Founded in 2001, over the years, Insar has worked to become a quality property developer that generates value for its projects and, above all, particularly focuses on the human capital that forms its team, transmitting values and ethical principles that are reflected in how Insar treats its customers, vendors, and investors.
Inside Insar, every collaborator plays an important role in the process, the organizational culture focuses on the wellbeing of the team and their families. A clear example that their policies have led to good results is the certifications Insar has received as a “Great Place to Work”, and also a “Family Responsible Company”.
In addition, some of their projects have received “International Property Awards” recognizing outstanding developments in different sectors of the real estate industry.
The decision to start a project takes time. Insar analyzes the market perfectly, evaluates the opportunities, and focuses not only on the profitability of the development, but also considers the impacts this will have on the community, listening carefully to the needs of the consumer to determine the type of brands and services that will form part of the commercial component, and the types of amenities that are appropriate for the market segment.
These residential, mixed use, and commercial developments carry the Insar seal of quality, with professional workmanship, exceeding the expectations of investors and also innovating property development with fresh ideas, committed to a modern lifestyle, offering avant-garde designs and properties with low-cost maintenance.
Insar started operations in Nuevo Leon, but thanks to their constant search for opportunities in areas with great potential, one of Insar’s diversification strategies has been to look at cities in growth, starting to conceptualize and develop projects in states such as Baja California, Veracruz and Queretaro.
The expansion of the Port of Veracruz is the biggest project in the history of port infrastructure and the most important in President Enrique Peña Nieto’s term of office.
The project consists of two construction stages; the first (2014-2018), which started on November 24, 2014, involves the construction of a 4.2-kilometer western breakwater; there will be 2.8 kilometers of construction along the wharf where the first container terminal—720 meters—will be located, accommodating four berths and slated to begin operations in 2018. In total, the first stage will bring berth capacity to eight. A satellite terminal with five positions will be built to handle bulk cargo. It will have a main dock with a diameter of 800 meters and a 600-meter secondary dock for maneuvering vessels. It will have a depth of eighteen meters.
The second stage (2019-2030) includes the construction of the eastern breakwater, with a length of 3.5 kilometers, and the remaining vehicle, general cargo, and liquids terminals.
General Expansion Data
35-berth capacity n Depth from eighteen to twenty meters
Capacity to move 95 million tons per year
Total land area, 448 hectares n Water expansion, 446 hectares
Navigation canal to the port, 380 meters wide, 1,665 meters long, and 18 meters deep
Interior canal, 422 meters wide, 2,733 meters long, and 18 meters deep
Logistics Activity Zone (LAZ)
The LAZ is located five kilometers from the current port, which is adjacent to the expansion project, and has approximately 130 marketable hectares under a rental scheme. The aim of this area is to operate under the strategic bonded warehouse regime, authorization for which was granted to Administración Portuaria Integral de Veracruz, SA de CV on February 24, 2014; the intention is to establish companies that add value to foreign trade goods or that can operate as distribution centers.
Benefits of the bonded strategic warehouse include:
Import goods may remain on the site for a period of up to sixty months without causing abandonment.
No taxes or countervailing duties are incurred while goods remain on the site.
The introduction of such goods may be subject to handling, storage, custody, sale, distribution, exhibition, production, processing, or repair.
There will be an intermodal yard area and exclusive railway access in some lots.
Subdivisions are envisaged for vehicles, containers, general cargo, bulk cargo, and multiple services.
The aim is to increase the competitiveness of the port and the installation of yards and service warehouses will enable greater competitive advantages with lower transport costs and improvements to the logistics operations in the Port of Veracruz.
The 19.5-kilometer railway bypass will go from the current port, through the LAZ and to the intersection with Santa Fe, where the two lines coming into the Port of Veracruz—Kansas City Southern de México (KCSM) and Ferrosur—converge. At present, 15.5 kilometers of double track have been built and another four kilometers are under construction. Operations are scheduled to begin in 2016. One of the major benefits of this project is the increased port productivity and railway efficiency, significantly avoiding the railway running through the city, as it does at the moment.
The increasing size of real estate projects, the rising prices of land and the need to share the risks have had as a consequence that as of today professional real estate developers are seeking investors capable of contributing monies, land, construction works, constructions materials etc., as partners, as creditors or as both.
Mexican commercial and civil laws provide numerous association and financing options for businesspersons and also set forth multiple ways in which individuals may enter into a company as partners and attend to their needs associated with the protection to their investment and its profitability. Unfortunately, Mexican tax law tends to “group” such options which are clearly different between them, imposing identical tax effects upon different legal frameworks.
In such economic, legal and tax environments associated with real estate properties and their development, lawyers are faced with the particularly interesting task of advising their clients (real estate developers and investors) on the optimal means to associate, invest, capitalize and finance their real estate projects.
Some Forms Of Association:
The Mexican Law of Commercial Companies describes several types of companies. The most common are the Liability Company (“Sociedad de Responsabilidad Limited”) and the Corporation (“Sociedad Anónima”); both of them may also adopt the variable capital (“Capital Variable”) mode and, specifically as to Corporations, they may also adopt the Public Corporation (“Sociedad Anónima Bursátil”), Public Corporation for Investment Promotion Purposes (“Sociedad Anónima Promotora de Inversión Bursátil”) and Corporation for Investment Promotion Purposes (“Sociedad Anónima Promotora de Inversión”). This law also contemplates the Silent Partnership Agreement (“Asociación en Participación – A. en P.”) which although does not create a legal entity according to commercial law, under tax law it is indeed considered as a company.
There are several traits which are common to all of the above described corporations (and to Silent Partnership Agreemenst): all of them are formal, are “typical” or “characteristic”, tend to be long-term engagements and suffer from an all-encompassing legal framework associated with taxes, accounting, corporate governance, operations and winding up and liquidation procedures.
This common traits/disadvantages have not been a bar for professional real estate developers who take benefit from the talent of their legal advisors and have implemented several “uncharacteristic” legal strategies in order to attract partners and investors of the most diverse kind to their projects; thus, we can frequently find residential, commercial, touristic, industrial or mixed-type real estate projects perfectly memorialized in atypical or uncharacteristic agreements (for example, a Strategic Real Estate Alliance “Alianza Estratégica Inmobiliaria”, Joint Venture “Coinversión”, Joint Operation of Real Estate Property “Explotación Conjunta de Inmuebles”) or extremely versatile arrangements such as the Trust (serving any of the following purposes: management of real estate property, collateral, payment source, commercial activities, rental payments, etc.) and the Silent Partnership Agreement.
It is also common that the project´s legal strategy combines one or more of the legal vehicles mentioned above, and such combination enhances the project´s flexibility and the protection afforded to its investors and to its final users. To be sure, this alternative requires a high degree of legal expertise.
What Does An Investor Want, And What Does He Obtain?
“Money Talks”; usually an investor would like to press for his desires and needs: the maximum possible return and safety in exchange for his investment.
Nevertheless, considering the inherent complexity, sophistication and specialization of medium to large real estate projects, within the industry associated with their development the developer´s “know how” and specially his “know who” usually allow him to set the rules of the game and thus it is not uncommon for a developer to be the person in charge of first putting together the ideal legal strategy and afterwards –based on such strategy – inviting third parties to invest in such projects. As a proof thereof we can usually find the private investment funds led by a professional real estate developer and which congregate investors with different backgrounds but all of them having a common goal: to increase their respective assets and enhance their profitability while at the same time displaying a more passive attitude and leaving the real estate developer in charge of leading one or more specific project in exchange for a share in the project´s results (results which may present themselves in cash, in kind, or a combination of both).
Mexican law also is quite abundant regarding the instruments to memorialize the rights of the parties who agree to do business; depending on the type of company or agreement (or a
combination of both) to be chosen in order to carry out a specific real estate project, the investor may receive, in exchange for his investment, any of the following:
Shares or equity parts (with full voting rights, limited voting rights or having no voting rights whatsoever; preferred shares, shares accruing an interest, labor shares, founders bonds, etc.)
Debentures (either without a collateral or secured with movable or real estate property; debentures set in UDIS –investment units, a Mexican index based on increases to prices -; debentures convertible to equity shares of the issuing company as instructed by such company or by such debenture´s holder, etc.)
Certificates of Real Estate Participation, which are issued by a trust holding title to any given real estate property.
Mortgage, usufruct rights, surface use rights, easements, guarantees backed by trusts, etc.
We have learned from our practice that in addition to the largest possible profitability, almost every investor seeks: (i) A good overall behavior of the Project economic-wise, and therefore an adequate profitability; (ii) To be kept informed on a continuous basis regarding the project´s progress and of its physical and financial conditions; (iii) Fulfillment of the project´s schedule, partial time terms and final deadline; (iv) No matter what an investor seeks to be certain that he will obtain a return in exchange for his capital; and; (iv) A possibility to exit the project in the event of any contingency.
Any reputable professional real state developer and his legal and tax advisors have as a challenge to design and implement the best legal strategies in order to allow the developer to perform his activity successfully while at the same time giving the investors the possibility of achieving their purposes.
Tax Effects Of Real Estate Projects:
Any economic or business activity necessarily entails a tax effects (“Nothing is certain but death and taxes”) and in the particular case of real estate and real estate properties tax effects may be significantly harsh; the amount of taxes resulting from a real estate project and the moment such taxes accrue are key aspects that an investor must take into account when assessing if he should invest (or not) in a certain project and when evaluating such project´s overall financial feasibility. Therefore, the competition between professional real estate developers to attract investors includes not only innovating the legal strategies to be implemented but also includes such project´s overall tax efficiency to make them more appealing to the investors.
23% of Mexico City’s population drives a car. It is considered as a scattered metropolis, haphazardly growing.
Regarding mobility, it is a disjointed city, for example, 80% of all trips are made on private vehicles, only 15% uses public transportation, by either subway, metro bus, trolley bus, or buses, 3% rides bicycles and 2% move on foot.
SEDUVI is betting on a more compact city with mixed usage and greater verticality and, certainly, urban recycling. On this matter the challenge is to have only 10% of all users driving their own cars, increase the use of public transportation to 40% and bicycles to 20%, and to turn Mexico City into a pedestrians city that would allow 30% of the journeys on foot.
The challenge includes millions
In order to understand the extent of the challenge we only need to go over the amount of inhabitants who live in Estado de Mexico.
There are 10.1 people living in Mexico City’s Metropolitan area, 9 million in the city, and 4.5 million travels from Estado de Mexico to the city. Therefore, the number of people who concur in the city nearly amounts to 13 million 500 thousand persons. Facing this situation SEDUVI created a new Law on Development to mark the areas with recycling potential, and thus, these areas were located in the following districts: Tlalpan, Gustavo A. Madero, Coyoacán, and Centro Histórico. Some other places were identified in Alvaro Obregón and Milpa Alta, although they are under study at the Assembly.
According to the ranking issued by the United Nations UN, Mexico City and its metropolitan area is among one of the ten most populated urban concentrations, specifically in the third place, preceded by Tokyo and Seoul. By the year 2050, 75% of the world’s population will live in cities. Therefore, it has been predicted that poverty conditions will increase and the environment will be deteriorated. Thus, it is a major chal- lenge and the Secretaría de Desarrollo Urbano y Vivienda del Distrito Federal, (Mexico City Urban Development and Hous- ing Ministry) SEDUVI has begun to act.
In order to meet the challenges set by SEDUVI for making Mexico City a more compact and especially a pedestrian place, some works are being made. For example, an Urban Vanguard Brigade was integrated to allow the retrieval of 152km of sidewalks.
Meanwhile, the Centro Histórico regained Madero Street, which is only for pedestrians now, some embellishment and architectural works were done in some emblematic areas for national and international tourism, such as Garibaldi Square where the Tequila Museum was opened, and the public area in Monumento a la Revolución (Revolution Monument) was improved.
Another evident example of investment and improvement is Paseo de la Reforma that now has wider sidewalks, there is greater certainty for pedestrians, it is a better connected way regarding urban development and the area where a greater number of projects is under construction; this has been already included in INMOBILIARE MAGAZINE’S No.63 edition. These are the 17 real estate projects, 7 of which are mixed use buildings, 6 are office buildings, 2 are destined for housing, one is a hotel and another one is the Senate building. This development covers 3.4 km, that is, from the Bosque de Chapultepec to the Caballito Tower.
Surely the area that surrounds the Monumento a la Revolución is wide; therefore, there is a project for a 240 thousand sq m2 construction of spaces, 50% of which, will be destined to office buildings, 45% to housing and 15% to commerce.
Regarding the Ampliación Granada (Granada Enlargement), 18 new buildings are in prospect and in progress, 9 of which are destined for housing, 4 for mixed use, 2 office buildings and 3 for commerce with offices.
Another work that has generated great expectation is the Centro de Transferencia Modal (individual, collective and massive transportation boarding areas) (Cetram) Chapultepec, planned by the City Government with support from the private sector. The project considers a 70-story office tower, a shopping center and an underground parking lot for 2 120 vehicles.
Some works around the Basílica de Guadalupe have started in order to regain pedestrian mobility and some remodeling plans include pavement, urban fitment, public lighting, greenery, the construction of a commercial corridor and an underpass.
Lastly, the project called Viaducto Verde (Green Viaduct) represents one of the greatest environmental projects proposed by the current administration, since it includes the planting of 2 thousand palm trees, 4 thousand trees, 36 km of greenery on the 9.3 km-long central surface. This project would take advantage of rainwater collection; therefore the construction of an 18-kilometer sustainable irrigation system is planned, connected to five existing sump pumps.
On regards to energy saving, there are plans for reducing energy consumption up to a 60% through the installation of 2, 200 LED lamps that have greater luminary efficiency. Another objective is to protect pedestrians building 5 500 square meters of sidewalks, including an integral improvement of crossings.
No one can deny that Infrastructure is a key element in any country’s economic development, especially in developing countries that have strong needs. Infrastructure development determines the growth rate of a country and its population’s well being. It also has a direct bearing in jobs generation and productive chains, in triggering economies of scale, as well as in companies’ competitiveness.
Roads, bridges, tunnels, public transportation, airports, ports, railroads, water treatment plants and waste disposal plants, tourist complexes, telecommunications, housing, correctional facilities, hospitals, as well as electric power generation, represent some ways in which the infrastructure in a country is shown.
Due to their nature, such projects: (i) involve a long time for their planning, implementation, development, and operation; (ii) require outrageous amounts of public and/or private investment; (iii) are risky; and (iv) bring along sensible and complex subjects such as the environmental and social matters, and therefore they require all the players or participants (including the Government, financial experts, investors, creditors, developers, suppliers, operators, consultants and society in general) who have different risks and interests – but not for that reason irreconcilable – to cover, to have a legal framework to provide full certainty, security and feasibility to the projects.
When speaking of regulations or legal challenges for the development of infrastructure that Mexico needs, it should not be interpreted as if the country does not have, nor that it is in a precarious situation regarding, a legal frame- work to allow infrastructure development. On the contrary, even though it can be improved, as many other things in this country, the legal framework, especially regarding the federal field to which this article refers to, has been improving recently, beginning its triggering with the arrival of the North American Free Trade Agreement NAFTA.
So much so, that some projects, such as the Atotonilco Treatment Plant (the largest in Latin America), Túnel Emisor de Oriente (storm water drainage tunnel), MEXSAT system (Mexican new generation telecommunication system), supporting trust funds for the rescue of Conces- sion-Operated Highways (FARACs), Suburban Train (System 1), Highway Interchange Systems, Arco Norte Highway, wind farms in Oaxaca and Baja California, have become a reality. In fact, most of these projects, which could have been considered as monumental, are now tangible.
Surely, there are some iconic cases, such as the alternative airport in Texcoco (during Vicente Fox’s term), Punta Colonet mega-port in Ensenada, the Bicentenario Refinery, the Riviera Maya Airport (which hopefully will soon be awarded) or La Parota Dam of the Federal Electricity Commission (CFE), which due to some aspects that are beyond regulations for projects’ development, such as social, political, environmental, commercial, financial crisis, inexistence of the rule of law or simply faulty management – lack of foresight, inexperience, good consultants, clumsiness – are halted, suspended and bring about unnecessary risks or simply scare off those possible investors and financial experts, which in turn, affects society.
In order to back up what we have at present in the regulation or legal aspects for the infrastructure development in Mexico, we deem necessary to talk about three main aspects: (i) the projects themselves (what do we need, where are we going, when do we want it, how do we do it, how should we finance it, who do we do it with); (ii) the regulatory framework and lastly, (iii) the financing.
In this sense, the Federal Government, being aware of the great diversity of ideas, opinions, skills, and interests, as well as of the responsibility to become, due to our privileged geographic location, a great power as far as communications and logistics are concerned, created the National Infrastructure Program 2007-2012 (PNI, according to its initials in Spanish). The abovementioned document sets forth the objectives, challenges, goals and actions to be propelled by the Federal Government concerning infrastructure as a trigger for national development, with more than 300 projects.
Even though the PNI has not reached the expected progress (there are some current reports that indicate a 50% progress, and show that it will only reach 70 – 80% by 2012), which has caused uncertainty for markets as well as for investors, the fact of having detected and given priority to certain projects in different areas, with different investment amounts and risks, and having tried to give the country some direction, especially in the long term (planning), is praiseworthy.
It is not news that some of the causes that have determined this delay of the PNI are beyond our control, such as the financial crisis; however, it is also true that there are also some internal causes, such as sub-exercises, deficient tax collection, and political interests. Another determining factor has also been the lack of confidence of the private sector, a mainstay of PNI.
Yet, what has been done regarding the regulatory framework?… Thanks to NAFTA and the subsequent treaties, as well as PNI, “regulatory improvements and roadblocks” were established, and legislation and criteria were concentrated and standardized. Even recently, by means of the Administrative Agreement by which Federal Public Administration departments and entities, and the Procuraduría General de la República (General Attorney’s Office) are instructed to refrain from issuing any regulation in the indicated matters, such departments and entities, as well as the Procuraduría General de la República, PGR, were specifically forbidden from issuing additional regulations to those issued by the Secretaría de la Función Pública (Ministry for the Public Administration), regarding public works and related services, as well as public sector’s acquisitions, leases and services.
Moreover, in order to make these regulations more clear and to avoid dispersion: (i) on May 28, 2009, the Law on Acquisitions, Leases and Services for the Public Sector was amended, on July 28, 2010, its New Regulations were issued, and in August 9, 2010, the Administration Handbook for the Public Sector’s Leases and Services was issued; (ii) on May 28, 2009, the Law on Public Works and Related Services was amended and its New Regulations were issued on July 28, 2010, and also in August 9, 2010, the Administration Handbook for Public Works and Related Services was issued; and lastly, (iii) on September 9, 2010, the Administrative Agreement contemplating different guidelines related to acquisitions, leases and services, and public works and related services, was enacted.
In regards to acquisitions, leases and services, several regulations and laws were put together, abrogated and repealed; new concepts such as “framework contracts”, subsequent offers, long-term service rendering (PPS), social witnesses and electronic, in-person, and mixed tenders, were included; now, MIPYMES (Micro, Small and Medium-sized Businesses, according to its initials in Spanish) participation is encouraged and protected, the COMPRANET system was improved and updated, and the possibility of arbitration in PPS contracts is contemplated (under the Law on Acquisitions, Leases and Services for the Public Sector – LAASSP).
In turn, regarding works and related services, it has been determined that the Government has the obligation, “previously to carrying out any works, to process and obtain from the relevant authorities, the necessary reports, permits, licenses, rights for raw material banks, as well as property or property rights, including the right of way and real property condemnation on which public works will be performed, or in its case, the rights bestowed by whoever may have their legal disposal”, being this is a key factor for any investor, financier and creditor, taking into account that the right of way represents an obstacle in most of the infrastructure projects. On the other hand, public international tenders under FTAs coverage were differentiated from open tenders; the “legal, technical and economical solvency” concept substitutes the “economically more convenient” notion; the cost adjustment procedure is clarified and detailed; assumptions for reducing the performance guarantee percentage are now considered in accordance with supplier and contractor records; administrative recourse procedures have been expedited and simplified, and the time for solving them is reduced; and, the possibility to include arbitration in the contracts is contemplated, as well as other alternative means for dispute resolution (under the Law on Public Works and Related Services – LOPSRM).
In addition to the aforementioned, but specifically regarding hydrocarbons exploration and exploitation, despite the reluctance from some “nationalists” and certainly some politicians, Pemex New Law and its regulations, along with the Contracting Administrative Regulations with Petróleos Mexicanos (Pemex) and finally the new Integral Contracts for Exploration and Production (already approved by the Supreme Court, publishing the first tender on March 1, 2011), prove our will to make Pemex a more transparent company, with real corporate governance, which, among other things, may allow a better management; providing a course of action and making it more attractive for investors in debt markets; likewise, it will become, based on its strategic productive activities, more versatile and global, competing for attracting the most sophisticated investors to develop its infrastructure projects under circumstances that comply with international standards of professionalism, flexibility and enforceability. This new contracting model represents an excellent step forward, although there is big room for improvement provided political times allow it.
All of the above, without mentioning the APPs in its different levels, including under the concession scheme and the PPS contracts under special laws, as the Law on Highways, Bridges and Federal Transportation, and the Law on National Waters, that have successfully allowed the development of major and recent projects (FARACs, the Atotonilco Treatment Plant).
On the other hand, regarding financial and stock market matters, it is worth mentioning the creation of mechanisms that tend to finance infrastructure projects, such as the possibility for Pension Fund Administrators (AFORES), to participate in the Mexican Stock Exchange (BMV) through CKDs (Development Capital Certificates), which are mostly destined to infrastructure development. Likewise, the Infrastructure National Fund (FONADIN), an instrument that was created to support PNI, has been a key for project funding, as it was the case of FARACs or water treatment plants, absorbing risks that the market is not willing to take, especially as it happened during the 2008 and 2009 crisis (supporting venture capital funding, granting financing or issuing guarantees) or even investing in funds, such as FIMM (Macquarie Mexico Infrastructure Fund). Moreover, the so claimed new APPs Law will surely help to achieve better financing since the APP scheme has proved to be bankable because, among other advantages, it allows for risks to be more easily identified, al-located and assessed and therefore, controlled. Even with respect to financing at the level of States and Municipalities, we more frequently hear about securitization operations; the States and Municipalities know that the easiest and cheapest way to obtain financing is through the Mexican Stock Exchange; they could even use this mechanism to cancel or repay credit liabilities with commercial banks, which is more expensive. These structured finance mechanisms allow them to generate resources for their own projects without imminently depending on federal contributions (participaciones federales). Under a separate matter, it is not in question that the procedures for bidding, awarding and contracting of infrastructure projects require now greater competitiveness, transparency, equality, diligence and opportunity. An example of this has been the introduction of new regulations, such as the Federal Law on Transparency and Access to Public Government Information, which, along with different institutions such as the Federal Institute for Public Information Access (IFAI) and information instruments such as the INFOMEX system, have allowed the public to have access to information which, was not possible before, therefore achieving greater confidence and knowledge of the public administration’s core and of their contracting and accountability. Nevertheless, there are opportunity areas to develop to provide even greater transparency, contributing to mitigate favoritism and corruption when awarding contracts, and sanctioning in a more effective way, those companies and their employees who incur in unlawful practices when doing business with the public sector, as well as the respective public officers.
Now, in spite of these efforts in the regulatory arena, there are others still pending that are also material for infrastructure development and that for political reasons have not been crystallized despite the long time in which our legislators have “worked” on them. As an example of one of them, we deem important to mention the Law on Public-Private Partnerships, on which, our legislators have been working since November 2009.
Since Mexican Government is basing a great part of Mexico’s economic development in infrastructure projects such as highways, hospitals, education, drinkable water and sanitary drainage, etc., it is difficult to accept the fact that there is not a Federal Law on Public-Private Partnerships, that provides more certainty to the State and especially to the private parties allowing them to continue joining efforts for the development of social projects, allowing the State to adequately provide public services, and the private investors to obtain returns from their investments and operations.
Public-Private Partnerships (APPs) are “forms of long-term investments, where techniques, risk allocation, objectives, and resources between the private sector and the Government are incorporated, with the purpose of creating or developing productive infrastructure or the rendering of public services”1.
In Mexico, even though some States, such as Nuevo León, have already set an example, and that the majority of the infrastructure projects are carried out under an APP scheme (to a lesser or greater extent), the Federal Congress has not approved the new Law on Public-Private Partnerships yet (the House of Representatives as the auditing commission). Regulations of the Ministry of Finance (SHCP) and the corresponding regulations in, among others, the Law on Acquisitions, Leases and Services for the Public Sector, or in special laws (such as the Law on Highways, Bridges and Federal Transportation), or the plain contract framework, could be insufficient, rigid and generate confusion and uncertainty, inhibiting the creation of more projects and investors’ attraction.
This new law pretends to boost the development of new infrastructure projects, encouraging public and private investments to meet the growth needs of the population in different regions, as well as to promote employment and a responsible economic growth. The frameworks of APPs pretend to satisfy community needs, looking for equitable risk allocation between the public and private sectors through flexible mechanisms, which turn into a great variety of forms, depending on the needs of each project.
Thus, the private sector becomes a service supplier for the Federal Public Administration, and it is directly compelled to build the necessary infrastructure for rendering such services when required. The innovation in this approach is that the State will enter into a contract to receive a service from the private sector, and not to purchase fixed assets, and they will be carried out according to agreed performance levels.
Another subject that represents an important challenge for infrastructure development in Mexico relates to the fact that more than 50% of the national territory is under agrarian land ownership system, regulated mainly by the Agrarian Law. Shortly before the entering into NAFTA, Carlos Salinas de Gortari, President at that time, complying with investment and development demands, negotiated amendments to this Agrarian Law to recognize, among others, plot distribution property rights, their disposal and their resulting disincorporation towards becoming private property, to allow their use by a third party, as well as partnerships with a third party and granting usufructs, among other matters. This was a big step at the time, but it needs updating and upgrading, even regarding the way justice is procured, to allow a more agile and secure way to invest in mining, real estate, touristic or wind farm infrastructure projects to be developed in agrarian lands. It is very common to listen to investors negotiating about the occupation or disincorporation of agrarian lands, but that as soon as economic circumstances change, or when the community leaders so decide, the projects are simply stopped or access to them is impeded and/or investors are blackmailed. While the subject is related to having better tools to regulate the use, occupation, exploitation, and/or disincorporation of agrarian land, we return to the matter of a true rule of law that protects those who stand to reason. In this sense, the acts of the authorities need to be more binding, efficient and expedite. Notwithstanding the foregoing, the need for, and today’s relevance of, this law deserve revision, taking into account the spirit that gave birth to it and the current uses, benefits and tendencies.
To conclude, from a merely regulatory perspective, we consider that those legal instruments we can count on today are generous and allow the development of different kinds of infrastructure projects, in their different modalities and levels. It is true, all of them can be improved and perfected, that is the challenge. Based on their nature, some areas, such as hydrocarbon exploration and exploitation, require more development and nimbleness, but once again, we depend on the political will to allow the development of these projects, which our country desperately needs; another great challenge.
We wish to applaud the Law on PublicPrivate Partnerships, which needs to be promptly approved and enacted to grant greater legal certainty to the projects. Once this APPs Law becomes part of our legal framework, more flexible and creative schemes could be successfully implemented to develop infrastructure projects.
We have to wait and see the way the House of Representatives, as the auditing commission, will revise the project approved by the Senate.
Lastly, we emphasize the fact that other factors, not related to the regulatory framework, regarding the development of projects and infrastructure, need to improve substantially. That is the case of the social aspect that goes hand in hand with the “social responsibility”, the rule of law, and work fast and efficiently on related subjects such as safety and corruption, as well as in the adequate charges for fees and services in communications, transportation and water services, among others. This will enable the development of the infrastructure projects our country needs or wishes to attract, such as the case of Punta Colonet which at present competes against other investments for enlargements at the Panama Canal and at some East Coast ports in the United States, and therefore, nowadays, its viability results arguable. We must leave behind the image of an “underperformer” country regarding infrastructure. These challenges look complicated now that Mexico is fully on a political-electoral stage.
1 Estudio sobre la Constitucionalidad de la Ley de Asociaciones Público Privadas. Instituto Belisario Domínguez del Senado de la República. Dirección General de Estudios Legislativos: Política y Estado. Junio de 2010.
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