Key Features of Successful PPP Projects in Argentina

April 7, 2014: José  Tierno, Commercial Director for Duke Energy Argentina, shares his views on the main characteristics that a PPP project in the electricity sector should have in order for it to be successful in Latin America. He draws on his experience in developing GSEP’s microhydro and wind projects in the Patagonia region of Argentina.

“I believe that PPPs are an opportunity for the private sector and the public sector in Latin American countries. I also believe that when partnerships are based on common goals and sustainable strategies, synergies can be created and better and more efficient results can be achieved.”

How were the potential locations for the projects identified?

José Tierno: Duke Energy and El Ente Provincial de Energia del Neuquén (EPEN, the local utility), worked together in defining the type of location that was desired and in searching for places that matched the criteria. Once we identified potential communities to carry out the projects, sociological, environmental and technological surveys were performed. This led to the selection of Cochico and Chorriaca as the locations of the microhydro and wind projects, respectively.

What process was followed to conceive this PPP framework? What structure was it given and why? Do you believe this structure could be replicated in other Latin American countries?

José Tierno: Different alternatives that facilitated the cooperation between public and private entities were studied. The structure selected resulted from an analysis of the strengths of each party. Priority was given to the private entity’s ability to develop a project and to obtain funding, and the public entity’s ability to obtain the relevant permits and social commitment to the project. Moreover, working with El Ente Provincial de Energia del Neuquén (EPEN, the local utility), would allow for the continuous long-term operation and maintenance of the system.

From your experience, what are the main characteristics that a PPP project in the electricity sector should have in order for it to be successful in Latin America?

José Tierno: First, the public entity must be a public company or group that has specific knowledge about this type of project. In the case of El Ente Provincial de Energia del Neuquén (EPEN, the local utility), they already had a mature team specialized in the development of renewable energies and electricity for communities isolated from the grid. On the other hand, the private entity must understand that, even though the projects must comply with financing and economic objectives in order to be sustainable and replicable, the dimension of these types of partnerships is much more expensive and the support given must also take into account the social and other less tangible aspects.

What were your greatest uncertainties when committing to a partnership with a public party for this project?

José Tierno: Long-term commitment of interest and resources is necessary in order for a project to be successful, but it can be a great uncertainty. In our case, I believe we were successful because we were aware that the province had a policy to promote sustainable electricity development in these communities.

How was the project financing carried out and controlled? What measures can be taken in order to ensure transparency between all parties involved in a PPP?

José Tierno: A new legal entity (a foundation) was created in order to receive the funds and be directly involved in the contracting and construction. This foundation was administered separately in order to ensure that the project’s objectives were accomplished with the highest level of transparency. Specific working procedures and standards were established in order to achieve this.

 

From a management point of view, what are the greatest difficulties encountered while carrying out energy infrastructure projects in a PPP framework?

José Tierno: The time it takes each party to make decisions may be challenging in certain moments of the project’s development, due to the fact that each party has different procedures and bureaucracy.

What are the main lessons learned after this experience? If you could have a second opportunity in engaging in this project, what would you do differently and why?

José Tierno: I believe it would have been better to involve all of the parties more actively in the technical and risk analysis aspects of the project. This could have improved the formal comprehension of the situation and accelerated the time taken to reach certain decisions.

What kind of follow-up has been done to ensure the projects’ longevity?

José Tierno: GSEP will monitor the project for the next two years before the assets and property are transferred to El Ente Provincial de Energia del Neuquén (EPEN, the local utility). The contracts signed establish the responsibilities and obligations that the parties involved must comply with in order to ensure the sustainability of the projects.

From your point of view, what synergies can be created between the public and private sectors to develop energy sector PPPs in Latin America?

José Tierno: A prerequisite for success is that all parties need to share similar ideals in all of the project’s dimensions. If this condition is met, there will be additional value and positive outcomes such as: a larger amount of certainty to facilitate decision-making, opportunities for capacity building and mainly, the possibility of developing a project that otherwise wouldn’t have been possible.

Do you envision the replication of PPP projects in the electricity sector in Argentina and Latin America in the next years?

José Tierno: I am sure that Argentina will develop these types of partnerships over the coming years. This will create opportunities for all of the parties involved.

In conclusion, what message would you like to share with private entities that are engaging or contemplating engagement in PPPs in the electricity sector in Latin America?

José Tierno: I believe that PPPs are an opportunity for the private sector and the public sector in Latin American countries. I also believe that when partnerships are based on common goals and sustainable strategies, synergies can be created and better and more efficient results can be achieved.

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