Latin America: International firms circle Peru’s landmark Lake Titicaca water project

18 May 2018 - 12:00 am UTC

UPDATED: This story was updated on 21 May to include new information about Veolia’s interest in the project.

At least 18 firms have considered participation in Peru’s USD 256m closely-watched Lake Titicaca waste water treatment plant, sources said.

Additionally, it is understood that ProInversión, the procurement and investment agency, is in the early stages of running contests for project advisory studies – one for legal/financial aspects and the other technical. It will run further contests for economic and technical supervisory mandates. The technical one will assist the agency until the signing of the contract, and the economic one until financial close.

Given the high level of interest in the unsolicited bid by Acciona-Tedagua’s JV – Aguas de Puno – officials are planning a full international tender, it is understood. This would follow the presentation of proposals by third parties on 19 June. If no other proponent expresses interest, the project will be awarded directly to Aguas de Puno. Several sources stated that it was unlikely rival bidders would beat the consortium, given its detailed work preparing the project.

The firms that have requested information and are understood to be closely eyeing participation include:

•    Sacyr – through Valoriza, (Spain);
•    FCC – through FCC Aqualia (Spain);
•    Ferrovial – through Cadagua (Spain);
•    BKT (South Korea);
•    China Communications and Construction company (China)
•    Suez – through Degremont (France);
•    Veolia (France).

Sources added that some six teams could eventually form, with Peruvian developers likely to partner with the foreign companies.

A source close to the deal suggested that the following firms could join:

•    Camargo Correa (Brazil);
•    LG (South Korea);
•    Hyundai (South Korea); 
•    Cosapi (Peru);
•    JJC (Peru)

Companies from Brazil, France, Italy, USA, Chile, Mexico, Turkey and the Middle East have also expressed interest. But the source said proposals by Italian, Mexican and Chilean companies were seen as less serious.

Italian developers that have invested in Latin American water assets include Salini Impreglio, Astaldi and Techint. Mexican developers include IDEAL, Empresas ICA and Grupo Hermes. Meanwhile, Brazilian developers include Andrade Guitierrez Concessoes and Odebrecht. Chilean developers meanwhile include Besalco, Icafal Inversiones and Constructora Belfi.

Inframation understands that Mota-Engil (Portugal), Daelim (South Korea) and
GS Inima (Spain) will not participate in the project:

A Daelim spokesperson said that since 2015, the company has sought to participate in PPPs such as Lima’s Water Supply Plant and Lima Metro Line 3. However, “because of unstable political circumstances in Peru, these projects have been stopped or put on hold. For that reason, we are not planning [participation] in new projects in [that market].”

ProInversión has been promoting the project widely, through roadshows in markets such as Spain, South Korea and Mexico. A list of companies in attendance at the Spanish event is available here.​​​​​​

Bidders must provide two documents, a letter confirming the company’s expression of interest (EOI) and a financial guarantee letter worth PEN 5.89m (USD 1.79m).

Graña y Montero was the original proponent with Acciona, which presented the proposal on 22 May 2014. ACS (through Tedagua) then replaced Graña y Montero before the project’s declaration of intereston 28 March.

Advisors
​​A further study will be tendered for a design and construction supervisor to assist the MCVS (Ministry of Construction, Housing and Sanitation) once the contract has been signed.

The government’s advisors include Rosello (legal), TP Invest (financial), as well as Inypsa and Lahmeye Agua y Energía Ingenerios (technical).

Rubio, Leguia Normand is legal advisor to the proponent. 

Project requirements
ProInversión has prepared a project overview which includes financial details.

The 30-year DBFO PPP requires the construction of six new water treatment plants around the lake (Moho, Ayaviri, Juliaca, Puno, Juli, Ilave) and upgrades to four existing ones (Yunguyo, Lampa, Huancane and Azangaro).

Spanning Peruvian and Bolivian waters, Lake Titicaca is one of Latin America’s largest inland bodies of water. To improve circulation, experts have recommended technical elements including water traps, pumping chambers and stations and infrastructure for final water disposal.

Financing details 
Total capex for the project is PEN 841m (USD 256m).

MVCS will make two main payments – for capex costs (RPI) and operation and maintenance (RPMO) to the winning consortium.

The maximum values are PEN 136.21m, (USD 41.5m) for the RPI, in line with the proponent’s proposal, and PEN 58.8m (USD 17.9m) for the RPMO once certain facilities becoming operational.  The minimum equity required from the concessionaire is PEN 252,31m (USD 77.05m).

It is understood that some of the project’s revenue stream will come from water distribution and provision companies as offtakers. RPMOs are subject to deductions for not completing certain milestones.

Project objectives
The project aims to decontaminate the water from Lake Titicaca, from which 1.75 million Peruvians and Bolivians source their drinking water. Sources expect that bidders would easily secure permits.

The project also aims to reduce illnesses from contaminating agents in the water, further develop regional tourism, and contribute to biodiversity management.

GS Inima, Mota-Engil, Veolia, JJC; Cosapi, Camargo Correa, Suez, FCC, Ferrovial – through Cadagua and BKT did not respond to requests for comment. Sacyr declined to comment. 

Hyundai, LG and China Communications and Constructions could not be reached for comment.

 

Lake Titicaca