Juan Leautaud
Managing Director
View from the Top

Conditions Bode Well for Infrastructure Development

Wed, 11/01/2017 - 12:15

Q: What progress has been made to bridge the infrastructure gap and what projects are the most critical for the country?

A: I am optimistic about the future of infrastructure in Mexico for a number of reasons. Although we continue to have this gap between our current economic output and our existing infrastructure, there are a number of elements that bode well for infrastructure development. Public finances are pressured because of the international context, the drop in oil prices and the current state of Mexican finances. That scenario creates an environment in which private capital is welcome in infrastructure development. There is a need for private capital to play a role and a wide range of opportunities to address that necessity.

Another reason for optimism is that infrastructure projects are always slow to come to fruition. Assembling a bankable project takes time. In my view, the government has made tremendous strides in identifying and pushing forward a number of projects, whether those are PPPs in the health sector, highway projects released by SCT or state-level projects focused on water and social infrastructure. Although there is a significant gap, there is now a growing number of identifiable projects.

The third reason is the progress on the part of state governments in terms of bringing in private capital to address infrastructure needs. Baja California has released a PPP project for a desalination plant in Rosarito that will provide water for the city of Tijuana at 4.4m3/s. This is a US$700 million project that is already in the contracting stages and tremendously significant to the state. The state is also tendering a 4.5km bypass for the city of Tijuana valued at MX$1.5 billion that will improve the connectivity within the city and the surrounding areas. Both these projects have been carried out with complete transparency and are a reflection of the fact that state-level participation is increasingly significant. I am optimistic that other states will follow suit in building up an infrastructure pipeline.

Q: What are investors most worried about when investing in new projects?

A: All investors like to see predictability and that translates to contract structures that offer certainty in terms of the scope of activities to be performed and the risk allocation between the parties involved. The health sector and contracts with IMSS and ISSSTE are no exception to this. A clear division of responsibilities regarding the acquisition of land, permitting of that land all the way through to the operation of a hospital, for example, need to be defined from the outset.

Q: What is holding back USPs and how can BlackRock help the players looking to make it happen?

A: The Tijuana bypass undertaken by BlackRock was carried out through the USP framework. We presented different options to the state government and began working in partnership with it to find the necessary structure to make it happen. The government understood the need for this road, launched the bid in accordance with the regulatory framework and BlackRock presented the winning proposal. This is a good example of a system that is working and we are now working on a second USP, which is a federal project.

Q: In which sector do you see the greatest potential for Mexican infrastructure?

A: We have a robust pipeline of investment opportunities spanning energy, midstream oil and gas, transportation, water and power so it is difficult to choose a sector I believe will be the most profitable. We are confident that we can continue to diversify and invest our clients’ funds effectively. In 2017 and 2018, BlackRock will come to the end of its investment funds and we will consider raising Fund Three in the near to mid term. Through this, we will continue our trajectory in developing our pipeline.