Mexico unveils infra investments to spur economy

Speeding up infrastructure investment is one of the three components of the 485bn-peso (US$25.5bn) program which the Mexican finance ministry (SHCP) unveiled on Monday to boost the troubled economy.

The infrastructure element is itself divided into two sub-areas. The first one will be carried out through the concessions program of the transport and communications ministry (SCT), while the second will be executed via national infrastructure fund Fonadin, of which development bank Banobras is a fiduciary agent.

SCT’s involvement

The measures to be implemented directly by the SCT include five projects known as desdoblamientos de concesiones, which consist of adding new projects to existing concessions. 

As Ricardo Erazo, general director of road development at SCT, had told BNamericas earlier this month, those projects represent estimated investments of 20bn pesos. 

The directorate of road development chose to move forward with the five projects first, as the planning process was already significantly advanced. In addition, no tender is required to carry out the works since the contracts will be awarded to existing concession holders, who will also be responsible for providing the investments.

The concessions to be amended also correspond to highways that are already at a mature concession stage and have stable traffic flows, according to Erazo.

The projects, which were announced by transport and communications minister Javier Jiménez Espriú on Monday, are the following:

1. The construction of a 32km bypass, which will require investments of 2.95bn pesos. This project will be built by local operator ACSA, a subsidiary of construction company Coconal, which holds the concession of the 105km Durango-Yerbanís highway. The new project would form part of this concession.

2. Construction of the 7.9km Santa Catarina urban viaduct in Nuevo León state, which requires 6.8bn pesos in investments. The project will be built by road concessions manager Roadis –which is owned by Canadian pension fund manager PSP- through its subsidiary CAMS. This special purpose vehicle holds a 45-year concession over the Saltillo-Monterrey highway. Based on previous press reports, the viaduct will serve to divert traffic coming from the highway to capital Monterrey in order to ease congestion at the Morones Prieto avenue, located in the limits of Santa Catarina and San Pedro municipalities. The viaduct would have two branches and its construction would be expected to conclude within 24 months.

3. A project to widen a 30km section of the Tuxtla Gutiérrez-San Cristóbal de las Casas highway, in Chiapas state, to three lanes. At an expected investment of 900mn pesos, works on this stretch will be the responsibility of Concesionaria de Autopistas del Sureste (CAS), which is owned by Spanish firm Aldesa and local operator ACSA. Under a single 30-year concession, CAS holds the rights to operate the aforementioned highway and another road linking the Chiapas cities of Arriaga and Ocozocoautla. 

4. Highway concessionaire Red de Carreteras de Occidente (RCO), which is majority owned by Goldman Sachs Infrastructure Partners, will build three projects: a 39km highway linking Ecuandureo and La Piedad in Michoacán state, which have a price tag of 1.53bn pesos; a 25km bypass in Lagos de Moreno, Jalisco, which will require investments of 1.4bn pesos; and 71km highway linking Zitácuaro and Maravatío, also in Michoacán state. The investment required for the latter is estimated at 3bn pesos.

According to Jiménez Espriú, the three new road projects will be toll-free. They will be built so they can serve as feeders to the toll highways operated by RCO. The group holds concessions for the Tepic-San Blas (31km), Zapotlanejo-Guadalajara (26km), Maravatío-Zapotlanejo (310km), Zapotlanejo-Lagos de Moreno (119km), and León-Aguascalientes (104km) highways.

5. A 37km road linking Ventura and El Peyote, in San Luis Potosí state, will be built at an investment of 4.2bn pesos. Grupo Mexicana de Técnicos en Autopistas (META) will be in charge of the project, which will serve as an alternate road between the state’s namesake capital and Matehuala. META holds the concessions to operate the Oriente and Poniente bypasses in that state.

According to the SCT’s head, the authorization for the desdoblamientos will be granted within the next few days, with the works for all the five projects expected to begin this year.

Fonadin efforts

SCHP is also promoting the development of different infrastructure projects worth around 50bn pesos. 

Based on an analysis of Fonadin’s project registry that the ministry conducted over the past few months, 18 projects in different parts of the country were identified as investment opportunities that have the potential of being launched within the next two to four months, recently appointed deputy finance minister Gabriel Yorio told reporters on Monday.

The projects were chosen from a pool of already advanced proposals that are currently in or about to enter the tendering phase. 

Although the majority of the works are road projects related to concessions operated by Fonadin, they also include water infrastructure, urban transport, solid waste management, and urban development initiatives.

The funds for the projects are expected to come from the Fonadin, the private sector, and the governments of the states where the works are located, Yorio said.

Works set to receive financing include a 10bn-peso solid waste management project in Nuevo León state, a BRT project in Jalisco state’s capital Guadalajara, a 2.28bn-peso BRT project in the Ciudad Juárez, Chihuahua state, and a 1bn-peso desalination plant in Baja California Sur.

Yorio also listed a stretch of the Real del Monte-Huasca highway, in Hidalgo state, the Mexibus BRT corridor in Mexico state, and urban projects in Durango and Sonora, as the other works that will be launched this year.

Finance minister Arturo Herrera said the funding for the five projects had not been earmarked in this year's budget and that the impact of the investments in the projects would have an immediate impact on Mexico's struggling economy.

Additional benefits

The infrastructure sector is also expected to benefit from the program’s third component, which involves an early start to the tendering of contracts for government acquisitions of good and services in 2020, including those for public works.

The launch of those tenders was initially slated for next year.

The winners of the contracts will be unveiled throughout the remainder of this year.

“Although we will not disbursed the money before 2020, the winning companies will start buying supplies and equipment, making investments, and hiring employees during the second half of this year,” Herrera said.

According to Herrera, there are no legal restrictions to impede carrying out the planned measure, which implies awarding contract for works and services not yet earmarked in the federal budget.

Reactions

The program is positive since it will help to mobilize money that were already in the coffers of different funds, including Fonadin, Alfonso Ramírez Cuellar, chair of the lower house budget committee, told local broadcaster Aristegui Noticias.

According to the lawmaker, next year and 2021 will see significant infrastructure investment, with public works being at the center of the government’s policies during those years.

Ramírez also said that the appointment of Arturo Herrera was also positive, tacitly crediting him for devising the program.

For some analysts, the program will serve to compensate for the reduction in spending that different ministries and other government entities have implemented during the first half of this year. 

In this respect, public spending has got off to a slower-than-usual start in 1H19 in comparison to similar periods of the past four administrations, in their first year of government.

The government spent approximately 175bn pesos less than it had programmed for the first six months.

Public works spending in 1H19 – understood as the outlays on the construction and/or conservation of public works and the purchase of capital goods with public works - when it came to communications and transport was 48.3% lower than 1H18, dropping from 32.1bn pesos to 17.3bn, according to SHCP data.

In June alone, public works spending decreased 34.8% to 3.8bn pesos.

As for the potable water and sewerage sector, spending in the first six months fell 43.3% from 8.14bn pesos to 4.81bn, and was down 48% in June alone to 1.8bn.