What happens when disaster strikes

On Saturday February 27th 2010, Chile was rocked by an 8.8 magnitude earthquake – its biggest in 50 years – that took the lives of several hundred people and affected about two million of the country’s inhabitants.

 

The quake also wreaked havoc on the country’s infrastructure by closing roads, shutting down ports and disrupting power supplies across Chile. With a significant part of its infrastructure in the hands of the private sector, the earthquake provides a revealing insight into how concessionaires are forced to react to disasters which strike at the heart of their businesses.

The damage
Initial estimates from the Ministry of Public Works (MOP) place the cost of repairing the infrastructure affected by the earthquake – both public and privately managed – at between $1 billion and $1.2 billion. This includes repairs to roads, airports, ports, water and transmission infrastructure.

Surprisingly, and perhaps contrary to the impression one might get from gazing at pictures of cracked roads, destroyed houses and stricken electricity pylons, most concessionaires suffered minimal damage to their concessions, with the majority not withstanding any structural damage.

Of the roughly 1,400 kilometres under concession in the areas affected by the earthquake, about 100 kilometres were damaged, with most of the damage done to overpasses and pedestrian bridges. Several road bridges also collapsed, though most of the affected ones seem to be managed by the MOP. This prompted Chile’s outgoing transport minister, Sergio Bitar, to comment: “Considering the magnitude of this earthquake, which was brutal, our infrastructure has resisted well.”

The electricity sector seems to have also escaped relatively unscathed. Brookfield Asset Management, which owns Transelec, Chile’s largest electricity transmission company, said almost immediately after the earthquake its transmission towers were largely untouched by the quake with several sub-stations incurring the majority of the damage. Other Chilean operators reported they had also escaped with relatively minor impacts.

Ports and their concessionaires weren’t so lucky though, with the majority suffering significant damage and knocked out of commission in the immediate aftermath of the earthquake. A look at the transport ministry’s most recent status report shows that some have resumed partial operation since but many are still closed.

Public-private relations
So far, cooperation between the government and concessionaires has been effective and mostly tension-free, with both working to re-establish normalcy to disrupted infrastructure.

Santiago’s international airport is a good example of the efficiency of this public-private cooperation. Just over a week after the quake disrupted operations, the government and the concessionaire operating the airport – which includes Spanish companies Abertis, FCC and a consortium of Chilean firms named AGUNSA – managed to have the airport functioning at 80 percent of capacity.

This prompted Bitar to praise the “human and technical efforts” of the ministry of transport, Chile’s airports agency DGAC and concessionaire SPR and their “great reaction capacity”. If there is any hint of tension, it lies in the future and will most likely be connected to the ability of concessionaires to have their infrastructure repaired to pre-earthquake conditions in the six to eight months mentioned by Herman Chadwick, the president of Copsa, Chile’s concessionaire association (see accompanying interview).

Speaking to the press, Bitar warned that he will not tolerate delays to these deadlines, saying that the ministry will move fast to approve the reconstruction plans but that concessionaires have to file their insurance claims quickly and present their plans to the ministry before the reconstruction efforts can begin in earnest.

There are few obvious signs of how relations between concessionaires and Chile’s new government, which took office in mid-March, will develop.

The concessionaire view
Herman Chadwick is the president of COPSA, a local association representing road concessionaires active in Chile such as Atlantia, ACS, Belfi, Cintra, Global Via, Hochtief, OHL and Sacyr. Infrastructure Investor asked him how concessionaires are coping.

How much road was affected by the earthquake and how much will it cost to repair the damage?

Chadwick: 18
months to return
to normal

HC: Effectively, the damages caused to infrastructure concessions were minor in relation to the magnitude of the earthquake that occurred in Chile. We have some situations where pedestrian bridges and overpasses collapsed but in general the system resisted well, which allowed us to re-establish road connectivity 48 hours after the earthquake hit and reinstate our aerial operations in 36 hours.

Regarding costs, we have a very preliminary estimate of UF3.5 million (€103 million; $141 million), which we did in conjunction with MOP, that corresponds to damages which we have to start repairing immediately in order to have our roads in order. That is to say, less than 1.5 percent of [concessionaire] investments will go towards repairing infrastructure – at zero cost to the state.

How long do you estimate the repairs will take?
HC: We estimate it will take eight months to have the roads in good condition and a year-and-a-half for all the road concessions to return to normal, taking into account that we may agree with the government to improve the standards of some of the roads we are repairing.

We expect MOP’s cooperation to implement a ‘fast track’ system for these works so that approvals won’t take a year, as they do now. But from what I have been able to ascertain from the new government, it will be possible to ‘fast track’ these works.

Will the repair costs be paid solely by insurance, or will the state contribute? Is there any possibility of tolls being raised to cover repairs?
HC: We have insurances that are now being liquidated so the state will not incur any costs. Regarding tolls, the costs of repairing the highways affected by the earthquake are our responsibility, it is one of the risks of our business, and it will not be transferred to our users. We will not increase tolls for our highways.

Chile is a country with a history of earthquakes. When concessionaires signed their road contracts in Chile, did they contain any special provisions about this type of danger?
HC: All our concession contracts are done in accordance with the rules and regulations demanded by MOP. These include, of course, anti-seismic regulations suited to Chile’s history and other earthquake experiences across the world.

These criteria are stringently met and the authorities evaluate their implementation before the concessions are opened to the general public. In addition, the insurance companies provide us with insurance because of these criteria, because their implementation is a serious and responsible process.

Did any of the road concessions have their economic equilibrium affected by damages caused by the earthquake?
HC: None of the concessionaires will have their economic equilibrium affected by the damages caused by the earthquake. We have insurances associated with this type of catastrophe and we are already working with insurance companies to allow concessionaires to maintain their economic solidity and keep working to develop the country.