Mexico’s Senate advances PPP law

The law only needs President Calderon’s (pictured) signature before it comes into force. But Milbank’s Allan Marks warns that success will depend on the law’s practical implementation and the development of institutional capacity across the country.

The Mexican Senate has approved, by a vote of 65 to13, the Law on Public-Private Partnerships (PPPs), market sources told Infrastructure Investor. The legislation now rests on the desk of President Felipe Calderon, who could sign the bill into law before 2012, potentially boosting private capital investment in Mexican infrastructure.

Once approved by the president – a move that is widely anticipated – the PPP bill will have come full circle after first being introduced to the Mexican Senate nearly three years ago in its original form. The upper house approved the policy, which has been tweaked along the way, just in time for the bill to formalise before 2012, during the Senate’s last session of the year.

Allan Marks, a partner at law firm Milbank and part of its Global Project Finance Group, has participated in infrastructure developments in Mexico since the 1990’s. He has witnessed firsthand some of the nuances in Mexican law that have – in a vicious cycle until now – created and dashed hopes for private investors and the competitive position of the country.

“In my view, Mexico's new PPP law should create many new investment opportunities for the private sector to boost the capacity and quality of Mexican infrastructure,” Marks told Infrastructure Investor. “The new law allows greater flexibility in negotiating the contract terms that can make a project economically viable, so that risks can be allocated wisely between the public and private sector.” 

While sidelined capital is expected to follow suit now that the legislation is formally taking shape, the new legal framework, for all of its merits, is by no means a guarantee that Mexico will supersede its Latin American rivals for infrastructure activity.

“Its success will depend on the implementation of new rules and procedures for PPP projects and on the development of institutional capacity (both at the federal and state level), such as dedicated PPP units in the government to shepherd projects through the contracting and approval process,” Marks noted.

He added:  “Legally, the law gives investors more certainty as to bidding, risk allocation and dispute resolution. It also creates a sophisticated framework for the government to assess value for money and financing options, while permitting projects with social and economic benefits to go forward even when more than three bidders do not compete.”