MEXICO: An Introduction to Projects

MEXICO: An Overview of Projects and Infrastructure in Mexico

Contributed by Marcia Santomé Sánchez, Partner, CMS Woodhouse Lorente Ludlow S.C.

With the entry of the current Mexican government in December 2018, a series of public policies, programmes and projects were introduced to promote social and economic growth and achieve balanced development in the various sectors and regions of the country.

In terms of Projects and Infrastructure in Mexico, through the National Development Plan (2019-2024), various public programmes and projects were identified as part of its Axis II "Social Policy" and Axis III "Economy", within which the signature projects are: the Mayan Train, the Tehuantepec Isthmus Development Programme, the North Border Free Zone Programme and the “Felipe Ángeles” Airport in Santa Lucía.

The aforementioned National Infrastructure Plan stated that: “…of the first package of 147 projects, 72 will be executed and will conclude in 2020 with an investment of MXN431,318,000 pesos, a figure that, it said, is equivalent to what was approved in the Federation's Expenditure Budget for infrastructure. In the periods 2021-2022, an investment of MXN255,993,000 pesos and MXN171,711,000 pesos is projected between 2021-2024.”

In addition, for the year 2020, the National Infrastructure Plan included policies aimed at reactivating the economy with investment from the private sector and with support from the federal government, anticipating the restructuring of several projects that were affected by the pandemic caused by the SARS-Cov-2 virus ("COVID-19"). As an example of the actions implemented by the federal government to reactivate the economy in a region urgently in need of development, during 2020 five major public works contracts were tendered and awarded for the design and construction of Sections 1, 2, 3, 4 and 5 South of the Mayan Train (with an estimated total investment of MXN92,085,797,656), as well as their corresponding supervisions and the acquisition of the necessary rail for those sections (with an estimated investment of MXN5,084,815,162).

In this sense, for the year 2021, the outlook for the development of the country's infrastructure projects (rail, road, port, among others) has been favourable thanks to the acceptance and favour of the government in terms of the participation and coordination of the various sectors (social, public and private). According to data from the Mexican Chamber of the Construction Industry (“CMCI”), a growth in infrastructure investment of up to 5% is estimated for this sector, equivalent to 445 billion pesos.

It is important to point out that the aforementioned infrastructure projects are mainly focused on the communications and transportation sector, leaving only some hydraulic and energy projects, without mentioning the social sector (schools, homes and hospitals).

On the other hand, Congress recently approved some amendments to the “Ley de Obras Públicas y Servicios Relacionados con las Mismas”, with the purpose of “… establishing that the heads of the public agencies and entities promote the adoption of criteria that encourage the incorporation of the best international practices and technological advances for planning, bidding, contracting, execution, supervision and monitoring of public works”. Such amendments were sent to the Senate for discussion and possible approval.

Among the relevant proposed changes to the “Ley de Obras Públicas y Servicios Relacionados con las Mismas” are the following:

• The adoption of the best international practices for the performance of public works.

• The requirements to contract public works are increased, adding that there must be environmental permits, property rights, real estate and necessary assets in order to carry out the contracting procedures.

• It is expected that acquiring the bidding rules will be a requirement to participate in the tender and the income received will be destined for the use of the agency or convening entity.

• It is established that the public registry of contractors is mandatory for the year 2022, in order to participate in the contracting procedures.

• It is established that the works are guaranteed for up to 24 months and a guarantee of up to 20% of the total amount of the works (or 10% if the guarantee is constituted by letter of credit or trust) must be granted.

• It is established that the supervisory companies will be jointly responsible with the work resident for verifying the correct execution of the works.

• It incorporates the faculties for the Superior Audit Office (“ASF”) to verify the quality of the public works, among others.

Another factor to consider is related to the local government (states and municipalities), where the situation becomes more complex due to the change of administration following elections in July. In this year's elections, according to data from the National Institute of Statistics and Geography (“INEGI”), the 32 states of the Mexican republic will elect some public office posts, including 15 governors. The foregoing represents a challenge in terms of aligning the planning objectives of state and federal government projects, where coordination and communication mechanisms will be required for such purposes, as well as the participation of the private sector.

Notwithstanding the foregoing, Mexico also faces great economic and social challenges, such as economic re-opening and reactivation in order to boost the country's growth. According to the INEGI's data, in 2020 alone, the Mexican economy suffered its biggest contraction in decades, of 8.5% at an annual rate . Similarly, due to the global crisis as a result of the COVID-19 virus, the economic sector has been seriously affected and, consequently, so have the country's growth projections.

Therefore, despite the uncertainty currently experienced due to the pandemic and its economic repercussions on global markets, it is necessary to adopt measures that allow large-scale economic reactivation, such as the following:

• Grant incentives to small and medium businesses that allow their recovery from the losses caused by the pandemic.

• Promote measures that allow the reduction of bureaucracy and simplification of permits and procedures at all government levels (federal, state and municipal).

• Update the health protocols, which make it possible to guarantee the health of workers in the industry.

• Implement mechanisms that allow bidding and contract award procedures to be carried out in a transparent manner.

• Execute adequate planning that allows the implementation of comprehensive infrastructure projects and their inclusion focused on the social sector.

• Greater investment of public resources in infrastructure.

In summary, infrastructure in Mexico represents one of the mechanisms by which the present government seeks to promote the development of the country. However, due to the current situation with the health crisis and its repercussions on the Mexican economy and the world in general, it is necessary to design and implement innovative measures and public policies aimed at economic reactivation, greater investment in the health sector and infrastructure. It is also important to promote participation and coordination within the various sectors in order to achieve the goals and objectives set and accelerate the recovery of the economy.

Finally, as indicated by the President of the Business Coordinating Council (“CCE”), for the first four months of 2021, a reactivation of the economy is expected through infrastructure projects with the participation of the public, private and social sectors, where the presentation of a third package with new projects is expected.