This report describes and evaluates the present state of the Chilean infrastructure concessions program. This program is leading to a complete upgrade of Chile’s highway system and has been recently extended to seaports. The main principles underlying the economics of franchising are examined and used to evaluate the program of privatizations of highways and seaports. Compared with experiences in other countries, the results are fairly good. The infrastructure deficit has been greatly reduced, innovative ideas have been used successfully and several pitfalls have been avoided. However, since franchise terms are long, the final verdict will not be in for at least a decade.

The main shortcoming of the program of highway franchising is that the state granted generous minimum traffic guarantees, which may create fiscal problems in the future and may have weakened the market test that franchising is supposed to provide. This problem may become increasingly important as most projects to be auctioned in the future are not profitable privately and must therefore be subsidized to be undertaken. Related to the latter, privatization of infrastructure has been carried out without creating a regulatory framework and institutions, while regulatory conflicts of interest have been ignored. This issue gained widespread attention recently, when a franchise holder ran into financial problems and failed to meet contract deadlines. The Ministry of Public Works, which both promotes and regulates the concessions program, renegotiated the contract with the franchise holder behind closed doors.