Skyline of Bogotá, Colombia. Credit: bydronevideos/Adobe Stock

Carlos Umaña Trujillo
Brigard Urrutia Abogados, Bogotá

Rafael Julián Cifuentes González
Brigard Urrutia Abogados, Bogotá

Contextualisation

PPPs in Colombia

More than 13 years ago, Law 1508 of 2012 was enacted by the Congress of the Republic of Colombia. It aimed to regulate public-private partnerships (PPPs) as a new mechanism to develop infrastructure projects in Colombia. This important milestone was later accompanied by implementing legislation which is of pivotal importance in the construction of a broad and strong legal framework for PPPs, Decree 1082 of 2015 being the most relevant example.

In the years since, Colombia has become a jurisdiction of reference in Latin America for the development of PPP projects. The most recent Economist Impact Infrascope Index commissioned by the Interamerican Development Bank ranks Colombia third overall out of a total of 26 countries in the Latin America and the Caribbean region to develop PPPs.^[1] Furthermore, according to Fedesarrollo (a first-rate independent think tank and investigation centre in Colombia), from 2012 to 2024, PPP schemes have amounted to approximately COP70.05bn (approx US$18.67m) in CAPEX and COP71.24bn (approx US$19m) in OPEX through private financing.^[2]

Under Law 1508 of 2012, the PPPs mechanism has several features which have helped it to prosper as a tool to develop high quality infrastructure. The following three main characteristics have been outlined by authors including Juan Carlos Quiñonez Guzmán, from the Colombian Infrastructure Chamber:^[3]

1. PPPs closely and strictly follow a ‘value for money’ approach. The PPP mechanism can only be used when it brings more value for money than any alternative scheme such as public construction contracts.

2. Law 1508 of 2012 embraces an FIDIC international principle according to which project risks are allocated to the party which is in the best position to manage them. This therefore mitigates their impact over the development of the infrastructure and the provision of services.

3. PPPs in Colombia provide for remuneration payments to concessionaires as long as the relevant infrastructure is available and certain pre-established Key Project Indicators (KPIs) are complied with. This vital characteristic has been of utmost importance for the correct implementation of the PPP mechanism and has become an important factor in attracting investors to the infrastructure sector.

Considering the above characteristics, PPPs in Colombia have gone through a decade of breakthroughs and development. Both public and PPPs of private initiative (the latter are also known as ‘unsolicited proposals’), have been successfully structured, awarded, financed and in the case of the toll road concessions most are into their operation phase. The mechanism has allowed Colombian governments to release funds that otherwise would have been allocated in the construction of roads for the benefit of sectors such as public education and health, among others.

The mechanism has proved so successful that some sectors have even looked on the PPP regime to find the best practices to be replicated in their own schemes, even if the relevant project is not regulated by Law 1508 of 2012, but rather by the general public procurement regime. An example of this is the current Bogotá’s First and Second Metro Lines of Bogotá, or the first light rail train to connect Bogotá with its suburbs (Regiotram de Occidente). These are projects which, despite not being considered as regulated by the PPP mechanism, have incorporated most of the PPP’s features in their contractual agreements. The adoption of PPP mechanisms has been fundamental to these projects in attracting the interest of investors, sponsors, lenders and constructors alike.

The PPP scheme in Colombia has been replicated in different sectors of the infrastructure market. Most relevantly, since the passing of Law 1508 of 2012, the national government released the fourth-generation programme of toll road concessions, which is a group of over 25 toll road projects (between public and private initiatives) all regulated by the PPP mechanism. As of 2024, according to the Republic of Colombia Presidential Office, the average progress rate of the programme reached 89 per cent with an estimate CAPEX investment of COP63bn.^[4] The Government of Colombia further replicated the lessons learned, and most recently launched the fifth generation of concessions programme, an ambitious programme with the aim of expanding the PPP schemes across other transport sectors other than roads, to increase the country’s competitiveness via multimodal transport. This led to the awarding of waterway and train projects through the PPP mechanism.

PPPs have also been successful outside of the transport sector, especially in the regional governments. Local administrations have been able to successfully structure and develop PPP projects in social infrastructure sectors (eg, hospitals, correctional facilities, schools and parks) as well as entertainment venues (eg, stadia and concert venues).

Future budgetary allocations regime

While PPPs have provided some flexibility to Colombian governments given the fact that private investors and banks do allocate funds in projects that otherwise would have been funded solely by the former, still the government entities must make payments to concessions which extend for long periods of time. In this context, the Colombian Government has become committed to making budgetary allocations to fund projects for periods of time which go beyond a single fiscal year. This legal instrument is known as Future Budgetary Allocations (FBAs) or Vigencias Futuras.

FBAs are essential in providing the necessary cash flow for sponsors and financial entities once the relevant infrastructure is available and some KPIs are met. FBAs are also the main source of payments for the private sector. Given their relevance to project developments, and their importance as a public budget mechanism, FBAs may only be adopted and allocated after a complicated and meticulous procedure which involves several branches of government being carried out.

For FBAs to be approved, the corresponding project must have achieved feasibility designs, as well as having favourable opinions from the National Planning Department and the Ministry in charge of the project. The process also considers the need to consult the mid-term budget estimates (marco fiscal de mediano plazo) and for the Ministry of Finance to approve the financial conditions of the relevant project. Finally, the FBAs are approved by the Fiscal Policy National Council (CONFIS), a body of several high-ranking government officials with the task of overseeing Colombia’s fiscal policy. It is CONFIS which will ultimately determine the amount of FBAs that will be authorised and the payment allocations during the term of the relevant concession agreement.

Despite the in-depth regulation of FBAs in Colombia, perhaps its most relevant characteristic is that, once approved by CONFIS, government and congress officials in charge of budget are bound to allocate the relevant financial resources for each fiscal year, so that the project receives the necessary funding. This obligation constitutes a mandate for officials that cannot be ignored, and is generally enforceable by law, which has led to consider FBAs being considered reliable as Colombia’s public debt bonds. This has allowed most of the PPP projects now in place to achieve financial closings.

The importance of FBA in PPP projects in Colombia

Having given a general contextualisation of the PPP in Colombia and the general notion of FBAs, this article will now outline the pivotal role FBAs have played in the success of the PPPs mechanism in Colombia, both as means to compensate and remunerate the private investor, and also as collateral to secure project financing for its adequate development.

To comply with the provisions of our PPP law and the best industry practices, once approved, FBAs must be deposited annually by the government in each project’s specific trust. Such trusts occupy the very centre of any PPP and are where all project-related resources are managed. FBAs are deposited in accordance with their approved disbursement schedule, and will fulfil their role as remuneration for the sponsors of the project, or even as collateral for lenders of the concessionaire.

Future budgetary allocations as remuneration in PPP projects

As mentioned, the main characteristic of FBAs instruments is that they allow the government to budget resources which exceed each fiscal year, therefore committing to future budgets. This FBA characteristic has been fundamental for PPP projects given their long-term nature. The complexity and size of PPPs projects, as well as the requirement to secure value for money, demands that this mechanism is implemented in large-scale projects to be undertaken and developed in more than one year.

In this context, private investors seek favourable conditions for their projects, the sources of remuneration must be clear, certain and secure, as the risk that is being taken to develop the project is considerable. In that sense, FBAs as a source of payment are a secure tool for investors who are aware of the irrevocable commitment the government makes in allocating budgetary resources in each fiscal year to serve as remuneration for each specific project.

In practice, FBAs are allocated to a specific project and therefore disbursed and deposited periodically in the project’s trust fund. Pursuant to the applicable principles of the PPP regime in Colombia, these FBAs will only be available to the concessionaire or private investor on compliance with its obligations, and more importantly, on availability of the infrastructure and compliance with the project’s KPI. In the intervening time, the FBAs are safely secured under the administration of a trust company, which manages the resources generating market-standard interests.

Consequently, private parties and investors understand that, if they comply with the project’s KPI in the terms of the relevant contract, their remuneration will be available in an independent trust fund. The remuneration’s availability is unconditional, as FBAs are mandatory commitments not contingent on any additional requirement other than those mentioned above.

Future budgetary allocations as collateral

One of the most important obligations that the private party assumes in a PPP is the financing of the project, by obtaining the necessary resources to perform its obligations under the relevant contract. This financing may often come either through direct equity transfer from the project’s sponsors, or through debt resources from lenders. The obligation to achieve financial closing needs to be accredited before the contracting entity during the first stages of the project.

Financial closings are a convincing indicator on the success of the PPP mechanism in Colombia. Most of the PPP projects currently under development have successfully secured their financial closing, which has allowed them to complete construction successfully, and are now moving towards refinancings during their operative stage. The PPP mechanism has attracted a wide range of financial institutions to participate in financial closings, including local and foreign banks, private equity and infrastructure funds from all over the world. Institutional investors and other capital markets players are among the most relevant sector represented in the financial closing of Colombia’s PPPs.

The main reason behind support for the PPP scheme from the financial sector is the level of bankability for each project through its terms and conditions. This includes, among others, step-in rights, termination formulas or trust fund management of resources. Among these bankability characteristics, FBAs and their regime are the most important features which may attract business for a financial entity to a PPP project.

Given the complex and robust structure of FBAs as source of payment in an infrastructure project, lenders in financial closings have relied heavily on these mechanisms to act as collateral of the resources owed by the debtor. The FBAs mechanism gives lenders a collateral with absolute certainty of availability, which is more secure than any other collateral that can be offered in the guarantee package of a project finance. As the disbursed FBAs are deposited with trusts managed by trust companies, this makes the payment of debts reliable as trust companies cannot divert funds for payments which are not contemplated in the initial trust agreements or their amendments.

The above characteristics have allowed a handful of projects to reach financial closing in very favourable conditions, because the presence of strong and solid collateral reduces lenders’ uncertainty and risk exposure, leading to cheaper financings. The mechanism has also allowed for certain standardisation of the project finance market practice in Colombia, generating an approachable and appealing investment environment for different financial institutions.

Recent challenges of FBAs in Colombia

Despite the many proven advantages and features of FBAs in project development in Colombia, the mechanism and its principles are currently facing legal challenges. These have been motivated by the government seeking an amendment to the applicable rules, so that FBAs already approved and secured may be available to be diverted to unrelated projects or initiatives to be undertaken by the Colombian government.

This government decision brings important questions and improvement opportunities for the FBA mechanism, particularly considering that, in projects in which FBAs have already been authorised and approved, there is a valid and enforceable commitment in place to allocate those resources in the corresponding fiscal year. This means that, in principle, there is no alternative means under which those projects could be not-financed.

The fact that the FBAs have to be mandatorily deposited and managed through a trust fund until the concessionaire reaches and necessary availability of the infrastructure means that, in some cases, FBAs will be deposited in advance of their actual need, and would then become unused resources in a trust fund, waiting for the project’s KPIs to be complied with so that the concessionaire acquires the right to compensation. Furthermore, whenever a project falls into delays, FBAs end up deposited for long periods of time until they are required. However, it is that very same characteristic, meaning its availability without prejudice of the construction status, which has proved useful in gaining the trust of investors, contractors, and financial institutions, among others.

In addition, the difficult macroeconomic and fiscal situation Colombia is enduring, and serves as a perfect scenario to bring the discussion on FBAs to the table. Some question whether it is fair and responsible to keep disbursing FBAʼs resources into a project-specific trust fund, even when those FBAs will probably not be used in the near future, while the government faces other public spending challenges which could become a priority and for which the public resources that comprise the FBA could be used; especially in those projects in which, for reasons attributable or not to the private party, the construction progress is not coherent with the need for resources.

There have been several attempts to amend and modify the regime on FBAs throughout 2025, so that the route to obtaining a modification, rescheduling or cancellation of the authorisation for FBAs is made easier. These different attempts have: firstly, demonstrated that there might be room for improvement when it comes to FBAsʼ mid project development; but, secondly, and perhaps more importantly, it demonstrated that the complex pillars and foundations of the FBAs regime are solid, reaffirming the reasons why the mechanism is trustworthy.

In early 2025, a presidential decree dealing with budgetary postponements looked to introduce the possibility to postpone and push the allocation of FBAs, with the purpose of reducing public spending from the national budget of 2025.^[5] The rule would only be applicable to projects in which prior agreement had been reached with the private party (in application of the freedom of contract and pacta sunt servanda principles),^[6] or in projects that had suffered delays in their works schedule. In practice, there are no projects to which this decree was applied, particularly because of the restrictions and guarantees imposed by Colombia’s public procurement regime, as well as the strict requirements under which an FBA could be subject to postponement which required prior approval from CONFIS.

Moreover, in July 2025, the government released a draft decree with the purpose of amending the procedure to be undertaken to obtain the authorisation from CONFIS to reschedule approved FBAs. Although the draft decree has not been officially issued and is therefore not yet binding, the purpose is: to clarify that FBAs could be amended both in amount and term (as the original provision limited the reschedule only to term but not to amounts); and to propose a stricter procedure to obtain the relevant CONFIS authorisation. The process would eventually require a number of different favourable opinions and justifications, but, nevertheless, when this attempt at modification is read in conjunction with the presidential decree, the aim is for projects suffering delays to undertake a smoother procedure to obtain an authorisation to reallocate the disbursement of FBAs.

On a different note, more recently a draft proposal has become known, which is to be included within the national budget law.^[7] This draft bill seeks to allow entities in the transport sector unilaterally to reorganise their budget and relocate resources coming from FBAs (which are project-specific allocations) to other types of projects. It is worth noting that this draft bill has not yet been enacted and is currently being discussed in Congress.

Considering all the above, it is important to highlight that, without prejudice of the FBAs regime in Colombia, there are other principles and regulations which need to be considered when discussing the possibility of rescheduling budgetary commitments affecting a specific project. The rules on public procurement,^[8] public administration,^[9] administrative morality,^[10] among others, make it difficult to amend budgetary commitments unilaterally without proper and due justification. This is something that needs to be maintained despite the intention to modify the FBAs regime. In fact, even though the public procurement regime provides for the possibility for contracting entities to amend a public contract unilaterally,^[11] this power is subject to strict compliance with specific prerequisites, which are not present to proceed with a unilateral modification of the FBAs schedule.

In view of this, apart from the draft modification analysed, the bottom line is that, under the current applicable regulation, there is still a need to obtain due authorisation by CONFIS to be able to modify or reschedule FBAs that serve a particular project. Furthermore, by virtue of the rules on public procurement and freedom of contract, it is also possible to construe that the acquiescence of the private party developing the relevant project will be needed beforehand to proceed with a modification of the agreed payment scheme.

Notwithstanding the above, the infrastructure sector in Colombia is still very dependent on the perception that investors have of the Colombian economy’s stability; this is probably one of the reasons why the FBA mechanism became so popular and desirable in project developments. However, the constant attempts to modify the applicable rules partway through project developments may have adverse consequences for Colombia’s perception in the eyes of investors, contractors and lenders, which is not ideal for the upcoming projects and exposes the government to national and international claims by project developers.

It is worth highlighting that, despite the different attempts made to modify the regime applicable to FBAs, there have not been any relevant reschedules, amendments or modifications to already approved FBAs for current projects in operation in Colombia. This demonstrates, once again, that the legal framework surrounding this budgetary mechanism remains strong and trustworthy, making it a very appropriate tool for the successful development of future projects.

On a different note, the need identified by the Colombian government which supports the rescheduling and amending of FBAs also reveals a clear opportunity for improvements to the infrastructure sector, in the search for alternate payment sources for projects, other than direct budgetary allocations. This would eventually reduce the need for FBAs, allowing the government to prioritise its public spending goals while aiming for continued progress in the projects that Colombia needs.