Water scarcity is a common issue in several regions of Mexico where access to sewage and potable water is limited. But government subsidies mean that the public sector bears the brunt of costs related to water-provisioning services. Companies that build and operate water-treatment plants would benefit from clearer regulation and the creation of a regulatory enforcement body within CONAGUA, which in turn would motivate more private players to enter the sector, says Carlos Orduz, Director General of TICSA.

“Regulations in Mexico are a fundamental area of opportunity,” Orduz says. “Projects in this sector are not financially, environmentally or socially sustainable without a regulatory model where people pay for what they consume.” TICSA, a private Mexican subsidiary of state-owned Colombian public-domestic-services company EPM, follows a business model that guarantees ROI through tariffs. This model depends on the input of a regulatory agency to control efficiencies, water-loss levels, consumption and investment. “It is the end user who must pay so that the system is feasible and this regulation must be implemented on a federal level,” says Orduz.

A key issue for water management is that local governments usually manage the community’s domestic water service. This jeopardizes the profitability of water projects in absence of a national regulatory body. In a country with over 2,000 municipalities, there is no continuity across domestic water services and no clear framework for developers and operators. “Each city government has to make do with few resources, so most municipal water systems are lacking,” says Stefano Sacchi, Commercial Director of TICSA.

TICSA prefers to carry out public projects alone because collaboration implies sharing profits, says Sacchi. Generally, it is able to make use of parent company EPM’s credit lines, but if the project is too costly or large for TICSA to develop on its own, the company may look for partners to share the risk. Sacchi points to PPPs as an important mechanism for developing water services. “PPPs are an option to finance municipal projects and make projects sustainable in the long term,” he says.

TICSA participates with both the public and private sectors, specializing in building and operating water-treatment plants. Diversifying between Build-only and Build-OperateTransfer (BOT) projects as well enables TICSA to mitigate risks and balance its income. “Build-only projects provide immediate cash flow while BOT projects provide a longterm cash flow that helps when sales are low,” says Sacchi. This diversification has served the company well. It currently operates 10 wastewater plants under this scheme.

In the public sector, water-management projects generally require large investments with long financing periods that the authorities cannot assume alone. In light of this situation, TICSA now manages these investments by collaborating with more players. “Federal institutions like FONADIN or CONAGUA provide part of the financing required, local governments may contribute as well, and private banking institutions provide the remaining funding,” explains Orduz.

The main challenge is not in developing projects, he says, but in making them sustainable over time. “Even in the case of projects carried out with federal funds and guarantees, if the city government has payment-collection problems, that project will fail,” he says. In this sense, TICSA is interested in working with local authorities and organizations that are committed to providing a service to the people. “Committed authorities translate to greater commercial efficiencies and provide constant domestic water delivery, even in absence of a compulsory regulatory framework,” says Sacchi. The commitment is mostly found in governments that are more stable and provide better domestic water services, according to Sacchi. “From a business point of view, it is easier to improve operating efficiencies in water boards with deficient services,” he says. “But those cities tend to be the ones with less stability, which threatens financial long-term sustainability."

In the meantime, TICSA’s work in the private sector is where the company sees an opportunity to shine. TICSA is now in the process of building a Wastewater Treatment Plant (WWTP) for the Constellation Brands’ brewery in Mexicali, Baja California, which will be one of the largest private investment in the state.