The global financial crisis forced Mexico’s transport and communications ministry (SCT) to implement a series of adjustments to highway projects to make them more attractive and feasible, according to the ministry’s undersecretary of infrastructure, Уscar de Buen.

“The new challenges under current market conditions forced us to review and adapt projects to make them more bankable,” de Buen said.

Some of the issues authorities had to tackle were the lower availability of funds for infrastructure, higher interest rates and shorter loan terms and a decrease in the number of players. At the same time, toll-based revenues fell 3% in real terms and traffic volume decreased, according to de Buen.

STRATEGIES

To adapt to the changed landscape, SCT implemented nine principal policy changes.

First of all, the size of projects was scaled down to US$100-400mn to reduce the amount of financing needed. Last year, for example, the original Pacific highway package was broken down into four separate concessions.

The ministry also decided to mix greenfield and brownfield projects to reduce traffic risk. “We have a large pool of brownfields and a lot of flexibility to package them,” de Buen said. SCT is currently working with six of these types of packages.

Meanwhile, the entity started to offer a financing package from (national development bank) Banobras and (local infrastructure fund) Fonadin. Firms can use the package if they want, or they can also use their own funding alternatives, said de Buen.

At the same time, SCT is looking to develop risky projects with public funds. “The idea is to build [the highway] and then concession its operation,” de Buen said. An example of this type of project is the 223km Durango-Mazatlбn highway which requires an investment of US$1.4bn. Construction is scheduled to finish in 2011.

To take advantage of existing concessions, the ministry decided to adjust concession terms so new projects could be financed under the umbrella of existing ones. This was done by lengthening the concession period or by increasing tolls. There are 11 projects, totaling 800km, linked to existing concessions requiring an investment of US$1.64bn, according to de Buen.

Another strategy has been to prepare new packages of projects using availability-based payment models, where firms do not receive revenue from tolls but from the government. “The financial sector has much more appetite for these kinds of projects,” de Buen said. The ministry has six projects requiring an investment of US$1bn on 858km of roads under this model.

New financing options have also started to replace traditional sources of funding for infrastructure development, de Buen said. These include the creation of infrastructure investment funds; the development of equity certificates; the participation of sovereign funds and pension funds; and the contribution of multilateral institutions such as the World Bank, IFC, CAF and IDB.

At the same time, the ministry decided to review the structure of bidding documents to facilitate bidder participation, and a few changes were implemented, such as extending the period to purchase bidding documents, and to request and receive clarifications. The financial structure was also adapted, according to de Buen.

Finally, SCT has been working to improve the legal framework which will attract more private investors. “The new PPP [public-private partnership] law is in the senate and we expect it to be approved in the coming months,” de Buen said, adding: “The PPP law is a key component of the government’s strategy to meet the goals of the PNI.”

Changes to the legal framework include modifications to the expropriation law to facilitate rights of way; changes to the public works law to make processes more flexible; simpler procedures for project engineering and studies; more flexibility in land valuation; and the elimination of restrictions to concession-term extensions.

De Buen was speaking at the 4th Latin American energy & infrastructure finance forum, held in Miami from March 18-19.

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