Mexico: PPPs And Road Infrastructure

Mexico´s energy sector has experimented many important changes affecting the future operations within the country in many key aspects of infrastructure development. It is a time to think about the interesting momentum that Mexico is going through. The country has undertaken a comprehensive and ambitious legal reform that aims to transform almost all the different key sectors of development. It is clear that Mexican government is oriented to promote investment and achieve the goals that for many years were postponed. This presidential administration is determined to place the country in a position that reflects its true potential and that fosters economic growth. As we all know, roads play a crucial role in the infrastructure of a country. They are a key factor in any country´s economy since it is an asset that creates value.

The opportunities are enormous and so are the challenges. The multi-year National Infrastructure Program (PNI) outlines the major projects that the government will cover in projects related to different areas such as telecommunications, transportation, energy, water, health, urban and rural development, and tourism. The investment needs are huge but it is worth asking how to boost infrastructure productivity. To merely comply with the PNI without having a long term vision may be a mistake.

The government understands its role as facilitator and regulator. Mexico has 400 000 kilometres of roads. Less than half of those kilometres are all-weather roads. We face a huge challenge but as I mention before, we also face a time of huge opportunities. On one hand, the need to construct, on the other hand to maintain or upgrade what is already constructed to make the most out of it. Whether constructing, maintaining or upgrading road infrastructure it is compelling to develop bearing in mind well-designed objectives and an integrative vision. During the present administration, there is a commitment to achieve or complete an overall of almost 80 projects. Many of them are currently being developed. So far, 17 high-speed highway projects have been concluded, and approximately 45 projects involving roads or highways have undergone a modernisation process or widening process. The commitment is oriented to meet new needs and address major backlogs. Globally governments face public budgetary shortages and Mexico is not the exemption; however, the road infrastructure capacity may be dramatically increased.

New developers or players -through different financial schemes- could be part of the new equation but it may create a positive impact to apply new criteria to develop infrastructure. Turning our heads to successful international practices is very important because Mexico can replicate those examples of success. United Kingdom, Chile and Colombia are interesting examples of what can be done. For the government it means to choose the right developers (taking into account experience, technology and risk assessment), the right financial scheme and the right combination of projects that may increase the productivity or efficiency of the system that is being developed. It also means to use, connect or upgrade what is already there. Private sector will respond favourably -when a long-term view criteria allows- more certainty and profitability in their investment.

Mexico´s government knows this momentum should not be wasted. Trying to open the appetite for investment is crucial. It is a moment where private sector and government should work together to streamline the strategic projects that still have to be developed and open new projects through unsolicited proposals. This may be a challenge but the government agencies are open to listen the needs of the industry and the needs of developers to detonate the qualitative growth in this area. Mexico opened its airports to be built, maintained and operated by privates generating successful examples of world-class airport infrastructure and where privates have done a remarkable difference.

Private sector is often in a better position to develop under sustainability standards. Many times the private sector is able to offer better quality services through technologic innovation and higher efficiency standards. It is a new era for Mexico and a long-term vision is what we have seen when looking elsewhere. PPPs could become a useful scheme in the near future for detonating the growth of Mexican market. There is the impression that PPPs could achieve a better performance. The publication of the PPP law (Ley de Asociaciones Público-Privadas) on the Official Gazette on January 16, 2012, the publication of the its regulations on November 5, 2012 and the modification to regulations published on the Official Gazette on October 31, 2014, aim to increase legal certainty, transparency, protect end-users rights and regulate the execution of the contracts. It sets forth the different kind of PPP: through self-financing projects; pure PPP projects and the mixed PPP projects. The third chapter of said law deals with unsolicited proposals and the factors that must be taken into account to make and submit said proposal. This is a feature that is worth considering. An unsolicited proposal is presented to the authority when someone different to the government wants to develop a project. It should contain a manifest of interest; a preliminary study of feasibility including technical matters, it must be in consonance with the PNI, the social profitability report, economic and financial feasibility study. In other words, it is very important to invest in the project quality and bankability issues.

PPP projects could increase their performance in the near future. In order to achieve success it is paramount choosing adequate projects that are feasible to be develop through a PPP, understanding the applicable legal framework, the negotiation and execution of material contracts, addressing effectively right-of-way design, its planning and executing, etc. All of the above must be conceived with expert advice. Economic variables, risk assessment factors: like financial, environmental, force majeure contingencies, political turmoil, archaeological issues, rural communities, social impact and regulatory issues have to be considered in an overall and comprehensive strategy when developing a project.

The challenges are multiple but Mexico has given clear signals that it is willing to move fast. Perhaps, streamlining the processes should deal with reducing the timeline of permits to avoid delays in the projects, flexibility in the schedule to present unsolicited proposals, simplifying or clarifying the many permits, having revision periods in the mid term of the multiannual plans, modifying the National Planning Law to include provisions that allow long-term view of projects or creating mechanisms of faster governmental response in the Public Works Law. Developers many times have to deal with inflexible timelines that delay their unsolicited proposal for a year if not presented on the due date and must comply with the requirements of the different government agencies that are involved.

The authority knows it is not only a matter of attracting resources but of truly boosting the efficiency of the infrastructure and creating competitive services. The projects portfolio is often done with haste because a six-years vision for infrastructure is too limited.

As mentioned before, it is compelling to go beyond a narrow vision of a project. It is crucial to consider very well defined goals. It is equally important to count with the professional advice that can walk the investor through all the stages -from the idea stage, design of the business strategy to the concrete fulfillment of it, covering the full scope of legal matters relevant for the development of a project. These are the key success factors in a wide scope of opportunity to build upon.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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