Argentina and Chile are about to start work on the Agua Negra cross-border tunnel project after receiving US$40mn from the Inter-American Development Bank (IADB), but financing for the construction phase has yet to be raised.

The IADB loan will allow bidding to begin on the US$1.5bn project, which will connect Argentina’s San Juan province to that of Coquimbo in Chile. Its completion will mark the creation of a new trade corridor between the Atlantic town of Porto Alegre in Brazil and the Pacific port of Coquimbo.

Despite its importance in improving intra-regional trade, the project is unlikely to receive much private financing from the outset. “With the current global capital market with rising interest rates, the project will probably be financed in the first instance by contributions from the countries or at least by the backing of the sovereign guarantee,” Guillermo Ferraro, head of the infrastructure department of KPMG in Argentina, tells GTR.

“[This and multilaterals] will be the primary sources of funds during the construction phase (the one of greater risk), and then they will be issued titles with the support of the toll collection. Also, construction companies are likely to be asked to participate in international bidding, to offer alternative financing sources,” he adds.

The project is expected to take eight years to be completed, as the 13.9km tunnel has to be built at least 3,400m high, which implies engineering challenges. The current Agua Negra mountain pass, located 4,765mabove sea level, is used by between 8,000 and 10,500 vehicles a year, but is not equipped to handle freight. It is also closed between May and October due to snowfall.

“The Agua Negra tunnel project is the most important infrastructure work in the physical integration with Chile through the Andes mountain range. It will make viable the passage of the commercial load all year without interruptions for climatic reasons,” Ferraro says.

The tunnel will cut the length of the current passage by 40km, cutting travel time by about three hours.

Viability studies on cross-border tunnels in the region have shown that the Paso de Agua Negra would be the most efficient place to improve the ocean-to-ocean connection.