THE INFRASTRUCTURE TRUST FUND (ITF)As a solution for Infrastructure Investment Gap in PeruJorge Luis Cerna Coronado

THE PENSION FUNDS INICIATTIVE• The role of private finance in the billions to trillions objective is essential. The

government of Peru has been aware of this role and with the participation of the Pension Fund Association (PFA), created in 2009, the Infrastructure Trust Fund (ITF I) – USD 300 million.

• The flexibility of the vehicle as well as the potentiality for the main institutional investor of the country made this Fund a complete success.

• It was such a good instrument that in 2013 the same participants created the ITF II – USD 1,000 million.

THE ATRACTIVENESS OF THE ITF’S

• Trust Funds are structure that allows independence in the administration of assets in order to protect the resources from the moral risk and agency problems that an emerging country government office or an NGO can address

• “Unlocking long-term finance for infrastructure is critical to achieving the 2030 Agenda.” Peru is making efforts since 2009 in order to make it happen. Despite the presence of corruption in the governments, the low development of the Peruvian capital market, the inefficiencies of many public institutions and the lack of talented project managers for public projects; this two trust funds have been a light in the shadows and they have capture the essence of SDG’s purpose to include private sector in the outlook. Nevertheless, there’s a lot of things that can be done with this investment vehicle and take advantage of its potentiality

HOW DID PERU DID IT?• Whit all this disadvantages, how did Peru deal with this instrument? Let’s

understand the Peruvian infrastructure gap and how can it be solve with this fund.

• The CEPLAN (Center for National Planning) in their Bicentennial Report to 2021 address that 2/3 of the Peruvian GDP growth of the latest years are based on infrastructure investment.

HOW DID PERU DID IT?• Competitiveness is only achievable

if the investment gap of infrastructure is closed by the 2021. The World Economic Forum Competitiveness Index has the same conclusion in 2010, when they gave to Peru a qualification of 3.0 in a 1 to 7 scale. And the Peruvian Economic Institute consider that this GAP is around 30% of the GDP per year. From this gap, transport and energy infrastructure are the most important.

HOW DID PERU DID IT?

HOW MUCH OF THIS GAP HAS BEEN ATTENDED?

• Between 2013 and 2014, infrastructure investment were around USD 7.2 billion, with a 15% growth from the last years. The main investments are concentrated on Camisea Natural Gas Project, Rural roads, Water treatment plants and the first electric metro in Lima. This includes part of the ITF I funds uses.

• Besides bureaucratic processes and government problems, the demand for investment flows is critical. Nowadays, only 10% of pension funds are invested in infrastructure projects. It’s known that 20% of this funds are invested in Treasury Bonds and the rest of them are spread between financial instruments with low risk and low returns as well. But the problem is not diversification. The problem is that we have resources in this Investment Trust Funds but we don’t have enough incentives to develop more projects and use this resources.

WHEN THE PUBLIC AND PRIVATE SECTOR COORDINATES

• In November 2013, after a “CADE” meeting, which is an annual meeting for the biggest business groups and entrepreneurs. The Peruvian government in collaboration with all the private sector decided to push and make all necessary efforts to motivate the creation of Public Private Associations in order to attend all the projects eligible for ITF’s. They realized that infrastructure investment can be a lower risk investment with the correct structure like Trust Funds, collected flows and project management.

• The Transport and Communication Minister published in August 2015 the real infrastructure gap for the 2016-2025 period, with a vertical calculation, considering about USD 159.5 billion. Nevertheless, since May 2015 the PFA’s had constituted a new ITF with USD 300 million with a MDB known as COFIDE as a partner and with a USD 100 million support for the same purpose.

WHAT’S LEFT?• By the end of this year, there’s an important project portfolio and

an interesting pipeline that could be the only way to reactivate Peruvian growth for the next years with private sector participation, good yields and returns for the investors and a better public environment.