28 Oct 2020

Government-to-Government Agreements as a Mechanism for Infrastructure Development: The Peruvian Experience

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The Peruvian Government is increasingly using the mechanism of Government-to-Government Agreements for the development of public infrastructure. The very pronounced growth leads us to wonder if there is any particular reason why this mechanism has been more efficient than ordinary public procurement or Public Private Partnerships (hereinafter referred to as PPPs) for infrastructure development.

 

The successful results have been the Lima 2019 Pan American Games that developed an impressive infrastructure required for the development of the events in only 15 to 18 months.

 

These results can be compared with recent public information released by the Association for the Promotion of National Infrastructure (AFIN by its Spanish Acronym), according to which only 17 of the 49 hospitals awarded for construction through public works from 2010 to 2019 have been completed and delivered, and only 15 of them are operating. This contrast reflects the situation of traditional public work contracting mechanisms.

 

In order to stay in the investment field of hospital infrastructure, and following the example of hospitals, health facilities to be awarded by the mechanism of PPPs are bogged down in the formulation stage since 2014 (Hipólito Unanue Hospital) and 2015 (New Central Military Hospital) or in structuring the PPPs of ESSALUD of the Hospitals of Piura and Chimbote since 2014 in PROINVERSION.

 

Faced with a long-term infrastructure gap (20 years) calculated at 363,452 million soles and a health gap of 58,727 million soles (Ministry of Economy and Finance, 2019), it is understandable that the Government of Peru will resort to the most effective mechanism to develop it.

 

For this reason, the Peruvian Government has opted for the following Government-to-Government Agreements:

  • Pan American and Parapan American Games Lima 2019 (UK – Signed April 2017)
  • Reconstruction with Changes (UK – Signed June 2020)
  • Hospitals of Peruvian Health Ministry (France – Signed June 2020)
  • Chinchero International Airport Cusco (South Korea – Signed October 2019)

 

 

It should be taken into account that these government-to-government contracts are not limited to outsourcing or contracting public works. Beyond the public infrastructure itself, what is particular about this mechanism is that specialized technical advice is provided for the management of the contracting processes and in the formulation and execution of the projects, including the provision of goods and services, the generation of capacities through legacies and knowledge transfer plans, as was the case with the Lima 2019 Pan American Games.

 

As we can see, this experience has been replicated with the Korean Government for the construction of Cusco International Airport, the French Government for the construction of two hospitals and the UK Government in the process of reconstruction with changes. Likewise, there are plans to develop Lines 3 and 4 of the Lima Metro through this mechanism.

 

These agreements are concluded in the first stage through Collaboration Commitments, through which the Peruvian State and the Contracted State sign an intention to provide a framework of cooperation and work agreements, as well as the communication channels to cooperate effectively in matters of common interest. Furthermore, through these Collaboration Commitments, the Contracted State submits to the Peruvian State the Implementation Team that will be in charge of carrying out the project(s).

 

This is the case of the Commitment to Collaboration signed on June 22, 2020, between the Peruvian State – through the Authority for Reconstruction with Changes – and the Government of the United Kingdom of Great Britain and Northern Ireland, regarding the Integral Plan for Reconstruction with Changes; and the Commitment to Collaboration signed on September 10, 2013, between the Peruvian State and the State of France, through their respective Ministers, regarding the Improvement and Expansion of the Health Services of the Sergio National Hospital. E. Bernales and Hospital Antonio Lorena Level III-1-Cusco.

 

Subsequently and on the basis of these agreements, specific or operational agreements are signed between the Peruvian State as a Contracting State and the contracted State. This is the case of the State-to-State Agreement or Contract entered into by the Peruvian State – through the Ministry of Health – and the French State – through the Egis AP-Hpi Consortium -, signed on June 27, 2020; and, the State-to-State Agreement between the Peruvian State and the State of the United Kingdom of Great Britain and Northern Ireland, signed on June 22 and July 6, 2020.

 

On the other hand, it is necessary to mention that the public entities that use these mechanisms have been approving rules that regulate government to government contracting. This is the case of the Ministry of Transport and Communications (MTC), which through Ministerial Resolution No. 0623-2020-MTC/01 dated September 21, 2020, approved Directive No. 007-2020-MTC/01 “General Guidelines for State-to-State Contracting in the Ministry of Transport and Communications (MTC), its attached Public Bodies and the Special Programs and Projects, dependent on the MTC”.

 

This is also the case of the Ministry of Education, which through Ministerial Resolution No. 397-2020-MINEDU dated September 29, 2020, approved the Directive called “State-to-State Contracting for the Execution of Educational Infrastructure Projects of the Ministry of Education”, which is mandatory for the Ministry of Education, its programs and projects, involved in the execution of educational infrastructure projects or investment portfolio under the responsibility of the Ministry of Education.

 

Finally, it must be taken into account that, with respect to these projects, the General Comptroller of the Republic has been providing simultaneous control services which, although not exempt from shocks, have not had the paralyzing effect they do in other areas of public contracting.

 

What challenges we face:

 

Peru’s first challenge is not to generate a diversity of sectoral regulations for Government-to-Government contracting. Each entity should not regulate the procedure. If required, it should be a common procedure of (i) identification of potential governments; (ii) request for expression of interest; (iii) call for governments; (iv) evaluation of proposals; and, (v) award.

 

On the other hand, the operation and maintenance of public infrastructure and its equipment should be guaranteed. This can be done through PPPs in cases where the eligibility criteria are met, which should be able to be called and awarded before the completion and delivery of the works, so as not to delay their availability.

 

Public procurement and PPP systems should be reformed to make them more dynamic as a result of Government-to-Government Agreements. Just as there are eligibility criteria for PPPs, there should be allocation criteria for Government to Government Agreements.

 

The legacies of these agreements are difficult to maintain with a high turnover of personnel. The implementation of the civil service is required to ensure continuity of efficient public management.

 

The control system must adapt to the new contracting and management mechanisms and not the other way around. The national control system is a burden for public management because it is not based on management by results, but on management by processes and questions discretionary decisions of the public administration.

 

Finally, it is important to point out that in the Government to Government Agreements there should be a concurrent (simultaneous) control and it should be closed with a final report from which it should be clear and precisely what can be subject to subsequent control.

 

Article publised in Chambers and Partners

To access, visit this link: https://lnkd.in/g7NwhnW

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