Paraguay Opens Its Railway Sector to International Capital

By BKM | Berkemeyer

On June 10, 2026, Paraguay enacted Law No. 7665/2026, which partially amends and expands Law No. 7434/2025 on the Commuter Rail and incorporates a special chapter for implementing the project through Government-to-Government (G2G) Agreements. This is the most significant transport infrastructure project in the country's recent history, with an estimated investment of USD 480 million in Phase I.

Executive Summary

– Application of the Government-to-Government (G2G) regime: The Law expressly enables the direct award of the Commuter Rail project to Etihad Rail PJSC (of the United Arab Emirates, "UAE") under the special G2G regime.

– USD 480 million investment in Phase I: The 18 km corridor between Asunción and Luque includes design, construction, financing, operation, and maintenance.

– State commitments: The Paraguayan State assumes deferred investment payment obligations (PDIs, for its Spanish acronym) denominated in USD, direct, irrevocable, and unconditional, backed by a guarantee trust managed by the AFD and mandatory annual budgetary support from the MEF (similar to the PPP trust).

– SPV and step-in rights for lenders: A Special Purpose Entity (SPV) will be established under Paraguayan law. The law expressly recognizes step-in rights for lenders in the event of default, with the possibility of out-of-court enforcement of guarantees.

– International arbitration: It has been established that, in G2G Agreements, the parties may opt for international arbitration as a dispute resolution mechanism.

– Tax incentives: The law also incorporates a tax incentive regime aimed at supporting the project's economic and financial structuring, expressly recognizing the applicability of benefits contemplated under investment protection laws and treaties.

Background and status of metropolitan transport

Paraguay lacks a quality mass public transport system. The Asunción Metropolitan Area (AMA), with more than 2.5 million inhabitants, is home to over 35% of the country's population and faces levels of vehicular congestion that generate estimated economic losses of hundreds of millions of dollars per year. The Asunción–Luque corridor, a densely populated area, is one of the most critical mobility axes in the region.

The rehabilitation of existing rail infrastructure and the development of the Commuter Rail as a modern passenger system have been strategic objectives of multiple administrations, without being realized until the current administration.

Relevant Parties

Entity	Role in the Project
MOPC	Contracting authority; signs the Implementation Contract; oversees the construction and operational phase.
FEPASA	Rail concessionaire; sub-concedes to the SPV; minority shareholder (25%) of the SPV.
MEF	Prior approval of the Contract; guarantees budgetary availability; records firm and contingent commitments; acts as trustor of the Payment Trust.
AFD	Trustee of the guarantee and liquidity trust for payments to the SPV.
SPV	Project execution vehicle; a corporation under Paraguayan law; 75% UAE / 25% Paraguay.
Etihad Rail PJSC (UAE)	Private investor designated by the UAE Government; majority shareholder of the SPV (75%); rail operator.

 

Main Provisions of Law No. 7665/2026

1. Contractual structure: G2G Regime and the implementation contract

The project's contractual architecture rests on three autonomous and mutually independent instruments:

• The MOPC-FEPASA Concession Contract (pre-existing).
• The MOPC-FEPASA-SPV Sub-concession Contract (new), which transfers rail rights and obligations to the SPV.
• The MOPC-SPV Project Implementation Contract (new), of an autonomous nature, governed exclusively by its own provisions.

2. Tax benefits and incentive regime

Article 3 extends to the project and to all Beneficiary Subjects (SPV, consultants, contractors, subcontractors) the full range of benefits provided under Law No. 7548/2025 (New Tax Incentive Regime), Law No. 117/1991 (Investments), and Law No. 5542/2015 (Investment Guarantees), as well as those under the Paraguay-UAE bilateral treaty. This includes:

• Tax and customs exemptions for the entire term of the sub-concession.
• Free repatriation of capital, dividends, and profits without controls or restrictions.
• Access to all benefits granted to public or public-private investment projects of comparable scale, including future incentives that may be approved.

4. Applicable framework and dispute resolution

The law expressly excludes the application of Law No. 1618/2000 on Concessions, Law No. 7452/2025 on Infrastructure Modernization, and Law No. 7021/2022 on Public Procurement to G2G contracts (with supplementary effect only to fill gaps). The Civil Code applies supplementarily in matters of contract execution.

G2G contracts may stipulate an express extension of jurisdiction and international arbitration.

5. Financial backing and financing structure

The law incorporates tools aimed at giving the project greater financial predictability and support for its execution, including: recognition of State financial commitments linked to the project; budgetary forecasting mechanisms; establishment of guarantees for creditors to facilitate access to financing; and provisions aimed at creating bankability conditions for the project's implementation.

With the approval of the new legal framework, attention now turns to the project's implementation stage. Among the main pending milestones are: execution of the Sub-concession Contract; execution of the Project Implementation Contract; and the establishment of the Special Purpose Entity (SPV). These steps will be decisive in advancing toward the effective execution of the Commuter Rail Project.

For more information, contact Martín Carlevaro (martin.carlevaro@berke.com.py), Larissa Recalde (larissa.recalde@berke.com.py), Juan Manuel Ros (juan.ros@berke.com.py), María Pía Escobar (maria.escobar@berke.com.py), or Florencia Neffa (florencia.neffa@berke.com.py).