Mexico
Q&A

Where the money for Mexico's infra projects will come from

Bnamericas
Where the money for Mexico's infra projects will come from

In 2025, Mexico will rely more heavily than before on the private sector when it comes to infrastructure.

The Claudia Sheinbaum administration has promised various projects but is facing financial difficulties.

Sergio Chagoya, an infrastructure expert at law firm Santamarina + Steta, talks to BNamericas about private participation and other issues the sector will face.

BNamericas: What are the biggest infrastructure challenges Mexico will have to tackle in 2025?

Chagoya: There will be challenges, especially in the area of resources, since the megaprojects of the previous administration absorbed a lot of funds and savings of the federal government.

This situation goes hand in hand with all the social programs that have constitutional status and protection and demand a lot of public resources.

It will be a challenge to have sufficient resources to develop the works that the president has mentioned and that are in the government plans. So, I think that eventually we will also need the participation of the private sector.

The Morena party governments do not like the term public-private partnership and they have somewhat demonized this concept, but I think that eventually they will have to continue using things like this. They'll give them other names or change some things in form, but I think they will have to resort to these.

BNamericas: So you agree with analysts who think that PPPs will flourish during the Sheinbaum administration?

Chagoya: Yes, exactly. I think they will change their name, but they will have to adopt them because of the significant restrictions or pressures on public finances we're seeing, including the high indebtedness of the federal government and [state oil company] Pemex's debt.

BNamericas: Where will private involvement be essential?

Chagoya: I think regarding water infrastructure we'll face very important challenges. It's a global problem, but Mexico has a lot of water stress, so the federal government and the states will have to seek greater participation from the private sector and encourage [it to invest] in storage and collection projects.

We need many PPP initiatives in social infrastructure, such as the [social security fund] IMSS and [government employees' social security agency] ISSSTE hospital projects, which have been very good but which, in the opinion of former president Andrés Manuel López Obrador, were very expensive.

That is why I say that, no matter how poorly regarded PPPs are, the federal government and states will have to use them to meet the country's infrastructure demand.

BNamericas: Do you think the 2025 infrastructure budget is sufficient?

Chagoya: I see it as a bit lacking. I think there are still more pending tasks, but in this budget for the coming fiscal year it's quite evident that the federal government had spent a lot of money on megaprojects. The [previous government] left the current administration with an important challenge to obtain more resources.

Both the president and her team have also been saying that there will be no more tax increases. The challenge will be to collect more contributions. I also believe that financing everything with debt again could put the stability of public finances at risk.

BNamericas: Will it be a problem for project financing that many of Sheinbaum's projects are passenger trains that are mostly subsidized?

Chagoya: In other countries, like in most European countries, trains are a widely used means of transportation. In my opinion, they create a lot of balance and equality between different socioeconomic levels. They are used more there, but these countries are not as big as Mexico.

I think that developing them is an interesting bet, but, as you say, since they're subsidized, they're not economically profitable and they will incur costs to the treasury and to public finances. For example, the Maya train has still not [fully] started and is not used as much as anticipated. I hope that it really gets going and is what López Obrador promised and that now these new [train projects] that Sheinbaum announced learn from the mistakes of the Maya train and the interurban train, which apparently is also going to be completed.

BNamericas: Do you think that combining passenger and freight operations is a feasible solution?

Chagoya: The thing is that freight is profitable from an economic point of view. That is why the administration of [former president Ernesto] Zedillo decided to open freight to private investment.

Passenger rail services around the world are often in deficit and require state support. Resources are finite and this could be an alternative to try to make projects more attractive and to get private initiative to participate.

BNamericas: Which projects do you consider worth keeping an eye on in 2025?

Chagoya: The highway network is the most important means of transport, so it needs to be completely renovated. Also, the completion of the intercity train between Mexico City and Toluca and waiting for the launch of the passenger trains, to see how the new government proposes them and launches the calls for tenders.

BNamericas: What other issues will be of concern?

Chagoya: If the projects are not well designed, well structured and well organized, the banks will also have difficulties with them.

I think that the central bank and Banobras will continue to be essential, the latter as a development bank and as the bank that specializes in public sector infrastructure. I also think that some large groups from the commercial banking sector will be participating.

Another challenge related to the construction of pipelines, oil pipelines and roads is the lack of public security, which remains very serious. This also discourages participation.

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