Summary:

Costa Rica’s Public-Private Partnership (PPP) law that allows for “Private Initiatives”, in which the private sector researches and proposes projects that could be granted by the Costa Rican Government to a concessionaire, presents a unique opportunity for U.S. companies.  The Private Initiative concept reflects Costa Rica’s recognition that at times the private sector is able to identify and fund viable infrastructure projects of national interest which have not made it to the top of the government’s own list of priorities.  While there are significant risks for U.S. companies, including the possibility of losing research that is disclosed in the bidding process if the company is not successful, this PPP opportunity could be significant.  While only one company has engaged to date, the Government of Costa Rica (GOCR) is actively seeking proposals in several areas, including construction of public office buildings and schools, sewage treatment plants, solid waste management, alternative energy, and waste to energy, and the Embassy now maintains a matrix online to assist U.S. companies interested in pursuing these opportunities.  End summary.

Key acronyms:

CNC       National Concessions Council

GOCR    Government of Costa Rica

Description and Rationale for Private PPP Initiatives

There are two models for infrastructure Public-Private partnerships (PPPs) in Costa Rica.  The first model, in which the GOCR identifies a suitable project, conducts initial studies, and then announces a tender, is the traditional PPP approach and the only one which has yet seen projects through to completion.  The second model, called Private Initiative, allows the private sector to research and suggest projects that could be granted by the GOCR to a concessionaire.  Under this model, a private company identifies a project that it feels would be well suited to the concession approach, and conducts initial technical, environmental and financial feasibility studies.  The company then presents a preliminary project design and proposal to the National Concessions Council (CNC), including the preliminary studies.  The CNC decides if the project meets the established criteria for Private Initiatives.  These criteria include the qualifications of the private party, whether the project appears feasible, and if it is in the national interest.  If so, the CNC will sign a contract with the private party to bring the engineering design to 10% and bring the financial studies to the bankable level.  There is a maximum time of one year for completion of the studies.  Once they are completed, the CNC is required by law to take the project to public tender within a year of receipt of the qualifying studies.  If the CNC elects not to proceed with a tender, or the proposing company does not win, the CNC or the winner, respectively, will reimburse the proposing company for costs incurred during the one-year study phase.

In order for a private company to fund the Government of Costa Rica’s oversight of the “Private Initiative” study process, the private company funds a trust which pays the government contractors needed to represent the government in the process.  The details of this arrangement have only recently been worked out by the proponents of the Moin transshipment port described below.  In their case, a trust managed by the state-owned commercial bank Banco Nacional de Costa Rica (BNCR) receives block payments from the private operator and doles those funds out as salaries to the two GOCR employees who are dedicated full-time to the oversight of this project.  The same trust provides payment to a third party engineering company that likewise provides oversight.  As with the costs incurred during the one-year study phase, these costs are reimbursable if the private company does not  win the tender.

Pros and Cons of Private Initiatives

One advantage of the Private Initiative approach is the ability to harness the creativity of the private sector.  With the gap between Costa Rica’s infrastructure needs over the next decade compared to the budget available for such projects standing at over USD 10 billion, allowing private financing to help build this infrastructure is a strong selling point.  There are also disadvantages.  The most obvious is that, regardless of intention or reality, any appearance that the proposing company has the inside track when the tender is released will lead to fewer bidders, less competition and higher bid prices.  In Costa Rica’s case, having one or even zero qualified bidders is common, so this may be only a theoretical downside to Private Initiatives.  There is also the possibility that the CNC, already stretched thin, will divert their attention from projects of critical national interest to projects mainly benefitting the private sector.  Finally, while CNC is probably able to offer higher compensation and a more focused work description for those employees paid by a Private Initiative Trust, both the relatively short-term nature of the contractual relationship and the potentially confused supervisory relationship between that employee and CNC management could create problems.

Interest to Date

While the private sector has shown some interest in various Private Initiatives to date, only one has advanced significantly.  A company with U.S., Canadian and British capital has been pursuing a trans-shipment port on Costa Rica’s Caribbean coast, near the current ports of Limon and Moin.  This project received the green light from the CNC in mid-2011 to begin the one-year detailed study.  Since then, however, the approval of the trust and designation of the individuals to be paid from the trust have delayed the start-date of this study.  The study is projected to cost USD 15 million, which is financed by the company doing the study and will eventually be absorbed by that company, paid by another company if it wins the eventual bid or paid by the government itself. 

Future Plans and Embassy Engagement

Despite this relatively low interest, the CNC is actively seeking proposals in several areas, including construction of public office buildings and schools, certain specific highway projects and sewage treatment plants, solid waste management, alternative energy and customs infrastructure.  The CNC plans to step up efforts shortly to better advertise opportunities to foreign and domestic companies, as well as foreign embassies, detailing the areas in which the CNC would be particularly interested in receiving Private Initiative projects to build Costa Rica’s infrastructure. 

To assist U.S. companies interested in participating in PPP opportunities in Costa Rica, the Embassy maintains a list of infrastructure opportunities in Costa Rica that may be appropriate for U.S. companies, including projects envisioned to be completed by Private Initiative.  This information, along with contact information for companies that need additional information can be found at:    http://photos.state.gov/libraries/costarica/19452/pdfs/business_opportunities_cr.pdf

Interested companies may direct questions to:

Jason McInerney, U.S. Dept. of State, Economic Section Chief, mcinerneyj@state.gov

Roy Perrin, U.S. Dept. of State, Political and Economic Counselor, perrinra@state.gov