Addressing the Latin American Down Under conference in Sydney, DLA Piper global mining chief Robert Edel said while there was a handful of key issues facing resource companies in Latin America, the lack of infrastructure impacted many because of the common distances from rail and port facilities.
“Developing the infrastructure is a very significant task,” Edel said.
“One of the keys to developing infrastructure is a reliable investment framework designed to encourage financiers of investment in infrastructure.”
Edel listed infrastructure bonds, bilateral treaties and the Pacific Alliance as some of the measures being implemented to improve infrastructure development.
The infrastructure bonds start with the government issuing a certificate to a consigner to develop a particular type of infrastructure. Once that concession has been granted the challenge is to finance it.
“What the Peruvian government and other Latin American governments have done is to issue a series of certificates to the consigner which guarantees payment of fix sums against particular milestones,” he said.
“What they do is give significant comfort to financiers and developers of infrastructure,” he said.
Edel said a significant function of the infrastructure bonds was the fact they were transferable to third parties, both inside the country of origin and outside.
“It means international capital markets have access to the certificates, they can buy them, invest them and the infrastructure in question is capable of being financed by international capital markets,” he said
“And that’s proved to be very very useful in Peru and other countries in Latin America.”
In addition, Edel said the bonds had the capability of reducing operational risks when it came to developing infrastructure.
“By having a government stand behind the obligation to pay and by having pre-agreed milestones and payments [in place], that risk is largely eliminated and has been very successful for attracting investment,” he said.
Edel believes the bonds themselves have the ability to replicate all over Latin America.
“They have been used in some extent in Mexico and Brazil is looking to use these bonds,” he said.
“We feel they are a very significant potentially in the development of resources projects across Latin America.”
Bilateral investment treaties were also cited as another important initiative for combating infrastructure constraints and managing risk.
“The value of these treaties is they give significant investors comfort their investment is going to be treated in an equitable way,” he said.
While China has more than 100 of these sorts of agreements all over the world including many in Latin America, Australia has only five.
Meanwhile, the newly launched Pacific Alliance is making its mark.
“Since June, the Alliance has abolished visa requirements between member countries, taken measures to include Mexico in the MILA, an integrated Latin American stock exchange network, and established a fund for developing new market opportunities particularly new mining ventures,” Edel said.
Australia currently remains an observing member of the Pacific Alliance, which includes mining orientated jurisdictions such as Chile, Colombia, Mexico and Peru.
“Australia should look seriously at working with the Pacific Alliance to introduce measures in Member countries that encourage offshore investment in mining and energy related infrastructure,” Edel said.
“Such measures could include tax and other incentives for the development of transport, electricity, port and rail infrastructure.
“This would provide great opportunities for resources companies to invest in the sector in Latin America, with mutual benefit for resources companies and Latin American countries."