Adapting to Take Advantage of Upcoming OpportunitiesMon, 11/05/2018 - 17:07
The Mexican infrastructure industry is going through a transition period as the country shifts into a new political administration. But due to a decline in the development of public infrastructure, Jóse Ramón Delgado, Country Manager of Ayesa Mexico, says engineering companies must adapt. “Ayesa has always worked closely with the public sector and when we first arrived in Latin America 15 years ago, we wanted to continue to working in public projects,” he says. “Diversification is key during times like these and Ayesa is diversifying not only in the different subsectors but also in the regions in which it is operating.”
With the changing administration, public sector projects of the Peña Nieto era are tailing off while the new administration is yet to develop its National Infrastructure Program. This means there has been a natural slowdown in public infrastructure project development but private sector development has continued to boost the industry. In the next year, Delgado foresees a decrease in public projects and says engineering companies should not simply wait around for public projects to present themselves. “There are still many opportunities to take advantage of and Ayesa is taking the leap to new segments within the transport and social infrastructure sectors while the public sector gains traction,” he says.
Ayesa is currently in the process of finalizing various large projects such as Atotonilco, which is already in its operational phase, the Mexico-Toluca Interurban train, the third pipeline of the Cutzamala aqueduct and NAIM. The construction of NAIM is one of the most important projects in Latin America but with the changes in political environment, uncertainty has arisen. “The future of NAIM is unknown in the medium term but we believe it will be an investment that will continue under the new administration,” says Delgado. “It is probable that the contract assignation or construction scheme or even the final allocation may change but due to the advances already made, it would send the wrong message to international markets if the project were stopped.”
Throughout his campaign, incoming President López Obrador established various priorities in terms of infrastructure projects for his administration, including the Mayan Train and the construction of 300 rural roadways. But Delgado believes that now the new administration must ensure that the campaign promises tally with the budget. “Many of the projects are very social and are may not be attractive for the private sector to participate through a concession or PPP,” he warns. “The administration will have to differentiate what budget will be allocated to social projects and how the rest will be bridged with private sector resources.”
PPPs have been the most successful in the transport sector, in particular road infrastructure development and maintenance due to the returns that can be provided by tolls collected. Banobras has released PPP tenders to the private sector for various roads such as Tampico-Ciudad Victoria, Campeche-Merida and San Luis Potosi-Matehuala and is expected to continue doing so in the years to come. Banobras decided to open these opportunities to the private sector so it could operate them in a more efficient way and transfer as little cost as possible to the end users. Ayesa recently was awarded the supervision of operation and maintenance through an administrative supervision agent of 580km of the Southeast Package. This package, also awarded by Banobras, includes six highways that run through Veracruz, Tabasco, Campeche and Chiapas.
Delgado says another factor the government should consider to attract private investment is decreasing project risk. For infrastructure development, this can come in the form of rights of way (ROW) and social and environmental studies. It is common for projects to experience cost and time overruns, in what Delgado believes is a lack of planning, which is exacerbated by government time constraints. “It is important to allocate resources to the planning stages of a project and not just create projects to fulfill political goals,” he explains. “We need to identify the needs of the country, as well as the financial viability of these projects. Infrastructure planning in the investment cycle could save 30-40 percent of the cost overruns generated during the project.”