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Steven Dixon

The Coming Infrastructure Revolution: Chapter 1

By Norman F. Anderson, President & CEO, CG/LA Infrastructure

Chapter 1: The Coming Revolution in US Infrastructure And Why it Needs to Happen, Now!

Some years ago I had the opportunity of visiting a country just as it began its infrastructure revolution.  They were quickly throwing out the old guys, bringing in young financial executives, and getting ready to turn construction companies into financially driven businesses.  As it happens, I was having lunch with one of the old guard, who was perplexed, angry and defeated. ‘Wait until they find out how little these finance guys know about infrastructure,’ he told me.  It was a wrenching moment for my luncheon companion, and for everything that he knew and - at least in the infrastructure world - believed in.  This kind of change has come to executives in China, Korea, Singapore, Spain, Australia and Canada - all countries at the forefront of the global infrastructure marketplace.

How does an infrastructure revolution happen?  Who makes these decisions?  It’s a country’s top political leadership, period.  The heads of the largest infrastructure firms were told three things:  (1) you need to get big, and you need to modernize, through acquisition and investment; (2) you need to turn yourselves into sophisticated financial entities; and (3) you need to build balance sheets that will allow you to invest in projects - put skin in the game - and you needn’t worry, we will make sure that you generate high margins.  This last point is important because, crucially, it became a key productivity driver - and, a critical piece of the story which we will get to in a moment, it created a big pipe export channel for the country’s infrastructure industry, and all of the goods and services that go into it.

Why should the US Act? Do we really need an infrastructure revolution?

Screen Shot 2013-07-09 at 7.50.12 AMThree critical features of any successful infrastructure build need to be kept clearly in mind.  But to get the process going you need a vision - a clear and compelling vision of the process and its benefits, one that is wholly shared by the political class and the population at large.  Without that there is no chance of moving forward.  Vision must come first, as it did  for the Interstate Highway System, the Clean Water Act or Roosevelt’s electrification drive.

Here is a way to think about the vision we need:  First, we need to dramatically increase infrastructure investment levels, tripling the current level of infrastructure investment - raising our level of investment in infrastructure not by 20%, but by 200%.

Second, we need to dramatically increase the productivity of that investment - clearly a dollar spent in the US on infrastructure yields nothing like a dollar spent in China, or Brazil, or even Europe, and so we need to systematically address the root causes of this problem.  Third we need to change our infrastructure matrix, triage the existing system so that we cease to be preoccupied with non-competitive assets, and build for the future.   Vision creates the discipline and the rules to make these decisions.

The graph on the previous page shows the impact of an increase in infrastructure investment on US GDP.  If we were to increase our level of investment to 4.5% of GDP (roughly 1980 levels) then US GDP would be $2.5 trillion greater in 10 years than it is currently projected to be.  That is over 12% greater!  Think of what that would mean in terms of jobs, per capita income, and opportunities.

A Healthy Level of Investment

Screen Shot 2013-07-09 at 12.21.17 PMLook at the critical metric of per capita investment.  Right now we are not investing anywhere near the level that we need to invest, or the level of investment in 1980.

Thirty years ago we invested $770 in infrastructure for each man, woman and child in the country.  That figure, controlling for inflation, has declined to less than $230 in 2013 - a prime reason for our declining global competitiveness, as well as our declining per capita GDP.

Note in the graph above that if we were to double our infrastructure investment level, going from 1.5% of GDP invested in infrastructure to 3% (a heroic number according to most people) per capita investment would barely exceed $500 by 2022.  Even at 4.5% we wouldn’t get back to 1980 levels until 2020.

So its urgent that we recalibrate how we think about an appropriate level of investment.  The target - after so many years of declining infrastructure investment - needs to be incredibly ambitious.  Note also that there is an extraordinary pent-up infrastructure demand in this country - not just for projects that we know about, like transit for our cities, or port dredging on the East Coast, but also for those ‘projects of the imagination’ that we can’t yet see, but that will serve as critical building blocks - technically, financially, imaginatively - transforming our competitiveness.

Another way to make this point:  Recall that during the last thirty year period of rapid globalization, we have been disinvesting in the area that is most critical to our ability to successfully respond - our infrastructure investment outlays have declined by something on the order of 80%.  In the race for competitiveness we are unilaterally disarming ourselves.

Creating Value, Globally

Screen Shot 2013-07-09 at 12.22.09 PMAnother extraordinary benefit of investing in a country’s major productive assets is the creation of outsized export capacity - the ‘big pipe,’ for goods and services that I mentioned earlier.  This point couldn’t be more important, because the world - not just the US - has been underinvesting in infrastructure for the last 20 years (indeed the lower and middle range of emerging economies have never invested at all).  The world is about to move into a tremendous infrastructure growth cycle - one in which US firms, and the US in general, are positioned poorly - at an increasing pace.(1)

The graph above shows the size of the US infrastructure market over the next ten years, from 2013 - 2022.  If we continue to invest at 1.5% of GDP (and given present attitudes it could be significantly less) the market will remain flat reaching only $200 billion by 2022.  This trend line would be disastrous: headcount might return to 2008 levels, but there would be virtually no incentive for innovation - let alone the kind of big thinking that drives the kind of technological, financial and competitiveness breakthroughs that we desperately need.

Investing at 3% of GDP (we could fully ramp up by 2016) the US infrastructure market would reach $500 billion, nearly equal the projected size of the European infrastructure market.  This would put us back in the game.  But note that it is hard to imagine reaching, let alone sustaining, a 3% level of infrastructure investment without excellence in project selection (Chapter 3), and dramatically increased productivity (Chapter 4) -- the public, and the political system, simply wouldn’t support it.

So even though we currently invest only 1.5% of GDP in infrastructure, and are stressed to reach that level, we must figure out how to achieve a level of investment three times greater (Chapter 2).  The reason is that given the underinvestment of the last 30 years, and the pace at which the world has moved ahead of us, we are going to need to quickly reach and sustain that level just to begin to regain our competitiveness.  If we do that, however, then we will have created the industry players - the companies with strong balance sheets, and a track record of extraordinary performance - ready to participate in the coming global infrastructure build.  So when we talk about getting to 4.5% of GDP - which would create a US market of nearly $1 trillion by 2022 - we are talking about both roundly increasing per capita income in the US, and influencing and building great projects around the world.

A Word about this Exercise

The overall aim is to create an interactive discussion with infrastructure executives about how to grow the US marketplace, so that this market becomes ever more competitive in the incredibly fast-paced global environment.  Subsequent chapters will broaden the discussion.  I hope that readers will help with ideas and suggestions - as well as criticisms.  This is a work of imagination - imagining what we can do, what we must do, and what we should do, in order to re-build and modernize our country for the next generation.

Coming chapters include:

  • Chapter 2. Financing the Revolution
  • Chapter 3. What We Build
  • Chapter 4. The Productivity Issue
  • Chapter 5. Why Creativity Matters
  • Chapter 6. The Top 100 Infrastructure Projects in the US - Projects Strategic to Competitiveness
(1) Of the Top 50 international contractors only 3 are from the former infrastructure superpower of France, while 7 are from Spain.  More tellingly, 9 are from China; 6 are from Korea; and 11 from the rest of Europe.  Seven are from the US, with the vast majority of their work coming from within the US, and only 2 are from Japan.

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Please share your thoughts via comment or at This email address is being protected from spambots. You need JavaScript enabled to view it.. Download the PDF at: www.cg-la.com/documents/TheComingInfrastructureRevolution.1.pdf

How Much Do Rail Transit Projects Cost to Build and Operate?

 

Sounder-to-Tacoma-3

By Christopher MacKechnie

 

Cost of Rail Transit Projects

Now that we have looked at the cost of purchasing and operating buses , let us look at how much it costs to construct rail lines, which varies widely. The cost of operating rail lines also varies widely, and ranges from being about the same as the cost of operating bus service in New York City to three times more costly in Los Angeles.

Factors That Affect the Operating Cost of Rail Transit

Since labor costs make up 70% of bus operating costs, it makes sense that they would also affect the operating cost of rail transit. Many legacy systems require two employees per train - the driver and a guard who opens and closes the door from a position usually around the sixth car of a subway train. As technological advances now allow the doors to be opened and closed safely by the driver, absent union rules we should start to see more trains operated with one employee. In addition, at some transit agencies rail operators may be paid more than bus operators.

The cost of electricity also affects the operating cost of rail transit as 99% of all rail transit projects use electricity. For example, as electricity is twice as expensive in California as it is in Washington we would expect that on this basis alone it would be more expensive to operate a light rail line in Los Angeles than it would be in Seattle.

In addition to costing more to build, underground sections tend to be more expensive to maintain. Subway stations require heating, cooling, and station attendants that may not be necessary at surface stations. Learn more about the operating cost differences between bus and light rail .

Factors That Affect the Capital Cost of Rail Transit Projects

By far the biggest factor that affects the cost of rail transit projects is whether the alignment will be at grade, elevated, or underground - with underground projects costing much more than elevated, which costs more than at grade. In addition, the fact that community and political demands dictate that almost all subways be built with deep bore as opposed to cut-and-cover techniques adds even more to the cost. Subway costs can be further increased depending on the conditions of the soil and the amount of pre-existing underground infrastructure that the subway needs to avoid.

The number of stations also adds to the cost of rail transit projects, particularly for underground sections where a station can easily cost $100 - 150 million. In an attempt to engage in value engineering , some projects will save money by removing stations even if it leaves too much of the line's corridor without being able to access it .

Any ancillary infrastructure that needs to be built will also add to the cost. For example, brand new lines and significant extensions of existing ones will need a maintenance facility, while shorter extensions of existing systems may be able to use the existing yards. Park and ride lots and bus transfer loops are other examples of non-rail related project that add to the final bill.

Now that we have an idea of the kind of costs that make up a rail project, let us look at the cost of some recent North American projects. Note that these cost figures are for capital and not operating costs .

Recent Streetcar Project Costs

Streetcar lines are distinguished from light rail lines primarily in the fact that they stop as often as buses - every 1/8 of a mile or so - and cover much shorter distances. In the United States, the cost of recent projects has ranged from $20 million per mile for an one track extension of the existing St. Louis rail system to $50 million per mile for streetcars in the First Hill area of Seattle and connecting downtown Tucson to the University of Arizona campus.

Recent Light Rail Project Costs

The cost of recent surface light rail lines has ranged from a low of $43 million per mile in Norfolk, VA to a high of $204 million per mile for the new Milwaukie line in Portland. Los Angeles's Crenshaw Line , which includes short subway sections, clocks in at $165 million per mile. In Toronto, the Eglinton LRT line, which consists of almost a 50/50 split between surface and subway operation, is estimated to cost C$403 million per mile, which as of May 2012 was about equal to US$400 million per mile. In contrast, the Canada Line in Vancouver, which is about 70% underground with most of the rest being elevated, only cost C$177 million per mile - a low amount attributed to its cut-and-cover construction and very short station platforms (at 50m they can only accommodate two car train sets).

Recent Heavy Rail Project Costs

Due to its requirement for compete grade separation, heavy rail is significantly more expensive to build than any other rail line. Recent costs range from an estimate of $251 million per mile for the BART San Jose extension to a staggering $2.1 BILLION per mile for the Second Avenue Subway in New York - a number also reached by the East Side Access project to allow the Long Island Railroad to enter Grand Central Station. Long stretches of surface running and few stations probably help to explain the relative bargain of the BART extension and the Washington Metro extension to Dulles Airport ($268 million per mile), while the sheer number of existing subway tunnels (and perhaps a bit of New York City corruption left over from the Tammany Hall days) accounts for the astronomical cost in New York.

Recent Commuter Rail Project Costs

Because commuter rail lines generally use existing tracks and rights-of-way, they generally are much cheaper to build than other rail lines. Unfortunately, freight railroad tracks rarely go anywhere commuters need to go. Recent commuter rail start up costs have ranged from $1.3 million per mile for Nashville's Music City Star (a line which is mostly single-tracked) to a high of $26 million per mile for the Seattle Sounder.

The Cost of Rail Projects On Other Continents

Much has been made of how much cheaper it is to build rail projects in other continents, especially in Madrid, Spain. Direct comparison with the United States and Canada is difficult because other countries may require a much less stringent planning and review process as well as having lower labor and safety standards.

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Taken from About.com: http://publictransport.about.com/od/Transit_Projects/a/How-Much-Do-Rail-Transit-Projects-Cost-To-Build-And-Operate.htm

The U.S. Conference of Mayors and President Clinton Announce New Task Force to Promote Use of Private Investment in Boosting Public Infrastructure and Economic Growth

U.S. CONFERENCE OF MAYORS LOGO

May 03, 2013

Clinton Global Initiative and 17 Leading Mayors Join in Cross-Sectional Approach to Spur Local Economies

Chicago Mayor Rahm Emanuel to Serve as Chair

Washington, D.C. - Today, the Clinton Global Initiative (CGI) and the United States Conference of Mayors (USCM) announced the launch of the Infrastructure Financing for Cities Task Force (IFC Task Force) which will address critical issues facing American cities. President Bill Clinton will help lead the effort and Chicago Mayor Rahm Emanuel will serve as chair of the Task Force. Leveraging USCM leadership and CGI's model of solutions-oriented cooperation across sectors, the IFC Task Force will support mayors in attracting investment into public infrastructure projects that encourage economic growth.

“The Infrastructure Financing for Cities Task Force is committed to creating jobs by ensuring that communities coast-to-coast have the necessary infrastructure to compete in the global economy,” said President Clinton. “I look forward to working with these dedicated, far-sighted mayors to achieve that goal.”

As chair, Mayor Emanuel will lead the Task Force and coordinate with the USCM to push infrastructure as a top agenda item at the national level. Mayor Emanuel, for whom infrastructure is a key and ongoing focus, launched the Chicago Infrastructure Trust alongside President Clinton in the spring of 2012. He previously worked on national approaches for infrastructure in both the Clinton and Obama Administrations.

“A sound infrastructure is crucial to driving job creation and giving families the opportunity to pursue brighter futures for their children and I am very pleased that the Conference of Mayors is making infrastructure development a priority,” said Mayor Emanuel. "I know I speak for each of the mayors on the Task Force when I say that we look forward to working with and gaining insight from President Clinton on this critical issue, so we can make real progress towards sound infrastructure nationwide."

“Improving infrastructure in cities has been a top priority for the U.S. Conference of Mayors and we are proud to partner with the Clinton Global Initiative on this important issue,” said Philadelphia Mayor and USCM President Michael Nutter. “Mayor Emanuel is the perfect person to lead the nation’s mayors through this new task force and help us accomplish what is necessary to strengthen the backbone of this nation, our country's infrastructure.”

Thus far, 17 mayors with a combined constituency of more than 17 million people have joined the IFC Task Force. Collaborating with CGI – which brings together leaders from business, government, labor, and civil society to address the world’s most pressing challenges – the mayors will explore solutions to current obstacles to public infrastructure investment, look at existing models of leveraging private capital to finance projects such as road and water system improvements, and deliberate innovative investment models such as the creation of an urban infrastructure bank.

Members of the IFC Task Force include:

Chicago Mayor Rahm Emanuel, Chair
Indianapolis Mayor Greg Ballard
Jacksonville Mayor Alvin Brown
Oklahoma City Mayor Mick Cornett
Louisville Mayor Greg Fischer
Charlotte Mayor Anthony Foxx
Denver Mayor Michael B. Hancock
New Orleans Mayor Mitch Landrieu
San Francisco Mayor Edwin Lee
Redmond, WA Mayor John Marchione
Philadelphia Mayor Michael Nutter
Houston Mayor Annise Parker
Oakland Mayor Jean Quan
Baltimore Mayor Stephanie Rawlings-Blake
Atlanta Mayor Kasim Reed
Mesa, AZ Mayor Scott Smith
Los Angeles Mayor Antonio R. Villaraigosa
Peter Orszag, Vice Chairman of Global Banking at Citigroup and former Director of the White House Office of Management and Budget, and Lois Scott, Chief Financial Officer of the City of Chicago, will serve as advisors.

This Friday, the Task Force will hold its first meeting in Washington, D.C. at the U.S. Chamber of Commerce and Center for American Progress. CGI has been working with its members and key stakeholders from organized labor, the Center for American Progress and the private sector to drive further investment into public, job-creating infrastructure improvements. As part of this work, President Clinton, with support from the Center for American Progress, convened six mayors at CGI America in June 2012 and seven in Tarrytown, N.Y. in August to discuss strategies for using private funds to pay for city projects. Tomorrow, President Clinton will also participate in a ceremony celebrating the ongoing progress on a landmark CGI America Commitment to Action made in 2011 by the AFL-CIO, the American Federation of Teachers, a broad coalition of public sector unions, the Building and Construction Trades Department of the AFL-CIO and the Center for American Progress to encourage the investment of over $10 billion into the reconstruction of America’s built environment. The commitment has reached more than $2.7 billion in progress since its announcement.

Prior to bringing together government, private sector, and civil society leaders through CGI to advance and implement solutions for more resilient cities, President Clinton made infrastructure a priority in the White House. During his two terms as U.S. President, he raised America’s nondefense spending for major public physical capital investments to a total of $157.6 billion – a 33% increase over the previous eight-years.

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Taken from The Clinton Global Initiative: http://press.clintonglobalinitiative.org/press_releases/the-u-s-conference-of-mayors-and-president-clinton-announce-new-task-force-to-promote-use-of-private-investment-in-boosting-public-infrastructure-and-economic-growth/

Infraestructura y la Riqueza de las Naciones

cuadro-hanke_0

29 de Mayo de 2013 • 13:25hs

* La inversión en infraestructura es un imperativo económico nacional * Tiene que ser entendida claramente como un bien público

Hay una relación muy poderosa entre la inversión en infraestructura y la riqueza de una nación. Entre más se invierta, y se mantenga esa inversión durante un periodo de tiempo significativo, más rico será el país. Echemos un vistazo a las grandes diferencias entre México y Chile, por ejemplo: Chile invirtió 5-6% de PIB en infraestructura durante el periodo 1980 y 2011, y el ingreso per cápita creció más de 150%. Durante el mismo período, México invirtió un promedio de 1.5-2% de PIB en infraestructura, y el ingreso per cápita creció tan solo un 22%, así lo señaló Norman Anderson, líder mundial en el tema de Infraestructura.

Al hablar del 11 Foro Latinoamericano de Liderazgo en Infraestructura, que se desarrollará en la Ciudad de México, del 3 al 5 de Junio próximo, agregó que el ingreso anual per cápita de México, de apenas $11,000 dólares, lo ubica en el lugar 65 en el mundo, pero si México hubiera tenido el mismo crecimiento que experimentó Chile, entonces los mexicanos estarían disfrutando de un ingreso anual per cápita cercano a los $23,000, el doble del ingreso actual, siguiendo de cerca a España, Israel, y al promedio de la OCDE. Esta realidad está al alcance de la próxima generación.

"La inversión en infraestructura es un imperativo económico nacional. México necesita triplicar rápidamente su inversión en infraestructura como porcentaje del PIB, del 1.5% actual al 4.5%. Este sería un logro significativo y transformador. Se requiere también un esfuerzo de administración estratégica, de consolidar las capacidades que un país necesita para construir gran infraestructura: Las empresas de Ingeniería/Construcción tendrían que crecer rápidamente y convertirse en empresas altamente competitivas; los actores financieros, tanto públicos como privados, nacionales e internacionales, tendrían que desarrollar habilidades de colaboración de clase mundial; y el sector de la maquinaria de México tendrá que aprender a trabajar a un ritmo y un nivel de sofisticación estratégica, que sólo unos pocos países - Singapur, China, Corea, España - han dominado en la última década", subrayó el también presidente de CG-LA, organizadora hace 25 años, de reuniones con especialistas en infraestructura en todo el orbe.

El desafío es grande, pero las recompensas son extraordinarias. Si México puede hacer esto, entonces la tasa anual de inversión en infraestructura aumentaría de su nivel actual, que está en el rango de los $18 mil millones anuales, a un nivel de casi $84 mil millones años para el 2022 - esto significaría una inversión total acumulada de $588 mil millones en el período 2013-2022- y una explosión en capacidades, oportunidades y riqueza que sería extraordinario para México y para para todo el mundo.

¿Es esto posible? Por supuesto, este rápido incremento en el nivel de inversión es necesario, pero es extremadamente difícil de lograr y mantener. La disciplina en la selección de proyectos, para que los proyectos construyan la base de la riqueza económica nacional, es fundamental. Hay tres grandes requisitos que deben tenerse en cuenta, lecciones que he aprendido en mi trabajo alrededor del mundo, indicó Norman Anderson - requisitos que determinan el éxito, o (más comúnmente) el fracaso.

Primero, un país necesita una visión clara y poderosa de hacia dónde se dirige - para poder animar y conducir con disciplina inflexible, en esa dirección. El gobierno de Peña Nieto está en el camino correcto con el Plan Nacional de Desarrollo -altamente sofisticado- anunciado la semana pasada. Una sólida visión que establece una ruta de consenso, que motiva a los ciudadanos hacia la grandeza, y que muestra cómo se puede lograr esa grandeza. Este es un requisito fundamental. La construcción de gran infraestructura es un contrato moral con la siguiente generación. Se dice que, como resultado de triplicar la inversión en infraestructura la vida será mejor, el país será más rico, y los ciudadanos tendrán mayores oportunidades inimaginables.

Segundo, es mi experiencia que la infraestructura - tanto desde el punto de vista público como privado - tiene que ser entendida claramente como un bien público, punto. No importa de quién son las carreteras, o las plantas de energía, o los puertos; estos activos deben ser diseñados y administrados para el beneficio de la mayoría. La participación privada es fundamental, por el capital que aporta, la energía se concentra, y la disciplina se impone. Pero ninguna construcción de infraestructura sostenida ha sucedido, y nunca sucederá, sin un sector público fuerte, que garantice el apoyo de la sociedad, porque debe garantizarse que la sociedad obtenga por lo que paga, y mucho más.

Tercero, una de las mayores virtudes de la infraestructura es que - como la educación - la disponibilidad de las carreteras de distancias largas, la rapidez del transporte urbano, o el agua limpia, crea oportunidades extraordinarias para que los ciudadanos pueden dar forma a sus propios fines y proyectos. Esto es verdaderamente importante. Ya sea que se esté facilitando a los agricultores en el este de Colombia a producir leche para vender por primera vez, o se esté reduciendo el tiempo de viaje de los trabajadores de un hotel en Lima, de tres horas a treinta minutos, o que este permitiendo que mujeres en todo Latinoamérica disfruten de agua limpia, y sus niños crezcan sanos, las oportunidades que crea la infraestructura son su distintivo. Como en la educación, cuando usted piensa en la infraestructura, usted piensa en el pre-requisito para la oportunidad.

"Este es el Zen de la Infraestructura. La mayoría de los países -los Latinoamericanos-, constantemente fracasan en sus iniciativas de infraestructura, porque carecen de la actitud correcta: no tienen una visión fuerte que defina hacia dónde van; les falta compromiso con la infraestructura como un bien público y un enfoque comprometido con la creación de oportunidades -que es, después de todo-, la razón para triplicar su inversión en proyectos estratégicos de infraestructura", dijo el especialista en infraestructura.

Países que logran tener éxito, obtienen beneficios extraordinarios para sí mismos, riqueza en todas sus variedades. Chile aumentó su ingreso per cápita en 150% por 30 años - un buen marco de tiempo, ya que los activos de infraestructura duran al menos ese tiempo-, un gran premio para la inversión robusta, disciplinada y sostenida. Pero hay mucho más que solo un salto cuántico en el ingreso per cápita. Hay riqueza de liderazgo global. Los países que construyen grandes infraestructuras, producen empresas que se convierten en los líderes del mundo - España, China y Corea-, con la construcción reciente de su infraestructura, crearon un nuevo mercado de exportación, exportando sus proyectos integrados de infraestructura a través del mundo - ¿por qué no México? Hay riqueza de la grandeza de un país - los proyectos de infraestructura son símbolos visibles y fuertes de lo que un país piensa de sí mismo, de su lugar en el mundo, y hacia dónde se dirige, resaltó Norman Anderson.

"De clase mundial e innovadora, la infraestructura le dice a los ciudadanos de un país, y al mundo entero, todo lo que necesitan saber acerca de su país. La gran infraestructura crea gran riqueza en todas sus formas; un país que construye e invierte en una gran infraestructura, sostenida a lo largo del tiempo, hace que sus ciudadanos se sientan orgullosos y confiados, - e infinitamente más capaces de alcanzar sus sueños", destacó el organizador del 11 Foro Latinoamericano de Liderazgo en Infraestructura.

_____ Taken from Terra: http://economia.terra.com/noticias/noticia.aspx?idNoticia=201305291725_AGE_82247897

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