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Peru 2017 | REAL ESTATE & CONSTRUCTION | VIP INTERVIEW

TBY talks to Ernesto Tejeda Moscoso, President of OBRAINSA, on the trends defining the construction sector in Peru.

What are the latest trends characterizing the construction sector in Peru?

The construction sector in Peru is a reflection of the national economic situation. When the economy grows, growth in the construction sector is twice as strong; when the economy declines, the construction sector suffers doubly. Construction has a multiplier effect on the economy because it supports and influences many other industries; materials are purchased, wages are paid, and taxes to the government and suppliers are paid. The value chain of construction is very high, which is why it is considered a pillar for the national economy. The national economy and the construction sector has indeed charted strong growth, with the state playing a crucial role in infrastructure and heavy construction in particular. Private economic activities related to mining, electricity, roads, and airports also require public infrastructure. In general, opening Peru's economy to privately financed concessions has been instrumental to the country's growth. The maturation of an infrastructure project, especially for concessions, has to be analyzed with a medium-term perspective. The infrastructure deficit is high and both the state and private sector are making serious efforts to meet the demand. The housing segment is more sensitive, however, and much depends on volatile factors such as access to credit, as banks may change their policies. For example, the housing deficit in Peru comes from the lower social class, despite the promotion funds such as MIVIVIENDA, which in practice favors the middle class. This fund has to be reformulated to benefit Peru's broader housing needs. The country is only building 40,000-60,000 homes a year, and compared to the rate of building in Chile or Colombia's, we should be building over 120,000. It is clear a change of policy from the government related to promotions, taxes, or some kind of subsidy is necessary to boost this segment.

How would you describe the quality of the existing infrastructure realized so far in Peru?

Structural engineering is required to comply with international quality standards—it is not possible to build structures to a lower standard, especially in a seismic country like Peru, where all structures must be earthquake resistant. National and private companies in Peru comply with the American Society for Testing and Materials (ASTM) standards and regulations, and all contracts are required to comply with Peruvian construction standards, which are based on international ones. We have always handled projects to the highest standard, not just in terms of quality of the products but in the operations of the company, attention to environmental regulations, and also to ISO regulations. The company has made a $5 million investment over recent years toward technology.

What have been the most iconic projects executed by OBRAINSA?

In the last 10 years the company has had great leadership, working wherever the demand for infrastructure was greatest, particular with roads—we have built over 5,000km of new asphalt roads. This country has three disparate regions, especially in the mountains and jungles, so we created a program called Proyecto Peru for the basic paving of roads. There are two main ways Peru's road issues need to be resolved; national roads involve an investment of nearly $2 million dollars per kilometer, which is such a large investment because of the challenging geographical features of Peru, and these last more than 20 years. Peru also has over 75,000km of secondary roads that need to be improved with basic asphalt and maintenance every five years. We have worked in Panamericana Sur in three different contracts and completed almost 3km of missing road between Arequipa and Ilo (Moquegua) that traverses the mountains, and took years to be completed. We have a presence in all of Peru's regions. We are currently working on a road in the north of Peru near the Condor Mountain range border with Ecuador. In infrastructure, we worked on the Pillones Dam in Arequipa, which we designed and built and is one of the most important dams made in recent years. The dam facilitated the a 5-cubic-meter-per-second increase in river flow, thus increasing the energy production of the hydroelectric plant Charcani V, and supplied Cerro Verde with more water for its production. In the last three years, the company has decided to diversify its activity in all the areas of construction, focusing on infrastructure, construction, and various civil works. All three business units were powerful over 2015, and we expect stability for next year and even for 2017. We are the builders and dealers for the concession of the Miraflores underground parking structure, we started the construction of a building for SUNAT, we are working on construction for Cayetano Heredia University, and we are building hospitals in Cajamarca and Huanuco. We are working on an aqueduct in Ilo (Moquegua), which is part of an irrigation project, and we are building 70km aqueduct between the highest point in Moquegua and the coast.

What is your medium-term vision?

In the last two years the company has been preparing financially to face new challenges for future investment projects. We have enough backlog in our portfolio to work in 2016 and part of 2017. Our medium-term vision for 2016-21 leads to the 2021 second centenary anniversary of Peru's independence, and we aim to succeed in all the concessions we have presented by that time. We want to consolidate our three business units and reach our backlog goal of $1.5 billion by 2021.