Over the last 10 years, Mexico has been steadily improving the country's transport infrastructure procuring those upgrades in a traditional manner - now with the country's economic and financial stability, the sector has opened up further to private investment.

The federal Government - at the beginning of every period of administration - establishes priorities for the infrastructure of the country in a document called the National Development Plan.

Under the present plan, the SCT developed two legal financial models that would make the execution of infrastructure projects possible, combining public funds and private sector participation:

• traditional concessions for federal highways where the concessionaire depends on the quota of the users to recover the costs
• Proyectos para Prestacion de Servicios - PPS (Projects for the Provision of Services - based on the UKs model of a PPP), providing long term investment and maintenance on federal highways

The PPS projects with concessionaires depend on the payments of the government which are based partly on the availability of assets and the use of assets.

The Arriaga - Ocozocuautla and Tuxtla Gutierrez - San Cristóbal de las Casas are part of the new concession programme which also include the following:

The project

The project consists of a federal 30-year concession granted by the government of Mexico through the SCT (Secretary of Communications and Transports) to construct, operate and maintain two real toll roads, Arriaga to Ocozocuautla, and Tuxtla Gutierrez to San Cristóbal de las Casas.

The roads have been split into three sections:

• operation and maintenance of section 1: Arriaga - Tierra and Libertad - 19km
• construction, operation and maintenance of section 2: Tierra and Libertad - Ocozocuautla - 73 km
• operation and maintenance of section 3: Tuxtla Gutierrez - San Cristóbal de las Casas - 46.5 km

The 3 sections are in the state of Chiapas in the Southeast of the Mexican Republican with the concession granted to the Aldesa-ACCSA team on 31 October 2007.

Aldesa holds a 75 per cent stake in the consortium with ACCSA making up the remaining 25 per cent.

It will take 26 months to construct and the operator will have a fixed payment fit annually by inflation to operate and to maintain the project.

The National Development Plan

On July 18 2007, Mexico's President - Felipe Calderon - unveiled his administration's master infrastructure development plan with the program to be implemented through the remainder of President Calderon's term (2007 - 2012).

The program would increase infrastructure investment by 50 per cent compared to the previous administration.

According to the program's detailed description of the base scenario, around 55 per cent of the financing for the projects will come from federal, state and municipal sources and the remaining 45 per cent from the private sector.

Targeted areas include:

Railways
Plans include expanding the current railroad system which will involve US$4.5 billion of investment over five years. These funds will be used to add 881 miles of railway track throughout Mexico and to expand the suburban train system in Mexico City.

Airports
Airport investment will include the construction of three Greenfield commercial airports in the Maya Riviera, Puerto Peñasco and Ensenada.

Thirty-one existing airports will be substantially expanded including:

• Toluca
• Puebla
• Cancun
• San Jose del Cabo
• Loreto
• Nuevo Leon
• Monterrey
• Guadalajara
• Puerto Vallarta

An additional two further expansion projects and a new airport plan (in Merida) are currently being studied.

Seaports
Five new seaports are to be constructed in Bahía Colonet (Baja California), Manzanillo, Veracruz, Seybaplaya and Puerto Morelos. Additionally, 22 ports will either be expanded or modernised along the Mexican coastline.

Highways
One of the most talked about sectors benefiting from the National Development Plan is that of the highway system. US$26.6 billion will allow for the construction, modernisation and refurbishment of 10,937 miles of highways and rural roads all over Mexico.

More specifically, US$14.5 billion will be for the construction and modernisation of 870 miles of highway, US$6.2 billion for routine maintenance of 27,816 miles of highway and US$5.8 billion for construction and modernisation of 1,181 miles of rural roads.

Over 100 projects, separated into five regions, are either confirmed or currently in action.

In order to achieve all objectives set forth in the plan, the Calderon administration will be using more PPPs - in addition to traditional concessions - to boost private investment in major infrastructure projects.

Financing

Grupo Santander replaced BBVA which had originally backed the sponsor's bid but subsequently withdrew for the financing facility of the two toll roads.

The US$333 million deal features US$86 million in equity, provided by the sponsors (75 per cent from Aldesa and 25 per cent from ACCSA) and US$247 million in senior debt underwritten by Santander. The debt:equity ratio is 74:26.

With Santander coming in so late into the deal, allowed the lead arranger to charge higher-than-normal margins: TIIE + 180bp for the first two years increasing to 200bp in years 3-5 and 215bp in years 6 and 7 (the Mexico inter-bank rate).

The lead arranger is also looking to bring in additional lenders, and is offering a fee of 50bp.

The legal adviser to the sponsor was Gaxiola, Moralia y Asociados with Felipe Ochoa y Asociados acting as a traffic consultant.

Galicia & Robles acted as legal adviser to the bank with SyT as traffic consultant.

Conclusion

The outlook for road infrastructure in Mexico is positive for the next few years with the three main areas of investments up and running at full speed: real toll concessions, PPPs and the sale of existing assets.

With Mexico's economic and financial stability, the PPS road programme seems a very attractive prospect to foreign investors.

The government's principal strategy to develop new toll roads and maintain existing ones continues to require private investment with a pipeline of deals.

The challenge for international banks looking to break the Mexican market will be to offer competitive 'pesoised' goods that reflect the reality of the Mexican market.

 

The project at a glance