Legal and regulatory risk in Mexico has been greatly reduced over the past few years by the implementation of successful legal mechanisms.

“Mexico has seen major changes in its legislation over the past five years, but we still need more,” said lawyer Derek Woodhouse, head of infrastructure and projects at law firm Woodhouse Lorente Ludlow.

The government has been using two basic models for very different projects and the framework was not designed for complex public-private partnerships (PPPs), according to Woodhouse.

To improve the framework and attract more investors, the federal government presented a new PPP law to congress last year.

The country has managed to carry out nine successful projects using the public service provision (PPS) model, under the acquisitions and services law. “But the new PPP model will definitely change things,” Woodhouse said, adding: “The new law addresses the problems in the current legislation and we are all very excited.”

However, the new legislation will not be without its challenges. Once passed, it will change the relationship between the builder, the designer and the operator as all three will be forced to work together, which will be one of the major challenges, according to Woodhouse. “Construction companies are not used to obeying operators (…) so it will herald a new way of doing things,” he said, adding that the three players will be co-responsible for the success of projects.

The legislation also contemplates several new mechanisms to resolve disputes, Woodhouse said. “Right now, we have a very limited way of dealing with disputes. The new law will provide different levels of arbitration, similar to how things are done in Canada and Japan,” he said.

The PPP law should be passed in the coming months, according to Óscar de Buen, infrastructure undersecretary at Mexico’s transport and communications ministry (SCT). “The law itself is ready. If it is not passed it will be due to political maneuvering,” said de Buen.

The law involves changes to the expropriation law to facilitate rights of way; changes to the public works law to make the process more flexible; simpler procedures for engineering projects and studies; more flexibility in land valuation; and the elimination of restrictions to concession term extensions, de Buen said.

PRIVATE SECTOR REACTIONS

The CEO of local engineering firm Ideal, Alejandro Aboumrad, said the new PPP law will give investors more security. In addition to the aspects mentioned by de Buen, Aboumrad pointed out the improved risk distribution mechanism between the public and private sectors.

Meanwhile, local construction firm ICA’s (BMV, NYSE: ICA) chief investment officer, Gabriel de la Concha Guerrero, said the current regulation has a lot of flaws. “A lot of investors are willing to put money down, but there are no adequate channels,” he said, adding that the new law will improve this situation.

Mexican highway concessionaire Ocacsa agrees the new legislation is key to reactivating the market. Clear rules and clear guarantees will attract more participation, Ocacsa CEO Emilio Gutiérrez Rodriguez said.

In a word of advice to companies, Woodhouse stressed the need to hire good lawyers who understand and can negotiate the complexities of the new law.

Woodhouse, de Buen, Aboumrad, de la Concha Guerrero and Gutiérrez Rodriguez were speaking at the 4th Latin American energy & infrastructure finance forum, held in Miami from March 18-19.

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