AMLO’s budget proposal signals progress on mega projects

Mexico’s 2020 budget proposal reflects the progress made on major infrastructure projects of the federal government, as they move from the preliminary stage to the construction phase.

Although the top priories are social spending, public security and state-owned oil company Pemex, the four main infrastructure projects of the administration – the Maya train, the development plan for the Tehuantepec isthmus, the new international airport at the Santa Lucía military air base, and the Dos Bocas oil refinery – were also earmarked significant funds.

Mega projects

Finance ministry SHCP is proposing 2.5bn pesos (US$127mn) for the Maya train, the 1,452km passenger and freight rail line planned for the country's southeast, down from the 5.8bn pesos the project received this year.

After having already awarded contracts to complete the preliminary studies, national tourism board Fonatur officials have said next year will see the start of construction works on some of the line’s seven sections.

Given that Fonatur has said that the contractors will receive an initial payment of 10% of the contract amount until after each stretch is completed and operating tests are conducted, payments related to the construction contracts are not expected to be significant next year. This could explain the reduced allocation SHCP is proposing.

The proposed allocation for construction of the 91.9bn-peso Felipe Ángeles international airport at the Santa Lucía base – which will form part of a three-airport system the government is proposing to deal with undercapacity at Mexico City airport (AICM) – is 5.37bn pesos, down from 15bn pesos this year. The funds this year were mostly used by the defense ministry to carry out pre-investment studies on the airport, while the works originally expected to begin late this year are still awaiting the resolution of a legal appeal. At the moment, there is no deadline to begin construction.

The allocations for the other two components of the airport system – AICM and Toluca international airport – were included in the suggested budget for the transport and communications ministry (SCT). Some 898mn pesos were earmarked to restructure the air space of the metropolitan airport system (SAM) and implement performance-based navigation technology to improve operations. The SAM includes the AICM and Toluca airports, as well as others near the Mexican capital.

Another 3.2bn pesos are being proposed to relocate some facilities as part of an effort to upgrade AICM, while 749mn are being recommended for the construction of an L-shape facility as part of an extension of AICM’s terminal No. 2 to host more aircraft slots and increase capacity. The contract for the latter was awarded last week to a consortium comprising Sacyr and Eppcor.

Other infra projects

SHCP is proposing to assign 54.4bn pesos to SCT, down 18.3% from 66.4bn pesos this year. Some 5.16bn of the total would be used for the construction of highways, of which 292mn pesos – the highest single amount – would go to widening the Coatzacoalcos-Villahermosa highway on a stretch linking Villahermosa and Reforma.

A total of 1.1bn pesos are being proposed for other airport projects. 

SCHP is also proposing 26mn pesos to carry out the pre-investment studies on a metropolitan rail line service between Querétaro and Guanajuato states, and 34mn pesos for construction of a suburban rail line in Nuevo León state capital Monterrey.

The third line of Guadalajara’s light rail system – a project left incomplete by the previous administration – could be earmarked 120mn pesos, which based on the government’s most recent timetable would be the last funds the project is set to receive before it starts operations next year. Meanwhile, the long-delayed 73.7bn-peso Mexico City-Toluca interurban passenger rail line would be earmarked 3bn pesos.

The extension of Mexico City’s metro line No.12 could be allocated 500mn pesos.

Regarding the high-level infrastructure projects President Andrés Manuel López Obrador (AMLO) promised to undertake in each of the 32 states, Herrera told a press conference on Monday that some of the initiatives are still in the planning stage, and that SCHP will concentrate on providing support to make those projects technically feasible.

The minister named the construction of a hospital in Sonora, and the construction of the Huejutla-Pachua highway in Hidalgo state as two of this projects that were included in the proposal at the suggestion of their respective state governors.

Water projects

The water projects that are being proposed for next year’s budget include construction of the El Zapotillo dam and pipeline (247mn pesos), La Libertad dam in Nuevo León (378mn), Sinaloa’s Santa María dam (1bn pesos) and Picachos dam (598mn pesos), and the Centenario canal in Nayarit (700mn pesos).

Investment rationale

A document containing the economic criteria used for the preparation of the proposals states that the infrastructure investment strategy required to achieve the government’s medium-term economic goals will be based on the 2019-24 national infrastructure program, which is expected to be unveiled later this year. This document will list sectors that will be given priority for investment, based on their social and economic development potential and their private sector attractiveness.

SHCP acknowledged the economic contraction experienced by the construction sector this year. In addition to blaming the situation on external factors, the ministry said the reduced public spending on infrastructure resulting from the time it took to prepare and approve pre-investment studies for new projects also played a part.

The ministry is hoping to see a “significant increase” in consumption and public investment now that those pre-investment studies have been completed. The document also states that the majority of the projects considered to be the most strategic are those located in the less developed south of the country.

The decision to slash the budget of SCT and allocate infrastructure funds to a handful of mega projects managed by other ministries is a source of concern for lawmaker Alfonso Ramírez, chair of the budget committee of the lower chamber and a member of AMLO’s Morena party.

In an interview with local broadcaster Aristegui Noticias on Monday, Ramírez said that although the mega projects will create many jobs and boost economic growth, there is still an unresolved problem related to the lack of public works in the majority of states and municipalities.

The lack of funding for potable water and public works projects is an issue Ramírez said should be addressed. Although he said that the approval process would require a lot of analysis and negotiations, no major changes are forecast as Morena holds a majority in the lower house.

The deadline to approve the budget is November 15.