PPIAF support leads to more bankable infrastructure projects in key sectors in Colombia
Colombia’s National Development Bank (Financiera de Desarrollo Nacional – FDN) has a portfolio of successful investments in the nationwide road program, but it lacks investments in other key strategic sectors that could enhance the country’s competitiveness and accelerate meeting its national climate agenda.
In prior attempts to diversify, FDN faced regulatory challenges and encountered external difficulties in entering new sectors due to challenges with projects not being sufficiently ripe for investment. FDN also lacked the knowledge and capacity to access green financing for climate-smart infrastructure investments. Internally, they had challenges in preparing and structuring bankable projects in these sectors. Overcoming these pre-investment stage challenges could help Colombia move faster in reaching its development and climate goals and help FDN to experience growth as an institution by freeing up proceeds to reinvest in more infrastructure projects—while crowding in green financing—and creating a virtuous cycle of economic development.
PPIAF’s support
The World Bank’s Country Partnership Framework in Colombia (2016–2021) includes support for private capital market resource mobilization to address Colombia’s large infrastructure gap. While Colombia’s total infrastructure investment has grown since 2004, it has been below 4 percent of GDP, positioning its infrastructure quality at 108 out of 144 countries on the World Economic Forum’s 2014–2015 Global Competitive Index. One of the goals under the Country Partnership Framework is to increase FDN’s loan portfolio for infrastructure finance more than tenfold.
Between March 2021 and February 2022, PPIAF supported FDN in addressing the impediments to finding more bankable projects to invest in. PPIAF studied 10 sectors, of which FDN selected four high-potential priority sectors, including airports, renewable energy, ICT, and water and sanitation, and identified roadblocks, strategies, and activities to overcome the challenges in each sector. Increased investments in the sectors that reduce greenhouse gases and/or are resilient to expected climate changes could also help align key domestic priorities with the country’s climate goals, in particular its Nationally Determined Contributions (NDC’s). PPIAF’s Climate Resilience & Environmental Sustainability Technical Advisory (CREST) supported work on identifying opportunities for FDN to play a leadership role in integrating low carbon and climate resilient (LCR) considerations in the priority sector projects. This strategy could help attract green financing and give the bank a competitive advantage.
PPIAF advised on the creation of a “Unit for Investigation and Sector Development” and its governance structure to support the development of projects at the “upstream” or pre-investment stage. By engaging with prospective clients, stakeholders, and regulators earlier in the infrastructure project development cycle, FDN could influence the quality of project design, reduce bottlenecks, and ensure that projects would be investment-ready faster. This approach could help FDN have a more bankable set of projects in which to invest.
Supporting low carbon and climate resilient infrastructure
Beyond its traditional role as lender, FDN could play a critical role in addressing major challenges— particularly in mainstream climate and green finance—and could channel much-needed funding to climate-adapted public-private partnerships (PPPs). PPIAF, through CREST, identified opportunities for FDN to be the go-to bank for projects in smart power transmission and distribution infrastructure supporting energy generation from variable renewable resources. Green investments could leverage the substantial, but mainly untapped solar, wind, and geothermal resources.
PPIAF further recommended the strengthening of climate accounting practices for both adaptation components and mitigation measures across the lifecycle of PPP infrastructure projects. By taking a firmer and more systematic approach to LCR infrastructure development, FDN could attract additional sources of green finance, which includes tools such as green bonds, grant funding, and guarantees.
The results
In 2022, FDN’s Board approved PPIAF’s recommendations in its five-year strategy and the unit began implementing the roadmap of priority actions for the identified sectors, including climate and green financing options for LCR infrastructure. To address the regulatory constraints, FDN is positioning itself to become a stakeholder and coordinating force in the policy conversations in priority sectors.
Regarding climate resilience, FDN stakeholders took PPIAF’s recommendation to use a standard approach for screening eligibility for PPP financing and developing funding proposals. FDN's team is using a standard methodology to account for impacts and emissions of PPP infrastructure projects contributing to the fulfillment of its NDC’s. FDN's team is now better informed about suitable financing options for private sector participation projects in LCR infrastructure that are suitable for Colombia.
Ultimately, FDN will have strengthened capacity to take the lead in the identified priority sectors critical to Colombia’s economic development. As a result, roadblocks can be removed earlier in the design stage and enable more bankable projects to be financed, while reducing time to market.
By ensuring these sectors have investment-grade projects that are more likely to receive funding and come to fruition, FDN can speed up the timetables to turn infrastructure concepts into reliable sources of green energy, clean water, faster ICT systems, and reduced travel times. FDN’s actions can catalyze investments that will create more jobs, reduce poverty, and improve lives in Colombia.