99024 PUBLIC-PRIVATE PARTNERSHIPS BRIEFS Panama: Panama Pacifico SEZ Photo: Fotos Howard Overview The Panama Pacifico project is transforming the former Howard U.S. Air Force base outside Panama City into a hub for international trade, logistics, services, commerce, and industry. As principal advisor to the government, IFC recommended that a private investor develop the 2,500 hectare site through the establishment of a special economic zone (SEZ) with a modern regulatory framework and administration conducive to business and direct foreign investment. The land received SEZ status in 2005 and within two years a private master developer was selected and a master development agreement signed. One of the largest development projects in the world, Panama Pacifico capitalizes on its strategic location at the entrance to the Panama Canal and its close proximity to Panama City, the capital. London & Regional Properties (L&R), a global private real estate develop- ment firm, won the bid for the 40-year concession. L&R committed to invest a minimum of $405 million over the first eight years of the project, of which $20 million was paid up front, and a minimum of $100 million for each eight-year period afterward. Panama Pacifico is expected to attract $3 billion in direct foreign investment and create an estimated 20,000 new jobs. The U.S. Green Building Council and the Clinton Climate Initiative named Panama Pacifico as one of 16 founding projects that demonstrate “climate-positive” urban growth strategies. This series showcases how the World Bank Group supports the development and implementation of public-private partnerships. This support comes in the form of public sector loans, private sector finance, sector and transaction advice, guarantees, and output-based aid. PUBLIC-PRIVATE PARTNERSHIPS - AUGUST 2013 Background turning the former military base into an airport and port. IFC brought a more expansive vision to the project and In accordance with the 1977 Torrijos-Carter Treaty, the helped the government recognize the site’s full development Howard U.S. Air Force base and its infrastructure reverted potential. to the government of Panama in 1999. The government IFC’s mandate included developing the project concept; sought to use the assets, especially the runway, to bring designing a coherent development strategy; drafting laws economic activity to the country and create jobs. After creating a special economic zone based on international a number of unsuccessful attempts to achieve these best practices and associated regulations; developing a objectives, the government retained IFC in June 2001 land use master plan, baseline environmental and demand to advise on structuring the project as a public-private studies, and a financial model to define the land price; partnership aimed at generating sustainable employment designing an innovative master development agreement; opportunities, strengthening and diversifying Panama’s and managing an international selection process. During economic base, increasing the country’s competitiveness, the six years of the mandate’s tenure, IFC worked with the and improving the investment climate. government authorities, class associations, opinion makers, and political leaders to prepare the project and help ensure Project Description congressional approval. The Panama Pacifico project is intended to transform a A major national public relations campaign helped build former U.S. Air Force base into a special economic zone consensus among the diverse stakeholders and gave the for international trade, commerce, and industry and to project credibility. This in turn helped ensure approval of develop the site as a commercial, residential, logistics and the law creating the Agency for the Panama Pacifico Special business hub. Plans call for the construction of more than Economic Zone, a dedicated agency structured to facilitate one million square meters of commercial space as well as an one-stop shopping. IFC played a lead role in promoting urban center with 20,000 houses and apartments, hotels, the project to potential international bidders, ensuring a shopping centers, and restaurants surrounded by gardens, transparent and competitive process, selecting the master green belts, parks, and water resources. The former military developer, and advising on the contract structure. airstrip is being used as an alternate airport to Tocumen International Airport (and therefore financed by Tocumen Outcomes Airport users). Today the former military airstrip primarily serves the Singapore Technologies (ST) Maintenance- • From 2008 until March 2011, $73.7 million in private Repair-Overhauling facilities. investment was mobilized. IFC proposed a highly innovative and complex transaction • When completed, the first phase of development (2008- structure for the 40-year concession. The master develop- 2016) will have resulted in a $405 million investment for ment agreement allocated the parties’ obligations and risks. a town center, an international business park, an industrial The agreement also defined the pricing of land (fixed base park, a residential neighborhood, a golf course, and resort price and contingent price, determined by a transaction and business hotels. value or deemed sale), the minimum land takedowns by • Additional investment of $300 million is expected between category of use, the rules for land development to prevent 2017 and 2048. land speculation, the penalties for non-compliance, and the • The special economic zone, based on international best government’s onsite infrastructure development obligations, practices, has attracted global corporations such as Cater- among others. Under the terms of the agreement, the pillar, 3M, Dell, and Singapore Airlines. master developer has exclusive development rights for 15 years and limited rights for the rest of the concession. • The U.S. Green Building Council and the Clinton Climate Initiative named Panama Pacifico as one of 16 L&R won the bid for the 40-year concession. The winning founding projects that demonstrate “climate-positive” proposal included commitments to invest a minimum of urban growth strategies. $405 million over the first eight years of the project. * Unless otherwise stated, monetary values are presented in World Bank Group Role 2007 US dollars. Results are from a post-completion evaluation completed June 2011. When IFC signed the mandate for the Panama Pacifico public-private partnership, the government was intent on worldbank.org/ppp @WBG_PPP scribd.com/wbg_ppp