A $130 million loan for Argentina and a $150 million loan for Chile, expandable to a total $1.5 billion, will help both countries begin construction of new cross-border tunnel

The Inter-American Development Bank (IDB) has approved two loans totaling $280 million –$130 million for Argentina and $150 million for Chile– to help start the construction of the Agua Negra tunnel connecting the two neighboring nations. The project will boost up trans-border integration and help expand the region’s access to international markets through the interoceanic corridor linking the Atlantic with the Pacific and connecting the cities of Coquimbo (Chile) with San Juan (Argentina) and Porto Alegre (Brazil).

The new tunnel will improve connectivity and efficiency of the region’s logistics network, cutting travel time, rising the number of passengers and volume of cargo, and boosting the climate change resilience of border crossings between Argentina and Chile. This first operation of the project will also provide support to the national and regional technical units in charge of the project and will finance the construction of the first segments of the tunnel as well as civil works, temporary access roads, and gateways on each side of the border.

Vehicle traffic between Argentina and Chile has been growing at a 6% annual clip since 2007. But deficient infrastructure and current border control procedures have rendered border crossing points unable to handle the ever-rising load of cargo and passenger traffic, affecting accessibility, connectivity and regional integration.

The tunnel will be 13.9 km long and will have two separate bores, one in each direction. It will cut the overland distance on the binational crossing point by 40 km, remove curves on the road, and remain open to car and truck traffic all year round, considerably reducing travel time. The new tunnel is expected to capture 10 percent of the traffic now using the Cristo Redentor crossing point, which currently is the main connection node between the two countries, with 2,100 vehicles a day.

“The Agua Negra Tunnel project reflects the IDB’s commitment to support these two nations’ efforts to forge closer ties with regional and global economies,” the IDB’s Southern Cone Country Department Manager José Luis Lupo said. “The goal of this new infrastructure is to reduce transaction costs on the border area, boost these countries productivity, and promote economic development in the region. Connecting the provinces of San Juan in Argentina and Coquimbo in Chile will have a direct impact on their economic development and boost up regional trade flows by providing Atlantic-basin nations Argentina, Brazil, Paraguay and Uruguay access to Pacific ports and vice versa, increasing their participation in global value chains by providing them better access to Asian markets,” Lupo said. “For both Argentina and Chile, regional integration has become a priority for their public policy agendas. Both countries deserve an applause for embarking in such an ambitious project, and we at the IDB feel proud to be supporting them in this endeavor, especially at a time in which regional integration responds to a renovated mandate from our governors and that will mark the beginning of the IDB’s future direction, a Bank that will focus on integration more than ever before”.

Argentina and Chile share the longest land border in South America, with a length of 5,150 km. The two countries currently have 26 common border crossing points, including Agua Negra, which opened in 1965 and is 4,780 meters above sea level. This makes it their highest binational crossing point, and due to topography and to weather conditions it is operational only about six months a year. The new tunnel, as well as planned improvements at the Cristo Redentor and other crossing points, will bring the economies of Chile, Argentina, Brazil, Uruguay and Paraguay –a market of 275 million people– closer together.

This operation comprises two loans – a $130 million loan for Argentina and a $150 million loan for Chile, expandable to a maximum total of $1.5 billion, which is the entire estimated cost of the project. In the case of the Argentine loan, this first operation will be for a 25-year term, with a 4.5-year grace period, while the loan for Chile will have an 11-year term and 10 years of grace. Both loans will have a LIBOR-based interest rate.