisco is missing 65 kilometers; Governor Martín Llaryora signed the transfer of the project from the Nation to the province; an estimated investment of US$120 million is needed
Government of Córdoba
From the Ieral of Fundación Mediterránea, Marcelo Capello specifies that while last year the national direct investment plus the provincial one represented 2.3% of the GDP, in the first four months of the year it fell to 0.7%. The economist warns that it will take Milei “quite a while” to direct a “massive PPP system” (public-private participation), as promised in the campaign, for public infrastructure. Among other reasons, because the application of this scheme during Mauricio Macris administration ended with problems when international financing for the country was cut off. "It will be more difficult to generate confidence in this new opportunity," he defines, and clarifies that not all jobs could be under this model.
For the economist, it is “desirable” that the halted national projects “with greater economic profitability and that favor, to a greater extent, local competitiveness and production” be transferred to the provinces. Regarding how unfinished projects could be financed, he points to the possibility of the return of international financing, but that would be in 2025. He conditions it on both levels of government maintaining the fiscal surplus and progressing in reforms; with that, it is “very likely that the country risk will drop to levels that make possible” the return of international funds.
According to Alejandro Pegoraro, director of Politikon Chaco, since most provinces closed the first quarter with “large surpluses” due to a “very strong” adjustment in public spending in general and in capital spending in particular, it could be thought that “there is a medium-term view that contemplates the possibility of investing own resources” in public works.
For the moment, due to the level of decline in spending, they are doing practically nothing, leaving a "very low" comparative base that will eventually allow them to show "increases towards the second half of the year" although the year will close in the negative in relation to 2023 which, having been an electoral year, was in itself more dynamic.
In the city of La Rioja, local authorities put up signs indicating that the works were left unfinished due to a lack of resources sent from the central administration.
In the city of La Rioja, local authorities put up signs indicating that the works were left unfinished due to a lack of resources sent from the central administration.
Marcelo Aguilar Lopez
With regard to how to continue the halted projects or finance new ones, Pegoraro sees three alternatives: deepening the adjustment in current spending that would leave the governors a certain margin to invest in capital projects; resorting to borrowing on the capital market, or –the option that he considers “most likely”– concentrating energies on initiatives that have external financing.
“The transfer of the works to local administrations will allow them to directly exercise relations with multilateral credit organizations that allocated resources for various projects and they could be the ones to promote public works in the provinces for the rest of the year,” he said.
Business proposal
The Economic Analysis Forum for Construction (FAEC) has maintained since 2023 that, due to the magnitude of the imbalance between the need for investment in infrastructure and the pace of public investment in the country, “there is no alternative but to generate incentives for private investment.” This idea was strengthened by the withdrawal –in practice– of the Nation as a financier and the transfer of a good part of the responsibilities to the provinces.
Economist Gastón Utrera, who works for FAEC, admits that the various alternatives for PPP schemes, “rather than replacing public financing with private financing, aim to optimize the use of resources with contracts that assign risks and responsibilities in the most efficient way possible.” Success depends, among other factors, on the type of works, legal security and macroeconomic stability. “It is not about companies that build and charge the beneficiaries,” he emphasizes, “but about finding in each case the most efficient scheme of complementation with the existing resources.”
One of the paralyzed works in the province of Buenos Aires is the Presidente Perón highway; since the administration of Axel Kicillof they have asked for the restart of the construction of the section from Merlo to La Plata and they refuse to sign a transfer of the works
One of the paralyzed works in the province of Buenos Aires is the Presidente Perón highway; since the administration of Axel Kicillof they have asked for the restart of the construction of the section from Merlo to La Plata and they refuse to sign a transfer of the works
Ministry of Public Works
For example, a route with sufficient traffic can be fully financed by private companies that build and maintain it and that recover the investment with the collection of tolls, but this same model does not work on strategic routes, but with insufficient traffic. A sewage system, on the other hand, has more complications because it benefits broader groups, but with less willingness to pay.
The Forum advanced a scheme for how provinces and municipalities could finance certain works. There are projects, says Utrera, whose social impact is “so broad, visible and urgent” that they can be financed with tax resources that citizens are willing to contribute. For example, the total lighting of a city with LEDs to reduce insecurity, paid for with an additional fee on public lighting bills and with one or several banks advancing the funds to the municipality. Another option would be to charge the owner, the direct beneficiary, with a mandatory payment declaration by the State or with some State guarantee scheme in the event of excessive late payment (something like this is proposed for works such as asphalt, curbs, natural gas networks, sewage networks).
And there are projects to be financed by construction companies, with recovery through the sale of services to the State (cases such as a hospital or a prison). “This transforms the initial investment outlay with public funds or with the placement of public debt into a flow of public spending distributed throughout the useful life of the new infrastructure,” Utrera points out.
There are also “traditional investment” projects, with public debt and different combinations of public-private financing and project risk distribution. For example, a mix between public contributions with resources from the placement of debt and private contributions with a recovery through the collection of tolls. |
