After years of neglect infrastructure development is a priority in Peru. Highways have top priority. Nestor Palacios, Perus deputy minister of transportation, is overseeing approximately $2 billion in ongoing and planned road projects.

Nestor Palacios (Photo by C.J. Schexnayder)

The upgrades are critical in the wake of a free trade agreement between Peru and the United States reached in December. The concord now faces approval by the legislatures of both countries. Peru is betting the pact will continue to spur business and attract investments but that wont be possible without extensive upgrades in infrastructure.

Mountainous Peru boasts more than 80,000 kilometers of roadway, but less than 15 percent is paved. Worse, many of the hardtop portions lack for maintenance while only 8 percent of rural roadways are regularly usable.

The renewed commitment to highways is partially due to the relative economic stability that has occurred under President Alejandro Toledo. Since taking office in 2001, the economy has grown by more than 4% every year. But Toledo is barred by law from seeking re-election. There is some anxiety of what will happen in April when Peruvians head to the polls to select the next president.

The centerpiece of the countrys highway expansion effort is the $900-million InterOceanic Highway project launched last year. The road will complete a connection with Brazil and providing a link between Perus Pacific ports and the Atlantic.

The project will also refurbish more than 2,500 kilometers of roadways in Southern Peru while opening up the long-neglected Madre de Dios jungle region for development. Perus export association, ADEX, estimates the highway will create 1.5 percent economic growth in the country. The 10 departments of southern Peru are expected to benefit most.

In the north work has begun on a 900-kilometer link the Pacific port city of Paita to Yurimaguas on the Huallaga River in the Amazon. It is part of the $205-million Amazonas Norte project began last year financed through the regional infrastructure integration initiative (IIRSA) that will improve road links between Peru and Ecuador. A similar, but smaller IIRSA project into the central interior of the country is nearing completion as well.

Recently, ENR discussed the countrys highway improvement projects with Palacios.

Related Links: Odebrecht-led Consortium Snags $900-million Contract for InterOceanic Highways Peruvian Leg, Aug. 19, 2005 First Step: Lima Tries to Build a Way Free of Congestion, Oct. 28, 2005

Why is highway construction so important for Perus development? It is of great importance because it is key for our integration with all of South American integration is a high priority for the development of the region; then we no longer can only just think about Peru when we are considering integration or development, we have to consider the development of the entire region for Peru to be successful moving forward at all. We have three important axes of penetration that unite with most important of our neighbors; Brazil, Ecuador and Bolivia.

Why hasnt Peru moved forward on these projects before now? We are seeing a lot of these projects starting up this year because the concession process is very slow. This is actually the conclusion of a long process to reach this point that has taken many years. We had difficulty because our experience with the process was limited but we are seeing the concessions begin and starting construction.

What is the most critical piece of Perus highway system? The Pan-American highway is always our number one priority. It carries the most traffic in Peru and is vital to the entire country. Our second priority are the highways that penetrate the Andes and the jungle that are part of the axes for the South American Community of Nations, IIRSA, that are part of the transportation initiative for the entire South American Region.

What must Peru do to keep the Pan-American Highway a useable corridor? We have increased periodic maintenance to assure another 10 years of use at this level from the highway. If this government had not made the periodic maintenance of the Pan-American Highway a priority they would be unusable within months. It would be just like what happened during the government of Alan Garcia. (Editors note: Garcia was president of Peru from 1985-91. His tenure was marked by runaway inflation that plunged the country into deep debt.) Without periodic maintenance highways disappear, we are protecting what we have.

Where does infrastructure stand as a priority in the current Peruvian government? President Toledo made infrastructure an important part of his administration, going so far as to name 2004 the year of Infrastructure and Integration. This is the first time in recent memory that the country has had an opportunity to move forward and make such broad improvements. The goal is to spark an increase in the Gross National Product and improve the living conditions for all Peruvians.

Does the prospect of a new presidential administration jeopardize these development efforts? No. There is a general plan for intermodal transport that was approved by congress. It is established on the basis of traffic, development priorities and investment and will continue across several governments. The next administration cannot alter that plan anymore than I can change it.

How is Peru financing these projects? Our financing options are very good right now. Traditionally we have found financing through the World Bank, by the Inter-American Development Bank (I.A.D.B.), by the Andean Corporation of Promotion (CAF) which helped us specifically with the Inter-Oceanic Highway due to their interest in tying together the regional transportation wheel. There have been loans from other nations as well. We have received land with the KfW of Germany as well as the Japan for Bank International Cooperation (JBIC).

Many Latin American countries have had problems with concessions contracts that have limited investment interest. Is this the case in Peru? We believe the concessions are extremely safe and will protect both the companies and the government. There will be concessions for most of the highways in Peru in next the five or six years financed in one or another form with participation of the State or with private investment that is financed by the tolls. These are 25-year contracts. The financing is locked in and the concessionaire must provide letters of guarantee that during the 25 years they will handle all the construction, maintenance and operation.

How are these efforts affecting the Peruvian construction industry? According to the contracts a minimum of 40 percent of the companies on any project must be Peruvians. This it is a great opportunity for the Peruvian companies to have more solid work and to prepare for the future. In the past Peruvian contractors have been very small and the limited amount of work has limited their growth. Now these companies can grow and expand in ways they couldnt before.

What is the next step for Perus infrastructure? With the rehabilitation of the highways, logically, the next step is the improvement of the ports. Because if we upgrade the highways and not the ports, we will not see the benefits of development. Currently we are planning concessions that will upgrade the Port of Paita, the Port of the Callao, the Port of Matarani, the Port of Ilo and the Port of San Nicholas in Marcona.