Interview: Alonso Quintana Kawage
What do you make of the 2013-18 national infrastructure plan? Can it be carried out efficiently?
ALONSO QUINTANA KAWAGE: Without a doubt this is an ambitious plan. Projects with a total value exceeding $300bn imply annual investment of more than 6% of GDP, a figure never before reached in the history of Mexico. By way of comparison, the previous administration spent amply on infrastructure but never exceeded 4.5% of GDP. Implementation of the current plan is taking a bit longer than expected, for the most part due to complex global macroeconomic conditions and to Mexico’s concentration on structural reforms.
Further complicating things, after the disasters of Hurricanes Ingrid and Manuel on the Atlantic and Pacific coasts, the government will be forced to increase its debt. I think Mexico is in a position to borrow more, especially if it is to invest in new infrastructure or in reconstruction projects in affected areas. The “zero deficit” rule seems wise as a general policy, as it keeps government accounts in an excellent state of health, but I think one should be flexible in extreme circumstances such as those experienced in 2013.
What are the pros and cons of the new law on public-private partnerships (PPPs)?
QUINTANA: Overall Mexico is quite an advanced country in terms of PPPs, thanks to the past examples of similar models in the UK and Australia. Compared with the US, for example, where airports are still to be privatised and concessions for road PPPs are only just beginning, Mexico can be considered a country where the PPP model has been very competitive and attractive to local and international investors.
In addition, one great benefit under the new law is that construction companies are able to propose projects proactively, to generate the engineering and to submit and justify them to the contracting agencies, without the latter needing to request the project beforehand. This gives the system a lot of flexibility and dynamism, although it entails certain risks for companies that cannot gauge the cost of presenting projects without any guarantee that they will be awarded them. The model of government guarantees is well supported and gives investors the confidence that is necessary in such long-term return projects. In my opinion this model is ready to start being used.
What are the major hurdles faced by construction companies during the lifespan of a project?
QUINTANA: To put it in a nutshell, the main hurdles are lack of flexibility by government agencies and mistrust in the sector due to past cases of corruption. This has led to excessive bureaucracy, especially in regard to freeing up government payments to contractors. We have often seen situations where we had to move forward, and even finish, projects with significant accounts receivable, which should have been settled before completion. These delays have an impact on profitability, and usually affect local companies more than international companies that have no qualms about stopping work if there are delays in payment. Also, the Mexican eminent domain law is not as strong as we would like it to be, delaying delivery of rights of way. The law follows the model introduced in Spain, but here the attachment to land is stronger and the ejidos (communal land owners) play a very important role.
In what ways could energy reform act as a catalyst for further investment in infrastructure?
QUINTANA: The energy reform will lift the burden of oil and gas investment from Pemex. With some clear secondary laws and attractive contracts, it is expected that private investment in the energy sector will take off through international oil companies, and thus construction companies that are already operating in Mexico will thereafter benefit. In terms of investment in power generation, the same holds for the Federal Electricity Commission. The reform could trigger investment from independent power producers in the sector, which would also increase construction activity.
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