United States: Mexico Announces US$315 Billion Infrastructure Spending Plan

Mexican President Enrique Peña Nieto announced on July 15, 2013, that Mexico will invest US$315 billion during the period 2013-2018 to upgrade Mexico's infrastructure by modernizing roads and highways, building rail lines, building and expanding the country's seaports and airports, providing universal access to telecommunications and boosting the energy sector. The plan is expected to include close to 500 projects across the country. President Peña Nieto stated, however, that the flow of investments, and possible further spending increases, will depend on the approval of fiscal reform that his administration will propose to Mexico's Congress in September.

The plan is part of an effort to improve Mexico's competitiveness and productivity. Mexico's stated long-term goal is to be ranked in the top 20 percent of the World Economic Forum's Infrastructure Competitiveness Index by 2030 (Mexico currently ranks 68th out of 144 countries surveyed). The $315 billion plan represents a significantly larger investment than the six-year plans submitted by previous presidential administrations. By comparison, Mexico's last six-year plan involved about $200 billion in infrastructure spending. Annual investment through the current plan is expected to equal approximately five percent of Mexico's gross domestic product.

While the administration has yet to provide specific details about the general infrastructure plan, the Transport and Communications Infrastructure Investment Program 2013-2018, which is part of the infrastructure plan, includes the following five action items designed to modernize roads, railroads, ports, airports and telecommunications:

  • Telecommunications: The aim is to achieve universal access by expanding network coverage, fostering competition and ensuring that the recent constitutional reform of the telecommunications industry is implemented in a timely, effective manner.
  • Road and Highway Infrastructure: The goal is to have a safe, complete and integrated road system in good condition that can serve as the backbone of the Mexican economy, linking the country's various regions and bringing remote communities closer together.
  • Railroads: The aim is to restore passenger rail transport and encourage greater use of freight trains. The plan aims to reduce travel costs and times through the construction of bypasses and urban infrastructure, which will help improve the speed of transportation by rail.
  • Ports: The goal is to have four world-class ports and increase the capacity of the port system as a whole to support the country's various economic sectors, as well as to encourage the growth of a merchant fleet.
  • Airports: The goal is to achieve better service, lower costs and higher frequency in air transportation, relieve the congestion of Mexico City International Airport and promote regional interconnections.

The government also has yet to announce the details of the infrastructure plan particularly as it relates to energy. Mexico's energy infrastructure is in need of significant investment, and its refining industry and pipeline network are particularly in need of upgrade and expansion. Despite being one of the largest producers of crude oil in the world, Mexico is a net importer of refined petroleum products. Mexico only has six operating refineries, all operated by Pemex, the state-owned petroleum company. The country's consumption of refined petroleum products has risen significantly over the past decade, and Mexico's refining capacity has not kept up with domestic demand. In 2012, Mexico's total refining capacity was 1.54 million barrels per day despite domestic demand of 2.158 million barrels per day. This has caused Mexico to rely heavily on the importation of refined petroleum products, principally from the United States.  

Furthermore, because Mexico's natural gas production is limited, Mexico relies heavily on natural gas imports by pipeline from the United States and liquefied natural gas (LNG) imports from other countries. Even with those imports, industrial demand for natural gas is not being met. Mexico will need to expand the reach and capacity of its gas pipeline network in order to meet demand. In the long-term, however, Mexico needs to develop its own natural gas resources, especially its abundant shale gas resources, which, according to a recent US Energy Information Administration report, are the sixth largest in the world.1

President Peña Nieto recently announced plans to send a "transformational" reform bill to Mexico's Congress that has the potential to revolutionize the Mexican energy industry and is expected to ease restrictions on private investment in Mexico's upstream, midstream and downstream sectors. While transforming the energy sector has been talked about for years, three leading Mexican political parties have now expressed support for meaningful reform, making major change in the petroleum regime a real possibility. Mayer Brown's team is keeping a close watch on these developments and will send updates as events develop.

In summary, President Peña Nieto's infrastructure plan calls for an ambitious investment agenda that has the potential to generate high-value and long-term opportunities for private investors in Mexico.

Footnotes

1 US Energy Info. Admin., Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries Outside the United States (June 2013), available here

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