End of Guatemala's Palín-Escuintla highway concession causing concern

On April 30, the concession to operate and maintain Guatemala’s Palín-Escuintla highway comes to an end for Mexico-based Grupo Marhnos after 25 years. 

Last week, the government announced there would be no extension of the contract, ringing alarm bells in the private sector, where various groups have called on the administration to reconsider its decision because of the country’s history of poor infrastructure maintenance schemes.

Construction of the 29.6km road began in 1996, funded by the Guatemalan government, then led by president Álvaro Arzú Irigoyen. 

Grupo Marhnos was then awarded the contract to operate and maintain the highway in 1997. The agreement was approved by congress in 1998 and the group started operating the road and collecting tolls that same year. 

However, the Guatemalan government received only 1% of Marhnos’ gross revenues over the 25-year concession, amounting to just 21.4mn quetzales (US$2.75mn), according to daily Prensa Libre.

Marhnos is also one of the companies involved in the consortium that was awarded Guatemala’s first PPP contract in 2018, which entailed the expansion of the Escuintla-Quetzal port highway.

Possible trade problem

The highway has become one of the main routes for the Guatemalan public and cargo transporters between the Palín area and the southern coast, home to San José port and popular Pacific beaches. However, the end of the concession will mean that heavy freight vehicles will no longer be able to use the road.  

After many months of silence regarding the possibility of a contract extension for Grupo Marhnos, President Alejandro Giammattei ruled out the option in a video posted on social media. 

“Toll collection will disappear from May 1, but we will publish an agreement where certain types of vehicles will not be allowed to use the highway, especially those that are more than six years old and trucks,” he said.

On Thursday, the government made the announcement official by publishing agreement 438-2023 in paper Diario de Centroamérica, banning heavy vehicles “with six axles or more” from the highway starting from May 1. 

Maintenance scheme concerns

According to Giammattei, the reason for not extending the concession was to give back to Guatemalans what “was taken from them.”

“Maintenance will be carried out by the government, as we have been doing with the rest of the highways,” he said in the social media video. “This is a big step. The concession is over and there is no contract anymore. Now we have to give back to the people of Guatemala what was taken from them for many years.”

The president’s comments attracted criticism from various figures in the private sector, who raised concerns about the government’s ability to perform adequate maintenance on the highway. 

On April 24, private sector business association CNE said that one of Guatemala’s biggest challenges remains the development and implementation of modern models of construction, operation and maintenance of infrastructure, which should include private participation with appropriate distribution of risks. 

“The government’s decision is profoundly erratic, irresponsible and seemingly lacking a long-term vision,” CNE said in a release published on Twitter. “It should be subjected to technical and economic analyses prioritizing the country’s competitivity and public interest,” it added. 

Others, such as the Guatemalan construction chamber (CGC) and the federation of agriculture, trade, industrial and financing associations (CACIF), have also criticized Giammattei’s decision. 

On Wednesday, both organizations urged the government to launch a new tender process to award the concession to another private sector entity “with the technical and financial capability to carry out such project,” the executive director of CGC, José Fernando Orellana, was quoted as saying by local media.

Marhnos’ response

On Wednesday, Marhnos published a release ending a period of silence, where it painted a grim picture of the highway’s future maintenance under the control of the state. 

“Current maintenance is carried out under the contractual conditions and with the normal traffic under the toll collection mode. [The highway could have] its longevity affected due to the high congestion it will experience when it becomes toll free,” the company said. 

Marhnos also claimed that this is the only highway in Guatemala “that meets international requirements for road infrastructure,” and which has operated in optimal conditions throughout the duration of the concession. 

“We end a great period for our operations, but we will continue with more projects for the benefit of all Guatemalans,” said the director of Marhnos Guatemala, Sandro Testelli. 

Photo: Guatemalan highway in Palín after Tropical Storm Agatha in 2010. Credit: AFP