Lack of Public Funds Puts Projects on Hold

For years, Mexico’s highway blues have stemmed from a lack of federal budget to complete road corridors through the country, according to Ángel Carrillo, Director General of leading Mexican engineering and supervision firm INCA Ingenieria. “Although the country has been continuously growing, the need for more funds has meant many important projects have been put on hold,” he says.

In the late 1980s, the federal government identified the need to bridge its road infrastructure gap but budgetary constraints meant it had to reach out for support from the private sector by tendering road concessions. At that time, there were few highways and many incomplete routes. During President Carlos Salinas’ 1988-1994 administration, private operators were allowed concessions for 52 highways to drastically expand the federal network. Highways such as Mazatlan-Culiacan and Libramiento de Queretaro were among these and went on to become part of the Highway Concession Recovery Support Trust (FARAC).

FARAC was created in 1997 to rescue 23 of the 52 federal highways that were facing financial problems, absorbing a MX$57.7 billion debt. When these roads were rescued, INCA Ingenieria was invited by BBVA Bancomer as an independent engineering contractor. “We were in charge of the operation and maintenance of the highways, thus rapidly expanding our expertise in the sector,” says Carrillo.

The 2013-2014 NIP’s goal of transforming Mexico into a world-class logistics hub involved an aggressive road and highway development plan but it encountered the same problem other infrastructure plans have experienced. “Road projects are always a priority in government agendas but the issue is that there are never enough public funds,” says Carrillo. He explains that there are many roads that are a priority for the government in order to finish interconnecting the country. The government has continued to invite private companies to participate through concessions but many roads do not produce the volume needed for a favorable ROI. “It is not viable to expect a private company to invest such large amounts of money without a return for 30-40 years,” he says. “Mexico has yet to develop a scheme to finish constructing its highway network.”

There are many highways in the NIP that have been under construction for many years and due to technical and financial problems are under pressure to be completed. Carrillo uses the example of the Barranca Larga-Ventanilla section of the Oaxaca-Puerto Escondido highway, which was offered as a concession in 2009 and is only between 51-75 percent complete eight years later. This 30-year concession was originally awarded to ICA but its social, rights of way, environmental and budgetary problems have delayed its completion, according to Mexican Construction Chamber CMIC. To reactivate the construction of the highway, FONADIN had to inject more than MX$1.6 billion. Carrillo believes that these types of roads will most likely lack the traffic needed for an ROI high enough to cover its expensive price tag.

INCA Ingenieria has experience working on over 25 road and highway projects and is familiar with these types of situations. According to Carrillo, many of these priority road projects traverse mountains and difficult terrains, making them far more expensive. He explains that one of the most expensive parts of a project is related to the construction of bridges. “Cost overruns are mostly generated in steel structures and bridges because they demand specialized staff, materials and machinery to get to those hard-to-reach areas,” he says.

Although many of the roads needed to complete the country’s system are in these high-risk areas, Carrillo believes there are still many other opportunities to boost the competitiveness of the country’s road infrastructure. In 2017, the government released various road conservation and preservation PPPs for federal highways that were in need of maintenance. Carrillo is confident that the appetite is there and these goals will be completed, and by primarily Mexican companies. “Mexico is home to a great number of strong construction companies that are capable of taking on the most difficult of challenges,” he says.