Central America Infrastructure Report Q3 2012

BMI View: The Central America region offers a plethora of dispersed opportunities to the adventurous
investor, including renewable energy in Nicaragua and Honduras, ports in Costa Rica and Nicaragua
and roads in Panama. However, there is little consistency in opportunities or rewards, and there are a
myriad of risks facing the intrepid investor. Overall, the region should see robust growth in construction
industry value, driven by the strong markets of Panama and Costa Rica; however, the growth is uneven
and risks remain to the downside.
Central America is a mixed bag, with some areas of strong growth and investment springing up. The
region is taking off as a potential renewables hub as depressed equipment providers desperately seek new
markets. At the same time, the much touted Panama Canal expansion is having a knock-on impact on port
investments along the region''s coastlines. However, these opportunities are dispersed and scale remains
small; the most successful entrants have a presence elsewhere in Latin America from which to leverage
activities.
However, at the same time, risks to investment are high, infrastructure markets are undeveloped and
regulations guiding investment remain in their infancy in many countries. This, coupled with high
instances of violence related to the drug trade, has disproportionately impacted Guatemala, El Salvador
and Honduras.
In light of this, we can identify a few key areas of potential:
• Power: New electricity generating capacity is seeing considerable investment in Central
America. Hydropower is the dominant source of electricity and will remain so, given the number
of projects being developed across the region. Key hydropower projects include: the US$300mn
Patuca III in Honduras, the US$700mn Tumarin project in Nicaragua, the Tres Ninas project in
Guatemala, the 138MW Paz hydropower project in El Salvador and the 223MW Changuinola in
Panama. The Central American Electrical Interconnection System (SIEPAC) is also nearing
completion.
• Renewables: Indigenous wind and geothermal potential in the region are attracting investors
who are desperately seeking new markets for renewables. The completion of Gamesa and
Iberdrola''s 100MW Cerro de Hula Wind Farm in Honduras is the first of many projects planned
in the region. El Salvador is hoping to start its first commercial wind farm in 2016/17, and
Acciona is building a 49MW project in Costa Rica. Geothermal potential is also being explored,
Panama has called for companies to register interest in geothermal concessions and Ram Power
has completed the first phase of expansion of its San Jacinto-Tizate geothermal plant. In
February 2012, Ram Power released a statement saying that phase II of the plant is
''approximately 60% complete, with final completion expected in December 2012''.
• Airports: Opportunities are anticipated in the region''s airport sector. Honduras has announced a
US$300mn plan to invest in five airports, and El Salvador, Nicaragua and Panama all have
projects under way or in the pipeline.
• Ports: Port infrastructure appears to be a priority area of investment across the region. The most
important project is undoubtedly the expansion of the Panama Canal. The US$5.2bn project will
significantly alter the regional trade and shipping dynamics. Delays have been reported on the
project, with the completion date expected to be pushed back to early 2015 (from late 2014).
Other notable projects include the US$1bn Moin Container Terminal in Costa Rica, to be built
and operated by APM Terminals, and the US$500mn plan for a port at Monkey Point in
Nicaragua, for which Andrade Gutierrez was contracted for a feasibility study in August 2011.
• Public Private Partnerships: A number of countries in the region are seriously considering
using PPPs to develop infrastructure. In addition to Guatemala having established a PPP agency
in November 2011, El Salvador announced in April 2012 that it is considering using a PPP to
develop the Cuscatlán International Airport. The country''s legislative assembly is discussing a
PPP bill. On the whole, regulations across the region are largely in their infancy, and the longerterm
policy environment does not instil enough confidence to attract long-term commitments
from investors. In addition, securing financing for investments in the region would be a tall
order.