AS a solution for Infrastructure Investment Gap in Peru

1. THE INFRASTRUCTURE
TRUST FUND (ITF)
As a solution for Infrastructure Investment Gap in Peru
Jorge Luis Cerna Coronado

2. 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.

3. 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

4. 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.

5. 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.

6. HOW DID PERU DID IT?

7. 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.

8. 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.

9. 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.