The Guide to Infrastructure and Energy Investment Second Edition


This practice guide is intended to be a tool for lawyers and businesspeople operating in the field of project finance in Latin America. In pursuit of this goal we have filled the chapters of this practice guide with advice and insight from leading lawyers and law firms of Latin America and abroad, as well as from professionals from banks and other financial institutions operating on the cutting edge of project finance in the region.

Our approach is centred around three topics of import to both sponsors and lender or investor groups: current deal structure, problem solving after the bargain has been struck, and future trends in project finance in Latin America.

The past several years have shown the resilience of the Latin American market, and also its persistent frailties. The region’s strengths are still powerful building blocks of successful economies: enormous mineral wealth, including the world’s largest unproven reserves of lithium in Bolivia;[2] vast areas well-suited for agriculture, with Brazil and Argentina together accounting for more than 50 per cent of worldwide soybean output;[3] and some of the largest unconventional oil and gas reserves in the world, with Venezuela having the largest crude oil reserves,[4] and Argentina having the third-largest shale gas reserves.[5] The commodity wealth of the region continues to provide an economic platform for the individual countries of the region to propel themselves into higher levels of economic growth, income and development. At the same time, this dependence on commodity export earnings continues to drive much of the instability in the region’s economic growth, foreign indebtedness, and attractiveness for inbound FDI. The current modest recovery in commodity prices, along with economic reforms in Brazil and Argentina, creates a more positive outlook for 2017 and beyond for most countries.

Latin America’s recent cycles of growth and development have lagged the cycles in the United States and Europe, with the region remaining less affected by the 2007–2011 financial crisis and recession than was the case in previous OECD economic cycles. This lagging trend in growth is due to lower overall levels of integration of the region with the world economy, as imports continue to fall as a percentage of GDP.[6] More recently, Latin American economies have slowed somewhat while the rest of the world has emerged from the global recession in a rare example of joint growth. Except for Argentina and possibly Bolivia, some of the investors who came during the Great Recession have reallocated new investments to other regions where prospects are now greater than in Latin America. However, one positive development of the region is the exposure of Latin America to a much broader spectrum of investors from Asia and Europe. Many of those who came during the period from 2007 through 2011 have stayed. Those who have – and who have reinvested while prices are relatively low – are expecting strong gains in the medium and long term.

The feeling in the global investment community and within Latin America itself is one of cautious optimism for the next few years. 2015 and 2016 were difficult, with the gross regional product (~GDP) growing by 0.1 per cent in 2015 and contracting by 1 per cent in 2016.[7] However, almost every country in Latin America is expected to grow in 2017, with exceptions for Venezuela, Ecuador and Suriname. Venezuela continues to suffer from political unrest and low oil prices. Ecuador remains overly dependent on its oil sector and is saddled with the foreign debts that spurred infrastructure and growth during the Correa years. Suriname, heavily dependent on exports of gold, oil, and alumina, faced negative GDP growth in 2015 and 2016, due to low commodity prices. The World Bank expects the increased investment in oil and gold to propel a modest recovery, if not a return to positive GDP growth rates, in 2017.[8] Leading the way in the region are traditional powers Brazil and Argentina, which are both expected to return to GDP growth after years-long recessions, while other regional stalwarts such as Colombia, Chile, Mexico and Peru maintain steady, if modest, growth rates.

Brazil has been rocked by setbacks mostly of its own making in the past five years, abetted by weak commodity prices. Legal and political scandals have offset the positive trends of the early 2000s. Large protests against alleged mismanagement of the economy, large-scale graft and the perceived legal immunity of the political elite of the country led to the removal of the president, Dilma Rouseff, accompanied by falling economic confidence. This was felt especially acutely by international investors, for whom the social and political uncertainty added an unquantifiable risk to any business proposition. Meanwhile, the ranks of local project developers – built up over many years and boosted by the boom years of 2007–2011 – has been hollowed out by several sprawling corruption investigations. The situation was exacerbated by falling commodities prices worldwide. All of this led to a dramatic slowdown in the Brazilian economy, with contracting GDP in both 2015 (by 3.8 per cent)[9] and 2016 (by 3.6 per cent),[10] increased unemployment[11] and high levels of inflation.[12] After spending the 2000s as the darling of the international investment community, Brazil has suffered from a lack of new investment and project development in the past several years, especially for badly needed infrastructure projects.

Early indicators for 2017 point to a brighter future. After a strong first quarter, with GDP growth of 1 per cent, the economy cooled to 0.2 per cent growth in Q2, though that rate did beat expectations of a continued slowdown in the Brazilian economy. Recent growth has been propelled by a strong wave of consumer spending.[13] The current government, led by Ms Rouseff’s former vice–president and successor, President Michel Temer, is beleaguered and scandal-rocked itself, but is more business-friendly than President Dilma’s. The administration is aggressively marketing Brazil to foreign investors, seeking bidders for a privatisation scheme it hopes will bring in tens of billions of dollars and divesting non-core assets from its flagship state enterprise, Petrobras.[14] This is a welcome change after over a decade of perceived hostility and outright protectionism from Ms Rouseff’s Worker’s Party (PT).

In one initial, highly creative piece of economic stimulus, Mr Temer’s government has allowed Brazilians to withdraw funds from their inactive unemployment insurance accounts (which are personal to the employee in Brazil). This move has injected billions of dollars of much-needed cash into the economy; other measures for putting cash in consumers’ hands are planned.[15] The current administration, in a further signal of its enthusiasm for the business community, hopes to pass a comprehensive reform of the country’s nearly century-old labour law regime. This set of laws has provided some important and valuable protections to the Brazilian workforce, but has also prevented the private and public sectors from enjoying the fruits of greater productivity, as many enterprises are forced to carry poorly performing employees.

The rebounding GDP figures, the business-friendly administration, and the general feeling in the market that the worst is behind it have led Brazilians and foreign investors alike to be cautiously optimistic about Brazil’s economic future. The halcyon days of 2001–2007, and 2009–2011, with high rates of GDP growth, fuelled by rising commodity prices, and accompanied by unbridled optimism, may be in the past, but for the first time in two years it is possible to see a clear path to renewed economic growth for Brazil. This path continues to rely heavily on the country’s enormous resource wealth and commodity production. With a presidential election coming at the end of 2018, investors will be eager to see whether Brazil is able to make the hard, long-term choices that face it on labour law, economic diversification and trade.

To the south of Brazil, the election of Mauricio Macri in late 2015 was heralded by the world as a signal that Argentina intended to re-enter the global economic community. However, with nearly two decades of fiscal isolation, tampering with official statistics for GDP growth and inflation, high tariffs and distorting subsidies, the re-entry has not been as smooth or easy as was once hoped. Argentina’s increasing integration with the global economy, especially the reduction in import duties, has presented many domestic companies with increased competition. A return to the publication of accurate economic statistics showed very high inflation in 2016. Rolling back certain government subsidies has meant cost spikes for Argentine citizens, causing higher still inflation and a contraction of consumer spending.[16] After modest GDP growth of 2.6 per cent in 2015, the Argentine economy’s growth rate fell by 2.3 per cent in 2016.[17]

A short-term contraction was perhaps likely, given the broad array of unpleasant measures Argentina has undertaken in order to restructure its economic policies and reset its economy. Among the most important is the resolution of the country’s 15 year-long fight with its creditors, including so-called ‘vulture funds’, effectively reopening the country to international capital markets. This has allowed President Macri to continue financing the Argentine government through international debt, despite fiscal shortfalls.[18] President Macri also removed controls on the Argentine peso, devaluing it overnight by 30 per cent against the dollar, a necessary reform after years of government controls on the currency led to proliferating capital flight and a black market in foreign exchange, albeit a reform that made the interest payments on government’s international debt more expensive.[19]

The business communities, both domestic and international, continue to support President Macri, and are bullish on his ability to continue the stabilisation, modernisation and restructuring projects of the Argentine economy he has undertaken. The International Monetary Fund (IMF) expects the Argentine economy to grow by over 2 per cent in each of the next two years – a target that, if achieved, would provide credibility to the government’s ongoing efforts and enable the Argentine government to sell its plans to outside investors. The current administration has also proved receptive to increased interest and investment by international oil companies in the development of the country’s vast natural gas reserves.[20] In addition to the currency reforms the government has extended its higher domestic natural gas prices for an additional two years to entice foreign energy companies to invest right now, making domestic production of natural gas potentially more lucrative than it is elsewhere.[21] The country’s attractively high levels of human capital relative to the rest of the region have allowed it to become a tech hub regionally, and, to a growing extent, worldwide; it is a major outsourcing centre for companies around the developed world who need affordable design and engineering work; and it is home to a majority of the region’s ‘unicorns’ – tech companies with valuations of more than US$1 billion.[22]

In much of the rest of Latin America, the future is also looking cautiously optimistic. Colombia is on track to continue its streak of positive GDP growth, which it has achieved in every year during this millennium.[23] Colombia is currently benefiting from increased oil prices relative to the levels of 2015 and 2016, as well as long-term investments in infrastructure finally bearing fruit. It is also feeling the positive effects of the end of its 52-year civil war between the government and the Revolutionary Armed Forces of Colombia (FARC), which will open up wide swathes of the country that have been off limits to farmers and developers of all kinds for decades.[24] The peace agreement has been lauded internally and by the international community for putting an end to a bloody and costly struggle that was long seen as a major impediment to Colombia’s entry into the class of fully developed nations.

Bolivia has also continued its run of positive GDP growth in the new millennium, with growth of over 4 per cent every year since 2010, a trend that is expected to continue.[25] Bolivia has also received a tremendous windfall with the discovery of the largest lithium reserves in the world. With lithium batteries a key component of everything from smartphones to laptops to electric cars, Bolivia’s lithium reserves should provide it with a steady stream of resource income for decades to come.[26] Lithium extraction in Bolivia is tightly controlled by the government. Consequently, new large-scale operations undertaken in the future will have to include the private sector, which has experience and know-how the government cannot match, especially at ever-higher levels of extraction and processing. Whenever Bolivia does decide to open its doors – even somewhat – to partnerships with the private sector, the investment figures are likely to result in billions of dollars of inbound FDI.

After years of under-investment in many kinds of public and industrial infrastructure, Latin America is ripe for project finance investment across a wide array of sectors. First movers among sponsors and lenders or investors have already started to enjoy the returns on their investments. As described in detail in the chapters that follow, Latin American project finance currently presents a significant opportunity for legal practitioners, project developers, and financial institutions. There are growing opportunities for the private sector, as well as traditional government-led investments, with new oil and gas and renewable energy investments appearing almost monthly. Transportation infrastructure, public health and water systems, as well as divestment from the region’s state enterprises, as governments retrench from earlier activist policies, will also play increasing roles in the near future. There are complex legal landscapes that must be navigated carefully with the assistance of experienced counsel, especially in the areas of changing investment and currency rules, dispute resolution, and compliance.

This practice guide provides a primer for addressing these issues before and during the life of a project finance transaction in today’s market. The individual subject area guides can be used as a launching point for businesspeople and lawyers when considering and navigating project finance deals in Latin America. It is organised as follows. In the first section, our contributors examine the roles for public–private partnerships across a number of sectors. The second section looks at both traditional and innovative financing structures being put to use in the region, including project bonds, private equity investments, and debt financing from China. The growing role of China as a lender has brought its financial diplomacy to bear on the region to an unprecedented extent in the last decade and requires a separate and thorough treatment.[27] The third and fourth sections focus on two of the thorniest areas of legal development in Latin American project finance: dispute resolution and local and international compliance regimes, the latter increasingly important for FDI from the US, EU or United Kingdom. The final three sections of this practice guide examine the future of project finance in Latin America especially in light of the three pillars of Latin American project finance: oil and gas, renewable energy, and transportation infrastructure.

This practice guide will inform practitioners, developers and investors about current trends in Latin American project finance and provide an expert’s assessment of the future of the industry and the law. It will also serve as a starting point for conversations between lawyers and their clients, giving each an informed, up-to-date and nuanced basis on which to move forward. We hope it leaves our readers as enthusiastic about the business and practice of project finance in Latin America as we are.


[1] Claudette M Christian is a partner and Joshua B Press is a senior associate in the Rio de Janeiro office of Hogan Lovells.

[2] Henry Sanderon and Andres Schipani, ‘Bolivia makes first shipment of lithium to China.’ Financial Times (17 August 2017) available at

[3] ‘World Agricultural Production’, page 7. Office of Global Analysis, Foreign Agriculture Service/USDA available at The United States produces about 37% of world output, 10% more than Brazil, and the three countries together account for just under 90% of world soybean output (see

[4] ‘Crude Oil – Proved Reserves.’ CIA World Factbook available at

[5] ‘World Shale Resource Assessments.’ U.S. Energy Information Administration (September 24, 2015) available at

[6] See Inter-American Development Bank, 2017,

[7] ‘Latin America and the Caribbean: Bouncing Back from Recession.’ International Monetary Fund (19 May 2017) available at

[8] Ibid. See also

[9] ‘GDP Growth (annual %).’ The World Bank DataBank available at

[10] ‘Real GDP growth (Annual percentage change).’ International Monetary Fund IMF DataMapper available at

[11] Kenneth Rapoza, ‘Brazil’s Unemployment Crisis Is The Worst In 20 Years.’ Forbes (1 May 2017) available at

[12] ‘Inflation rate, average consumer prices (Annual percentage change).’ International Monetary Fund IMF DataMapper available at

[13] Paul Kiernan, ‘Brazil GDP Rises in Second Quarter on Rebound in Consumer Spending.’ The Wall Street Journal (September 1, 2017) available at
on-rebound-in-consumer-spending-1504268720. See also

[14] Claudia Safatle, ‘Governo prevê R$ 20 bi com concessões em 2018.’ Valor Econômico (31 August 2017) available at

[15] Edna Simão e Fábio Pupo, ‘Governo que injetar R$ 16 bi na economia com liberação de PIS.’ Valor Econômico (August 31, 2017) available at

[16] J.R.A., ‘How Mauricio Macri is trying to rehabilitate Argentina’s economy.’ The Economist (23 September 2016) available at

[17] ‘Latin America and the Caribbean: Bouncing Back from Recession.’ International Monetary Fund (19 May 2017) available at

[18] J.R.A., ‘How Mauricio Macri is trying to rehabilitate Argentina’s economy.’ The Economist (23 September 2016) available at

[19] Stephen Nelson and David Steinberg, ‘Here’s why Argentina’s new president Macri let the peso crash.’ The Washington Post (4 January 2016) available at

[20] Frank Holmes, ‘Argentina Ready To Fire Up Natural Gas Opportunity Years In The Making.’ Forbes (1 March 2017) available at

[21] ‘Macri anunció el plan de explotación de Vaca Muerta: ‘Esto va a ser una revolución del trabajo’.’ La Nación (10 January 2017) available at

[22] Benedict Mander, ‘Argentina: home to the majority of Latin America’s tech unicorns.’ Financial Times (19 September 2016) available at

[23] ‘GDP Growth (annual %).’ The World Bank DataBank available at

[24] Nicholas Casey and Joe Parkin Daniels, ‘“Goodbye Weapons!” FARC Disarmament in Colombia Signals New Era.’ New York Times (27 June 2017) available at

[25] ‘Latin America and the Caribbean: Bouncing Back from Recession.’ International Monetary Fund (19 May 2017) available at

[26] ‘A battle for supremacy in the lithium triangle.’ The Economist (15 June 2017) available at

[27] ‘China’s financial diplomacy: Rich but Rash.’ The Economist (31 January 2015), available at

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