In July 2005, the government of
Once goods are boarded on an ocean-going ship, the cost of moving cargo
over long distances becomes low relative to the cost of loading and unloading it
in ports – at least for containerized shipments, which today constitute the bulk
of international trade in manufactured goods, as well as for most non-bulk
primary products. It remains to be
seen whether the integration of
The first question to be answered about such a concession is why it was done at all. Why did the Peruvian government, which originally built this road and has maintained it ever since, choose to turn it over to a private company?
There are three main reasons typically put forward for concessioning a project like Amazon North:
In particular, the requirements that the concessionaire maintain the road to a certain standard may lead to better road maintenance than under government management.
The Concession Process for IIRSA-North
Table 1 offers a timeline for the concessioning of IIRSA-North, or Amazon North. As indicated by the timeline, the actual award came about one year later than originally scheduled.
The delays in awarding the concession resulted from various factors: production of relevant background documents, responses to inquiries by potential bidders and disagreements within the Peruvian government about what exact form the concession should take.
Nine firms expressed interest in the concession, and four firms were pre-qualified for the final stages of the concessioning. They included three Brazilian firms and one Peruvian firm. However, in the late stages of the process, three of the firms – two Brazilian and one Peruvian – agreed to submit a joint proposal. This left only this consortium and one other Brazilian firm as the two bidders for the final award. The presence of the second bidder was critical to the award, as the presence of only one bidder would have required re-bidding of the concession.
The review of the two final proposals led at least one of the official reviewers to conclude that only the consortium’s bid was responsive, while the submission by the other bidder was technically deficient and was unacceptable as unresponsive to the conditions of the competition.
In sum, there was an absence of genuine competition for the IIRSA-North concession. This lack of competition appears to have led to two consequences. First, the cost of the contract to the Peruvian government of the concession was probably significantly higher than it would have been in the presence of stiff competition. Second, it appears that the concessionaire was able to convince the MTC that further investment beyond that contemplated in the concession were warranted, with resulting further payments to the concessionaire.
Two different interpretations can be given to this outcome of the IIRSA-North concession. In the more optimistic interpretation, a relatively “fat” contract for that concession would encourage more firms to participate in later highway concessions – most notably Amazon Central. In any event, in this interpretation, the condition of the Amazon North highway is secure for the 25-year period of the concession. If still maintained by the Peruvian government, this level of maintenance – based on past history – would be unlikely.
The pessimistic interpretation is that the lack of competition and personal links between senior Ministry of Transport officials and concessionaires makes likely excessive costs and profits for the concessionaire. Moreover, as the concession consortium is a group of construction companies, they may well neglect maintenance of the highway, despite the contractual commitment.
As discussed in the Amazon Central case study, the “fat” contract for Amazon North did not attract additional bidders for that concession. Thus, the ultimate impact of the Amazon North concession can only be determined over time, as firms and individuals change their behavior in response to improvements in infrastructure. On this, only time will tell.
 It is a common claim in developing countries that highway maintenance is generally shortchanged, at least in part because of incentives created by donor agencies. Donors have typically financed road construction or major rehabilitation, but have been unwilling to pay for maintenance. An astute ministry of finance might thus conserve scarce resources by skimping on highway maintenance, as donors would pay for the rebuilding of the road, but not for its maintenance.