2017
“The goal is to achieve greater competitiveness and productivity for the economy to grow, generating more and better jobs� Gerardo Ruiz Esparza, Minister of Communications and Transportation
2017
Infrastructure is the backbone of Mexico’s economy. As sectors like automotive and aerospace flourish, the increased demand weighs on the network of roads, railways, sea and air gateways and structures that underpin the country’s industries. The National Infrastructure Program (NIP) was designed to strengthen that backbone from the ground up and from coast to coast. But almost three years into the NIP, the program is feeling the strain of budget cuts brought about by reduced federal revenues. The government is hoping the private sector will help fill the gap. For its part, the private sector has been disappointed with the number and quality of projects available through tenders, and cautious about taking part in a framework that remains unclear.
The possibilities, however, are many. There is a wide chasm in Mexico’s logistics infrastructure that is keeping the market from reaching its full potential. The country’s road and rail networks are being improved to ensure connectivity across the country but those also demand innovation in operation and maintenance. Social infrastructure is among the most attractive developments as the government encourages the private sector to participate in revamping the country’s education and health sectors through innovative financial vehicles. The newly opened energy sector, meanwhile, is primed for foreign investment. Before the infrastructure segment can fully take off, the risk allocation associated with projects must be balanced between the public and private sectors. Tenders must be transparent and planning processes must demonstrate attractive investments. Investors want in but they are cautious.
Mexico has climbed the World Economic Forum’s Global Competitiveness rankings since the NIP began in 2014, placing 51st in 2016 from 61st. As the NIP roles into its last stages, there are opportunities to bolster the country’s place in the world’s economic order. How Mexico tends to its backbone will determine whether the country fulfills its potential, or squanders it.
ALL RIGHTS RESERVED Š Toguna, S. de R.L. de C.V., 2016. This annual publication contains material protected under International, United States and Mexican Laws and international Treaties. Any unauthorized reprint or use of this material is prohibited. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system without express written permission from Toguna S.A. de C.V. Mexico Infrastructure & Urban Sustainability Review is a registered trademark. The publisher has made all reasonable efforts to provide accurate information, and the information contained in this publication is derived from sources believed to be true and accurate. However, the information in this publication should not be considered to be complete or definitive, and may contain inaccuracies or typographical errors. The publisher accepts no responsibility regarding the accuracy of information and use of such information is at your own risk. The publisher will not be liable to any party for any direct, indirect, special or other consequential damages arising out of any use of information in this publication. The publisher provides no representations or warranties, express or implied, including any implied warranties of fitness for a particular purpose, merchantability or otherwise in relation to any information provided by the publisher in this publication.
I S B N : 9 -78 0 9 9 6 - 8 02 673
TABLE OF CONTENTS
1
STATE OF THE INDUSTRY
8
PORTS & AIRPORTS
2
OPERATIONAL FRAMEWORK
9
TELECOMMUNICATIONS
3
URBAN DEVELOPMENT
4
RESIDENTIAL
11
WATER & WASTE MANAGEMENT
5
COMMERCIAL & TOURISM
12
MATERIALS & TECHNOLOGY
6
INDUSTRIAL PARKS
13
FINANCE & INSURANCE
7
ROAD & RAIL
14
DOING BUSINESS
10
ENERGY
Torre BBVA, Reforma, Mexico City
STATE OF THE INDUSTRY
1
Infrastructure is the backbone of a country’s economic development. It not only increases mobility and quality of life and optimizes the use of resources but it also attracts investment and increases the country's competitiveness. Mexico currently ranks 57th of 138 countries on the WEF’s Infrastructure Global Competitiveness Index and has steep climb to make its way up the list. The all-encompassing yet ambitious National Infrastructure Program 2013-2018 aspires to make Mexico a world-class logistics hub, increasing the country’s overall competitiveness to become a leading world economy. The government is polishing its regulatory framework and creating new tools to encourage innovation and investment in infrastructure to make these goals a reality.
This chapter provides an overview of the Mexican infrastructure industry up to 2016. The Energy Reform and the Telecommunications Reform continue to captivate the attention of both international and national investors, providing a wide array of development opportunities. This chapter focuses on the regulatory changes and the most pressing concerns of both the public and private sector, as well as the general population. Experts discuss how the various players in Mexico’s infrastructure industry can come together as one to bolster the country’s backbone.
5
CHAPTER 1: STATE OF THE INDUSTRY 8
ANALYSIS: The Year in Review
14
VIEW FROM THE TOP: Gerardo Ruiz Esparza, SCT
14
NIP ROUNDUP: Top Targets
16
VIEW FROM THE TOP: Felipe de Jesús Gutiérrez, SEDUVI
17
IN BRIEF: Creating a Sustainable, Livable City
18
VIEW FROM THE TOP: Gustavo Arballo, CMIC
20
VIEW FROM THE TOP: José Antonio González Anaya, PEMEX
22
VIEW FROM THE TOP: Miguel Peláez, DGAC
23
VIEW FROM THE TOP: Laura Ballesteros, SEMOVI
24
INSIGHT: Perla Cristerna Montúfar, ICIC
24
VIEW FROM THE TOP: María Paloma Silva, CONAVI
26
VIEW FROM THE TOP: Jesús Cano, SHF
28
VIEW FROM THE TOP: Jaime González, CNBV
28
VIEW FROM THE TOP: Jesús Elizondo, Banxico
30
VIEW FROM THE TOP: Alejandro Díaz de León, Bancomext
31
VIEW FROM THE TOP: Carlos Trujillo, AMDETUR
32
VIEW FROM THE TOP: Francisco González, ProMéxico
7
ANALYSIS
THE YEAR IN REVIEW A GLIMPSE INTO THE INDUSTRY
bring global trade. But according to the Wharton School,
On September 9, Mexico’s new Minister of Finance
if Mexico does not pair up its manufacturing capacities
and Public Credit (SHCP) announced budget cuts that
with strong transportation links it may limit the country’s
would slash infrastructure investment significantly. SHCP
capacity to become an industrialized economy.
submitted a MX$539.7 billion (US$28.4 billion) budget Social infrastructure, housing, urban development and
economic stability, creating a 27.2 percent deficit from
commercial real estate are also important pillars for the
2016. Public works will be cut by 27 percent in real value
country’s economic future. As such, innovative financing
from 2016 and SCT’s budget will again be reduced by
tools have been developed to allow new types of
29.6 percent.
fundraising and better options for long-term institutional investors looking to mitigate risk. CKD’s, CerPIs, Fibras
But not everything is doom and gloom. BMI Research
and Fibras E are all redefining infrastructure investment in
expects these budgets cuts will incentivize the public sector
Mexico and allowing new players to come in under a new
to push for more private investment to make up for the lack
set of rules. Innovation is the name of the game.
of funds and therefore the construction industry should show steady growth. According to Timetric, the Mexican
However,
construction market reached MX$961 billion (US$50.5
Rankings, Mexico still ranks 57 out of 138 in infrastructure
billion) in 2015, up from MX$766.7 billion (US$40.4 billion)
competitiveness. Though that is up eight positions from
in 2010 and it will rise to MX$1.2 trillion (US$63.2 billion) by
2014-15, Mexico still lags behind Chile, Trinidad and Tobago
2020 in nominal value terms.
and Poland.
Mexico is at a turning point. President Peña Nieto’s
THE CHALLENGES
administration has been keen on incentivizing foreign
The main problems the industry faces are the lack of long-
direct investment (FDI) in 28 strategic sectors. In the last
term planning, lack of viable projects and, pertaining to
three years the automotive industry alone has attracted
construction, challenges in acquiring rights of way and
US$27 billion, according to Ildefonso Guajardo, Minister of
working with ejidos continues to stunt the progress of the
Economy. But to maintain these levels of incoming cash
NIP. According to Cesar Monroy, Director of Infrastructure
and growth Mexico’s infrastructure has to keep up.
at PwC, “The problem is that there are no projects to invest
in
the
2015-2016
Global
Competitiveness
in. There is enough money to reach the percentages of Logistically the country is well positioned as it has one
investment established by the NIP but a valuable project
of the world’s major consumers to its north alongside a
portfolio is needed. These financial institutions encounter
strategic Free Trade Agreement and it can also access all
immense quantities of projects that are poorly structured
the benefits of having the Panama Canal as its neighbor to
and planned, therefore diminishing their desire to invest in
6.70 1
6.50 2
6.30 3
6.30 4
6
5.85 12
5.34 26
5
4.71 42
4.66 44
4
4.26 57
3.92 71
3.82 81
Guatemala
7
Ecuador
WEF- 'S 2015GLOBAL - 2016 GLOBAL COMPETITIVENESS INDEX: INFRASTRUCTURE 2016 2017 COMPETITIVENESS INDEX FOR INFRASTRUCTURE
3 2
global average Source: World Economic Forum
Source: xxxxxx xxxxx
global ranking
Mexico
Chile
China
Finland
Spain
United Arab Emirates
Netherlands
0
Singapore
1 Hong Kong
8
proposal for 2017 (PPEF17) to ensure the country’s
Mexico's Expenditure Budget (PEF) 2016 vs Proposed Expenditure Budget (PPEF) 2017 (figures in MX$ billions and real variations) Government Body
Total
PEF15 Approved
PEF16 Approved
Difference in absolute values between PEF16 vs PEF15
Real Change % PEF16 / PEF15
PPEF 2017 Expected
Difference in absolute values between PPEF17 vs PEF16
Real Change % PPEF17 / PEF16
842,261
717,575
-124,687
-17.4%
539,737
-177,838
-27.2%
305
218
-86
-30.5%
111
-107
-50.6%
Autonomous Bodies Federal Institute of Telecommunications (IFT)
9
Administrative Bodies Ministry of Finance and Public Credit
627
301
-326
-53.5%
139
-162
-55.2%
7,869
8,145
275
0.4%
4,417
-3,728
-47.5%
106,758
90,905
-15,852
-17.4%
66,105
-24,800
-29.6%
Public Education
7,413
3,664
-3,749
-52.1%
1,689
-1,976
-55.4%
Health
6,460
4,228
-2,232
-36.5%
4,717
489
8.0%
Marine
5,389
5,578
189
0.4%
3,392
-2,186
-41.1%
980
600
-380
-40.6%
334
-266
-46.2%
43,965
36,608
-7,357
-19.2%
18,661
-17,947
-50.7%
216
2,499
2,283
1023.7%
1,527
-972
-40.9%
Tourism
1,870
1,081
-789
-43.9%
643
-438
-42.4%
National Science and Technology Council
8,101
7,926
-175
-5.1%
2,500
-5,426
-69.5%
43,277
36,686
-6,592
-17.8%
36,525
-160
-3.6%
366,352
293,068
-73,284
-22.4%
204,622
-88,446
-32.4%
IMSS
5,779
5,000
-779
-16.1%
7,126
2,126
38.0%
ISSSTE
3,206
2,950
-257
-10.8%
1,500
-1,450
-50.8%
National Defense Communications and Transportation
Work and Social Provisions Environment and Natural Resources Social Development
Directly Controlled Entities CFE PEMEX (Consolidated)
Source: CMIC
infrastructure. The infrastructure sector’s Achilles’ heel is
be able to use them for the construction of energy, road,
right of way issues, which have inhibited investment across
transportation and other types of infrastructure the country
the entire country.” Mexico’s debt continues to increase
desperately needs. These asset classes allow AFORES to
and macroeconomic factors are delaying the completion
invest in long-term infrastructure projects, alongside the
of various nascent projects. The country continues to grow
private sector, and help the government construct the
exponentially, urban areas are becoming congested and
remaining projects of the NIP. These can also be used for
the construction of infrastructure is necessary to ensure
the construction of real estate assets. Fibras are dominating
the entire population has access to energy and water
the commercial and industrial real estate sectors, creating
resources. The country is filled with countless investment
portfolios of thousands of square meters of office space.
opportunities and although reforms have slowed down, the industry is waiting anxiously to bridge the gap.
Originally the 2014 NIP called for US$597 billion worth of infrastructure investment with 37 percent of fund
To encourage the private sector to participate more in the
allocation coming from the private sector. However,
development of the country’s backbone, the government has
new budget constraints will accrue a larger percentage.
created various incentives and financial mechanisms. The
Though Mexico has a strong PPP law there is still a lack
four financial instruments the entire industry is discussing
of regulation and transparency issues have permeated the
are the Fibra, Fibra E, CKD and CerPI. The first CerPI and
industry, which will have to be improved or there will be a
Fibra E were launched in late2015 and the private sector will
risk of scaring away the private sector.
THE MAIN PROJECTS OF THE NIP
The projects completed this year include the La Marquesa-
2016 is an important year for reducing Mexico City’s
Toluca highway, the expansion of the Mexico City-Puebla
infrastructure gap. The New Mexico City International
Highway, the completion of the Reynosa Bypass, the
Airport (NAICM) is the most important project of the
macro-bypass for the Mexico City-Guadalajara Junction
past decades and given its importance, companies are
with Chapala, the Felipe Carrillo Bypass and first phase of
awaiting the chance to take part in one of the 21 tender
the Don-Nogales Station.
packages. To ensure the connectivity of this project, the
10
government launched various transportation projects.
As for freeways financed by the public sector, the goal is to
The Toluca-Mexico Interurban train is under construction
complete construction on 80 projects and modernizations.
and it will aim to reduce congestion from Toluca through
Through 2Q16, four freeways were completed giving the
Santa Fe to the Observatorio Terminal near Reforma.
country a total of 57 and for the remainder of 2016, seven
Various improvements and the construction of new roads
more freeways will be completed. These projects will
around the Valley of Mexico Metropolitan Area (ZMVM)
require an investment of MX$43 billion (US$2.2 billion)
will be completed by 2016. Mexico’s port infrastructure
and will stretch 2,700km.
is undergoing serious modifications to support larger growing
According to PwC, companies are opting to avoid
manufacturing and automotive industries. To meet the
greenfield road tenders in general due to the high risk
goal of creating a world-class platform, Mexico’s borders
they must assume. Given a lack of daily average traffic
are being optimized to facilitate the export and import
expectations in new projects, availability payment tenders
of goods, as well as the flow of tourism. Guadalajara and
tend to grab the attention of the private sector since
Monterrey are also adapting their infrastructure to create
risk is mitigated by ensuring constant income flow from
the country’s largest urban areas. The construction of the
public sector coffers to its private sector partner. “At the
Guadalajara light train will increase the efficiency of the
moment, the private sector is suffering due to a lack of
city’s transportation system.
options and it is a reflection on the number of participants
capacities
and
meet
the
demand
of
its
in the few road tenders in the market. The most attractive
ROAD AND RAIL
projects are the availability payment projects. These types
Many road and rail projects were deeply impacted by
of projects many not have the highest yields, but they are
the various budget cuts. The results were long delays or
the most secure since the payment comes from the federal
demands for the private sector to assume more risk. This
government over a period of 15-20 years,” says Monroy.
year’s largest rail projects are the Toluca-Mexico interurban train and Line 3 of the Guadalajara light train.
PORTS AND AIRPORTS As Mexico’s international trade continues to grow,
Investment in the Toluca-Mexico interurban train is
Mexico is trying to accelerate the development of its two
estimated to reach MX$44 billion (US2.3 billion) and as of
superports, the Port of Veracruz and the Port of Lazaro
September 2016 its construction has advanced 37 percent.
Cardenas, to keep up with additional demand. The NIP’s
This 57km project is designed to relieve Toluca’s traffic in
goal was to turn Mexico into a world-class logistics
a 40-minute commute that would cost citizens MX$12
platform and these ports would optimize its connectivity
(US$0.63). The Guadalajara light train will link Jalisco’s
with the global economy. SCT’s goal was to reach the
major cities of Zapopan, Guadalajara and Tlaquepque with
installed operational capacity of 500 million tons by
a 22km line of 18 stations. As of 2Q16, the train is 45 percent
2018. The construction of TEC II by APM Terminals in
completed and it is expected to be 80 percent complete
Lazaro Cardenas will be completed in September 2016
by the end of the year. This project will demand more than
and immediately afterward the Specialized Automotive
MX$20 billion (US$1.05 billion) for its construction.
Terminal (TEA) is expected to be inaugurated. With these changes, Lazaro Cardenas would have an annual
According to SCT, in terms of value, 81 percent of national
capacity of 47 million tons. The new Port of Veracruz
production travels through highways and freeways. In
is beginning expansion and as of 1Q16, 15 percent of
1Q16, six highways with a total length of 1,600km were
the project was completed and the breakwaters are 48
constructed. During this administration, 26 highways
percent complete.
have been constructed or expanded so far. The majority of these projects were carried out under PPP schemes
The bidding and construction was launched for the
and represented a total investment of more than MX$90
21 main packages of the project of the century, the
billion (US$4.7 billion). SCT is expected to complete eight
NAICM. The airport has been divided into three different
more projects by the end of 2016 to build a total of 34
construction
highways and its goal is to complete 52 highways by 2018.
preliminary projects and the terminal building, which
phases.
As
of
September
2016,
the
is part of the second stage of phase one, have all been
trial and error in response to the priorities of the short-
tendered. The security fence has been constructed,
term national plans.
48km of internal paths are established and the terrain The creation of SEDATU was a positive step to increasing
has been cleaned and leveled.
collaboration
between
government
institutions,
as
URBAN DEVELOPMENT
well as cohesion between urban development plans.
In the last 50 years, Mexico has urbanized faster than the
Nevertheless there is still a great amount of fragmentation
majority of the OECD countries. Just in the last decade
that remains. The OECD suggests that SEDATU should
it had the third largest expansion rate of the OECD.
consolidate as a decision-maker on a national level and
According to INEGI’s 2015 Intercensus Survey, Mexico’s
authorities could strengthen urban development through
population growth rate decreased for the first time in 45
better sectoral planning, develop institutional networks
years. From 2010 to 2015, the average growth rate was
to achieve agreements or create a national council that
1.4 percent. The states with the most people are Mexico
would coordinate the development of the country.
City, the State of Mexico and Veracruz, representing 28 percent of the total population, which equates to 33
SOCIAL INFRASTRUCTURE
million people. According to SEDATU, eight of every 10
Mexico must drastically improve its social infrastructure,
Mexicans live in a city and more than 60 percent of the
such as schools and hospitals. The latter proposed by
population lives in 59 metropolitan areas.
the NIP have been the most successful projects. The health sector has been attracting multiple investors,
Mexico City has grown to a point where it has merged
such as Macquarie, and even the energy construction
with the State of Mexico and is now referred to as the
company Arendal. Puebla is among the states with the
ZMVM. The OECD recognizes the ZMVM as the largest
most investment in the improvement and construction of
urban agglomeration in the world. Not only is it the most
new health infrastructure. As of February 2015, the state
populated area in the entire country with over 25 million
had invested more than MX$8 billion (US$421 million) in
people but it also has an immense infrastructure gap,
the previous four years to construct a children’s hospital,
high delinquency rates and a large housing deficit. In an
two new general hospitals, 37 health centers and 49
OECD study on urban productivity and its relationship
smaller medical units.
with
urban
governance,
ZMVM’s
productivity
was
equivalent to that of smaller cities such as Guadalajara
The government also launched the Education Infrastructure
and Puebla, and much lower than Leon and Monterrey
Certificates (CIEN), which are Multiple Contributions
even though its population is much larger.
Funds (FAM), that are issued through a financing vehicle to improve the infrastructure of more than 32,000 schools.
The study suggests that not only is this due to the
Fitch Ratings has assigned the highest rating to the
socioeconomic environment but also because of the
program and the government is optimistic it will drastically
considerable political divisions across the area, creating
impact the country’s educational infrastructure. According
conflict between regulatory frameworks. Another reason
to INEE, very few schools are equipped with necessary
why Mexico’s urban sprawl has not been properly
learning spaces, such as computer rooms, libraries, staff
contained is that the government has not renewed
rooms and gyms. The organization also discovered that
the General Human Settlements Law since May 1976.
55 percent of primary schools do not have adequate
SEDATU is in the process of creating a new law to take
administration or common areas such as storage spaces,
its place, which integrates federal, state and municipal
green areas or bathrooms. Only 50 percent of primary
planning to create consistent growth across the country.
schools have reputable infrastructure. There are many schools that have all the infrastructure necessary but they
The National Urban Development Plan 2014-2018 (NUDP)
still suffer from the Syndrome del Edificio Enfermo, or the
focuses on the containment of growth, encouraging
Sick Building Syndrome, which means they are extremely
compact and vertical expansion throughout the country.
sensitive to variations in lighting, temperature and other
According to Harvard, the goal is to promote smart growth
environmental factors.
while preserving open space and enhancing public areas. The government also plans greenfield developments
HOUSING
and densification policies. The OECD suggests this plan
Ensuring dignified housing for more than 119 million
needs to be longer than the presidential term and that
people is one of the largest challenges the government
professionalization of the public sector is a critical to
must resolve. The 2013 housing crisis that undermined
improve urban planning capacity. Urban development
the country’s social housing market was a response to
projects were often improvised and conducted through
the government’s changes to the National Housing Plan.
11
The National Housing Plan was introduced in 2013 and was
alone. The cities that are experiencing the most growth
led by SEDATU and CONAVI to ensure that the country’s
during 2016 are Queretaro, Mexico City, Merida, Tijuana
deficit, which impacts 8.9 million families, is drastically
and Monterrey. The Ministry of Economy observed that
reduced. It was accompanied by new housing policies
the dollar depreciated by 17 percent, from 14.74 to 17.25
that provided more attractive credits and subsidies to the
throughout 2015 and it reached MX$19 to the dollar in
improvement and expansion of housing, both in rural and
3Q16. Nevertheless, it is expected to close 2016 at around
urban settings. The construction industry is now regaining
MX$18 to the dollar.
its stance. According to BBVA, more than 60 percent of the
12
construction sector’s GDP comes from those buildings and
The real estate market seems to have great expectations
the housing balance seems to be more stable in terms of
to meet and there are various trends that will be
the number of homes built. According to SHF and CONAVI,
sweeping the market, whether it is industrial, commercial
loans given for the construction of housing increased by
or corporate:
34.1 percent, to MX$10.6 billion (US$557 million) from MX$7.9 billion (US$415 million) in the year to March 2015.
The Drive of the Automotive Industry - It is no secret
The GDP of the housing industry reached MX$935.2 billion
that the growth of the automotive industry is speeding
(US$49.2 billion) in July 2016, representing 5.7 percent of
by other industries, and it is pulling the real estate
the country’s GDP. CONAVI says the middle and residential
market with it. The creation of new automotive plants
housing sectors have the largest growth opportunities.
such as Mazda, Nissan and Audi will set off investment in the development of stores, warehouses, and ports.
According to the Unique Housing Registry (RUV) the states with the highest number of housing developments
Multipurpose Spaces - Space is limited and if it can
were Nuevo Leon, Jalisco, Hidalgo, Guanajuato, Quintana
be found in Mexico City, then it certainly is not cheap.
Roo and the State of Mexico. According to SHF, the most
The lack of space in many cities is creating a demand for
expensive homes were located in San Pedro Garza Garcia
interdisciplinary spaces. Hospitals, malls, skyscrapers,
in the Monterrey metropolitan area, Guadalajara and
and houses are beginning to develop projects that
Acapulco, due to its proximity to Mexico City. Zapopan,
increase efficiency and bring together a variety of
Guadalajara has become the preferred location for
activities, business and resources into one space.
medium to premium developments with a growth of
Monterrey, Mexico City and Guadalajara are the pioneer
19.8 percent from 2000 to 2010. The leading cities in
cities of this type of real estate market.
rentals are San Pedro Garza Garcia, followed by Puebla,
Fibras Strengthen the Market - Fibra, or REIT in the
Metepec and Valle del Bravo.
US, are trust funds traded in the public market used to
COMMERCIAL
invest and manage real estate portfolios. These financial
The Association of Real Estate Developers (ADI) foresees
vehicles are taking flight in the market and will boost
investment of US$21 million in 2018 from its members
the development of real estate everywhere. Fibras
Shopping Center Developments in Mexico 2006-2016 Year
Cities
Population
Shopping Centers
Gross Leasable Area (m2)
GLA/SC m2
2006
50
60,241,175
416
9,297,613
18,374
2007
51
60,677,016
452
10,423,922
31,286
2008
55
63,453,388
50
11,851,356
29,738
2009
56
65,735,237
534
12,927,338
31,647
2010
70
70,378,617
570
13,916,017
27,463
2011
70
71,435,532
585
14,348,109
28,806
2012
70
72,512,061
620
15,371,278
29,233
2013
82
76,682,093
646
16,253,110
33,917
2014
82
77,599,229
669
16,964,254
30,919
2015
82
78,491,340
694
17,649,605
27,414
2016 (Estimated)
82
79,359,641
732
18,757,268
29,149
Source: Real Estate Market and Lifestyle
Mexico's Fibras 2016 Name
Fibra Uno
Macquarie
Terrafina
Fibra Prologis
Fibra Hotel
Fibra Inn
Fibra Mty
Fibra Shop
Fibra Dahnos
Fibra HDi
Properties
509
291
209
188
62
35
22
17
11
9
Value of Assets
171,300
40,500
33,800
36,500
10,700
8,000
4,900
9,000
49,200
1,500
GLA (m2)
7,079,000
3,401,000
2,777,000
3,028,000
N/A
220,000
471,000
42,200
67,000
Sectors
C, I, O
C, I, O
I
I
H
C, I, O
C
C,O
C, I, O
C: Commercial
I: Industrial
O: Office
H
H: Hotel
Source: Real Estate Market and Lifestyle
account for 2 percent of the GDP and their success has
through development of 13 new buildings, creating a
led to the unification of the 10 Fibras under the Mexican
total inventory of 5.4 million square meters.
Association of Mexican Real Estate REITs (AMFI).
OUTLOOK TO THE FUTURE The commercial real estate sector has seen a boom
The decline of the oil and gas sector in Mexico has driven
in
developments.
the government to implement budget cuts at various
These developments provide citizens with work, food,
junctures throughout 2016. At the end of 2015, the
entertainment and shopping facilities in one location.
Mexican mix registered a 40 percent loss, dropping from
According to Colliers International, as of June 2016, the
US$45.45/b to US$27.37/b. As a response to a possible
shopping centers’ inventory will increase to more than
interest rate hike by the Federal Reserve, Banxico
600 developments, totaling more than 19 million m2
raised its interest rate by 50 basis points, from 3.75
throughout the country.
percent to 4.25 percent in June 2016. To adjust to the
the
construction
of
mixed-use
macroeconomic environment, Congress has presented The
vast
majority
of
commercial
centers
will
be
an economic package for 2017 in which it proposed
concentrated in the ZMVM, with these representing 32
to cut the budget by 1.2 percent with the objective of
percent of the total, followed by the central zone with
achieving a primary surplus of 0.4 percent of the GDP.
31 percent. According to Real Estate Market & Lifestyle, Mexico City alone will see an investment of more than
The country has a large infrastructure gap and after SCT’s
MX$5.5 billion (US$289 million) and more than 450,000m2
budget was slashed several times in 2016, the PPEF17
of gross leasable area (GLA).
will be cut by a further MX$27.4 billion (US$1.4 billion), creating a 26 percent deficit compared to the amount
OFFICE SPACE
initially allocated. This would automatically hinder the
Countrywide, vacancy rates increased from 8.21 percent
tenders for any new projects in favor of completing
in 2014 to 14 percent by mid-2016 and the average rent
those that are ongoing, and would increase the need for
price decreased by 1.48 percent in 2Q16 to US$26.15.
the participation of the private sector through PPPs.
Coldwell Banker estimates that the volatility in the exchange rates and the increase in the offer of offices
The industry is looking forward to the new tenders that will
above 700m will most likely push contracts to establish
be announced for the remaining 15 packages of phases 2
a set range for exchange rates. Colliers International
and 3 of the NAICM, such as the combustion terminals and
estimates that the vacancy rate in 2Q16 was 11.4 percent
distribution lines, sewage system, supporting buildings and
taking into consideration buildings of all classes. Most
central service tunnel. The optimization of the superports,
of the vacancies are seen in the A+ and B classes, and
Lazaro Cardenas, Manzanillo, Altamira, and Veracruz, are
subsequently in the A class.
also sparking a large interest in the industry. Not to mention
2
the hopeful acceleration of the Energy Sector, where the A+ and A offices continue to see significant growth
country’s deepwater and midstream sectors are in need of
in Mexico City. By the end of 2015, 26 office buildings
new and improved infrastructure. The telecommunications
were constructed, adding 566,000m2 to the inventory.
sector is also awaiting the assignation of the Red
Coldwell Banker expects that for the next four years the
Compartida project that is still in the pipeline, and with it
annual average will remain at 500,000m2 of construction.
the construction of the thousands of telecommunications
This will add a total of 1.9 million square meters to
towers needed to bring coverage to the entire nation.
the current office market. According to CBRE, in 2Q16
Mexico is full of untapped opportunities for infrastructure
190,000m of new office space was built in Mexico City
development and the reforms inspire hope in the industry.
2
13
VIEW FROM THE TOP
TRANSFORMING MEXICO INTO A WORLD-CLASS LOGISTICS HUB GERARDO RUIZ ESPARZA Minister of Communications and Transportation (SCT)
14
Q: What impact would the completion of the NIP have on
national territory, minimizing costs and transport times.
the country’s economic development?
Since the beginning of the administration, the goal was to more
make Mexico an added-value global logistics platform. The
than 11,000km of coastline, its 11 trade agreements
NIP was designed with SCT input to create infrastructure
encompassing 46 countries, a labor force that is gaining
that would boost mobility and connectivity, not just near
specialization and its demographic dividend make it an
urban areas but also near the markets that consume
attractive territory. The priority of the NIP is to interconnect
domestic production. The goal is to achieve greater
the logistics backbone that connects Mexico’s borders and
competitiveness and productivity for the economy to grow,
seas with the main centers of consumption and production,
generating more and better jobs.
A:
Mexico’s
favorable
geographical
position,
expediting transfer times with a special focus on exports. Q: What strategies is SCT implementing to ensure the Globalization has boosted demand for expertise in logistics
projects are completed on time as well as full transparency
infrastructure, which not only plays a key role in the
throughout tendering processes?
development of a nation but also contributes to economic
A: From the beginning, the NIP established that the SCT
performance, serving as the axis of integration of the
would execute all the programs with a strict adherence
NIP ROUNDUP
TOP TARGETS More than 81 percent of Mexico’s total national production
BORDER CROSSINGS
is transported through highways and freeways, which
It is essential to boost logistics development in the border
makes them integral to improving internal connectivity.
region with the United States. During the first half of 2016
As of December 2015, more than 30,000km of highways,
the new international Guadalupe-Tornillo bridge and the
freeways and feeder roads had been modernized and
Tijuana-San Diego Airport connection were opened. With
constructed. According to the SCT, 60 percent of the
the inauguration of the Brownsville-Matamoros International
investment in a highway or freeway benefits communities
Railway Bridge and Bypass, at least three new international
by providing crossings, jobs, housing, land, materials and
bridges will have opened when this administration ends.
procurement of services, creating new opportunities for
There will also be expansions and modernizations of at
nearby families
least eight different points of entry: Tijuana-San Ysidro, San Luis Rio Colorado II, Nogales-Mariposa, Ojinaga-Presidio,
MODERINIZING ACCESS TO MEXICO CITY
Anzaldúas, Rio Bravo-Donna; the Brownsville-Matamoros
Due to the construction of the NAICM, it is important to
bridge and Los Tomates-Veterans.
modernize the main 11 accesses to the metropolitan area of Mexico City. As of September 2016, the expansion of the
The pedestrian bridge of the Tijuana International Airport
Mexico-Pachuca highway through the section of Ecatepec-
opened in the first half of 2016, connecting the airport to
Santa Clara, the expansion of the Mexico-Puebla highway,
San Diego. It will facilitate the border crossing of both
La Marquesa-Toluca highway and the Mexico-Queretaro
Mexicans and Americans using the airport and had a total
highway have all been completed. These were constructed
investment of MX$185 million (US$9.7 million).
alongside the second level of the Periferico, which will connect Mexico City to the Mexico-Cuernavaca highway,
Tornillo-Guadalupe International Bridge and the junction
as well as the construction of Piramides-Texcoco highway.
La Ribereña were inaugurated in February 2016. They
to the law and complete transparency. This is why it
is available to the public. In 2015, an agreement was
is essential that they all operate as an open book. Peña
signed with the OECD to promote transparency and
Nieto presented the NIP in June 2013, along with the
good practices in the construction of the NAICM and a
goals, objectives and projects for which the SCT would be
proposal of legality with CMIC to make the relationship
responsible. So far, there have been approximately 11,498
between construction companies and the public sector as
contracts involving 3,863 companies that total MX$287.5
transparent as possible.
billion (US$15.1 billion). To ensure transparency throughout bidding processes, the SCT decided to implement for the
Q: What are the priorities of the SCT for the remaining
first time a transparency portal that contains information
years of this administration?
on tendering and contracting. In addition, it launched the
A: Halfway through the term, the SCT is moving ahead
two online portals for the bidding of the Red Compartida,
with the targets set in the roadmap of the NIP, supporting
NAICM and the new Port of Veracruz.
the promotion of alternative forms of financing to boost public investment to enable the continuation of major
It has also promoted the participation of public notaries
infrastructure projects. The main objectives of the SCT
with technical backgrounds who have been designated by
for 2018 are to complete the construction of 52 new toll
the Ministry of Public Function (SFP). The most relevant
highways, the construction and expansion of 80 federal
bids are transmitted live over the internet and public
highways, 41,000km of rural and feeder roads, as well as 65
notaries have been incorporated to give their opinions
bypasses and 50 different arterial roads. In addition, two
on the proposals. The public’s requests for information
passenger trains will be put into operation, the first stage
are answered and according to indicators from INAI, SCT
of NAICM will be completed and the operational capacity
meets 100 percent its obligations for transparency, quality
of Mexico’s ports will double to over 500 million tons from
and time of response to these requests. It is noteworthy
270. Aware of the challenge of overcoming the budgetary
that at the beginning of the administration, more than
adjustments that will greatly impact the development of
2000 of these public requests were made and were not
infrastructure, SCT is committed to responsibly allocating
given access to any information. Now, the information
public resources in a transparent manner.
was invested.
60 percent of the investment in a highway or freeway benefits communities
PASSENGER TRAINS
complementary port systems on the Gulf of Mexico, which
The high-speed Mexico-Toluca train will interconnect the
are the New Port of Veracruz and the Port of Altamira,
Toluca Valley and the Western Zone of Mexico City, through
and on the Pacific, which are the Ports of Manzanillo and
a modern, efficient and safe rail service. This project is now
Lazaro Cardenas. The total investment will reach MX$62
about 37 percent complete, while the Right of Way (ROW)
billion (US$3.2 billion).
facilitate the movement of goods between the north and center of the country through the Mexico-Ciudad Juarez highway axis. About MX$500 billion (US$26.3 billion)
for the train route is almost complete. It is expected to begin pre-operational testing in the second half of 2017.
NAICM
With more than MX$19 billion (US$1 billion) invested, the
The planning and design stages have been completed and
goal is to significantly reduce commuter times and reduce
has moved on to construction. To increase transparency,
vehicular traffic in the capital. This project is about 60
public notaries have been assigned to the 21 bid packages.
percent complete while the ROW for the train route is
All the information will be disseminated through an internet
completed. It is expected to begin pre-operational testing
portal and the project will receive input from the OECD.
in the second half of 2017.
The first phase will have a capacity to transport 60 million passengers and more than 700 thousand operations per
PORTS
year. At its peak, NAICM will have a capacity for 120 million
The NIP’s goal is to expand and modernize the port
passengers and 1 million annual operations. The airport will
infrastructure quickly to double its operating capacity
also be an important generator of jobs, creating 160,000
to more than 500 million tons from 270 million tons
during the construction phase. It will promote social and
by the end of the presidential term. To fulfill this goal,
environmental development, as well as the economic
over 25 projects will be carried out to consolidate the
development of the region and tourism.
15
VIEW FROM THE TOP
REGENERATE NEIGHBORHOODS TO CREATE IDEAL CITY FELIPE DE JESÚS GUTIÉRREZ 16
Minister of Urban Development and Housing (SEDUVI)
Q: What long-term strategies will Mexico City implement
Q: How will SEDUVI improve public transportation and
to ensure positive housing and urban development?
expand its reach while reducing commute times?
A: Mexico City is expected to reach a population of more
A: SEDUVI is designing an integrated public transport
than 8.74 million inhabitants by the first half of 2020 and
system in Mexico City that is a prerogative of SEMOVI.
the urban area will cover more than 199,000m2. In terms
SEDUVI plans to create a compact city with a mix of land
of population growth, the city is stable with a downward
uses, allowing city dwellers to carry out various activities
trend. Most of the population is at a productive age and
in the same area, as well as having access to education,
due to their young age, they will need tens of thousands
health and recreational services. This must be reinforced
of homes in the coming years. These new generations will
with accessible housing policies because people are
require new offices, shops and services but these must
obligated to migrate toward the State of Mexico or faraway
follow vertical growth models because the city can no
municipalities, leading to a loss of time and money through
longer expand. The south is surrounded by land reserves
daily commutes.
so we must optimize the urban land available. Q: Mexico City has a housing deficit of about 250,000 Financial and regulatory instruments must be created
homes. What is SEDUVI doing to reduce this number?
to make the construction of affordable housing feasible
A: The housing deficit originates from the high cost of land,
for all socioeconomic groups. In the last few years,
which translates to expensive housing. It is crucial that
the increasing cost of housing has led the low-income
the legislative assembly reforms General Planning Norm
population to migrate to the periphery of the city or to
26, incentivizing the construction of social housing or
distant metropolitan municipalities or even sometimes
generating new norms that allow low and middle-income
onto land reserves, creating an irregular use of land.
homebuilders to enter higher building areas or housing densities than those established by the Municipality Urban
Mexico City is expected to reach a population of more than 8.74 million inhabitants by the first half of 2020 and the urban area will cover more than 199,000m2
Development Programs. This would make it easier to construct decent housing at lower costs. It also is necessary to implement tax mechanisms, such as value captures, which would enable the city to equally distribute the costs and benefits that urban development generates. This would strengthen infrastructure and public services in areas that need it the most, as well as subsidize dignified housing for low-income population segments.
Q: What are the challenges to creating pedestrian-friendly infrastructure that does not impede transportation?
In addition to the new housing deficit, there is a qualitative
A: The Mexico City government has demonstrated its
deficit of housing stock generated by homes that were built
commitment to sustainable mobility by implementing
with dubious materials and in high-risk areas. These are in
urban development policies that prioritize pedestrians,
poor condition and overcrowded. The solution requires
cyclists and public transportation. Transportation Oriented
the implementation of credit programs, subsidies and
Development (DOT) promotes the development and
vertical housing, as well as regularization and if necessary,
densification of areas with existing mass transportation
relocation of irregular settlements from risky areas.
systems, such as the Metro and Metrobús. Implementing DOT has successfully densified municipalities such as
Q: Why does the capital have so many abandoned homes
Benito Juarez and Cuauhtemoc.
and how can these be used for decent housing?
A: The fact that Mexico City has a significant problem with
transformed into commercial real estate. This dynamic
abandoned housing is debatable, although it can be seen
can be reversed through the implementation of urban
in various low-cost municipalities. Families live far from
policies that increase the viability of the construction
their jobs, which leads them to abandon their homes in
of affordable housing, allowing young families to rent
search of housing that is closer to their workplace.
or buy homes in the same area in which they grew up rather than being forced to migrate in search of cheaper
The known facts are that municipalities such as
housing.
Gustavo A. Madero, Azcapotzalco, Miguel Hidalgo, Venustiano Carranza and Coyoacan have continued to
Q: What supporting processes must be optimized to
lose population. This has occurred as a response to a
ensure security and sustainable vertical infrastructures?
change in family dynamics, where children migrate to
A: For the last decade, Mexico City has experienced a
other areas of the city to start their own families, leaving
trend of vertical growth that will continue to consolidate.
the parents alone. The result is that houses where five
Dense and compact growth is a sustainable alternative
to six people once lived are now occupied by one or
the city has to satisfy the housing, commercial and service
two people. In the last 30 years, the average number
requirements of its population. This model must be
of people per household has dropped from 5.4 to 3.4,
accompanied by the optimization of urban infrastructure
decreasing each year.
and public services. Due to their location, many neighborhoods have high potential for development and
The second reason this has occurred is due to
regeneration but they have infrastructure networks as
the
This
old as 50 years. These infrastructures must be replaced
phenomenon occurs in municipalities or along roads
or rehabilitated to operate in mint condition. The
that
transformation
of
commercial
land
use.
which
necessary resources should come from the construction
encourages the transformation of housing properties
of new developments through the implementation
into shops and offices. Such is the case of downtown
of value capture schemes, urban migration work and
Mexico City, where a huge number of homes have been
contributions for improvements.
have
a
strong
commercial
dynamic,
IN BRIEF
CREATING A SUSTAINABLE, LIVABLE CITY These are the steps SEDUVI is taking to fulfill its vision of
has identified 13 neighborhoods with high potential for
the future Mexico City:
regeneration.
Identifying potential development and regeneration
By regenerating and densifying areas whose economic
zones through the creation of a Territorial Aptitude
activity has decreased as a result of obsolete infrastructure,
Model, which incorporates a Geographic Information
it will decrease the amount of migration due to lack of
System along with variables that go hand-in-hand with
housing or force habitants to move two hours away from
urban development policy.
their homes and even on conservation grounds. These situations permanently impact the sustainability of these
Action Areas with Development Potential are zones within
zones. In addition, the capacity of public and private
the city that have access to drinking water and public
investment in infrastructure must be improved and the
transport systems such as the Metro, MetrobĂşs and light
management of the investment optimized.
train but that have shown a loss of population and are not at risk of many natural hazards. As of October 2016, 222
The Mexico City government should first consider
neighborhoods had been identified.
organizing the participation of the various stakeholders to optimize the design and planning of public policies
Action Areas with Regeneration Potential are areas where
with ample involvement from citizens. This is why the
the original function has been modified and require
Council for Sustainable Urban Development (CONDUSE)
changes to adapt to the economic and urban environments.
was created. This council provides a space to collectively
These are industrial zones with low concentrations of
reflect, analyze, promote awareness and urge citizens to
jobs, zones with low population densities and zones with
contribute ideas to create an Ideal City in terms of urban
significant infrastructure deterioration. So far, the model
development.
17
VIEW FROM THE TOP
IN CONSTRUCTION, LOCAL FIRMS CANNOT REST ON LAURELS GUSTAVO ARBALLO 18
President of the Mexican Chamber of the Construction Industry (CMIC)
Q: What is CMIC’s impact on the development of the
Q: How will foreign companies affect the development of
construction industry and its members?
the local construction sector?
A: The construction industry is one of the most important
A: The number of projects and investment in the country
and dynamic sectors in the country. It creates 8.1 percent of
has created numerous opportunities for companies to
GDP and creates over 6.1 million direct jobs, or 13.3 percent
develop. Mexican businesses cannot rest on their laurels
of total employment. For every MX$100 (US$5.2) invested in
because foreign players will inevitably enter the fray and
construction, MX$45 (US$2.3) are used for the purchase of
seize the most attractive opportunities. This is relevant to
materials and services. CMIC’s members have a great impact
any company because naturally all players want growth
on the development of engineers, ensuring that they have
for their industry and an industry can only grow on the
long-term contracts to create continuity in employment
strength of its companies. The same applies to the
and that they receive continuous training and education. In
construction sector. This segment is directly linked to other
Mexico, it is mandatory for companies to provide training
industries due to the technology and materials needed for
to all employees. The construction industry is the only one
each project. Mexico’s construction sector is composed
that has created a training school for constructors, which is
95 percent of MSMEs, which means the number of large
the Training Institute for the Construction Industry (ICIC).
companies is small. It is vital that businesses develop so
This will ensure that workers have a better income and a
that large projects can be taken on by Mexican firms.
secure job throughout the years. The structural reforms apply to the telecommunications One of the chamber’s main goals for 2016 is the development
and energy sectors, allowing the country to compare
of MSMEs in the construction sector. CMIC wants to
its needs for growth to the rest of the world. Countries
collaborate with organizations like NAFIN and BANOBRAS
measure
to provide these companies with better investment loans
construction sector’s GDP is usually higher than the rest.
and financing so they can become more efficient and
The industry needs to grow to its potential of 4-5 percent
productive. For MSMEs to become large companies, it is
annually from 3 percent now. The government is creating
crucial that workers receive adequate training.
new policies and programs that promote the development
performance
according
to
GDP
and
the
of human capital, technology and financing as well as designing a framework that will support the growth of MSMEs and promote strategic alliances that will help companies become more competitive at the national and international levels. Q: What role should the government and private sector play to boost the development of infrastructure projects?
The construction industry represents 8.1 percent of GDP The sector creates over 6.1 million direct jobs, or 13.3 percent of the total employment
A: The government should be a facilitator so that the private sector can enter the industry and invest money. It should distribute funds according to the distinct needs of the population to strengthen productive infrastructure as well as to foster higher levels of productivity and competition within the industry. When foreign companies arrive here, they should enter with the intention of creating strategic partnerships through which they bring investment and new work methods. Foreign players come to Mexico for its
affordable labor force and the expertise of the market. As
CKDs have become the most successful financial vehicles
for Mexican companies, they look for foreign firms that will
for the construction of infrastructure. Since its launch four
contribute capital and innovative technology. For instance,
years ago, investment in CKDs has totaled MX$120 billion
in the energy industry there are only a few companies that
(US$6.3 billion), of which the majority has come from
exploit hydrocarbons. Mexico can learn from the expertise
AFOREs. These tools can be used to finance real estate,
of other countries.
mining and a variety of infrastructure such as airports, highways, ports, water and energy projects.
We are not opposed to the entry of foreign companies but there must be clear and efficient regulations. The private
These tools have helped create an optimistic outlook
sector represents 75 percent of the total investment for
for Mexico’s infrastructure industry. CKDs are attracting
infrastructure in the construction sector. Infrastructure
a great deal of foreign investment in the energy,
budget cuts will open stronger opportunities for private
infrastructure and telecommunications markets. Although
investment in the segment. At the moment, there are two
these vehicles create opportunities for financial support, it
ways in which the private sector can participate in PPP
is crucial that we find a way to increase transparency and
projects. One is through tendering processes established
boost diversification in the industry.
by the government and the other is through unsolicited proposals in which the private sector identifies investment
Q: How can MSMEs gain access to financial support in the
projects and aligns them with governmental strategies.
next few years?
These methods of participation have various benefits,
A: MSMEs were the backbone of the economy in
such as the development of infrastructure for the public
2012, generating 33 percent of GDP, 99.8 percent of
and private sectors, the development of more efficient
businesses and creating over 70 percent of the country’s
projects, construction, design and maintenance. It also
jobs. Nevertheless, MSMEs in the construction sector
spreads the risk to multiple parties. Most of this funding
have not fully developed due to the lack of financing.
comes from abroad, which demonstrates that investment
CMIC has fostered strategic alliances with the Ministry
risk is low in the country.
of Finance and NAFIN to create specific financing programs for construction companies. These programs
Q: How does CMIC view the new infrastructure financing
provide support for work capital and the acquisition of
options and what role is it playing in their implementation?
fixed assets through loans up to a maximum of MX$15
A: Budget cuts have led to the creation of new investment
million (US$789,473) and interbank interest rates of
vehicles that are creating opportunities for the private sector.
+10. We also joined forces with Bancomer, Santander,
These new instruments are meant to optimize the social and
Bx+,
economic benefit of developments in Mexico. CMIC works
construction companies with preferential interest rates
closely with the public sector to ensure the diffusion of these
that are backed by MX$300 million (US$15.7 million) in
financial tools as well as the transparency of the plans.
guarantees provided by the Ministry of Finance.
Banamex,
Banregio
and
Multiva
to
provide
Construction Grounds of the NAICM, Texcoco, State of Mexico
19
VIEW FROM THE TOP
FRESH ENERGY AT THE HELM OF PEMEX JOSÉ ANTONIO GONZÁLEZ ANAYA Director General of PEMEX
20
Q: As the new Director General of PEMEX, what are the key objectives for the company’s transformation? A: PEMEX’s transformation is a necessary step to ensure the company’s viability and the generation of value for the country. We are shaping a new stage in the history of the National Oil Company (NOC). Our main objective is
BUDGET ADJUSTMENT PLAN (MX$ billion) 478.3
500
100
400 300
to become a profitable and highly competitive company
200
that plays a prominent role in developing Mexico’s energy
100
Adjustment Plan
329.1 100 378.3 229.1
industry, while strengthening our position as a productive enterprise of the state to consolidate PEMEX as one of the most important oil companies in the world. The cultural shift of all PEMEX employees and the implementation of a new work system, which is based on a more efficient
0
-200
use of assets and infrastructure, will translate into higher operational excellence. The ultimate objective is to
(149)
-100 Income from operations
Allocated expenses
Financial balance
Source: PEMEX Source: PEMEX
generate more revenue from production, processing, transportation,
distribution
and
commercialization
alliances and access improved technologies while sharing
activities for the benefit of the Mexican people. In the short
risks. PEMEX, as the main oil and gas company in Mexico,
term, PEMEX will have a flexible and agile organizational
is an attractive partner when it comes to investing in the
structure that, through corporate governance practices,
country due to its infrastructure and proven reserves,
will guarantee an efficient and transparent management.
as well as the accumulated experience of its engineers and technicians. These elements will underpin our
Q: What is PEMEX’s production strategy, given the
negotiations with qualifying companies as we strive to
company’s budget restrictions?
find prime partners and to obtain the best conditions for
A: Taking the current oil price into account, we will
the country.
delay or re-evaluate certain investment projects, such as deepwater developments and fields that are not
In this way, PEMEX will attract a third party’s resources,
profitable at the moment due to high-production costs. In
share the risks and thus increase production levels. Costs
addition, we can take advantage of the tools provided by
will be ultimately reduced by operating according to the
the Energy Reform, which allows PEMEX to form strategic
highest international industrial standards that, under shared
2016 BUDGET ADJUSTMENT Lines of Action MX$ billion
Corporate
Other SPEs
Industrial Transform.
E&P
Total
Generate efficiencies and reduce costs to increase operational productivity and promote a rational use of resources
13.1
1.9
0.8
13.1
28.9
Defer / reassess investments minimizing the impact on future production based on profitability and availability of budgetary resources
0.0
2
35.4
27.5
64.9
Adjust CAPEX and OPEX from an average of 50 to 25 US$/b channeling budgetary resources to profitable activities under a low hydrocarbons price scenario
0.0
0.0
0.0
6.2
6.2
TOTAL
13.1
3.9
36.2
46.8
100.0
Source: PEMEX
75
Observed
Q: How is PEMEX facing the global market downturn 65
resulting from low oil prices? A: The global oil and gas industry is going through a difficult time and PEMEX is not exempt. Just like other companies in the sector, PEMEX has had to adopt stringent measures to
65.47 Annual Average PEF1 50 US$/b
55
Expected Annual Price2 25 US$/b
45
guarantee its viability. The company’s financial priority is to
Just like in other low-price cycles, PEMEX is addressing a
15
observed mix price
in the long term. Most importantly, the adopted measures
high-case scenario
will not affect the NOC’s employees and facilities. I would like to stress PEMEX’s commitment to our financial and work-related obligations.
Jul 2015
shut but it will not have a negative impact on the company
MX$100 billion (US$5.2 billion). This adjustment has been
Apr 2015
implemented and several anticipated programs have been
Jan 2015
challenging scenario responsibly, adjusting its budget by
25
Apr 2016
a liquidity issue but not solvency, so its viability is safe.
21 Average Jan - Mar: 25.92 US$/b
Jan 2016
in the market. We have insisted that the NOC is facing
35
Oct 2015
consolidate its structure to ensure stability and credibility
Oct 2016
country’s resources.
PRICE EVOLUTION OF THE MEXICAN CRUDE OIL PRICE EVOLUTION OF THE MEXICAN CRUDE MIX billion) OIL (US$ MIX (US$ billion)
Jul 2016
plans, will allow us to generate revenue and maximize the
observed mix price high-case scenario low-case scenario
low-case scenario Source: PEMEX 1 Federal Expenditure Budget Source: PEMEX 1 2 Calculated as a translation of Brent futures market prices Federal Expenditure Budget 2 Calculated as a translation of Brent futures market prices
Q: How has the budget cut impacted PEMEX’s operations?
and eliminating two corporate divisions, human resources
A: Far from weakening the company, it makes us stronger
and technological research and development, which were
by forcing us to accelerate the necessary changes and
reassigned to the corporate administrative division and
restructure costs and efficiencies. PEMEX will take
PEMEX E&P respectively. In addition, we have reduced
advantage of the flexibility offered by the Energy Reform
overall expenditure and expenses related to personal
and implement instruments such as contract migrations
services, traveling allowances and general expenses, which
and farm-outs, which will allow us to attract financial
alleviates the company’s liquidity.
resources, technology, processes and experience. Q: What strategies has the government put in place to assist PEMEX?
EXAMPLE OF AVERAGE PERCENTAGE OF SAVINGS EXAMPLE OF AVERAGE PERCENTAGE OF SAVINGS IN IN KEY KEY ACTIVITIES ACTIVITIES Marine logistics Seismic acqusition Drilling services Drilling equipment Marine services Maintenance and operational Engineering
A: The NOC received MX$73 billion (US$3.8 billion) from the federal government in April 2016. Considering this significant capitalization and with previous approval of
20%
its Board of Directors, PEMEX committed to clear and normalized payments to suppliers and contractors in
24%
the short term so that current liabilities can be aligned
20%
with the company’s operations. With an additional credit 30%
20%
line of MX$15 billion (US$789 million) from the Mexican development bank NAFIN, PEMEX paid its 2015 debt according to the schedule agreed with its clients.
18% 20%
Since
the
government’s
support
considers
the
strengthening of PEMEX’s assets, the NOC’s fiscal regime Source: PEMEX & Total Investor Day Sept 2015 Source: PEMEX & Total Investor Day Sep 2015
has been modified, resulting in more cost deductions and lower taxes, which are estimated at MX$50 billion (US$2.6
To complement the budgetary adjustment presented in
billion) for the 2016 fiscal year. This will lead to a stronger
February 2016, we are directing PEMEX to improve its financial
cash balance and higher liquidity, as well as an improved
indicators through concrete actions, such as the savings
capital structure and debt track record for the rest of the
strategies the company implemented last year by changing
year. All these measurements, paired with a lower amount
its pension plan. We already are generating efficiencies.
of debt, improve the company’s capital structure as it
We have reduced administrative costs by merging three
faces the challenge of adjusting its costs and its business
supporting areas in the Director General’s office into one
strategy to the current reality as quickly as possible.
VIEW FROM THE TOP
METROPOLITAN AIRPORTS TO REMAIN KEY MIGUEL PELÁEZ Director General of the Directorate General of Civil Aviation (DGAC)
22
Q: What is DGAC’s main objective as the country’s civil
Q: How has Mexico’s aviation sector grown and what are
aviation regulating authority?
the expectations for coming years?
A: DGAC’s fundamental objective is aero security through
A: Mexico closed 2015 with growth of 12.5 percent in
vigilance and the application of aviation and airport laws
passenger numbers, well over the 2 percent GDP growth.
and rules, in addition to applicable international norms.
This surpasses global standards and was achieved thanks
We have excellent and permanent coordination with other
to the policies implemented by the federal government.
aviation agencies, like the Federal Aviation Administration
In addition, although industrial activity grew 2.6 percent,
(FAA), European Aviation Safety Agency (EASA), Transport
transport cargo grew by 6.1 percent. Between 2013 and
Canada and International Civil Aviation Organization (OACI),
2015, 186 new international routes were opened due to the
which emits civil aviation norms for 191 contracting parties.
50 Bilateral Aero Transportation Agreements signed by
Our country has been a part of this since its creation.
DGAC. We also have worked on the approval, signature, negotiation and renegotiation of 23 bilateral agreements.
The federal network of Mexican airports constitutes 76 aerodromes, whose administration is divided into four distinct airport groups
From October 20, 2020, the date of the inauguration of phase 1 of the New Mexico City International Airport (NAICM), it is expected passenger capacity will be 50 million people and when it is completely finished, the airport is estimated to have a capacity of 120 million passengers. NAICM will be one of the biggest airports in the world. Q: How will metropolitan airports nearby Mexico City
Q: What are DGAC’s key priorities for private aviation in
International Airport (AICM) be impacted?
Mexico?
A: The metropolitan airport system serves as relief for
A: Our main priority is security, followed by quality and
AICM, a problem we hope to solve with the finalization of
the implementation of appropriate regulation. We watch
NAICM. Once finished, these airports will not disappear.
over security in diverse areas, including airport operations,
We hope they will grow with the quantity of new
entertainment centers, MROs and other maintenance and
passengers NAICM will attract. Within the Metropolitan
manufacturing centers in Mexico’s airports. The federal
Airport System, Toluca Airport is the most conveniently
network of Mexican airports constitutes 76 aerodromes,
located to serve as Terminal 3 for AICM. For people in
whose administration is divided into four distinct airport
the West of the City it is simpler and faster to get to
groups: The Pacific Airport Group (GAP), the Central-
Toluca than to Mexico City’s airport and for this reason
Northern Airport Group (OMA), the Southeast Airport
Toluca would work well as a third terminal for the
Group (ASUR) and the Mexico City Airport Group (GACM),
capital’s airport. It has the advantage of being closer to
in addition to Airports and Auxiliary Services (ASA), a
the West of the Valley of Mexico and has allowed the
decentralized organization in charge of the administration
birth of airlines that have had formidable success, which
of 19 airports. The four groups have five-year development
would allow them to use this airport as a platform to
plans detailing investment projects submitted to DGAC
Mexico City. Civil aviation agreements such as that
for approval. There are also a number of aerodromes
signed between Mexico and the US in December 2015
that do not necessarily belong to this system and are
also will push the growth of the metropolitan airports,
the responsibility of state governments. Our role is to
which will continue to support operations in Mexico
ensure all airports comply with safety, maintenance and
City when weather conditions incapacitate the capital’s
conservation, national and international norms.
airport.
VIEW FROM THE TOP
SEMOVI CALLS FOR GREATER PUBLIC TRANSPORT INTEGRATION LAURA BALLESTEROS Undersecretary of Planning at the Ministry of Mobility (SEMOVI)
23
Q: What are the challenges of implementing a new
A: Mexico City has characterized itself by its growing vehicle
mobility system in terms of resource allocation and
park. Our traffic levels are comparable to those seen in Asian
investment?
or US cities and investment in public transportation is the
A: For many years, 73 percent of the infrastructure budget
only option we have to create balance between the city’s
had been allocated to grey infrastructure, which includes
modes of transportation. If a street’s efficiency is measured
urban roads, highways, bridges and parking lots. In terms
by the number of people who use it simultaneously, public
of public policy, automobile drivers received privileged
transport is the most efficient at moving the most people
treatment. The private car’s dominance in public spending
while monopolizing the least space. A car uses the same
classifies it as the most important means of transportation
space as 12 bicycles but a Metrobús carriage can replace
in the city, leading the authorities to neglect investment
250 cars. This not only reduces pollution but also traffic. We
in
allocation
acknowledge that people who use public transportation
generated the consequences we are experiencing today.
are also those who walk the most so we need integrated
Almost 83 percent of Mexico's population lives in cities
mobility
so a main priority for governments is the distribution of
must be linked with pedestrians and include technological
resources allocated to mobility systems. According to
transport services such as Uber and Cabify. These mobile
the latest government poll on commutes carried out in
apps help users plan their trips while other applications
2007, Mexico City registered a modal split of 20 percent
can coordinate carpooling or car-sharing services. Our
oriented toward the use of private vehicles and almost
goal is to generate intelligent mobility services with public
70 percent to public transportation. Today 30 percent of
transportation systems as the backbone.
public
transport.
Inefficient
resource
systems.
Public
transportation
infrastructure
the population uses private vehicles and 60 percent uses public transportation. This is a consequence of the public
Q: What are your projections for the number of buses that
policy previous governments implemented.
will be renovated or added to the public transport fleet? A: The master plan for the Metrobús service consists of 11
Q: How can infrastructure be changed to support
different lines. We have built six and our goal is to build two
sustainable transportation?
more by the end of 2018. We hope federal resources will
A: Around 45 percent of commutes in Mexico City end
support us to build the remaining five to reach the target of
in the city center, namely in the areas of Benito Juarez,
11 routes. We already have the necessary budget for building
Cuauhtemoc and Miguel Hidalgo. An average commute
lines 7 and 8 but for the remainder of the lines we need the
on public transportation sees users taking four different
federal government’s support. SEMOVI is supporting the
modes of transport to reach their destination. This
Passenger Transport Netowrk (RTP). These government-
multimodal consumption increases the importance of
operated buses service various parts of the city that had been
generating a supply chain that offers several options
overlooked in the budget in past years. We have managed to
for people to choose from. The goal of SEMOVI’s new
raise MX$5 billion (US$263 million) for newer technology to
sustainability model is to help all the mobility models
improve emissions and payment methods. The RTP units will
coexist. Efficiency will be measured by the number of
integrate the Mexico City card payment method, expanding
people traveling and not the number of vehicles on the
universal payment to more public transportation in the city.
streets. Mexico’s City Mobility Law, published in 2014,
We also want to help 8,000 taxi operators acquire electric
forced a paradigm shift that placed the individual as a
taxis. The complete system must include a Metropolitan
priority in terms of public policy decisions.
Metrobús network composed of 30 different routes between Mexico City and the State of Mexico. This metropolitan
Q:
What
led
the
government
to
transportation and mobility options?
overhaul
public
network would need an investment of MX$35 billion (US$1.8 billion) simply to meet the current transportation demand.
INSIGHT
LOWER CONSTRUCTION RISK THROUGH FORMAL TRAINING PERLA CRISTERNA MONTÚFAR Director General of the Training Institute for the Construction Industry (ICIC)
24
Workers on the operational side of construction have a
Infrastructure offers the greatest level of employment
tradition of passing their knowledge from generation to
to Mexico’s economically active population through
generation. Fathers often teach their sons all the secrets to
construction but the industry needs to promote more
building the city’s structures. But the absence of certification
training programs, which is not an easy feat because
and formal training can make construction sites risky places
projects are often rushed by tight deadlines, says
to work. “Even though many workers have more than 20
Cristerna. The institute offers the sector a more formal
years of experience, their lack of certification is a concern,”
training option through certified courses, focusing on
says Perla Cristerna, Director General of the Training Institute
companies that have workers without formal education.
for the Construction Industry (ICIC). The institute works
“Our courses can take the company to another level,”
to ensure comprehensive workforce development. ICIC
she says. “We offer training to our 11,000 affiliated
is an institution that belongs to CMIC and was created to
companies and their employees. Every part of the sector
compliment the General Labor Act, which stipulates that
from operations to management can use our institution
employees have a right to receive training. Says Cristerna:
to gain knowledge. The Technical Construction Institute
“We strive to always research, investigate and stay up to date
(ITC), another institute that along with ICIC were created
with all legal requirements and technological advances.”
by the Mexican Chamber of the Construction Industry
VIEW FROM THE TOP
REDUCING MEXICO’S HOUSING DEFICIT MARÍA PALOMA SILVA Director General of the National Housing Commission (CONAVI)
Q: What are the challenges involved in creating a quality
Mexico’s housing challenge can be divided into four
housing market for all socioeconomic classes?
different factors. The first element is the large deficit, which
A: In Mexico, the housing deficit impacts 8.9 million
is tied to the expected population increase in the coming
families and this is increasing each year by 500,000.
years. The second element is that a large percentage of the
CONAVI has developed a platform of specific housing
housing deficit is caused by non-affiliates. To reduce this
solutions that fit different needs, from a house expansion
percentage, programs have been created to incorporate
to full-scale remodeling, and this includes rural, urban and
non-affiliates and facilitate access to financing. Once a
rental housing. CONAVI created the National Information
person is affiliated, that person becomes a candidate to
System of Housing Indicators (SNIIV) to efficiently
receive subsidies through a variety of programs. The third
diagnose the country’s housing situation. CONAVI has
element is that a large percentage of this deficit earns less
developed solutions in coordination with these institutes
than MX$5,000 (US$263) a month. Lastly, many of these
and it supports the programs though subsidies that allow
families live in semi-urban and urban areas.
families to acquire housing through mortgages, improve their current house with programs such as MEJORAVIT or
Q: What support does CONAVI offer to non-affiliated
rent through ARRENDAVIT.
families who want to buy a home?
(CMIC), can even grant bachelor and postgraduate
women were mostly recruited to take care of the cleaning,”
degrees.”
Cristerna says. “Since businesses began incorporating our gender-designed programs, paradigms in the industry
When
and
have shifted. Women show more commitment to work
environmental protection courses 30 years ago, most
the
Institute
began
offering
safety
in comparison to men, who sometimes skip Mondays. In
construction companies did not have any kind of
total, more than 19,000 women are being trained for basic
strategy regarding these topics. Construction sites were
construction positions.”
dangerous because workers did not use safety gear. Small to large companies are now incorporating management
The institute’s top objective is to ensure the comprehensive
departments dedicated to safety and protection. “Our
development of the workforce to improve company
courses help reduce risk in the industry,” says Cristerna.
productivity. “We have over 700 training courses that
“We have evolved to offer computer classes that include
are supervised by the International Labor Organization,”
highly specialized courses that teach students to use
Cristerna says. ICIC divides its courses into a pyramid that
design programs for architectural plans like the Building
separates positions into three levels. Operational staff is
Information Modeling (BIM) software.” The courses have
at the bottom, followed by midlevel and management at
significantly impacted the industry by increasing the use
the top. ICIC guarantees accessibility by keeping course
of technology and safety standards on construction sites.
locations flexible and the material targeted to the needs
Many businesses have improved their human resource
of the students.
abilities and increased the productivity and quality of their projects, says Cristerna.
ICIC has strategically placed programs in 43 delegations in different states with 60 training offices. “Across the
ICIC also envisions the inclusion of more females at
country we have over 1,500 instructors,” Cristerna says.
the operational level of construction and has specially
“We also offer distance learning for workers who need
designed programs to train women in a wide variety of
online platforms to acquire certificates. For management
skills, including plumbing and electricity. “In the past,
training, we offer video conferences.”
A: Non-affiliates are placed into different categories
retirement funds. The funds of the national resources are
depending on whether they are eligible to gain support
insufficient because the housing sector requires long-term
from commercial banks or receive mortgage loans without
investments. Through our collaboration with multilateral
having a housing subaccount. Families that earn less
organisms we have negotiated loans of US$2.5 billion with
than MX$10,000 (US$526) a month can receive support
the IDB, which is the largest housing creditor worldwide.
from various entities. CONAVI has a program called Self-
We have also negotiated a US$1 billion loan with the World
Assisted Living that allows families living in rural settings
Bank and with German development bank KfW.
to construct houses based on their customs and everyday needs. We also are working with rental housing managers
Q: What have been the results of the new National
and designing a Fibras program for the rental market
Housing Policy and the programs found within it?
because families wishing to live in interurban areas are
A: The National Housing Policy has decreased the number
unable to purchase a home. It is by tackling the needs of
of abandoned houses and has begun repopulating the
the urban areas first that we are able to address housing
houses by adding educational, health and other important
problems in other market segments.
facilities to the surroundings. Containing the cities’ growth is also a priority, since compact cities are easier to
Q: How does the housing sector stand in comparison to
manage and it is extremely expensive to create the proper
other sectors and how does CONAVI finance its projects?
infrastructure for cities of extensive length. Intelligently
A: The housing sector represents 14.41 percent of
redistributing urban centers will provide families with
national GDP and indirectly or directly employs over 3
decent housing conditions. The ultimate goal is for these
million people, which is equivalent to 7.3 percent of the
families to live in neighborhoods where they can create
total remunerated population. The sector is larger than
strong social bonds. Two years ago the housing sector was
the agricultural and mining segments combined and it
limited to a few players and its growth rate was around
competes with other industries such as automotive and
-6 percent. At the time we had only 300 developers
tourism. CONAVI has developed alliances with commercial
and today we have 1,800. We have become a trigger for
banks, especially with ABM, which provides investment and
economic and employment growth in Mexico.
25
VIEW FROM THE TOP
KEEPING UP WITH THE HOUSING MARKET JESÚS CANO Director General of the Federal Mortgage Society (SHF)
26
Q: How has the mandate of the Federal Mortgage Society
companies along with guarantees and insurance for the
(SHF) changed over the years?
mortgage sector.
A: SHF is the third largest of six development banks in the country with a mandate to oversee the housing construction
Q: How does SHF ensure that construction of social
industry and to provide the necessary financial products
housing complies with minimum infrastructure and
to meet the country’s housing demand. The bank has a
sustainability requirements?
direct impact on the shaping of the mortgage market. The
A: The current housing policy prioritizes densification
creation of SHF was the government’s response to the lack
toward cities with sustainable infrastructure. In this way
of financing for housing construction companies in the
we try to tackle house abandonment created by the long
aftermath of the 1994 economic crisis. During the second
distances and traveling times that people often face in
half of the 1990s the only institutions that publicly served
commuting between their houses and their work places.
the mortgage market were the nonbanking, nonregulated
Densification shortens commutes, reducing transportation
Limited
(Sofoles).
costs and the emission of pollutants. It has a positive
Unfortunately, mortgage banks are sensitive to economic
impact on people’s lives and the environment. In addition
and financial crises, which is why the 2008 economic crisis
to the densification priority, in association with Germany’s
strained the financial conditions of the Sofoles, leading the
KfW Development Bank, we have created the EcoCasa
bank to take over their past-due portfolios. SHF became
program. The KfW funds the program at a preferential rate
administrator of first-tier mortgage portfolios while being
that we transfer directly to the housing constructors but
a second-tier bank.
the program is subject to ecological stipulations for the
Purpose
Finance
Institutions
construction that must reduce the house’s greenhouse gas
Of the country’s 32 million houses, 16 percent are for rent
emission by at least 20 percent. EcoCasa has been a very successful program. The agreement we signed in 2013 was worth US$200 million and it was supposed to finance 27,000 houses between
The absorption of those past-due portfolios led to an
2013 and 2019. However, the program has had a positive
internal transformation of the bank, as it had to expand
reception and we believe that we will assign the remaining
its functions to provide mortgage financing as well as
funds at the end of 2016. This is why we signed an
housing construction financing. Simultaneously, during
additional contract worth US$55 million at the beginning
the first half of 2013 the housing industry started facing
of 2016 to build another 5,000 houses. SHF may ask for
financing problems. The problems were particularly
an additional loan from the bank since the current US$55
acute for the three biggest housing constructors, which
million credit is nearly entirely assigned. The EcoCasa
combined were responsible for almost 30 percent of total
program has received three international prizes, including
housing construction. The financial situation of these
the Ashden International Prize and one from ALIDE in Rio
housing constructors negatively impacted the financing
de Janeiro. It is a very successful program and is a pioneer
for the rest of the housing industry. At the same time,
in its field.
when the current federal administration came to power the authorities began making changes to the federal
Q: How is the bank developing new markets?
housing policy, especially with regard to the construction
A: Younger segments of the population and people with
of low-income social housing, which required SHF’s
higher work mobility tend to lean toward renting rather
participation to finance construction. We now offer a
than purchasing homes. This is why we are developing
broad variety of financial solutions for construction
new financing solutions that target them specifically. Of
the country’s 32 million houses, 16 percent are for rent.
segment. Public institutions such as INFONAVIT and
However, in Mexico City, the percentage increases to 22
FOVISSSTE have solid financial plans. Internal consumption
percent and there are certain parts of the city where the
in our country has grown because salaries in real terms have
percentage increases to 37 percent. This percentage is
increased. Most of the demand for individual mortgages is
similar to the national average in the US.
being covered by INFONAVIT, which holds 70 percent of the mortgages in the country, and commercial banks are
Even though people are not buying houses as much,
experiencing a 15 percent annual growth.
Mexico City is still experiencing a real estate boom and the banking system has yet to develop financial products
We have a product called Housing Credit Insurance (SCV)
for developments that focus on the renting sector. SHF
that provides insurance to the mortgage portfolio of
designed a special product that targets houses for rent. This
commercial banks. This way they have more free capital,
product offers a three-year bridge loan for construction
which gives them the opportunity to provide more credit.
that is later stabilized to up to four years for capital
Our market share is almost 18 percent of the total of the
payment and then we transform the loan into a mortgage
commercial banking mortgage portfolio. In the US and
for up to 20 years. We lend construction companies
Canada almost 50 percent of the commercial banking
up to 80 percent of the cost. It has been a successful
mortgage portfolio has insurance, leaving considerable
program and so far we have projects worth MX$3 billion
space for growth.
(US$157 million) in Monterrey, Mexico City, Merida and Guadalajara and we have around 10 additional projects we
Q: What is SHF’s view of the construction market?
are considering. This means that institutionalized rental
A: It is a solid sector that is showing constant growth.
housing is having a lot of success, which is why companies
The construction industry grows two or three times more
such as Greystar are growing rapidly. For several years,
than the country’s economy. There are important investing
there has been a need for rental housing but there was
opportunities, especially in the financing of housing for
never the adequate financial product until now. We need
rent. The country is growing, housing demand is growing
participation from commercial banking to provide a boost
and we have the necessary financial tools to boost the
to the industry.
industry. After three years of participation in this market, we now work with 17 banks. We maintain an active
Q: What factors can propel the mortgage market?
participation in the market, complying with our role as a
A: We have a solid perspective for the development of
development bank. SHF is the number one bank when it
commercial banking due to stability, low interest rates, low
comes to construction loans because we tailor solutions
inflation rates and competition in the commercial banking
for our clients.
27
VIEW FROM THE TOP
THE FINANCIAL ARM OF THE LAW JAIME GONZÁLEZ President of the National Banking and Securities Commission (CNBV)
28
Q: What has been the private sector’s response to
the creation of more CKDs and Fibras will facilitate
financing vehicles like CKDs?
this. We must continue to develop financial instruments
A: Mexico has 53 CKDs and 11 Fibras and they have
that adapt and support the evolving complexity of the
been extremely successful with the private sector. The
financial markets. The infrastructure industry is growing
use of Fibras has encouraged the growth of the Real
and the use of Fibras is increasing at such a fast pace that
Estate segment just as Master Limited Partnerships
the Mexican Association of Real Estate Fibras (Amefi) is
(MLPs) did in the US. These vehicles attract funds and
being created to help monitor them.
invest in different infrastructure projects. One of the biggest problems for the development of infrastructure
Q: How will the presence of the new institutional stock
is the lack of funding, especially from the public sector.
exchange (BIVA) affect the Mexican market?
Through the use of Fibra E, companies can convert
A: New financial intermediaries are seen as a positive
their assets into Fibras and receive funding for new
change in the country. The Financial Reform will boost
projects that they would not get from the public sector.
growth through competition and adequate regulations
The Energy Reform will spark many new infrastructure
because it will bring with it superior services and inclusion.
developments in the public and private sectors, and
In Mexico there is only one service provider, the BMV, and
VIEW FROM THE TOP
ENSURING THE ECONOMY’S FINANCIAL STABILITY JESÚS ELIZONDO Director General of Financial Systems Affairs at Banco de México (Banxico)
Q: What is Banxico’s role in regulating the financial
of Financial Service Users (CONDUSEF) and the National
system?
Commission for Assurance and Finance (CNSF). We also
A: Banxico has various functions in addition to monetary
participate in their governmental meetings. Banxico carries
policy, such as issuing currency and regulating the payment
out stress tests and performs improvements accordingly
and financial systems. These functions are couched within
to ensure financial stability. This began in 2009 and occurs
the general objective and obligation to watch over the
once a year. The tests show the resistance of the system
healthy development of the financial system. Banxico’s
to diverse external scenarios. In addition, every five years
policies and other regulatory laws allow us to reach that
we are visited by international authorities such as the IMF
objective. Institutionally, we have interpreted healthy
or the World Bank to test the system. We have learned
development as offering the system trustworthiness,
a great deal since the 2008 crash and we have tested
stability, higher competency and increased accessibility.
shocks of a large magnitude.
To achieve these objectives, we work with the National Banking and Securities Commission (CNBV), the National
Q: What steps can be taken to ensure transparency?
Commission for the Retirement Savings System (CONSAR),
A: There are two ways to make the system trustworthy. The
the National Commission for the Protection and Defense
first is for entities that operate the system to maintain high
having two different stock exchanges will be beneficial
allow for economic prosperity, more competition in the
because there will be healthy competition. This will
financial system and improved quality of banks. Eleven
contribute to growth because both exchanges will look
IPOs have been carried out in the last three years,
to expand the market to gain a larger share. To gain a
representing 10 percent of the stocks in the market.
competitive advantage, companies will have to provide
There are 145 issuers in the Mexican stock market but
superior services at lower prices.
this pales in comparison to the 300 issuers in other developing countries. SME’s should be looking at the
Q: What elements need to be in place to foster strength in
stock market to gain funds to foster their growth, rather
the financial sector and ensure stability?
than depending on credit.
A: The enforcement of adequate laws and regulations and a prosperous economy are needed to strengthen the
Q: What have been the biggest challenges in adapting
financial sector. For a country to have a stable financial
the International Financial Reporting Standards?
market, there must be financial discipline. Historically,
A: In 2012, Mexico began enforcing the International
bank loans have been growing at a faster pace than GDP
Financial Reporting Standards, facilitating the comparison
and with the government’s reforms this pace has steadily
of different financial statements across the globe. This
increased. In the past three years, GDP has grown 2
has made us more alert to changing regulations and
percent and credit 10 percent. This generates financial
norms. One of the main issues is that we often receive
inclusion and opportunities for companies grow.
fragmentary reports and we must ensure the reports have sufficient and viable information. In 1994 there were 12
Credit penetration versus GDP at the beginning of the
banks operating in Mexico and today we have around 45,
current administration was 26 percent and it is now
most of them owned by Mexican investors. In recent years,
at 30 percent. This administration’s goal is to reach
more foreign investors have entered the country, which
40 percent by 2018 and approach the 44 percent
shows there is trust in how the market is developing. Most
average in Latin America. This will be possible with the
of the issues in the Mexican stock market are also apparent
implementation of financial and structural reforms that
in other countries.
security standards in management, meaning that people
A: Overseeing competency in the system is another
will be confident their deposits will not disappear. There is
highly relevant objective, the success of which promotes
a line of financial regulation to this end through which we
a better offering for users. Exit barriers are a challenge
ensure entities have enough capital, reserves, liquidity and
to this objective because users cannot change service
that their financing sources are congruent with the lines
providers. Laws give us the ability to regulate and avoid
of credit they are extending. The second way to increase
these limits that tie people to a product and they allow us
trustworthiness is through user protection. When a product
to regulate published information so users can compare
is offered, it needs to be offered with transparency.
services to choose the most suitable from the outset. We also verify the entry of new banks is not restricted when
Q: What measures do you take to ensure protection
they bring innovation or new development that represents
against a potential repeat of the 2008 financial crash?
improvement to the system. Finally, inclusivity of financial
A: Institutions are not generally concerned with the
services implies they are accessible, that they are used and
stability of the system as long as the system continues
people are adequately familiar with their processes. Banks
to operate in the customary manner and operations are
must disclose the risks they take and through this political
not abruptly interrupted. This became extremely relevant
objective we want to ensure people are not marginalized for
after the 2008 crash because there was previously no
reasons such as the lack of infrastructure or inadequate risk
integral version of the system. With this, platforms share
selection. As a result, we have advocated that ATMs or bank
intermediaries to operate, as do connection platforms for
branches reach even the farthest and most remote locations,
credit cards, the credit bureau, compensation chambers
whether that be domestically or abroad. The services
and payment systems. For this reason there is regulation
offered have diversified with the entry of foreign banks into
and vigilance over practices like contingency plans and
the market. Mortgage loans with distinct particularities like
the mitigation of accumulated risk.
in Canada offer a variable rate for the first five years and afterward a fixed rate, which makes it more affordable. The
Q: How do you ensure the system’s competency and
population has access to more diverse services, intensifying
inclusivity for all users?
competition in the system.
29
VIEW FROM THE TOP
DEVELOPMENT BANK BRIDGES PROJECT FINANCE GAP ALEJANDRO DÍAZ DE LEÓN Director General of Bancomext
30
Q: What have been the main drivers of change in the
recently launched a program called Mejora Tu Hotel,
finance industry?
through which we are providing financing alternatives for
A:
Capital
and
liquidity
requirements
have
been
hotels to upgrade their buildings. Bancomext is determined
significantly increased in the last few years for commercial
to help small and medium-sized hotels upgrade facilities
banks and subsequently these institutions have been
and the services they provide. Tourism not only extends
less willing to participate in long-term financing. When
to key beach destinations like Cancun and Los Cabos but
combining these regulatory changes with Mexico’s need
also smaller destinations throughout the country.
for new development, a situation arises whereby many new projects are in need of financing. Commercial banks
Bancomext
have less appetite to participate so development banks
Infrastructure Working Group for the last three years.
such as Bancomext emerge as the front-runners in this
Financing is a complex ecosystem and there are some
market. Bancomext focuses on export activities. We need
traditional factors that work across sectors but there also
to close the financing gap between projects and the
are specific requirements such as financing in different
pool of available resources. Our role is crucial to make
sectors. The idea is to bridge the gap between projects
greenfield projects happen.
and institutional resources, not only from local investors
has
co-chaired
the
Investment
and
but also from external sources of finance. The country’s Q: How do you ensure that services complement those
economic performance also has placed it in a different
offered by other banks?
category from other emerging markets. New instruments
A: The idea is to use development banks to boost financial
like Fibra E have been created to increase the financing
diversity and also to distribute the risks associated with
alternatives for greenfield and brownfield projects.
lending to new debtors or projects. At Bancomext, we have two main financial services – those we provide directly
Q: What role can Bancomext play to ensure infrastructure
to companies and those we provide indirectly through
is developed on time?
second-tier financing, in which we rely on the presence and
A: BANOBRAS is the development bank mandated to
branches of commercial banks to grant credit to SMEs. We
support the infrastructure segment. Our role is to act as a
are highly involved in both and we complement each other.
liaison between the projects and the institutional investors
Commercial banks want to develop mature projects with a
and to help them deploy some of these resources into
short to medium-term scope but not long-term financing.
the broad concept of infrastructure. There are a lot of projects, from roads, rails, ports and highways to housing
Q: Which initiatives is Bancomext involved in?
and energy, and there is a great deal of work to be done to
A: We are financing a broad base of companies and sectors
match companies with suitable undertakings. We must plan
and as the bank is growing at a fast pace, our pool of idle
according to our five, 10 and 20-year needs to eliminate
capital is getting smaller so we need to be judicious in how
infrastructure
we distribute our marginal financing pesos. We can meet
preparation will be key going forward. The Special Economic
our objectives if we focus on CAPEX, which will increase
Zones (ZEE) coordinated by BANOBRAS will require an
the productive capacity of exporters and sectors including
additional effort by public agencies and development
automotive, energy and infrastructure. We also want to
banks because we want to develop regions, mainly in the
play a larger role in the supply chain and be an agent that
south of the country, that have not been fully integrated
helps suppliers increase their added value in Mexico.
into agreements such as NAFTA and as a result have lagged
bottlenecks.
Long-term
planning
and
in productivity, employment and growth. One key region is Another important area in which we are active is tourism,
the Isthmus of Tehuantepec, which is considered Mexico’s
financing large hotels and other projects. Bancomext
third border, connecting the Pacific and the Atlantic.
VIEW FROM THE TOP
TAKING TOURISM TO ANOTHER LEVEL CARLOS TRUJILLO Executive President of the Mexican Association of Tourism Developers (AMDETUR)
31
Q: How have time-share developers like the members in
a considerable effort to disprove this. Another obstacle is
your group benefited from the growth in tourism?
the US dollar exchange rate that is negatively impacting
A: Tourism is now the third largest industry in Mexico,
tourism domestically and from Canada.
surpassing the oil sector on which the country depended for years. The domestic sector grew at a sustainable 11.2
In response, many developers have launched programs
percent rate from 2012 to 2015, compared to 4.2 percent
based on the Canadian dollar for tourists from Canada
for the global industry. According to the United Nations
and the peso for domestic products. Regardless of these
World Tourism Organization, Mexico now ranks ninth as
programs, it is still difficult to attract tourists from Canada
an international tourism destination, moving up from 15th.
and domestically who have been negatively impacted by
The country also is the world’s second-choice destination
the US dollar’s continued strength. The tourism industry
for time-share memberships and number one in Latin
also needs better infrastructure, such as airports with a
America. Many experts say the country is the best location
higher capacity, improved roads and a more reliable Wi-Fi
for service quality and accommodation. The time-share
connectivity. Business executives have contributed to the
industry is different from general tourism. It is growing
rise in tourism by pressuring the government for support.
by around 7 percent annually. In 2015 we sold about
Likewise, the government has given the Mexico Tourism
210,000 memberships and we closed the year with 549
Board promotions that do an excellent job endorsing the
resorts offering our time-share model. We expect growth
country and touristic cities.
to continue. Regardless of the competition, we will be successful as long as we offer high-quality experiences and accommodations that differ from a regular vacation. Q: What financial support do developers receive and what issues need to be addressed? A: We used to work with FONATUR, the funding institute for development in tourism, but its role in providing loans to developers has diminished. AMDETUR still has access to
The sector experienced sustainable growth of 11.2 percent from 2012 to 2015, compared to 4.2 percent for the global industry
loans from other institutions but we do not get the same conditions as other developers around the world. Spanish
Q: What trends are affecting the market?
developers, for example, have a great number of projects
A:
in Cancun because they have longer terms to pay back
experience. This means entertainment, tours and inclusive
the loans and more favorable interest rates than we do. If
activities. Our association´s principal destinations are
we had these same advantages and incentives, Mexican
Cancun, Riviera Maya, Cozumel, Los Cabos, Puerto
companies would be growing much faster. When it comes
Vallarta, Mazatlan, Acapulco, Ixtapa and Manzanillo. The
to tourism infrastructure, there is a lack of financial
most development opportunities and tourism options
support and developers can come up against government
are in Cancun and the Riviera Maya. I believe there are
bureaucracy. We are working with the Ministry of Tourism
opportunities for other groups in urban time shares and
to simplify the process and speed up time frames for
special destinations. New players like Airbnb are emerging
construction.
and they definitely affect the market. We consider our
Besides
sustainability,
tourists
want
a
unique
main competitor to be the internet. Consequently, most of Q: How is the industry dealing with its challenges?
our developers are working together with search engines
A: There are several challenges, including Mexico’s image
to be the top results for tourists looking for destinations
in the eyes of many as an unsafe country. We are making
via the web.
VIEW FROM THE TOP
INFRASTRUCTURE KEY TO A WEALTHY MEXICO FRANCISCO GONZÁLEZ Director General of ProMéxico
32
Q: How do the industries that drive Mexico impact the
by MIT and Accenture in coordination with ProMéxico
priority industries selected by ProMéxico?
as the creative center of the country. It was decided that
A: The first step in defining our priority industries is to
Guadalajara was a suitable hub due to its environment,
define the new businesses that bring the most value to
talent development and because companies like IBM, SAP,
Mexico in talent, new processes and doing things in a way
Oracle and Intel are already there. The cluster is attracting
that can improve the current situation.
more companies, talent and investment so it needs a push and a development plan.
In this sense, we are reviewing the aerospace and automotive industries, which have many Tier 2, 3 and 4
In the automotive industry, Ford has announced the
companies and thus have the potential to bring more talent
construction of a new plant in San Luis Potosi so we need
and investment through their supply chains. We believe
to increase port capacity to export cars. Because of these
services will emerge as an important area due to national
projects, we value the development of infrastructure.
content requirements, which are particularly pertinent in
New transborder bridges, such as the Guadalupe-Tornillo
manufacturing industries like IT or medical devices. Within
bridge, are being built between Mexico and the US and
these industries, standards must be raised to maintain our
the Matamoros-Brownsville railway is open after 100 years
status as a reputable manufacturer.
without any railway development.
A US$20/b oil price environment forces companies
The country is building the infrastructure it needs to grow
to think about their decisions thoroughly. Mexico had
because of clusters. The special economic zones (ZEE)
everything thought out with the Energy Reform before oil
are also an incentive to build more needed infrastructure.
prices dropped. This reform, as well as business options
The Lazaro Cardenas port will be doubled in size,
and financial instruments, allowed the country to mitigate
capacity and connectivity. There will also be significant
the effect of oil prices in the Mexican economy. However,
infrastructure progress on the Gulf Coast because of the
the oil issue has two sides: price and declining production.
energy sector.
We are aware that we have to diversify. Q: How do you coordinate these infrastructure initiatives
New transborder bridges such as the Guadalupe-Tornillo project are being built between Mexico and the US. The Matamoros-Brownsville railway is open after 100 years without railway development
and create an environment in which companies can grow? A: We developed a methodology to push the supply chain. Caterpillar and Siemens provide strong examples. They have factories in Mexico but import 90 percent of their supplies so we asked them what was needed to provide these locally and in this way we were able to meet some of these requirements. We also can help bring companies that could become part of their supply chains. The same was done for Volkswagen, Ford and GM. Another part of our job, in addition to advising companies
Q: What can ProMéxico do to accelerate infrastructure
on where to allocate their investments, is to recommend
development?
locations in which to establish operations according to
A: ProMéxico coordinates and reviews which needs are a
the availability of universities that provide talent. One
top priority for each sector. Clusters are a key component
of ProMéxico’s most important tasks is to increase the
we must foster. For instance, Guadalajara was defined
standards of suppliers to a level that allows them to work
with these multinational manufacturers and OEMs. This
Q: What common concerns do companies have about
bolsters the country’s supply chain.
working with the government and how do you address them?
Q: Why are companies coming to Mexico now?
A: The first concern is state government debt. However,
A: It mainly depends on each sector but companies
there is a new law that frames the way government debt is
are looking into Mexico because of its macroeconomic
underwritten, which also brings transparency and assures
stability. The second element is the country’s network
companies they will be paid on time. Land is another issue
of trade deals. In this sense, Mexico is quite open. Many
because of the way it is owned in Mexico. Now, there is
countries also have recognized that they can use us as a
a unit in charge of managing this situation and among
launching pad for exports to other areas. Chile and Peru
other things, it has changed the way pipelines are built.
are exporting vegetables to Mexico so these can be re-
Previously, installing an interstate pipeline involved years of
exported to Asia, for example.
negotiations with landowners. The idea is that through the Ministry of Agrarian, Territorial, and Urban Development
In general, countries and companies perceive Mexico
(SEDATU), companies can negotiate more efficiently
as an important platform and we have leveraged this to
to obtain the right of way. We are also implementing
attract foreign investment. Reforms play an important part
International Labor Organization laws to streamline the
because Mexico is becoming a country with low energy
way wind farms are built, mainly by ensuring transparency
and telecommunications costs, as well as low interest
and increased stability.
rates resulting from the fiscal reform. In addition, the AntiTrust Law shows the country’s willingness to transform
Q: What can ProMéxico do to accelerate the shift from
and evolve in a world of stagnating political will. The
low-tech to hi-tech manufacturing?
reforms are attracting investment in all sectors, leading
A: This shift is exactly what we are pursuing. Mexico
to the development of more commercial and industrial
is ranked third among G20 countries for advanced
infrastructure.
manufacturing
and
exporting.
Our
idea
in
the
manufacturing area is to develop roadmaps, as was Q: How does ProMéxico cooperate with state governments
done for aerospace six years ago, with photonics today
whose objectives are not always aligned with national
and for the Internet of Things in the next six months.
interests?
We are working to bring in the knowledge necessary to
A: Competition fosters value. In this sense, we talk to
develop the manufacturing supply chain, for which we are
governors, ministers of economic development and
assessing which companies to invite, which talent must
industrial park owners, who are also stakeholders, to
be developed and which processes we need to usher
promote clusters and provide the best value for a state.
in. ProMéxico is collaborating with the industrial and
Sometimes states need more employees or investment.
academic sectors for this purpose.
However, this administration has stipulated that incentives and infrastructure promised to companies must be settled
In addition to pursuing hi-tech manufacturing, we also
and signed at the Ministry of Economy, ensuring that
are working on the services area. Millions are invested in
interests are aligned. Actions outside these agreements
manufacturing but not for services so we want to attract
will not have the federal government’s seal of approval
investors to that niche. The goal is to have cutting-edge
and thus no budget.
sectors that bring added value to the Mexican economy.
33
Downtown, Mexico City
OPERATIONAL FRAMEWORK
2
The PPP Law was passed in 2012 to increase the private sector’s participation in the development of the nation’s infrastructure. The industry began to flourish and Mexico’s infrastructure began to take shape. In 2014, modifications were made to the law to increase transparency, protect end-user rights and adjust the execution of projects. The most significant adjustment was the integration of unsolicited proposals into the PPP model, which would allow the private sector to integrate creativity and innovation into projects. The industry continues to search for a balance in regulatory framework, financing, the allotment of risk, tendering processes and project planning. As Mexico continues to grow, the need for logistics and social infrastructure increases.
The focal point of this chapter is to analyze the country’s regulatory framework and reforms. Lawyers, consultants and associations give their point of view on how to optimize these regulations and optimize the participation of the public and private sector in infrastructure projects. Throughout the chapter, experts discuss the upcoming challenges the industry will face and the best practices to mitigate not only regulatory risks but construction risks such as negotiating with ejidos and obtaining rights of way in a project.
35
37
CHAPTER 2: OPERATIONAL FRAMEWORK 38
VIEW FROM THE TOP: César Monroy, PwC
40
INSIGHT: Ernesto González, MIRA
41
VIEW FROM THE TOP: Nicolás Borda, Haynes and Boone
42
EXPERT OPINION: Oscar Cortés, FEMCIC
44
VIEW FROM THE TOP: Héctor Sánchez, Transconsult
44
VIEW FROM THE TOP: Alicia Silva, Revitaliza Consultores
46
VIEW FROM THE TOP: Reyes Juárez, FOA Consulting
48
INSIGHT: Gabriel Santana, ANIPPAC
49
VIEW FROM THE TOP: Vicente Corta, White & Case
50
VIEW FROM THE TOP: Juan Francisco Torres Landa, Hogan Lovells BSTL
52
VIEW FROM THE TOP: Benjamin Torres-Barrón, Baker & McKenzie
Juan García, Baker & McKenzie
53
VIEW FROM THE TOP: Nick Panes, Control Risks
54
VIEW FROM THE TOP: Sergio Montaño, McBains Cooper
Silvia Mejía Reza, McBains Cooper
VIEW FROM THE TOP
ALIGN NIP OBJECTIVES WITH CLIENT BASE FOR SUCCESS CÉSAR MONROY Director of Infrastructure at PwC 38
Q: How has the NIP been progressing and which projects
projects from three to six years, which does not factor into
will have the most potential impact?
the investors’ risk of investment. The market has matured
A: It is difficult to measure which of the projects within the
in the sense that investors are now turning down projects
NIP have the most potential because each project has a
that lack structure in these areas and are growing more
different impact on its surroundings. Some projects have
demanding to ensure return on investment. These types of
a significant impact on social environments but may fail to
issues are seen more in transport infrastructure rather than
offer reasonable rates of returns to investors due to low
in energy due to the Energy Reform.
traffic. This is why it is important to create objectives for each project and ensure that the client base is consistent
Q: What is behind the limited use of Unsolicited Proposals
with each of these objectives. In the case of the NIP,
(USPs) in Mexico?
the project portfolio was not an ideal match with the
A: USPs have not been nearly as successful as expected.
objectives established in the program. The main objective
The government had envisioned that these proposals
was to transform Mexico into a logistics platform, which
would complement their own plans and the industry would
is a strategic goal that had a project portfolio tailored
respond positively. Nevertheless, the law surrounding USPs
exclusively to local needs. If the NIP’s objectives had been
limits the types of projects companies can submit. One
to boost southern regions and the distribution of equal
of the main factors that demotivate the private sector’s
opportunities at local and state levels, it would have
participation is that USPs must align with the projects
aligned with the objectives it accomplished.
and priorities the government has defined. A company could present a solid USP for a project that is needed
These types of inconsistencies between projects and
but if it does not complement the government’s plans it
objectives create gaps between the expected results and
will fall through. The second factor involves incentives.
the public perception of its development. At the moment,
The government is offering a 2-5 percent advantage in a
the private sector feels that the projects are disconnected
tender as well as a return of the amount invested in the
from the objectives they were meant to fulfil and that the
studies. These incentives are not attractive enough for
current project portfolio is not boosting the productivity
companies making USPs.
of the country. Australia uses USPs as a way to complement the Q: What factors are in play in the deceleration of
government’s plans, meaning the ideas are innovative
competition and the completion of the NIP?
and full of potential. Other countries provide incentives
A: Having spoken with all types of banks, funds and
such as giving companies a second chance to win a bid
financial institutions, we have been told the money is there
by allowing them to restructure their proposals to match
and ready to be invested. The problem is that there are no
the winning proposal. These types of incentives have
projects to invest in. There is enough money to reach the
incremented the total number of USPs submitted and
percentages of investment established by the NIP but there
have allowed this plan to flourish and bridge the country’s
needs to be a valuable project portfolio. These financial
infrastructure gap. PwC is making recommendations to the
institutions encounter high quantities of projects that are
government as to the factors that are inhibiting companies
poorly structured and planned, diminishing their desire
from submitting USPs.
to invest in infrastructure. The sector’s true Achilles’ heel is obtaining rights of way, which has inhibited investment
Q: How has the price of debt impacted infrastructure
across the entire country. Financial institutions invest in
development in Mexico?
projects that are later shut down due to a lack of adequate
A: The price of debt in Mexico is far more expensive in
planning. Problems that arise from rights of way can extend
comparison to the US and Canada and can be seen when
compared to countries in which projects are carefully
an availability payment PPP for road development. These
planned, are of higher quality and have undergone
types of projects many not have the highest yields but
different maturity phases for a tendering process. Banks
they are the most secure since the payment comes from
are not willing to offer financing when there are risks
the federal government over a period of 15-20 years. At
pertaining to rights of way and the environment but
the moment, the private sector is suffering due to a lack
will charge extra for any other risks that may arise from
of options.
the immaturity of a project or lack of preparation. This drastically increases the price of debt in Mexico and
Q: Which sectors will see the most projects in the coming
impacts the viability of infrastructure projects. Risks
years?
associated with planning stages elevate percentage points
A: In the next few years, Mexico’s ports will become
making projects unfeasible for investors. This often stunts
more active and this is where the most opportunities
development or leaves the financial responsibility to only
for PPPs will arise. In terms of road infrastructure, there
a few that may have to sacrifice revenues or even have to
must be innovation in the current risk-sharing plans and
restructure finances in the future.
structures, especially since there are few projects that have been completed. These projects are mostly small
Q: Why are companies participating less in tenders
bypasses and there are no new large road projects on
and what types of projects does the industry prefer to
the list, forcing the sector to turn to maintenance and
partake in?
repair. Interurban transport systems will require a new
A: Companies are beginning to avoid tenders and in the
long-term policy, where the necessity is justified and
latest only two or three companies placed bids. Companies
established as a long-term project, not just for the current
also are sacrificing revenue, assuming risks they are unable
administration. If the next administration takes the
to compensate with the expected revenue, to enter future
idea and forms the capacity to continue these types of
renegotiations. The current project portfolio is limited
projects, it will have a great impact on the development
and there are no exceptional road projects, the last one
of cities in the next few years. Projects must have
being the Vallarta highway USP. Only two companies
continuity throughout administrations and the pace must
participated in the tender for Indios Verdes and the La
be maintained. In terms of passenger trains, it is unclear
Galarza project had various participants but differed in that
if this type of infrastructure is needed in Mexico or if the
it was tendered through the availability payment PPP plan.
next administration will want to assume responsibility for
It has been several years since the government launched
this project and define the same priorities.
39
INSIGHT
OPPORTUNITIES FOR COMPANIES WILLING TO TAKE THE RISK “We believe greenfield projects provide greater
40
challenges we are finding in Mexico is that there are very few investible opportunities with well-structured assets and contracts, so we are focusing on making our own,”
growth opportunities and
says Gonzalez. In Coahuila, it acquired a PV project in
risk adjustment that is more
found off-takers for the project and offered a win-win
aligned with our strategy” Ernesto González, Managing Director of Macquarie
Infrastructure and Real Assets (MIRA)
which it did not rely on the Energy Reform but instead situation whereby it provided savings through electricity bills and at the same time a strong return on investment. Although the energy sector is attracting most of the limelight, the transportation and social infrastructure sectors are just as in need of investment. Although
The government appears caught between a rock and a hard
MIRA is interested in electricity generation projects and
place. Budget cuts mean it must tap the private sector to
expects to spend more time on transmission as years pass,
meet the objectives of the NIP. Although the private sector
transportation has quite a bit of market activity focused
is keen to bridge the gap, many companies want to see a
on roads and in social infrastructure. Hospitals and
transparent regulatory framework first. “The government
universities, for example, are presenting opportunities for
should remain consistent when announcing a given
MIRA. The company expects to participate in PPPs for the
methodology, as this must be applied equitably across the
health sector, even though there are great risks present.
board,” says Ernesto González, Vice President of Investment
“The way to mitigate these types of risk is to spend a great
& Finance at Macquarie Infrastructure and Real Assets
deal of time with the relevant stakeholders within the PPP
(MIRA). “It should also be proactive in anticipating potential
auctions and ensure they are addressing the risk factors
conflicts that these changes in regulations could give rise to.”
that most investors worry about,” he says.
A number of factors have hit the economy this year,
The Port of Veracruz also is undergoing expansion in
especially low oil prices, the country’s revenue staple.
the next few years and MIRA is primarily focusing on
Some investors have also looked north with concern as
the many greenfield opportunities it can add value
the US Federal Reserve is expected to raise rates, but
to. “We believe these projects provide greater growth
González says that while a rate hike would likely trigger
opportunities
an increase in borrowing and equity financing costs,
aligned with our strategy,” González says. “The greatest
that should not cloud Mexico’s infrastructure investment
challenge in this expansion will be securing the traffic
climate. “I do not see a significant impact because the
flow, which will then secure the revenue stream that
fundamental infrastructure demand will remain and the
will allow us to finance it. The successful bidders will be
only change would be that it will cost more to bridge this
those that partner with some of the large international
gap.” The use of PPPs must measure the risk on a case by
transportation companies.”
and
risk
adjustment
that
are
more
case basis, especially since investor pools have different risk appetites. “There are significant amounts of capital
The
out there and it all depends on the amount of risk each
vehicles for the development of infrastructure is a positive
investor is willing to assume.”
sign for the industry. “To a certain extent, Mexico’s vehicles
government
promoting
alternative
investment
can be a little cumbersome when compared to those in The deceleration of Mexico’s oil and gas industry is
other countries but this can be attributed to the fact
pushing Mexico to make several policy changes to ensure
they are new and that players are trying to navigate the
steady growth with the government preparing further
waters,” says González. “The biggest challenge will be to
budget cuts for 2017. The Ministry of Transport will
clarify the rules of the game for the investor base.” He adds
receive a 26 percent cut to its budget, which translates
that Mexico should learn from the best global practices of
to the completion of fewer projects on the NIP. With
how large infrastructure projects are structured through
fewer opportunities available in traditional infrastructure
auction type settings. “The improvement can be made by
like roads, MIRA has decided to drive the structure of its
carrying out a comprehensive planning stage and focusing
own projects from the ground up. “One of the biggest
more on the long term,” he says.
VIEW FROM THE TOP
COMPLIANCE, DUE DILIGENCE KEY FOR FOREIGN FIRMS NICOLĂ S BORDA Partner at Haynes and Boone 41
Q: What legal tools and strategies are the most useful in
A: Permits can be a challenge since some municipalities and
minimizing risk?
states are less pro-investment than others. Security also is an
A: To be successful, large infrastructure projects require a
issue in some states where special measures and protocols
reputable law firm with a track record and knowledge of the
must be followed. Another challenge for infrastructure
industry, good working relationships with the government
projects is financing. Now that the roles of CFE and PEMEX
and high ethical standards. Companies also need good
have changed to compete with the private sector, they do
technical
consultants.
not have the same financial strength as before and many
Compliance issues need to be looked at closely in Mexico
private companies are having difficulty finding financing
since these can generate the most problems and are the
for their projects. rights of way grants also have become
ones that worry general councils the most. Compliance
more bureaucratic and companies must recruit a highly
deals that incorporate anticorruption, antitrust, labor and
specialized team with a great track record and experience
environmental aspects also are important in mitigating
to guide them. The Social Impact and Environmental
regulatory risks. It is crucial that foreign companies select
Impact studies are two tools from the Energy Reform we
their partners carefully, subjecting them to thorough
are still learning about. Therefore, there needs to be better
due diligence in terms of their financial capabilities and
coordination between agencies that deal with land issues
legitimacy. A partner should have a similar culture and
because, although a company may have the best approach
bring added value. Structuring tax issues early on is
on paper, an integrated perspective is needed.
and
commercial
teams
and
another key to success as a hasty decision without a tax team may involve starting from scratch. A Mexican and
Q: What challenges will the government encounter in
international tax team to help plan from day one is vital.
meeting the country’s growing energy demands? A: The government must improve integration with the US
Q: What impact will downstream infrastructure have on
and Canadian energy markets and particularly electricity
new developments?
lines. A great deal of investment will be needed to upgrade
A: We are already seeing the benefits of the Energy
and build these connections. Providing affordable and
Reform in infrastructure. Howard Energy just finished
long-term energy commodities at prices comparable
its first open season with the pipeline bringing gasoline
with the US is another goal as this will make our industry
and diesel from Corpus Christi, Texas to Monterrey. There
much more competitive. The government must deal with
are many transportation companies who are not used
anticorruption, compliance and transparency issues.
to competition and will have to do a lot of planning and commodity risk management. They need a strong team
Q: How is Haynes and Boone working to help face these
that understands the financial, regulatory and logistical
challenges?
aspects. It is important to understand Mexico’s energy
A: Haynes and Boone wants to continue helping local
and infrastructure markets are no longer isolated but
and foreign companies be successful in their project
increasingly integrated with North America. It is important
development in Mexico by providing the best legal service
for PEMEX and CFE to become more international and
possible, adding value for our clients, being cost efficient and
take a proactive approach before they lose too much
understanding the commercial, financial and operational
business. In the future it will be important to make sure
issues within the industries where we have expertise, such
each company is specialized in its segment of downstream
as energy, infrastructure and real estate. The great thing
infrastructure for increased efficiency.
about our firm is that we have the best US-Mexico and Texas-Mexico cross-border energy infrastructure practice.
Q: What are the biggest challenges companies face when
We have high cyber security and technology platforms to
participating in energy tenders?
preserve and protect client information.
EXPERT OPINION
BORDER ECONOMIES FLOURISH THROUGH INFRASTRUCTURE DEVELOPMENT OSCAR CORTÉS Executive Bi-national Chairman of the Mexican Federation of Civil Engineering Colleges (FEMCIC) 42
The
sweeping
reform
of
Mexico’s
energy
industry
represents a historic opportunity for oil and gas companies.
oil and gas industry is Mexico’s vastly underdeveloped midstream sector.
As the opening of Mexico’s energy sector to foreign investment grows closer to reality, many companies are
Capital investments in Mexico’s midstream segment could
poised to take their first steps into Mexico since its energy
total US$17 billion over the next five years. The issue extends
industry was nationalized in 1938. The timing could not be
beyond a lack of facilities, as the transportation and storage
better, as Mexico is an attractive market with significant
business in Mexico is fragmented and unsophisticated. For
opportunities for inbound investment.
example, PEMEX’s existing transportation network, which connects production centers with domestic refineries
largest economy in the world, has
and export terminals, includes just over 3,000 miles of
abundant natural resources, including both conventional
pipeline, mostly in southern Mexico, compared to the US
and unconventional oil and natural gas reserves. Although
total of about 91,732.6km of crude oil pipelines. For natural
the proposed energy-related reforms impact all areas
gas, Mexico has about 8046.7km of pipelines, while Texas
throughout the oil and gas value chain, most US-based
alone has more than 93341.9km of natural gas pipelines.
energy companies are naturally focused on gaining access
CFE is looking to expand natural gas import capacity
to Mexico’s energy reserves.
substantially in the coming years.
The Mexican government is looking for direct investment
The US$2.3 billion Los Ramones pipeline system project
of approximately US$350 billion in the next few years
demonstrates a significant investment to ensure access to
from outside the country to reinvigorate domestic energy
lower cost energy, a crucial component for petrochemical
production. The conservative goal is to generate a rise in
production and broader manufacturing growth. One of
GDP of approximately 1 percent per year in the early stages
the largest infrastructure project investments in Mexico’s
of reform, roughly equivalent to increased economic
history, the pipeline extends from the Texas border to
output of US$12 billion. Given Mexico’s substantial
Central Mexico, with capacity to transport up to 2.1 billion
reserves and the interest among international energy
cubic feet per day of natural gas to Mexico, supplying a
companies, including many from the US, those objectives
fifth of the country’s total natural gas demand.
Mexico, the 15
th
are definitely within reach. However, as new liquids production is brought online Because existing natural gas availability is expected
by foreign investment in E&P, significant investment in
to fall short of demand from a growing population and
transportation and storage facilities will be required in
industrialization, the country is increasing capacity for
locations that are underserved or currently not served
importing low-cost natural gas from the US. It is clear the
at all. Without proper investment in the next few years,
Mexican government is moving ahead to develop new
the transportation challenge that US producers faced
rules and to create the regulatory oversight necessary to
in rapidly growing US shale plays may repeat itself in
manage a significantly different energy industry going
Mexico, with new production stranded from refineries and
forward. Foreign involvement in Mexico’s exploration
markets. Overall, it is expected that the lack of midstream
and production (E&P) activity is expected to be focused
infrastructure will quickly become an issue for E&P
first on deepwater and mature fields that are in need of
companies working in Mexico.
further investment, as well as new technology to spur production. The opening of unconventional projects,
The border region, defined as the 10 US and Mexican
especially onshore shale plays, is likely several years away.
Border States, represents a combined population of
One often overlooked investment opportunity for the
nearly 100 million people and constitutes the world’s
fourth largest economy. More than US$500 billion are
Diego Metropolitan Transit System (MTS) said in a news
traded in goods annually between Mexico and the US,
release. MTS has been the owner of the line since 1979
which means commercial exchanges of almost US$1
and approved the contract terms along with partners at
million per minute. The five Mexican states in the Rio
the San Diego Regional Chamber of Commerce, PIR and
Grande Basin — Durango, Chihuahua, Coahuila, Nuevo
Baja Rail.
Leon and Tamaulipas — have a per capita GDP that is 2.3 times higher than that of the rest of the country. In
The Cali-Baja region and US-Mexico binational economies
Mexico as a whole, the middle class has grown to include
lose US$6 billion annually due to long delays in getting
as much as 40 percent of the population.
trucks carrying freight across the US-Mexico land borders in San Diego, according to a study carried out by the
Bilateral cooperation is stronger than ever in areas such
San Diego Association of Governments. The Desert Line
as infrastructure development, security and trade. The
could change that in one fell swoop. Once work on the
High Level Economic Dialogue (HLED) was established
line is complete, it will allow trains up to 30 cars to travel
to forge a more competitive and dynamic economic
on the line from Mexico to Coyote Wells. There, cars will
relationship between both countries. The HLED establishes
be assembled into 100-car trains for delivery to the Union
cooperation areas under the three broad pillars of
Pacific Railroad in Plaster City. To accommodate this
promoting competitiveness and connectivity, partnering
activity, a new intermodal facility will be built in Coyote
for regional and global leadership and fostering economic
Wells by PIR.
growth, productivity, entrepreneurship and innovation. Rail investments with the binational economy in mind are In 2010, the US and Mexico issued a Joint Declaration
unfolding further east too, especially as the petrochemical
on 21st Century Border Management that acknowledged
sector south of the border opens up in the wake of new
shared interests and recognized the need to fundamentally
energy policy reforms. Much remains to be done but the
restructure the way we manage our border. Two of our
level of ongoing cooperation between Mexico and the
countries’ most dynamic ports of entry are located on
US on border issues is a testimony of the maturity and
the US Southwest border. The San Ysidro Port of Entry on
strength of the bilateral relationship. As Mexico continues
the Tijuana-San Diego border is the busiest land border
to advance, so does our commitment to further the
crossing in the world. It processes an average of 50,000
integration of the region and the development of both
northbound vehicles and 25,000 northbound pedestrians
our communities, which have already been intertwined for
per day. On the Sonora-Arizona border, the Mariposa Port
centuries, toward a stronger global partnership.
of Entry serves as the main port of entry for fresh produce entering the US from Mexico and the primary produce distribution point on the southern US border. Cruz Azul Plant, Hidalgo
The Cross Border Xpress (CBX) sky bridge connecting a new passenger terminal in San Diego directly to the Tijuana International Airport (TIJ) opened for business in December 2015 to serve the 2 million annual TIJ passengers who already cross the US/Mexico border as part of their travels. TIJ serves more than 4.5 million passengers per year overall, flying to 34 destinations throughout Mexico operated by four major airlines. CBX is one of many projects making cross-border movement easier, and thereby aiding commerce, trade and economic development. But the biggest news may be about border cargo. In June 2016, an agreement was reached to pay for the reconstruction and operation of the 112km Desert Line railway in southeastern San Diego County that connects Mexico maquiladoras to rail shipping in the US. “The landmark agreement between Pacific Imperial Railroad (PIR) and Baja California Railroad (Baja Rail) provides a huge economic boost to both sides of the border,” the San
43
VIEW FROM THE TOP
LONG-TERM VIEW NEEDED FOR INFRASTRUCTURE TO TAKE OFF HÉCTOR SÁNCHEZ Director of Transconsult
44
Q: Why is it important that municipalities coordinate the
when it comes to the development of water, mobility and
development of infrastructure?
social infrastructure.
A: Metropolitan coordination is a considerable challenge in Mexico because 60 percent of the population and
Q: How would the creation of an independent entity to
economic hubs are concentrated in 59 metropolitan areas.
manage the country’s infrastructure development impact
There is plenty of room for improvement when it comes to
the industry?
relationships between municipalities for the development
A: When it comes to large federal projects, it is necessary
of infrastructure. It is common for mayors to focus on
that federal, state and municipal governments have a more
short-term objectives that last as long as their term yet
effective decision-making processes and coordination. These
for infrastructure to truly take off, they must have medium
projects require a strategic approach to create the maximum
and long-term visions. It is essential to create effective
value for society. The Toluca-Mexico Interurban train requires
coordination
areas
collaboration between the Ministry of Communications and
dedicated to planning, defining the strategic projects
mechanisms
that
have
specific
Transport (SCT), the Metro System, the Toluca government
and linking them to a budget. Stronger institutional
and many others. Political parties must be willing to ensure
mechanisms will enable leaders to make the right decision
that all players carry out their tasks correctly. Beyond
VIEW FROM THE TOP
PUBLIC’S LACK OF SUSTAINABILITY AWARENESS A CHALLENGE ALICIA SILVA Founder and Director General of Revitaliza Consultores
Q: How has the lack of greenhouse regulations affected
A: Having an integrated design process in which all key
progress toward building with more sustainability?
stakeholders come together and discuss their concerns
A: Regulation is always a strong force for advancing
and problems is one of the major points of differentiation.
the sustainability agenda. There are efforts being made
These
to
concerns
are
later
accounted
for
during
through
construction. At times when the government undertakes
internationally recognized certifications. For highways,
an initiative without consulting the public, the reaction
railways and parking there are several certifications that
is hostile but these certifications force organizations to
meet international standards. The regional Ministries of
bring everyone together. Sustainability considerations
Energy have committed to being part of the international
cost 5-6 percent more but create greater added value. The
development of a construction code that will have an
additional investment should be recovered in less than five
impact on sustainability and they have been trying to
years. Higher quality construction is necessary to ensure
address matters in a different way.
buildings are not abandoned. This can be seen in low-
achieve
sustainability
goals,
sometimes
cost housing that is built far from cities and connecting Q: What are the main benefits of the integration of
networks. In the same way, roads with potholes will
sustainability in building?
be abandoned in favor of higher quality roads. We see
that, the opportunities to develop larger economic value
A: NAICM is Mexico’s flagship project of the decade and
around the stations or to plan better transport integration
it will require the collaboration of hundreds of players
are important aspects that take great effort and tend to be
for the different phases of the project. All these players
minimized under the pressure of the construction process.
have different objectives and different requirements to meet them. It is important to have an interdisciplinary
Q: What challenges will arise from the construction of the
group that oversees these needs and ensures the
Toluca-Mexico Interurban train?
objectives are being met. This group must also ensure
A: The project requires a macro vision to provide the
the project has a positive economic and social impact
end user with accessibility, security, comfort and social
on the surrounding communities and Mexico City
benefits. There are three more specific challenges in
overall. NAICM must take into consideration how it will
this project. The first challenge is urban insertion and
increase accessibility from all fronts to the airport and
the creation of economic value along the train line. The
must ensure there are means of public transportation to
second is to ensure good accessibility to the stations and
and from it.
integration with other transport modes. The third is the transformation of the Observatorio metro station into
Q: What does the government need to do to ensure
an intermodal terminal, which will receive people from
sustainability in its developments?
the metro system and feed into the interurban train. The
A: First, the government must improve the guidelines for
number of passengers and traffic will increase dramatically,
participating in bids. Mexico has increased its knowledge
creating a large construction challenge. The country
and its use of innovative materials. The country now
would benefit greatly if it developed a homogenous vision
has the right tools to create sustainable and ecological
for infrastructure development where infrastructure is
infrastructure yet the policies and regulatory framework
uniform across Mexico.
for the use of sustainable technologies have not been clearly established. Policies should be determined to
Q: How will efficient communication facilitate the
further encourage the private sector to use its expertise
construction of NAICM?
and begin creating solutions.
this quality in developed countries like Germany or
Q: How much responsibility does the private sector have
the Scandinavian countries, where forward thinking is
to educate employees about sustainability?
integrated into the design process. For emerging markets,
A: It is not only sustainability that needs to be addressed
sustainability means higher costs and we need to transform
but many things in general, such as education and
this thinking. It helps to talk to clients in economic terms
respect for women. Those who own companies have a
and explain in detail that their investment will be more
responsibility to educate and inform their workers about
secure and generate a higher yield. Sustainability lies not
these issues. In construction companies in particular, a
only in the design but also in the operation of the building
team needs to be built on trust or projects will not be
and its maintenance.
completed on time, the quality will not be up to standard and there may be many problems. We are pushing for the
Q: What is the main challenge stunting the growth of
industry to be professionalized and for workers to obtain
sustainability?
a certificate for any specialties they may have such as
A: The public’s lack of awareness about sustainability and
setting floors or building walls.
its benefits is a challenge. Those who have never worked in sustainability believe it is between 20-30 percent more
When workers go abroad and can charge high fees,
expensive but we proved that it does not have to be that
they realize the importance of credentials. People
way. We have certified large buildings like Torre Mayor,
should have the opportunity to gain new skills and
where the ability to renew tenant leases is extremely
advance their career when they enter a company. This
important. The commercial real estate sector has taken a
raises worker engagement levels, which nowadays sits
particular interest in these certifications because they are
at around 30 percent compared to 70 percent 10 years
important for success in the market. Mistakes made during
ago. Without appropriate growth opportunities, the
the construction process generate the highest costs and
company is very vertical and workers simply have to do
when companies strive for a certification, they pay much
whatever their superior tells them to do. We have seen
more attention to detail, therefore reducing the number of
companies that are changing, listening, educating and
changes during the process.
training their employees.
45
VIEW FROM THE TOP
PPP POTENTIAL YET TO BE UNLEASHED REYES JUÁREZ President & Director General of FOA Consulting 46
Q: How are federal budget cuts impacting the private
Q: What can companies expect from the market and
sector, considering that projects now have to assume a
PPPs?
greater amount of risk?
A: Mexico is one of the countries in Latin America that
A: Infrastructure is an important motor of growth for all
has executed the most PPPs along with Brazil, Argentina,
countries. Behind well-developed projects lies favorable
Colombia and Peru. On a more global scale, Latin America
competition and productivity that leads to employee
represents 40 percent of the total number of projects and
retention and facilitates a higher quality of life. Considering
investments. We are staying at the forefront thanks to
that Latin America is a dynamic project region, the amount
specific laws that are spurring projects like ports, highways
of infrastructure investment Mexico receives is significant.
and airports. If all the projects in the country were made
The country needs to realize that budget cuts are an
to align with the requirements of the PPP law, without a
opportunity to unleash potential investment. Mexico must
doubt, Mexico would have a superior quality of projects.
invest in more basic infrastructure to promote additional development. The country has all that it needs to push
Developers often make the mistake of putting speed
forward the creation of private structures but there is a
ahead of due diligence, opting to complete a project
lack of project proposals.
faster by skipping necessary planning. There is nothing more expensive than to start a project without evaluation,
Although the authorities reduced the amount of capital
planning and analysis because failing to do this can end
directed toward infrastructure, that does not signal the
up delaying a project for many years. Rehabilitation and
end of the industry. The public sector may be the main
maintenance are equally essential parts of the structure’s
promoter of infrastructure plans but it is not the only
cycle. The initial preparation phase is the one that costs
one. When the government announced its National
the least as it is completely on paper, while mistakes on
Infrastructure Program (NIP), it decided that the majority
the construction site are extremely expensive to correct
was going to be funded through public investment,
and can even result in fees and penalties. It is incongruent
especially the first phase. The plan included a portfolio of
that companies are not willing to invest an adequate
prioritized projects and the authorities have been able to
amount of time in the initial phase of their project to
execute those.
assure the highest quality. Politicians, too, are in a hurry to finish projects and mistakenly think that certain steps can
I believe the government intentionally left the largest
be accelerated. Citizens, through the public budget, are
infrastructure projects for the second part of the six-
the ones who end up paying for these mistakes.
year term to open up spaces for the private sector through PPPs. In general, public investment projects are
If everyone understood the law better, they would see
not stable enough because they depend on the public
the benefits of the new PPP regulations. Mexico is an
budget and oil prices, among other economic factors
interesting case because other countries have shown a
that affect a country’s wellbeing. For this reason, private
greater appetite for development after approving similar
investment has a great deal of potential in Mexico. PPPs
PPP laws.
benefit the country as they connect the private and public sectors in a complementary way. The projects end
Q: How can companies mitigate delays and community
up being designed more efficiently and carefully using
discontent to avoid further costs?
risk analysis. PPPs are among the most efficient ways
A: Most countries consider community dialogue to be
to mitigate risk. The projects require less public capital
an essential part of the planning phase while Mexico
because only the most efficient or experienced players
greatly fears the idea. Developers in the country do
are involved.
not want to chance the possibility the surrounding
community will reject the project. Obviously, if the project is not well planned or has a negative impact, it will not be welcomed. One of our clients asked us to evaluate a binational planning process for border bridges between the US and Mexico. It gave us the opportunity to clearly see the differences between the US and Mexico. These types of projects are complicated as they require simultaneous authorization. A project could be authorized by the US but it will not move forward if Mexico has not given approval. We have seen cases of projects that were approved 20 years ago in the US, only to be rejected in the present due to the changes of land use in Mexico. The process needs to be congruent to assure a fluid advance. Mexico normally tries to evaluate projects quickly and asks developers to execute projects in two months, without preparation or studies. These projects normally end up taking eight years or more due to the large number of unforeseen circumstances. The US works completely differently. First, it creates the concept and then proposes it to the community. The project does not continue until the community approves it - and dialogue can take up to four years. Construction usually only takes a year as nothing impedes its completion after the discussions end. Communicating and consulting with surrounding communities ensures a well-planned project. Developers must understand that they do not need to consult every part of the project, such as the technical aspects, but only the details that affect the community in a significant way. Dialogue can be simple as communities are usually more concerned about the social benefits of the project. The general public only wants assurances on how their quality of life will be impacted. Q: How will the construction of the NAICM change the industry? A: The airport has the potential to become a magnet for investment from companies of all sizes. It is an intelligent mosaic of small, medium and large companies that benefit the infrastructure industry. Mexico has never had a project of this type and it pushes us to work toward improving our abilities as a country. Small and medium companies are getting the same chance as large and foreign companies to be part of this historic development. While the authorities are legitimately worried about the project finishing on time and on budget, it also is an opportunity to showcase Mexican companies and give them the chance of perhaps being invited to participate in other international projects. The message is to combine both elements, national and international companies, with an internal policy that strengthens entrepreneurship. It needs to be well received by the infrastructure chain.
47
INSIGHT
PREFABRICATION TECHNOLOGY SAVES TIME, REDUCES RISK GABRIEL SANTANA President of the National Association of the Precast and Prefabrication Industry (ANIPPAC) 48
When it comes to construction, time is of the essence.
had decision-makers not chosen to take a risk on new,
Budget cuts, administration changes and global markets
unfamiliar methods. “We now have the technology to build
can all affect a new building’s development and construction
suspension and cable bridges,” says Santana. “It used
companies are under more pressure than ever to complete
to take 10 years to build these bridges but with today’s
projects
technology it can take as little as two.”
on
deadline.
Prefabricated
and
prestressed
structures can help reduce construction time dramatically but Gabriel Santana, President of the National Association
Another crucial benefit of prefabrication is that the
of the Precast and Prefabrication Industry (ANIPPAC),
structures are often more durable than traditional solutions.
says construction executives in Mexico are slow to adapt
Prefabricated concrete is designed to reach 300kg/cm2
new technologies. “People are reluctant to change in the
resistance the day after being installed, instead of the 28 days
industry,” says Santana. “They know how to make a steel
found in traditional construction techniques. It is also thinner
warehouse but are not familiar with other systems. We have
and therefore frees space for design purposes. Moreover,
to open their eyes to prefabricates.”
machine fabrication removes the risk of human error, guarantees the same quality throughout the construction
ANIPPAC tasks itself with informing and educating the
and so improves its resistance to seismic activity. “It was the
Mexican industrial sector about the benefits prefabricated
only type of building that survived the 1985 earthquake,”
structures can bring to companies across the value chain.
Santana says.
This is achieved through a series of conferences, expositions, training courses and demonstrations designed to showcase
To encourage Mexican companies to be more open to
the latest prefabrication technology and Santana has no
new technology and avoid falling victim to future tremors,
doubt about the segment’s potential in Mexico. “Prefabricated
ANIPPAC has set up several training courses for engineers
structures are popular in infrastructure as they reduce the
and designers, including a post-graduate course on
quantities of almost all materials needed, labor hired and
precast concrete design alongside the Mexican Institute of
money spent,” he says. “Prefabrication removes the risks of
Cement and Concrete (IMCYC) and the Mexican Society of
working on highways and busy city streets and cancels out
Structural Engineering (SMIE). Looking forward, Santana
the need for workers to travel long distances.”
feels that ANIPPAC can play a crucial educational role not just nationally but also on a regional scale. “We believe
Prefabricated structures are popular in infrastructure as they reduce the quantities of almost all materials needed, labor hired and money spent
Mexico could raise the flag for Latin America,” he says. “We want to hold a large conference in 2017 to share our ideas with other countries in the region.” In the immediate future, a portion of ANIPPAC’s focus will be on internal consolidation and restructuring. Founded in 1967, the company is reassessing its open-membership policy as it approaches its 50th anniversary. Alongside IMCYC, it is developing a certification program that will
Santana gives the example of the Acapulco-Mexico City
outline clear guidelines for participation with a view
highway bridge. The structure, which is suspended across
to creating a more defined common strategy for the
a ravine, would have been “impossible” to construct
association. “Members of ANNIPAC are members because
without modern prefabrication technology. Cable-stayed
they want to be, there are no requirements,” says Santana.
bridges, such as the 1,800m long Russky Bridge in eastern
“We are in the process of establishing a list of requirements
Russia, would also be nothing more than a pipe dream
that all members must meet before joining the group.”
VIEW FROM THE TOP
PPP FRAMEWORK THEORETICAL, AMBITIOUS, COSTLY VICENTE CORTA Partner at White & Case 49
Q: How do global M&A trends impact Mexico and its local
heavily promoted by the government, so hedge funds
infrastructure market?
and sponsors, will be going to the market with this kind
A: The global M&A market has changed in the wake of the
of structure. The PPP framework that has been put into
2008 economic recession. The first impact relates to the
place is extremely theoretical and ambitious. It contains
financial condition of companies and access to financing
an unnecessary amount of red tape, as well as countless
and the other to the availability of bargains in the
studies and analyses. Consequently, planning a project
market. For the latter, there was an increase in cash-rich
under the PPP model is costly, in particular when there
companies that had the ability to buy other enterprises.
is no clear mandate or agreed project. The experience
The only significant factor in such cases was whether
of some companies has been discouraging due to the
the targets were willing to sell at the prevailing market
unfortunate bureaucracy that can be observed at both
prices. With the market having partially recovered, we
federal and state levels.
see more companies able to leverage themselves, access more favorable financing and be more proactive in terms
Q: How do you benchmark Mexico’s capital markets for
of strategy.
equity and debt? A: The pending assignment in Mexico concerns equity
White & Case has observed a wave of investors asking
because despite a number of improvements over the past
for advice on how, when and at which scale to invest in
few years, the area remains underdeveloped. White & Case
Mexico. While new investors to the market remain at times
has a strong capital market division both in terms of equity
hesitant, seasoned players with a lengthy track record are
and debt. We discuss with our clients, who have the size
more than willing to invest. Another variable to factor into
and characteristics for an IPO, whether such a move would
this equation is private equity, as an increasing number
be convenient for them at a certain point in time or not.
of funds are looking to invest in medium to large-sized
For instance, White & Case was involved in the IPO for
companies in Mexico. As a result, antitrust has gained
AeromĂŠxico. In the infrastructure sector, we participated
momentum, with the approval of a new antitrust law and
with BlackRock and First Reserve, and we facilitated the
the forming of the Coordinator of Foreign Trade Promotion
Los Ramones deal with PEMEX.
(COFOCE), which promotes fair market participation by ensuring that companies do not engage in hostile
Q: What areas offer the best potential for development?
practices. When new companies want to enter the market,
A: We have been doing some work for state and municipal
or existing ones want to grow, they now have to face the
governments, ranging from adjusting their laws on PPPs to
challenges of antitrust.
actually developing projects, such as toll roads, hospitals, educational facilities and prisons. The latter is an area of
Q: What is affecting the local M&A market and what can
significant potential. All levels of the government have an
be done to create an environment that is conducive to
interest in developing more projects, because most prisons
more PPPs?
are overcrowded. From an investor perspective, these are
A: One factor is the impact the drop in oil prices has had
projects that provide a high degree of certainty because
on the federal government’s budget. The ensuing effect is
of how they are structured. Hence they attract a lot of
that companies dependent on public resources, such as
investors and very competitive bids. White & Case has been
suppliers of the government or of PEMEX and CFE, will
successful at forecasting so today we have a strong energy
likely face difficulties. These suppliers might fall prey to
practice. We have been able to meet the needs of states
competitors looking for increased consolidation. Sectors
and municipalities and we have a strong capital market
like energy and power are highly attractive. In addition,
practice. We firmly believe that it is ineffective to open
new financial instruments such as Fibra E are being
divisions for too many areas, so we outsource certain work.
VIEW FROM THE TOP
BUBBLE CONCERNS FORM IN REAL ESTATE JUAN FRANCISCO TORRES LANDA Partner at Hogan Lovells BSTL 50
Q: What is your view of the real estate industry in Mexico?
Potosi. You already can see there is a little bit of saturation
A: There is rising concern that a bubble is forming in the
in both urban areas and with highways. With few
real estate market due to an oversupply of properties. By
exceptions, highways have not been modified or improved
2017, Mexico City will have about 2 million square meters
in years or even decades. The improvements that have
available for office space. That is a lot of space that will
been implemented have not been consistent with the
need to be allocated somehow. The real problem with
additional demand for roads and other infrastructure.
the industry is that economic expectations will not be
If these additional infrastructure needs are not fulfilled,
met and the excess supply will hurt prices. There will be
we will hit a dead end where we cannot move products
some readjustment to the targets for rental rates. Whether
efficiently. In spite of budgetary restrictions, careful
developers take the hit or not and how that will affect their
thinking is required to ensure that industrial sectors, such
finances is the question.
as automotive, are not harmed.
At the same time, there are other areas where space is in
Q: What are the pros and cons of special trade zones or
demand, such as industrial parks. Several industries are
bonded warehouses?
attracting new manufacturing plants, increasing the demand
A: Special trade zones or bonded warehouses are specific
for industrial space, such as the automotive industry in
locations where you can take immediate delivery of
San Luis Potosi, Guanajuato, Aguascalientes, Sonora and
products thate are already in the country and that upon
Puebla among others. We provide assistance to these types
release, and not before, must pay taxes for imports. It is
of developments in many areas, particularly in the Bajio
a little bit of a financial advantage because companies
region. These regions are experiencing growth they had not
can have Just-in-Time (JIT) delivery without having to pay
seen in 10 years. Some areas that were near saturation have
tariffs. For industries such as automotive or aerospace,
not expanded quickly, thus creating opportunities for other
immediate delivery is critical and suppliers are heavily
areas to develop and absorb the excess demand. I do not
sanctioned if they miss a delivery by a minute. These types
think this trend is going to stop in the near future.
of bonded warehouses or free trade zones allow the JIT structure to work.
Q:
What
problems
are
industrial
park
developers
encountering with the authorities regarding infrastructure?
Operating these types of bonded warehouses is somewhat
A: It is a real challenge in the sense that the budget for
problematic
2017 is being reduced significantly. That automatically
governmental reporting. From a government standpoint,
means the resources allocated either federally or locally
they do not like having less control over what they can
to build additional roads, railway tracks, airports or port
charge at customs for merchandise that stays in the
facilities will not be enough and the planned infrastructure
country. If the government waves duties on merchandise
will not be completed in the near future. If some of these
because it is going to a bonded warehouse in the middle
parks are relying on this additional construction they need
of the country, the expectation is that the warehouse will
to rethink their strategy. If there are plans to set up a new
keep a methodic and accurate record of what is received
industrial park, reliance on public sector improvement of
and what leaves the premises.
due
to
the
needed
bookkeeping
and
the current infrastructure should be a low priority issue. For industrial parks to implement these, they need to have Q: How is growth from the influx of industries impacting
a significant volume of trade and a sufficient number of
infrastructure?
customers who require bonded warehouses. Sometimes
A: There are four states that are absorbing a lot of growth:
these free trade zones are not exactly within an industrial
Queretaro, Guanajuato, Aguascalientes and San Luis
park but within a region that encompasses several industrial
Industrial Park, FINSA
51
parks and facilities. This is more common than having one
If you look at a national map of highways, powerlines and
for a particular site. We have seen that in many cases
railroad lines, it is somewhat simple to see where are the hot
specialized companies operate these warehouses and not
spots for industrial parks. The Bajio region is an example
the industrial parks. This arrangement is more efficient
where highways, rail lines and powerlines intersect, so
because industrial parks deal with their own needs and
industrial parks are located within a reasonable distance
additional services are best handled by experts in the area.
of the three. That is why certain regions have several industrial parks.
Q: What other challenges are faced by industrial real estate developers?
Q: What is your view on the instruments,like FIBRAS, that
A: Water is probably one of the most important hurdles
are being used to grow the real estate market?
companies face everywhere and industrial parks are no
A: In Mexico, we have had this discussion for several years,
exception. There are very strict requirements regarding
based on US style REITs. Due to a lack of understanding
sourcing, treatment and discharge of water and its
and regulatory hurdles, such as tax concerns, these options
effluents. No industrial park can ignore these obligations.
were delayed for many years. Fortunately, that changed
Industrial parks need to have state of the art technology
and we are seeing incredible growth. This is an area where
and full legal standing regarding water rights and volume.
the first comers have received greater benefits. They were
An industrial park that is not up to speed in this area will
able to secure better properties, better locations and
end up disappearing. If an industrial park wants to host
more surface area.
companies that are large water users, the concern will be supply availability. Most of the country is now subject to
The growth we will see in the country in the coming
not new volumes being authorized, but rather the transfer
years regarding properties funded through these special
of existing volumes in concessions in good standing in the
vehicles will not be as significant as that which we have
area held by third parties
seen in previous years. It is a competitive market and the initial distribution or allocation of properties is basically
The same is true with respect to electricity. Industrial
done. Growth will be more limited and may have to be
parks are forced to install a power supply distribution grid
strategically based on new developments and new areas
within the facilities, which they have to build and connect
that are demanding real estate due to some industrial
to the national grid operated by CENACE. The problem
need. I think the initial momentum we saw of almost
is that once industrial parks build their installations, they
endless growth has nearly come to an end. But it was
have to donate them to CFE. That is the condition for
important for the country to generate these instruments,
electricity supply.
which have allowed the entry of foreign capital.
Railroads are also critical factors for an industrial park’s
Still, there are some clouds on the horizon regarding
viability. I do not know of any successful industrial park that
exchange rate and even electoral risks. Funds that have
does not have any connection with a railroad. Basically,
come to the country expect returns in dollars and the
all significant customers in an industrial park require rail
initial returns will be difficult to match in the coming years.
links. Companies cannot move all their products by road
This will have an overall impact on a FIBRAs' portfolio and
because it is not cost efficient.
yield capabilities.
VIEW FROM THE TOP
SPARE NO EFFORT ON DUE DILIGENCE
52
Juan García Head of the Real Estate and Infrastructure Practice at Baker & McKenzie
Benjamin Torres-Barrón Head of the Energy Mining and Infrastructure Group at Baker & McKenzie
Q: What concerns do investors have regarding the risks of
Q: How do global trends affect Mexico’s dynamism and
entering the Mexican market?
where are the key opportunities for M&A?
JG: There are a number of issues that need to be
BT: Acquiring existing companies in any given market
considered prior to participating in any given proposal but
is a quick and sure way to become involved in the local
the most important advice we give our clients is that no
sector and to identify attractive business opportunities.
effort should be spared in due diligence on any project
We are seeing a strong push in the infrastructure arena
they wish to participate in. They must have a clear idea
in Mexico with new entrants investing directly in Mexican
of the project obligations they need to assume if in fact
established businesses that already have a connection to
a contract is awarded to them. Usually the main concern
a project. This is either taking place through joint ventures
in every single project is tax treatment because that can
or outright acquisitions. Nonetheless, hostile takeovers are
make or break any plan. If the contract involves property
not common in Mexico even though they can occur. This
rights, easements or rights of way, then Mexico presents
scarcity can be attributed to the fact that the number of
interesting challenges in different parts of the country.
publicly traded companies is not substantial.
BT:
federal
JG: Mexico has strong banks and financial institutions but
government has started to implement is extremely
the capital markets are not as developed as they should be.
ambitious and it is coupled with structural reforms across
Steps are being taken to generate greater dynamism through
an array of industries, including energy. Notwithstanding
new vehicles such as Fibras, CKDs and other financial tools.
The
National
Infrastructure
Plan
the
the sharp drop in oil prices and other commodities, this plan is moving ahead and rightly so, despite the other
Q: Where are the most important sources of FDI coming
areas the country has to improve on. The development
from?
of gas pipelines and other energy infrastructure projects
BT: For Mexico, the capital originating in the US has
has raised the interest of many players from around the
been the most important source of direct investment
world who want to participate in the various tenders that
and this is mainly due to the geographical proximity. We
are being carried out.
also are seeing a lot of interest from European countries, particularly UK companies. Japanese players seem to be
Q:
How
complicated
has
it
become
to
develop
returning to Mexico and there are new entrants such as the
infrastructure projects with the rights of owners and
Koreans, particularly in the automotive sector. This sector
indigenous communities a government priority?
has shown a significant development and is displaying an
JG: This is an area that requires a great deal of attention
extraordinary dynamism in terms of FDI.
since there are a number of rising challenges and difficulties to be addressed. These complications are
Q: How is Baker & McKenzie positioning itself to deal with
overseen by different government agencies that have
the new transactions that are going to appear?
the responsibility of establishing specific regulations or
JG: We can offer our clients a high level of expertise and not
deciding whether Congress needs to change the law. It is
just generic legal knowledge. It is important that our client
very important to acknowledge that Mexico is a different
base is comprised of international companies, local players
jurisdiction. Foreign players need to realize they are in a
and Mexican multinationals. We are the largest law firm
different country, with unique laws and regulations, and
in Mexico by far and the reason I mention that is because
companies should not take things for granted. Conducting
we can offer a level of specialization and expertise to all
proper research regarding key issues prior to a project
kind of companies. Right now the energy and automotive
acquisition is incredibly important, just as important as
sectors are extremely important for us, although telecoms
conducting proper due diligence of the target.
and pharmaceuticals are not far behind.
VIEW FROM THE TOP
SOCIAL RISK GROWING RAPIDLY NICK PANES Senior Partner at Control Risks 53
Q: How is the culture of risk management progressing in
generally pro-investment, whether it is domestic or foreign.
the Mexico?
The political issues that present themselves at a municipal
A: Mexico’s risk environment has significantly evolved in
and state level have grown significantly over the last few
the last 10-15 years. Today, there is a more sophisticated
years. There are occasions when federal initiatives do not
risk management industry that can provide services to
trickle down to the state and municipalities, which is where
enterprises. The risk management landscape encompasses
infrastructure projects often face the most challenges.
a much broader range of issues, including financial,
The government must ensure there is consistent support
political, economic, market, security and environmental
across all levels of authority.
risks. The fastest growing risk in Mexico, which deserves far more attention, is social risk. This element requires
Q: What are the main challenges the infrastructure
companies to fully understand how their actions will
industry must overcome?
impact the surrounding communities and environments.
A: One of the challenges is the large amount of regulatory
It is important to understand the key stakeholders, their
changes that have taken place within the last couple of
interests and land ownership structures before getting
years. Although most of these changes are viewed as
started on any infrastructure project. Once a company
positive, there will be an adjustment period in which
understands the entire operating context of a project,
companies have to fully comprehend the new rules
along with all the players and the role they each play, it will
of the game and their impact. The evolving regulatory
be much easier to implement an adequate risk mitigation
environment should be positive in the long term,
structure. Fully understanding these issues will allow the
especially when seen from the point of view of energy
company to take more informed decisions.
infrastructure. The administration is looking to diversify its energy mix and secure investment across the full
Q: What economic and political risks are impacting the
energy spectrum. Security also has been an issue for many
development and investment of infrastructure?
years in Mexico. A challenge is differentiating between
A: The macroeconomic and political environments that have
the perception of security in Mexico and the actual
evolved in Mexico through the Peña Nieto administration
situation. Organizations looking to enter the market or
have been highly supportive of infrastructure development.
already present must ensure their internal and external
This government has followed through with its intentions
stakeholders truly understand the country. Organizations
and the results can be seen in the macroeconomic
must try to comprehend the security environment in
indicators that demonstrate subtle growth year on year
which they want to carry out their operations and,
for the last decade, with the exception of 2009. Despite
importantly, how it will impact the company’s operations,
the desire for much more rapid growth in Mexico, the
suppliers, contractors and labor force.
economy is expanding at a healthy pace of around 2.5 percent each year. Regardless of the relatively favorable
Q: What are the risks that most impact the completion
macroeconomic environment, the administration’s fiscal
of a project?
situation has made it extremely difficult to invest in all the
A: Social risk and land rights are the biggest issues
projects it had originally considered. The infrastructure
that infrastructure companies are facing in Mexico.
and automotive industries continue to grow. They have
It is imperative companies have positive community
the most dynamism and are awarded the most deals and
engagement through a clear understanding of the key
projects. It is important to note that the risk environment
social and community players in the area to ensure the
for infrastructure projects expands and contracts through
project is carried out within budget and on time, especially
time and geography. Mexico’s macro political risk exposure
in rural areas. This often interplays with other factors such
is fairly stable, especially since the administration is
as environmental, security and operational risks.
VIEW FROM THE TOP
HIGHEST QUALITY, LOWEST PRICE WINS PROJECTS
54
Sergio Montaño Managing Director at McBains Cooper
Silvia Mejía Reza Senior Consultant at McBains Cooper
Q: How are companies in Mexico taking advantage of the
SM: The educational sector creates a wide array of
PPP program?
opportunities, from installation to the formation of other
SM: McBains has participated greatly in the UK health
educational services. Penitentiary systems usually have
sector and looks to do the same in Latin America.
numerous contracts to undertake a variety of services
When the first hospitals were announced under the PPP
and it would be much easier to have one contract that
program, the company participated as a consultant and
integrates services and essential components into one.
intermediary for UK companies. McBains has developed
Contract integration is attractive to companies because it
projects and is increasing its presence in Colombia,
reduces costs, increases profit margins, eliminates overly
Peru, Chile, Uruguay and Brazil. We offer “boutique
complicated processes and increases transparency. It also
consulting” for PPPs in developing countries because
limits constant negotiation between government divisions.
we specialize in this. Q: How will the economic situation and the creation of SMR: The latest changes in Mexican law were made
new investment vehicles impact the development of
to facilitate this process and to increase the number of
general infrastructure?
successful projects. The Ministry of Finance has noticed
SM: In comparison with the rest of Latin America, Mexico
that in some regions, many state authorities interpret
has the highest growth potential and the greatest number
the PPP structure as financing when it should be used
of opportunities as a result of a combination of political,
as a service. The Ministry is trying to regulate these
social and economic factors. For the past few years, Mexico
situations. The projects that win PPPs are often those
has maintained strong fiscal and monetary discipline
offering the highest quality service at the lowest price. In
that has attracted investment. On an international level,
Latin American countries PPPs are still seen as extremely
Mexico has to compete against countries that are not
exclusive structures, while others use PPPs even for small
as dependent on the oil industry and despite the fact
projects. Latin American countries have not reached the
that the drop in oil prices has had a considerable effect
point in which a small level of investment will provide a
on the country, Mexico’s dependency has decreased
wide variety of services.
significantly over time. Authorities have had to implement different strategies such as strengthening fiscal policy
Q: What type of infrastructure could the PPP program
with companies as a way of reducing costs, increasing
facilitate that would have a social impact on Mexico’s
productivity and improving quality of products and
development?
services.
SMR: By looking at the global context we can identify the possible social impacts PPP projects will have in Mexico.
SMR: It is important to pay close attention to how
McBains has been involved in educational infrastructure
investment will flow into the country. The biggest problem
and in Greece it took part in a PPP project for the
in the allocation of funds is that companies create
development of high schools. In Mexico there was a similar
shareholders for each budget and these are normally
project in which construction firm ICA hired consultants
governmental institutions that receive part of the budget,
to create a PPP program for the development of new high
such as unions. When working with unions, a company
schools and the final product was incredible. Prestigious
cannot cut salaries or end contracts because workers
architects like Billy Springal designed beautiful learning
are protected and this makes budgeting less flexible. The
facilities, yet the financial model was not attractive to
financial sector is one of the most modernized sectors in
the private sector due to its simplicity. Nevertheless,
the country and the development of Fibras aspires to make
the private sector could be involved in the surrounding
infrastructure investment more flexible. These financial
services such as parking lots and internal services.
structures are being used as a way to increase the amount
of investment in infrastructure, as well as to attract foreign
SMThe biggest shifts will be seen in the largest cities
capital. These financial vehicles will offer businesses more
because the renovation of municipalities typically has a
flexibility but the most important trigger will always
much greater delay. The pressure the population creates
be investment and growth expectations. The effect the
accelerates the development of cities and solutions. We
Mexican peso depreciation will have on its industries
have been involved in various projects including the
depends on how globalized the market is. There will be
Corredor Cultural Chapultepec and we have been invited
pressure regarding exchange rates but fortunately Mexico
to forums to give opinions for the transformation the
has abundant reserves. In times of economic instability,
Zona Rosa area. Unlike cities like New York, Mexico City
the majority of the projects are postponed because the
lacks space for commercial use. The people who work in
government focuses all its resources on education, health
Reforma are forced to travel from Juarez, Condesa, Zona
and security.
Rosa or the other side of Circuito. Mexico is growing and is beginning to take its place within the international market.
Q: What approach is Mexico taking in transforming
McBains offers international practices, which is something
brownfield areas and in urban regeneration?
highly demanded by companies in Mexico City and our
SM: Urban regeneration is a popular practice in Europe
expertise in markets yet to be developed in Mexico will
and there is a public policy that encourages the
allow us to integrate into both the public and private
transformation of industrial areas into housing in Mexico.
sectors.
There are few examples of urban regeneration in Mexico City but it should be implemented and monitored by the government. This type of urbanization is one of the most sustainable approaches to restoring cities. Mexico is reluctant to invest in urban planning and development and although McBains Cooper yearns to participate in the development of master plans, lack of planning is predominant within the culture. Planning is an essential factor for the success of a project, yet Mexico does not give it the importance it deserves. SMR: Although the public sector is promoting these projects through policies, the private sector is developing them since these are the players who encounter the need to transform spaces to make a profit. The private sector sees it as a way of making money and not so much as something that will create infrastructure to help the population. Governmental entities like CONAVI are aiming to make land more accessible for housing developments, promoting multipurpose constructions and diversifying the city in the hope it will reduce urban sprawl. This is a niche that will continue to create new opportunities and McBains wants to seize them, given that there are a limited number of firms engaged in urban regeneration. Q: How can McBains help transform Mexico City’s landscape? SMR: McBains is extremely interested in Mexico City’s development because it is one of the cities that is constantly changing in Latin America and is always searching for new methods of coexistence that incorporate urban development. Mexico City wants to create more citizenfriendly environments by developing bikeways, green spaces and inclusive spaces. The development of a newsletter called Espacio Urbano in El Financiero was intended to merge a variety of ideas for the renovation of the city.
Santa FĂŠ, Mexico City
55
Reforma Colรณn, a project of Sordo Madaleno, Reforma, Mexico City
URBAN DEVELOPMENT
3
Although Mexico’s population growth rate has decreased for the first time in 45 years, ensuring the nation has the adequate infrastructure to meet the needs of more than 129 million people is an arduous task. Cities are growing, making existing infrastructure obsolete and widening the infrastructure gap. The main challenge is creating perimeters to ensure that urban sprawls are contained. Mexico City’s Law of Human Settlements, which was last updated in 1976, is expected to be modified in the coming year. Although the city’s transportation system has increased with the introduction of innovative systems like the Metrobús and Ecobici and the modifications to the Metro, transportation infrastructure is in need of improvement and expansion to reduce congestion and commute times.
Throughout this chapter, Mexico’s architects and urbanism experts disseminate the country’s urgent needs in terms of urban development. They contend that unique points of view in the development of infrastructure projects increase the efficiency of the end product for the end-user. They discuss the challenges companies are encountering when working with citizens in the development of social and public infrastructure, including the construction of projects without stopping the movement of a city and the projects Mexico needs to develop to meet future demands.
57
CHAPTER 3: URBAN DEVELOPMENT 60
VIEW FROM THE TOP: Javier Sordo Madaleno, GSM
62
INSIGHT: Miguel Donovan, Currie & Brown
65
VIEW FROM THE TOP: César Valle, IDOM 59
66
VIEW FROM THE TOP: William Gourg, CapCity
67
INSIGHT: Jorge Gaviño, STC
68
ANALYSIS: Is the PPP Model the Answer to Green Funding?
70
PROJECT SPOTLIGHT: Cycling Fits Into Mobility Puzzle
72
INSIGHT: Gabriel Ballesteros, Ballesteros Mureddu
Manuel Mureddu, Ballesteros Mureddu 72
INSIGHT: José Fenollosa, Meypar
73
INSIGHT: Iván Hernández, Ludens
75
INSIGHT: Victor Legorreta, LEGORRETA®
76
VIEW FROM THE TOP: Gabriel Ballesteros, Ballesteros Mureddu
76
Manuel Mureddu, Ballesteros Mureddu
INSIGHT: Rafael Monjaraz, Serrano Monjaraz Arquitectos
Juan Serrano, Serrano Monjaraz Arquitectos 78
EXPERT OPINION: David Serur Edid, Ideurban
79
VIEW FROM THE TOP: Mario Schjetnan, GDU
80
VIEW FROM THE TOP: Ignacio Nuñez, Vertical Farms
80
VIEW FROM THE TOP: José Luis Gutiérrez, SUMe
82
VIEW FROM THE TOP: Charles Azar, Alto Desempeño
83
INSIGHT: Mario Jiménez, Jica Construcciones
84
EXPERT OPINION: Gabriel Ballesteros, Ballesteros Mureddu
Manuel Mureddu, Ballesteros Mureddu
VIEW FROM THE TOP
DESIGNING HOW PEOPLE LIVE, WORK AND PLAY JAVIER SORDO MADALENO Chairman and President of Grupo Sordo Madaleno (GSM)
60
Q: What are Mexico’s most urgent needs in terms of
more if it was planned further in advance. This would allow
functional architecture and how has the firm adapted to
infrastructure projects to fully develop, as well as create a
these needs?
clear structure for the people and the city.
A: There are various critical issues at hand. When the firm started out in 1937, the city was small and today
Q: Why should architecture go hand in hand with the
there are many needs to be addressed in terms of design.
construction and development process of projects?
Transportation and mobility are presenting some of the
A: Architecture is not just about beauty, it is about
largest challenges and when designing developments,
creating an experience that integrates all of the senses
it is important to take into consideration the specific
into an environment that an architect has assembled. It
conditions in which people live, work and play because
is also not only the design but the way it is operated and
people will only venture outside of this area on special
managed. It is vital that the spaces are leased efficiently
occasions. By taking this into consideration in the design,
and that there is an adequate mix of tenants. We began
it will drastically reduce car usage, which would lead to
to create our own leasing agreements because it was an
establishing more cohesive forms of public transportation,
essential factor to the success of our projects. Whenever
as well as influencing the public’s way of thinking.
we design a new project, we are always conscious of the leasing of the building, as well as the business aspects,
600,000m2 of leasing areas are available throughout the city due to the diversified use of the space for housing, hotels, office and retail
such as securing loans. Architects tend to want to spend more money to make their projects more alluring but on the financial side one starts to question whether certain things are necessary or will generate value. We began forming partnerships with tenants, such as Hamley’s and El Ganzo, which we later franchised as part of GSM. GSM has been operating centers for over 40 years and has gained a complete understanding of the most prevalent problems.
As time passes, projects grow larger, and we now see 600,000m2 of leasing area available throughout the city
Q: How is GSM taking advantage of the tourism boom in
due to the diversified use of the space for housing, hotels,
Mexico?
office and retail. These types of multi-use projects are
A: GSM is working on six different hotels, including Park
immense in size but are beneficial for the development of
Hyatt and the expansion of Antara in Mexico City, Hyatt
the city. Ultimately, the most important thing in design is to
in Guadalajara, Hyatt in Playa del Carmen and another full
create value in every project, with the building increasing
ownership timeshare and hotel in Cabo San Lucas. Hotel
the value of its surroundings. When we built Antara in
projects require a great amount of detail and dedication
Mexico City, it completely transformed an area that was
to create that perfect environment for visitors. Hotels used
once filled with industrial plants into the “New Polanco,”
to be cold and it was an arduous task to break the mold of
which is now one of the most sophisticated areas in city,
what hotels should look like and the features it should have.
filled with corporate headquarters, museums and offices.
A difficult trend to understand is having bathtubs in all of the rooms when showers are far more efficient and decades
For these types of transformations, it is essential to plan in
passed before the paradigm was finally broken. Lobby bars
advance, which is another challenge that Mexico is facing.
were also extremely popular and hotels could not eliminate
Government planning is carried out according to the six-
them because people were accustomed to their presence.
year terms of the election cycle. The country would benefit
These are examples of exactly how challenging it can be
to shift trends and mindsets, as well as creating new types
projects will create new design standards for future
of environments where people can truly interact. Investors
cities around the globe. GSM is working closely with the
are often wary when carrying out these types of changes
government, which is essential for the development of
because the uncertainty is too high.
the blueprints because it will incorporate 30-40 blocks of surrounding areas. This collaboration will help us better
Q: What new projects is GSM working on that will change
understand the impact that it will have on the area, as well
Mexico’s paradigms of architecture and design?
as how we can improve the lives of the local community.
A: GSM is designing two of the largest projects in Latin
These two architectural designs will create a city within a
America, which are the Mitikah Tower in Coyoacan
city that will truly bring value to the communities.
neighborhood and the Colon Roundabout in Reforma, both in Mexico City. We are developing the blueprints
Q: What legacy does GSM want to leave behind for future
for Mitikah, which will adjoin the Bancomer Building and
generations?
Palacio de Hierro Coyoacan. In the Colon Roundabout,
A: The firm has been passed down from generation to
we have secured 3,000m2 of land to develop a mixed-
generation and these new generations of young architects
use complex that will contain about 450,000m2 of
are beginning to completely operate the office. The most
leasable space for commercial, office, residential and
important thing at the moment is to make sure that the
cultural centers. The importance of these projects is that
new generation of architects become extremely successful
we are creating an entirely new environment and a new
and more sophisticated than ever. My father’s buildings,
perspective of the city in the hope that this will change the
such as President in Chapultepec or MarĂa Isabel Sheraton
perceptions of living in a city.
on Reforma, have aged beautifully throughout the years.
61
They are simple and timeless pieces of architecture and Combining a lack of organization with accelerated
part of our legacy is that these buildings withstand the
urbanization will only lead to more chaos but these
test of time.
ARTZ, Grupo Sordo Madaleno, Mexico City
INSIGHT
NARROWING THE SOCIAL INFRASTRUCTURE GAP “The private sector must
such as a road. Social infrastructure has several variables
understand that it forms part
sector is not as accustomed to planning as the private
of the service cycle, which 62
that must be taken into account, especially since the public sector. To participate in such developments, the private sector needs a guaranteed return on investment (ROI) and
includes the equipment,
clear demand, whereas the public sector is accustomed to
facilities, service providers
speed in which the project will be completed. Differences
and end users”
complexity of PPP projects. The industry wants unsolicited
Miguel Donovan, Director of Currie & Brown
structuring demand based on the size of the budget or the in planning and in the results expected often increase the proposals to be adapted but because they work best with self-funded projects in which the need is clear and a solution is at hand, they are far more intricate to implement. As a
Social infrastructure directly impacts a city’s sustainability
result, the only action the government should take is to
but developing this infrastructure is no easy task.
grant companies permission to carry on since the private
Hospitals, fire departments, museums – these all require
sector assumes all risk.
significant investment. To allow social infrastructure to flourish, many countries in Latin America are turning to
Currie & Brown’s extensive experience in developing
partnerships between public and private entities, or PPPs,
successful social infrastructure dates back to their first
says consultancy Currie & Brown of its core business in the
PPP pilot project, the Bajio Hospital, which became the
region. In Mexico, Currie & Brown has helped reshape the
first social infrastructure PPP building in Latin America.
supporting regulatory framework for these partnerships to
That project helped strengthen collaboration between the
succeed.
Ministry of Health and the private sector and paved the way for the development of other infrastructure under the PPP
“It is important to make commercial banks understand
plan in the cities of Victoria, Ixtapaluca, Culiacan, Chihuahua,
the importance of the sector and project finance, and the
Acapulco, and Torreon. These hospital projects encouraged
government must understand that once a social project is
the industry to reach out to other strategic sectors like
launched it demands a long-term commitment throughout
education. “The private sector must understand that it forms
the lifecycle of the asset,” says Miguel Donovan, Director
part of the service cycle, which includes the equipment,
of Currie & Brown. Prisons, courthouses, police stations,
facilities, service providers and end users,” Donovan says.
hospitals and schools require long-term maintenance to
With projects of this nature, Currie & Brown supports and
secure the value of assets. This requires adequate financing
challenges the government in its planning process, helps
and maturity from the government’s side for the successful
the private sector understand the social requirements and
creation of social infrastructure PPP projects.
at the same time ensures the projects are both productive and profitable.
Mexico took a shot at its first PPP for social infrastructure in 2002 and although the market responded with just one
PPPs have enabled transformation of Mexico’s social
bidder, improvements in the process have increased the
infrastructure landscape and they contribute to both the
number of bidders in recent projects. The Mexican PPP
social and economic development of the country, Donovan
model is a bit different and that has been a hurdle for some
says. PPPs are meant to be long-term concessions or
companies. “The key factor to remember is that the private
contractual agreements between the private and public
partner provides supporting services. In a hospital, the
sectors, designed to deliver services for the construction
private sector provides everything except the doctors,” says
or operation of assets. They create enormous opportunities
Donovan. Defining clear roles is crucial to the successful
for the infrastructure industry and will expedite the
development of a project and the government should clarify
development of social infrastructure to satisfy the needs of
the needs and demands of any infrastructure development.
the population.
The process for developing social infrastructure also is far
Donovan shares that PPPs differ from country to country
more complex than that of a linear infrastructure project
because local business culture and legal frameworks vary.
There are many elements that come into play and it is
evaluation. Traditionally, local authorities have adopted
difficult to bring a common law contract as found in the UK,
unconventional practices regarding their short and long-
Canada and Australia to a civil type of public contract found
term debt through the use of federal resources. The new
in Mexico. “Most PPP programs evolve according to the
restrictions will force states to improve their risk profile
maturity of the markets involved, which include the banking
and it will be clearer for financial institutions and credit
system, insurance market and the supply chain that deal
rating agencies to assess how the authorities treat their
with the concessionaries, developers and operators of the
long-term commitments. “By having more discipline, the
long-term assets,” he says. “All these variables must reach
states will attract more investment, although some will
maturity to have a successful PPP scheme. Mexico has taken
not see the benefits in the short-term because they are
an important step in the right direction for nontraditional
already in a serious debt loop and they must at the same
infrastructure by improving the existing model for long-
time uphold their public and social obligations,” he says.
term investments. A successful PPP model must bear in
“State authorities must handle their finances and existing
mind the capabilities of the government and the maturity
debt, and at the same time build the social infrastructure
of the supply chain and the Mexican model is one of the
requirements.”
most successful programs in Latin America. Maturity is vital for the PPP model because it is the deciding factor for
As a Scottish-born company Currie & Brown has a
innovating and improving the plan.”
track record in the energy industry, particularly in the renewables sector. Donovan hopes the company can
Mexico is approaching a point where the finance market
increase its participation in this industry since he believes
should be involved in every process of a project and
that renewables bring the most innovation to development
construction companies should not fully lead the contracts,
structure. “One of the projects that had a deep social and
according to Donovan. He believes that financial institutions,
cultural impact was the Cultural Center in Texcoco,” he
pension funds and new financial tools have a better grasp of
shares. “It is the first cultural infrastructure project to be
long-term concerns and of mitigating risk and the financial
developed in Latin America under the PPP scheme and
world should be ready to shoulder a bit more responsibility.
fosters cultural and social development in an underprivileged
“The PPP model in Mexico is being reshaped and the results
region. Governments from emerging markets like Mexico
are shown in the number of bidders,” he says. “The first PPP
rarely invest in culture given the limited resources and other
for social infrastructure only received one bidder and this
pressing priorities, which is why this project is so important.”
reflects the limited conditions in 2003-2005, while the most
Another important project is the refurbishment and upgrade
recent project had 12 bidders.”
of medical services of PPP hospitals, and the improvement has been dramatic. Currie & Brown wishes to increase its
The reform of subnational debt, which imposes financial
participation in asset management and be involved even
discipline, is sure to motivate states to improve their risk
more in long-term concessions.
Landscape, Anzures, Mexico City
63
64
Circuito Interior, Mexico City
VIEW FROM THE TOP
PROJECT MANAGEMENT FOR SUCCESSFUL INFRASTRUCTURE CÉSAR VALLE General Director at IDOM
65
Q: How is Idom leaving its mark on infrastructure
A: At the beginning of the Peña Nieto administration,
development across the country?
the time allotted for presenting proposals during the
A: Idom works on projects that transform companies and
tendering process was extremely short. The government
economies. The company is involved from the start of
has made strides to create more transparent, formal and
each project and its primary services are in the planning
open tendering processes, especially regarding the time
stage, feasibility studies and engineering design. During
allocated to the creation of proposals. The government
the construction stage, the company offers project
is working hand in hand with the OECD to increase
management and engineering services that will help
transparency and the results of this collaboration are
optimize operations through the use of logistics and
evident in the New Mexico City International Airport
information systems. Our services allow us to participate
(NAICM). It is crucial for the government to define an
in many projects from the NIP because we can integrate
adequate technical proposal so it can meet the interests
all our areas of expertise. The development of Special
of participants and citizens. We have great expectations
Economic Zones is among the initiatives that interests
and being a company that can integrate many services,
the government and Idom would like to take part in these.
each of our divisions is waiting for news on the
These projects have the ability to transform deprived
development. We are also highly interested in taking part
areas. Building entirely new cities from the ground up
in urban planning and safety projects surrounding the
is becoming a popular infrastructure trend and Idom is
development.
participating more in these types of projects. Q: What international best practices does Mexico need to Q: What impact will unsolicited proposals (USP) have on
implement and how is IDOM involved?
PPPs and how should the relationship develop?
A: Various multilateral agencies like the Inter-American
A: This is one of those initiatives that should be closely
Development Bank (IDB) and World Bank are encouraging
monitored in the next couple of years. Budget cuts are
the transfer of best practices to generate an interest
forcing the government to evaluate innovative mechanisms
in mobility prior to infrastructure development at an
that
infrastructure
interurban level. This is reflected through the Program
development in Mexico. The government will rely on the
for Federal Support for Mass Transit (PROTRAM) ,
private sector to develop various projects, which will
which focuses on mass passenger transportation and
have a positive and quick impact on the development of
incorporates key elements of mass transit and mobility.
infrastructure. The federal government is implementing
Mexico City has increased mobility in many ways, such as
the
will
improve
adequate
the
oversight
efficiency
of
approving
the introduction of the Metrobús, which has contributed
proposals. It is imperative that the government becomes
mechanisms
for
to a decrease in traffic congestion. But the country has
deeply involved in making processes more transparent
a long road ahead. For infrastructure development to be
and the Ministry of Finance should be more involved. The
successful, each project must be meticulously planned
industry’s participation is also a key element to ensure the
because all potential solutions will have different costs
efficiency of these mechanisms. It is the responsibility of
and impact. In a country with numerous needs and
each individual agency to establish a clear focus for the
limited resources, companies must be able to prioritize
projects they want to carry out. At the moment there is a
their involvement in the industry. The feasibility studies
limited number of PPPs but there is talk of creating of a
we develop are a perfect fit for this and are being
new agency, like in the UK, to oversee these projects.
implemented in different cities across the country. The transfer of the best international practices into Mexico has
Q: In what ways is the tendering process evolving to
given the company more visibility with projects that are
better meet the country’s development needs?
recognized by the IDB.
VIEW FROM THE TOP
SMART CITIES WITH A HUMAN TOUCH WILLIAM GOURG Director of Business Development at CapCity
66
Q: What makes a city “smart� and how can cities
exacerbated by the low priority authorities give to urban
accelerate toward achieving that status?
issues. The private sector can be a financial alternative
A: People mistakenly connect Smart Cities to urban
to the public sector. The government has to establish
development, when the latter focuses more on technology
mechanisms that promote an alliance between the private
than people. CapCity is a consultancy that strives to go
and public sectors so that municipalities can benefit from
beyond technology. It targets the creation of human cities
partnerships that reduce costs and energy consumption.
that solve neighborhood issues and promotes tools that
Many cities around the world like Medellin and Barcelona
help ease the toughest challenges that cities face without
have found this model to be quite successful. In those
significant technological challenges. We recognize that
cities, developers identified abandoned areas that could
each area has a different set of problems that need to be
be turned into urban development projects with space for
addressed, among them the fair distribution of service
innovation and creativity.
taxes that come from light, water, transportation and other basic services. There is a lack of social infrastructure
Q: What tools can Mexico City use to promote its basic
for schools and libraries. Acquiring partnerships with
infrastructure?
the government, universities and the private sector can
A: CapCity offers two basic tools. We have a database
quickly boost progress.
with social, economic, environmental and technological indicators that identify specific areas of opportunity.
Q: How can financial inclusion help avoid opposition to
We have built an app called Geo Business Intelligence
projects like the Cultural Corridor Chapultepec?
that will link this data to maps. Many companies want
A: The Cultural Corridor Chapultepec should have been more
to do business in Mexico but the lack of information and
transparent about the origin of the budget and its allocation.
database collection scare off investment and weaken the
CapCity promotes a new model of governance that allows
economy. Access to information can keep companies from
the public sector to intervene in private initiatives through
wasting money unnecessarily and allows them to make
transparent mechanisms that also have the advantage of
smarter decisions.
attracting investment. On the whole, Smart Cities prioritize efficiency over quantity when it comes to capital and a higher
Mexico also has a lack of transportation mobility
level of transparency. The idea is to make sure all expenses
technology. There is little information about minibuses
can generate revenue and avoid the loss of investment. The
and their routes. Transportation technology companies
issue is that authorities lack transparency about the financial
are unwilling to heavily invest in the creation of a
aspect of these projects. CapCity promotes the participation
database system because it is not profitable. They end
of the private sector in sustainable city projects as they
up taking their knowledge to other regions that are
can take over important environmental and social studies.
more compatible with their products. CapCity can act
Projects are less successful with the sole participation of
as a liaison between the public and private sector with
the public sector thanks to internal political conflicts and
a database system that displays proposals and calls for
the insufficient inclusion of surrounding communities. If the
tenders. Our objective is not only to attract investment
Corridor had collaborated more with the private sector, the
but to allow an exchange of best practices. CapCity
opposition could have been avoided.
encompasses a strong network of consultancies in Medellin, Paris, Santiago and Amsterdam that share best
Q: Where is the middle ground between the public and
public sector practices. We also have a strategic solution
private sectors on the commercial focus of a project?
portfolio that can repair issues that cities face with
A: Municipalities are highly indebted, which prohibits
sensors, smart grids, Smart City expertise, geolocation
them from receiving credit for urban development. This is
applications and urban Wi-Fi structures.
INSIGHT
METRO SYSTEM THE BEATING HEART OF MEXICO CITY JORGE GAVIÑO Director General of the Collective Transport System (STC)
67
Before the Mexico City Metro system was opened in 1969,
The metro system does not cover all parts of the city,
the city was plagued by infrastructural problems due to
lacking northern routes to the Santa Fe and Satelite
its lack of transport links for its then 4 million inhabitants.
neighborhoods and the last expansion was in October
Highways and bus routes faced significant congestion
2012. Gaviño agrees these areas require more adequate
and the Olympics in 1968 highlighted these issues. Today,
transport links but he cites the high costs of subway
Mexico City’s population is closer to 21 million and the
construction as a possible factor for delays. “We have
metro system is an integral part of everyday life.
recently made adjustments to the Metro Master Plan to include the extension of line B to the new airport, the
In its 46 years of operation, STC has completed more than
extension of line 12 to Observatorio and that of line A
55 billion rides. About 5 million passengers now use it daily.
to Chalco,” Gaviño says. He also believes in pursuing a
The system is highly subsidized by the government and at
more aggressive expansion plan to the centers of higher
MX$5 (US$0.26) per ride, it is one of the cheapest in the
demand to maintain STC’s role as a lever of economic
world. “Without the metro, Mexico City would come to a
development. Gaviño says the city’s metro system has
standstill as a city bereft of economic development,” says
come to represent such an important transport link
Jorge Gaviño, Director General of STC. “Independently of
for its citizens that no infrastructure proposals can be
the number of passengers we transport daily, the biggest
considered without evaluating the implications for public
success of our metro system is its contribution to the
transport. Car users, he says, should pay a fee, as they
country’s economic activity.”
only represent 20 percent of the city’s population, with the remaining 80 percent using public transport. Another
STC was a pioneer in Latin American metro systems and
little-known issue with the metro system, says Gaviño, is
through the years the Mexico City metro has intermittently
the requirement to halve speeds during rainy conditions
ranked first globally in terms of speed and time. Despite
for safety reasons. The fitted trains, which are made to
criticism that the system, which is the world’s fourth largest,
operate underground, are not designed to deal with
is saturated, Gaviño argues that this is only a concern
the slippery conditions presented by rain. A significant
during peak hours, just like in many other countries. This
investment will be needed to optimize the cruising speed
is exacerbated by the fact that more than half of all metro
of the carriages.
users take advantage of the service during peak times and these users are typically centered in the same city areas,
STC’s greatest challenge, according to Gaviño, is upkeep.
with only a few lines transporting the majority of them.
The rolling stock employed by the network has a lifecycle
“Outside these hours, the system has a significant capacity
of 46 years and requires comprehensive maintenance.
to cater to demand and our services are extremely efficient
Models with a mileage of over 700,000km need servicing
and adapted to the user’s needs,” Gaviño maintains.
but some trains operate with a mileage of over 1.4 million km without ever having undergone maintenance. Fixed
To further boost its services, STC is evaluating alternatives
installations have also experienced over 40 years of
so that travelers arriving at the new New Mexico City
consecutive service, meaning they require restoration.
International Airport (NAICM) can access the metro line,
There is a phenomenon, Gaviño says, called differential
meaning that with only one change they will have direct
settlement, which not only negatively affects user comfort
access to the city center. Features such as luggage space
but means that international standards cannot be met.
and internet access will be available on all trains. STC is also
Overdue station maintenance, the attraction of a more
examining alternatives to paper metro cards, evaluating a
affluent user base and provision of services for passengers
comprehensive pass that also incorporates payment for
traveling on the coming Mexico City-Toluca line all
taxis, buses and even in shops and restaurants.
constitute high priority issues for Gaviño.
ANALYSIS
IS THE PPP MODEL THE ANSWER TO GREEN FUNDING?
68
Mexico is facing a budget crunch that is impacting its
Citizens blocked construction of the development because
ability to build much-needed infrastructure, and PPPs are
they felt the project did not take into consideration
stepping in. The private sector is gaining an increasing
sustainable urban planning. Among the concerns were
foothold in everything from roads, bridges and airports to
that it would establish a barrier between neighborhoods
energy. The input is good for Mexico from the standpoint of
and create unlit and dangerous areas at its borders. The
funding, but not everyone is happy with the arrangement,
public did not have access to the details of the PPP,
especially with projects that directly impact communities.
raising red flags about where the money was going to be
That the new infrastructure is needed goes without
invested, says Hernandez. “There has been a significant
question as the country’s economy and population grow.
lack of transparency in the planning of that project and this has fueled discontent in the community,” Hernández
The World Economic Forum ranks Mexico 59th of 140
says. A limited number of proposals were accepted for the
countries in global infrastructure competitiveness, yet
project, making it a relatively secretive tendering process,
it is the 15th largest economy in the world. Goldman-
and the render dedicated more than 12,000m2 of the
Sachs projects that by 2050, Mexico will be the world’s
110,896m2 project to commercial developments. Although
fifth largest economy with a peak population of over 140
the project included an elevated park, it was not enough
million. Current and projected growth aside, all-important
to convince the people to vote in favor of its construction.
oil prices have put a damper on government finances. The drastic drop in crude prices, which fell as low as $US35 from
A SYMBOL OF VITALITY OR POVERTY OF SPIRIT?
just under $US100 in the last two years and now hovers
Parks and green spaces “can be a symbol of a
around $US45, has put a serious crimp in government
neighborhood’s vitality and character, or an emblem of its
revenues. That forced deep budget cuts in 2016 with
disorganization and poverty of spirit,” says the Project for
plans for more slashing in 2017. The result is obvious: less
Public Spaces, a nonprofit dedicated to sustaining public
money to go around, including funds allocated to the
spaces. Mexico City has many beautiful neighborhoods but
development of sustainable infrastructure. To make up the
there are also many that have been largely overlooked. The
shortfall, the CMIC estimates the private sector will pitch
World Health Organization recommends urban areas
in with over MX$200 billion (US$10.5 billion) to complete
should incorporate at least 9m2 of green areas per
current NIP projects.
inhabitant in a city and research also suggest that these green areas should be no more than a 15-minute walking
While the government may welcome PPP involvement in
distance from homes to promote healthy urbanization.
its infrastructure plans, when it comes to developments
Mexico City provides its inhabitants with only 5.3m2 of
closer to the hearts of communities, such as parks and
green space per habitant, according to a study from the
green spaces, the public has a different view: tell us
Institute of Ecology of UNAM.
everything, or stop. “Social discontent occurs when projects do not effectively include communities in the
The latest study on green areas in Mexico City was carried out
planning and development process and this can hinder
in 2009. The Future of Green and Wooded Areas of Mexico
continuity,” says Gabriel Ballesteros, Partner at law firm
City, by the Environmental Attorney and Land Management
Ballesteros
the
(PAOT), considered public and private green areas, including
significance of understanding the needs of both citizens
rooftops and medians. It concluded the total area of forestry
and the private sector.”
in either parks or at roadsides was 78.1km2, representing 12.8
Mureddu.
“The
instability
highlights
percent of the total urban area. The total area of spaces with In the case of Corredor Cultural Chapultepec, a project
grass and bushes was 34.8 km2, or only 5.7 percent of urban
designed to transform one of Mexico City’s main arteries
area. In total, 112.89 km2, an equivalent of 18.5 percent of the
into a luxury commercial space, filled with office buildings
city’s 1,495km2, were recorded as green areas. Mexico City’s
and space for pedestrians, the public’s response was loud
most expensive neighborhoods include Polanco, Condesa,
and clear. The response was a resounding “no”. “Mexicans
Chapultepec and Roma. These are the city’s design,
are very concerned with their everyday lives, but not so
innovation and economic hubs and also have the most well-
involved in the big picture of the development of Mexico
kept and attractive green spaces. Average rents run about
City,” says Iván Hernández, Director General of Ludens.
MX$16,000-38,000 (US$842-2,000) per month for a 180m2
“Although not a positive development from the start, this
apartment, above the average price of MX$15,831, (US$833)
large-scale project captured the attention of citizens.”
according to rental agency Inmuebles24.
ARTZ, Grupo Sordo Madaleno, Mexico City
69
On the outskirts of the city, the view is much different. In the
neighborhoods and lucrative businesses are located
Iztapalapa neighborhood the difference in green spaces,
around Chapultepec. Working with the government is
urban planning and the way rapid urbanization has taken
an additional challenge, says Schjetnan. “The political
its toll is on full display. According to PAOT, Iztapalapa has
involvement
a population of 1.8 million, which represents 20 percent
particularly technical but together make the project more
of Mexico City’s total population. When comparing
intricate and require intense negotiation.”
creates
many
variables
that
are
not
Iztapalapa and Miguel Hidalgo, home to the most luxurious neighborhoods, Iztapalapa has a density of 15,635 people
Developing parks through PPPs is extremely complicated
per km2, while Miguel Hidalgo has a density of 7,523 people
due to the conflict of interests of both parties, says Miguel
per km . When comparing the amount of green areas,
Donavan, Director of property management consultant
Miguel Hidalgo has approximately 12.5m2 per habitant while
Currie & Brown. But finding a middle ground where the
Iztapalapa has 0.6 m per person, mostly along roads and
public gets what it needs and investing companies can
medians. According to the ICSC, Mexico is expected to see
make a profit can lead to the development of sustainable
a 30 percent rise in commercial real estate developments
cities.
through 2025, meaning approximately 760 developments
consideration human and environmental aspects and the
that add up to 23.3 million m2. The goal of these, according
commercial interest of the investor are needed, he says,
to architects and real estate developers, is to create cities
pointing to the concept of unsolicited proposals (USP)as
within a cities. Mixed-use real estate development combines
a way forward. USP could encourage the creativity of the
housing, commercial and work spaces.
public sector to enter the realm of social infrastructure but
2
2
Innovative
business
models
that
take
into
only if the regulatory framework is correct. Donavan says
FINDING THE MIDDLE GROUND
using PPPs to construct social infrastructure is far more
To gain public acceptance, the community needs to
difficult because the demand and return on investment
be involved from the beginning. Alternative ways of
(ROI) are not clear.
thinking may be necessary, where the public works in conjunction with the private sector. In 2004, the
“USPs can be complex to implement but they work well
Probosque Chapultepec Trust was created by the private
when projects are self-funded, the need is identified and
sector to preserve, rehabilitate and remodel Mexico’s
the solution is at hand,” he says. “This way the only step
most famous public park, Chapultepec. Mario Schjetnan,
the company must take is simply asking for permission
Director General of GDU has led the rehabilitation of the
from the government, especially since the private sector
park since then. He points to the public’s participation for
is assuming all of the risk.” The creation of sustainable
its success. “The involvement of the citizens has made
spaces will allow local economies to prosper and enhance
this project very unique in Mexico and it is a wonderful
the quality of life in such sizeable cities, he says. According
example of a project led by the private sector and citizen
to US News & World Report’s list of best countries to live,
participation,” says Schjetnan. The fund ensures the park
Mexico ranks 27th of 60. If PPPs or similar alternatives
is in exceptional condition allowing it to have a ripple
are used innovatively, especially in the creation of green
effect on its surroundings. Mexico City’s most expensive
spaces, how much higher can it go from there?
PROJECT SPOTLIGHT
70
CYCLING FITS INTO MOBILITY PUZZLE In a city where cars dominate the roads and busy thoroughfares become virtual parking lots at rush hour, the humble bicycle is gaining prominence. For an increasing number of people, two wheels are better than four, especially when you can just pick one up and drop it off wherever you are. Shared-bicycle company ECOBICI provides that option. It rode onto Mexico City’s streets six years ago with a vision to place the bicycle as an essential piece of Mexico City’s mobility puzzle. The program allows users to borrow bikes an unlimited number of times from any designated station. Each trip can be no longer than 45 minutes. Riders use a card or a PIN to borrow bikes from ECOBICI stations around the city. The system gives members two minutes to inspect their designated bikes before the time allowance kicks in. When passengers are ready to return their bike, they can head to the closest station, hook it to the station’s bars and scan their card or use their PIN to complete the trip and avoid fees. There are a variety of pay options. The company charges a MX$400 (US$21) annual fee, MX$300 (US$15) for a week’s use, MX$180 (US$9.5) for three days or a daily fee of MX$90 (US$4.7). A valid identification, credit or debit card, proof of address and a signed contract are necessary to join. Prospective members must also pass a basic bicycle-use test. Not sure you remember how to ride a bike? Subscriptions include a free class at the Biciescuela, the program’s bicycle school. ECOBICI began with 84 stations and 1,200 bicycles and has expanded to 452 stations and over 6,000 bicycles. The service is available seven days a week from 5:00am to 12:30am in three delegations: Benito Juarez, Cuauhtemoc and Miguel Hidalgo. Bicycles used for the program are designed to be light, easy to use, safe and functional for urban areas. Each ECOBICI station is equipped with an interactive bilingual device and card reader. In October 2015, ECOBICI registered its highest monthly user rate with 870,549 journeys.
Clear Channel created the first bike sharing system that uses smart cards 17 years ago. These systems are now installed in eight countries. www.clearchannel.com.mx
71
INSIGHT
METERS MUST PRODUCE CHANGE PEOPLE CAN SEE
Gabriel Ballesteros Partner at Ballesteros Mureddu
Manuel Mureddu Partner at Ballesteros Mureddu
72
The potential of parking meters sometimes gets lost in
parking policies need to be complemented with efficient
local infrastructure policy. When the money collected
public transport. “The integration of solutions would
seems to go everywhere but the community, displeasure
create more space on the streets, decrease the amount
is bound to grow. Law firm Ballesteros Mureddu says it
of traffic and guarantee a more secure environment for
does not have to be that way. “Citizens are not seeing the
pedestrians,” he says. “The main problem is that each issue
collected money being invested in local infrastructure,” says
is being addressed by fragmented policies, when a unified
Manuel Mureddu, Partner at Ballesteros Mureddu. Parking
solution would create a more human city.” Considering
meters are an efficient way to stop people from claiming
the amount of conflict parking policies and other similar
informal ownership of streets, as long as the measure
public policies can stir up, especially over cost, Mureddu
is strengthened with other policies, adds Ballesteros
says that cities need to make sure the collected money is
Mureddu Partner Gabriel Ballesteros. They can create
being used for infrastructure development in a transparent
benefits not only for the economy but also for people
and visible manner. The point is to have a deeper impact in
visiting high-traffic areas. Ballesteros emphasizes that all
urban development and gain citizen approval.
INSIGHT
REINVEST STREET PARKING REVENUE TO PREVENT DISCONTENT JOSÉ FENOLLOSA Director General México and USA of Meypar
Mexicans are generally not big fans of parking meters. They
the rights of private property owners to make an income.
see their money going in but do not see many benefits
“People tend to overlook the fact that these parking lots
coming out. It has created a dilemma for local governments
are private property and the owners have the right to use
and companies who see the meters as a mobility solution
the land as they please,” he says. “There is great potential
that manages on-street parking to help keep traffic
and revenue to be made from parking meters that could
flowing, says José Fenollosa, Director General of Meypar
be invested in the improvement and construction of new
México and Meypar USA. Meypar, which develops parking
infrastructure. But people must see the money being
meters and parking management solutions, has identified
invested in the development of their city and communities.”
the various hurdles cities in Mexico must overcome to
The government gives private companies concessions to
create a harmonious environment between pedestrians,
run the meters and the collected money is parceled out
cars and cyclists. “Parking meters are often seen as a
between the two, with the government’s portion allocated
means for the government or private companies to obtain
to a fund for developing infrastructure. In Mexico City,
additional revenue from something public,” Fenollosa says.
parking meters have been placed in 14 zones and many
That, he adds, spurs discontent. Fenollosa suggests there
more municipalities are starting to integrate them into
needs to be a balance between what the people want and
their urban infrastructure.
INSIGHT
ENGAGING URBAN DWELLERS IN ARCHITECTURAL DESIGN IVÁN HERNÁNDEZ Director General of Ludens
73
Metropolitan Mexico City has about 21 million inhabitants.
“passive” when it comes to the development of their urban
While this adds to the diversity and dynamism of the area,
space. “Ludens has been involved in numerous projects,
the people who constitute it can start experiencing a
all with a strong social aspect,” he says. “We have worked
feeling of detachment. This, according to Iván Hernández,
with INFONAVIT and CONAVI, in which Ludens was
Director Generalr of Ludens architecture firm, can be
tasked with redefining the public space in social housing
attributed to the community failing to sufficiently engage
developments.” Besides being cost efficient at 70 percent
with its surroundings. “Citizens must become agents
of the budgeted cost, Ludens' developments also provide
of change and participation instead of merely being
a clear social benefit. “For a project called RIA rural, we
bystanders,” he asserts. “One way this can be achieved is
designed a model, which had certain fixed parameters
to build on the ideas that cities should not be entirely built
enabling the project to be reproduced and recognizable
by architects.” Ludens' "Urban Prosthetics” project placed
as part of a network, while also having sufficient flexible
ad-hoc structures in public spaces across Mexico City.
lineaments to adapt to the local community, climate and
“With this project, my goal was to challenge the prevailing
topography,” he says. Due to its basic structure and the
view that architecture must be rigid and monumental,” he
lack of unnecessary finishes, it can easily be disassembled
says. “I called the project Urban Prosthetics as a response
and reassembled wherever the need exists.
to perceiving the city as a living organism.” The essence of the project was that the general public would appropriate and interact with the structures. “The idea was to start designing objects that do not serve a predefined purpose and thereby invite participants to improvise and hence adapt the structures to their particular need in the moment,” he says. Hernández’s
views
on
architecture
stem
from
the
predominant attitude of Mexicans, who he describes as
Ludens’ building models can come in at 70 percent of the budgeted cost
Torre BBVA, Reforma, Mexico City
74
INSIGHT
COHESION NEEDED IN URBAN DEVELOPMENT VÍCTOR LEGORRETA Partner and Managing & Design Director of LEGORRETA®
75
“Mexico is a country of architects,” says Victor Legorreta,
developments. The presence of restaurants, stores and
Partner, Managing & Design Director at architecture
other services in close proximity to apartments and offices
firm LEGORRETA. “Many countries build to meet a
enhances quality of life and the well-being of families.”
need, but Mexico builds for pleasure.” Legorreta sees architecture as an integral part of daily life that must
There is also an increasing preference for open office
satisfy the public’s needs while also addressing the needs
layouts rather than the traditional cubicles of the past. “New
of a city’s infrastructure as it grows economically and in
generations have an open mentality as to how and where
size. “Architecture is incorporated into the everyday life
they want to live and work,” says Legorreta. “Traditionally,
of Mexican citizens and is now used as an expression
Mexico has been an individualist country but to excel
of culture,” he says. “The country is growing at an
it must reach out and collaborate with other players.
exponential rate and each day it requires the construction
Mexico’s skylines are filled with astonishing buildings but
of infrastructure that will meet the demands of its people.”
the urban design of the cities lacks cohesion. Developers,
The integration of architecture into construction processes
architects and authorities must work together to create
can provide solutions to the some of the biggest problems.
cities that are more resilient.” Mixed use developments have
Legorreta says that connecting with and adapting to the
optimized the use of space throughout cities but people
environment is among the most prominent challenges
are also increasingly vocal about their opposition to the
architects face. “Architects have the ability to reduce the
construction of certain infrastructures, which has resulted
carbon footprint of companies, especially since 50 percent
in delays and high costs for developers. Legorreta says that
of a city’s energy is consumed by buildings,” he says. “This
better cooperation is needed. “It is important that all players
means architects have a considerable responsibility to
are involved in the planning and execution of projects to
design innovative construction methods to optimize the
ensure they are completed both on time and on budget.
use of energy.” The availability of land is another challenge
With our latest project, the Salesforce.com headquarters
amid the country’s economic growth. “Land has become
in San Francisco, we designated six months for dialogue
the treasure of the 21 century as it becomes scarcer each
with neighboring communities to create a project that best
passing year,” says Legorreta. “Growth concerns have led
fits the needs of all the people involved.” Ultimately, this
to an increase in the development of compact and vertical
project was beneficial to everybody in the community, he
infrastructures. To support such growth, new forms of
says, adding this is not often seen in Mexico.
st
urbanism should be implemented to create efficient public transport systems and pedestrian-friendly streets.”
Legorreta is also concerned that rural and disadvantaged areas are sometimes left behind. “Developers and
Near the end of 2015, Mexico became the first country in
architects can sometimes forget what it is like to work
Latin America to earn the biennial World Design Capital
with social housing and in low income neighborhoods,” he
accolade for 2018. But rather than rest on its laurels,
says. The firm believes there are neighborhoods, such as
Legorreta believes it is important for cities to recover the
Lindavista in north Mexico City, with strong infrastructure,
character of the old neighborhoods and barrios that offered
access to transportation and wide streets that have the
a simpler way of living. “As cities such as Queretaro and
potential for development. “The environment in which
San Luis Potosi continue to grow, it is important to offer
we live is extremely important and it affects our level of
people a higher quality of life and design neighborhoods
happiness,” Legorreta says. “The quality of our places
with accessible amenities and social areas,” he says.
of work can affect our productivity, learning and mood.
“Space is a luxury and it is important that we begin doing
These two aspects must work in tandem because together
more with less space,” argues Legorreta. “In the last few
they have the power to impact the life of people and the
years, Mexico has experienced a boom in mixed use
surrounding environment."
VIEW FROM THE TOP
DEVELOPERS FACE SOCIAL, POLITICAL HEADACHES
Gabriel Ballesteros Partner at Ballesteros Mureddu
76
Manuel Mureddu Partner at Ballesteros Mureddu
Q: How are the discrepancies between environmental and
shape but they contradict land management programs.
land management policies affecting developers?
Companies also point out the incongruence of the Urban
GB: The obstruction of the real estate project in Cancun’s
Development Program that labels ecological zones as land
mangroves is a popular example of the challenges
that can be used for housing. Businesses have no way of
developers face when it comes to governmental and
finding information about these changes and the situation
community approval of projects. The original developer
is causing ecological and urban law to collide.
had been authorized by municipal authorities to begin construction but lacked the obligatory approval of
Q: What needs to be done to bridge the gap between
another agency. The whole situation demonstrates a great
public needs and private sector ambitions?
disconnect between governmental levels and agencies. The
GB: It is not uncommon for the public sector to approve
municipal governments, in general, can approve projects
projects proposed by private companies and allow them
without notifying the federal government, which can later
to begin, only to later stop the entire project. Social
deny approval. Ecological planning programs are taking
discontent occurs when projects do not effectively
INSIGHT
MAKING THE MEXICAN DREAM TANGIBLE
Rafael Monjaraz Partner at Serrano Monjaraz Arquitectos
Juan Serrano Partner at Serrano Monjaraz Arquitectos
Architecture is an essential element needed for the
want but creating solutions that society needs. The
development of infrastructure that will galvanize the
firm’s employees believe the architect’s job is to fulfill
modernization of cities and enhance the standard of living
the dreams of the people and express those dreams by
of its inhabitants, according to Rafael Monjaraz and Juan
turning them into tangible buildings, making architects
Pablo Serrano, Partners at Serrano Monjaraz Arquitectos.
the instrument that will help society grow and express itself through its surroundings.
“The firm believes technology, science and art intertwine to create architecture that fulfills human needs and
Sustainability is a growing trend in the infrastructure
can endure over time by adapting to its environment,”
industry and architects are beginning to integrate it not
Monjaraz says. “Architecture is an art that narrates the
only in their designs but in the materials they use to build
presence of mankind on Earth, making it the testimony
their projects. “The idea of sustainability and awareness of
of civilization.” Serrano Monjaraz has concluded that
the importance of nature are becoming prevalent in the
architecture is not about doing what the architects
construction industry as it realizes that exploiting resources
include communities in the planning and development
they cannot risk losing the trust of investment funds. It
process and this can hinder continuity. The instability
is at this point in the project that developers are most
highlights the significance of understanding the needs of
tempted to make decisions that lead to dishonesty.
both citizens and the private sector. Political parties grant a considerable chunk of their attention to elections and
Q: How can social and political issues be avoided?
when they find themselves in an unfavorable position,
GB: Creating dialogue with municipal and state governors
they start blocking major development projects to regain
no longer ensures that developments will be completed
public support. In other cases, they will encourage the
because ecological groups are ramping up pressure on
construction of ostentatious projects to get the attention
the government. It is becoming increasingly difficult for
of voters even if those projects are not ideal for the area’s
companies to find loopholes. If a company submits a
urban development.
change of land use request, SEMARNAT publishes this information on its website to ensure transparency.
77
MM: It is not extraordinarily challenging to understand the regulatory framework that surrounds infrastructure.
MM: To avoid many of these issues, companies must carry
Companies often encounter unseen environmental problems
out a thorough legal analysis that covers every possible
midway through construction that could have been avoided
aspect
with an in-depth analysis of the law. Contingencies should be
mistakenly think that this simply involves the granting of
planned for any project but this route forces companies to
licenses by urban authorities when in reality it implies a
stray from their original plans and budget.
number of environmental, urban development and registry
that
could
affect
development.
Businesses
analyses. By not doing this, developers risk having their GB: Developers face consequences such as legal sanctions
projects halted. Many are so anxious to reap profits they
when they do not carry out the proper studies from the
overlook significant steps and end up increasing the total
outset. As a result, they are forced to find ways to reach
cost of the project. The most effective way to look at these
their established targets and comply with their financial
types of situations is by understanding that officials are
obligations despite project adjustments. At the same time,
temporary but laws are forever.
not only devastates the landscape but also deteriorates
environment. The firm designed the innovative Viñedo de
ecosystems that we inhabit,” Monjaraz says. Buildings
Coté, which was inspired by Hassan Fathy, who created
were traditionally constructed with materials that were
entire cities using sand from deserts in Egypt. For the
easy to use and low cost, albeit extremely destructive to
vineyard, the firm used the original soil as raw material to
the environment. “However, as the years pass, the industry
build the building and cellar. “It is important to remember
is understanding that choosing economically convenient
that the resources provided by nature, such as the soil,
solutions will ultimately create expensive consequences in
are essential elements for the construction,” says Serrano.
the future,” adds Serrano.
“In this project, the soil was used to create the optimal environment for the wine storage because of its stabilizing
The architects say the use of local materials in Mexican
impact on temperature.”
architecture is an ongoing debate in the field. Monjaraz believes that it is important to take into account how
The architects at Serrano Monjaraz believe that values
buildings are constructed, who will benefit and what effect
should always prevail. “Fashion trends are often imposed
it will have on the economy. “In any construction, finding the
on our lives but the firm believes that architecture that
adequate materials for the project is imperative because
is temporal or that corresponds to certain trends will
they not only have to comply with the technological
not
requirements but they also have to be aesthetically
Serrano. “We do not want to make decisions based on
pleasing,” he says. “Globalization means that to construct
trends. We want to make decisions with responsibility
something, the materials must be brought from all over
and consciousness.” The firm agrees that architects
the world to meet the specifications needed. We made the
must consider the economy and other external factors
decision to design buildings that are sustainable and that
throughout the design process because that will help
are consistent with the economy.”
decide what construction system and processes will be
create
significant
long-lasting
structures,”
says
used. “This will ultimately optimize not only the monetary Serrano and Monjaraz also want to create designs that
resources but it will also create the least possible
are capable of adapting to the surrounding natural
devastation to the site,” says Monjaraz.
EXPERT OPINION
LISTENING TO THE VOICE OF LEADERSHIP IN URBAN DEVELOPMENT DAVID SERUR EDID President of Ideurban
78
Wandering down the streets of Mexico City’s historical
private sector will naturally bond itself to these initiatives.
center you will find buildings erected and scarred by
Paseo de la Reforma is a perfect example of the interaction
the tumultuous history of the country, from the buried
between the public and private sector in regards to urban
relics of the Aztec empire to the palaces of colonial
development. This avenue, originally commissioned by
power. These historical jewels stand side by side with the
the Emperor Maximilian I, has borne witness to the most
crystal skyscrapers that denote Mexico’s evolving urban
important historical events and it is surprising that for some
development. The foundation of IDEURBAN 41 years ago
years, the avenue was dilapidated and few developments
had the intention of boosting Mexico’s urban development
were commissioned. During the administration of Manuel
to achieve harmonious projects in the city. This country has
López Obrador, the public sector repaved the whole
grown leaps and bounds and it has prospered economically;
avenue and provided a range of incentives, including relief
unfortunately, in my eyes this prosperity has not percolated
from building licenses and exemptions from property tax
to all socio-economic groups. My vision has always been
for eight years. These actions served as catalysts and the
to create small cities within larger metropolitan areas that
private sector stepped in and developed iconic buildings
encompass all the variables necessary for successful urban
that reflect Mexico’s path to modernity.
development. Rather than stretching cities to the very limits of the horizon, they should be concentrated into
I have come to realize that Mexico’s youth are apathetic
condensed nuclei of life. I can pinpoint two projects that
to urban development and lack certainty for the future.
are a testament to the capabilities of urban development
It is important to nurture these generations by crafting
and the different facets it embodies.
community and cultural centers because poor urban planning can lead to marginalization and can be a cesspool
The first is the Westin Brisas Hotel that was built between
of antisocial and delictive behavior. The government, hand
1978 and 1981 in Itapa Zihuatanejo, Guerrero. The shape
in hand with the private sector, must create inclusive urban
of the hotel is pyramidal and all 416 rooms have an open
developments that embrace these younger generations
terrace with a view of the ocean. One of the unique
and serve as inspiration. For example, an opera house
qualities of this project is that it is perfectly adapted to
can be admired on a television screen but that cannot
the topography of the region and its uneven landscape.
be compared to witnessing its majesty in person. The
The other is the multilevel highway of the Periferico. It
Palacio de Bellas Artes is a fountain of inspiration for those
is undeniable that this vast and sprawling metropolis is
younger generations who wish to leave a mark on the face
plagued by poor mobility and this new, raised highway
of Mexico’s transforming infrastructure. This has been
serves as an antidote to this problem. Besides the obvious
proven in other parts of the world. During the early 1990s,
reduction of traffic and pollution, the goal of the project
for example, Los Angeles appeared lackluster. In 1992,
was to create points of development and to redensify the
Frank Gehry, who is labelled by many as one of the most
city. As cities are stretched to the limits, the difficulties of
important architects of our age, stepped up to the plate
supplying key services like water and basic infrastructure
by designing the Walt Disney Concert Hall. This world-
intensify and developments such as the multileveled
renowned attraction was the first spark that irrevocably
Periferico restrain this growth and promote vertical
transformed the city and the surroundings of the building.
developments. Additionally, in the areas where garbage is dumped in Ciudad Nezahualcóyotl, I accomplished the
Urban development transforms the idiosyncrasies of
creation of a sports center and housing for 1,500 people.
people and moves civilizations forward. True, inclusive and sustainable urban development creates harmony and as a
It is the task of the government to promote urban
result, citizens develop a deep love and appreciation for the
development through fundamental projects and the
space in which they are born, live, work and ultimately die.
VIEW FROM THE TOP
A GALAXY OF OPPORTUNITIES MARIO SCHJETNAN Director General of Grupo de DiseĂąo Urbano (GDU)
79
Q: How do you integrate landscape architecture and
participation. When we established the initiative to restore
environmental design into urban development in Mexico?
and rehabilitate the park, it was difficult to convince
A: The timeline for an urban project is different to an
the public that the extraction and cutting of trees was
architectural project. The same can be said about parks.
needed and that the park had to be temporarily closed.
Flexibility, patience and endurance are vital assets
To demonstrate the benefits of clearing out the dead trees
because of the length of time needed to develop a project.
from the forest, we enlisted the help of two universities to
The first step is to study the conditions of the site or
carry out a test run. We demonstrated that we would reuse
region from an environmental perspective. We look at the
all the cuttings to improve the quality of the soil. The large
geography, biodiversity, hydrology and topography and
numbers of vendors, both legitimate and illicit, and the
these variables must be considered in urban design. The
enormous flow of people were damaging the park so we
next step is how to establish these conditions as guides for
reorganized the flow and areas of congregation to make it
the design. There are many aspects that are hidden away
less dense. It is a complex social-engineering project that
and that often can be overlooked when designing urban
has to be executed carefully. The political involvement
landscapes. In the city it is crucial to consider the social
creates many variables that are not particularly technical
context and many social factors. The way people move
but together make the project more intricate and require
around a city, for example, greatly influences the design
intense negotiation.
of an urban site. Q: What impact does LEED certification have? Q: What role do these concepts play in helping bridge the
A: The Green Building Council is establishing criteria
socioeconomic aspects in Mexico City?
to certify LEED projects at the urban level, in terms of
A: Mexico City resembles a galaxy where some areas
residual water and other environmental issues, which
are extremely beautiful and others hideous. There is a
is important in this project because it is located in a
continuous contrast of order and chaos and from this
delicate lava rock environment in Mexico City’s Pedregal
point of view Mexico City holds a special place as a global
neighborhood. The region is crucial for the percolation
metropolitan area. The city harks back to the Pre-Hispanic
of water that replenishes the aquifers of the city. The
era when Tenochtitlan was the epicenter surrounded by
first condition was to establish where not to build and
a myriad of towns and settlements. During the colonial
where to conserve. The area will include new strategies
period these settlements became towns with their own
for rainwater collection, recycling of resources and water
identity and characteristics. Mexico City is a collection of horrible and beautiful things woven together, a city full of surprises that brims with endless possibilities. It is not a megalopolis of anonymity but one that has a historical structure. Other areas such as Ecatepec have a character of anonymity because in the past it was a lake that was
Usually an urban project takes 10-20 years to fully mature and reach its desired impact
drained for urban settlements. The way to structure the city is to envelop its historical, social and physical factors
management. Most of the time, LEED is a marketing tool
into the design.
but for this project it was used to establish the conditions for developing the site. The biggest hurdle GDU
Q: What challenges did the Chapultepec Park restoration
encountered was the environmental legal requirements.
present?
Environmental laws can be confusing at times and the
A: The Chapultepec Park project is a wonderful example
regulations should be well-established, transparent and
of a project led by the private sector and citizen
less politicized.
VIEW FROM THE TOP
GROWING THE POTENTIAL OF VERTICAL FARMS IGNACIO NUÑEZ Director General of Vertical Farms
80
Q: How have you advanced in efforts to become a private
Q: How can Mexico City’s families benefit from installing
enterprise?
vertical farms in their homes?
A: Vertical Farms was born from an NGO called México
A: Vertical Farms targets farmers in Mexico City’s
Fusión Cultural, in which we remain active members. This
rural areas and neighborhoods in Tlalpan, Magdalena
association works to convert social and environmental
Contreras,
initiatives into private businesses that do not rely only on
Xochimilco. People can grow a variety of vegetables and
donations to continue their work. The idea is to create self-
fruits in vertical farms, with the possibility of integrating
sustaining companies that can later offer financial support
a
to the association. Vertical Farms is collaborating with
aquaponics. The sustainable system can cover up to 30
México Fusión Cultural in a social-interest project to boost
percent of a family’s food requirements, which provides a
local agriculture in a low-income community in Puebla.
considerable economic value even if the unit is only used
On the commercial side of our venture, we are discussing
for self-consumption. To promote our product in this
the installation of an urban farm with Garden Santa Fe, a
market segment we are organizing training sessions to
shopping center that has one of the largest green rooftops
teach people the benefits of urban farming, as well as the
in Latin America.
potential costs and revenues.
fish
Cuajimalpa,
breeding
system
Milpa
using
Alta,
a
Tlahuac
technique
and
called
VIEW FROM THE TOP
THE HIDDEN PROFITS IN SUSTAINABILITY JOSÉ LUIS GUTIÉRREZ President of SUMe
Q: What certifications does SUMe work with and what are
that promote sustainability. We also intervene in public
its priorities?
policy, laws and norms. SUMe, for example, participated in
A: SUMe is associated with LEED sustainable certification
creating a Mexican norm for sustainable schools through
systems but has evolved to offer BREEAM certification
the National Institute for Physical Education Infrastructure
classes, a system that originated in the UK and is part of
(INIFED). If change does not happen quickly enough,
the International Living Future Institute. The latter may
cities like Mexico City that are doomed to suffer water
be less well known than LEED but it is highly demanding
scarcity will have such a profound lack of resources that
and as a result more efficient. LEED demands companies
companies will be forced to optimize the world’s limited
efficiently reduce energy costs by approximately 40
resources. It will no longer be a question of choice.
percent, while the Living Challenge expects players to use net positive energy where they must produce 50
Q: How are geographical and cultural differences taken
percent more than the amount consumed. The Institute
into consideration when determining national norms?
also requires businesses to harvest more water than the
A: Official norms promote sustainable buildings while
quantity they use. Overall, SUMe strives to facilitate access
clearly acknowledging the differences between each region
to a wide variety of international certification systems
in Mexico. International institutions that offer certificates
Q: What potential growth is there for vertical gardens in
vegetables market has great potential. We are designing
Mexico?
two residential models in the Mexico City neighborhoods
A: The private and public sectors in Mexico lack innovative
of San Jeronimo and San Angel, which will be the first of
approaches that can promote sustainable business. We
their kind in Mexico.
acknowledge certain advances like the electric vehicles supported by Bimbo but these initiatives are the exception
Q: What challenges are ahead and what is the outlook for
rather than the rule. Japan and Singapore have proven
Vertical Farms in the longer term?
themselves to be the most advanced countries when it
A: Our main challenge is to raise awareness about the
comes to urban farming and vertical gardens. Asia has
potential of vertical farming. We are discussing the
innovative technology that allows houses to grow crops
possibility of a joint venture with SHARP, IUSASOL and
in basements with special lighting. Mexico is just starting
some other companies that will involve adapting solar
to see the first prototypes but we expect the product will
panels to power the automated components of our
soon grow in the market. Vertical farms are threatened
vertical farms. Part of our strategy is to build urban farms
by a modern urban population that categorizes farming
in public places to motivate people to find out more about
as a rural activity. Mexico City used to have urban farms
this technology. We have already seen a similar initiative
and rural settings in the 1950s but most of them vanished
in the greenhouse project in the Bicentenario Park in
during the country’s modernization process. The city’s
Azcapotzalco, funded by the Mexico City government.
increasing population, which is expected to reach 24
Competition is not a threat to our business because our
million by 2030, is raising new concerns regarding land,
main objective is to simply create a market. Promoting
water and food scarcity and vertical urban farms might
vertical farms and increasing their demand in Mexican
arise as a suitable alternative. The technology needed
cities will be easier as we increasingly collaborate with
to construct urban farms is not complex and requires a
other private companies, governments and NGOs. In 10
small initial investment. We are cultivating strategies to
years, we expect to have our product positioned in Mexico
promote urban farming for both self-consumption and
City and have some initiatives under development in other
commercial purposes because the organic fruits and
Mexican states.
such as Living Challenge equally allow companies to
models bring an abundance of cost reductions. The
choose and define the steps they need to take to comply
biggest step toward boosting ecological methods involves
with their demanding net positive requirements. Obviously,
primary education. Elementary schools are starting to
each company has a different context that needs to be
teach children about the importance of taking care of our
considered. For instance, a company in the desert that
planet through responsible consumption.
has water uncertainty will need a different strategy from a company in a location like Tabasco that is frequently
Q: What does the future of sustainability look like?
flooded. Even though they may both strive to treat water
A: SUMe hopes the interest in sustainable buildings
respectfully and avoid overconsumption, their respective
continues to grow exponentially along with access
contexts demand they adopt separate methodologies.
to professional education for older generations. The
Standardizing the process of sustainability is not effective,
landscape changes so quickly that the best way to
especially in a diverse country like Mexico.
foster best practices is through knowledge, education and training. Most people care about the environment
Q: What incentives does SUMe promote?
but have no idea where to start. SUMe can guide them
A: SUMe has a simple mission to make sustainability
in the right direction. We also plan to increase the
more profitable. Fortunately, technology and material
importance of equity within the concept of sustainability.
development, coupled with the industry’s expertise, makes
Everybody needs to feel welcome inside every structure,
it easier to achieve our goal. Incentives such as pilot credit
from wheelchair users to others with vision impairments.
programs exist to motivate players. The Living Challenge
Many certification systems are starting to incorporate
reward system offers points for sustainable actions that
accessibility such as LEED pilot programs in Mexico. They
place companies into silver and gold levels. Each region
make sure that a building cannot be labeled as sustainable
has customized ways to gain points. Companies should
if it does not incorporate equity into its structure. We
understand that the initial budget of a sustainable
hope to see a decline in the prevalence of companies that
construction project may be more expensive than more
profit from the added value of sustainability by promoting
traditional methods but in the long run, highly efficient
misleading information.
81
VIEW FROM THE TOP
TRANSFORMING MEXICO’S DESIGN PARADIGM CHARLES AZAR Director General of Alto Desempeño
82
Q: What is behind the rise of multipurpose building sites
Q: What are the benefits of using BIM when entering the
in Mexico and how are they evolving?
bidding for an infrastructure project?
A: In Mexico City there is a serious land deficit. As a
A: BIM will demonstrate both external and internal factors
result, prices are skyrocketing and it has become almost
that will affect the construction and helps optimize project
imperative to build multipurpose developments. We
coordination among developers, builders and designers.
strive to optimize the use of buildings by incorporating
Once that is done, the costs and time can be calculated
new techniques, knowledge and building methods.
for the different stages of the project. This method
It is essential that the architect is in constant contact
consists of five dimensions that make it easier to manage
with designers, builders and owners, as well as having
the project and it can also help predict how the building
a profound knowledge of the city’s landscape and how
will react to various factors after completion, while also
it will change. Structural designers should participate
creating more efficient and cost-effective construction
throughout the entire project and contribute to the
processes. Developers hire structural engineers to build
optimization of the materials and space, which is
BIM models but the time required to complete these
unusual in Mexico, as architects more commonly work
models is extensive. BIM also allows integration of reforms
closely with developers instead of structural engineers.
and regulations from specific countries into the computer
The buildings we design match the country’s latest
models. The software can provide users with the latest
trends such as creating open spaces. Mexicans have
updates in a country’s energy regulations and norms and
been accustomed to visiting enclosed shopping malls
from there adapt it to the project.
but now people want to walk in the open air and among greenery.
Q: What are Alto Desempeño’s goals when it comes to designing Mexico’s future infrastructure?
Mexico is 20-30 years behind Korea and Taiwan and must catch up by innovating in the market
A: We need to spread prosperity across the country, especially to the southeast region. Southern states are extremely rich in natural resources but they are not fully developed. We want to be more involved in projects like Vientos del Sur in the Isthmus of Tehuantepec. The main goal of this project is to build international cargo ports to attract more investment and encourage the economic
Q: How is technology changing the industry and what
development of these deprived regions. Apart from
methods are being employed in Mexico?
the ports, new roads and highways would be necessary
A: Mexico’s perspective is changing and the introduction
throughout these regions to transport the cargo within
of technologies such as Revit and Building Information
the country. These types of projects would also force the
Modeling (BIM) are making companies realize that costs
creation of new infrastructure, such as schools, hospitals,
are not as important as having a quality end result. Mexico
roads and bridges. These regions could take advantage
is leaning toward the use of more sustainable building
of the new Energy Reforms to create windfarms. The
techniques and materials. Other countries, such as Korea
commitment of the government is one of the most
and Taiwan, have developed quickly because they invested
important catalysts for the development of Mexico’s future
in technology and education years ago but Mexico is
infrastructure. Mexico is accustomed to believing that the
20-30 years behind and must catch up by innovating in
most important regions in the country are Guadalajara,
the market. The most predominant materials used in the
Mexico City and Monterrey, when in reality there are
industry are high-resistant concrete and steel, which are
many more cities that are filled with potential and are just
easy to adapt and mold.
waiting for the opportunity to flourish.
INSIGHT
TIME IS OF THE ESSENCE, AND THAT CAN BE A PROBLEM Time can be both a luxury and a burden. For the companies building the country’s infrastructure, it is more a burden, especially when dealing with the government, says Mario Jiménez, Architect at Jica Construcciones. Federal administrations have short six-year windows to reap results, putting pressure on companies. Time, he says, is one of the largest hurdles in Mexico. Jiménez points to social infrastructure as an example. The government has put a priority on universal healthcare and it is now one of the industry’s fastest growing sectors. “Hospital projects take time and these become increasingly complex when factoring in administration changes,” he says, adding that
“People in the industry know that any company that is able to complete a hospital project has valuable experience. This gives us prestige and makes it easier to win bidding rounds” Mario Jiménez, Architect at Jica Construcciones
when governments look ahead, they can get it right. The Ciudad Modelo project being carried out by Audi in “Puebla invests the most in health and in general
Puebla is a good example of the company’s scope. This is
infrastructure such as streets, highways, parks and offices,”
a five-year project with the objective of building 20,000
he says. “It develops large hospitals with massive budget
houses on 480ha for new Audi employees. Jica is in charge
allocations. Document processing is quicker and can be
of the first phase that involves 160ha. The auto company
completed in specific integrated service centers. People
has a responsibility to take care of the massive number of
no longer have to jump from agency to agency because
people its plant will attract but the nearest municipality
the government is more strategically organized.”
does not have the capacity to offer enough basic services, Jiménez says. “If each person is part of a four-person family,
Jica Constucciones has been successful in bidding rounds
an estimated influx of 80,000 people is expected to enter
for hospital projects and Jiménez says companies wanting
in a five-year period,” he says. “This is an incredibly short
to emulate that success must have diversified and related
amount of time considering that areas usually have several
portfolios, as these are the most likely to win projects like
decades to adapt to these numbers.” Ciudad Modelo
hospitals. “They must carefully check the requirements
implies a source of employment, services and sustainable
of each tender to avoid wasting time,” he says. “General
technology. Sustainability is important as it will help
construction companies without specialties typically seek
maximize the city’s consumption habits. LED technology
alliances with other businesses that can help them fill their
and water treatment plants are being considered to recycle
expertise gaps. When it comes to public projects, almost
limited resources as much as possible. “The water used by
99 percent of the developments we solicit are awarded
nearby houses, hotels and commerce will be purified,” he
to our company.” Synergy is a priority when it comes to
says. “Ciudad Modelo will be one of the first cities to have
complex projects like hospitals to ensure the creation of a
all basic services and integrated sustainable development.”
manageable structure. “Even though we have experience with design and construction, the demands we receive
Despite federal budget cuts Jiménez says the country’s
from doctors are a priority because they will be responsible
infrastructure requirements will expand, bolstering the
for managing operations,” he says. Jica maintains a close
need for companies with a long resume. “Overall, the
relationship with the medical team and is willing to make
Mexican industry requires companies that have experience
adjustments as far as normativity allows.
and a willingness to grow,” he says. “We perceive a large demand for practical and experienced private companies
The firm has a wide portfolio that does not nestle into
as the government does not have the budget or enough
a particular niche. “We cannot afford to only focus on
capacity to fill every infrastructure gap.” The architect
hospitals as they are not frequently requested,” says
points out that Jica’s history with hospitals is an advantage
Jiménez. “Our experience includes the construction of
because they are some of the most complicated projects
schools in Nuevo Leon, Michoacan and Morelos but we are
of the industry. “People in the industry know that any
interested in all types of construction projects. Our division
company that is able to complete a hospital project has
that involves design, 3+2, also offers growth opportunities
valuable experience. This gives us prestige and makes it
but only for particular clients.”
easier to win bidding rounds,” he says.
83
EXPERT OPINION
CITIES STARTING TO RESEMBLE PROBLEM, NOT SOLUTION Gabriel Ballesteros Partner at Ballesteros Mureddu
Manuel Mureddu Partner at Ballesteros Mureddu
84
Latin America is one of the most urbanized regions of the
with sprawl appears when it does not come from a natural
world, with more than 70 percent of its population living in
process but from a commercial condition propitiated
cities, but Mexico’s data is even higher. According to World
artificially by the government or by developers, mainly
Bank statistics, by 2015 almost 79 percent of Mexicans
due to economic efficiency motives and speculation, even
were living in an urban settlement. Unfortunately, what
when there was no need for it. If the expansion of the
was supposed to be the solution for millions is not fulfilling
city does not come with a growing process that respects
its purpose. The urbanization of the population has not
the contiguity of the city, then it creates new spaces
meant richer, healthier or happier citizens. On the contrary,
whose value will grow within a speculation process, and
it seems as if inequality and tension have increased. Cities,
that will eventually continue feeding the artificial sprawl
which were supposed to be the solution, are starting to
phenomenon.
look like a part of the problem. Modern urban sprawl, as it is commonly known, equals a disordered, disconnected,
As we said before, sprawl benefits and is propitiated by a
saturated and polluted city and is a major contributor to
combination of both aggressive commercial action by the
urban problems.
developers and a government public policy that stymies the inner development of the cities in favor of its farther
But where does natural urban sprawl come from? That is
regions, promotes housing ownership as a tenet, or even
easy: movement. The classic city’s design was defined by
worse, fails to implement policy at all.
its transportation system in a cause-effect relationship. When traveling systems other than our own feet were
In that case, we should ask ourselves: Is the housing
introduced, people could easily start living farther from
ownership policy bad for cities? We would not dare say
the old city, and so they did, and urban sprawl appeared.
it but one thing we cannot deny is that these kinds of
That is why many older neighborhoods were once the
policies eventually end up pushing people out of cities. If
sprawl of decades ago in our cities. The introduction of
we encourage our people to buy their own houses, they
automobiles, which not only includes cars but also public
will probably have to look for a property in the suburban
transport, became a defining feature of the design of our
area of the city because those are the kinds of properties
cities because they allowed people to live far from the city
that most people can afford. Land the inner cities has
and still be able to commute into it.
considerably raised its price, which at the same time has caused a phenomenon whereby if it ever gets to be
According to Edward Glaeser in his book “Triumph of
developed, its cost will be way higher. It is a vicious circle
the City,” the sprawl generated by the introduction of
and the more the sprawl grows and the city expands, the
a transportation system generally goes through three
more the land in the inner city will cost, and the more it
phases: technological breakthroughs that enable the
costs, the more it will continue its expansion.
large-scale production of a faster way to move; the new transportation network is built to accommodate this new
Another characteristic that comes along with sprawl is the
technology, or equally, the creation of new infrastructure;
decrease in the density of the city, which unfortunately
and people and companies change their geographic
commonly comes along with an increase in the usage of
locations to take advantage of this new mode of transport,
cars. There is therefore a massive rise in driving traffic and
and so sprawl happens.
energy use, affecting the sustainability of our cities and reducing the quality of life of a portion of the population,
In this way urban sprawl is not negative in itself. In fact,
mainly the poorest. An even worse problem is that this will
suburbanization, which is a common effect of the sprawl,
also provoke a new vicious circle. The common reaction to
should not be considered intrinsically bad. The problem
the increase in the usage of cars would be to implement
a highly developed public transportation system, or to improve the existing one. This is only efficient and affordable if there exists enough density to justify the routes of this new system. If there is not enough density, then the cost of the new system with its own infrastructure cannot be justified because of its low prospected efficiency, earmarking cars as the main, if not sole, mode of transport within our cities. So, how should we deal with the apparently unavoidable sprawl of our cities to prevent them from becoming more inefficient and less equitable? There are two strategies that must be implemented in our cities: infill and regeneration. In Mexico, we are not creating public policies to regenerate and fill the city that already has infrastructure. Vertical development, with its own particularities, is a good way to fill or regenerate the empty spaces within our cities but municipal governments are not promoting it. They should create an easier environment for its development, which should include new policies and incentives for taxation, simpler procedures and development rights to increase density and verticalize the empty lots in the cities. Ironically, some of these figures already exist in some states, though they
C
are not being used.
M
Y
Moreover, there is a great opportunity for these policiesCM to combine the new models of the financial system ofMY housing and infrastructure for mass public transportation.CY That is the key to give continuity to a future vision that hasCMY begun with the statement of the circles of containment in K the Mexican cities (U1-U2-U3) conducted by the National Housing Commission (CONAVI) in January 2013. Therefore, efficient infrastructure development should be taken in consideration when addressing the need to regenerate the inner blanks of our cities, but above all, we should consider consolidating walkable districts. There is no way to have enough infrastructure if we keep developing our cities under a horizontal low-density model. If we do not seek to raise the density within our cities, we will be condemning the new inhabitants of our suburbs to saturate every single infrastructure project we make, and that is enough to consider our infrastructure as inefficient. Mexico is a country facing an urban crisis, a condition that could be followed by a financial and a social crisis if we continue exercising only an urban expansion policy as the unique vision of urban development, and if we simply limit ourselves to building infrastructure as an answer to the expansion of our cities, and not to its natural regeneration. The growth and expansion of cities is a natural process, but it can become a social and urban predator if we do not face it properly and in the right time.
Presa MadĂn, Arquitectoma, State of Mexico
RESIDENTIAL
4
Mexico is slowly but surely recovering from the 2013 housing crisis with the rise of Mexico’s middle class. President Peña Nieto’s National Housing Plan has brought housing developers back into the city and has them reaching for the sky. CONAVI has identified a housing deficit that impacts 9 million families but not because of a lack of homes, rather a lack of rooms in homes. Incentives are being given to developers to encourage the construction of vertical housing within urban areas, as well as the integration of sustainable materials. Citizens are looking for housing complexes within walking distance of parks, schools and their places of work to reduce commute times.
This chapter contains insights from leading companies that are restoring Mexico’s housing sector. Key national and international developers talk about setting their sights on middle-income housing, especially in Mexico’s fastest growing cities, such as Puebla and Queretaro. Industry players discuss the creation of innovative financing models and the trend of banks supporting the construction of housing developments with accessible interest rates. The developers are hopeful that Mexico’s economy will continue to blossom and with it the housing sector.
87
89
CHAPTER 4: RESIDENTIAL 90
VIEW FROM THE TOP: Víctor Requejo, BIM
92
ANALYSIS: Turning the Page on The Social Housing Sector
94
VIEW FROM THE TOP: Juan Carlos Braniff, Casas GEO
95
VIEW FROM THE TOP: Alfonso Serrano, Hábvita
96
INSIGHT: José Macías, Maza Servicios
96
VIEW FROM THE TOP: Fernando Abusaid, CANADEVI
99
VIEW FROM THE TOP: Alfonso Serrano, CONVIVES
100
VIEW FROM THE TOP: Francisco Martín del Campo, Arquitectoma
100
VIEW FROM THE TOP: José Shabot, Quiero Casa
102
INSIGHT: Federico Sada, INSAR
103
INSIGHT: Carlos Rousseau, Orange Investments
104
VIEW FROM THE TOP: Víctor Farid, Grupo DRT
VIEW FROM THE TOP
CREDIT FOR BUSINESSES AND PEOPLE ALIKE VÍCTOR REQUEJO General Director of Banco Inmobiliario Mexicano (BIM)
90
Q: What is BIM’s central focus and who are its clients?
amount of capital we receive from SHF. The rest of our
A: We are a Mexican bank that focuses on the real
capital comes from funds. By the end of the year, we
estate sector. The company works all over the country,
expect to manage a 60:40 ratio between the public and
from Tijuana to Chetumal, in 24 states and Mexico City.
private sectors instead of 70:30.
We have at least one branch in every state and certain areas like Mexico City have two. BIM directs its resources
An issue is that investors like funds constantly demand
toward large projects that have up to 2,000 dwellings. We
more competitive interest rates to make more profit.
mostly collaborate with small and medium construction
They need to understand that our rates are actually quite
companies and many of our clients were impacted by the
high in comparison to the US, where rates are almost 0
2008 financial crisis and are trying to get back on their
percent. An investment of US$30,000 in the US barely
feet. BIM also finances the construction of up to 30,000
returns US$0.25, while the average bank in Mexico offers
houses per year. Overall, last year it invested approximately
rates of 2.3 percent. Our bank breaks the benchmark by
MX$7.2 billion (US$378 million). In 2016, we expect to raise
offering up to 5 percent, which is an excellent opportunity
that number to MX$9 billion (US$473 million).
for investors. The percentage depends on the level of commitment the investor can offer and longer periods
Q: How does the bank’s financing process work?
receive higher rates.
A: With housing developments we help finance the construction but we do not buy the project itself. People
Q: What are the benefits of trust funds?
who want to buy a house normally receive credit for 90
A: Professionals that come together to create housing
percent of the cost. The difference is that construction
projects want secure their investments. Some opt for
credit only covers 60 percent of the house value. We do
trust funds and mortgage their land with an established
not give the entire loan initially, but we grant it through
loan guarantee. Upon agreement, the owner can receive
phases. After approving the loan, we start by offering only
a percentage of the sales profit from the bank, which has
a 20 percent down payment, enough to start construction.
the responsibility of managing the balance.
Then we offer continuous payments that are equal to the project’s advancement. If the project grows by 8 percent,
We have MX$2.5 billion (US$131 million) of capital, a
we offer an additional 8 percent of the loan. However, once
small number compared with many large banks. Clients
the project reaches a completion rate of 90 percent, we
can easily find credit that is less expensive than ours but
provide the loan’s outstanding value.
many opt for BIM because we offer easier processes and will accept clients rejected by other banks. Traditional
BIM gives companies a tight two-year period to build and
banks only give loans to individuals who are part of the
sell their projects. If a deadline is missed, the bank meets
formal economy, implying they have social security and
with the company to create and implement strategies.
pay taxes, while we are willing to give loans to members
Depending on the case, we may expand the credit line
of the informal economy, except for construction loans. In
or give more time. When a project fails, which is quite
these cases, BIM requires a tax statement and a healthy
rare, they can give us their business as a way to pay back
balance sheet that shows a company is formalized. Loans
the loan. Failed projects only represent up to 2 percent
for buying homes are managed differently, which allows us
of the businesses we work with. We receive 70 percent
to serve the informal community.
of the capital we lend to construction companies from the Federal Mortgage Society (SHF), a development
Q: What is BIM’s strategy to expand its business?
bank administered by the Ministry of Finance. We also
A: Our bank has been growing at a consistent annual rate
use budget allocations to complement or substitute the
of 25 percent so we do not need to form alliances. We
work efficiently and are opening up new offices in areas
million houses and currently has total of 33 million. Anyone
like Torreon, Coahuila. BIM invests in software, processes
that doubts the success of the real estate industry should
and staff to ensure quality. We make an effort to secure
keep in mind that accurate national data may be hard
resources from our investors so that we can accumulate
to find. In 2010, INEGI claimed that there were 5 million
enough capital to satisfy the financial needs of the housing
empty houses while the market had a total of 30 million.
projects we receive. Developers that request money to
The information is not congruent. Any country in the world
build a project not only need money to build, they also
has an empty house average that ranges between 8-10
require land, machines and money to pay salaries. We help
percent of its total housing capacity because people who
fund these details. BIM differentiates itself by granting
purchase a home do not immediately occupy it.
credit lines to all types of clients. The bank also has the advantage of offering fast service. While others take up to
Mexico also has an unusually large number of second-
six months before accepting a project, our process lasts
home owners. Morelos alone has 300,000 houses that
about a month.
are only occupied on weekends and holidays. The most interesting part is that the majority of owners have an
Q: Why is Mexico such an important focal point of the real
average monthly salary of US$1,000. In the US, a family
estate industry?
with the same salary could never afford a vacation home
A: The housing market in Mexico is the second largest on
in a comparative state like Florida.
the American continent, next to the US. The country builds 450,000-500,000 houses per year, while the US builds
The 2008 crisis also boosted the number of abandoned
more than a million. Our northern neighbor sells up to 8
houses in the market but considering the existence of
million houses in a year but approximately 80 percent of
30 million homes, at the most the market would have
these are used. About 70 percent of the houses sold in
had 2.5 million. Considering all of this, 5 million empty
Mexico are new. That is because our market is quite new
houses is a drastic exaggeration. Now, the market is
in comparison to the more mature US market. Mexico will
flourishing. Many of the empty houses were acquired by
soon follow in its steps as families start to demand larger
impoverished families that could never afford it in the
houses. The cheapest house in Mexico costs US$15,000
past. For instance, a house that may have had a price tag
while the lowest price you can find in the US is US$150,000.
of MX$250,000 (US$13,157) before the crisis now has a
Over the last 25 years, Mexico has built approximately 10
value of MX$100,000 (US$5,263).
BMV, Reforma , Mexico City
91
ANALYSIS
TURNING THE PAGE ON THE SOCIAL HOUSING SECTOR Political reforms and new financing opportunities are
projects that were outside the cities often needed new
transitioning the housing industry from a focus on the mass
infrastructure financed by the government or developers
affordable housing that pushed the market to bankruptcy
to continue.”
three years ago to more carefully planned, designed and interconnected structures that can help Mexico manage its
Although the change of policy is a good first step,
accelerating urbanization rates.
Mexico’s housing industry still has many hurdles to jump. The government must deal with the former housing
92
“We have emerged from an exhausted and numerical
developments and projects that continue to be built
model that prevailed between the years 2000 to 2012
away from city centers. The Housing Research and
and which focused on goals without considering urban
Documentation Center (CIDOC) said in its “Mexico’s
mobility, amenities or growth of cities,” says Fernando
Current Housing State 2015” report that one of the biggest
Abusaid, former President of the National Chamber of the
challenges of the market are developments that are being
Development and Promotion of Housing (CANADEVI). “With
built far away from basic infrastructure. There is also a lack
the new administration, we reinvented ourselves by making
of coordination between urban design and planning, the
adjustments and mapping urban containment strategies.”
housing industry and governmental agencies.
The construction boom, the expansion of housing
QUANTITY OVER QUALITY
finance and a lack of effective urban planning created
In its 2015 Urban Policy Reviews: Mexico – Transforming
an unfortunate and accelerated urban sprawl across the
Urban Policy and Housing Finance, the OECD says that
country. “One of the key challenges facing many Mexican
between 2000 and 2010 the city center of many metro
cities has been the rapid and uncoordinated growth of
zones experienced an average population decrease of 7.5
urban footprints, characterized as distant, dispersed and
percent while the rates of areas more than 10km from the
disconnected,” says the World Bank in its 2016 Mexico
center increased by 6.8 percent. OECD data also shows
Urbanization Review. “The way Mexican cities grew in the
that “in 46 of 59 metropolitan zones, more than 70 percent
past means their potential to boost economic growth and
of homes registered in the new housing registry between
foster social inclusion is limited.”
2006 and 2013 were built either on the outskirts or the periphery” of cities. Mortgage and housing subsidies and a
According to the Latin American headquarters for
thirst for cheaper land compounded the situation.
Habitat International Coalition, in 2013 the country found itself with unused housing units due to structural
In response to the growing demand for housing, President
failures, unaffordable mortgage rates, the placement of
Felipe Calderón unveiled the National Housing Plan 2007-
projects in environmentally risky areas, insecurity and
2012 to promote the increase of financial resources for
poor planning that caused long commutes. The situation
housing and to mitigate barriers to home ownership. The
caused developers, the public sector and international
reform strengthened INFONAVIT and FOVISSTE, the two
organizations to take another look at the country’s urban
main public institutions responsible for financing formal
planning. They found that more integrated structures in
housing for marginalized communities.
urban areas were needed to avoid similar mistakes. Although the federal plan made a dent in its goal to With the entrance of a new administration in 2012, policies
reduce the housing deficit, it created other problems
were refocused to push for more vertical housing in urban
that continue to plague the country. “Progress toward
areas. President Enrique Peña Nieto turned a new page for
decreasing the housing deficit was achieved but the model
the housing agenda with the National Urban Development
was unsustainable. People moved away from centralized
Program 2014-2018 (NUDP). The plan seeks to control
areas with jobs and services, increasing traffic, reducing
urban expansion, promote a sustainable mobility policy,
productivity and overall quality of living,” says Rosario
avoid human settlements in unsafe areas and strengthen
Robles, Minister of SEDATU, in an interview with Forbes.
local capacity, among other elements.
“Urban stains were created and we now need to fix the scars of abandoned properties and social segregation.”
“INFONAVIT is starting to pay more attention to how a project is developed in terms of infrastructure,” says
The states that were most affected by abandoned houses
Juan Carlos Braniff, Director General of Casas GEO. “The
were Chihuahua, with 9,000, Tamaulipas and Jalisco with
5,000 each, the State of Mexico with over 4,500 and
buildings in the country, according to data from CONAVI.
Coahuila with almost 4,000, according to the report.
That is up from the 2015 total at 28.6 percent.
CIDOC concludes that many of these houses were built with inadequate infrastructure, without transportation
But the government should not simply target vertical
and far from job sources, which in the end were the root
building within urbanized areas. It needs to have a
causes for the abandonment.
completely integrated plan. The ReShim report says that increasing density is more than merely multiplying
BANKRUPTCIES
the quantity of units or people but that it should
With the Peña Nieto plan, the rug was pulled from under
also encompass an integrated design and planning
social housing developers. The new plan shifted the
scheme, elements that were missing from the previous
focus of subsidies to concentrate on urban areas and
administration’s plans. Urban planning thrives on density
verticalization. Coupled with people leaving their homes
requirements, metropolitan planning, taxation reforms
on the outskirts and moving back to the city, this left many
and governmental promotion of infill development, the
of the Calderón-era developers out in the cold.
report concludes.
Many of Mexico’s largest social housing developers filed
HOUSING BASED ON TYPEON OF TYPE BUILDING HOUSING BASED OF BUILDING
for bankruptcy in 2013. On their website, Rothschild & (PERCENTAGE REGISTERED FROM JAN-JUN 2016) (percentage registered from Jan-Jun) Co explains that Casas GEO, Mexico’s largest housing developer at the time and one of the biggest in the world, ended up with a liquidity crisis that pushed the company into bankruptcy. Rothschild was one of the financial advisors that guided GEO’s capital restructuring. “The company filed for bankruptcy two years ago with a debt of US$2.5 billion,” says Braniff of Casas GEO. “We worked along with Banorte, one of our main creditors, to restructure all of the bank debt and bonds. At the end, we
2015
only had about US$3 million in debt, and accomplished a
2016
capital infusion.” Researchers from the Harvard Graduate School of Design’s ReShim (Rethinking Social Housing in Mexico) project point out that urban expansion and sprawl create
Horizontal VERTICAL
Vertical
70.60% 2016
29.40% 2016
71.40% 2015 HORIZONTAL
28.60% 2015
Source: CONAVI and SEDATU
a disproportionate amount of costs for residents and local governments and this is usually caused by inefficient
Adequate
policies and subsidies. It also gathers disadvantaged
agencies are necessary considering global urbanization rates
planning
and
interconnected
government
communities
traffic
are quickly increasing. The UN World Urbanization Prospects
congestion, environmental issues and the loss of space
2014 estimates that by 2050, 70 percent of the world will
for agriculture – precisely what happened under Calderón.
be urbanized. “Land is the treasure of the 21st century as it
The report suggests that Mexico needs to deal with its
becomes scarcer each passing year,” says Victor Legorreta,
sprawling development pattern by densifying the existing
Partner, Managing & Design Director of one of Mexico's
built-up areas and creating structures closer to where
leading design firms LEGORRETA®. “Rising concerns have
people work. This is what the Peña Nieto’s plan is trying
led to a more compact and horizontal infrastructure.”
on
the
urban
fringe,
creates
to achieve. The World Bank in its 2016 Review says, “Economic
ON THE REBOUND
innovation and productivity in firms often grow most
Mexico is entering a new phase as companies like Casas
easily in dense and connected urban environments, where
GEO are starting to get back on their feet. The company
labor, knowledge and new ideas are just a few minutes
has restructured and plans to finally deliver houses to
away.” The private sector is often responsible for creating
families that have been waiting about two and half years
sustainable projects while the public sector is tasked with
for it to finish the projects, according to Rothschild.
creating incentives and establishing effective regulations to promote proper and interconnected developments. A more
Verticalization is a growing trend in Mexico, particularly in
sustainable residential sector in Mexico is intrinsically linked
heavily populated areas such as Mexico City. So far in 2016,
to development, as it can positively impact the country’s
vertical structures represent 29.4 percent of registered
economy and improve the quality of life among its citizens.
93
VIEW FROM THE TOP
THERE IS LIFE AFTER DEBT JUAN CARLOS BRANIFF Director General of Casas GEO
94
Q: What was behind the jump in Casas GEO’s share price
reduce debt and produce cash flow. Casas GEO is realistic
to MX$13 (US$0.68) from MX$5 (US$0.26) in April 2016?
when it comes to its objectives. In the long term, we
A: The company filed for bankruptcy two years ago, the
should be able to dwell further on segments, geographies
first large case under the new bankruptcy law. We were
and the product itself. In the short term, we need to finish
subsequently suspended from trading on the Mexican
what we started as efficiently as possible. The company
Stock Exchange (BMV) but we worked along with
will likely not be able to start new projects until 2018.
Banorte, one of our main creditors, to restructure all of
Not only our company but the country in general needs
our bank debt and bonds. The restructuring was approved
be less dependent on subsidies because this disrupts
by the judge with agreements from our creditors and
purchasing power. There is no solution for this yet but the
banks. Thanks to Banorte and fund administrator Capital
nature of subsidies needs to change to make it feasible to
Inmobilario, we received a capital infusion of MX$3.5
build near cities. In the past, the government had us move
billion (US$184 million). At the moment we are restarting
out of the city to produce the required volume and this
all the operations we had. The company’s share prices are
changed the economics of the industry since it demanded
the result of a restructuring process that took place in mid-
infrastructure building. Authorities need to find a solution
December 2015. Our largest bond worth MX$170 million
in which we can purchase land near cities at a reasonable
(US$8.9 million), Geo Met, had to be restructured. After
price that will enable us to produce low-income housing.
that transaction was announced, the share price overshot, closed and settled in mid-June at MX$9.3 (US$0.48),
Q: How has Casas GEO adapted its financial model to
which is closer to the true value.
address higher mortgage rates? A: We see mortgage lending rates as a big opportunity
Q: What are you doing differently now that you have
because INFONAVIT has stable finances. There is a surplus
restructured?
in terms of mortgages and the financial sector is quite strong
A: We have completely changed our production strategy and
with minimal default rates. Mortgage lending rates are
reduced our production cycle. Casas GEO positioned itself
relatively low when compared to GDP. Bank balance sheets
at one point to be the third largest producer of concrete but
do not exceed 30 percent, a rate well below international
can no longer afford to be a fully integrated company like
standards. INFONAVIT is starting to pay more attention
before. We have moved from a totally vertical integration
to how a project’s infrastructure is developed. Projects
model to outsourcing. Our focus now involves obtaining
outside of cities often needed new infrastructure financed
financing, developing land, supervising construction and
by the government or developers to continue. INFONAVIT
selling. In the long run, we want to move closer to cities and
has been strict but willing to help us with a credit line that
higher up in the socioeconomic level for first homes and
is being used to invest in infrastructure gaps. Casas GEO
continue developing our high-quality second-home models.
supports INFONAVIT’s Vive program, which helps subsidize
Our company agrees with the government’s decision to
projects with a smaller carbon footprint.
stop focusing on volume when it comes to construction projects because those can only be built far away from the
Q: How can Casas GEO help reduce the housing deficit?
city at a reasonable price. The government then ends up
A: We are kick-starting our projects and staying on track
spending more capital in the long run by having to build
with production and development. Today, we have 25
sewage facilities and other basic services.
active projects in 14 states. Casas GEO is renewing its credit lines and should stay on budget. We have over
Starting next year, our goal is to improve our projects
2,000 houses in production and we are starting to grant
when it comes to urban design and other similar details,
titles. We can eventually reach a market share of between
and be less dependent on subsidies. Our main goals are to
3-4 percent of INFONAVIT subscribers.
VIEW FROM THE TOP
SUSTAINABLE HOMES FOR RURAL COMMUNITIES ALFONSO SERRANO Founder & Director General of Hábvita
Q: How does Hábvita contribute to alleviating the
A: The main challenge Hábvita faces when building
country’s housing deficit?
homes is understanding the specific needs of the
A: It is important to first understand how the deficit is
family and establishing clear communication with them.
integrated given there are different types of housing needs.
Understanding the family’s needs and wants facilitates
CONAVI and the Federal Mortgage Society (SHF) have
the design process and allows us to create a home that
discovered that almost 60 percent of that deficit comes
fits into the cultural, social and economic needs of each
from rural communities with no access to financing. Housing
family. It is important to not only build a house that fits
companies have been less successful in Mexico because
individual needs but also a residence that is both practical
they are not targeting the correct market. Analyzing the
and beautiful. We use materials from each region and
8.9 million families within the housing deficit, 63 percent of
focus on cultural designs like Casa Maya or Palafitos in
these families are from rural communities and 76 percent
Campeche or Jefas de Familia in Chiapas. We try to follow
of the families in rural areas form part of the informal labor
a progressive model and implement basic services and
sector. Hábvita assists families in rural communities by
environmental technologies where possible.
providing financing and up-front payments to suppliers. About 65 percent of the homes in Mexico are self-built.
Q: What new technologies or techniques does Hábvita
Many developing countries follow the same housing trend.
integrate into the building of sustainable homes in rural
The vast majority of Mexico’s labor force is informal so most
areas?
citizens do not have access to financing and build their
A: We integrate technologies that make homes more
homes through developers. This model fulfils the needs
sustainable and ecofriendly. Solar panels are often seen
of this segment of the population, giving families in rural
as luxuries or as ways to spend less money, but in these
settings the chance to build better homes.
homes they are a necessity since there is no access to electricity. The same goes for water so the majority of our
Q: What financing plans has the government established
homes have their own water harvesting system. Another
to meet the needs of the population?
challenge is that many homes do not have access to
A: Financing is yet another challenge and although banks
sewage so they must have their own biodigestors. Around
and governmental entities are providing large amounts of
95 percent of Mexicans have access to electricity and 70
financing, it is still not enough. More than 50 percent of
percent have access to safe drinking water but only 65
the deficit comes from the informal sector. A couple of
percent have access to sewage facilities. The sewage water
years ago, INFONAVIT created a new financial program
emitted from these houses contaminates nearby water
called Assisted Self-Production Financing, which is a
aquifers, rivers and lakes. This is causing communities
combination of mortgage and microfinancing loans. This
to become sick and the government has begun to take
lowers the financing from five to eight years total, with an
action by investing in new water treatment technology.
interest rate of around 22 percent. Because the families’
We are now installing water filtration systems in many
incomes are not significant, the size of the loans is small
of the houses so that families can use the existing water
and usually amounts to MX$70,000-150,000 (US$3,684-
resources and access safe drinking water for everyday
7,894). These micro-housing loans are a new type of credit
use. The eco-technologies that we integrate into our
that has been evolving in the last couple of years and has
houses are not seen just as something that will benefit
been extremely helpful because this segment is growing
the environment but as a way to substitute the lack of
more than 80 percent each year.
infrastructure in communities and houses. Our goal is to develop more governmental alliances because the use of
Q: What strategies does Hábvita implement to create
these types of technologies saves municipalities a great
homes that fit culture, landscape and lifestyle?
deal of money in infrastructure spending.
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INSIGHT
CHANGES NEEDED FOR APPROPRIATE SOCIAL HOUSING “We need to have an
to Macías, has been lack of funding. “Among the factors
economic system that does
prices," he says. “We need to have an economic system that
not depend on oil prices. In
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that have had a negative impact on the industry are low oil does not depend on oil prices.”
this way we could generate
This administration’s densification policy for social housing
the necessary resources to
focus on the inner part of Mexico City, says Macías. Instead
boost the industry”
“We look for ways of constructing these vertical compounds
José Macías, Construction Manager of Maza Servicios
has transformed the way it is constructed with a greater of small houses, developments now include vertical housing. in strategic zones that allow habitants access to public services,” he says. “We achieve this through the densification policy established by the federal administration.” Many
Mexico is facing a substantial housing deficit and José
construction companies faced financial difficulties in
Macías, Construction Manager of Maza Servicios believes this
the aftermath of the 2008 crisis and Maza Servicios is
is due to the industry’s failure to meet the housing objectives
implementing a series of strategies to make sure it does
established by federal administrations. “We have the needed
not go through the same thing. “We observe the market
institutions and mechanisms, such as INFONAVIT, to provide
and analyze the housing needs of different cities so we
houses for the country’s inhabitants but we now need more
can conduct a proper evaluation of the practicality and
resources,” he says. The main stumbling block, according
profitability of investing in a particular city,” he says.
VIEW FROM THE TOP
SAFEGUARDING THE RIGHT TO A HOME FERNANDO ABUSAID Former President of the National Chamber of the Development and Promotion of Housing (CANADEVI)
Q: How has CANADEVI consolidated its position in the
his or her lifetime. Homeownership places an individual
market and what are its main achievements?
on a different economic and social platform and this is
A: CANADEVI has been a strong representative of
why we must show great sensitivity toward the needs
the Mexican housing market and it has supported the
of the people and ensure they are satisfied with our
national affiliates throughout the transition to a new
endeavors. When referring to social housing, article 23
housing model. The success of the sector and the
of the Mexican Constitution guarantees that all Mexicans
industry can be attributed to the fact that it satisfies
with formal employment may have access to a home with
the primordial need of homeownership. As a sector
government support. However, we have emerged from an
we represent a value chain that starts when housing
exhausted and numerical model that prevailed between
developers buy a piece of land and continues onto the
the years 2000 to 2012 and that focused on goals
economic revenue for states and municipalities through
without considering urban mobility, amenities or growth
permits, licenses, land value payments and notifications.
of cities. With the new administration, we reinvented
The biggest privilege lies with the last link of the value
ourselves by making adjustments and mapping urban
chain, which is the buyer. The purchase of a house is
containment strategies together with the Ministry of
one of the most important decisions a person makes in
Agrarian, Territorial and Urban Development (SEDATU).
In the aftermath of the 2008 housing crisis, Mexico’s GDP
commission the construction of industrial parks to ensure
contracted by 8 percent, according to OECD figures. By
employment sources and begin with the construction of
3Q09, unemployment reached 5.8 percent, up from 3.2
public schools and public parks.” In this way, when the time
percent in 2007, and by December 2008, the Mexican
comes for housing developers to begin the construction,
currency reached 14 pesos to the dollar compared to the
it is easier and cheaper since there already is an existing
2008 average of 11.2 pesos. In the first months of 2009,
infrastructure.
Banco de México, the central bank, was forced to use almost US$20 billion in an attempt to inject liquidity into the market
Still, the country has a long way before it can achieve
and avoid a hike in interest rates. Due to the fact that the
sustainable housing. “We are seeing the industry attempt
infrastructure sector relies greatly on public funding, a
to construct sustainable housing but we lack the necessary
shrinking of the available budget meant a significant step
technology and this means we are going in the wrong
backward for the industry.
direction,” Macías says. “But the main challenge of the ecofriendly construction industry is the lack of incentives to do
In almost 90 percent of the cities in Mexico, it is common
this kind of building.”
to find problems with basic infrastructure such as the supply of water and electricity in the construction of
To advance sustainability, some INFONAVIT programs assign
vertical housing. Because cities do not tend to have a long-
more money to housing construction if it meets certain
term growth plan, when they have to expand they do it
standards of carbon emissions. Although he recognizes the
without order and structure, says Macías, although there
goal of this initiative, Macías says it is not enough. “Maza
are examples of change. “We have seen that certain cities
Servicios has contributed to the construction of houses with
such as Aguascalientes, Merida, Queretaro and Monterrey
technologies that do not function as well as they should
now have a 20-year growth plan,” he says. “Since they
because the homeowners do not correctly use these new
know the direction the expansion is going to take, they
technologic appliances,” he says. “Also, the maintenance
begin the construction of highways and roads beforehand.
costs of these appliances tend to be elevated and often
In these cases, we have also seen that local authorities
owners are not willing to pay for it.”
Q: In what ways have the changes in public policy
example, in Tabasco where there are continuous floods,
impacted housing development?
people prefer to live above the ground floor. Within the
A: Since February 11, 2013, when the new National
polygons of urban contention, redensification in the interior
Housing Policy was announced, the one-bedroom social
of cities is related to the provision of basic services, location
housing developments no longer exist. FONHAPO, the
and distance. Verticality is occurring due to the incentives
institution responsible for financing the construction of
and support to make cities grow.
houses for those in extreme poverty, previously used the Pie de Casa concept, which entailed developments
Q: What new credit options and specific programs are
characterized by rooms with laminated roofs that lack
available for the population with limited resources?
urbanization and basic services. This has now been
A: Through FONHAPO we have been able to mold new
replaced with two bedroom houses with a minimal
credit options, which at the same time have contributed
space of 45-50m2, and high-quality materials. The new
to combating irregular settlements. Today, FONHAPO
National Housing Policy model has been extremely
coordinates the production of close to 25,000 units per year
successful. It provides more than 5.3 million jobs and
that provide housing to lower income families. For formal
contributes 6 percent of GDP.
nonaffiliates, through the Ministry of Finance’s Crezcamos Juntos program, a membership is available through six
Q: How does the emerging trend toward vertical
bimonthly contributions to the National Housing Fund
development affect homeownership?
Institute for Workers (INFONAVIT). There are many programs
A: When dealing with a new public policy it is important
for people to gain access to housing support. The credit
that all parties involved negotiate to find the best possible
programs depend on the region. For example, I would like
business model. This happened with vertical developments.
to think that in the south of Veracruz, where the main source
In fact, when I first entered CANADEVI, the supply of
of employment is PEMEX, the credits from this government
vertical housing was 8 percent but according to the Housing
institution are far more competitive than what INFONAVIT
Registry (RUV), it is now between 37-40 percent. Interest
can offer. In Chiapas, there is a greater need for rural housing
in vertical housing depends on geographical location. For
so there are agencies focused on these segments.
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Vidalta Torre Lux, Serrano Monjaraz, Mexico City
VIEW FROM THE TOP
INNOVATIVE MORTGAGE MODELS FOR SOCIAL HOUSING ALFONSO SERRANO President of the National Board of Green Sustainable Housing (CONVIVES)
Q: What is CONVIVES’ strategy to reduce the housing
can participate but rather that they must be sustainable.
deficit in Mexico?
As an association, we share best practices and materials to
A: We want to create a greater variety of financial plans
boost the growth of the housing segment.
for the 70 percent of the population affected by the housing deficit who do not have access to bank financing.
Q: What strategic alliances will CONVIVES form to
CONVIVES will be working closely with the three main
achieve its goals?
government financial institutions, which are INFONAVIT,
A: We will primarily work with SHF, Financiera Nacional and
the Federal Mortgage Society (SHF) and Financiera
BANCEFI, with which we are developing a special savings
Nacional, to develop programs that will encourage the
program for families to gain access to loans. We also have
participation of other banks. INFONAVIT has launched the
formed strong alliances with SEDATU and CONAVI as a
Manos a la Obra program that targets the 40 percent of
way of participating in the development of new housing
its affiliates who do not have access to housing solutions
policies that will encourage the growth of the sector, and
and who depend on the loan and points requirements of
for companies to create new products and solutions. The
INFONAVIT.
private sector is becoming more involved in the social housing segment and is joining forces with CONVIVES to
INFONAVIT will create loans designed for families involved
share best practices. The social housing sector has proven
in formal labor but who live in rural areas. This will have
to be sustainable and extremely profitable. What the
a great impact on the housing deficit. INFONAVIT loans
country needs are improved financial programs that not
usually charge an interest rate of 10-11 percent with a
only benefit the families but that have a strong impact in
duration of around 15-20 years for houses that have a
the housing sector. Through our alliance with CONOREVI,
market price of MX$250,000 (US$13,157). The Manos a la
we are developing specific solutions for individual states,
Obra program will be an eight to 10-year loan that has a 15-
not only in collaboration with the federal government but
18 percent interest rate and the house will have a market
also taking into account state and local governments. There
value of MX$120,000-160,000 (US$6,315-8,421). SHF
have been several cases in which states provided high
and Con Su Banco have developed a financing solution
subsidies for these types of housing, making them more
combining a three to five-year loan with interest rates
affordable. There are 48 states affiliated with CONOREVI.
from 18-30 percent but almost 50 percent of the value of the house is subsidized by the government. The interest
Q: What is CONVIVES experience developing housing
rates are higher because the risk of recovering the debt is
with NGOs in Mexico?
much greater than for regular loans. These loans are the
A: NGOs are an important part of the puzzle because
most popular financing solution in the market.
they are innovation catalysts that have the ability to invest in unconventional ideas. They approach perplexing
Q: What are the requisites for companies to receive a
problems in unique ways and then adapt them to large-
CONVIVES seal of quality?
scale developments. We are developing various projects
A: CONVIVES began as an association in which the
with INFONAVIT in two states and we will open nine
companies that form the housing industry value chain,
more states throughout the year to tend to the needs of
such as constructors, designers, financial institutions and
100,000 more families. One of the most important models
developers, joined forces to develop a young market. We
we are creating is a self-production model that will grow
require that the company have experience building in rural
to more than MX$300,000 (US$15,789) by the end of this
settings and a well-designed building process through
year. As for our main project with SEDATU, it is a program
which CONVIVES evaluates the financial capabilities of the
primarily focused on building another room or expanding
company. This does not mean that only large companies
the living space of existing houses.
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VIEW FROM THE TOP
CONSIDER SOCIAL FACTORS WHEN DEVELOPING CITIES FRANCISCO MARTĂ?N DEL CAMPO Founding Partner at Arquitectoma
100
Q: What trends do you perceive in the Mexican market
the market will easily accept them. Arquitectoma focuses
when it comes to residential purchases?
on midrange residential housing or high-end projects.
A: The Mexican market is growing rapidly for both
We strive to optimize space according to lifestyle trends.
residential renting and property purchases. Despite the
People are usually not at home and many prefer to pay less
trend of renting among millennials, there are still many
for smaller living areas in developments with amenities like
people who are willing to purchase homes. In some cases,
gyms and business centers.
certain investors prefer to own heritage buildings over renting them out, whether it is for office, commercial or
Two years ago, we executed a market research program
residential use. Landowners are even becoming associates
to build our Ruben Dario project and found that prices in
to receive a percentage of the profit in a manner that is
the area were between US$4,500-6,000 per square meter.
similar to Fibras, where they become shareholders. Foreign
Just three months after finishing the project, prices surged
funds also are increasingly attracted to Mexican real estate.
drastically in the neighborhood. The unit owners ended up gaining back their investment as they bought at a much
Mexico City has immense economic potential. As long as
lower price than the current value. The cheapest price in
projects are created near efficient public transportation,
Ruben Dario at the moment is US$10,000 per square meter.
VIEW FROM THE TOP
TRANSFORMING MIDDLE-INCOME HOUSING JOSÉ SHABOT Director General of Quiero Casa
Q: How do you mitigate the risks of a housing market crash?
are less than 15,000 new apartments being built per year
A: Our market differs to the one exposed to the US housing
in Mexico City, which is where we spotted our opportunity.
market crash of 2008. Houses were being built for the population in the lowest income bracket on the outskirts
There are many challenges to building in Mexico City, such as
of cities. The average price of our houses is MX$1.5 million
finding land, obtaining the zoning permits, and dealing with
(US$78,947), ranging between MX$700,000-3 million
federal, central and local entities. If a parcel of land is within
(US$36,842-157,894). We are aiming at the middle income
a historical zone then we must deal with INAH and INBA. It is
segment in Mexico City, which has a huge demographic
also a challenge to build within a city, as we need to manage
growth of families. This creates a rising demand for housing
relationships with neighbors who have been living in the
and a market with more demand than supply. Mexico City
neighborhoods where we build for a very long time. We
has the largest mismatch between supply and demand.
have learned to do this over the years and it has helped us
Mexico City demands more than 56,000 middle, mid-high
grow in the market. To maintain favorable relationships with
and high-income residential homes annually, according to
our neighbors and develop more sustainable communities,
SOFTEC. This is due to the 40,000 marriages and 10,000
we allocate 2 percent of our budget toward building urban
divorces per year, along with other demand factors. There
equipment and infrastructure outside our sites.
Q: What is the top consideration for developing a
A: Chapultepec Uno was a small building from the 1960s
growing city?
that was being drastically underused considering its
A: Developers need to take into consideration nearby social
potential and location. Reforma is entering a phase of high
factors. Interconnected public spaces and transportation are
appreciation and the structure needed to be emblematic.
a way of contributing to society. It is not enough to simply
It serves as the entrance to Mexico City’s financial center.
have an ecological conscience. New zones also need to take
Our plan will incorporate a hotel, housing and office and
public spaces into consideration. The funny thing is that
commercial spaces. To avoid making parking an issue for
colonial conquistadores 500 years ago were more efficient
such a tall structure, we opted to incorporate a mixed-
at urban planning than modern designers. The older sections
use approach. Chapultepec Uno allocates 65 percent
incorporate more public spaces while the newer ones do not.
of its space to offices, 20 percent to apartments and
Mexico City’s oldest neighborhoods have more parks and
the remainder contains the exclusive Ritz Carlton hotel.
squares for communities to socialize and where people can
International executives that are in town for a specific
easily walk or cycle. This used to be an important part of
amount of time can comfortably reach everything they
urban planning that got lost in modernization. As the city
need such as their office, hotel and gyms without wasting
grows, the idea is to continue developing it by including
time commuting.
more public spaces. Verticalization is another important urban strategy but it must remain sensible with moderate
The apartments have only been in presale for two months
land use. Companies need to ensure their projects have
and we have already sold 35 percent. The prices are set
an adequate number of units to avoid oversaturating the
at around US$12,000/m2. Arquitectoma was motivated
market. The government should request developers execute
to obtain the LEED certification for the structure to
urban impact studies that evaluate how the area will be
make it more attractive to foreign companies that would
affected and demand mitigation strategies for all projects.
otherwise be precluded from renting the space due to their internal politics. We had already planned to create a
Q: What was Arquitectoma’s approach when designing
green building but the certification is an important part of
the Chapultepec Uno building?
the commercial aspect.
Q: What are the trends in the way people are purchasing
pre-development costs before obtaining a bridge loan
their homes?
from a bank to carry out the construction. We are highly
A: Around 30 percent of what we sell goes through
underleveraged as we seldom use more than 40 percent
INFONAVIT, another 30 percent is through FOVISSSTE
of the bridge loans that we sign because our projects are
and the remaining 40 percent through bank loans. There
developed in stages.
is a trend in the middle income segment in which people are moving away from using INFONAVIT loans and toward
Q: Why did you decide to integrate eco-friendly materials
bank loans as they are the least expensive. We have
into your projects and what benefits do you see?
products in Mexico that are competitive compared to
A: Mexico City is highly populated and dense so we have
other parts of world. These include fixed payment terms
to deliver projects that help deliver a sustainable city.
of 25 or 30 years in pesos with low interest rates. Interest
By relocating people that would otherwise live on the
rates for loans and mortgages have not yet increased
outskirts of cities back into the cities, we increase their
despite the fact that reference interest rates have risen.
quality of life as they will drive shorter distances, use less gasoline and create less carbon dioxide. We must build
Q: How do you fund your housing developments?
more intelligent buildings to develop more intelligent cities.
A: We used to have private investors who fund projects
We collect rainwater for the restrooms in our apartments.
individually. About five or six years ago we decided to
We try to orient our apartments east to west to reduce
start private funds with private investors. These investors
the use of light and air conditioning, we try to use water-
were high net-worth individuals and family businesses who
saving valves and we use electricity-saving bulbs. It is part
invest in funds that we manage and use across different
of our mantra to build projects as sustainably as we can.
projects. That is our equity source, with which we buy
All our projects can qualify for Ecocasa, a program run by
land and pay for the zoning. For construction expenses,
the Federal Mortgage Society (SHF) and a development
we work with 13 financial institutions that provide us
bank. Through this program we receive subsidies as
debt, including Santander, BBVA Bancomer and Banorte.
interest rates for our bridge loan due to our reduction in
We purchase the land, carry out the zoning and pay the
the carbon footprint of the projects we are building.
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INSIGHT
MODERNIZING MEXICO’S HOUSING MARKET FEDERICO SADA CEO of INSAR
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Real estate in Mexico is moving up, not out, reversing an
of social space apartments have, since houses normally
old government initiative that put housing developments
dedicate 40-45 percent of their total square meters to
on the outskirts of cities. Instead, developers are building
social areas, which are not used as often as private areas.
vertically, putting people closer to their jobs. It is a
“To compensate for the lack of space we include amenities
fresh trend that can come with a high cost for potential
in the development such as meeting or party rooms, gyms
owners. Federico Sada, CEO of INSAR, a leading housing
and swimming pools,” he says.
developer in Monterrey, believes the price per square meter for apartments is much higher because there are not
The use of financial instruments, such as CKDs and
enough incentives from the government to build vertical
Fibras, has given the real estate sector a boost in the
housing. Nuevo Leon, for example, has the most vacant
last few years. “The advantage is that we are seeing
homes in the country, with more than 40,000 houses at
more capital flow in the country thanks to Fibras that
an average price of MX$14,000/m (US$ 736/m2)while
are pushing the development of the housing sector. On
apartments average MX$96,000/m2 (US$5,052/m2) “The
the downside, saturating the real estate market with
only incentive the government is currently providing is to
capital can turn the market cannibalistic,” says Sada.
allow vertical housing developments to change the use of
These instruments make it more difficult to create profit
land within central cities,” he says.
margins, which increases risk for companies that depend
2
on private capital. Sada explained that this phenomenon Around a decade ago, the government implemented a plan
happens because Fibras offer low prices to construct
to build homes on the outskirts of cities and to create new
projects, pushing all competition to match those prices,
projects next to them. That policy encouraged these types
which then lowers profits.
of housing developments and although the land may have been cheaper, the government did not have the budget
As an alternative to Fibras, INSAR is innovating the way
to construct the basic infrastructure citizens needed. Now
residential developments are funded. The company
the move is back into cities and companies like INSAR
finances all of its projects with private capital through a
are building to suit the tastes of potential buyers. INSAR
platform called InTrust. “This platform allows us to invite
prioritizes the needs of the people by mapping out their
those who are interested in investing with amounts from
specific requirements. “People want short commutes,
MX$500,000 (US$26,315) to MX$80 billion (US$4.2
especially as Mexico’s security has become increasingly
billion) or more. Other developers prefer large capital
complicated in the last few years,” he says. “Families want
resources that come from pension funds but INSAR
to have schools and gyms as close as possible to their
found potential with investors who have an appetite for
homes to reduce risk.”
real estate projects that can offer higher rates of return than banks,” he says. The company expects to finance
These necessities have sparked many trends throughout
between 50-60 percent of its projects through InTrust and
the Mexican market, in particular the construction of
to continue paving the way for financial innovation. Apart
mixed-use developments. In 2015, Mexico had 30.6
from InTrust, the company will raise its first CKD valued
million people that were between the ages of 15 and 29,
at MX$3 billion (US$157 million), which will represent
representing approximately 25.7 percent of the total
approximately 25 percent of the company’s portfolio.
population. “The market is in fact becoming younger but this trend is not fully developed at the moment and the
INSAR has 13 national products with a worth of MX$6
culture of renting has not grown because people continue
billion (US$315 million). It also runs Insar Contigo, which
to prefer purchasing their own homes,” says Sada. To
seeks to raise living standards for approximately 6,000
keep its prices accessible, INSAR minimizes the amount
subtracted employees through workshops and courses.
INSIGHT
RIGHT INFORMATION MAKES A DIFFERENCE CARLOS ROUSSEAU Senior Partner, President & CEO of Orange Investments
Real estate is cyclical by nature, so the probability of a
profitability in the segment for the foreseeable future. The
bubble forming in the Mexican market is increasingly
company’s real estate fund, Orange Capital 0I, targets
more probable, says Carlos Rousseau, Senior Partner,
long-term risk-adjusted returns, preservation of capital
President & CEO of Orange Investments, a business
and diversification. “Investing in real estate has been
intelligence and real estate development firm. “If we base
proven to be a great investment alternative,” he says. “At
it on historical data, the time is getting close.” It can,
Orange, we have a big pipeline of opportunities selected
however, be avoided. Investors, developers and industry
by our proprietary intelligence methodologies. Having a
players in general should learn from past mistakes and
private equity fund gives our clients the opportunity to
carry out the appropriate due diligence before engaging
tap into these investments and thus achieve great return
in new developments, he says. “It is a matter of investing
on their equity.”
with solid fundamentals and not pushing the boundaries too far. It is about understanding every market well and
Orange Investments sees possibilities all across the country.
building with responsibility. We have learned that the
“As with any business, it depends on the opportunities
right information makes all the difference in achieving a
that appear in different markets and how one reacts to
successful project.”
them,” says Rousseau. For example, the office market in Mexico City or Monterrey differs greatly to those in second
Rousseau maintains that in developing countries like
and third-tiered cities like Puebla, Queretaro, Leon and
Mexico, new asset classes will begin to join the real estate
Tijuana. Equally, the hospitality industry in Riviera Maya or
industry in an institutional manner. “We are starting to
Los Cabos cannot be compared to select service hotels
see the beginning of multifamily real estate developing
along the auto corridor. “What we know for sure is that
in Mexico, whereby multiple separate residential houses
real estate in general is underserved in Mexico and there
are contained within one complex,” he says. “Also, we
is still plenty of room for it to develop,” he says. “We are
will continue to see more master-planned communities,
seeing a big increase in the price of land in urban areas
mixed-use urban projects, the introduction of senior living,
such as Mexico City, Monterrey, Queretaro, Guadalajara
student housing and the growth of self-storage.”
and others. This is mostly due to the fact that people are giving more importance to living closer to their work and
He believes in having both the public and private sectors
general life activities.”
working together, understanding the different markets and asset classes needed in Mexico and acting accordingly.
Rousseau believes there are three key areas for development
“The public sector must understand where cities and
in Mexico’s real estate industry. Firstly, strategic planning
municipalities require growth and create the right
processes between local governments and local actors
platforms,” he says. “It must keep up with market dynamics
should define the different priorities of cities. Secondly,
and changing regulations to ensure smart development.
he highlights the value of increasing social inclusion in city
The government needs to offer better services, create
plans with the right infrastructure to satisfy the community’s
more opportunities in urban areas and invest its resources
needs. Finally, the development of infrastructure for
in smarter ways. The private sector should plan to create
transport and public services can promote community
better communities that provide safer environments, are
interactions. “In Mexico, we have the problem that every
economically sustainable and that constitute higher living
time a major shift occurs, in federal or local government
standards for its people.”
agencies, plans are changed or discarded,” he says. “Infrastructure needs to keep up with the market dynamics
The projected rise in mortgage rates is bound to slow
in every way and promote new urban planning trends such
down the sector, says Rousseau. Nevertheless, he still sees
as the use of transportation alternatives.”
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VIEW FROM THE TOP
QUERETARO A PROMISING INFRASTRUCTURE ARENA VĂ?CTOR FARID Director General of Grupo DRT
104
Q: What motivated Grupo DRT to focus its business in
of making an inventory of every tree in the city along
Queretaro?
with its condition. The goal is to have one tree for every
A: Queretaro is an important launching pad to the Bajio
three people in the city. Our company is supporting the
region, which is the heart of the automotive, electric
process by donating trees and implementing the initiative
household appliances and aeronautical industries. It also
in our designs as we believe that it creates a healthier
is a cosmopolitan hub as most industrial companies are
environment for the residents in our developments.
foreign and many international corporations and banks have established regional offices in Queretaro and Leon.
Q: How much of a priority is developing infrastructure
Queretaro has a dynamic economy with elements few
that can offer added value to the city?
other states can offer. The area is unique in its composition
A: To survive in the market, companies cannot afford to
given that only around 30 percent of its population is
close their spectrum of services. Creating projects that
actually from the area. Five years ago, internal flows were
are dynamic stimulates the area and creates rich cycles of
mostly from Mexico City whereas now 30 percent comes
employment that increase service demands. A progressive
from elsewhere so plenty of talent is moving into the area.
city with a wide variety of modern infrastructure can
The middle class plays a huge role in the state’s economic
ultimately attract new companies and talented people. The
dynamic since as a group it represents 5-7 percent of the
benefits are ideal for our clients, the government and our
country’s population but in Queretaro it represents 35-40
business. DRT sees its designs and real estate projects as
percent. Not to mention that within a 210km circumference,
much more than buildings or developments. Our projects
Queretaro offers contact with 45 million people.
have the potential to improve quality of life and we take this responsibility seriously.
The state also offers industrial investment opportunities as the area has elements that promote quality of life and labor
Q: What kind of financial structure does Grupo DRT use
attraction. Queretaro alone produces 3,000 engineers
to support its developments?
but considering that companies need at least 6,000,
A: The company works with all the financial strategies
businesses are using the gap to pull specialized labor into
the market offers. For instance, a private equity fund
the city. Fortunately, convincing highly qualified engineers
from Singapore called Temasek co-owns many of our
to live in the area is quite easy thanks to its security,
projects. We also have worked with institutional funds and
accessible prices, excellent education and services. It
investment banks such as Morgan Stanley and Protego.
offers a great variety of golf courses, shopping areas
DRT enjoys collaborating with national partners such as
and housing developments. All of the these create fertile
Grupo Sordo Madaleno, Parks Desarrolladora and the
ground for innovation and for businesses to congregate.
Torres Landa Group. We also rely on banks and we view credit as a way to enhance financial returns on projects.
Q: How would you describe the relationship between the
Leverage is an opportunity to create attractive situations
infrastructure sector and the state government?
for investors and the company.
A: We have been lucky to have exceptional governors that strive to learn from the past. The sector believes
Q: What are the toughest challenges the industry must
that decisions are being made with the intention of truly
conquer?
benefiting the state and city.
A: Luckily, issues within the industry are diminishing as the Mexican economy continues to solidify. Even though
The government also is boosting initiatives that encourage
the wellbeing of the US market has the potential to
the private sector and the public sector to collaborate, such
impact Mexico, the sector is growing strongly. Regulation
as its reforestation campaign. Authorities are in the process
can quickly affect development, as can happen with
protected areas. No matter how much we try to anticipate
the Antea Lifestyle Center, we hold the land. The company
changes in the next 10-15 years with land-use research,
is attentive to changes in land use. Land is the building
the government often unexpectedly declares potential
block of project developments that can be transformed
project areas as ecological reserves. Our company
with imagination and we help our clients see this. DRT can
prioritizes nature but the authorities need to work more
provide market research to find the best niche for their
with the private sector to create true change in this area.
projects that avoid political and geographical restraints.
A balance between the city, developed areas and green spaces is needed. Another hurdle is the context that
The company is establishing a new quality of life in
accompanies the transition Queretaro and other cities are
Queretaro by forcing entering competitors to match
facing. Jumbo-sized spaces can put pressure on services.
what is being offered. It ensures more people can access
Vertical buildings are a cost-effective way to prevent an
amenities. The city and the state benefit from living in an
unnecessary expansion of the city limits.
environment that is above average in comparison to the rest of Mexico. We are overachievers who strive to be on the
Q: How has being a real estate focal point affected
higher end of the design and development spectrum. We
Queretaro’s infrastructure sector?
have worked with some of the most influential architects
A: Queretaro attracts an abundance of capital and
in Mexico, including Gomez Vazquez Aldana and Ricardo
speculation. The downside is that it causes prices to
Legorreta Vilchis. International firms that work in Shanghai
rise. This phenomenon occurs because real estate
and Dubai also are in our portfolio.
developers are self-liquidating companies. Assets such as houses and lots are bought and in need of immediate replacement after being sold. Speculation can cause these replacements to go up in value. The effect translates into higher housing and office leasing costs. Queretaro is not the only location to suffer from this phenomenon as many metropolitan areas like Mexico City, Guadalajara and Puebla have the same problem. The government is trying to limit the spillover effect of speculation. On the upside, the market has enough strength at the moment to cope with this effect. Q: Why did DRT adopt its Banco de Tierra strategy? A: As a developer we are facing a turning point. Our previous company focused on building homes and was present in 19 states. It depended on a joint venture with a US company named Pulte, which decided to leave Mexico and focus on its home market. This allowed us to dramatically change our strategy and we proceeded to sell our housing companies. We were the first in the state to pursue this aggressively. DRT opted for Banco de Tierra as a strategy to assure flexibility in the market to cope with its constant changes and because land is the starting point for any real estate project. Q: How does the company set itself apart from foreign and local competition? A: The company differentiates itself by providing a business model that does not fight the natural purpose of land and its characteristics. We help our investors by analyzing the types of services and utilities that can be brought to projects. They may come in with the idea of building office spaces but if the market is saturated, we might advise them to focus on the medical sector for example. Highend developments can also be adapted to fit middle class needs if the market requires it. In special cases such as
Jiriquilla Towers, Grupo DRT, QuerĂŠtaro
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Downtown Santa Fe, Parks, Santa Fe, Mexico City
COMMERCIAL & TOURISM
5
Mexico’s commercial and tourism sectors are taking advantage of the growing economy and new financial vehicles the government has established to incentivize investment. Funds are constructing new shopping centers, corporate offices and hotels across the nation with CKDs, while Fibras continue to acquire new properties for their portfolios. Mixed-used developments are sweeping the cities, incorporating all of these elements into one large construction and increasing the appetite of investors. Developers are no longer betting only on Mexico City, but expanding to new cities such as Monterrey, Puebla and Guadalajara. The government is starting to steer away from its dependency on oil and gas and is switching to encouraging tourism development. Fibras are building hotels in Mexico’s touristic havens and near corporate corridors.
This chapter provides an inside look at Mexico’s commercial real estate sector through the eyes of the country’s largest developers. They share that although the industry is on a high, as new competitors continue to enter the market, differentiating their developments will become more complicated. They discuss the advantages and disadvantages of using new financial instruments, such as Fibra E and CerPIs, as well as the opportunities the Energy Reform has created for the market.
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CHAPTER 5: COMMERCIAL & TOURISM 110
VIEW FROM THE TOP: Gonzalo Robina, Fibra Uno and Amefi
112
VIEW FROM THE TOP: Jorge Avalos, Fibra Mty
114
PROJECT SPOTLIGHT: Mexico City: A Fine Balance
116
VIEW FROM THE TOP: Eduardo Güemez, MRP
118
PROJECT SPOTLIGHT: Breathing New Life into Reforma
120
VIEW FROM THE TOP: Javier Barrios, Mira Companies
121
VIEW FROM THE TOP: Elliott Bross, Planigrupo
122
INSIGHT: Alejandro Ballesteros, Grupo Copri
122
INSIGHT: Jaime Lara, MIRA
124
VIEW FROM THE TOP: Pedro Azcué, JLL
125
INSIGHT: Eugenio González, Altea Desarrollos
126
TECHNOLOGY SPOTLIGHT: Paseo La Fe Invites Nature Inside
128
VIEW FROM THE TOP: Luis Méndez, Coldwell Banker Commercial
130
VIEW FROM THE TOP: Daniel Tovar, Grupo Acerta
131
INSIGHT: Charles El-Mann, Parks Desarrolladora
132
PROJECT SPOTLIGHT: The Antara Mixed-Use Masterplan
134
INSIGHT: José Fenollosa, Meypar
134
INSIGHT: Alicia Bandala, KONE México
137
INSIGHT: Juan Carlos Reus, NH Hotel Group
138
COMPANY SPOTLIGHT: Building Shopping Malls On Time, On Budget
109
VIEW FROM THE TOP
FIBRAS DEVELOPING ACROSS ALL SECTORS GONZALO ROBINA Co-CEO of Fibra Uno and President of the Mexican Fibras Association (Amefi)
110
Q: What impact is the macroeconomic environment
synergies and economies of scale that translate to
having on the use of Fibras in the development market?
discounts that are reflected in our rents.
A: There are many new infrastructure projects in Mexico, such as the Mexico-Toluca Interurban train and others
Q: How is Fibra Uno participating in the development of
related to the oil and gas sector, that will be put on
educational and health infrastructure?
hold due to economic constraints but this will not stop
A: The government has created National Education
the real estate sector from growing. This segment is
Infrastructure Certificates, which will be extremely useful
independent and is not directly affected by downturns
tools to boost the growth of educational infrastructure, but
in other industries. Mexico’s Fibras will be affected
Fibra Uno does not use them. We prefer to conduct sale-
more by volatility in global financial markets than from
and-lease-back transactions with educational institutions.
direct infrastructure development. The US dollar-peso
In these transactions, institutions sell us the real estate
exchange rate, for example, has had a positive impact on
asset and we then lease it back to them for long periods of
our company since about 30 percent of our revenue is
time. This gives the schools immediate liquidity to expand
in dollars. For every dollar of debt we have, we receive
their campuses and increase enrolment levels. We will
US$2.30 of revenue, which provides us with a natural
carry out a similar transaction with a hospital that we are
hedge. For others, fluctuations in the exchange rate have
acquiring because of its location. A hospital needs to be in
delayed investments and investors have grown more
the middle of urban areas. Those locations are becoming
cautious. Although peso weakness has boosted rents by
scarce and will become more valuable over time. Although
10-12 percent we strive to maintain the healthy dollar-peso
we are keeping our target on real estate, we believe these
relationship of the original lease. Difficult times also are
transactions are an excellent way to contribute to the
useful for new acquisitions because it is harder for owners
development of the educational and health sectors.
to sell their assets and investors have enough liquidity to take advantage of these opportunities.
Q: What interest does Fibra Uno have in Special Economic Zones (ZEEs)?
Q: How does Fibra Uno ensure high occupancy rates?
A: We are looking to invest in ZEEs in the next couple
A: We recently acquired the Alaska Portfolio, which has six
of years because our target is to increase our industrial
iconic office buildings in key Mexico City locations. These
segment. Fibra Uno’s breakdown was designed to be 40
properties have a 95 percent occupancy rate, which is
percent industrial, 40 percent retail and 20 percent offices.
consistent with the rest of our portfolio, and significantly
Our current breakdown is 55 percent retail, 25 percent
increase Fibra Uno’s footprint in the Class A office market.
industrial and 20 percent offices so we need to rebalance
The value of the portfolio also has increased because
our portfolio to its original levels. There is an industrial
90 percent of the rent revenues from these properties
boom in the Bajio region due to heavy investments from
are dollar-denominated. To maintain high occupancy
the automotive industry and the return of manufacturing
levels, Fibra Uno has always kept rent prices competitive,
companies that had previously migrated to China.
always below the market average, and has built lasting
Industrial real estate in Mexico is targeted to international
relationships with tenants across all segments. We also
companies, which are the Tier II and Tier III suppliers of the
have the best locations and these factors ensure that
automotive industry.
our properties are the last ones to be vacated during difficult times and the first ones to fill up during upturns.
Q: What makes Fibra Uno unique and what advantages
We can keep our prices low because we have a vertically
does the company provide investors?
integrated platform through the construction, marketing
A: I believe Fibra Uno is unique in size and scale and it
and operation phases, which enables Fibra Uno to achieve
provides liquidity to investors. Over 6 million of our shares
are traded per day on average. An investor wanting to
developing regulations that will allow our asset class to
enter the real estate market in Mexico finds it easier to
thrive in the next couple of years and to ensure a fair and
purchase Fibra Uno’s shares compared to any other Fibra.
transparent market. It is also a priority for us to negotiate
We also provide diversification and a prudent financing
proper regulations and standards that ensure the future of
strategy, which is another key competitive advantage. The
the Fibra market and the asset class.
company has broad access to capital markets, which is a feature few Fibras have and ensures continuous growth.
Q: How has the lack of adequate regulations and
Our long-lasting relationships with tenants and other
standards impacted Fibra Uno’s operations?
key suppliers, the size of our portfolio and the strategic
A: Fibra Uno once had to issue $US2.5 billion on a single
locations of our properties give us an unparalleled
equity offering, which created a negative carry for investors
competitive advantage that allows us to provide the best
since more than 800 million shares were issued and the
real estate solutions to all our tenants.
proceeds were placed in a bank account earning interest rates far below what they could earn if invested in real
Q: What regulatory and other challenges are the Mexican
estate. Equity offerings are lengthy processes that require
Association of Real Estate Fibras (AMEFI) and its
due diligence and enormous amounts of paperwork with
members facing?
government agencies. Fibra Uno had to issue such a large
A: The real estate market is growing quickly and becoming
amount because it wanted to raise cash and there were
more sophisticated. Being relatively new to the stock
no other options for conducting equity offerings in short
market, the main challenges we face are related to share
periods of time. Since Fibras have to distribute at least 95
buyback programs and the inclusion of Fibras in the main
percent of their taxable income, there is virtually no room
index of the Mexican Stock Exchange (BMV). There will
for organic growth. Fibra Uno is planning a debt issuance
be other challenges that AMEFI will face in the mid and
to raise capital but Fibras cannot leverage beyond 50
long term. We have to bear in mind that this asset class is
percent of the value of their assets due to regulatory
very young. It took 50 years for the REIT industry in the
limits. We have a prudent leveraging strategy with low
US to reach its current standing and we want to shorten
self-imposed limits. Fibra Uno operates under 35 percent
that time significantly for Mexico. AMEFI has established
of loan-to-value leverage so we have additional room to
close working relationships with CNBV, Banxico, BMV and
leverage our balance sheet further but that will depend on
the Mexican Tax Authority (SAT). Together, we have been
volatility and the global financial landscape.
Downtown Santa Fe, Parks, Santa Fe, Mexico City
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VIEW FROM THE TOP
OPPORTUNITY KNOCKS IN THE CORPORATE OFFICE REALM JORGE AVALOS CEO of Fibra Mty
112
Q: What is the makeup of Fibra Mty’s portfolio and what
before going public. Tenants not only search for Class A
challenges are inherent in the deals the company makes?
buildings but also for experienced institutional asset and
A: Fibra Mty focuses on corporate real estate rather
property managers like Fibra Mty.
than commercial real estate. The Mexican portfolios of institutional investors consist of industrial properties that
Q: What edge does Fibra Mty have that interests investors?
have been developed and stabilized, which is why we have
A: We are a dividend play vehicle, which requires predictable
seen a lot of acquisitions through vehicles like Fibras, CKDs
cash flows. Development projects are well suited to CKDs
and private equity funds. Our portfolio is comprised of
and when the assets are stabilized, Fibras can step in and
mostly corporate offices, primarily located in the biggest
buy these assets. Fibra Mty was the first internally managed
markets in Mexico, which are Mexico City, Guadalajara and
vehicle in Mexico with no controlling party and a no-fee
Monterrey. One of the main drivers and challenges in these
structure. Our corporate governance is transparent and the
types of transactions is the fiscal impact each will have.
management company is owned by our trust, giving us a
Institutional investors, especially pension funds, are inclined
completely aligned vehicle between managers and stock
to invest in industrial portfolios with international tenants,
holders. For Fibra Mty it is important to be a profitable
long-term lease contracts and triple net-leasing structures.
and predictable asset company. Institutional investors are looking for predictable cash flows and alignment of interest.
Vacancy rates in Monterrey are around 20 percent, in Guadalajara they are around 4 percent and in Mexico City around 14 percent.
We do not charge any fees when buying an asset, whereas most Fibras charge for acquisition and asset management, so this means their interests in providing benefits to shareholders are not completely aligned. Q: Why is Monterrey attractive and what are the main opportunities in the city? A: Monterrey is a small market compared to Mexico City, with only 1.2 million m2 of office space, compared to the
Q: Why are companies more inclined to invest in industrial
5-6 million m2 in Mexico City. Vacancy rates in Monterrey
instead of office portfolios in Mexico?
are around 20 percent, in Guadalajara they are around 4
A: Given their tax exemption status, they are eager to
percent and in Mexico City around 14 percent. Absorption
sell their stabilized assets to recycle capital through new
is a big issue in every market and the rate in Monterrey is
developments. Most of the office buildings in Mexico are
around 70,000-80,000m2 per year so by 2019 vacancies
privately owned, they are more than seven years old and
will be between 6-8 percent. There are mainly service and
have high depreciation rates so there are greater fiscal
manufacturing companies coming to Monterrey and in
gains in the event of a possible transaction. This would allow
the last 10 years the city has attracted several banks and
private owners to incur large capital gains for tax purposes,
major law firms as regional corporate offices demand
which complicates a Fibra’s ability to attract many sellers.
between 3,000-6,000m2. There has been a lot of office
Nevertheless, the Fibra regulation has certain fiscal benefits
space development for companies with manufacturing
whereby if a portfolio is paid out with Real Estate Stock
capabilities like KIA, which has recently built a sizeable
Trust Certificates (CBFIs), the private investors can defer
facility near the airport. The NAFTA corridor and Bajio are
their tax gains until they sell their CBFIs. Few players
our core business growth markets. Prime cities such as
specialize in corporate offices, which is why we see this as
Mexico City, Monterrey and Guadalajara will see sizeable
an attractive opportunity. Managing a multitenant building
Class A activity in office space but we also have begun
has its complexities but we had many years of experience
to see some activity in secondary markets such as Leon,
Tijuana, Queretaro and San Luis Potosi, although with
Q: What opportunities exist in residential developments?
smaller space demands. We have a strong growth forecast
A: This is probably the biggest asset class in the REIT market
for the northern region, supported by intensive investments
in the US and there are opportunities in Mexico for the
from the automotive, aerospace and technology industries.
multifamily rent business. There are still several challenges
The southeast region is not our core market as it is more
to overcome here regarding legal issues that give tenants
geared toward retail rather than corporate real estate.
imbalanced protection compared to that of the landlord. On the other hand we have seen tremendous activity in
Q: What innovations or concepts are permeating corporate
the development of apartments, a market where many new
real estate properties?
institutional players are entering with the clear intention of
A: Mixed-use spaces are in high demand in Mexico and
developing and immediately selling those portfolios, rather
we have seen an increase in these development concepts.
than using them as a vehicle to gather rent.
Communities that integrate services the way campuses do have not caught on in Mexico as much as we would like
Q: What role do you want to play in the market in the
to see. However, in Monterrey, three office corridors have
longer term?
emerged – Santa Maria, Campestre and Valle Poniente.
A: We want to become a benchmark in the Fibra market
Local developers are coordinating to measure how their
in terms of transparency, alignment of interests between
developments can co-exist as a community. Some of these
managers and stockholders and delivery. We believe
corridors are linked by paths that contain facilities like
there should be more than 10 Fibras in the market. There
hospitals, vertical and horizontal housing, retail facilities
is space for twice the size of our actual industry market
and schools and this has been done through coordination
cap of US$20 billion but we need a willingness from new
and planning to become urban centers. These kinds of
sponsors and managers to adapt to international standards.
developments can be carried out in secondary cities that
These standards will encourage local and international
have interesting growth forecasts, such as Queretaro, Leon,
institutional investors to invest their excess cash in these
San Luis Potosi, Chihuahua and Saltillo, and that still have a
types of investment vehicles. We foresee Fibra Mty being
lot of available space for sustainable urban development in
the most predictable cash-flow investment vehicle with a
the long run.
world-class corporate governance structure.
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Oficinas en el parque, Monterrey
PROJECT SPOTLIGHT
MEXICO CITY: A FINE BALANCE The emblematic Paseo de la Reforma bisects the city, separating the cultural and artistic neighborhoods of Condesa, Roma and Juarez from the authoritative business districts of Anzures, Cuauhtemoc and Polanco. At number 483, Torre Reforma, stretching 244m and 57 stories into the air, is the tallest office building in Latin America, the tallest skyscraper in Mexico and the perfect example of the dichotomy between art and commerce. Construction began in 2008 and took three years to complete. Development was undertaken by LBR&A Arquitectos and the structural oversight was carried out by consultancy Arup. Total investment was US$100 million and the project was financed through a private fund managed by Protego. The auditorium, a 100-person capacity prism suspended in the middle of the building, is made of wood, providing the perfect warm contrast with the coolness of the concrete and steel. The interior design consisting of granite and neutral colors characterizes the tower’s welcoming yet professional environment. Exposed glass and concrete on the building’s west side allow unparalleled views of Chapultepec Castle, once occupied by President Porfirio Diaz. The roof, slanted at an acute angle dedicates 800m2 to solar panels and 250m2 to water heating systems, which is among the reasons it possesses the coveted LEED platinum certification and serves as a Latin American reference for sustainability. A wind generation system is also located at the summit of the building and the entire structure was designed to reduce energy consumption, optimize water usage and minimize discharge. Torre Reforma’s facilities will allow a 55 percent water saving compared to conventional buildings due to systems that treat and recycle wastewater and use rainwater for irrigation purposes. Besides the glass façade that makes use of natural light, sensors are installed to detect the optimum levels of illumination necessary over the course of the day. The tower is controlled by an integrated building management system that controls all the light, electrical and sensory equipment to provide an optimal user experience for tenants. The tower combines equal amounts of office space and retail space with each occupying 35,000m2. Restaurants, entertainment areas, a gym and a floor dedicated to a shopping mall follows the trend favoring mixed-use space for today’s busy executives. Torre Reforma blends Mexico City’s business and cultural characteristics, acting as a bridge to both sides of the street.
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VIEW FROM THE TOP
FUNDS HELP BRIDGE REAL ESTATE GAP EDUARDO GĂœEMEZ Vice President of Investments and Finance at Mexican Retail Properties (MRP)
116
Q: What is your financial plan to continue expanding and
asset because our investors need their capital to be returned.
maintaining a competitive advantage?
This is a way for investors to access the development risk and
A: We are a manager of closed-end funds focused on
premium that real estate development brings to the market.
commercial real estate, principally retail centers, and over the course of our 12 years we have developed 72 projects.
Fibras are one of the potential exit strategies for us and
The first 49 projects were sold according to the exit strategy
they have been extremely attractive. However, we do not
of the first three funds. We do not operate these projects,
work with them in the development process. We build the
we develop them. The first three funds were raised with
portfolio and when that is completed we have the option
international capital.
to collaborate with a Fibra. As has happened in other jurisdictions, new participants and developers will come
We raised a CKD in 2012, which is completely invested, and
along due to the increased liquidity Fibras have brought
we want to close our new CKD in the third quarter of 2016 to
to the market. This was one of the main question marks
raise new capital with Mexican pension plans. This is a similar
over real estate investment in Mexico because there were
structure to the closed-end funds in that we cannot keep the
attractive yields but the exit strategy was sometimes called
into question. Now, other participants will take part and
seek higher quality real estate and more disposable income
remove the monopoly from the Fibras by buying smaller
means more retail space.
portfolios and creating more balance in the market. When the city’s space is exhausted, this gives way to a cycle Q: How could CKDs be improved to attract more
of improvement whereby old buildings are torn down to
investment?
construct higher quality structures, a phenomenon that can
A: The CKD was created in an ingenious way by the
primarily be seen in Manhattan. In Mexico City’s Reforma,
authorities, as they used an existing structure to get around
this is also beginning to occur. The government’s role lies
the legislation that prevents pension funds in Mexico from
in the creation of basic infrastructure like roads and public
investing in private vehicles. In essence, a CKD is a publicly
transport, as these factors must be in place to foster the
traded vehicle that never trades. It has been evolving and has
growth of retail, real estate and commercial structures.
given rise to CerPIs as a new vehicle for investment. At the moment, CKDs are a work in progress, both for the pension
Q: What have been the main real estate trends MRP has
funds and the authorities. Hopefully, we will reach a system
identified?
that bears more resemblance to the US Master Limited
A: There is still a real need for basic infrastructure in small
Partnership (MLP) agreement. Since the original instrument
cities as well as on the outskirts of towns. In larger cities, we
was formed, it has improved in leaps and bounds.
are seeing several trends. One is the increase of mixed-use
117
projects as a matter of convenience and cost, especially in Q: How can developers and the government work together
a chaotic city like Mexico City. This complements the other
to bridge the infrastructure gap?
trend of increased demand for convenience and new options
A: The process begins with basic infrastructure that allows
for smaller shopping centers that do not require great
for job creation. The infrastructure continues to grow
amounts of effort to access. Although large shopping centers
for several reasons, the first being the transition from the
can be convenient because they have everything under one
informal to the formal sector. The other is the growth of a
roof, in instances when consumers know exactly what they
middle class with more disposable income. The only way
want, these smaller centers can mitigate stress levels. There
to continue this cycle is through job creation, which goes
is a growing middle class in Mexico and we should make a
hand in hand with infrastructure. This is because people will
great deal of effort to make sure this growth continues.
Toreo, Fibra Danhos, State of Mexico
PROJECT SPOTLIGHT
118
BREATHING NEW LIFE INTO REFORMA The entrance to Mexico City’s financial district in Reforma will soon be getting a makeover with the development of the mixed-use tower Chapultepec Uno. A stone's throw from skyscrapers Torre Reforma and Torre Mayor, Chapultepec is wedged into one of the most privileged and exclusive corners of Mexico City, with spectacular views of Chapultepec Park and Latin America’s only castle, Castillo de Chapultepec. Chapultepec Uno’s location gives visitors easy access to significant recreational and cultural areas along with commercial and financial hubs along the Avenida Paseo de la Reforma. The tower is expected to open in 2018 and will house the globally recognized Hotel Ritz-Carlton that will offer 153 luxurious suites, a sky lounge on the 56th floor, approximately 30,000m2 of class A office space residential spaces and a heliport. A gymnasium and a spa round out the amenities. Strategically located between Polanco, Lomas, Insurgentes and the city’s downtown area, the tower is only 500m from the nearest metro stations, Chapultepec and Sevilla. The skyscraper will be among the tallest in the city at a height of 241m. It is divided into three main sections. Floors 12-35 are reserved for offices, 39-47 are designated to the luxury hotel and 48-55 are allocated for residential use. The building offers robotized parking along with valet parking. Chapultepec Uno is one of the few buildings in the country to be LEED “Core & Shell” certified and relies on 100 percent renewable energy. It has a water harvesting system and employs strategies to minimize energy and water consumption. When it comes to security, the skyscraper has emergency pressurized stairs, and security at each access point. Its glass ceiling allows a constant stream of natural light that illuminates the tower’s offices. Chapultepec Uno was inaugurated in the 1960s but the building was underutilized considering its strategic location
until
remodeling
efforts
began
in
2005.
Its design is intended to provide visitors and busy international executives with all the essentials in one building. The project is being developed by T69, a group consisting of Arquitectoma and Grupo Marca Arquitectos. The innovative KMD architects are in charge of the conceptual design while the design development is in the hands of Taller G.
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VIEW FROM THE TOP
DEVELOPER ISSUES FIRST CERPI JAVIER BARRIOS Director General of Mira Companies
120
Q: What segments have Mira identified as growing the
on the Baja California peninsula are most popular. This is an
fastest?
opportunity but it is highly speculative at the moment. We
A: Our main opportunities lie in developments for Tier
have one community right now and we are not planning on
1 cities and selective Tier 2 cities. One constraint in our
increasing our portfolio in this area unless we see promising
business is that our projects are funded with global
returns. That can take five to 20 years.
institutional money. We raised two funds from 2008 to the present and now we are raising a third fund through a
Q: As the first player in the market to issue a CerPI, what
CerPI. The first two were for US$500 million and US$200
are the challenges involved in the process?
million respectively. One of our key differentiators is
A: We build retail, office and residential. The fiscal
that we create environments with true human scale
structure of the Fibra is designed to develop and acquire
but to develop scale, large developments are needed.
commercial assets that produce rents but we sell a great
We typically seek projects that have close to US$100
number of our developments so this tool is incompatible
million in equity, which means we can only build vertical
with our needs. The CerPI is an evolution of CKDs because
communities in cities. For these reasons, we need to carry
it is designed to attract the same institutional pension
out large projects and midtier cities cannot absorb the
fund investors. The difference is that the evolution of
number of units at the prices we must charge to make the
the CerPI makes it similar to global private equity funds.
projects feasible. This is why we are focused on Tier 1 and 2
Pension funds can delegate more responsibility and risk to
cities that have shown a tendency toward vertical building.
the manager. One requirement of a CerPI is that a foreign
San Luis Potosi, for example, is a horizontal city so it does
institutional investor must co-invest alongside the pension
not make sense for us to enter with a large-scale vertical
funds. This requirement can only be met with sophisticated
urban community. There also is a lot of competition in
managers, further reducing risk for AFORES. We hope to
horizontal developments and a great deal of ground is
close our funding by the end of September 2016. Our goal
still being developed for middle to upper class homes that
is to provide investors a 16-21 percent return on investment
compete with condominiums. Given Mexico’s growing
before tax. The challenge is that this is the first time the
middle class, the demand for new households across the
certificate will be listed so lawyers are not entirely familiar
country will increase by 400,000-600,000 houses in the
with the framework. We are dealing with issues on how to
next year, which is promising for the residential segment,
co-invest Canadian and Mexican funding.
particularly in urban areas. Q: How have Mexican pension funds received these Q: What opportunities do foreign retirement communities
vehicles?
represent?
A: In our case, the reception has been favorable. I believe
A: Our main focus is urban but we are using one of the
our book will be oversubscribed but over time it should
funds to develop a community marketed toward retirees
become increasingly harder for new managers to tap
and second-home owners in Todos Santos, Baja California
into money from Mexican pension funds. The funds are
Sur. The signs point toward significant retirement migration
becoming more cautious regarding the experience of the
from the US. At the moment, there are only around 40,000
fund managers they deal with. Mexican pension funds will
homes owned by US citizens in Mexico, which is a drop
consolidate their private equity investments with a smaller
in the ocean. To put this into perspective, in Mexico City
number of managers. Pension fund teams are small and they
20,000 homes are absorbed each year while 500,000
do not have the resources to communicate with dozens of
homes are bought and sold annually across the entire
fund managers. We want to tap into Mexican pension fund
country. Specific locations like San Miguel de Allende in
money now and become one of the few managers that
Guanajuato, Ajijic and Chapala in Jalisco and certain areas
prevail when the market inevitably consolidates.
VIEW FROM THE TOP
TAPPING THE BMV FOR STRENGTH ELLIOTT BROSS Director General of Planigrupo
Q: What trends has Planigrupo identified in the Mexican
A: What regions are primed for investment and how does
market?
Planigrupo approach each development?
A: Mixed-use development, diversified retail experiences
A: Many cities are just starting to enter the real estate
in tertiary cities and the presence of foreign tenants in the
radar, such as TehuacĂĄn in Puebla and Valladolid, Yucatan.
market are among the trends. Mixed-used developments
One popular area is the Bajio region, especially the Saltillo-
are the result of the high cost of land due to its scarcity,
Monterrey corridor, which is extremely prosperous thanks
so the creation of shopping malls in major urban centers
to the automotive industry. The depreciation of the peso
like Mexico City, Guadalajara and Monterrey makes sense.
also has strengthened the region as many entities here are
This is also the case to a lesser degree in areas like Puebla,
foreigners. We are strategically opportunistic and base
Merida and Tijuana. As for decentralized retail experiences,
our strategy on the goals of our tenants. Planigrupo is the
primary cities are areas like Monterrey, secondary cities are
only completely national retail development company,
those like Puebla and Tijuana and tertiary cities are smaller
with a presence from Tijuana to Cancun and Jalisco to
and similar to Tulancingo, Hidalgo. This is important,
Ciudad del Carmen. We have built projects in 28 of 32
because any city with over 150,000 people has the market
states. Of the larger companies, we are the only one that is
potential for successful retail centers. Foreign players like
100 percent integrated. We take care of an entire project
H&M, Bed Bath & Beyond, Gap and American Eagle are
from beginning to end, including site selection, brokerage
entering the country and playing an important role in the
services, construction and acquisition.
market. These companies are creating a new need for retail space and ultimately reshaping existing shopping centers into a different type of experience. Q: Why did Planigrupo’s trade in its CKD and list on the Mexican Stock Exchange (BMV) in June 2016?
Planigrupo has built projects in 28 out of the 32 states in Mexico
A: Our business is divided between CKDs, glide paths, operational companies involved with construction and
Q: What is Planigrupo’s strategy to maintain growth?
management and minority interests in several commercial
A: Our company stays ahead of the curve. We were the
centers. We consolidated all our areas into a single platform
first to tap international funds, for instance. Providing
and grew to the size of similar larger Fibras. This change
results for our investors, tenants and customers at our
along with our IPO should allow us to raise capital in terms
retail developments is the most important element for us.
of equity and debt while leveraging our strength to not only
We are in constant communication with our tenants to
match the Mexican standard but also be able to compete
understand their needs because their vision is our biggest
on the regional level with Central and South America. CKDs
driver. Planigrupo maintains an occupancy level of 94
are successful but the problem is that they can be invested
percent and while the company may still be recovering
for a maximum period of three to seven years, when real
from the 2008 financial crisis, we are repositioning certain
estate requires a more medium to long-term period. The
shopping malls in Monterrey and Juarez to get back on
company was looking for more stable options and ended
solid ground. The retail centers developed by Planigrupo
up opting for CerPis as Fibras have too many restrictions
already have about 130-140 million visits a year. We will
that affect our business. As developers, Planigrupo wants
continue to strengthen partnerships with retail clients and
to reinvest the revenue into further development but Fibras
investors. We also have a duty to help this country and we
prohibit this by demanding revenue distribution. Fibras only
are proud of the more than 90,000 permanent jobs in the
allow the acquisition of Mexican property, which impacts
country we have created. The company will continue to
our plan to expand into Latin America.
invest in Mexico as long as it is able to do so.
121
INSIGHT
THE ENTRANCE OF MIDDLEINCOME MIXED-USE PROJECTS ALEJANDRO BALLESTEROS Director of Commercial Development and Marketing at Grupo Copri
The middle class is emerging as a sturdy foundation for the
mixed-used developments, which used to only be common
future of mixed-use projects, usurping traditional higher
in high-income areas.”
income areas and failed social housing developments. 122
New financial instruments and the adoption of sustainable
The industry may have initially been led by low-income
practices are the key bricks for building on this trend.
developers that were actively participating in the stock
“In middle income residential developments, we are
market, but many of them are now either restructuring their
constantly trying to innovate,” says Alejandro Ballesteros,
company or declaring bankruptcy. The market downturn
Director of Commercial Development at Grupo Copri, one
was exacerbated by a heavy investment in the construction
of Mexico’s most important developers and construction
of horizontal projects located on the outskirts of the Mexico
companies that focuses on high and middle-income
City metropolitan area that failed due to the lack of basic
housing and commercial projects. “We were the first
services. It led to a rapid horizontal growth of the city that
developers to build projects that have over 2,500 units
did not have the required infrastructure. “Even though the
with underground parking, amenities and green areas in
construction of vertical developments is risker because of
the heart of Mexico City. Now that others are doing similar
the number of pre-sales and the financing needed to lift
projects, we are targeting middle-income residents for
the towers, there is enough demand to motivate banks into
INSIGHT
GOOD NEWS DOES NOT MAKE A BUBBLE “It is crucial that investors
Director of Real Estate at Macquarie Infrastructure and
look at the dynamics of the
perspective of the next developments because developers
sector and although interest rates are important, there are other elements in the
Real Assets (MIRA). "In general, the industry has a good keep track of the relationship between supply and demand." Having such control allows the industry to avoid the significant risk of generating an oversupply or creating pricing bubbles. According to CBRE, in 2Q16 at least 13 new office buildings
equation that should be
were built covering a total of 190,000m2 in Mexico City
considered before beginning
expects its members to invest US$21 million by 2018, up
a new project”
alone. The Association of Real Estate Developers (ADI) from US$18 million 2015.
Jaime Lara, Managing Director of Macquarie
MIRA believes there is equilibrium in the market and
Infrastructure and Real Assets (MIRA)
although the Fibra sector has significantly grown in the past year, that is mostly due to the acquisition of existing properties. “As the economy continues to grow, there will
In the wake of the 2013 housing crash, good news in the
be additional demand for real estate,” says Lara. Numerous
real estate segment is often accompanied by fear of a
cities have old buildings that need to be modernized or
bubble forming. “Personally, I am not concerned about
redeveloped, creating more opportunities for investors
any kind of real estate bubble," says Jaime Lara, Managing
and developers alike, he says.
financing the projects,” he explains. “The government also
“Green areas are important for large developers, especially
sees the benefits these developments can bring the city
in areas like Santa Fe,” Ballesteros says, referring to the area
in areas that have decent urbanization, infrastructure and
on the western outskirts of Mexico City. “This is visible in our
services.” Ballesteros believes that financial instruments
landmark high-income housing project Cumbres de Santa
like Fibras and CKDs have made an impact in the market
Fe, the largest residential market masterplan in the area.”
even though Fibras only participate in the commercial and
The development has a park at its center and is surrounded
industrial real estate industry. Numerous CKDs also are
by protected natural areas. It is scheduled to have a total
beginning to invest in residential projects, giving impetus
1,800 units of houses and apartments, of which 1,400 have
to growth in the segment.
been built. “We are proud of this project as it reflects our desire to provide green areas in our developments,” he says.
Sustainability is another key part of the development
“It has also been successful for first-home buyers, whose
narrative, and an integral aspect of Grupo Copri’s strategy.
properties are now worth seven times what they paid eight
“We have a clear commitment to build more sustainable
years ago. They purchased at around US$300/m2 and the
and environmentally friendly projects,” Ballesteros says.
properties are now worth around US$2,000/m2.”
“The buildings in our new 800-unit development in Mexico City near the Parque Toreo Shopping center are designed
Ballesteros recognizes that the road to a healthier housing
so that each apartment has plenty of natural sunlight and
market has some bumps. Urban and environmental
its own solar panel to heat the water tank.”
impact studies show that investments in larger water infrastructure and improved access are needed to serve
Another property the group and partner Arquitectoma
new developments. Ballesteros says the government
developed was an underground mall. Ballesteros says it won
receives special taxes for this purpose that are being
praise from both local authorities and neighbors because
redirected to other priorities. “Improvement either takes a
it provided parking and commercial services below, with
long time to materialize or it never happens,” he laments.
a well-maintained and secure park above. It uses solar
“One of our challenges is making sure this money reaches
electricity, natural ventilation and recycles rain water.
the community it is supposed to be impacting.”
Of the many challenges the industry is facing, such as
countries but its young population - more than half the
a depreciating peso, Lara would like to see the Mexican
population is under 27 years old, according to INEGI -
economy growing at a much faster pace, especially given
will drive the need for additional structures. The country
its potential. Some investors are wary of the impact of
continues to open its doors to international trade and
the recent increase of interest rates, especially since
there will be an opportunity to develop commercial ties
some sectors within the industry are based on peso
with Asian and other Latin American countries.
lease agreements. “It is crucial that investors look at the dynamics and growth of the sector and although interest
There are plenty of examples of cities, such as Puebla and
rates are important, there are other elements in the
Queretaro, that are undergoing transformations, creating
equation that should be considered before beginning a
demand for additional retail, residential and commercial
new project,” says Lara. “These include occupancy rates
space, Lara says. Healthcare and education related to real
that can be achieved over time, rental rate increases
estate are areas that interest Mira but before plunging into
the property can achieve in excess of inflation and the
unknown territory investors must understand what drives
property’s appreciation.”
value and how developers will have to work to mitigate the risks, he says. The private sector in Mexico is participating
There always are risks when investing in the sector
in these sectors but the operators of schools, universities
but there are also many positive factors creating new
and hospitals are the owners of the real estate.
opportunities for investment. “There is a young population with increasingly higher levels of education and there are
If the economy continues to grow and demands additional
a number of multinational companies that are investing in
education and healthcare services, many of these quality
Mexico with a long-term view of the economy’s potential,”
operators will need further capital and support to fund
says Lara. “Given that we are at a specific point in the
their growth plans. “One way to do that is to monetize
economic cycle, when the external factors start to improve,
some of their existing real estate assets," says Lara. "We
growth in the real estate sector should accelerate.” Lara
are open to partnering up with existing high-quality
says it is hard to compare Mexico’s advantages over other
universities, schools and medical groups."
123
VIEW FROM THE TOP
MARKET GROWS DESPITE DIFFICULT TIMES PEDRO AZCUÉ CEO Mexico and Chairman Latin America of Jones Lang LaSalle (JLL)
124
Q: What trends have influenced the growing demand for
are transferred to the Fibra to the moment they are sold,
office space in Mexico?
creating liquidity. The marginal tax rate that applies
A: The market for Mexican offices constitutes about 5
is about 10 percent. Another benefit is the facilitated
million square meters, of which almost all was built in the
inheritance of assets.
past 20 years with approximately 1.5 million square meters under construction. The office space is concentrated in
Foreigners also are keeping interest high. German
Monterrey, Mexico City and Guadalajara. The expansion
investors, for example, purchased many of Mexico
of several sectors, the fact that many older office spaces
City’s premium office buildings, which at the time were
have become obsolete and population growth have
attractively priced. The ensuing significant appreciation,
contributed to demand in recent years. Mexico has seen
cash flows and cap rate compression have all contributed
steady growth in certain industries, particularly those
to an attractive return on investment (ROI) for the
involved in exports such as the automotive industry.
German funds. As such, foreign investors want to continue
Exports have been rising at a rate of around 10 percent a
investing in Mexico, especially after the scrapping of the
year for a number of years and therefore have increased
Single Rate Business Tax (IETU) and the subsequent
the demand for office and industrial space. We at JLL
increase in market liquidity.
expect this growth to continue. Q: What will drive demand for office space in Mexico City?
Twenty years ago, financing could demand 15 percent, whereas today there are loans for 4 percent
A: There is a strong appetite for office space in strategic locations. Twenty years ago, financing could demand 15 percent, whereas today there are loans for 4 percent, which has had a huge impact on the ability to deliver lower rents when leveraging a property. Developers no longer seek high returns since the competition for land and capital influx is too large, leaving land prices as the
Q: What has been the investment impact of the dollar-
only variable. Mexico City still has land prices that are
peso rate and the presence of Fibras?
well below other major international cities but it is one
A: The strong dollar is a relatively new phenomenon
of the world’s largest, most dynamic and complex urban
that has been accentuated in the past six months. The
centers. The projection is that land prices and the value
growth of the Mexican pension fund market, on the
of real estate will continue to rise at a higher rate than
other hand, has had a major impact. Twenty years ago
inflation. In 20-30 years, the number of high-rise buildings
pension funds did not exist in Mexico, since most of the
will inevitably increase and the number of detached
funding for infrastructure came from corporations, local
homes will decrease to become more like Manhattan or
investors, foreign capital and even families. A few years
Hong Kong.
ago, the pension funds were allowed to invest a portion of their assets into real estate securities that traded on the
Q: What are your priorities for the short and medium term?
Mexican Stock Exchange (BMV). Suddenly, Mexico had
A: The depreciation of the Mexican peso means both
a capital pool denominated in pesos, unaffected by the
trouble for certain areas and significant opportunities.
foreign exchange rate, and that capital created a US$10
There are certain properties in Mexico that are dollarized,
billion Fibra market. Contributing assets to a Fibra also
which are faring much better than those denominated in
has tax advantages for property owners. Payment of
pesos. If a Mexico City office building is leased in dollars
income tax is postponed until the shares are sold, while
and an attractive shopping center is leased in pesos, the
capital appreciation takes place from the day the assets
former would be worth about 30 percent more.
INSIGHT
CAPITALIZING ON SMALL-SCALE DEVELOPMENTS EUGENIO GONZÁLEZ CEO of Altea Desarrollos
Mexico’s 760 shopping malls are a drop in the ocean
efficient and clean.” He believes that these technologies
compared to the 109,500 shopping centers in the US
can be implemented across the board if the problem
recorded by the International Council of Shopping Centers.
of misplaced capital in the industry resulting from
Although Eugenio González, Director General of Altea
misinterpreted consumer needs is resolved.
Desarrollos concedes that Mexico’s goal is not to be on par with the US, he argues that improvement is less about
“Developers that work with Fibras or US funds are not
numbers and more about distribution. “The focus on large
using their own money and are less careful,” he says.
cities like Mexico City and Guadalajara that have more
“Many fail to place enough importance on the quality of
than enough retail centers impairs the development of
the project and show more interest in spending money.
commercial real estate in other areas,” he says. “The main
Developers have to realize that markets are different in
targets should be areas that are being left behind, such as
every city and building designs have to adapt to specific
low income neighborhoods in cities that lack development
niches. A stronger effort is needed to gain a thorough
but have a thirst for more retail centers.”
understanding of end users.” Altea raises most of its capital through private funds, instead of Fibras or CKDs,
Mexican franchises are struggling to develop at the same
allowing it to maintain close relationships with clients.
rate in these locations. “There are no incentives to invest
Altea also differentiates itself by making decisions based
in smaller towns when the investment costs the same
on market preference and not on portfolio interest.
and there are more sales opportunities in more urbanized regions,” González says. Altea is working with franchises to
González believes the industry is challenging because
create strategies that make investments more attractive.
the real estate market needs more square meters. The
So far, brands like Oxxo, Bodega Aurrera and Cinepolis are
majority of land is no longer available so it is important to
successfully positioning themselves in markets outside of
manage the remainder well. Still, he expects the number
large cities. “Any developer that creates a small or midsize
of commercial centers to double quickly. “A developer
retail center in areas without one instantly becomes king
that only has experience with residential areas could work
of the market for many years,” González says. “Shopping
with us to build centers that combine both residential and
centers in these areas cost one-third of those in larger cities.”
commercial use facilities,” he says. “The trick is to find projects with added value.” He points to a partnership with
The company opened a shopping center in Paseo La Fe,
Gicsa as an example. Altea located a piece of property next
Nuevo Leon and used a variety of innovative technologies,
to one Gicsa was acquiring and the companies decided to
including a polymineral roofing material called hefte that
create an alliance. Gicsa and Altea also have a common
is made with German technology, making it highly efficient
property in Playa del Carmen, with Altea owning the
but also expensive. Hefte uses plastic cushions of air as a
movie theater while the shopping center belongs to Gicsa.
ceiling to allow natural light to enter freely and nourish the internal garden, while providing a 21° climate. “It
Altea used to build houses but that market has followed
costs three times more than traditional roofing materials
the drop in oil prices, according to González, so the
but the results make it worthwhile,” González says.
company is now focusing more on industrial parks. “The
“Paseo La Fe is the sixth shopping center in the world
main issue is that investors are mainly looking for land
to adopt this technology and the first one in the entire
and not projects,” he says. “We now have four industrial
American continent to completely cover the roof with this
buildings and a plant. In one year, we expect to have four
material. The current price market may be a challenge for
more buildings, each with an area of 10,000m2. We are
developers but companies like Postensa offer technology
also beginning two more industrial park projects in the
for concrete structures that are preconstructed, light,
locations with the highest demand in Nuevo Leon.”
125
TECHNOLOGY SPOTLIGHT
126
PASEO LA FE INVITES NATURE INSIDE With a drive to draw more millennials into shopping centers, architects and developers are changing their outlooks on what is necessary for a mall’s success. Industry trends are flowing toward mixed-use developments as a way to use shopping centers as more than just a place to shop. This is leading to the use of more flexible and innovative formats in mall designs. The Paseo La Fe shopping center in Nuevo Leon encompasses these values through its focus on natural light and flora. It is bringing the outside inside. 127
The center’s developer, Altea Desarrollos, wants to provide an environment that allows the shopper to feel the freedom of shopping outdoors without the potential of volatile weather dampening the experience. As a result, the company chose to use ethylene-tetrafluoroethylene (ETFE) instead of glass to construct the arched transparent ceilings. ETFE is a thermoplastic fluoropolymer that has a high resistance to corrosion and over a wide temperature range, making it the ideal roofing solution. The material has been used internationally, most notably in the art project “The Water Cube” at the National Aquatics Center during the Beijing Olympics. ETFE is essentially a transparent plastic that makes a favorable alternative to glass due to its unique properties, among them its light weight. The material weighs 100 times less than glass of the same dimensions, allows more light to flow and is easier to clean. ETFE has a high resistance to ultraviolet rays and unlike other plastics does not discolor with exposure to sunlight. Its high durability and resistance to chemicals, mechanical pressure and temperature change are just some of the properties that convinced Altea Desarrollos to choose the plastic for Paseo La Fe. Another built-in safety measure is that ETFE is combustible but not flammable and can support temperatures up to 170°C. The Paseo La Fe shopping center is designed in a dome shape along curved beams that bisect the length of the structure’s internal corridor. The ETFE’s light weight means that fewer supporting structures need to be used, allowing larger transparent panels that let the natural light stream through to the interior corridor. The design incorporates green areas, water fountains, terrace areas and social areas, which further emphasize the strength of the natural light, providing a welcome respite from the hustle and bustle of a traditional shopping center. The facility is mixed-use and will include family meeting areas, a bowling alley, a roller-skating rink and a play area for kids.
VIEW FROM THE TOP
ENERGY REFORM A LONG-TERM INVESTMENT LUIS MÉNDEZ President of Coldwell Banker Commercial
128
Q: Which regions have the most potential for commercial
retail, and industrial real estate development. Puebla in
development in Mexico?
particular is growing due to its educational institutions.
A: Commercial real estate refers basically to industrial, office
Students from all over the country are moving to the city
and retail developments. The regions that have the highest
and this demographic will demand more housing and
potential for these developments are the largest cities,
entertainment. Real estate development in these areas
Mexico City, Monterrey, Guadalajara and those led by the
will keep growing rapidly in the following years. Touristic
industries with the most activity, which are the automotive
real estate will also continue to prosper in Cancun, Riviera
and tourism industries. The Bajio region, which comprises
Maya, Riviera Nayarit and in Los Cabos, which at the
the major cities Queretaro, Guanajuato, Aguascalientes,
moment has the most expensive pricing in all of Mexico.
Silao and Leon, has grown exponentially in response to the rapid rise of the automotive sector. These cities must
Q: How do Mexico’s commercial real estate developments
meet the industrial needs of the segment and develop
compare to those in other countries?
supporting infrastructure, such as housing and services,
A: The buildings that are being constructed in Mexico today
for existing and new companies. Entertainment, social
comply with the highest global standards. The country’s A
and commercial infrastructure also must be built to keep
and A+ commercial infrastructure is LEED Platinum, Gold
up with rapid population growth. Another region that is
and Silver certified and also adheres to high safety and
quickly developing and that has a vast amount of potential
innovation standards.
is the border with the US where Tijuana, Juarez and El Paso have recovered thanks to the manufacturing boom.
A booming segment is mixed use due to the rapid urbanization of Mexico’s cities. The most successful
Land in Polanco and Reforma costs between US$10,000 to US$20,000 per square meter
and lucrative real estate projects are mixed use. These developments optimize parking lots and allow companies to offer a wider array of services that reflects in a better quality of life for users and visitors. The challenge is finding pieces of land large enough to fit these projects or slowly purchasing the surrounding areas to expand.
Q: What impact did the Energy Reform have on real estate development?
Q: How difficult is it to obtain land for mixed-use
A: The real estate market gambled on the energy industry,
development in Mexico City?
which is present in all the states located near the Gulf of
A: Mexico City has a strict land-use policy and the price of
Mexico. Developers expected the arrival of international
land has drastically increased in premium zones, such as
and national companies to this region due to the opening
Reforma , Lomas Palmas and Polanco. Land in these areas
of the market and quickly built housing units, shopping
costs US$7,000 to US$15,000 per square meter compared
malls and entertainment infrastructure. But the drop in oil
with US$3,000 to US$4,000. This is a result of the land-
prices slowed the sector’s development, although in the
use policy and the scarcity of land within the city limits for
long term it will continue attracting investment. The boom
commercial developments. Companies must be extremely
that was expected to take place in 2016 was delayed but
patient when it comes to acquiring land for their projects.
we are confident it will pick up in the coming five years.
From the acquisition stage to development, the average time to complete a project is six years. Although extremely
Q: What cities have the highest A and A+ potential? A:
Monterrey,
Guadalajara,
Queretaro,
Puebla
complex and time-consuming, mixed-use developments and
Mexico City are experiencing the most growth in offices,
like Antara and Toreo are the most successful long-term investments.
Q: How does Coldwell Banker Commercial help developers
and the appreciation of the dollar against the peso, the
optimize their properties?
market is growing and we will reactivate our operations in
A: Coldwell Banker Commercial focuses on urban areas,
this sector in the fourth quarter of 2016.
with Mexico City serving as the nucleus. Our secondary focus is in the Bajio region, Guadalajara and Monterrey.
Q: What is Coldwell Banker Commercial’s outlook for the
Around 80 percent of our operations are in Mexico City.
market?
Professional landlords are in search of professional brokers
A: We are extremely optimistic about the future of the
to adequately position their properties in the market. Our
commercial real estate market in Mexico. The country’s
company is able to sell up to 60 percent of a building
geopolitical
during the prelease or presale stage. As trusted advisors
comparison with other Latin American, Asian and European
we actively participate in the whole development process,
countries. Five factors are necessary to maintain this
from the project conception throughout lease, sale and full
synergy. Internal consumption is the first factor because
operation stages.
Mexico now has a unique economy and is growing steadily.
environment
is
unrivalled,
especially
in
Exports, along with a cost-friendly labor force, fuel the Q: Does Coldwell Banker Commercial plan on expanding
country’s competitiveness and relationship with the US
its presence in the tourism sector?
and Canada. The third factor will be the Energy Reform,
A: We had operations in the hotel and tourism segment
which will optimize Mexico’s dormant energy resources and
but we decided to give the industry time to recover
awaken the appetite of the largest international players.
before diving back in. Over the course of this year we
Finally, insurance and financial culture is growing in Mexico,
have received countless opportunities to participate in
making this a perfect market for international insurers to
the tourism sector, from both international and Mexican
enter. Mexico will continue to experience a constant, gradual
entities. With the government pouring money into tourism
growth that will support a healthy real estate market.
ARTZ, Grupo Sordo Madaleno, Mexico City
129
VIEW FROM THE TOP
SPECIALIZATION: THE KEY TO REAL ESTATE SUCCESS DANIEL TOVAR Director General Latin America at Grupo Acerta
130
Q: What is the image of the real estate sector in Latin
measures, including treatment of sea water for human use
America and in Mexico?
that gets returned to the sea.
A: Mexico is a target for international investment, which is being channeled to the real estate market. This is evident
Q: What does a project need to be successful and what
in the sector’s dynamism and the large sums of money
trends are changing how work is done?
that are being invested in projects here. Mexico City, for
A: A cornerstone of our company is that we recognize
example, is undergoing a significant change. After a few
the importance of project planning. A successful project
years during which investors were reluctant to finance
requires qualified and professional human capital as well
large resorts, they are once again looking at the hotel
as expertise and experience in specific areas. One major
sector. This confidence is illustrated by the development
trend is specialization, which evolved from the traditional
of numerous hotels in Playa del Carmen, Cancun, Huatulco
model wherein real estate companies offered complete
and Puerta Vallarta.
services, from funding to planning and design and finally construction and operation. With an increased focus on
Q: How is sustainability and environmental responsibility
specialization, companies outsource certain tasks to third
impacting construction plans?
parties and although Mexico still has a lot of multitasking
A: Mexico has strict environmental regulations that require
firms, there is a clear push toward design-only architectural
specialist impact studies and statements. Obtaining
firms. Specialization leads to greater productivity and
construction permits is lengthy and complex and the
expertise in a faster, more effective way.
environmental restrictions are stringent. Natural areas tend to be vast yet the number of building sites on
Q: How can specialization help companies that still prefer
those lands is relatively small to its size, which limits the
to do everything themselves?
impact. Occupancy rates may be 5-10 percent of the total
A:
area and the remaining land is reserved for preservation
management support is still limited but the rising number
via mangrove protection areas and coastal protection
of foreign real estate players in Mexico is boosting demand
programs. One problem in Mexico is water management.
for these services. We provide a solution to an existing
There
are
extremely
strict
regulations
The
number
of
companies
that
offer
project
regarding
need and we work closely with companies to demonstrate
construction in areas with water-related problems to
how specialization can contribute to growth. Specialization
protect the aquifers. We also develop plans for flora and
is crucial, as companies who focus on everything
fauna preservation. With these projects measures are in
simultaneously often tend to focus on the divisions that
place to preserve the ecosystem. There also is a trend
are faltering and thereby neglect their strengths.
toward generating alternative energy and energy-saving Q: What is your strategy for Mexico in the coming years?
Grupo Acerta has developed numerous hotels in Playa del Carmen, Cancun, Huatulco and Puerta Vallarta
A: The real estate market is constantly evolving so Grupo Acerta must constantly adapt to these changes. We have learned that no country, state or circumstance is the same and we must always be flexible. Grupo Acerta wants to identify potential projects, trigger development and provide our customers with structured developments. The company is an active service provider, which differentiates us from similar companies in the sector. We are convinced that because the Mexican real estate market is built on a solid economy, it will continue to grow.
INSIGHT
SHOPPING FOR SPACE IN A SATURATED MARKET Mexico City’s market for commercial centers is becoming increasingly saturated. The country’s capital can only host a limited a number of malls, and developments are not allowed to exceed area restrictions. Charles El Mann Fasja, Director General of Parks Desarrolladora, says developers
“We are developing several infrastructure projects for Mitikah’s future neighbors,
are in for a serious space crunch.
which includes paving the
Maintaining a position in the market can be difficult as it
roads and fixing water lines”
involves long regulatory processes and market research in alternative cities, says El Mann, whose business manages
Charles El Mann, Director General of Parks
the development arm of E-Group. These conditions will
Desarrolladora
eventually force commercial centers to move to secondary cities. For now, though, Parks will continue working where
The company is known for its innovative and massive
it is. “In the short term, we envision our developments to
mixed-use commercial centers. “We have a project
keep growing until space reaches its limit,” he says.
in Guadalajara called Midtown Jalisco, a 60,000m2 commercial center that might be the largest tower in
As a holding company, Parks is in many sectors, from
Guadalajara,” El Mann Fasja says. “It will include a Hilton
energy to golf course projects, handling the acquisitions
Hotel and several housing units.”
of the parent E-Group. “We divide our services into industrial, commercial, corporate offices and hotels,” El
Its biggest development in Mexico and Latin America
Mann says. “Our revenue is divided roughly 30 percent
is Torre Mitikah, which spans 1.2 million m2. The project
commercial, 30 percent industrial, 30 percent corporate
in Mexico City has a hospital, 500 rental apartments,
and 10 percent hotels. This last sector is not as strong as
300,000m2 of office space, two hotels and a mall. Torre
the others but we now have 5,000 operating hotel rooms
Mitikah differentiates itself from other malls in Mexico
under several brands including Hilton, Fiesta Americana
by incorporating the subway into its design. Because
and Fiesta Inn. Our industrial side has 99 percent
of its magnitude, the tower is almost a small city.
occupation rates.”
Implementing adequate infrastructure, developing and operating projects of this magnitude are complex hurdles
El Mann says having a wide array of experience among
to overcome, says El Mann. Involving the surrounding
different industries helps mitigate risk. When one
communities is an important part of the process. “We are
segment decelerates, the company can quickly shift its
developing several infrastructure projects for Mitikah’s
focus to a different sector. “This flexibility is necessary to
future neighbors, which includes paving the roads and
remain competitive in the market. Consequently, we are
fixing water lines,” he says.
entering other sectors such as housing with mixed-use developments,” he says.
Mixed-use towers have several advantages including the efficient use of parking spaces. “Hotels often use
For every sector, the process from land acquisition
parking spaces by night while offices occupy them
to rent is lengthy. It involves several regulatory and
during the day,” he says. “Malls use them on weekends
logistical steps. “So far, we have approximately 11
and holiday afternoons. A mixed-use unit creates a
million m2 rented out,” El Mann says. “To the best of my
balanced and optimized use of space.” Another mixed-
knowledge there is no other developer in Mexico with
use property advantage is air conditioning, as a central
the technical infrastructure, financial and operational
system consumes less energy than several units in various
platforms to manage projects of this size.” Other
locations.
developers may feel obligated to form partnerships to develop large projects, but because sister company
Recent reforms are leading many companies to invest in
Fibra Uno allows Parks to lower its average financing
the construction of real estate. The industrial, office and
rate by issuing debt in the market, it grants the company
housing sectors in particular are flourishing. “Real estate
favorable conditions to expand.
is highly dependent on the economy. As Mexico is doing well economically, so are we,” he adds.
131
PROJECT SPOTLIGHT
132
THE ANTARA MIXED-USE MASTERPLAN Sordo Madaleno Arquitectos was the first developer in Mexico to venture into the great outdoors with the openair Antara commercial center. The first phase of the Mexico City shopping mall in 2006 completely regenerated the surrounding area’s urban profile, increased property values, promoted densification and attracted capital investment to a neglected industrial zone by transforming it into a highquality mixed-use district. Antara shattered conventional architectural forms by avoiding the use of department stores as anchors. The idea behind the masterplan, a traditional shape of a curved street with shops and restaurants along an arch, was to create a safe and welcoming space where visitors could experience different sensations through green areas and water bodies. The masterplan highlighted the importance of space and a coherent interaction with the city through its open design. On the main floor, water fountains mingle with benches and triangular lights that indicate main access points to the parking area. The architects have achieved an effortless interconnection between the business side of Antara and its stores through vanishing points that reveal urban interventions among the trees and green walls. The commercial passage balances glass and metal against wood and stone textures to accentuate the harmony in its design. The second floor of the innovative commercial center encompasses a food court, restaurants and movie theaters. Nine levels of office floors follow the inner curve of the structure, where the first three are commercial and the last are designated for corporations. In 2013, the masterplan’s second stage was completed with two 16-storey corporate towers, Antara Corporate and Antara Corporate II. The latter is still under construction along with a third tower that will most likely become a hotel. The third stage will ultimately expand the Antara Fashion Hall. Antara’s re-creation of the area has attracted two important museums, residential complexes, major corporate buildings, mixed-use buildings and an aquarium. It promoted the recovery of public space by turning a largely industrial zone into a fusion of gardens, plazas and fountains. It was also the first shopping mall with an underground parking lot, eliminating the gray space that interferes with the flow of pedestrians. Overall, Antara owes its social success to the adoption and appropriation of the space since its opening. The commercial center has generated 80 direct and 310 indirect jobs across all economic levels. The number of visitors to Antara totaled 6 million visitors in 2015.
133
INSIGHT
SMART PARKING CREATES EFFICIENT CITIES JOSÉ FENOLLOSA General Manager Mexico and USA of Meypar
134
Commercial developments are on the rise in Mexico’s
law. Meypar is one of the leading providers of parking
cities and parking is becoming a significant problem
solutions in Mexico, and Director General Jose Fenollosa
in highly densified areas. Efficient automated parking
has witnessed this growth firsthand.
could help alleviate the problem while having a positive environmental impact, says parking solutions provider
“Despite growing demand, various cities throughout
Meypar. There were 251 commercial developments built in
the country have tried to outlaw monetized parking in
Mexico between 2009 and 2013 with a total floor area of 16
commercial developments,” Fenollosa says. Developers
million m , of which 42 percent was dedicated to parking
can only pay for these services through parking revenue
spaces, according to the Institute for Transportation &
or by increased prices. Monetizing parking not only
Development Policy (ITDP). As of 2015, the number of
helps developers offer security and comfort but it also
malls had more than doubled, shooting up to 584 – and
discourages the use of cars, Fenollosa says. Parking lots
with a total 1,800 or so malls in Latin America that makes
and parking meters make the use of a car more expensive,
Mexico the king of commercial real estate in the region.
reducing the number of cars on the streets and pollution
To keep up with the demand, the city would require five
levels. Companies can also take advantage of their off-peak
times the available space for the parking required by
hours by renting or allowing other companies to use their
2
INSIGHT
GOING WITH THE FLOW IN VERTICAL BUILDINGS ALICIA BANDALA Director General of KONE México
By 2050, the WHO expects seven out of 10 people
“We can assess according to the volume of occupants,
globally to be living in urban areas. The increasing
their needs and whether it is a shopping mall, office or
scarcity of land in growing metropolises like Mexico
residential space.”
City make it highly likely more people will be living in high rises. Moving all those residents up and down
KONE, which was founded in 1910, provides people flow
and in and out is a challenge. The solution, says KONE
solutions to the elevator and escalator industry. In 2015 it
Mexico, is controlling the flow while also feeding
posted net sales of €8.6 billion and had close to 50,000
sustainability. “Our people flow systems optimize traffic,
employees. The company sees opportunities in Mexico
reducing the size and number of elevators needed in a
not just in new buildings but with the old as well. “Old
building, and seamlessly integrate elevators, building
buildings in some areas of Mexico City, for example, are
doors and turnstiles to provide maximum security
being transformed to enhance their functionality,” says
while ensuring the smooth flow of people,” says Alicia
Bandala. “Mexico City neighborhoods like Juarez and
Bandala, Director General of KONE Mexico. She says the
Cuauhtemoc have beautiful old buildings and owners
company’s technology lowers elevator and escalator
are now looking to locate space for elevators.” The
energy consumption, while reducing wait time for users.
company says its modernization solutions for upgrading
parking lots. “Developing smart parking garages allows
integrating smart parking systems into their developments.”
users to locate free parking spaces and facilitates the
Meypar has seen cases where parking lots were making
flow of traffic. Housing or stores can rent out the parking
MX$30,000 (US$1,578) in monthly revenue. After installing
spaces they do not occupy through the use of technology.
an automated system, income increased to MX$130,000
The parking sector not only generates revenue, but it also
(US$6,842) a month. The discrepancy was attributed to
generates jobs,” Fenollosa says.
the inconsistencies of the previous payment collection process. “Whenever we install Meypar systems, companies
The Mexican Parking Association is working with the
see between a 10-15 percent increase in revenue, even if the
International Parking Institute to voice the needs of the
system was already automated,” says Fenollosa.
sector and ensure the prosperity of the market. Its biggest concern is the maximum the government has placed on
These systems also enhance the customer experience
prices. “These prices vary from city to city," says Fenollosa.
by integrating new payment methods and giving them
"The government should instead establish a minimum
the flexibility to pay with credit cards, cash or even cell
number of services the company can offer at a certain price.
phones, although such technologies require a higher
By establishing prices by service and not city, companies
investment from developers. “Credit card rates in Mexico
will be able to gain competitive advantages and the
are extremely high, which discourages developers and
consumer will choose the services it wants for that price.”
operators from offering these services to their clients,” says Fenollosa. In response, developers have begun using
The real estate boom has mainly impacted Mexico City but
their own department store or loyalty cards as a way to
states like Chiapas and Hermosillo also are growing rapidly.
pay for parking. “Developers have no problem offering free
“Shopping developers must keep in mind how much space
parking to users as long as they purchase in their stores,”
they will need for parking as well as the revenue they could
he explains. “There are many benefits that can be reaped
make from it,” Fenollosa says. “The revenue generated
from parking lots and parking meters for both citizens and
by private parking lots goes back into the maintenance
developers but a balance must be found in the quality of
of the mall, which is why more and more developers are
the systems and in the price.”
or replacing existing equipment meet or exceed the latest
buildings have elevators that open at the same time in the
safety standards, improving reliability and user safety.
morning, as they learn to identify peak hours,” she says.
“Our products are installed by professional technicians
“The entire concept of people flow solutions is one of the
following strict modernization processes that include
most significant assets of a building.”
safety requirements,” she says. Technology is not only giving new life to outdated systems, it is turning the simple lobby into high-tech zones. Smart lobbies, a relatively new concept, ensure the proper flow of people. KONE is introducing the technology to the Patio Revolución complex in Mexico City. “Our user-
In China, 600,000 new elevators are installed every year. In Mexico, this number is only 4,000
friendly, integrated access and destination solutions are designed to make it easy for people to move throughout
According to Bandala, KONE’s mission is to improve the
the complex,” Bandala says. “Users can select their
flow of urban life. “We provide ease and effectiveness to
destination on a touchscreen panel or, for even greater
users and customers over the full lifecycle of the building,”
convenience, they can make elevator calls directly from
she says. “Even though land is becoming scarce, many
their mobile device. Developers are keen to bring this type
old buildings offer opportunities for renovation. We are
of innovation to Mexico.”
interested not only in megacities but also hospitality investments in different regions in Mexico.” KONE does
A building may have been designed for 5,000 people and
not play a role in industrial construction but Bandala
end up accommodating more than double that number.
says areas surrounding those developments eventually
Issues such as congestion can arise in peak hours when
will need infrastructure such as hotels, shopping malls,
capacity is surpassed. Bandala says that destination
hospitals and access to other services. Bandala points out
control systems can help ease the flow, as the program
that in China, 600,000 new elevators are installed every
assesses, calculates and learns the user pattern. “Some
year, while in Mexico, this number is only 4,000.
135
NH Hotel, Downtown Guadalajara
136
INSIGHT
HOTEL CHAINS RIDE THE TOURISM WAVE JUAN CARLOS REUS Expansion Director Mexico, Central America and the Caribbean of NH Hotel Group
Whether it is business or pleasure, the number of people
technology installed in its hotels. “The hotel industry
coming to Mexico is on the rise. Just in the first half of
tends to offer return rates based on their niche in the
2016, the country saw 47 million international visitors, up
market,” says Reus. “Hotels that focus on the three-star
9.4 percent from the same period in 2015, according to the
niche of the market require a lower level of investment
Ministry of Tourism. The burgeoning tourism landscape
but the profitability is equally affected. We look for
has opened an opportunity for hotel chains to strengthen
quality in material.”
their position. NH Hotel Group is among them. “Mexico has welcomed our services,” says Juan Reus, Expansion Director of NH Hotel Group. “Hotel chains are starting to come to the forefront of traveler priorities. The market has diversified and now is the time for the hotel industry to become more professional and increase profits.” With 11 hotels in Mexico, the group’s goal is to have between 30 and 50 operating units by 2020, focusing on quality and the middle to upper-scale niche in the market. “We want to provide the services our end users demand,” says Reus.
“When it comes to attracting investors and partners, we let the quality of our hotels and customer satisfaction levels speak for themselves” Juan Carlos Reus, Expansion Director of NH Hotel Group
Attracting investors does not pose a great challenge to
Hotel chains clearly differentiate themselves from each
NH Hotel Group as its investors are generally loyal to its
other when it comes to the fees, quality and services they
brand, says Reus. “When it comes to attracting investors
offer. Reus says NH Hotel Group targets executive tourism
and partners, we let the quality of our hotels and customer
and clients that travel for business. “We do not worry
satisfaction levels speak for themselves,” he says. “We all
much about new trends like Airbnb as they have their own
enjoy coming to a place that treats us well, with well-
niche in the market,” explains Reus. “A business person
decorated rooms in a safe location. For this reason,
is unlikely to exchange the professional services a hotel
we strive to offer our end users high-quality services.
can provide like Wi-Fi, business centers and breakfast
Investors like the fact that we offer a convenient balance
for a room that is cheaper.” Keeping in line with its core
between price and value, which makes us competitive
target of business travelers, the group has a hotel at the
in the market.” Reus says that while independent hotels
international airport in Mexico City so executives do not
make up 70 percent of the market in Mexico, they do not
have to face the city’s notorious traffic. “Many executives
have the same salesforce and weight in negotiations as
opt to have their meetings there so they do not have
the larger hotel brands. “It is one of the most important
to leave the hotel,” says Reus. “The way executives do
factors investors look at to define how much a brand is
business is changing. They travel lighter and carry their
worth,” says Reus. “The second most important factor
offices in small devices. They are interested in doing
is economies of scale. Hotel chains have the ability
business in a comfortable and safe manner.”
to negotiate in a wide range of fields. We have a wide network of suppliers and strong relationships with travel
In its 10 or so years in Mexico NH Hotel Group has
agencies that help us negotiate profitable rates.”
seen significant growth in the main business cities of the country. Along with local partners, it is building
NH Hotel Group strives to maintain top of the line
structures that are functional enough to last over 50
architecture,
years in the market.
technology,
gastronomy,
design
and
137
COMPANY SPOTLIGHT
138
BUILDING SHOPPING MALLS ON TIME, ON BUDGET By many accounts, Mexico is on the verge of a commercial real estate boom. According to the International Commercial Center Counsel, there will be 15 new malls constructed in Mexico in 2016, representing a total investment of MX$5.5 billion. The country is expected to have more than 760 malls by 2025. The challenge lies in building these immense buildings on time and on budget. Constructor ITISA has one potential answer and it is allying with national and international developers to bring the sprawling structures to the finish line. ITISA’s open secret is prefabrication. In its quest to be the fastest and most reliable constructor in Latin America, the company has mastered the use of concrete prefabricates that drastically simplify operations, especially commercial real estate. The shells it builds can be constructed piece by piece, like a Lego set. The pieces are elaborated in a factory and once the construction process is ready to begin, they are transported to the site where they are put together on the spot. By adapting and innovating its processes, ITISA says it has shaved up to 40 percent from the total construction time. ITISA integrates various construction methods, materials and technologies to adapt to the specific needs of each developer. Mixeduse developments are taking off in Mexico and they require a combination of prefabricated, post-tensioned and steel structures to create quality products. Safety is a priority, especially considering that Mexico is prone to earthquakes. Along with the Engineering Institute of UNAM, ITISA has carried out studies of how prefabricated structures respond to seismic activity. For this study, ITISA constructed a 1:3 replica of a prefabricated concrete structure, which was then placed on top of a seismic simulator shake table. The test exposed the building to simulated magnitudes equivalent to 100, 150 and 200 percent of Mexico’s devastating 1985 earthquake, using the lake zone spectrum, without any major damage to the structure. The results illustrated the reliability of prefabricated structures along with the innovations that have been integrated over the years, such as segmented and open node columns. The use of shell beams and open node columns allow a more ductile connection that improves the resistance of a building. Tower cranes and segmented columns also permit construction in cramped spaces that were previously unreachable using prefabricated systems. Now, the company can build to any height, on any piece of land and in any part of the country.
Information provided by ITISA
139
Industrial Park Amistad, AcuĂąa, Coahuila
INDUSTRIAL PARKS
6
Industrial giants are taking over the Bajio region, State of Mexico and Monterrey as they follow the prosperous automotive and manufacturing companies that are settling in Mexican territory. Mexico’s industrial parks are becoming more advanced with each passing year, able to adapt to the unique needs of each company they house. They are growing rapidly throughout various states but there is one thing they have yet to accomplish: a definition as to what constitutes an industrial park. There are calls for the regulatory framework to be adjusted and for sustainable development standards to be established so that investors feel more at ease. Industrial parks are targeting self-sufficiency and incorporating sustainable practices into their infrastructures to enhance the quality of the services and products offered.
This chapter will concentrate on Mexico’s largest industrial park developers and the opportunities they have spotted in the market. Their expert insights give a snapshot of the standards and trends following the automotive, aerospace and manufacturing sectors. Interviews discuss the challenge of bringing energy and water infrastructure to the remote locations of industrial parks and how they are working with the government side-by-side to find the best solution for the development of basic infrastructure.
141
CHAPTER 6: INDUSTRIAL PARKS 143
144
VIEW FROM THE TOP: Claudia Ávila, AMPIP
146
TABLE: Main Industrial Park Owners in Each State
148
VIEW FROM THE TOP: Sergio Argüelles, FINSA
149
INSIGHT: Alejandro Lara, American Industries
150
INSIGHT: Manuel Barreiro, Advance Real Estate
150
VIEW FROM THE TOP: Marco Ramón, Amistad Industrial Developers
152
VIEW FROM THE TOP: Mauricio Garza, Interpuerto Monterrey
153
INSIGHT: Roberto Cantú, Roca Desarrollos
154
INSIGHT: Víctor Mena, Parque Industrial Querétaro
155
INSIGHT: Francisco Estrada, Parque Aeroespacial Querétaro
156
PROJECT SPOTLIGHT: Inland Port Sports an Enviable Bag of Tools
158
INSIGHT: Armando Lee, The Offshore Group
159
VIEW FROM THE TOP: Javier García, IOS OFFICES
VIEW FROM THE TOP
INDUSTRIAL PARKS ZERO IN ON LOGISTICS, E-COMMERCE CLAUDIA Ă VILA Director General of the Mexican Association of Industrial Parks (AMPIP)
144
Q: Which sectors will have the most demand for industrial
adapt to those specific needs and create more advanced
spaces in the coming years?
structures.
A: The Mexican manufacturing industry has enjoyed steady growth in the last two years and the vast majority
Q: How stringent are the quality standards for industrial
of foreign companies are exporting to the US using
parks?
Mexico as a logistics platform. The main drivers behind
A: The Official Mexican Standard (NOM) is a voluntary
the development of industrial spaces are automotive and
standard
aerospace suppliers but there are several sectors that are
projects from other informal developments. To this day,
coming up, including medical devices in the northeast,
there is no official description of what constitutes an
electronic appliances in the north and distribution
industrial park in Mexico. Industrial developers have united
centers in the State of Mexico. Distribution and logistics
through AMPIP to create a standard that clearly defines
centers require far more sophisticated buildings and
what an industrial park is and what it consists of. In most
services, such as higher roofs, access to trade routes
countries, an industrial park is also equivalent to a free trade
and security systems, especially with the sector’s trend
zone but in Mexico the majority of the industrial spaces do
toward e-commerce. E-commerce demands greater
not have any tax incentives or customs facilitators. They
processing efficiency, which pushes industrial parks to
are considered real estate projects.
that
differentiates
industrial
development
A committee was created in 1999 that established a
crucial to the growth of the sector, they require reliable
standard for industrial parks that included land acquisition
tenants that can guarantee the payment of the lease for
and usage, compliance with regulations, feasibility of
many years. Unfortunately, small companies are not always
utilities, internal administration and by-laws. Acquiring
able to give investors this guarantee. That may be the largest
and managing land are the biggest hurdles developers
factor steering developers away from parks for SMEs.
face in the construction processes due to the intricacy of negotiating with ejiditarios. For a developer to gain
The National Entrepreneur Institution (INADEM) has
access to the land, 100 percent of the ejido must agree.
always been interested in developing programs for the
This requires a land audit, as well as compliance with some
development of spaces for SMEs but it likely did not
basic international standards, such as access to electricity,
receive enough government support.
water and waste infrastructure, the inclusion of a certain percentage of green areas and security protocols.
Q: What problems plague existing state-owned SME industrial parks?
Q: How can industrial park developers meet the needs of
A: State governments usually acquire the land and
Mexico’s SMEs?
permits to provide the property to manufacturing SMEs
A: The majority of the private companies located in Mexico
at accessible prices. The state and company then come to
are SMEs but the industrial parks that form part of AMPIP
an agreement that requires the company to construct its
cater to the needs of medium and large companies. There
facilities in a short period of time because the government
are several parks that offer spaces to small companies
wants to swiftly relocate the industry, usually to the center
but their business models differ greatly from those of
of a city, to generate jobs. Given that many of the SMEs
the developers in AMPIP. To create an industrial park,
do not have the capital to comply, these projects are often
developers need a large initial investment to acquire land,
halted. In the long term, the land remains unused and
gather permits, urbanize the area and construct a Class A
because there is no central administration, the projects
building. This process can go on for more than two years,
are abandoned. When the government overlooks the role
in which developers do not yet have an income but must
of the developer, the tenant and land are left abandoned.
still pay taxes, which is why many developers are unwilling
The creation of a central administration is the key to a
to construct for SMEs. Industrial parks also have an intricate
successful park and these administrations are financed
financial structure and because the investment has been
through maintenance fees.
Industrial Park, Coorporate Properties
145
MAIN INDUSTRIAL PARK OWNERS IN EACH STATE
State
Aguascalientes
146 Baja California
Chihuahua
Coahuila
Company
Number of parks
State
Company
Number of parks
FINSA
1
Coahuila
VYNMSA
2
GP Desarrollos
1
Amistad Industrial Developers
2
Prudential Real Estate Investors
N/A
Intermex Parques Industriales
1
Terrafina
N/A
Macquarie Mexican REIT
N/A
VESTA
1
Prudential Real Estate Investors
N/A
American Industries
1
Artha Capital
N/A
Calafia Industrial Park
3
BTS Development
1
Clarion Partners
1
Corporate Properties
6
Corporate Properties
2
5
El Florido Industrial Park
1
FIDEPAR, Government State of Mexico
FINSA
3
La Salle Investment Management
2
Grupo Nelson
3
O’Donnell
N/A
IAMSA Development Group
7
Prologis
11
Industrial Global Solutions
1
Prudential Real Estate Investors
N/A
La Salle Investment Management
1
Terrafina
N/A
Macquarie Mexican REIT
N/A
VESTA
7
Mexicali Industrial Park
5
Advance Real Estate
4
Nicoya Inversiones
1
Amistad Industrial Developers
1
Prologis
4
Artha Capital
N/A
Prudential Real Estate Investors
N/A
Desarrolladora Marabis
3
Terrafina
N/A
Grupo Ayusa
1
VESTA
4
Guanajuato Puerto Interior
4
American Industries
6
Intermex Parques Industriales
1
Amistad Industrial Developers
1
Parque Industrial Ayalkar
1
Corporate Properties
1
Parque Industrial Cuadritos
1
FINSA
5
Prudential Real Estate Investors
N/A
Industrial Global Solutions
1
VESTA
1
Intermex Parques Industriales
12
VYNMSA
2
La Salle Investment Management
American Industries
1
2
1
Macquarie Mexican REIT
N/A
La Salle Investment Management
O’Donnell
2
Artha Capital
N/A
Parque Industrial Antonio J. Bermudez
Atitalaquia Industrial Park
1
1
COFOIN, Government State of Hidalgo
5
O’Donnell
1
Prudential Real Estate Investors
N/A
Terrafina
N/A
Artha Capital
1
Centro Logistico Jalisco
1
Durango
State of Mexico
Guanajuato
Hidalgo
Prudential Real Estate Investors
N/A
Terrafina
N/A
VESTA
1
American Industries
6
Amistad Industrial Developers
10
Corporate Properties
1
Davisa Development Corporation
Corporate Properties
1
4
Hines
1
FINSA
2
Intermex Parques Industriales
2
La Salle Investment Management
1
La Salle Investment Management
1
Macquarie Mexican REIT
N/A
Macquarie Mexican REIT
N/A
Parque Industrial Centar100
1
Prologis
8
Prudential Real Estate Investors
N/A
Prudential Real Estate Investors
N/A
Terrafina
N/A
San Jorge Industrial Park
1
The Offshore Group
1
Terrafina
N/A
VESTA
N/A
The Offshore Group
N/A
Jalisco
State
Company
Number of parks
Jalisco
VESTA
Mexico City
Company
Number of parks
1
Grupo Ayusa
1
American Industries
1
Macquarie Mexican REIT
N/A
FINSA
1
Millenium Industrial Park
1
Prologis
1
Parque Industrial Logistik
1
Prudential Real Estate Investors
N/A
Terrafina
N/A
VESTA
1
VYNMSA
1
WTC Industrial
1
FOINFRA, Government State of Sinaloa
2
Macquarie Mexican REIT
N/A
Michoacan
FIPAIM, Government State of Michoacan
5
Morelos
FINSA
1
American Industries
3
Amistad Industrial Developers
1
CIESA
2
Corporate Properties
7
Nuevo Leon
Puebla
Queretaro
Quintana Roo
San Luis Potosi
State
San Luis Potosi
Sinaloa
FINSA
6
GP Desarrollos
3
VESTA
1
Industrial Global Solutions
1
IAMSA Development Group
1
Intermex Parques Industriales
1
IAMSA Development Group
1
Interpuerto Monterrey
1
Intermex Parques Industriales
1
Macquarie Mexican REIT
N/A
Prudential Real Estate Investors
N/A 4
La Salle Investment Management
1
Macquarie Mexican REIT
N/A
Prologis
3
Sistema de Parques Industriales de Sonora
Prudential Real Estate Investors
N/A
Terrafina
N/A
Terrafina
N/A
The Offshore Group
3
VYNMSA
9
Industrial Global Solutions
1
FINSA
2
Macquarie Mexican REIT
N/A
Macquarie Mexican REIT
N/A
Prudential Real Estate Investors
N/A
Prudential Real Estate Investors
N/A
Terrafina
N/A
SECTOTRADE, Government State of Puebla
7
American Industries
2
Terrafina
N/A
CIESA
N/A
VESTA
1
Corporate Properties
1
Advance Real Estate
4
FINSA
6
AeroTech Industrial Park
1
Grupo Ayusa
2
FINSA
2
Grupo Rio San Juan
2
Grupo Ayusa
1
Industrial Global Solutions
1
IAMSA Development Group
1
Intermex Parques Industriales
2
Intermex Parques Industriales
2
La Salle Investment Management
2
Macquarie Mexican REIT
N/A
Macquarie Mexican REIT
N/A
O’Donnell
4
Oradel
2
Queretaro Industrial Park
1
Port of Altamira
1
Terrafina
N/A
Prologis
4
VESTA
3
Prudential Real Estate Investors
N/A
VYNMSA
1
2
La Salle Investment Management
SEDET, Government State of Tamaulipas
2
Terrafina
N/A
Tayco
1
VYNMSA
1
Clarion Partners
1
3
Macquarie Mexican REIT
N/A
FIDECIX, Government State of Tlaxcala
VESTA
1
VESTA
2
American Industries
1
Yucatan Industrial Park
1
Artha Capital
N/A
FINSA
1
GP Desarrollos
1
SEZAC, Government State of Zacatecas
7
Sonora
Tabasco
Tamaulipas
Tlaxcala Yucatan
Zacatecas
Source: AMPIP
147
VIEW FROM THE TOP
DOLLAR-DOMINATED SECTOR AVOIDS RATE IMPACT SERGIO ARGÜELLES President & CEO of FINSA
148
Q: How do exchange rate fluctuations influence the
project, from a simple warehouse facility to sophisticated
planning of industrial real estate companies like FINSA?
metal stamping. FINSA only takes part in LEED-certified
A: Our sector has always been dollar dominated. Practically
projects. Our newest parks offer an integrated solution not
every lease quote is dollarized, which consequently impacts
only for industrial developments but also for housing and
transactions for the retail and office sector, as well as the
retail projects. We have been fortunate enough to work
industrial sector overall. US pension funds that invest with us
with different groups from multiple countries, including
expect to receive returns in the same currency and Mexico’s
German, French, Spanish and US companies. FINSA
industrial sector can offer that. The current exchange rate
believes that its local team must be bilingual, bicultural
has benefited our sector more than it has impacted it and
and bitechnical.
Mexican pension funds, our investors, receive their returns in dollars with only a domestic risk exposure.
Q: How does the company generate and allocate capital? A: We have a number of international partners that have
Q: What are the investment dynamics in the northern and
helped us raise capital. AIG Global Real Estate was one of
central regions, as well as the booming Bajio region?
FINSA’s main US partners, investing in the Latin American
A: Northern border towns will continue to exploit the interest
market through its real estate arm. GE Capital was another
of US companies in establishing operations in Mexico. As
partner that helped us tremendously. Today, Walton Street
OEMs integrate their investment networks, regions like the
Capital is crucial to our operations. It is an extremely
Bajio have become more important for the industry. There
active real estate fund in the US and works exclusively
are 10 new OEMs in Mexico that have attracted a large
with FINSA in Mexico. Real estate is capital intensive and
number of suppliers into the country. The Bajio corridor
FINSA works to raise funds and retain bank availability to
that connects Aguascalientes, Guanajuato, Queretaro and
ensure the capital needed to meet the market’s growth.
Puebla has become increasingly important. These states
The maquiladora industry has been growing at a steady
have gone through exceptional transformations directly
20 percent pace since the 1970s, which has forced our
related to the automotive industry. Cities such as Monterrey
segment to raise the capital needed to meet demand.
also are seeing plenty of industry diversification. KIA has
Besides offering high-quality service and products,
channeled large volumes of Korean investment to the
capital availability is essential for FINSA. The Matamoros,
city, for example. Saltillo, Coahuila and the Ramos Arizpe
Tamaulipas industrial park is FINSA’s oldest development
corridor, which are home to Chrysler, GM and Freightliner,
but this is not immediately evident because we always
have done exceptionally well, although Tijuana remains
upgrade and install the highest quality infrastructure.
the main market on the western coast due to its proximity and solid relationship with California, with Mexicali close
Q: To what extent is FINSA interested in investing in
behind. Juarez, Chihuahua has shed its stigma as an unsafe
housing and hospital projects?
city and thanks to its existing clientele, its already-fruitful
A: FINSA’s newest parks were designed to integrate
production base will expand in the near future. Guadalajara
additional services such as housing and medical centers.
is still an unexploited market that we must expand into.
If we can join forces with housing developers, we will capitalize on that opportunity. We usually reserve space for
Q: As competition grows, what factors will drive FINSA’s
future developments such as back offices or hotels. FINSA
success?
also is working with the National Institute of Social Security
A: We must offer more advanced solutions to our clients.
to develop daycare programs. We opened a daycare center
FINSA has been in the Mexican market for 39 years
in February 2016, which provides free services to employees
so our performance and capabilities are well known.
at our Guadalupe, Monterrey industrial park. Four centers of
We have the capital necessary to service any type of
this sort have been opened so far.
INSIGHT
BUILDING TRUST WITH INVESTORS ALEJANDRO LARA Director General of American Industries
While some businesses in Mexico are wringing their hands
same high standards. This, of course, is homogenous across
over the peso’s decline, foreign companies interested in
all companies that are branching into other segments. “To
establishing operations here have more impetus to give
date, half our clients require inventory facilities, while the
the rate a thumbs-up, according to industrial real estate
other half request build-to-suit infrastructure,” he says.
services firm American Industries.
“With a presence in Queretaro, San Luis Potosi, Guanajuato and Jalisco, we believe that we are well placed to serve
“Our clients’ expenses are managed in pesos and often,
any company entering the Bajio region. We also continue
their income is tied to the US dollar,” says Alejandro Lara,
to operate in our traditional markets near the US border,
Director General of American Industries. “Consequently
so there is no immediate need to expand our portfolio.”
many have seen their profit margins increase and their capital expenditure requirements decrease due to the
If needed, though, American Industries has extensive land
peso devaluation. This climate makes the case for Mexico
reserves and the necessary human and capital resources
as a business destination much more compelling.”
to expand rapidly, Lara says.
Lara says his company promotes the diffusion of information about what it is like to manufacture in Mexico, including the costs and challenges as well as the benefits reaped by establishing facilities here. “We offer support in terms of site selection and organize forums and seminars to educate potential clients about each location,” he says. “Building a sense of trust with potential investors allows us to continue attracting a growing client base. Our former and existing clients are the best source of reference for new customers.” American Industries is one of the few companies that complement real estate with a shelter program and vice versa. This has helped to considerably strengthen the firm’s market position, says Lara. “Our goal is to be as flexible as possible and offer in-depth customization options. As we turn 40, we are now one of the longestlasting players in the market and that experience has led to a robust system and work practices that support our clients. We are ISO certified, complemented by a solid IT platform and an expert team of personnel, which allows us to differentiate our company as a quality service provider.” The firm serves over 200 companies in Mexico and has a portfolio of over 13 million square feet. It has developed nine industrial parks here. As new markets are attracted to the company’s services, Lara says the greatest challenge will be maintaining the
Industrial Park, American Industries
149
INSIGHT
TAKING CARE OF SMALLER BUSINESSES MANUEL BARREIRO Partner at Advance Real Estate
150
The automotive and aerospace industries have grown
designed services specific to their needs. These parks
exponentially in recent years, especially in Queretaro and
have been well received by the industry and a few large
the Bajio region. Advance Real Estate is taking advantage
automotive companies have certified SMEs in our parks so
of the boom to cater to the needs of not only the OEMs
that they can become suppliers.”
but also SMEs by providing space at its “business parks.” Business parks are essentially the same as industrial parks
Barreiro echoes a common refrain that the largest problem
but on a smaller scale. They are designed to target the
developers face is Mexico’s lack of infrastructure, especially
needs of Mexican SMEs and expand the supply chain to
in terms of electricity. “Lack of infrastructure, high prices and
include smaller local companies trying to improve their
an unclear regulatory structure for the free power market
quality and working environment in the new industrial
create entry barriers for many clients who wish to expand
Mexican market, says Manuel Barreiro, a Partner at
into Mexico,” he says. “The Energy Reform has promised
the company. “SMEs represent about 70 percent of
to improve this but it is still under development and there
manufacturing in Mexico, yet are mostly ignored by the
remains a degree of uncertainty about how it will evolve.”
larger players in the industry,” he says. “For us, it is of the
The company’s is addressing the problem by developing the
utmost importance to support them through uniquely
electricity infrastructure within its parks.
VIEW FROM THE TOP
IMPORTING INTERNATIONAL STANDARDS MARCO RAMÓN President of Amistad Industrial Developers
Q: How has the landscape for industrial park developers
would in the US, Europe, Japan or Korea. We have also
like Amistad changed in the last 20 years?
seen Japanese and US industrial park developers entering
A: Following the Energy Reform, industrial park developers
the Mexican market, which has forced domestic companies
like Amistad Industrial Developers can now supply energy
to raise their standards. Multimillion-dollar investments
but the Reform’s secondary laws are still unclear and are
require quality infrastructure. The market’s standards have
hindering our efforts. Some European companies are
increased dramatically and so have client expectations.
offering partnerships with solar farm developments and although it makes financial sense for us to participate in
Q: What parameters do you take into account when
this, the country’s legal framework prevents us from doing
making long-term plans?
so. Amistad Industrial Developers wants to implement this
A: The parameters are the same as they were 10-15 years
type of service but we are holding back our investments
ago. We need to make logistics as efficient as possible,
for the time being. Our clients are also interested in these
which translates to easy highway access and proximity to
services in the long-term. The quality of the end product
airports. Infrastructure must be secured in terms of energy
has undergone the biggest change. Clients established in
and water supplies and real estate developers must create a
Mexico expect to receive the same quality of service they
bond with local communities. The most important element
Another common problem is the need for skilled human
The company’s new industrial park next to Queretaro
capital. Advance has a social program in place to support
International Airport will start operations by the third
education in local communities, which in turn helps
quarter of the year and will eventually incorporate up
provide the skilled labor the industry needs. Through the
to 150,000m2 of industrial buildings for clients in many
program, college graduates enroll in a teaching program
sectors but mainly for the aerospace and automotive
to provide a higher standard of education for junior and
industries. “We acquired the land two years ago, and
high-school students in rural areas. “This way companies
began to commercialize it last year as companies in the
are much more likely to remain in our parks instead of
aerospace and automotive sectors often need one or
moving to areas where they may be unable to acquire the
two years to make these decisions,” Barreiro says. “We
professionals they will need,” Barreiro says.
will begin occupying spaces this summer and we expect to have the park fully consolidated within the next five
This year, the company is starting operations in three
years.”
parks in Queretaro, one in Guadalajara, one in Irapuato and consolidation of its park in Puerto Interior next to the
A challenge for many companies across all infrastructure
Bajio Airport. Its new park in Celaya, Guanajuato called
segments is land availability. Barreiro believes it is hard
Celaya III, should have functional units by 3Q16. Advance
to find lots with services and permits and even harder to
is also looking to expand to Puebla and San Luis Potosi.
find land at decent prices with a market as active as it is
“While other states north of the country like Chihuahua,
now. “Our list of international clients and state-of-the-art
Sonora and Baja California are expanding rapidly, we are
fully operational parks focused on automotive, aerospace,
more interested in the center of Mexico, as the market
logistics, food and technology industries has helped us
in the region is highly homogeneous and we have many
to convince land owners to sell and to provide evidence
distinctive advantages that we would not yet enjoy in the
to local authorities that these long-term investments
north,” Barreiro says. “In our view there is plenty of capital
help the development of the local economy by drawing
today from the Mexican Pension Fund System but there is
in companies that generate employment and pay taxes,”
a lack of institutional developers in central Mexico.”
he explains.
in any operation is its workforce so we make sure that the
Even though logistics may seem troublesome, trucks can
right talent and professional expertise is available in the area.
reach Mexico City in as little as five hours. Veracruz has an increasing need for warehouses and manufacturing
Q: What are the most promising locations for industrial
facilities, resulting directly from the Energy Reform.
park expansion? A: Amistad Industrial Developers is establishing its third
Q: To what extent is Amistad Industrial Developers
industrial park in Guanajuato’s Apaseo El Grande and
looking to push into new sectors?
Celaya areas and in Queretaro. The Saltillo and Ramos
A: About 60 percent of our portfolio is directed at the
Arizpe, Coahuila corridor is extremely interesting, with
automotive industry, while the remaining 40 percent is mostly
access to major markets like Monterrey and Mexico City,
divided between the aerospace and electronics segments. We
while covering an important OEM region with companies
foresee an increase in the automotive industry’s dominance
such as GM, Chrysler, Freightliner and Fiat. Hidalgo is the
over our operations. To offset time constraints, we develop
next region we plan to expand into, not only because the
a lot of space to tailored specifications while complying
state is pushing for investment but also because it makes
with the standards imposed by the automotive industry. We
sense from a logistics standpoint. Its proximity to Puebla,
understand the automotive sector’s requirements, which
Guanajuato, Mexico City and Veracruz will bring many
helps OEMs achieve their goals more efficiently. We can
interesting business opportunities.
guarantee occupancy in our parks within a five-month span, which is a record in the industry. This gives clients more than
Our sights also are fixed on the south of Mexico. The
enough time to install their machinery and begin operations.
federal government is promoting industrial developments
Amistad Industrial Developers would also like to expand
in Oaxaca, Chiapas and Veracruz and we see tremendous
its portfolio and services for the aerospace industry. The
potential in these locations. Chiapas’ state government
segment is growing steadily and opportunities are emerging.
will offer many incentives to attract new companies,
Our core business is and will remain the automotive industry
proper infrastructure has already been secured and labor
but based on the projected double-digit growth, logistics
costs are almost 25 percent lower than in northern states.
also is an emerging market.
151
VIEW FROM THE TOP
STRATEGIC LOCATION BOLSTERS PARK’S ADVANTAGES MAURICIO GARZA Director General of Interpuerto Monterrey
152
Q: What factors were behind the establishment of the
competitiveness but can be detrimental to the local
Interpuerto Monterrey industrial park?
economy. The industrial real estate industry functions
A: We are a two-hour drive from Nuevo Laredo,
in dollars. Although we offer most services in the US
Tamaulipas, which is the busiest inland port in Mexico with
currency, we provide maintenance and administration fees
about 8,000 transfers per day. All NAFTA traffic enters
in pesos since those are recurring costs and denominating
and leaves through this port. From Interpuerto Monterrey,
them locally is more attractive for our customers.
in Nuevo Leon to the US border there are no stoplights along the way while the routes to the center and south
Q: What strategies is Interpuerto Monterrey implementing
of Mexico bypass Monterrey city, all of which provide
to ensure sustainable infrastructure?
time savings. Our infrastructure can compete with any
A: We are in talks with a company that wants to establish
industrial park in terms of water, natural gas, fiber optics,
a natural gas combined-cycle cogeneration plant. At the
electricity and custom facilities. Another advantage
moment, the Mexican energy market is in a dip, meaning
we offer is flexibility of land size because any company
that competition is not as high in that type of energy.
that requires a substantial space can face challenges
Nevertheless, these kinds of projects are long-term
in the Monterrey area. The spaces that are available are
commitments. We encourage clients to generate clean
mainly standalone and do not offer the infrastructure of
energy with solar panels. We also are evaluating a project
Interpuerto Monterrey, resulting in a larger investment and
to install them around the park, especially for public
a prolonged time frame.
lighting. Our regulations preclude certain companies from establishing operations in Interpuerto Monterrey.
Q:
What
makes
Monterrey
attractive
to
potential
investors? A:
The
government
We would not, for instance, sell 100ha of land to a nuclear power plant because of the possibility of contamination.
invested
Interpuerto Monterrey encourages companies to operate
considerable time and money to attract investment and
of
Nuevo
Leon
has
as cleanly as possible and they must also comply with
it places a great deal of importance on new clients. Many
all state and federal environmental laws. If there is an
companies are establishing businesses in Monterrey
oversight in compliance, we will take action and ensure it
because they recognize that we have a quality labor force,
is rectified.
strategic location and more importantly can provide an attractive quality of life for expatriates relocating here.
Q: What are the main priorities for the park’s development?
Monterrey also is a production hub with close proximity to
A: We are working to incorporate a bulk terminal at
the US, while Mexico has the largest number of free trade
Interpuerto Monterrey, which would make us the only
agreements in the world, giving it an advantage in term
industrial park in Mexico with this feature. This would allow
of duties.
our clients to import and export in bulk through containers or freight. As an SME with two or three containers per
I see opportunities in automotive, food and beverages,
month, obtaining access to rail transportation is difficult
logistics, aerospace and energy. Mexico is the 15h largest
but our long-term goal is to create clusters of four or five
economy in the world, meaning significant consumption
companies that can produce around 25 containers to lower
of food and beverages. Given Mexico’s success supplying
the costs for all parties involved. In this way, the companies
the automotive sector, the next logical step would be to
at Interpuerto Monterrey can help each other to create a
serve the aerospace industry. With the Energy Reform,
competitive and logistically sophisticated network. We
companies also are beginning to look to Monterrey as
welcome any industry but I believe that automotive, food
a potential energy hub for the country. The dollar is
and logistics are the most dynamic, with 80 percent of our
extremely strong against the peso, which bolsters our
clients working in these areas.
INSIGHT
GOVERNMENT MUST STEP UP ITS GAME ROBERTO CANTÚ Director General of Roca Desarrollos
From land availability to infrastructure failings, there is
real estate segment is dealing with, especially the question
no shortage of issues facing developers as the country’s
of energy. “We can find appropriate plots of land but if
manufacturing expands and more companies move into
the infrastructure is not in place to facilitate operations,
Mexico. “In the wake of a boom like in the automotive
they become unfeasible for us,” he says. “Sometimes,
industry and the emergence of sectors such as aerospace,
constructing the right energy infrastructure can be more
markets consolidate as industrial hubs and land availability
expensive than buying the land.”
decreases exponentially,” says Roberto Cantú, Director General of Roca Desarrollos. That is what is happening now
He puts the onus for improvement squarely on the
and higher land prices are the result, he says. “Three or four
government. “As CFE is a publicly owned company, it is
years ago, a wave of aerospace companies made their way
the sole responsible authority for this. On the other hand,
into the region, creating a scarcity of land and consequently
advanced markets, which are open to private investment,
raising the market’s prices,” he says. “Cities like Juarez have
have a stronger willingness to invest in infrastructure. The
gone through slower expansion cycles, resulting in stable
same goes for drainage and water supply systems. There
prices similar to those seen five years ago.” Once land is
is no question that the government needs to step up its
purchased, there is the issue of infrastructure to contend
game and push for advanced investment capabilities from
with and Cantú says it is a concern the whole industrial
public agencies.”
153
INSIGHT
MEETING RISING INFRASTRUCTURE DEMANDS “Parque Industrial Querétaro is one of the most important
154
contributor among states last year was Queretaro, which surpassed growth expectations in 2015 with an 8.8 percent GDP rate. Grupo Financiero Banamex had
industrial parks in Queretaro,
forecast a 5.8 percent rise. With over 135 companies in
representing 10 percent of the
last year’s figure. The park houses companies that are
state’s GDP”
giving it the largest concentration of international
Víctor Mena, Director General of Parque Industrial Querétaro
place, Parque Industrial contributed about 10 percent of ranked among the top 500 international enterprises, corporations in the state. Rapid
growth,
however,
comes
with
challenges.
As money continues to pour into Queretaro’s automotive
“Companies in various industrial areas or hubs suffer
sector, one of the state’s biggest industrial parks is banking
from water and energy shortages due to insufficient
on a bigger slice of the market. But a major barrier may
infrastructure,” says Mena. The park has created two
pose a challenge: infrastructure. For foreign manufacturers
energy plants and two electric substations powered
looking to establish a foothold in Mexico, the state offers
by three different lines. The two substations are
attractive conditions, including good security and a prime
interconnected to ensure a constant supply without
location in Mexico’s central region. Víctor Mena, Director
surging. “We are also starting a clean-energy industrial
General of Parque Industrial Querétaro, believes the
project that will create 20MW from solar energy and
biggest hurdle Queretaro faces is having a functioning
40MW from a combined cycle plant,” he adds. Apart
infrastructure to address ongoing growth. An important
from road infrastructure, the park is developing a
element
plan to offer housing and other services for the park’s
to
accelerate
the
industry´s
expansion
is
connectivity, he says, citing roads and railways. This would
employees.
give the park the ability to handle larger cargo operations to supply the US, the main recipient of automotive exports.
Parque Industrial Querétaro occupies about 650Ha and has ambitious plans to keep growing. It is targeting an
“The park has a prime position equidistant to all the important
additional 75 hectares by 2016 and another 100Ha by
assembly plants in the region, giving it a competitive
2017. “We have been working arduously to ensure our
advantage in logistics,” Mena says. “Having an efficient park
park has the necessary infrastructure and services to
management that provides comfortable and convenient
support such a large conglomeration of companies,”
installations is important to attract new companies to our
Mena says. The park has a commuter transportation
facilities.” Most auto-related manufacturers export their
service on site, which reduces the number of cars in the
products, mostly to the US. The park collaborates with local
surrounding area. A 25km bicycle lane has also improved
companies and the state government to find methods of
mobility. “The industry has worked in harmony with local
optimizing logistics and manufacturing operations. These
authorities for the past 25 years and together we have
include providing optimal security, garbage disposal and
done a great job promoting growth,” says Mena about
water management services.
attracting new players to the Mexican market.
Roads are also a big issue. To solve its traffic problems, the park is designing a new road plan with the government, which has proven to be a challenge. “Coordinating the construction with three different government levels is an intricate process,” says Mena. “Normally, we do not have important participation in these types of projects but we do play an important role in the planning process and in the definition of the needed infrastructure.” Mexico’s industrial and manufacturing sectors are growing, underpinning the country’s GDP. The biggest
INSIGHT
COOPERATION HELPS AEROSPACE PARK TAKE FLIGHT FRANCISCO ESTRADA Regional Director of Parque Aeroespacial Querétaro
Parque Aerospacial Queretaro was created to support
clients were also able to supervise the process to ensure
plane manufacturer Bombardier in Mexico. It took the
the infrastructure suited their needs.”
cooperation of the federal and state governments, an
155
innovative regulation and a distinctive business model
Parque Aerospacial Queretaro has steadily grown since
to make it work. The Canadian OEM’s initial goal was the
2007 due to a combination of quality infrastructure, well-
creation of an aeronautical cluster where the company
educated qualified professionals, competitive labor costs
could transfer several labor-intensive operations to make
and the benefits of producing in pesos and selling in
its manufacturing more cost-effective. “Bombardier finally
euros or dollars. Other advantages include the proximity
chose Queretaro and, through talks with the federal
to Queretaro’s International Airport and the leasing
government, realized the need to develop several areas
processes, which lower use of land costs. Electricity is also
to facilitate its establishment in the state, including the
subsidized by the state government, reducing costs to
construction of the appropriate infrastructure in the form
about US$100/kWh.
of an industrial park,” says Francisco Estrada, the industrial park’s Director General. “This led to an agreement with
The park covers about 150,000m2 but it could incorporate
the federal government, which committed to finance an
250,000-300,000m2
aeronautics university in Queretaro that would eventually
available space, 60-70 percent is reserved for Bombardier,
become UNAQ.”
and current infrastructure fully covers the needs of the
of industrial buildings. “Of the
industry,” says Estrada. “The only potential problem is the Estrada believes the state government was essential for
oversaturation of the current infrastructure as the park’s
the infrastructure’s development as it provided roads,
business model has been successful so it is filling faster
lighting, fire prevention and drainage among other
than expected, and is now close to capacity.” He says the
utilities. “In 2007, Vesta, our park’s owner, tendered for the
developers initially believed a 90ha project was overly
construction of the aerospace park and competed against
ambitious, yet nine years later he realizes that it ought to
22 national and international developers,” he says. “The
have been two or three times larger. “We are researching
basis for this tender followed an innovative regulation.
alternatives to this problem, including expanding the park
Because the park would be built inside the airport, the
or creating an alternative location to complement it.”
companies could not own the land. It was necessary to generate new plans to guarantee a return of investment
Estrada also believes there is opportunity to develop the
for developers.”
supply chain through the incorporation of Tier 2 and 3 companies. “We have also developed links with Queretaro and
parks in several different industries, such as automotive
certification and the state government provided the land
and home appliances,” he says. “The next goal for the
and helped to financially support construction, so that
sector should be to substitute the importation of raw
these costs would not be paid by the clients. “We had to
materials by generating Mexican supply companies.” Nine
develop an economic model which showed clients the
years later, Parque Aerospacial Queretaro has proved be
benefits of operating in and belonging to the park even if
a successful model that has generated a platform for the
they were not landowners,” Estrada says. “We proved that
development of the aerospace industry. “We are grateful
long-term it was more efficient for them to lease as they
as our clients have behaved as much more than just
could invest in their own processes instead of acquiring
leasers. Together we have become an integrated society
land. All our processes were handled with complete
through process sharing, interests, needs and goals, which
transparency so our clients knew how every cent of their
has led to the development of the infrastructure that this
money was spent, which helped us gain their trust. Our
industry needs,” Estrada says.
The
federal
government
supported
education
PROJECT SPOTLIGHT
156
INLAND PORT SPORTS AN ENVIABLE BAG OF TOOLS Guanajuato Inland Port has an enviable bag of tools that have helped it build a level of operational excellence unique in Latin America and Mexico. In building Guanajuato Inland Port, the local government and the private sector joined forces to boost the central Mexico region, promote competition and create prosperity. Strategically located in the heart of the country, the port is considered among the most important logistics and business platforms in the region. The development is on 1,200ha and in only 10 years it has attracted over 100 companies. This has ensured an investment of more than US$3.5 billion that has generated more than 16,000 jobs. The industrial park is wedged between Leon and Silao. A unique logistics hub, it grants a safe and convenient location to companies entering Mexico. The port’s mission is to facilitate business and exports through a logistics system based on quality and excellence. The Inland Port has Strategic Zones that are designed to maximize the efficiency of operational logistics. Within these Zones are four industrial parks, Santa Fe I, Santa Fe II, Santa Fe III and Santa Fe IV. They seamlessly bring together companies like Volkswagen, Nestlé Purina, Nivea, Grupo Coqueta, Hino Motors and KYB. Each park is equipped with infrastructure for industrial operators, logistics businesses and manufacturing companies. Organismos de Guanajuato Puerto Interior GPI, offers legal certainty and representation to the port’s companies. Puerto Interior also is the only industrial park in Mexico that comes with functional educational facilities designed to meet the needs of the industry. The Guanajuato campus of the National Polytechnic Institute (IPN) has an interdisciplinary engineering department that offers degrees related to industrial engineering and entrepreneurship. The
port’s
developers
included
Guanajuato’s
first
aerospace park to attract companies in an industry that is expected to grow considerably. These include parts manufacturers, maintenance businesses and research centers. The port’s logistics services go above and beyond national standards, including a nonstop service to Chicago and strong exporting mechanisms. In 2015, its Ferromex station achieved an operational benchmark of over 26,000 containers. The Strategic Zones equally prioritize security, the needs of the surrounding communities and the provision of commercial services. An economic launch pad for parks and industrial corridors in Guanajuato, the port has quickly become an investment magnet in Mexico.
157
INSIGHT
MANUFACTURING’S BEST-KEPT SECRET ARMANDO LEE Director General of The Offshore Group
158
When it comes to manufacturing, Sonora may be the
These characteristics make Empalme as competitive as
manufacturing sector’s best-kept secret. The Offshore
any larger location in Mexico and some companies are
Group wants to get the word out. The Offshore Group, which
choosing it even over major manufacturing hubs, says Lee.
delivers industrial real estate services, has supported the
“Sadly, many are unaware of the advantages Sonora has to
consolidation of the manufacturing sector in the state from
offer, such that we consider the state a best-kept secret,”
the introduction of the first automotive company. It grew
he says. “But we want to communicate Sonora’s potential
alongside the region’s manufacturing sector and eventually
worldwide and to do so we need the support of the federal
branched into the aerospace industry through a partnership
and state governments.”
with Smith West. Now, the company manages over 4 million square feet of industrial and office space and works with
This year’s goal is to protect and promote the growth
73 companies in Mexico. “As international companies enter
of local companies as the country endures a tougher
Mexico to manufacture, we simplify their processes by
economic climate. The Offshore Group is Sonora’s largest
handling legislative processes, payroll and governmental
employer with 13,500 employees and expects to grow
offices,” says Armando Lee, the company’s Director General.
that figure by 5-6 percent to finish next year with just over 14,000 employees. The state still has a lot of room
In the aerospace industry, The Group has 18 clients that
for growth, Lee says, but several areas must be addressed.
have brought a series of processes and expertise to the
Some notable areas of opportunity are secondary
state, from harnesses to aero structures. As the company
treatments, such as anodizing.
turns 30 this year, Lee reflects that all the projects the company has backed have contributed a unique aspect
Lee says The Offshore Group can help simplify a company’s
to the state’s aerospace industry. The Offshore Group
entrance into Mexico. “We offer much more than a facility.
has a business development department that identifies
We provide a series of manufacturing communities with
potential companies that could participate in the supply
many benefits and unique characteristics, from sports
chain and also caters to the suggestions of its existing
centers to nurseries,” he says. The Group, which manages
clients. The firm has become a large and essential source
a large volume of trucks, also helps clients reduce
of information for investors, says Lee.
transportation costs by allowing them to pay only for the space they need in a truck instead of leasing a mostly
The company’s experience in Sonora helped it identify
empty unit. It works closely with local universities and
that existing aerospace companies needed support from
training centers and has generated several projects with
Tier 3 and 4 businesses. Without that support, companies
CONALEP and Hermosillo Technological Institute (ITH).
higher up the supply chain needed to send their products
“Our communities allow companies to connect and create
to the US for final treatments. “To address this issue
partnerships, even with their competition,” says Lee.
we integrated several companies here,” Lee says. “For instance, Bodycote in Empalme, Sonora manages heat
While Sonora is a key focus for The Offshore Group, it
treatments and Incertec offers anodizing processes and
also has an eye on Queretaro, Tijuana and other areas
plating. In Guaymas, Ellison Surface Technologies provides
with potential. The federal government is setting up
two processes that are unique in Mexico, namely high
special economic zones (ZEE) to identify underdeveloped
velocity oxygen fuel and plasma spray.”
areas in the country. It will offer preferential conditions regarding infrastructure and regulations to promote their
Sonora offers distinct advantages over other Mexican
development. “Our goal is to support the development of
states such as its strategic location, its workforce, its
these areas and we hope the government will facilitate this
highway and airport infrastructure and its suppliers.
process,” says Lee.
VIEW FROM THE TOP
VIRTUAL OR REAL: ADAPTING THE OFFICE ENVIRONMENT JAVIER GARCÍA Director General of IOS OFFICES
Q: How are office management products adapted to
offices and co-working spaces. Now, employees do not
various market segments?
have to commute for an hour to the office. Instead, they
A: We work with different industries including railway, oil
meet clients at more convenient locations or visit a closer
and gas, pharmaceutical and technological companies.
working space to carry out their normal activities. We have
Having high-quality services is the only way to cover
operations in Mexico City, Monterrey, Guadalajara, Tijuana,
the needs of enterprises working in different market
Cancun, Puebla, Villahermosa, Queretaro and Merida, and
segments, which have varied expectations. Excellent
have plans to expand our business to new locations that
standards of air conditioning, reliable sound systems, safe
will be announced in the upcoming months.
networks and comfortable furniture, among many other aspects, have helped us meet the requirements of a wide
Q: What factors into the selection of IOS’ facilities and
range of industries.
staff? A: For IOS OFFICES, the human factor is extremely
Some of our customers have part-time or short-term staff
important and 58 percent of our staff has been
while others have more than 100 full-time employees.
recommended by another member of the team. Our talent
The company’s product range serves the spectrum,
retention level is extremely high, especially compared to
including virtual and part-time offices, co-working spaces,
other companies in the sector. The company’s recruitment
communications and messaging services, meeting rooms
processes are innovative and groundbreaking in that
and working environments for smaller groups of people.
two years ago we decided to stop receiving traditional
Our clients have realized that it is more cost-effective
applications and requested videos instead. This strategy
to outsource office administration than to manage it
allows us to filter applicants more efficiently since we
internally. Finding the most suitable characteristics for
receive more than 300 submissions annually. The selection
any service or product requires constant reassessment.
of facilities and equipment also goes through an exhaustive
To provide work solutions we must focus on a problem
process. We perform intensive audits on buildings and the
that needs to be solved instead of selling a product. IOS
surrounding neighborhoods before making an acquisition.
OFFICES stays informed about the changing needs of our
Our philosophy is to generate more value, not to simply
customers via focus groups with our members.
save money. Every detail of a workspace, down to the fragrance, lighting and the attitudes of coworkers have
Q: What opportunities will allow IOS Offices to continue
a direct impact on an employee’s wellbeing so we have
expanding?
dedicated many years to improving our services.
A: The Mexican market has been growing steadily for the last 20 years, bolstering national GDP and
Q: What are the main challenges that IOS OFFICES has
purchasing power. Different industrial segments such as
faced?
the automotive industry also have enjoyed considerable
A: Administrating an office is not particularly difficult
growth, along with large cities such as Queretaro and
as it represents similar costs for different companies.
Tijuana. All these changes have raised the bar for office
Nonetheless, few enterprises change their offices regularly,
space in the country, which assures us that we can keep
which means most of them do not have extensive experience
expanding our market in different locations. Another area
in identifying the most appropriate equipment and services
is the virtual office. These have been present for more than
for their facilities. Even so, one of the challenges that we
40 years worldwide and for 20 years in Mexico and are
have identified is making companies aware that rent is not
developing further as we incorporate more technology into
the only cost to ensure a quality working environment.
our daily activities. As more companies allow employees to
Usually, rent only represents 30 percent of the overhead
work remotely, we are seeing an even greater rise in virtual
that a company must allocate for its offices.
159
Maravatio Highway, Grupo Hermes, Michoacan
ROAD & RAIL
7
The NIP’s goal to optimize the country’s logistics infrastructure begins with the improvement of the country’s labyrinth of roads and railways. The country’s growing imports and exports demand greater connectivity, especially with the US. There was a 7.2 percent increase in rail cargo from 2014-2015, encouraging the private sector to further invest in Mexico’s railway system. The country’s road network continues to grow as new highways are being built to connect to rural areas and although security is still a concern, the sector is most worried about transparency through tendering processes and negotiating with ejidos as they try to obtain the land rights to build new roads. The industry is demanding innovation not only in methods of construction but in toll collection technologies.
The chapter begins with the construction of the Line 3 of the Guadalajara light train, one of the most important rail projects of 2016. Throughout the first half of the chapter, the companies responsible for constructing the rail network discuss the hurdles companies have overcome in the recent years and those that remain. The second part of the chapter begins with one of Mexico’s largest road construction companies as it discusses modifications to the PPP plan.
161
CHAPTER 7: ROAD & RAIL 163
164
INSIGHT: Iker de Luisa, AMF
166
VIEW FROM THE TOP: Iván Rosas, Sacyr
168
MAP: National Railroad System
171
INSIGHT: José Zozaya, KCSM
172
MAP: Mexico's Main Highways
174
VIEW FROM THE TOP: Alberto Pérez-Jácome, Grupo Hermes Infraestructura
176
VIEW FROM THE TOP: Leopoldo Zambonino, MEXTYPSA
177
INSIGHT: Santiago Villanueva, VISE
178
VIEW FROM THE TOP: Rodrigo Bernal, TeleVía
181
INSIGHT: Andrew Auns, Williams Scotsman
182
VIEW FROM THE TOP: Alfonso de la Parra, Tecnopeaje
INSIGHT
PRIVATE BACKING PUSHES RAIL SYSTEM IKER DE LUISA Director General of Mexican Association of Railways (AMF)
164
From port to port, region to region and even country to
amplifies the problem. More development is needed and
country, railroads are integral cogs in the machinery that
AMF wants to make sure it has a say in the direction
transports goods from here to there. An efficient freight
that development takes. To that end, the association
rail system can reduce costs and improve delivery times.
is a member of the Mexican Council of Transportation,
Mexico’s freight rail lines enjoy a high global ranking and the
which includes the Trucking Association and Maritime
AMF industry group says private investment is a big reason
Association, among others. “This multidisciplinary council
for that. “The management of the Mexican railroad freight
allows us to form an integrated view on challenges related
transportation system by the private sector has been the
to infrastructure development,” says de Luisa.
catalyst for the success of the Mexican railway,” says Iker de Luisa, Director General of the Mexican Association of
While the railway system plays a crucial role for industry,
Railways (AMF). This is illustrated in the investments made
particularly the agricultural and automotive sectors,
by a number of railroad-dependent industries, such as
de Luisa believes that companies should diversify their
automotive, with 70 percent of the 4 million cars produced
options to make efficient use of the available infrastructure.
in Mexico each year exported through railway freight.
Strengths can vary across transportation methods, with trucks moving cargo much faster from one location to
Mexico’s railroad system is the 11th largest worldwide in
another, while railway transportation can move higher
terms of tonnage of transported freight, according to the
volumes of cargo. “Each industry should use a combination
OECD. It surpasses Spain, Italy, the UK and Austria, which
of transportation means to decrease inventories, benefit
all are known to have an extensive railway history. The size
from the fastest routes and capitalize on the lowest cost
of the country and population play a role in its ranking
possible,” says de Luisa.
but a critical factor is the system’s connectivity. It shares five cross-border gateways with the US and is linked to
The key is intermodal transport through which cargo can
Canadian railroads. De Luisa says the railway relationship
be moved from railway to road transport or from maritime
between these countries is extremely efficient due to
to road. An inherent benefit of intermodal transport is
common infrastructure specifications and standards.
that no rail infrastructure needs to be built directly next to plants. While an auto assembly plant or a chemical
AMF consists of three railroad segments. The first is freight,
complex with large-scale industrial production may
which has been privately operated through government-
choose to do so, smaller or medium-sized shippers may
granted concessions since 1996. Passenger transportation
not have the resources. In essence, the only requirement
consists of metros, subways and suburban transport.
from such firms is a cross dock facility or terminal at a
While the metro and subway systems are operated by
distance of 50-100km.
public agencies, suburban transport is privately managed through concessions. Suppliers are the final segment. They
For the moment, the rail industry’s focus is on urban
include engineering firms and construction companies
transportation to improve Mexico’s quality of life and
that manufacture locomotives, railcars and other rail
increase connectivity between cities. The Mexico City
components.
subway system is ranked eighth in the world in terms of passengers per day and the light-rail in Guadalajara is
Across industries, and particularly in the transportation
viewed as a success for urban transportation systems in
segment, the lack of adequate infrastructure is among
the country.
the most significant challenges, says de Luisa. The growth of urban populations and the boom in the automotive
Another interesting case of Mexico’s innovative transport
market has resulted in prolonged commuting times, which
is Monterrey metro, the Metrorrey, which is internationally
renowned because it runs on energy converted from
Government reforms implemented in 2015 have put
urban waste. “Naturally, urban transportation projects
the sector on a promising path, de Luisa says, noting
are not without their challenges but important things
that debate in the sector helped inform the new
are happening on this front,” de Luisa says. Another
regulations.“Ultimately this contributed to the enactment
project that is under construction is the Toluca-Mexico
of legislation that is sound, protects investment and offers
City intercity railway, which essentially bridges the gap
a promising future to the railroad industry,” de Luisa
between both metropolitan areas across the narrow La
says. Some elements of the reform package are still in
Marquesa national park. This project is of significant social
progress and yet to be cemented, such as the creation of
importance as travel time will be greatly reduced for a
a regulatory body. There also will be secondary legislation
cross-sector of 250,000 people.
and AMF is hoping it will align with the initial legislation.
165
VIEW FROM THE TOP
TECH INTEGRATION BUILDS SUCCESS IVÁN ROSAS Chief Financial Officer of Sacyr
166
Q: What brought Sacyr into the Mexican market?
Q: What impact will the development of USPs have on
A: In each of our projects, we strive to achieve the most
infrastructure development in Mexico?
favorable results for both the client and the end user by
A: The public sector does not always have sufficient
thinking globally and integrating all the players involved.
financial resources to meet the needs of the nation and
This mentality allowed us to expand to new horizons
the private sector often detects needs the government
and prosper in a short time. The 2008 economic crisis
has not yet identified. USPs could create opportunities
encouraged Sacyr to venture into new markets that were
to bridge the country’s infrastructure gap and increase
stable and which needed infrastructure development.
collaboration between the public and private sectors.
Mexico was one of the main strategic countries that fit
We participated in a USP for a hospital in Nayarit, for
those criteria. The NIP is clear about its infrastructure
example. These types of projects are beginning to take
goals and it has created a great number of opportunities
flight in Mexico but it is a slow process and only a few
for construction companies.
have been approved. The regulatory framework must also be ironed out because these also are a type of PPP.
Sacyr has more than 40 years of experience in the
Companies can do the research and present a proposal
infrastructure industry and what differentiates us the most
to the government but after approval it is important that
from other construction firms is our ability to integrate
both sides collaborate to determine the financial planning
technology into our processes. Sacyr is a company of
for the project.
engineers that provides added value to its clients by developing projects that include technical support. The
Q: What elements must be considered when developing
company participates in the most complex developments
the financial plan for an infrastructure project?
in the industry and optimal execution is facilitated by the
A: It is important that all players involved in the development
in-depth knowledge of our engineering team.
of infrastructure projects collaborate and distribute the financial risks and responsibilities. If each entity focuses
Q: How should Mexico develop its PPP plans to address
on fulfilling only its own objectives, the project will not
its infrastructure needs?
have the overall expected results. The financial sector must
A: PPPs will help accelerate the development of the
become more involved in these processes and distribute
country’s necessary infrastructure but there needs to
wealth into other sectors. Waiting until a project is complete
be a clear regulatory framework that places emphasis
and generating results before a financial institution steps
on the role the public sector should take in these
in to offer support does not accelerate the development
associations. It is critical the public sector modifies its
of efficient infrastructure. To achieve the collective results
mindset and stops placing the responsibility solely on
expected from these projects, all players must be involved
the shoulders of the private sector. It could establish
from the inception of the process.
a more detailed planning process, especially when it comes to remuneration. The private sector should not
Q: What are some examples of Sacyr’s success that can
function as a bank to carry out projects the state cannot.
help it prosper in Mexico?
Municipalities and states want to fulfil their infrastructure
A: Our engineers add value to our projects by paying close
needs and use PPPs as a way to have the private sector
attention to detail and finding the balance between cost
build the infrastructure despite not knowing when they
and quality. We have participated in projects in which our
will be able to pay for the project. The private sector fully
engineers were able to develop innovative approaches
understands its role in these associations, having gained
that saved both operational and material costs. The gates
experience from working in other countries with more
of the old Panama Canal opened like doors. Our engineers
advanced programs.
found a way to save time and energy by integrating
gates that slid into the walls of the canal. Thanks to this
communication and collaboration with the government.
innovation, processing times are lower and two and a half
The companies participating in the tender were told
more boats per day can cross the canal. Our engineers also
there was 2.4m of bedrock to drill through but when we
made the gates thicker so they require less maintenance,
began the work, we realized there was over 4m of mud
significantly reducing costs.
rather than bedrock. This caused havoc in the planning and construction processes, requiring the engineers to
Q: What impact will the construction of the Line 3 of the
innovate on the spot. The renovation also called for an
Guadalajara light train have on the city?
equal amount of concrete each day and even though
A: One of the biggest challenges we are facing is that we
the government informed us that more than half of the
want to develop infrastructure that has a positive impact
aggregate could be taken from the excavation, only 20
on people without negatively affecting their day to day
percent could be used. The cost of each cubic meter of
activities during the construction period. It is important,
concrete was drastically increased since the remaining
for example, to avoid excessive traffic and noise problems
80 percent had to be purchased. These types of details
throughout the process.
can have a huge impact on the overall expenditures of a project but we were able to reduce the total cost because
Guadalajara is a large city, with a high-population density
of our ability to innovate and find new solutions.
and poor urban planning due to fast growth that has created longer commutes. To accelerate the process, we
Q: What are Sacyr goals for infrastructure development
implemented the use of innovative technology for the
in Mexico?
construction of the tunnel that integrates various tasks into
A: Sacyr wants to be a leading player in the Mexican
one. This decreased the total costs of the development.
infrastructure industry. There are many opportunities and
There are many projects being developed, such as the
projects here that will allow the economy to flourish. When
Mexico-Toluca train and NAICM, that will increase the living
a large project such as an airport is built, the surrounding
standards of thousands of people. Given the impact the
sectors and industries must adapt to ensure there are no
Guadalajara Light Train will have on the city, it was crucial
delays and that supporting activities also are optimized.
that we established clear communication channels with the
Infrastructure development should not just focus on the
government, which led to the optimization of both time
largest metropolises like Monterrey but trickle down and
and resources.
interconnect rural states in the south as well. One should be able to travel from the port of Veracruz to the port of
Q: Â What challenges were encountered in the renovation
Guaymas, Sonora without traffic lights. All industries in
of the Panama Canal?
Mexico must work together to find solutions that will meet
A: Sacyr was the leader on the Panama Canal expansion
the country’s needs. We want to participate in projects
that was inaugurated at the end of June 2016. We
that will make a positive change in society and that require
encountered several problems due to the lack of
highly technical skills.
Guadalajara Light Train, Sacyr, Jalisco
167
NATIONAL RAILROAD SYSTEM
Tijuana
Mexicali
CiudadJuarez Nogales
Ojinaga Hermosillo
168
Chihuahua
Guaymas
La Laguna
Topolobampo
Torreon
Culiacan
Durango
Zacatecas
Mazatlan
Tepic
Aguascalientes
CONCESSIONAIRES Ferrocarriles del Istmo de Tehuantepec
Guadalajara
Ferrocarriles de Chiapas y Mayab Irapuato
Ferrocarriles Coahuila - Durango Grupo México Kansas City Southern Mexico Others
NEW PROJECTS 2014-2018 Bypasses NIP Commitments
Sourse: Ministry of Transport
Manzanillo
Lazaro Cardenas
Ciudad AcuĂąa
169 Piedras Negras
Nuevo Laredo
Reynosa
Monterrey
Matamoros
Altamira
Progreso Merida Celaya
Veracruz Coatzacoalcos
Puebla
Oaxaca Salina Cruz
Ciudad Hidalgo
170
INSIGHT
COMMUNICATION KEY TO KEEPING CONCESSION ON TRACK JOSÉ ZOZAYA President, General Manager and Executive Representative of Kansas City Southern Mexico (KCSM)
When
Mexico
privatized
its
beleaguered
railroads
two decades ago, Kansas City Southern (KCS) saw an
website of TransDevelopment, which provided conceptual planning for the venture.
opportunity. With its joint venture partner Transportación Maritima Mexicana (TMM), the U.S. rail operator pursued
For the mining industry specifically, Zozaya believes
and won a concession to run the Northeast line, that runs
the company can compete on efficiency, lower costs
down the middle of the country, from Nuevo Laredo to both
and greater capacity, offsetting the advantages its
the port of Lazaro Cardenas and Veracruz. Today, Kansas
competitors may have. “Some of our competitors have an
City Southern Mexico (KCSM) is one of the country’s most
advantage in that they not only own the railroads but also
important railway freight transportation operators.
the mines, whereas we simply render services where they are required,” he says.
KCSM’s
President,
General
Manager
and
Executive
Representative José Zozaya says Mexico now accounts
KCSM also offers a high degree of vigilance to ensure security,
for 48 percent of the parent company’s business. The
a problematic issue, especially in mining. To guarantee the
two operate not as separate networks but as one
safe delivery of the goods it transports, KCSM stays in close
unified system in an effort to boost efficiency. He says
contact with federal, state, and municipal authorities. “We
that Mexico’s reforms have provided a new opportunity
also work with intelligence agencies in Mexico and the US
for growth while the company continues to focus on
and we have an internal security team that works 24 hours
established segments. “In the last 18 months, we have
a day and is constantly monitoring our cargo and carrying
been capitalizing on the opportunities brought about by
out preventive surveillance,” Zozaya says.
the Energy Reform and the booming automotive market to serve those segments, but we also continue to foster growth in our traditional sectors of grain, minerals, metals, steel and petrochemicals,” says Zozaya. Keeping a close relationship with the authorities is imperative, he adds. “I interact with the President, ministers, governors and mayors because we have a concession that we must maintain. To meet our obligations under this concession,
In 2015, the company spent US$324 million in Mexico
open lines of communication are vital.” Spending in key areas is also essential and KCSM is in the
No company moves forward without innovation and
midst of a considerable investment for the company. In
Zozaya says KCSM keeps that idea at the forefront of its
2015, it spent US$324 million in Mexico - US$160 million
development, and this extends to its staff. “We want to
for railroad rolling stock, US$108 million on infrastructure
hear about improvements that can be made, not only to
and tracks and US$56 million for business development.
equipment or machinery but also in working conditions and
The outlays will continue this year, says Zozaya. “We have
problem solving,” he says. It is an approach that has reaped
made an investment commitment of US$154 million to the
benefits. “We have been extremely successful in building a
Mexican Revenue Service (SAT), while also negotiating with
more efficient operation, thanks in part to the experience
the government about the possibility of KCS constructing
of the US railroad as well as the valuable experience of our
the remainder of the Celaya Rail Bypass, which would
Mexican employees who previously worked for Ferrocarriles
mean further investment.” The Celaya, Guanajuato bypass
Nacionales de Mexico.” These actors, he says, provide ideas
is one of the country’s biggest railway bypass projects,
on grid operations, for example, that save time and money,
including over 30km of new mainline, according to the
savings KCSM can then pass onto clients.
171
MEXICO'S MAIN HIGHWAYS
Tijuana
Mexicali
Ensenada
Ciudad Juarez Nogales
Santa Ana
Piedras N
Hermosillo Chihuahua
172 Ciudad Obregon
Torreon
Culiacan
La Paz
CURRENT NETWORK Durango
Highway
Todos Santos
Mazatlan
Federal Highway
Zacatecas
Modernized
Aguascalientes
Not Modernized
Tepic Leon
Source: SCT Guadalajara
NEW HIGHWAY PROJECTS 2016-2017
Manzanillo
Infrastructure
ID
Project
State
Length
Investment
Participation
Status
Highway
CG-040
Elevated Viaduct Mexico -Veracruz
Puebla
15.3km
MX$10.5 billion
Public
Completed: Aug 2014 -Oct 2016
Modernize
CG-234
Palenque-San Cristobal de las Casas
Chiapas
182.5km
MX$10 billion
N/A
To Tender Under 2017
Highway
CG-211
MitlaTehuantepec
Oaxaca
169km
MX$12.9 billion
Provision of Services: ICA 60%
Under construction
Highway
CG-023
TuxpanTampico
Veracruz
105km
MX$6.8 billion
Mota Engil
Construction suspended: June 2016
Highway
AtizpรกnAtlacomulco
Mexico
74km
MX$9.5 billion
PPP: OHL
Under Construction
Bypass
South Guadalajara
Jalisco
111km
MX$415 billion
PPP: IDEAL
Under Construction
Orizaba Periferico and Cordoba
Veracruz
36km
MX$5 billlion
PPP: Grupo Desarrollador Caseoli
Under Construction
Indios Verdes -Santa Clara Viaduct
DF
9.7km
MX$4.4 billion
PPP: PINFRA
Under Construction
Highway
Highway
CG-060
Zamora Colima
Lazaro Cardenas
NEW HIGHWAY PROJECTS 2016-2017 Infrastructure
ID
Project
State
Length
Investment
Participation
Status
Highway
CG-213
Barranca LargaVentanilla (Oaxaca -Puerto Escondido)
Oaxaca
104km
MX$6.2 billion
PPP: ICA
Under Construction
Highway
CG-022
CardelPoza Rica
Veracruz
126km
MX$3.5 billion
Mota Engil
Construction suspended: June 2016
Conservation
CoatzacoalcosVillahermosa
Tabasco/ Veracruz
166.5km
MX$4,6 billion
PPP: Mota Engil, Calzada Construcciones, Construciones y Dragados del Sureste, Constructora y Promotora Malibran for 10 years
Tendered: Oct 2016
Highway
CuitzeoPatzcuaro
Michoacan
64.1km
MX$4.3 billion
PPP: PINFRA, Blackrock, AZVI
Completed: Oct 2016
Negras
Nuevo Laredo
Bypass
CG-192
Cuidad Obregon
Sonora
34km
MX$1. 2 million
PPP: Rubau
Under Construction
Highway
CG-026
JalaCompostela -Bahia de banderas
Nayarit
67.9km
MX$13 billion
PPP: ACCIONA
Under Construction
Reynosa
Monterrey
Source: FONADIN & SCT
Matamoros
Saltillo
Ciudad Victoria
Tampico
Cd. Valles
Cancun
San Luis Potosi
Progreso
Tuxpan
Queretaro
Merida Tulum
Atlacomulco
Campeche
Mexico City Morelia Toluca
Puebla
Cuernavaca
Jalapa
Chetumal
Veracruz Villahermosa
Chilpancingo
Oaxaca Tuxtla Gutierrez
Acapulco Salina Cruz
Ciudad Hidalgo
173
VIEW FROM THE TOP
RIGHT PROJECTS EXIST BUT NOT YET VISIBLE ALBERTO PÉREZ-JÁCOME Director General of Grupo Hermes Infraestructura
174
Q: What is your view of the NIP and its progress?
operating regulations left projects on the shelf for many
A: Mexico should be proud as its advancement in
years. The great advancement of the current administration
engineering has benefited infrastructure around the
was adopting a regulation that fits the needs of the private
world. The NIP is a great opportunity for the sector. We
sector. A simple of rule thumb is to let projects find their
acknowledge the challenges Mexico faces when it comes
own source of revenue. The private sector is interested
to infrastructure but the NIP is a complete program that
in these plans because they can offer assurance that the
has a long-term vision. Infrastructure of this size needs
investment will be repaid. Toll roads, for instance, have
to be inclusive to function well. For instance, a port has
enough users to repay the investment difference. Other
to be designed in a manner that aligns with the rest of
projects that do not have their own source of income such
the country’s infrastructure. If it does not have a nearby
as the Mazatlan-Durango toll road need the help of the
highway or railroad, the containers cannot be delivered
government. This region has many mountain ranges that
efficiently. The program has managed to encompass the
make the project expensive and difficult. Mexico needed
country’s infrastructure as a collective system. The goal
to connect the west to the east and the private sector was
is to transform Mexico into a logistics platform as the
not willing to pay for the cost of the project. The Mazatlan-
country has a strategic position and can easily connect to
Durango project cannot collect enough money from end
South America’s Gulf ports.
users to repay the investment.
Q: How is the government’s approach to the tender
In a pure concession plan it would have never been possible
process for infrastructure projects impacting the industry?
to attract enough interest from the private sector so the
A: I differ from other experts who believe Mexico lacks
government decided to build it as a public expenditure.
infrastructure projects. We believe that the right projects
The Mazatlan-Durango toll road is the most important and
exist but they are not visible as the country is taking the
difficult road ever built in Mexico. The port of Mazatlan
time to analyze the risks associated with each one. They
is still small compared to the rest in the country but its
are complex projects with a large number of variables
interaction with the country has increased significantly. It
that need to be controlled and studied properly so it is
is more efficiently connected to the rest of Mexico and its
more efficient to develop them at a slower pace. These
neighboring countries. This is proof of the effect a well-
projects are expected to impact the Mexican economy for
planned infrastructure project can have on an area.
the next 50-100 years and rushing the process to comply with a political agenda is not worth the risk. In this case,
Q: How can the government replicate this success across
the government is adopting a responsible attitude by
other infrastructure projects?
choosing to leave behind its political agenda and making
A: There is a need for infrastructure in Mexico and the
sure the projects are being well developed. It is also a
government does not have enough short-term capital. The
difficult time for Mexico as its economy was expected to
secret is to engage the private sector so it can contribute
grow at a faster pace.
the equity instead of the federal government. Authorities would only need to provide a guarantee of repayment
Q: What can the government do to make PPPs more
for the infrastructure over 10, 20 or 30 years. The money
attractive?
the government pays the private sector can have positive
A: The global economic situation is changing quickly and
benefits for the established infrastructure. If the project
the biggest challenge for the industry is learning how to
cannot acquire financing because the risk is too high, the
adapt to the new landscape. It is easy to highlight PPPs
project needs to be forgotten. The government needs
but turning them into reality is complicated. The PPP Law
to do whatever it takes to ensure project viability before
may have passed a couple of years ago but the lack of
making the concession public.
The more roads the federal government builds without
bringing a flow of funding that can get a return as long as
concessions the more authorities have to pay for the
the projects are safe with contained risks.
cost of the aftercare and maintenance. The long-term interest of the private sector has to be aligned with the
Q: What role do you want to play in infrastructure?
long-term interest of the project to be successful. The
A: Cultural infrastructure, hotels and the Mexico-Toluca
government acknowledges that it does not have enough
railway are some of our priorities. We developed the last
capital to fund them. The private sector is being invited
two major museums in the country through PPP schemes
through concessions to invest all of the money a project
in Merida and in Puebla. We build high-quality assets as
requires as well as ensuring the quality of the asset. If
we receive payments based on quality. For us, the positive
the developer does not comply with the norms, the plan
effect of cultural infrastructure is quite clear. We know that
forces them to pay for the consequences. There are also
visitors are more likely to stay longer in cities that have
positive incentives for those that are aligned to regulation.
interesting museums and theaters. Cultural infrastructure
Noncompliance is punished by making developers pay
has a positive effect on the economy. We recently started
for a deduction on the fixed amount that was originally
participating in tourism as it has been performing well in
requested from the government.
Mexico. Tourism in Mexico combines beautiful beaches with prehispanic sites, culture and gastronomy. Sophisticated
Q: How can a company boost its chances of winning a
tourists look for these combinations. We opened a hotel in
PPP tender?
the north area of Cancun two years ago and are planning
A: The new PPPs bring out the best elements of the
to continue developing projects there.
previous programs. Everybody places their bids and wins based on a points system. A great technical proposal is
Mexico’s supply of infrastructure in terms of airports and
more likely to gain more points and obtain the concession.
roads creates even more possibilities. The government
The idea is to incentivize the most economical and
is willing to tackle the mobility challenge by building
technical projects. Companies have to make sure to have
the Mexico-Toluca railway. It will benefit thousands of
well-developed plans. Depending on the amount of bids
people by shortening their trip to 40 minutes. It will ease
per concession, the government removes the cheapest
the saturation of the Mexico City Airport as it will also
and most expensive projects to maintain an average.
include a shuttle to the Toluca airport that is hassle free.
Incentives are offered to projects that are closest to the
Any large city in the world has two or three airports and
average so they are more likely to win the maximum
we are hoping to bring these types of mobility choices
amount of points. Players want to be close to the average
to Mexico City. We are also proud of participating in the
and make sure they offer similar prices. The first projects
New Mexico City International Airport (NAICM) and of
under this new points scheme were recently presented to
providing the third runway thanks to our reputation and
Congress. We already have four projects that have been
concession. We could submit a competitive offer thanks
approved by the Ministry of Finance that will become
to our collaboration with four companies, our skills and
the new generation of projects. The new mechanisms are
complementary assets.
Highway MaravatĂo, Grupo Hermes, MichoacĂĄn
175
VIEW FROM THE TOP
MEXICO IDEAL FOR INTERNATIONAL INVESTMENT LEOPOLDO ZAMBONINO Infrastructure Director of MEXTYPSA
176
Q: How is MEXTYPSA’s client portfolio structured
are not yet confident about placing their money in these
between the private and public sector?
projects. There have been various instances in which
A: When we entered the Mexican market we had no
companies decide to invest and during construction
experience on road development here and no network.
the government changes the rules, causing investors
To gain a presence we worked solely with the private
to lose money. For certainty to exist there must be
sector. We adhered to this model for the first three to
regulations within the market, which will encourage
four years and once we began to build up experience
further investment in the infrastructure industry. Mexico
and knowledge we started working with the public
has extensive potential in the energy sector with strong
sector, gaining its trust with the projects we successfully
oil and gas resources. These reforms hold a promising
accomplished. Now, our portfolio consists of 50 percent
future and will open up more opportunities to work with
public and 50 percent private projects and we want
CFE and PEMEX.
to maintain this balance. Our biggest clients in the private sector are construction companies. We also
Q: Which sectors in the infrastructure industry are
work with Volkswagen, Audi and Industrias Peñoles. In
attractive to TYPSA?
the public sector, we have worked with CONAGUA, the
A: TYPSA wants to be involved in asset structuring projects
SCT, BANOBRAS and Mexico City’s Metro system. We
and from there move into different areas of construction,
provide added value in highway maintenance and asset
highway maintenance or simply optimization of existing
structuring. MEXTYPSA works with roads and highways,
structures. The company wants to actively participate in
on the general development of projects and also assists
more projects in the Mexican energy sector. Our strategy
on concessions with project management, supervision
is to provide quality engineering solutions and with its
and engineer recruitment. Moving forward we are looking
international expertise, TYPSA does not have many
to take part in projects where we can contribute added
competitors. This allows us to gain access to an increased
value, particularly in engineering as the local market
number of projects and gives us a competitive advantage
cannot offer that at the moment.
because we can demonstrate skills to companies by generating various solutions to their problems.
Q: What are the biggest risks for international companies when investing in Mexican infrastructure projects?
Q: How do MEXTYPSA’s current projects demonstrate
A: MEXTYPSA is one of the few companies that do not
the company’s accumulated expertise?
get involved in the actual construction of projects as
A: We are working on some highway maintenance
this raises the level of risk, especially when things do not
projects in the cities of Queretaro, San Luis Potosi and
go according to plan. We offer guidance and consulting
Villahermosa with SCT. The government is looking to
services and are responsible for the design of a project.
expand the coverage of Mexico City’s metro system
In terms of financing, the CKD platform still needs to
and we have an advantage because we have had
develop. MEXTYPSA has participated in a variety of USPs
the opportunity to work with them on several lines.
and because of the uncertainty involved, they have not
MEXTYPSA also has participated in the due diligence
been highly successful. These instruments eventually
process and construction supervision of a variety
should reduce the problem and the level of risk.
of
sustainable
infrastructure
developments.
Project
management is one of our strengths and to capitalize Q: What opportunities have the structural reforms in the
on this, the company is developing several residential
energy sector created for MEXTYPSA?
buildings and a commercial mall. Our goal is to maintain
A: The renewables market is changing but because of
our position and use our experience in road construction
the uncertainty created by secondary reforms, investors
to grow in the energy sector.
INSIGHT
TOUGHER PLAYING FIELD PRODUCES NEW PARTNERSHIPS SANTIAGO VILLANUEVA Director General of VISE
Mexico’s infrastructure companies are facing a tougher
also is working with Grupo México on the Salamanca-Leon
playing field as falling oil revenues force the government
highway and is bidding for the conservation of the San Luis
to tighten its purse strings, putting the squeeze on public
Potosi-Queretaro highway, a PPP being designed by the
spending that once was earmarked for roads, highways
SCT to rehabilitate the highway and preserve it for 10 years.
and other projects. To adapt, the sector is gearing portfolios toward private investment, which is soaring,
VISE maintains a complete chain of services that facilitate
says Santiago Villanueva, Director General of construction
the completion of its projects. Around 70-80 percent of its
and engineering firm VISE.
business is in western-central Mexico. With many projects on the go, a reliable and motivated staff is indispensable.
The government previously directed extra capital from oil
“We go the extra mile by creating internal programs that
revenue to the infrastructure segment but with the oil and
boost morale. Having a motivated group that can manage
gas industry suffering a dip in income, the government’s
heavy workloads and make projects a reality is essential,”
priority is to satisfy fixed expenditures. This has resulted
says Villanueva. Its employees help in the completion of
in a deflated infrastructure budget, lower prices and more
complicated projects such as the port and military zone
competition for companies. To fight the downsizing and
access being built as part of the Mexico City-Tuxpan,
lack of government support, large businesses like VISE
Veracruz highway project. VISE is collaborating with Group
are restricting their participation to major public sector
PINFRA to build a highway to improve the connectivity of
projects, such as the New Mexico City International Airport
NAICM in Texcoco. The company is also participating in
(NAICM), a major development of global significance that
runway tenders for the new airport.
will be an important hub once completed around 2020, highway concessions and PPPs, says Villanueva.
Partnerships are a key to VISE’s desire to bring synergy to its projects. Its partners must bring technical congruencies,
“Unlike traditional public bids where winners receive
expertise, local knowledge and the financial capacity to
fiscal resources from the government to complete the
act as an associate. Villanueva says that potential alliances
proposed project, PPPs are a public-private partnership in
are thoroughly analyzed before any agreements are made.
which a company works with the government to develop
“It is not enough for companies to have a substantial bank
construction projects through concessions that involve
of knowledge. This factor does not compare to an alliance
maintenance, rehabilitation and operation,” Villanueva says.
with players that have more successful track records or a
“VISE has a presence in many PPPs throughout Mexico.
philosophy that matches ours,” he says.
It strives to create and design unsolicited proposals that require a PPP because upon approval, concessions are
The majority of VISE’s work is carried out in collaboration
easily won by the companies that developed it. We prefer
with other key companies as it eases the process of
complex projects that attract less competition and do not
construction, maintenance and creating financial plans. “In
demand significant price sacrifices.”
Guadalajara-Colima, for example, we rely on the help of external experts that understand pavement design and can
The company’s infrastructure involvement includes the
carry out routine maintenance that is essential for highways,”
Celaya Highway Bypass in Guanajuato, a 30-year project
says Villanueva. VISE positions itself as a socially responsible
that was its first concession in consortium with Rubau, the
business, making sure to create positive relationships with
Obregon Bypass in Sonora, which is under construction, and
any community affected by its projects. “Our target is to
the Guadalajara-Colima highway, a 12-year maintenance
work with those communities and with the government
and rehabilitation concession Vise won with BANOBRAS
to provide fast and effective answers to any issue or
and on which it is working with four other partners. Vise
requirement that arises during a project,” says Villanueva.
177
VIEW FROM THE TOP
TAGGING TECHNOLOGY FOR A SMOOTH RIDE RODRIGO BERNAL Director of TeleVía
Q: What contribution has TeleVía made to improving
the amount of research we had to conduct but it is now
Mexico City’s mobility?
performing well.
A: Electronic tolling used to be a monopoly. TeleVía 178
provided an alternative and installed the first high-speed
Q: What were the best practices imported from Brazil and
electronic toll collection system (ETS) in the country on
Chile?
the Circuito Exterior Mexiquense and in 2009, we installed
A: In those countries, there is a foundation of government
a 100-percent ETS system on the Viaducto Bicentenario.
regulations that enables a free-flow system, which means
In 2012, we reached the first interoperability agreement in
there are no toll gates on the highways. As drivers cross
Mexico, together with our partner I+D. This set the stage
the highways to their destination, the tag is read only once
for the interoperability of toll roads that we are seeing now.
and users are charged as they go. In Mexico, the lack of
Another factor in our success is that our business model
regulations prohibits this. Because of this disadvantage,
is based on a prepaid account, whereas the electronic toll
we implemented a combination of a gated entrance and
collection system that preceded us used the post-paid
a free-flow system at exits. The Viaducto Bicentenario,
system, which requires a credit card.
which was specifically designed for the prepaid system, was a pioneer for this project. A user must have a sufficient
Q: What services have you deployed to improve user
balance to pass through the gate and use the highway.
experience?
This adaptation required a significant change of culture
A: When we started, we knew our strength was our
and user education.
technology and we wanted to place that technology in the hands of the customer. Our transponder is an
Q: What role can toll companies play in reducing
active tag and is at least two times more efficient than
congestion during peak hours?
any other tag in the market. This means that when a car
A: We installed the country’s first high-speed system on
drives under an antenna, our tag is sending and receiving
the Circuito Exterior Mexiquense. The former system was
messages. We invest considerably in our technologies to
an extremely inefficient stop-and-go process wherein
make the reading of the tags much more efficient and
there was no certainty the tag would be read. It was often
avoid backlogs on our highways. One of our priorities is to
even less efficient than paying in cash. Our system ensures
provide personalized service and we have eight customer-
the tag will be read with certainty even at 80km/h. The
service centers to help achieve this goal. We also believe
high-speed system has helped the city’s mobility but now
in having comprehensive information and to facilitate this
we have to take the next step, which entails a free-flow
we launched an app this year, which has had about 70,000
operation. To achieve this we must work closely with the
downloads.
authorities to see it through.
Q: What obstacles have hindered the implementation and
Q: To install the free-flow system what needs to be done?
operation of that technology in Mexico?
A: We are collating and disseminating all the information
A: Since the system was initially a monopoly, it was
and after measuring its efficiency compared to the current
extremely difficult to obtain access to the various
system, we will decide the best course of action. Right
technologies necessary to develop the project. We were
now, we are in the research stage, which is challenging
forced to seek suppliers in Europe and Canada to ensure
because Mexico is a big country and there is a lot of
productive negotiations and competitive prices. We also
interurban mobility with a diverse group of users. This
conducted a lot of research, importing best practices
complicates matters as different states must be involved
from Brazil and Chile to put together a successful plan
and all the information must be confirmed with these
here. The development of the project was complex due to
entities. If we do not implement the free-flow system,
Durango-Mazatlan Highway, Grupo Hermes, Durango
179
I think the technology and the system we have will not
might not be in a position to pay for the use of the
satisfy customer demand going forward.
roads. With the mass distribution of tags, this issue has been addressed.
Q: To what extent do the socioeconomic aspects of these different regions impact the system?
Q: How has the interoperability of urban roads enhanced
A: Lack of credit card ownership is why TeleVĂa based its
the country’s highway system?
business model on the prepaid system. Our model allows
A: SCT launched its interoperability project and provided
customers to associate their account with a card but they
a limited time frame for completion. Thankfully, the
also have the option of the prepaid system that can be
authorities and involved companies provided investment,
topped up at convenience stores. When the first prepaid
human resources and a significant commitment to reach
system was launched a few years ago it was extraordinarily
this goal. The service we provide is at a competitive level
well received.
and although there is room to improve, all involved parties are making invaluable contributions.
Q: What were the main concerns when launching the 100 percent electronic toll highway?
Running projects on such a scale always results in a
A: Among the main concerns was that demand would
number of issues but SCT has brought all parties together
fall short if people could not get the tags. Our goal was
to jointly develop rules for the effective operation of toll
to make that easy so that everyone could gain access to
roads. The interoperability system pushed by SCT has
the highway. We did this through commercializing tags
had tremendous benefits. Instead of needing four or
at various points of sale, not only at big convenience
five tags on a long-distance trip, users now only need
stores. TeleVĂa has 1.3 million tags in the market but
one. We maintain a close relationship with both SCT and
including our interoperability, we have around 3.5
CAPUFE. We are dependent on them, and vice versa, for
million tags that can be used anywhere in urban areas.
the commitment and investment necessary to complete
For concessionaires, the main concern was that users
and operate projects.
Polanco, Mexico City
180
INSIGHT
SAVING TIME THROUGH ‘CONSTRUCTION IN PARALLEL’ ANDREW AUNS Vice President & General Manager of Williams Scotsman
Providing accommodations for a workforce on the road
mobile space supplier in Mexico and North America and
has always been problematic. Distant and sometimes
can analyze our resources and costs in different economies
remote locations mean employees must stay on site for
of scale to ensure we can control our expenditures and
long periods of time. Williams Scotsman has a solution it
offer the best deals to our customers.” The products also
calls “construction in parallel.” The company’s innovative
function in extreme conditions and remote areas, says
modular full-service units are manufactured and assembled
Auns. “We can customize water and waste-water tanks
off-site, allowing customers to focus on their key priorities.
to attach to our units and we partner with third-party
When the modules are complete, Williams Scotsman
providers to service these.” In addition, the company
installs them. “We offer a large variety of flexible solutions
can power the units with generators if necessary, set
to our customers, to cover all the basic needs of a project,”
up temporary subpanels from established electrical
says Andrew Auns, Vice President and General Manager of
sources to tie to its units or plug into existing permanent
the company. “We hope to evolve into a complete service
connections.
provider and assume the operational capabilities of camps by offering cooking, cleaning and security services, which
Williams Scotsman has completed projects for companies
we call workforce accommodation.”
that have requested customized entertainment, dining and dorm areas with beds, TVs, lockers and an environment the
conducive to the comfort of the workers. As construction
company’s most attractive asset is its ability to design and
companies transition to different stages of a project,
build a personalized solution that caters to individual client
Williams Scotsman adapts its solutions to fit the unique
needs. With its “360° service,” Williams Scotsman sources
needs of the client. “This is an example of how we can
furniture, site services and other preparatory necessities
accommodate a company that has already completed a
that are not a core competency for construction companies,
project as well as a company that will be starting a new
providing them with all they require to begin a project. In
development and reusing the existing modules.” After
this way, the companies can focus their attention on areas
minimal modifications, the modules were installed for use
that are crucial to the productivity and operation of the
by a different company within two to three weeks and
project. Another asset is the flexibility its product provides.
without delaying the project.
From
a
productivity
standpoint,
Auns
believes
“In the past when people thought of modules, they thought of 2.4m by 11.5m trailers, which we still offer, and they form
For another project the company has been contracted
effective solutions,” Auns says. “However, our new AsFlex
to provide five office buildings that will accommodate
offering can be modified to changing needs.”
over 400 workers and will be fully furnished with desks, electrical outlets and internet connections. There is no
Williams Scotsman’s products combine a variety of
natural water surge in the area so Williams Scotsman will
features that allow workers to live closer to the site, which
install septic water systems and tanks.
promotes greater productivity. The company can provide complete work camp solutions that allow better control
With a product portfolio that can solve most of the space
of employees, create adequate living quarters and reduce
needs of any mine, Williams Scotsman has worked with
safety and security concerns. “This ultimately leads to
major developers and adapted to their specifications.
a happier workforce, fewer safety incidents and the
“The best practice that we have developed in Mexico is
completion of projects on time,” Auns says.
being able to adopt the AsFlex product much faster than our counterpart in the US,” Auns says. “We have already
To control costs, Williams Scotsman is constantly looking
used the AsFlex product in four large projects, from initial
for more efficient ways to source. “We are the largest
assembly to disassembly for new projects.”
181
VIEW FROM THE TOP
IMPROVE SERVICE TO IMPROVE ROADS ALFONSO DE LA PARRA Director General of Tecnopeaje
182
Q: How far along is the development of Mexico’s roadmap?
Q: As a consultant, what issues do you see in Mexico’s
A: Roads serve over 80 percent of freight transport in
toll-road system?
Mexico and they also are the favored mode for travel. It
A: The problem is focus or perspective. With toll roads,
helps that most of the main roads are already finished.
what needs to be understood is the productivity of these
We have a comprehensive network that stretches from
projects and their financial success depend on traffic
Tijuana to Mexico City and from there to every corner. The
volumes. When there is not enough traffic, costs need
primary roads are now more accessible and transit times
to be adjusted. Toll roads need traffic to be productive
have been reduced.
because these roads do not only connect cities and towns, they provide an added value service. Ultimately, they are
Secondary roads that feed the primary routes are a
a business. Unfortunately, when costs need to be cut the
different story. They remain a work in progress. On the
first area hit is operations, which puts the quality of service
one hand, central areas like Jalisco and parts of Puebla are
for road users at stake.
relatively developed and meet practically all road needs. On the other hand, states such as Chiapas or Oaxaca and
In 2008, we compiled a document listing requirements
the Sierras throughout the country are either falling short
for toll road concessionaires that addressed the needs
or have roads that are in awful shape. Mountains make
of those who use the roads. If customers are paying
these areas an expensive challenge to maintain but project
to use a road, they should receive something. The
implementation is not impossible. Along the west coast,
operator is responsible for providing adequate signaling,
the road that goes north from Manzanillo to Chiapas has
maintenance, cleaning, the installation of lights and basic
taken a tremendous step forward. The project started by
services that can help in emergency situations. Road
connecting Acapulco, Zihuatanejo and Puerto Vallarta.
concessionaires also should provide ways to detect issues,
This upgrade has made the Puerto Lazaro Cardenas
such as with intelligent transportation systems (ITS) and
airport more interconnected and the south of Guerrero
method, and have specialized supervisors who oversee
and Oaxaca are also making good progress.
the roads. These services are the first to be cut when there is a lack of funding. Customers then are expected
The road that leads from Tuxpan to Tampico in Veracruz
to pay for a service that has no added value compared to
is almost complete. Unfortunately, security is an issue that
a free road. Thankfully, many of the new concessionaires
hovers over the project as some areas are dangerously
have changed their view about quality and service, such
isolated, such as the Sierra Maya. The central belt of
as those that own Arco Norte, Atlacomulco-Maravatio
the country has roads that need expanding, such as the
and Morelia-Guadalajara, where service and routine
Mexico-Queretaro route, which has the heaviest traffic
maintenance is offered. This is yet to be seen with some of
in the country. This trip can be dangerous because it is
the older concessionaires.
a well-known and heavily used route for trucks. Its traffic needs to be analyzed to consider the possibility of adding
Q: What necessitated the new guidelines Tecnopeaje
another road or implementing a different management
helped the government establish?
structure. The secondary road to Morelia was supposed
A: Traditionally, road operations were seen as an
to decrease traffic on the Mexico-Queretaro route but this
extension of the construction phase and collecting
did not happen.
tolls and customer service were incidental. The new guidelines present a more comprehensive and inclusive
Infrastructure is a condition for growth and historically,
understanding of road operations, where user safety and
the conditions in Mexico facilitate road construction rather
service are paramount. The educational process within
than railroads or other transportation methods.
the industry centers on engineering, which includes
building and maintaining infrastructure and operations.
due to a constrained budget, progress has been slower
In other types of construction the engineer generally
than expected.
leaves after a project is completed and the operator has the responsibility of administrating it. When it comes to
Q: What benefits can the industry reap from having
roads, the engineer stays on the project but either does
external support in the planning process?
not care about service or is not qualified to address it.
A: It is vital to have supervising bodies that can ensure
A person specialized in management should take over,
the implementation of government regulations and
not an engineer who does not see the importance of
accountability for actions, services and situations and how
service quality.
those are handled. With the use of external road operation supervisors (SEOs) and fatal accident appraisers (DAGs),
Q: What impact does technology have on efficiency and
there are consequences for not taking action to correct
safety, particularly ITS?
the cause of an accident, for example. Thanks to changes
A: We design and install ITS. Globally, technology is
in government regulation, operators now are expected
having a massive impact on infrastructure and the
to have stock of safety beacons and other appliances to
efficiency of road design, yet Mexico is not up to par.
replace damaged equipment.
It does not matter how innovative a machine is, if it
183
cannot be used properly there is no point in spending
Groups of outside and trained supervisors can be used
millions. Analysts and sensors are important because
to gather neutral data. There are many supervisors who
without the examination of data, expensive equipment
have no idea what they are doing because they are only
such as ITS is useless. It should not be implemented if
looking at infrastructure technicalities. The job is meant for
a profound analysis is not being actively pursued. Few
trained and specialized personnel because infrastructure
operators have implemented this technology. Some are
must be built to last for a considerable period of time
interested but are not willing to spend the necessary
and standards of service have to be consistently high. I
capital. SCT is encouraging the use of ITS and the
think supervision is one of the tools that could change the
Mexican Transport Institute strives to make changes but
industry’s mentality.
Santa Lucia II Bridge, Grupo Hermes, Durango
The NAICM, Texcoco, State of Mexico
PORTS & AIRPORTS
8
Mexico yearned for a new airport and this year the construction of the NAICM advanced greatly as the AICM no longer has the capacity to handle the country’s primary air traffic stream. The government believes NAICM will be the project of the century and one of the most sustainable airports in the world. Mexico’s ports, too, are reaching new heights as TEC II in Lazaro Cardenas becomes the first semi-automated port in Latin America. The Port of Veracruz also has begun expansion and tenders are attracting players from all over the world to take on the challenge of optimizing one of Mexico’s superports.
This chapter combines the expert opinions of port and airport developers and consultants as to where the industry is heading, the latest trends and the most urgent projects that must be completed. It begins with GACM explaining the importance of NAICM and the impact it will have on the Mexican economy. Companies involved in the construction of Mexico’s airports agree that although it is a challenge, NAICM is essential to guarantee the success of Mexico’s economy. In the second half of the chapter, Mexico’s port experts discuss the challenges in expanding ports that are in the middle of large cities and the potential of the creation of two superports to attract further international commerce.
185
CHAPTER 8: PORTS & AIRPORTS 188
VIEW FROM THE TOP: Federico Patiño, GACM
190
INFOGRAPHIC: NAICM to the Rescue
192
VIEW FROM THE TOP: Alberto de la Parra, Jones Day
193
VIEW FROM THE TOP: Roberto Calvet, AECOM
194
MAP: National Airport System
198
VIEW FROM THE TOP: Carlo Orsenigo, CH2M
199
VIEW FROM THE TOP: Alex Covarrubias, SITA
200
PROJECT SPOTLIGHT: NAICM: The Project of the Century
202
INSIGHT: Pablo Cortina, POSTENSA
202
INSIGHT: Lorenzo Ochoa, OHL Toluca
204
PROJECT SPOTLIGHT: Assuring a Smooth Takeoff for NAICM
206
INSIGHT: Alicia Silva, Revitaliza Consultores
207
VIEW FROM THE TOP: Oscar Peralta, Grupo GMI
210
MAP: National Port System
212
INSIGHT: JD Nielsen, APM Terminals
213
VIEW FROM THE TOP: Mario Veraldo, Maersk Line
214
INSIGHT: José Martínez, AMIP and Marinas JMH
214
VIEW FROM THE TOP: Luis Quiroz, Guanajuato Puerto Interior
216
PROJECT SPOTLIGHT: TEC II to Optimize Operations in Lazaro Cardenas
187
VIEW FROM THE TOP
MEXICO BUILDING ITS DOOR TO THE WORLD FEDERICO PATIÑO Director General of Grupo Aeroportuario de la Cuidad de México (GACM)
188
Q: What do Mexicans expect from the New Mexico City
A: This airport has been one of the most deliberated
International Airport (NAICM) and what initial feedback has
projects in Mexico’s history. Texcoco was chosen due to its
been received from the public?
geographical location and because of its unique climate
A: NAICM will be Mexico’s door to the rest of the world. The
characteristics. Not having to purchase the land was a great
project itself will become one of the globe’s most intricate
advantage for the project because the cost of more than
infrastructure
geographic
5,000ha would have completely destroyed its viability.
location creates a variety of needs this mega construction
projects.
Mexico’s
favorable
The land to be used was already federal property but it
must meet. According to the NIP, this international airport
previously was a lake. Building on this type of terrain has
will become an international hub as well as a logistics
downsides. The subsoil is incredibly unstable and many
platform for the rest of the world. It will spark the country’s
rivers surround it. Technological advances since the studies
economic and social development.
began will allow us to construct a perfect airport. It will be an incredible challenge but with the support of experts
The complexity of the project demands the participation
from the Netherlands and their extensive knowledge, it is
of the best players in the industry, which includes Arup, the
possible.
master-plan developer; the best architect firm for airport design, Foster + Partners in a joint venture with Fr-ee; the
Q: What are the challenges of building an airport on top of
most experienced project management company, Parsons;
a lake?
and the expertise of Netherlands Airport Consultants
A: This project will involve different types of foundation
(NACO) who have participated in the development of more
techniques. The preload method will be used on the runways
than 400 airports worldwide.
and the terminal building will use a compensated method. Different foundation techniques are used for different
This international flagship project will put Mexico on the
purposes. The construction manager, engineers and the
map and will demonstrate the country’s ability to develop
master architect will be working with Arup on the engineering
immense infrastructure in an efficient and transparent
part of the project. The runways, taxiways and aprons will be
manner. Its success will boost the self-esteem of the Mexican
designed by NACO, which has been performing tests to see
population and highlight Mexico’s untapped abilities and
which foundation method was the most efficient and at what
strengths. The new airport will be far more than just another
rate they would sink. This is a difficult task and requires a
piece of majestic infrastructure. It will become an economic
great deal of experience.
focal point that will create a balance between the western and eastern areas of the city. The west side has a lower
Delays are often caused by the results of trials when we
density and offers a broad variety of services, while the
believe the terrain will behave in a certain way but actually
east is overpopulated with few services available, such that
behaves completely differently. If we want to complete
it craves development. This project is groundbreaking. The
a project on time and on budget we must factor each
current administration has learned from its predecessor’s
individual project and technology into our deadlines, which
mistakes in approaching airport design and has taken
will also reduce the amount of risk involved. There are many
adequate precautions. The government conducted surveys,
consultants and engineers involved in the various projects,
met with citizens and adapted solutions to suggestions.
all of whom propose the use of different technologies. They
Design of the strips and the structure were adapted to the
must collaborate with NACO because it is directing the
needs of the surrounding areas.
project and although it is strict, it always finishes on time.
Q: What criteria did GACM use to decide where the new
Q: What characteristics of the winning proposal surprised
airport would be located?
GACM?
A: The tender for the new airport design demanded a
A: GACM developed 21 large project packages and a
company that had previous experience building an airport
number of accompanying smaller packages. We ensured
with a capacity of more than 30 million passengers. Eight
we created tenders in which only national companies
Mexican companies accepted the challenge and submitted
could participate, as well as international tenders to which
innovative designs but not one had experience working on
anybody could contribute. In June, we announced these
such a sizeable project. This led the participants to develop
packages and due dates to the market so companies could
strategic partnerships with foreign companies that did. We
begin making arrangements and looking for partners.
encouraged partnerships between national and international
Mexican companies have developed strong bonds with
companies that attracted industry leaders across the world.
European, Asian and Latin American companies, which is great because the Mexican labor force will be carrying
The presentation of the proposals took two days, during
out the construction. In some cases a foreign company
which each company was allotted two hours to pitch their
will be in complete control. There are only four luggage
design. With such an impressive array of proposals, choosing
supplier systems at an international level and none of them
a winner was a close to impossible task. The winning proposal
are Mexican. The terminal building, the most emblematic
had to have an avant-garde architectural design that would
part of the airport, will be constructed by international and
physically represent the country’s ambitions for the project
national partnerships. 189
in addition to being functional. The final proposal did not include the Automated People Mover, saving a great deal
Q: How will GACM connect the airport with the rest of the
of money because creating a seven-meter tunnel would be
city and improve mobility to other states?
unpredictable on this type of terrain. It possessed a concave
A: An urban mobility program is being created alongside the
structure making it the lightest proposal of all, which was an
airport’s design, which will integrate three different modes
imperative given the terrain to be used.
of transportation. Based on examples from other countries, such as John F. Kennedy airport in New York, we could
Q: How will GACM ensure that the project follows the
create an air train to transport passengers from the Jamaica
established timeline and stays on budget?
neighborhood to the airport. In this plan, lines 4 and 6 of the
A: One of the biggest challenges we will face will be finishing
MetrobĂşs will be extended, along with the green metro line.
on time and on budget, which is a trial for any megaproject.
This plan contains 12 mobility projects that will extend the
Of all of the megaprojects constructed around the world, only
reach of existing transportation infrastructure and optimize
6 percent are actually finished on time and within budget
transport times to and from the airport.
but we are optimistic the new airport will be one of those. We have experienced setbacks in some phases but thanks
Transparency is a priority for this project and when it is
to close collaboration between Parsons and the engineers,
transferred to another administration, the same transparency
we have been able to identify fast tracks that will allow
will have to be maintained until the project is finalized
us to mitigate any future delays. By carefully monitoring
and throughout all of its years of operation. Combining
processes, we will fulfil all of our objectives on schedule.
all of these elements, working as a team and ensuring transparency throughout the process we will see the first
Q: What percentage of the airport will contain national
flight take off in October 2020 from the New Mexico City
content?
International Airport.
The NAICM, Texcoco, State of Mexico
INFOGRAPHIC
NAICM TO THE RESCUE Called Mexico’s most important infrastructure project
passengers per year. That compares with AICM, which has
in decades, the New Mexico City International Airport
been operating at overcapacity since 2012 and is projected
(NAICM) is designed to cater to the needs of the
to process 42 million travelers in 2017. NAICM also will
growing metropolis. Dwarfing the saturated Mexico City
be the first airport outside Europe with a neutral carbon
International Airport (AICM), the new hub ultmately will
footprint. The hub will have 100 percent clean energy and
have the size and capacity to serve up to 125 million
up to 70 percent of its water will be recycled.
TOP 10 AIRPORTS BY
Construction
PROJECTED PASSENGERS (millions)
PASSENGER TRAFFIC 2015 1
Maximum capacity of
101,491,106
in the first stage
40
Airport
Maximum capacity of
20
89,938,628
passengers at AICM
passengers at NAICM
60 50 30
2 Beijing Capital International
3 Dubai International Airport
10 0
2016
2017
2018
2019
2020
78,010,265
4
MEXICO CITY INTERNATIONAL AIRPORT (AICM)
Chicago O'Hare International Airport
TERMINAL 1
TERMINAL 2
76,949,504
5 Tokyo International Airport 75,316,718
6 Heathrow Airport 74,989,795
7 Los Angeles International Airport
74,937,004
8 Hong Kong International Airport
68,283,407
9 Paris Charles de Gaulle Airport
Average Growth Rate 2007-2015:
65,766,986
10 Dallas/Fort Worth
105 percent
International Airport
64,072,468
illo
Basilica de Guadalupe
fer i
co
sH
NAICM
n eñó yP wa igh
Bosque de San Juan de Aragón
co xco - Te
H Av
Alameda Central
ral C
Ca n
Pe ri
Av Cen t
An
Gr an
Río de los Remedios
arlo
al
ur ge
de
lD
nt es
Tlanepantla de Bez
ank
N
es ag
or
te
Gustavo A. Madero
üe
El Caracol solar evaporator unit
In s
190
70
Hartsfield-Jackson Atlanta International Airport
602
Maximum Capacity: AICM
Zócalo 2 km Source: GACM, DGAC
32 million
passengers
MEXICO CITY INTERNATIONAL AIRPORT
NEW MEXICO CITY INTERNATIONAL AIRPORT
TERMINAL 1
TERMINAL 2
TERMINAL 1
TERMINAL 2
1958
2007
2020
2050
1
1
3
6
33
23
90
69
Inauguration Construction
Runways
Contact Positions
TOTAL SURFACE (thousands) 5
Total Surface (hectares)
Construction Area (m2)
500
4
400
3
300
2
200
1 0
600
100
NAICM
AICM
NAICM
AICM
0
Terminal 1 Terminal 2 Terminal 1
Maximum Capacity:
125 million passengers by 2050
Terminal 2 191
NEW MEXICO CITY INTERNATIONAL AIRPORT 1st airport outside Europe
Latin America's
with neutral carbon footprint
largest airport
160
2
24
100%
satellites
thousand jobs
water treatment plants
Renewable energy
PROJECT PHASES 2014
2015
2016
Planning, studies and design
Construction
Testing and certification
2017
2018
2019
2020
Operations begin
2021
Total estimated cost of NAICM:
US$9.5 billion
VIEW FROM THE TOP
BUILDING BLOCKS FOR NAICM FINANCING ALBERTO DE LA PARRA Partner at Jones Day
192
Q: What measures have been taken to manage the
operation are carried out while prioritizing environmental
project finance risks associated with the financial tools
impact.
selected for NAICM?
institutions willing to analyze whether the project as well
A: Jones Day has participated with advisory services for
as the financing could comply with the high standards
NAICM since the inception of the financing plan, analyzing
they have set to qualify as a green bond. This has in
the legal feasibility of the financing structure. Jones Day
turn attracted funds from the international financial
has worked hand in hand with NAICM’s financial adviser,
community dedicated to infrastructure projects with
Latam Capital Advisors. Our company has also advised
social and environmental responsibility at their core.
This
attracted
the
attention
of
different
NAICM with respect to all different projects associated with the construction and development of the airport.
Q: What gives Jones Day an edge in addressing legal issues for a project with the complexity of NAICM?
The financial plan is based on a simple structure whereby
A: Jones Day lawyers in the project and infrastructure
the passenger tariff (TUA), which is paid by passengers
practice have a long history in the airports and
directly to the airlines and in turn transferred to a
infrastructure industry, which is a unique virtue that can
special financing vehicle, creates a secured source of
assist NAICM from regulatory and contractual points of
repayment. A trust is created with the right to collect
view. Furthermore, due to Jones Day’s business model,
the TUA that corresponds to AICM, which in turn
the client obtains the benefit of the vast experience
receives compensation from the sale of the TUA. To pay
across our 42 offices. We can offer the client advice for
compensation from the sale of the TUA, the trust obtains
each different legal aspect and for any jurisdiction in the
financing from the international banking community
same place, which makes us distinct from any other firm.
and capital markets. The repayment of the financing is secured due to the fact that the TUA is paid directly
Q: How will NAICM be a stepping stone for Jones Day
from the airlines to the trust structure, which creates
to strengthen its position in the Mexican infrastructure
and maintains required reserves for debt repayment
sector?
and transfers the remaining amounts to AICM and
A: Jones Day was established in Mexico in 2009 and since
NAICM. This structure guarantees no construction risk
then has been very involved in the Mexican infrastructure
since the repayment is based on the TUA paid by actual
industry with the responsibility of participating on
passengers traveling through AICM.
projects either on behalf of the financing institutions or the Mexican government. Jones Day is committed to its
NAICM’s financing structure guarantees no construction risk since the repayment is based on the TUA paid by passengers traveling through AICM
clients in every transaction, litigation or representation that we consult on. Based on that principle the collaboration between Jones Day and NAICM in this project guarantees a successful and transparent process. We have also represented financial institutions and sponsors in the energy industry with a great deal of success. Jones Day is not limited to a single industry or area of strength but we strive to reach the same level of
Q: What is your evaluation of the NAICM Green Bond?
quality across all our practice areas. That is the reason
A: The Mexican government has designed this project in
we can proudly say we are well positioned in other
a way that is favorable to the natural environment. The
infrastructure industries such as renewable energy, oil
design, construction methods and maintenance and
and gas and toll roads, among others.
VIEW FROM THE TOP
COMBINED EXPERIENCE CREATES UNIQUE EXPERTISE ROBERTO CALVET Director General México of AECOM
Q: What challenges will AECOM face during its NAICM
the construction process of the terminal building, we
work and why did it form a consortium to win the bid?
must have proper control over the documentation,
A: AECOM has been selected to manage the construction
compliance,
of NAICM’s Terminal Building, the Ground Transportation
We will also make sure that all contractors and their
Center and Control Tower. One of the biggest challenges
employees meet all health and safety regulations. To
we will encounter is making sure the different parties are
contribute to a better transition process it is our duty to
well integrated into the processes. All the contractors
ensure the commissioning processes for the project are
must comply with a large array of regulations during the
done according to specifications.
quality
requirements
and
guarantees.
design and construction phases. Q: What other opportunities is AECOM looking for These regulations and norms are crucial to making this
within Mexico’s infrastructure industry?
project successful. Nowadays, large investments like
A: AECOM is interested in participating in Mexico’s
this require joint ventures and consortiums due to their
transportation sector. We are looking for opportunities in
increasing complexity. We formed this strategic joint
ports, aviation and other infrastructure projects to have
venture with Ayesa, INECO and Cal y Mayor to create
our global experts work alongside our local team. Some
the best team possible. By combining the international
Mexican ports are planning expansion programs, creating
and local experience of the companies within this group,
opportunities for the private sector to participate. We
we have the expertise needed for such a unique project.
see an opportunity to provide services to both the public and private sectors and are interested in looking for
Q: How does Mexico compare to other countries when it
new projects. We want to continue participating under
comes to planning and project management processes?
public, private and PPP plans, as well as provide services
A: Mexico has a vast number of qualified professionals
to other private concessionaires.
in engineering and construction but this project, being the largest and most complex in Latin America, exceeds
Q: What is your view of the PPP scheme and how
the local capacity due to its size and complexity.
could it be improved to boost the private sector’s
Local companies have never been involved on their
participation?
own in projects as intricate as NAICM, which is why it
A: PPPs are a good option to develop infrastructure
was important to combine national and international
and transportation projects but we have to make sure
expertise. AECOM has worked in more than 50 different
we focus on the right opportunities. Not all projects
airports around the world, some being the largest in
are viable as PPPs. First we need to make sure that
terms of size, capacity, operations and complexity. As
repayment is guaranteed and secured. To do this, projects
a company, we must leverage those lessons learned
have to be well supervised by the authorities and must
from past experiences such as the Abu Dhabi midfield
be 100 percent sustainable. Companies, authorities and
terminal and New Doha Airport.
stakeholders
must look at all potential impacts of a
project and ensure it is sustainable on all fronts: socialy, Q: How will AECOM ensure the seamless transition from
financially, environmentally and politically. Taking all
AICM to NAICM?
these factors into consideration drastically increases
A: GACM has been working for the past two to three
the complexity of a project. AECOM offers
years on planning the transition from AICM to NAICM.
integrated delivery service, meaning we provide services
The
new
airport
has
been
meticulously
a unique
planned.
from the early phases, including due dilligence, permitting
Industry experts are working alongside GACM to ensure
and planning, all the way into the design, engineering,
a seamless transition of the operations. Throughout
construction, operation and maintenance phases.
193
NATIONAL AIRPORT SYSTEM
1
2
7
3
4 8 194
5 6
16 19 9 20 17 22 18
21 24
29 23
27
28
35
Modernized New Airports
OPERATORS North Central Airport Group (OMA) Pacific Airport Group (GAP) Mexico City Airport Group (GACM) Southeastern Airport Group (ASUR) Airports and Auxiliary Services (ASA)
36
37
195
11
12
10
13
14
15
25
26
57
30 xx 31
56
32
58
54
38 39
40 41 42
43 33 44
55 53
34
52
45 48
46
51 47 49
50
59
NATIONAL AIRPORT SYSTEM (continued)
196
AIRPORT NAME
STATE
CITY
OPERATOR
PASSENGER TRAFFIC 2016
1
Tijuana International Airport
Baja California
Tijuana
GAP
4,090,274
2
Mexicali International Airport
Baja California
Mexicali
GAP
458,256
3
Nogales International Airport
Sonora
Nogales
ASA
1,726
4
Hermosillo International Airport
Sonora
Hermosillo
GAP
1,003,890
5
Guaymas International Airport
Sonora
Guaymas
ASA
8,564
6
Ciudad Obregón International Airport
Sonora
Cuidad Obregon
ASA
169,214
7
Cuidad Juárez International Airport
Chihuahua
Cuidad Juarez
OMA
728,006
8
Chihuahua International Airport
Chihuahua
Chihuahua
OMA
836,357
9
Torreón International Airport
Coahuila
Torreon
OMA
419,835
10
Monterrey International Airport
Nuevo Leon
Monterrey
OMA
6,010,989
11
Nuevo Laredo International Airport
Tamaulipas
Nuevo Laredo
ASA
55,958
12
Reynosa International Airport
Tamaulipas
Reynosa
OMA
371,819
13
Matamoros International Airport
Tamaulipas
Matamoros
ASA
68,604
14
Cuidad Victoria International Airport
Tamaulipas
Cuidad Victoria
ASA
46,506
15
Tampico International Airport
Tamaulipas
Tampico
OMA
481,780
16
Loreto International Airport
Baja California Sur
Loreto
ASA
50,064
17
La Paz International Airport
Baja California Sur
La Paz
GAP
559,601
18
Los Cabos International Airport
Baja California Sur
Los Cabos
GAP
2,797,275
19
Los Mochis International Airport
Sinaloa
Los Mochis
GAP
184,848
20
Culiacán International Airport
Sinaloa
Culiacan
OMA
1,106,676
21
Mazatlán International Airport
Sinaloa
Mazatlan
OMA
650,328
22
Durango International Airport
Durango
Durango
OMA
283,705
23
Tepic National Airport
Nayarit
Tepic
ASA
100,949
24
Zacatecas International Airport
Zacatecas
Zacatecas
OMA
227,206
25
San Luis Potosí International Airport
San Luis Potosi
San Luis Potosi
OMA
326,843
26
Tamuín National Airport
San Luis Potosi
Tamuin
ASA
1,346
27
Puerto Vallarta International Airport
Jalisco
Puerto Vallarta
GAP
2,797,673
28
Guadalajara International Airport
Jalisco
Guadalajara
GAP
7,417,206
29
Aguascalientes International Airport
Aguascalientes
Aguascalientes
GAP
452,066
30
Guanajuato International Airport
Guanajuato
Leon
GAP
1106181
*Data up to August 2016 Source: DGAC and SCT
AIRPORT NAME
STATE
CITY
OPERATOR
PASSENGER TRAFFIC 2016
31
Querétaro International Airport
Queretaro
Queretaro
ASA
407,455
32
Poza Rica National Airport
Veracruz
Poza Rica
ASA
26,560
33
Veracruz International Airport
Veracruz
Veracruz
ASUR
871,620
34
Minatitlán Aeropuerto Nacional
Veracruz
Minatitlan
ASUR
160,204
35
Manzanillo International Airport
Colima
Manzanillo
GAP
121,774
36
Colima National Airport
Colima
Colima
ASA
92,799
37
Uruapan International Airport
Michoacan
Uruapan
ASA
85,394
38
Morelia International Airport
Michoacan
Morelia
GAP
354,066
39
Toluca International Airport
State of Mexico
Toluca
ASA
N/A
40
New Mexico City International Airport (NAICM)
Mexico City
Mexico City
GACM
N/A
41
Mexico City International Airport (AICM)
Mexico City
Mexico City
GACM
27,295,955
42
Cuernavaca International Airport
Morelos
Cuernavaca
ASA
N/A
43
Puebla International Airport
Puebla
Puebla
ASA
241,179
44
Tehuacan Aeropuerto Nacional
Puebla
Tehuacan
ASA
2,393
45
Ixtapa/Zihuatanejo International Airport
Guerrero
Ixtapa/ Zihuatanejo
OMA
400,662
46
Acapulco International Airport
Guerrero
Acapulco
OMA
496,171
47
Puerto Escondido International Airport
Oaxaca
Puerto Escondido
ASA
148,484
48
Oaxaca International Airport
Oaxaca
Oaxaca
ASUR
495,679
49
Huatulco International Airport
Oaxaca
Huatulco
ASUR
451,589
50
Tapachula International Airport
Chiapas
Tapachula
ASUR
197,446
51
Tuxtla Gutiérrez International Airport
Chiapas
Tuxtla Gutierrez
ASA
N/A
52
Palenque International Airport
Chiapas
Palenque
GAC
n/a
53
Villahermosa International Airport
Tabasco
Villahermosa
ASUR
801,213
54
Campeche International Airport
Campeche
Campeche
ASA
116,968
55
Cuidad del Carmen International Airport
Campeche
Cuidad del Carmen
ASA
331,356
56
Mérida International Airport
Yucatan
Merida
ASUR
1,249,329
57
Cancún International Airport
Quintana Roo
Cancun
ASUR
14,797,853
58
Cozumel International Airport
Quintana Roo
Cozumel
ASUR
402,987
59
Chetumal International Airport
Quintana Roo
Chetumal
ASA
139,282
NAICM, Texcoco, State of Mexico
197
VIEW FROM THE TOP
ENGINEERING: THE CRITICAL PIECE OF MEXICO’S INFRASTRUCTURE PUZZLE CARLO ORSENIGO Latín American Managing Director of CH2M
198
Q: What is CH2M’s operating philosophy for infrastructure
Q: What are the challenges involved in constructing port
project management?
infrastructure, particularly in Mexico?
A: CH2M is an engineering firm specializing in both
A: The majority of the ports in Mexico already have
program and project management. Project management
basic infrastructure and the remaining fundamental
entails the coordination of all primary and secondary
infrastructure is usually constructed by the private sector
activities to ensure that factors such as planned time
because operating cargo generates an economic benefit.
frames and projected cost and quality levels are respected.
Nevertheless, there are a couple of exceptions, like the
For infrastructure projects to be successful, they must
expansion of the existing port of Veracruz that has been
be adequately managed. The firm’s internal processes as
delayed. Private investors are not willing to invest in the
consultants are well aligned to the PMI method (Project
necessary basic infrastructure unless they receive long-
Management Institute, which certifies project managers
term financial backing through the use of public funds.
and management companies), which our clients see as an
The Ministry of Communications and Transport (SCT)
added value to our services. We have strong communication
does not know how to finance the project because the
skills and have developed a keen insight into how Mexicans
Ministry of Finance lacks access to sufficient funding. If a
do business. CH2M also develops demand studies in which
Chinese development bank, for example, were to provide
we estimate highway and road demand in the country.
the money, it would turn into public debt. Stakeholders have voiced their concerns about the legal issues involved
Projects have many components and it is important to put
in contracting debt guaranteed by the state, leaving the
them together correctly. For instance, the 2012 Olympic
decision to the Ministry of Finance as to whether or not it
Games in London was an incredibly complex event that
will receive funding from an entity like China.
demanded efficient transportation, visitor lodging and security measures. It required continuous coordination
Our goal is to participate in the expansion of the Veracruz
with the organizing body, the Olympics Committee and
port. The sheer size of the project means that there are a
the local and national authorities. An infrastructure project
significant number of smaller projects that can be bid on,
is no different in its complexity and CH2M ensures that all
as well as many different stakeholders.
the pieces of the puzzle fit together. Q: What are CH2M’s aspirations in Mexico and the region? Q: How is CH2M involved in the New Mexico City
A: CH2M wants to become one of the most well-known
International Airport (NAICM)?
engineering services firms in Mexico and Latin America.
A: We are involved as subcontractors working for Parsons,
Another ambition is to increase our number of projects
one of the world’s largest engineering and construction
across the entire Latin American region and to expand
companies. As technical advisers, we contribute our
to markets where CH2M does not yet have a presence.
expertise on the environmental aspects, particularly
We can achieve this by partnering with other firms, such
hydrological, as well as advising on the permitting metrics
as large construction companies like ICA and CEMEX.
that will be needed to meet legal requirements.
We plan to double our number of engineers and at the same time attract the best university engineering
The new airport is being built on top of what used to be a
graduates. For this we must position ourselves as an
lake so there need to be many anti-flooding structures in
attractive firm that offers a challenging and rewarding
place. We are working on the design for making artificial
career path. The idea is to effectively train those future
lagoons and water treatment plants. It is important to align
young professionals by teaching them practical project
our company values in a single, congruent system so as to
management skills and instill in them the company’s
function as an integrated team with a single objective.
vision and culture.
VIEW FROM THE TOP
TRANSFORMING NAICM INTO AN ‘AEROTROPOLIS’ ALEX COVARRUBIAS Vice President Latin America & Caribbean of Société Internationale de Télécommunications Aéronautiques (SITA)
Q: What role can airports play in the country’s economic
A: It is critical that airports recognize the strategic role
development?
of technology in airport development and their associated
A: Given the passenger growth in the Latin America region
Airport Master Plans. Technology has become a strategic
in the last decade, there have been unique opportunities
component of airport master plans because it generates
to modernize the airport infrastructure associated with
operational efficiencies, which are directly linked to the
the expansion of terminals. Mexico is an example of this
airport’s bottom line by optimizing assets, and ultimately
context, as well as the pressures and opportunities created
reduces the need for investment. Airports are gaining
by growth in the industry. SITA has been working with the
a better understanding of how technology can be
major airlines in the country for many years, integrating
used to generate revenue through the use of common
new technologies into airports as they are released into the
infrastructure, as well as increasingly commercializing
market. At the moment, the new Terminal 4 at the Cancun
the airport environment. Our personalized solutions allow
International Airport is being constructed with the vision of
airports to capitalize on their investment with appropriate
becoming a “terminal of the future,” equipped with state-
marketing platforms, and the idea of an “Aerotropolis” also
of-the-art technologies. The design of the New Mexico City
allows them to create revenue from the development of an
International Airport (NAICM) promises to be a cornerstone
ecosystem.
of this vision by becoming the most technically advanced airport in the region. Air transport grows in correlation with
Q: What innovative technologies will SITA integrate into
the economic development of a country and NAICM is in the
NAICM?
unique position to become an important international hub.
A: Our Airport Master Systems Integration (MSI) solution
The underlying design principles of this airport introduce
incorporates a full range of airport technology and the
flexibility to support the adoption of new processes and
program management capability to deliver an end-to-
enable a forward-looking vision.
end integrated solution. Through Airport MSI, SITA brings together technology suppliers into a single program of
Q: What specific systems will you put in place in NAICM
works that integrates into the airport’s master building
to ensure it is more efficient than Benito Juarez airport?
plan. This is one of the key success factors to delivering
A: Common-use infrastructure is key to ensuring an
airport construction projects on time and on budget.
efficient use of resources, which benefits both airports and
Within SITA Airport MSI, integration addresses two
airlines by reducing costs. Secondly, improvements must be
different practices, each targeting a specific community
made in terms of passenger flow and baggage processing.
of stakeholders in the terminal’s construction. The first is
The further introduction of self-service, automation,
program integration, which refers to blending the project
biometrics
monitoring
management of multiple technology work packages
solutions are important to improve on this dimension. In
into a consolidated whole for onward integration into
terms of ongoing operations, effectively managing airport
the construction company’s terminal building program.
resources and the airport capacity to react in real time to
This integration aspect is relevant for both the airport
disruptions is vital. The introduction of Business Intelligence,
operator’s engineering division and the general building
Collaborative Decision Making (ACDM), an effective and
contractor in charge of the overall construction project.
integrated Airport Management System (AODB/AMS) and
The second is technology integration, which refers to the
a centralized, secure and integrated Airport Operational
stitching together of disparate technologies, platforms
Control Center (AOCC) are imperative.
and systems to share data, functions or events to support
and
passenger/baggage
flow
the airport business processes. This aspect of integration Q: How does technology factor into the modernization
is crucial for airport operators and other stakeholders,
of airports?
such as airlines, ground handlers and security.
199
PROJECT SPOTLIGHT
200
NAICM: THE PROJECT OF THE CENTURY After 20 years, Mexico City’s desperate call for a new airport has finally been answered with the construction of the New Mexico City International Airport (NAICM). The Benito Juarez International Airport has reached its breaking point after operating in overcapacity for many years. In 2015, more than 38 million passengers flew onto its two runways and passed through its gates. By the end of phase I, NAICM will meet the demand of over 125 million passengers and 1 million operations each year. NAICM will be divided in two phases, with the operator, GACM, expecting the first phase to be finished by October 2020 and the second phase by 2060. The first phase of NAICM will consist of the construction of 4,430ha, three airstrips and one terminal. The airport was designed by Foster+Partners and fr-ee, while Arup took over the consulting and engineering tasks and the Netherlands Airport Consultants ensured it is the most efficient in the world. The X-shaped terminal, representing the “X” in Mexico, will be enclosed by a single lightweight grid shell, which will be the largest structure of this type ever built. The airport is being constructed on top of the Texcoco lake, demanding the use of light materials to ensure that it sinks levelly over time. It will have 30 remote positions, 24,078 parking spaces, and 90 fixed-contact doors. NAICM will be 100 percent sustainable, meeting LEED Platinum standards, and 70 percent of water will be reused. The first phase has been divided into 21 tender packages that have been organized in three different stages, preliminary, principal infrastructure and placed upon operation. This project was expected to have a price tag of MX$169 billion (US$8.9 billion), but due to an adjustment to the inflation rate by the Ministry of Finance, the price increased by 6.6 percent, totaling MX$180 billion (US$9.5 billion). Approximately MX$104.3 billion (US$5.5 billion) will be financed through the public sector and the remaining MX$75.7 billion (US$4 billion) through the private sector. The bulk of the investment will go to the construction of the airport infrastructure, including the terminal, control tower, airstrips and auxiliary installations. The rest will go toward hydraulic infrastructure, project management, engineering and design of the airport. Additionally, it is financed through the securitization of receivables from passengers of the Benito Juarez airport. The NAICM trust will serve as the project’s financial structure and will issue Green Bonds whose net proceeds will be used to fund environmentally beneficial projects that deal with the design, construction, development or operation of the NAICM.
201
INSIGHT
BRINGING POST-TENSIONED INFRASTRUCTURE TO NAICM PABLO CORTINA Director General of POSTENSA
POSTENSA is the leader in the construction of post-
metropolitan area continue to represent 40 percent of
tensioned vertical structures. Its largest competitive
these opportunities, I see great strength in Monterrey as
advantage lies in its ability to innovate and its porfolio
an emerging competitor,” he says. “We are involved in
that includes more than 14 million m developed. As the
several projects, including some belonging to Fibra Uno.”
2
Mexican real estate market continues to prosper, the firm 202
continues to design and build corporate offices, schools,
Cortina says that when the company initially introduced
housing developments, hotels, and other commercial
the post-tension system, POSTENSA found there was
developments across the country.
a lack of knowledge and a great amount of resistance to change. “This type of construction did not adhere
Pablo Cortina, Director General of POSTENSA, sees a great
to Mexico City’s construction regulations, so we had
deal of promise in the private sector, however, especially
to perform a great number of studies to demonstrate
in the many mixed-use construction projects with hotels,
this new technology not only complied with the codes,
commerce and housing which are being built all over
but it was a better alternative,” says Cortina. “We dealt
the country includying Puebla, Cuernavaca, Queretaro,
with various misconceptions regarding the safety of
and southeast Mexico. “Although Mexico City and the
the building structures and unnecessary expenses by
INSIGHT
TOLUCA’S INTERNATIONAL AIRPORT FACES TURBULENCE LORENZO OCHOA Former CEO of OHL Toluca
With construction of the New Mexico City International
strategy. AIT’s performance has reached a high standard
Airport on the horizon, the nearby Toluca International
thanks to its three-party public-private stakeholder
Airport (AIT) faces turbulence as it gears up to attract
participation.”
more national airlines and passengers. OHL Toluca saw an abundance of business potential despite its core
Airlines tend to work with high volumes but low margins
experience being in toll road infrastructure. “We may
so economies of scale are one of the only ways to
not be in control of the airport’s operations but we
increase profits and efficiency. “The first step for us was
actively participate in daily discussions with the other
to understand each airline’s business model, be it a legacy
two stakeholders and the AMAIT administration,” says
airline or a low-cost carrier,” Ochoa says. Most cities
Ochoa. “This public-private association has been highly
only have a single airport in proximity, while Toluca has
successful even during the airport’s low seasons because
to compete with the nearby Mexico City International
each partner is fully aware of the needs of the other two
Airport (AICM) and its capacity to transport almost 40
and all parties work to achieve our common interests. OHL
million passengers. It is a tough challenge to face. “Airlines
complements the administrator’s efforts in processes like
may prefer AICM due to its high passenger volume,
financial analysis and the development of the commercial
putting Toluca at a disadvantage.” AICM now operates
demonstrating the contrary.” With a great deal of hard
Drawing on its 50 years’ experience in the post-tension
work, POSTENSA was able to eliminate the mistrust the
construction
construction industry felt toward post-tension.
technology necessary for the complex runways. Post-tension
segment
POSTENSA
can
provide
the
has been around for more than 100 years but POSTENSA Five years ago, POSTENSA constructed the first post-
introduced it to the Mexican market 25 years ago. “In post-
tensioned towers for wind turbines in the US, which
tensioned systems, holes are drilled in a parabolic manner
measured 100m. This wind structure can support heavier
and when tightened, the pressure created makes the
machines that produce more energy. The Energy Reform
structure stronger,” Cortina says. “This system makes the
also is opening doors at home. “Our first concrete wind
structure sleeker and lighter. Using this system, we can save
structure in Mexican soil, constructed in Oaxaca, will be
10-15 percent of the value of the structure, which equates to
inaugurated in February 2017,” Cortina says. “The Energy
35 percent of the value of the entire building.”
Reform has set the wheels in motion but patience is required with these kinds of all-encompassing changes.
POSTENSA improved the current Mexico City International
The energy sector has many complex entrance barriers
Airport (AICM) airstrips using post-tensioned structures. “A
but we have 10 years of experience working in this
post-tensioned system can hold large cargos, depending
segment.”
on how it is designed,” Cortina says. AICM has poor subsoil made of 80 percent water and 20 percent solids, meaning
With such innovative construction systems, the company
that anything that is placed on top will sink. Differential
has plans to part take in the construction of the NAICM’s
subsidence means that the AICM airstrips must be repaired
airstrips. The notorious intricacies the company must
every two years. “Our unique construction systems make
address include the difficult lakebed soil of ancient
the airstrip and the subsoil both weigh 1200kg/m2,” he says.
Texcoco Lake, where the airport will be located. The
A similar system has been designed for NAICM. “This means
runways must be designed to sink levelly with the soil.
the airstrip does not sink unevenly but instead it sinks along
POSTENSA already has performed trials on the lake, which
with the entire Texcoco Lake, which is expected to sink by
Cortina says were successful.
50cm in the next 10 years.”
at full capacity 18 hours a day, from 6am to 11:59pm,
The completion of the New Mexico City International
which represents over 380,000 commercial operations.
Airport (NAICM) may pose an additional obstacle for
To remain significant, Toluca must generate a series of
Toluca. NAICM is estimated to start operations in 2020
processes such as incentive plans with airlines based on
and will have six runways with triple simultaneous
operating volume and route development. OHL works
operation and a capacity of 120 million passengers
closely with airlines to address their growth strategies.
per year. “Following the construction of NAICM we project a drop in business,” Ochoa says. “We expect to
Toluca has four main commercial airlines in operation.
continue growing steadily until NAICM is completed,
The largest is Interjet, which transported 60 percent of
after which we will begin to shrink as operations move
the almost 800,000 passengers that used AIT in 2015.
back to Mexico City. However, by that time we expect
The second is Aeroméxico, which is working in the airport
to have developed a volume of operations that is large
through its Aeroméxico Connect division. TAR is in third
enough to be attractive on our own.” Luckily, NAICM
place and Volaris is the fourth key player in Toluca’s
will be geared toward international flights, a massive
commercial offering. The airport also has a substantial
opportunity for Toluca to soak up a large chunk of the
number of private aviation operations that moved from
country’s national flights if it can prove itself to be an
AICM in 1994. Operadora de Aviación General (OAG),
efficient partner for airlines.
which is in charge of the hangars and fixed base operators, services these operations. OHL plays an important role
AMAIT’s concession will last until 2055. The Mexico-
as well in the airport. “We support them during takeoff,
Toluca highway expansion is scheduled to be finished in
landing and other platform services. By number of
the middle of 2016. There is a new highway, Naucalpan-
operations, the airport is stronger on private aviation,
Toluca, which will increase traffic to Toluca from several
which represents approximately 80,000 operations a year
areas that have high demand for air transportation and the
or 90 percent of operations volume,” says Ochoa. The
construction of the Mexico-Toluca train could also benefit
private aviation segment is expected to grow about 3.5
AIT. Turbulence may be ahead but there are good reasons
percent on an annual basis.
to believe in a smooth landing.
203
PROJECT SPOTLIGHT
204
ASSURING A SMOOTH TAKEOFF FOR NAICM In October 2020, NAICM will receive its first flight and take on the responsibility of fulfilling Mexico’s growing demands. But before this can take place, the Mexican infrastructure industry must face the challenge of constructing one of the largest airports in the world. The biggest obstacles companies will face in the construction of NAICM is the unique characteristics of the subsoil, which is composed of 80 percent water and 20 percent clay. POSTENSA, leader in the design and construction of post-tensioned constructions, has approached the construction of the NAICM’s airstrips from an innovative angle and proposes the use of a post-tension system. 205
The project requires the construction of three simultaneous airstrips that have a width of 60m, with 7.5m security margins and 112.5m of safety strip on each side. In order to adapt to the unique characteristics of the subsoil, POSTENSA, has developed rigid airstrips made from post-tensioned concrete that provide the lightest solution possible without impacting the soil’s natural state. Traditional construction methods are not compatible with the subsoil, causing the asphalt to settle and crack. In addition, the reception of planes like the Airbus A850 will constantly place an additional 60 tons of force onto the strips. This technology minimizes the forces transmitted into the ground by the runways’ daily operations. The post-tensioned concrete distributes the load that affects the runway the strip can support and because it is more lightweight, it is able to confront the subsidence in a homogenous manner. This would increase the durability of the airstrips and lower the costs of maintenance due to the quality of the rigid concrete pavement. The construction of these airstrips is divided into three different stages, which require 17 days to construct segments of 6,000m2. Following this plan of action, the construction of the three 5km airstrips would require six work fronts, two per strip, permitting the simultaneous construction of all airstrips in just 14 months. This proposal uses patented Mexican technology that has already been successfully used in Aeroméxico’s maintenance platform for close to 10 years. POSTENSA has arduously worked on this innovation for 12 years and is certain that it is the optimal solution for the subsoil. This post-tensioned system will not only lower costs and increase the quality of the airstrips, but it will also reduce the total construction times, allow for continuous operation of the airstrips and require minimum maintenance.
INSIGHT
NAICM IN ELITE GROUP WITH GREEN CREDENTIALS ALICIA SILVA Founder and Director General of Revitaliza Consultores
206
The world’s most sustainable airports are in Ecuador, US
of resources. “NAICM is leading the way and setting an
and India, and soon Mexico will be added to that list with
example for sustainability,” says Silva, of the New Mexico
the NAICM. Not only will this airport receive the most
City International Airport slated to come online in 2020. A
national and international flights, but it will also have the
factor that makes the certification of buildings complex is
LEED Platinum Certification. Alicia Silvia, Founder and
obtaining local materials that fit the standards. Companies
Director General of consultancy Revitaliza Consultores,
must work together and integrate smaller local firms into
is directing the airport toward sustainability. LEED
their supply chains.
Certifications are difficult to achieve due to the arduous process companies must go through to adapt a building
“Regulations for materials have become more stringent
to each of the requirements.
and members of the construction industry must have the same commitment as others.” Consultancy firms
LEED Platinum is the highest certification available,
such as Revitaliza Consultores are looking into Lifecycle
requiring 80 or more points, while Gold is between 60-79
Assessments (LCA) and product declarations to ensure the
points and Silver require 50-59 points. These certifications
origin of the materials and compliance with regulations.
not only make the construction eco-friendly but bring
“When products are certified, it means they have followed
investors considerable savings due to the efficient use
a clean path and comply with standards,” says Silva. Airports are beginning to allow Mexican companies that create sustainable materials and technologies to
NAICM, Texcoco, State of Mexico
participate in the construction process, as long as they meet standards. If companies began integrating the local economy, it would cause a ripple effect and lead to the development of a manufacturing green hub in Mexico, according to Silva. “Companies could generate the necessary documentation and finally realize that sustainability is nothing to be feared,” she says. So far, many manufacturers, such as those in the carpet sector, have already reaped benefits from these changes. They modified their business models and implemented modular carpeting when they realized the sector was the biggest polluter in the materials segment. It is important for companies to see that sustainability leads to profitability in the long term. There are many materials that also must be phased out, such as the use of lead-based paint. Although it has been banned in many countries, there is still no regulation against its use in Mexico. “People do not understand that we need to get rid of these heavy metals because they could cause cancer and are damaging the environment. Many manufacturers will reconsider their decision once they fully understand why sustainability is the new trend and that it is here to stay.”
VIEW FROM THE TOP
AIRCRAFT MAINTENANCE THE JEWEL IN MEXICO’S CROWN OSCAR PERALTA President of Grupo GMI
Q: What makes Grupo GMI unique and what projects are
most of our promotion was through word of mouth.
in the works?
After seeing our first hangars other companies started to
A: Grupo GMI’s 25-year-old patented technology allows us
contact us, including Bardahl. Today, the main challenge is
to provide the aviation industry with removable hangars
that the aviation industry fails to properly consider storage
that are faster to install than permanent ones. The company
and maintenance. Aircrafts are a significant investment
entered the sector 22 years ago when it built a hangar for
and buyers want to ensure the highest level of care
Aerolíneas Ejecutivas. Grupo GMI had developed a series
possible. Many hangars have leaks or defective doors that
of innovative buildings by fitting panels, linkages and
eventually can end up damaging the aircraft. The market
screws together like a puzzle. The Aerolíneas contract was
needs to increase its awareness about the importance of
an opportunity to introduce our unique building system
acquiring proper storage systems.
and assembly process to the segment. After that project, we were sourced to build a hangar for CEMEX’s private
Q: What makes the company stand out in the aircraft
planes in Monterrey using our state-of-the-art technology.
maintenance sector?
Airplane hangars require several special services for aircraft
A: Our design process takes between three and
storage and maintenance, such as fire systems, automated
four months as our hangars are planned for airplane
doors and lights and easy-to-open manual doors. In
acquisitions over the next 10 years. Once the project
Mexico, manual doors in hangars tend to get stuck and
is conceived and designed, its implementation only
frequently require heavy equipment to move them. Our
takes six months, half the time of our competition. We
company offers doors that can be opened singlehandedly.
manufacture 65 percent of our hangars in our Queretaro
GMI’s hangars do not require welding at any point, the
plant. Our panels also are finished at the plant and only
construction of the precast units can be done in short
need to be assembled at the final destination, eliminating
periods of times and they can be easily transported to their
the need for specialized labor. The foundations are
final destination anywhere in the world.
lighter and the hangars require no maintenance for 10 years, which represents considerable savings for our
We recently finished two projects in Monterrey, one for
clients. Finally, our hangars are unique in that they can be
Beechcraft and another for Aerolíneas Ejecutivas, and we
disassembled and moved whenever and wherever they
are planning to develop a third hangar with the latter. In
are needed, which means 70 percent of the structure can
El Salvador, we constructed a maintenance hangar for
be reused. This is an advantage as most MROs construct
Aeroman, one of the largest MROs in Latin America that
hangars on leased land that will be occupied for a specific
services all of Volaris’ fleet. Grupo GMI used its experience
period of time, after which they may have to move to a
in the construction of this hangar to win a tender with
different location.
Avianca for a maintenance center in Medellin, Colombia that opened in 2016. Our project with Avianca was completed
Q: How is Grupo GMI’s supported by the Mexican
in only one year and a half. It is the largest maintenance
government?
center in Latin America and the widest open hangar space
A: We have not received any subsidies or support from
in the region. All of the materials for this hangar were
the government but its involvement in the consolidation of
manufactured in Mexico and transported to Medellin.
the aerospace industry is of the utmost importance. This industry generates a significant number of jobs but there
Q: What challenges did Grupo GMI face entering the
is not a single governmental plan that tackles the area.
aviation industry?
Mexico has a manufacturing capacity that is strong enough
A: The lack of a market database made it difficult to
to compete worldwide on quality and time. It could grow
connect with companies in the industry. In the beginning
much more with the support of the government.
207
NATIONAL PORT SYSTEM
Ensenada
Puerto PeĂąasco
210 Guaymas - Empalme
Topolobampo
La Paz
NEW PORT PROJECTS 2014-2018
Mazatlan
New Ports Construction of terminals and specialized installations Expansions
Puerto Vallarta
Part of the new national system of logistics platforms Isthmus logistics platform project
SECOND KEY
Manzanillo
Integral port administration (Federal – SCT) Lazaro Cardenas
Integral port administration (FONATUR) Integral port administration (Private) Ports concessioned by state API (Integrated Port Administration) Terminals concessioned by state API Other ports concessioned by federal API Ports not concessioned by an API Terminals not concessioned by an API Source: Ministry of Transport
211
Matamoros
Altamira
Tampico
Punta Sam Progreso
Tuxpan
Veracruz
Ciudad del Carmen Coatzacoalcos Dos Bocas
Salina Cruz
Puerto Chiapas
INSIGHT
CONSTRUCTING MEXICO’S SUPER PORTS “The country has a vibrant economy with a growth of 2.7 percent this year, which is
high-quality service to all our clients at all times since it is not dependent on a specific person.” APM Terminals also decided to automate various parts of the terminal, such as container storage, to reduce the
higher than many European
number of potential safety hazards. “We are working
countries and Latin America”
workplace for our labor force,” says Nielsen. “Automated
JD Nielsen, Director General of APM Terminals
since people are not allowed to enter these areas.” The
arduously to make the port the safest and most secure environments such as these also increase cargo security Lazaro Cardenas port will also have a tremendous
212
As a result of its financial difficulties, ICA found itself
economic impact on the surrounding area and the country,
unable to fulfil its contractual obligations to complete
he says. “The city has a large number of skilled workers,
the first semi-automated port in Mexico, TEC 2 in Lazaro
which is a great advantage for us to offer competitive
Cardenas. Nevertheless, APM Terminals decided to carry
positions and well paid jobs to locals.”
on and meet the obligations alone. “Parting ways with ICA was an unforeseen event but was necessary to stick
When evaluating the future of these types of projects,
to our timeline for finishing the terminal by the deadline
Nielsen believes Mexico needs two superports, one on the
set out in our proposed concession,” says JD Nielsen,
west coast at Lazaro Cardenas and one on the east coast
APM Terminals’ Director General. “The project was 60
at the Port of Veracruz with a robust railroad network
percent finished when the decision was made and we
in between to connect Mexico’s major markets. “APM
moved forward as the general contractor.” APM Terminals
Terminals prefers to use the double-stack railway network
divided the remaining tasks and solicited help from local
that already exists in the country. Mexico is one of only
contractors.
four countries that have this advantage, which increases the efficiency of transporting,” says Nielsen.
TEC 2 in Lazaro Cardenas is the first semi-automated port in both Mexico and in Latin America. The International
These systems would allow Mexico to prosper, especially as
Finance Corporation (IFC) and the World Bank financed
trade in the east of the country continues to grow. “Lazaro
half the cost of phase I while APM Terminals put up the
Cardenas already is one of the most efficient ports on the
other half. There are only 12 terminals of this type in the
west coast because it is well designed and built with a city
world and Nielsen says it will be a great opportunity for
at its side,” says Nielsen. “The rail network goes through
Mexico to showcase the port of Lazaro Cardenas. By semi-
Lazaro Cardenas, making it the port of the future due to
automating the terminal, it will be possible to move two
its efficiency and structure.” The port plays a key role in the
containers simultaneously with special cranes. “TEC 2 will
transport of cargo to and from the southeastern US, through
be extremely efficient in terms of speed and service,” says
the Kansas City Southern Mexico (KCSM) railway line.
Nielsen. “Automation allows us to provide a consistent and Nielsen believes that, with the help of KCSM, super ports could supply the country’s interior through Mexico City, Queretaro, Monterrey and the US, covering 60 percent of TEC II, APM Terminals, Lazaro Cardenas, Michoacan
the market. “We want to have a unit train that departs from our terminal directly to our facility in Mexico City, from which point we can truck cargo to our clients’ doors,” he says. “If all the participants play their role, a transportation network from Lazaro Cardenas to Mexico City could be a fantastic result.” Mexico is new territory for APM Terminals and Nielsen is excited about the projects the company could carry out. “The country has a vibrant economy with expected growth of 2.7 percent this year, which is higher than many European countries and Latin America,” he concludes.
VIEW FROM THE TOP
A CALL FOR INTERMODAL PORT SOLUTIONS MARIO VERALDO Director General Middle America at Maersk Line
Q: From the viewpoint of a shipping company like Maersk
semi-automated port like TEC2 in Lazaro Cardenas will
Line, what benefits arise from well-developed infrastructure?
consistently boost efficiency. By tweaking operations,
A: Mexico must diversify and amplify its reach to find
bottlenecks and other areas of opportunities will surface
unexplored opportunities. For this to take place adequate
and the efficiency of the port will be more evident. If the
infrastructure is important. Businesses will not flourish if
ports lack efficiency, then the value of using large ships,
the infrastructure gap remains. Interconnecting businesses
such as Maersk’s Triple-E, will decrease significantly.
and logistics infrastructure would allow commerce to grow and generate more jobs. An inland network is important
Q: What are the benefits of using Maersk Line’s container
because if the network does not exist, the country is left
shipping versus land transportation?
with just a huge, crowded port with cargo that fails to flow
A: Today, container shipping is perceived as highly
due to bottlenecks.
commoditized. In Mexico, the capillarity of the inland system allows us to provide our customers with end-to-
Q: What role will ports play in the development of Special
end visibility, as well as the chance to generate strategic
Economic Zones (ZEE)?
partnerships. Visibility is important to clients, especially if
A: Mexico has access to both oceans, which is a huge
Mexico is part of their global supply chain. Maersk Line
competitive advantage. The country’s inland networks are
places a great deal of importance on security. For instance
close to the ports but have not yet reached these special
if a container is stolen, we offer our clients the ability to
economic zones. Mexico needs to accelerate development
react rapidly. This year, the company had 18 robberies but
between ports and these zones. Since port infrastructure
we recovered everything. We offer our clients the security
already exists the country needs to invest in efficiency
of knowing where the container is at all times, as well as a
and expansion. It is important that the inland network
fast reaction time to recover stolen goods. Maersk Line has
is multimodal, incorporating road, rail, ports and other
developed a unique technological infrastructure system to
infrastructure. Mexico’s position makes it the ideal place for
keep track of all containers and boats.
commerce and the country must develop its infrastructure Q: How does Maersk Line deal with industry trends?
to take full advantage of its position.
A: The most prominent trend in Mexico is the need Q: How can Mexico improve and optimize its existing ports?
for reliability. In the automotive industry, for example,
A: Like many ports in Mexico, the new terminal in Lazaro
companies want not only “Just-in-Time” but also “Just-in-
Cardenas has great potential but if the appropriate
Sequence” solutions. With flexible production, they need
road and rail infrastructure is not developed to connect
to have not only parts in stock but the right parts that are
it with other regions in Mexico, there will be inevitable
needed to build each particular car at that time. We can
bottlenecks. The port in Manzanillo is extremely congested
analyze the bottlenecks that companies are experiencing
and is in need of expansion.
within their processes, allowing us to develop short and long-term solutions.
Mexico
urgently
needs
to
evaluate
the
supporting
infrastructure, such as roads, rails and airports, before it
When looking at the minerals market, there are various
begins developing new seaports. The port of Veracruz
countries that are no longer consuming as much as they
is located in the middle of the city, meaning it is difficult
did years ago. Trade to Asia has reduced significantly
to expand capacity in any direction. The importance of
over the last several years, for example, so we are rapidly
conjunctive planning for efficient logistics infrastructure
expanding our customer base and have begun tapping
is crucial but if the system fails, the supply chain loses
into new sectors. An industry that has intensified is the
reliability and credibility. Over time, an automated or
cotton industry, one of the country’s leading products.
213
INSIGHT
PORT SUCCESS LINKED TO PRIVATE INVESTMENT JOSÉ MARTÍNEZ President of Mexican Association of Port Infrastructure (AMIP) and CEO of Marinas JMH
214
Cancun’s impressive Nichupté lagoon is a veritable jewel in
and engineers to lawyers and contractors. It has led a
the crown of Mexico’s Caribbean coast. Its iridescent waters
number of developments, like that in Altata, Sinaloa,
shifting between azure and jade, cerulean and chartreuse,
where it built a pier of around 2km in length. On the
host over 400 docks in a synthesis of nature and nautics.
day the pier was inaugurated, it received a staggering
Equally, the Boca del Rio port in Veracruz acts as the heart
80,000 visitors and today it welcomes 8,000-10,000
of the district, supplying the veins of the bars, restaurants
tourists on a daily basis. These are projects that have the
and shopping malls flowing across the coastline. This fusion,
opportunity to change the life of the country’s population,
says Julio Martínez, President of AMIP, is one of Mexico’s
Martínez says, as it is where the maritime and terrestrial
most valuable assets. “Piers and beach promenades serve
environments collide.
as a communal space, in the same way as beaches. They are a space in which the community can come and take a
The establishment and expansion of ports have gained
leisurely walk in all conviviality,” he says.
prominence since the country introduced its marketopening Energy Reform just over two years ago. Besides
AMIP is an organization that brings together the different
the expansion of the all-important Port of Veracruz, other
voices of the maritime industry, from environmentalists
work is being done as investments target new projects.
VIEW FROM THE TOP
THESE NUMBERS ADD UP TO SUCCESS LUIS QUIROZ Director General of Guanajuato Puerto Interior
Q: How has Guanajuato’s Puerto Interior impacted the
intermodal connectivity goes as far as Chicago, although
Mexican market?
it is expected to expand even further in the near term.
A: Puerto Interior is an unprecedented logistics infrastructure
We also have the largest customs platform in the country.
project in Mexico and Latin America that has been breaking
Puerto Interior is a people-oriented development, rather
records since its creation 22 years ago. It focuses on cargo
than an infrastructure-focused project, so with that in mind
applications. The airport had targeted 1.5 million passengers
we developed an organic design whereby pedestrian and
by 2020 and it met this goal in 2015, making it the fastest
bicycle lanes are interconnected.
growing airport in the country. Regardless of political terms and affiliations, the government’s support of the project has
Puerto Interior’s success is unusual for government-led
been steadfast over the years. We are building a community
initiatives but the numbers speak for themselves. In 2015,
with high-end companies that share the same standards
it shipped 26,000 containers and it is expected to reach
and values. Puerto Interior expects them to reach a certain
45,000 by 2017. In total, Guanajuato’s exports rose by 23
degree of process specialization and information availability
percent between 2013 and 2014, a sum of US$20 billion.
is essential for this endeavor. We are creating intranets,
The municipality of Silao was responsible for 62 percent of
portals and kiosks to support everyone’s operations. Its
the growth. We have secured business from 100 premium
Among the projects is the new port of Matamoros that
policy transition channeled private investment into ports
will address expected demand from oil exploration in the
and railroads, which has allowed the sector to grow
northern part of the Gulf of Mexico. Altamira, developed
at twice the rate of GDP,” says Martínez. “I believe the
30 years ago, is a noted industrial port focused on the
success of the port industry today is intrinsically linked
petrochemicals industry and processes containers. Its
with the sector’s opening to private investment, without
security system is being expanded. Another important
which today’s infrastructure environment might look very
port that is garnering attention is Tuxpan, especially
different.”
regarding the investment made by the private sector in the development of the new SSA Container Terminal.
Most of the country’s freight is moved by land but
“While there have been major budget cuts, these do not
Martínez says that when the distance between the two
severely impact the development of ports, only the share
locations exceeds 500km, transport modes such as rail
between the public and private sectors,” Martínez says.
and sea are much more efficient. Although Mexico has 14 highway corridors, many of the bypasses and bridges
Besides oil, the ports are of strategic importance to the
are outdated or lack proper development. The country
country’s automotive sector considering Mexico produces
also has 22,000km of railroad infrastructure, which dates
2.4 million vehicles annually, of which 900,000 or so are
back a century. 215
exported. The ports also receive imported auto parts to fuel the country’s industry. “The automotive industry
AMIP believes the focus of development should be
contributes a larger share to the Mexican economy than
on creating greater numbers of horizontal corridors
oil, so we need communication nodes and a fluid mobility
to prevent saturation. Martínez suggests increasing
system,” says Martínez.
maritime traffic, since this would represent a much cheaper
option.
“Horizontal
corridors
should
be
The sector has undergone important changes since
developed to complement the existing vertical ones,”
1994, when the private sector was given permission to
he says. “The focus should be on the development and
participate in infrastructure development. “This crucial
efficiency of ports.”
companies, 74 of which have consolidated their operations.
of the remainder 80 percent is allocated to parking spaces
Almost 50 percent of the established companies are
and 20 percent to green spaces. If regulations were not put
Japanese. Among the businesses here are enterprises like
in place, Puerto Interior’s daily influx of 8,000 vehicles due
Vesta, Bimsa and Prudential. Pirelli’s plant is one of the
to its 15,000 dayworkers and 2,000 Polytechnic students
largest in Puerto Interior at 160,000m and this is expected
would be uncontrollable. Having a Polytechnic campus, its
to double in size in 2017. The second largest plant is
own hospital, hotels and day care services are factors that
DENSO, followed by Volkswagen. Nivea’s operations have
differentiate Puerto Interior.
2
even been awarded the LEED Platinum certification. Q: What are Puerto Interior’s goals in the near term? Q: What is the role of technology in Puerto Interior and
A: By the end of 2016 we will add 200,000m2 to the existing
how is it different from other industrial parks?
1.2 million we own. Although the automotive industry
A: Guanajuato Puerto Interior goes above and beyond the
is the segment with most participation, not all of Puerto
average industrial park. It is a logistics center supported
Interior’s businesses specialize in this sector. The aerospace
by an airport, an expanding container platform, one of
industry will soon be included thanks to the platforms
the state’s civil protection centers, a multimodal railway
and bridges under construction. Keeping in line with
terminal and an enviable highway connection. We have
the latest technological developments, we are including
an internal customs house and one of Mexico’s strongest
aeronautical wind tunnel testing. We are not restricted
industrial parks. Puerto Interior has an 11-storey building
by infrastructure development and that differentiates us
with advanced electronics. We want to acquire the status of
from ordinary industrial parks as we provide additional
Smart City by installing and securing the proper technology.
services. Puerto Interior divides its operations by service, logistics and innovation areas to create a technological
Close to 96 percent of Puerto Interior’s industrial area is
city in Silao. Supported by the National Council for Science
occupied and over 1.2 million m of its land houses numerous
and Technology (CONACYT)’s 400 research engineers, we
projects that add value to the region. On average, 50
strive to be technology developers instead of technology
percent of a land parcel can be used for construction and
importers.
2
PROJECT SPOTLIGHT
216
TEC II TO OPTIMIZE OPERATIONS IN LAZARO CARDENAS Mexico’s favorable geographic position often provokes envy in global markets, with coastlines that touch both the Atlantic Ocean and the Gulf of Mexico. Lazaro Cardenas, Mexico’s youngest port, has proven to be among the country’s most dynamic and efficient due to its modern infrastructure, its position in the west coast and its proximity to various cities. The port attracted more than 1 million maritime containers in 2015, according to the SCT. This equates to a 5 percent increase compared to the previous year, filling more than 500,000 ships and handling 350,000 cars. As of September 2016, the port has imported more than 9.5 tons, exported more than 3.5 tons and received 2.6 tons of cabotage, totaling 15.6 tons by the end of the third quarter. This year, APM Terminals will finish phase I of its Specialized Container Terminal (TEC II), which will be the first semi-automated port terminal in Latin America. The entire project is projected to cost a total of US$900 million and will double the quayside to 1,485m, will have 15 Ship-to-Shore (STS) cranes and double the port’s capacity to 4.1 million TEUs (Twenty Foot Equivalent Unit) annually. The STS cranes, along with two rail-mounted cranes for the intermodal rail facility, will receive and move Maersk Line’s Triple E class ships, which are the world’s largest. These ports have the capacity to load up to 10 containers high on the ship decks, which none of Mexico’s ports currently can. By installing these cranes, Lazaro Cardenas can attract more clients and make it more profitable for shipping lines to choose Mexico as their port of preference. Phase I will operate with seven STS cranes and is expected to add an annual throughput capacity of 1.2 million TEUs to the existing port infrastructure. APM Terminals has a 32-year concession for the design, construction and operation of TEC 2. The project includes a 1,485m-long dock to receive ships, although phase I will be 750m long. The National Infrastructure Program’s goal is to make Mexico into an international logistics hub. With more than 78.8 percent of Mexican exports destined for the US, Mexico’s 44 trade agreements and the North American Free Trade Agreement (NAFTA), Mexico is the perfect place for Asian and Latin American ships to anchor. TEC II also is linked to Kansas City Southern Mexico’s Intermodal Rail, which integrates US and Mexican railroads, optimizing processes and reducing transportation times for all types of companies.
217
TELECOMMUNICATIONS
9
The 2013 Telecommunications Reform turned the Mexican market upside down. The monopolies were dissolved, opening the market for new national and international players to bring innovation into the market. Since the reform, prices of telecom services have fallen and quality has increased. The government’s most ambitious project, the Red Compartida, is still in the pipeline due to discontent from the private sector and hesitance to invest. The sector is attracting FDI to take part in mobile and fixed lines and the construction of telecom towers will increase drastically with the entrance of AT&T in the market. One of the sector’s major concerns is keeping its clients’ information safe from hackers and malware, and the sector must constantly invest in developing new solutions to protect its data.
This chapter will explore the importance of Mexico’s telecommunications infrastructure and the unexpected sectors within the Mexican market that are demanding the most services or products. Experts believe the Internet of Things will change the sector forever but before that can happen the correct infrastructure must be built. They agree that each year, more companies opt for using cloud services instead of physical servers but the sector must prepare itself to handle the future needs of the country.
219
CHAPTER 9: TELECOMMUNICATIONS 222
ANALYSIS: Budget Cuts Hamper Telecoms Reform Goals
224
VIEW FROM THE TOP: Javier Cordero, Oracle México
226
INSIGHT: Alejandro Maza, OPI
227
VIEW FROM THE TOP: Jorge Juraidini, Telecomm
228
VIEW FROM THE TOP: Pedro Hoyos, Globalsat
229
INSIGHT: Jorge Villarreal, Elara Comunicaciones
231
INSIGHT: Arturo Gómez, Solet Soluciones Eléctricas y Tecnológicas
232
VIEW FROM THE TOP: Ramón García, Emerson Network Power de México
234
VIEW FROM THE TOP: Emmanuel Castillo, CPI
236
VIEW FROM THE TOP: Pedro Noriega, CAR-SA
239
INSIGHT: Enrique González, Schneider Electric
221
ANALYSIS
BUDGET CUTS HAMPER TELECOMS REFORM GOALS created
prices. Those dropped by 40 percent while fees for mobile
to clean up the market and the Federal Institute of
phone calls decreased 32 percent. The internet services
Telecommunications (IFT) acted as the overseer that would
market also has seen a boost after 2013. Before the reform,
take down any company that was seen to hold more than
the growth of fixed broadband (FBB) services flat-lined.
50 percent market share. Televisa’s and American Movil’s
From 4Q13 to 4Q15, household internet services gained
hold on the sector came to an end as the government
steady ground, with a 12.5 percent increase. As of March 2016,
heralded a new era of competition. As of December 2015,
FBB penetration was 47 subscriptions per 100 households,
Mexico had 12.1 subscribers to fixed broadband services
equivalent to 20 percent growth in the last five years.
The
2013
Telecommunications
Reform
was
and 52.1 subscribers per 100 inhabitants to mobile
222
broadband, according to the OECD. The IFT says more
Infrastructure has seen growth but at a much slower rate.
time is needed for the full impact of the reforms to bear
In the last two years, 85 percent of households obtained
fruit, adding that the regulations have already increased
internet speeds between 2-9.9MBps and by late 2015
competition, improved the quality of the services offered
only 22 percent of homes had internet speeds lower than
and boosted foreign direct investment (FDI). Telcel and
10Mbps. More than 75 percent of homes could access
Telefónica now dominate the market but AT&T, which
speeds of between 10 and 99.9 Mbps. The IFT says that
merged Nextel and Iusacell, is a strong contender for 2017.
these changes have been due to increased investment from operators in integrating innovative technologies into
THE FRUITS OF REFORM
Mexico’s telecom infrastructure. Companies also began
Prices have fallen 23.2 percent from June 2013 to December
replacing twisted-pair copper cables with coaxial cables.
2015. Domestic long-distance telephone fees were eliminated,
By late 2015, twisted-pair copper cables accounted for 54
which had an immediate effect on international long-distance
percent, down from 66 percent at the time of the reform.
Source IFT December 2015
DISTRIBUTION OF MOBILE PHONES BY OPERATOR
DOLLAR SIGNS Before the reform, revenue in the telecom sector totaled MX$366 billion (US$19.3 billion). By December 2015, the IFT was boasting an average revenue of MX$427 billion (US$22.5 billion). This figure is growing at a rate three times faster than Mexico’s GDP. Private investment grew
Telefónica
34.8 percent in 2015 compared to 2014 and FDI bounced to 10 percent from 5 percent, making telecoms the third-
AT&T
most attractive sector in the Mexican market behind
OMV
manufacturing and financial services. Telecom operators
TELCEL
are seeing the fruits of their investment after reporting
DISTRIBUTION OF MOBILE PHONE BY OPERATOR
2015, a 13 percent increase from 2013. Weex
NE BY OPERATOR
DISTRIBUTION OF MOBIL E PHO
Maz Tiempo Cierto
VMO
more than MX$442 billion (US$23.3 billion) in revenue in
Qbo Cel Virgin Mobile
SLASHING BUDGETS The private sector’s investment in telecommunications infrastructure increased by 34.8 percent in 2015 in comparison to the year before, overall investment between 2012-16 has fallen 15.9 percent. At the beginning of this administration,
approximately
MX$94.2
billion
(US$5
billion) was invested in the sector, both publicly and privately, and the Institute of Telecommunications Law (IDET) estimates that in 2016 MX$79.2 million (US$4.2
21.4% Telcel
0.7% Virgin Mobile
18.5% Telefónica
0.2% Qbo Cel
9.9% AT&T
0.01% Cierto
0.9% VMO
0.01% Maz Tiempo
The Ministry of Finance has slashed the infrastructure
0.005% Weex
budget several times in the last year. The Ministry has
Source Source: IFT IFT December 2015
billion) will be invested.
proposed yet another budget cut for 2017 of MX$70
billion (US$3.7 billion), meaning that in total, 2017 will
government has installed approximately 101,293 sites,
suffer a total MX$239 billion (US$12.6 billion) in cuts. The
according to the Society of Information and Knowledge
Ministry of Communications and Transport was the most
(CSIC). Of these sites, 62.3 percent are educational and
heavily affected with a cut of MX$14.4 billion (US$757
work centers, 20.7 percent public spaces and 17 percent are
million) in 2016 and it has already begun making changes
health and community centers. After the announcement
to its projects and goals for the next few years. The budget
of the 2017 budget cut, The Ministry of Transport and
cuts have pushed for an increased participation from the
Communications lowered the goal of 250,000 to 150,000
private sector but the overall uncertainty of the market
by the end of 2018.
has made investors cautious. The Red Compartida, once an ambitious project, is now
DISTRIBUTION OF REVENUE FOR FIXED DISTRIBUTION OF REVENUE FOR FIXED TELECOMS TELECOMS
in a downward spiral. The main objective of this project was to provide 85 percent of the Mexican territory with internet access by the year 2018. According to INEGI, 30 percent of homes in urban areas have internet connection compared to only 4 percent of homes in rural areas. The conditions of the tender were first released in January 2016 with the goal of announcing winners in August of the same year. That date was then postponed to September and once again until November 2016. The reason for the delay is not only due to the complexity of the project but
DISTRIBUTION OF REVENUE FOR FIXED TELECOMS
Axtel-Avantel
Otros
megacable
Alestra
Telmex-Teino
Dish
Televisa
GTM (telefonica)
In 2014, the NIP estimated the cost for the 700MHzCablevision Red Operbes
Bestphone
Televisa
also because bidders have been requesting clarification.
TVI Cablecom
band network would have a US$10 billion price tag and would involve construction of 20,000 radio base stations to provide internet coverage to more than 85 percent of Mexicans by 2018. In 2015, The Ministry of Communications and Transport decided that market conditions necessitated a restructuring of the entire plan. It announced the project would be 100 percent financed by the private sector and that it would not be
Cablemás Cablevision
operated by the state. Other changes were also made to the specifications of the project. Its size was reduced to
51.0% Telmex-Teino
7.0% Sky
23.0% Televisa
4.0% Izzi Telecom
8.0% Megacable
3.0% Cablemás
6.0% Axtel-Avantel
2.0% Cablecom
4.0% GTM (Telefónica)
2.0% TVI
3.0% Alestra
2.0% Bestphone
Although the price tag has been significantly reduced,
3.0% Dish
2.0% Operbes
the disillusionment of the private sector looms over the
2.0% other
1.0% Cablevision Red
project after the repeated delays. “Clients and cash flow
Source IFT December 2015
Sky
Source: IFT
12,000 radio bases with a total investment of US$7 billion from the private sector yet the condition that the network must be up and running by 2018 remained.
are not guaranteed,” says Ramon Garcia, Director General of Emerson Network Power. “The government has already
THE RED COMPARTIDA BOONDOGGLE
created an economic plan for the Red Compartida but
The NIP had committed to the completion of six important
success depends on an alignment between political and
telecom projects by 2016. This included the program Mexico
economic factors.” The IFT is working with the private sector
Conectado, and the construction of the Red Compartida
to get the project off the ground through meetings with
de Servicios Móviles (Shared Network of Mobile Services).
interested parties and a strategy that allows them to submit their opinions on the project. The federal government must
México Conectado was created to reinforce citizens’
increase the attractiveness of the project to rouse the
constitutional right to internet access. Through this
appetite of telecommunications companies to finally get the
program, more than 250,000 internet sites were to be
Red Compartida up and running. “In theory it is an excellent
installed in schools, hospitals, universities, governmental
idea but in practice Red Compartida has a steep mountain
offices and parks across the country, with a focus on
to climb. Attracting and defining who is going to invest
low income and rural areas. As of September 2016, the
capital into the project is taking too long,” says Garcia.
223
VIEW FROM THE TOP
CLOUD TECH TO BOOST SME EMPOWERMENT JAVIER CORDERO President and Managing Director of Oracle México
224
Q: What challenges has Oracle faced in Mexico?
so the Mexican Tax Authority (SAT) can audit this more
A: Overall, Latin America represents 12-13 percent of our
efficiently. We have been working with the National
operations and Mexico accounts for roughly 30 percent
Banking and Securities Commission (CNBV) to have our
of that. Our biggest challenge was our shift from product
cloud tested and certified. There are now some banks in
sales to service provider. Previously, companies would
Mexico fully running on our cloud.
ship out unfinished products and customers had the responsibility of finishing those products. This was a
The retail sector also is interested in our services. When
challenge for customers as it detracted attention from
customers make an online purchase or interact with the
their core business, which was to finish the information
web, they are leaving digital traces. This information
system. By moving to the cloud customers can concentrate
is not being used to the benefit of the customer nor
on their core business and Oracle provides end-to-end
the company that could capitalize on this information
services.
to better serve those markets. The retail industry is increasing its awareness of this challenge and is realizing
Instead of being product driven, we need to be service
that implementing a digital strategy and hiring data
driven, which changes the way we behave. We need to
scientists could benefit them. For example, a fitness watch
concentrate on making customers happy on an hourly
monitors a person’s activity and heartbeat, generating a
basis. The biggest challenge we are facing is our ability
great deal of information that synchronizes to the person’s
to attract talent with these new characteristics. The
phone and the cloud. Companies are doing nothing with
cloud is becoming popular because there are other
this information. The cloud is enabling business models
complementary technologies. Mobility, the Internet of
that are impossible without it.
Things, Big Data and the cloud are the four main drivers that are transforming the business. We do not provide a
Q: What is your take on the ethical questions raised by
tool that is faster or cheaper, we provide a new way of
cloud technology?
working and we empower companies to manage their
A: Data protection is a chapter that must be rewritten in
business from a different perspective. We need the right
the near future or the concept in Mexico will be erased
people to send out this message, informing customers on
because there are some things that can be disclosed and
how to transition from a traditional model to a new one.
others that cannot. However, there can be huge benefits. There was a physician who realized that premature
The cloud lowers complexity by 90 percent and reduces cost by 70 percent
newborns between 6.5-7 months old had little chance of survival. She discovered a correlation between the deaths and the temperature and the beats per second of the babies’ heart. She dispersed this information and helped reduce the mortality rate from 80 percent to 15 percent. Importantly, the information released onto the cloud
Q: Which sectors are most interested in these services
included only heartrate, temperature and survival and did
and what are the main benefits?
not disclose names. The use of digitalization, the Internet
A:
The
telecommunications
sector
has
already
of Things and Big Data can save lives. We must change
incorporated the cloud into its day to day activities and
our public policy in Mexico, working hand in hand with the
others, such as banking, are increasingly doing the same.
government to align these needs to the new economy.
To my surprise, the banking industry is increasingly interested in cloud services. The law states the information
In Mexico, when developing applications for the web, the
of financial transactions must physically reside in Mexico
intellectual property of that task belongs to the employee
that developed it. After two weeks’ work, that employee
business segment is lagging in this area in Mexico simply
has the right to a severance package. This discourages
because companies cannot afford it. Cloud and mobile
people from setting up development centers in Mexico.
devices are the key to changing this because the common
Public policy needs to be realigned with the digitalization
barriers used to be complexity and cost. The cloud lowers
era. The government is realizing this. The challenges
complexity by 90 percent and reduces cost by 70 percent.
Mexico faced a year or two years ago are slowly being
There is no longer a need to invest in computers as all
overcome. Private and public initiatives are shaping up to
applications can be accessed through mobile phones. This
push for these changes.
enables people to get connected without having to invest a great deal of money.
Q: How are you differentiating your cloud services from that of Amazon or other companies?
I do not think there are borders anymore. When Brexit
A: Oracle tries to deliver information technology solutions
was confirmed, our financial market suffered for three
to empower businesses and manage processes at the
or four days. SMEs are realizing they are competing with
lowest cost possible. A new telecommunications company
companies that incorporated technology a long time ago.
could manage end-to-end processes by engaging with
Oracle is taking advantage of this. The software industry
Oracle. Everything from billing to collecting money can
in Mexico grows by around 4-5 percent on a yearly basis.
all be managed through our company. To provide these
We are growing at double digits, above 30 percent.
end-to-end solutions, the user must have hardware, inside
Technology
which there must be an operating system. There must be
to grow faster. A few years back, a solution could be
a hard drive to hold this information. There needs to be
bought and fully customized, which used to take longer
applications, such as accounts payables and receivables
and cost more. Different combinations can be chosen
among other more complex applications. Below that there
within the system to give it different behaviors, but the
must be a database and a middle layer to connect internal
business flows and processes within the system cannot
and external systems. There must be a communication
be changed. They go to market within weeks, rather than
layer and in addition to all that, business intelligence or Big
months or years.
gives
people
a
competitive
advantage
Data to manage the business. Oracle is the only solution in the world that provides all of this from a single vendor.
Q: What alliances or partnerships do you think need to be
Failing to engage with our cloud solution means sourcing
formed to make Mexico the best it can be?
all these components separately. When implementing a new
A: Many companies are making alliances with system
system, clients want to see significant improvements in their
integrators and big firms. Small and medium businesses
operations. If a client needs to integrate different vendors
work
and there is an issue, companies will blame each other.
counterparts rather than big firms. We need to reach out
with
recommendations
and
they
trust
their
to trusted advisers and partner with them to extend our Q: Which sectors are reluctant to incorporate this
reach. When interacting with SMEs, we talk to the owners
technology?
directly, not CEOs or CFOs, and they want reasons for
A: Certain segments are slow to install new technology
investing in our products. In this way, Mexico will become
into their businesses. For example, the small and medium
more efficient.
225
INSIGHT
BRINGING DARK DATA TO LIGHT ALEJANDRO MAZA CEO and Founder of Open Intelligence (OPI)
226
The term “dark data” sounds ominous but companies
personal information but instead works with financial
like Open Intelligence (OPI) want to use it to help public
records, administrative information and other large data
and private organizations make better decisions. “Many
sets. “In many cases, we are the first to gain access to this
institutions, private and public entities are not using
type of information,” Maza says. “When we come across
data for decision-making,” says Alejandro Maza, CEO of
information that should not be published, we automatically
OPI. “The opportunity that we saw is that we have really
discard it and inform the agency of the risks of publishing
rich, but difficult-to-organize data and with all the new
it. Ethics play a considerable role in open data and the
technology available, we could bring these batches of dark
prevention of access to private information.”
data together to obtain one clear, user-friendly database.” Dark data refers to the information companies collect and
With the government pushing for transparency across
store but do not use for other purposes. OPI can restructure
agencies, he believes care must be taken so the
the data without having to spend months or millions of
information published does not fall into the wrong hands.
dollars to create infrastructure. The company can tap into
The only way to mitigate the risk is by being diligent,
different resources to retrieve information that has been in
reactive and agile with what is formulated, he says. Maza
the public domain for years but for the first time somebody
says that completing a process within the public sector
is organizing it and bringing it to the surface, Maza says.
can often be more arduous than in the private sector. To prevent corruption and the misdirection of public funds,
The ability to use data in this way brings up questions
closing a contract with the government usually is a long
of cybersecurity and hacking but Maza is confident that
process. It takes around eight months to receive the
although there are inherent risks, OPI can offer sufficient
paperwork, making it difficult for small companies to work
protection for sensitive client data. The company takes
on government projects. “Small companies cannot afford
existing data sets, cross-references them and analyzes
to keep their team on standby for such long periods of
the results with data sets from other agencies. “The main
time while waiting for a response from the government,”
risk that agencies run when publishing these types of data
he says. “Another challenge is that there are many
sets is that users can gain access to confidential pieces
government people who do not want things to change.
of information by bringing together different sources.
Bringing transparency to the table and enabling evidence-
For instance, an agency may publish addresses but not
based decision-making could cause some people within
names of people living on a block, while another agency
the institutions to lose power,” he says.
may publish the names but not the phone numbers of the same people living on that block. This makes it possible
The private sector has its own peculiarities. “We are working
for a third party to gather the pieces of the puzzle and
with strategic consultancy firms and several retail chains,”
put together a complete data set. An agency would not
Maza says. “While working with the private sector, we have
publish the complete set of data but because they do
realized that although these companies are data savvy,
not know what other agencies are publishing, the risk of
most of the time they focus solely on self-generated data.”
sharing confidential information increases,” he says.
Putting all this information in one place can make it a key decision-making tool, say Maza. “We can assist companies
Maza believes the creation of strict regulations or laws will
in analyzing the most strategic locations for expansion by
not prevent this from taking place. The only thing that can
considering factors that cannot be achieved by surveys
be done is to keep a close watch on the different types of
alone. We can tell companies how many people spend their
data being presented to the public. For that reason, it is
day in that block by analyzing how much trash is generated,
important to be aware of the risks and have contingency
the amount of space in the buildings, restaurant capacity
plans for when there is a breach. OPI does not analyze
and even what forms of transportation are nearby.”
VIEW FROM THE TOP
SOLUTIONS FOR FINANCIAL INCLUSION, NATIONAL SAFETY JORGE JURAIDINI Director General of Telecomm
Q: As a public financial and satellite firm, how is Telecomm
system will also encourage them to offer their services in
expanding its reach in Mexico?
these areas.
A: We have been expanding our presence with the Telegraphic Branch Network to reach communities that
Q: What infrastructure has Telecomm integrated to
are in need of financial inclusion. Telecommunications
provide better services to government agencies?
infrastructure is the best mechanism for this so we are
A:
generating products with other organizations to provide
Bicentenario has serviced national security and social
these communities with basic financial services. Financial
governmental programs. We also have Morelos 3, which
institutions that promote microcredits now use Telecomm’s
will help us support initiatives from different governmental
infrastructure for the placement of microcredits and to
entities, improve civil protection and establish mobile
claim the payments. Another user of our infrastructure is
satellite communications services. Morelos 3 is a latest
CONSAR, which uses our system to record the voluntary
generation satellite and will add a great deal of value to
savings of all of its employees.
our services.
Q: What advantages does Telecomm offer and what
Since 2013, the Bicentenario satellite has serviced national security and social governmental programs
impact is it having on existing banks? A: One of our advantages is that our coverage expands to almost all municipalities across the country. We have developed high levels of trust and brand credibility with our customers by capturing their financial information to help
Telecomm
has
two
satellites.
Since
2013,
the
them build their own financial history, which gives them the opportunity to qualify for other financial tools. In most
Q: Which organizations took part in the development of
of our branches, the use of cash is extremely common and
Morelos 3 and what maintenance is necessary to optimize
that creates an elevated cost and risk for the company. At
its performance?
times our branches are located in remote areas and are
A: The project involves the participation of satellite
spread out, which makes it more difficult to transfer cash.
manufacturers such as Boeing and three different satellite
By providing our clients with a card, we can tackle those
launchers. The impact of the failure of our Centenario satellite
problems effectively. We ensure our customers feel safe
was mitigated by our Morelos 3 satellite, which is already
through our alliance with MasterCard and this also means
in orbit. Experts from the Ministry of Communications and
they can use the card anywhere they go.
Transport (SCT) participated in this project along with a technical team of Mexican engineers who have been
Telecomm is expanding and wants to ensure there are
working in the satellite industry for many years. Morelos 3 is
as many branches as possible so that our customers
controlled by two different centers to decrease operational
can withdraw whenever they need to. The Ministry of
redundancies. One center is in Hermosillo and the other in
Finance is aware of our strategies and supports our plan
Mexico City. We must be on the lookout for any problems
to expand. Our expansion program has grown to reach all
to ensure effective performance. The satellite has a life span
of the municipalities in which there are no banks. When
of at least 15 years but this depends on how much it drifts
Telecomm arrives to an area, the existing banks can save
from its destined location and how much combustion is
a great deal of money and our presence in the community
necessary to realign it. At the moment, Mexico has three
guarantees they can provide the full array of services a
orbits available. Morelos 3 uses encrypted communication
bank should. As for all the service providers like CFE,
that is intended for the use of National Security and Civil
TELCEL and television companies, our receipt collection
Protection.
227
VIEW FROM THE TOP
SATELLITE FIRM SIGNALS OFFSHORE TARGET PEDRO HOYOS Deputy Director of Marketing, Innovation and Strategy at Globalsat
Q: In what ways are the Internet of Things, SCADA and
provide. In terms of availability for links, we offer 99.5
Big Data impacting the productivity of key industries?
percent but the level we actually deliver is significantly
A: Supervisory control and data acquisition (SCADA)
higher. It is these points of added value that foster so
technologies require a low bandwidth, which means it is a
much client loyalty for our company.
low-cost service that enables companies to keep efficient 228
records even on a low budget. In terms of the Internet
Q: What developments in the sector can help boost
of Things, much of the equipment in the oil and gas
GlobalSat’s market presence?
industry must be monitored and a satellite link ensures the
A: Firstly, new operators will enter after the concessions for
continuity of the information. In most cases it is the only
the new fields are awarded and due to the diverse nature
option due to budget restrictions.
of the operations, several companies will be operating on one well, such as drilling companies, service providers and
Given the tremendous amount of equipment being
maintenance staff, all of which will require our services.
connected to the web with Big Data, we have developed
One of the most important things we want to do is provide
several effective solutions for clients. When sending data
reliable offshore services, for which we have formed an
directly to the client, the client installs equipment on our
alliance with CommSystems. Since we have the experience
network operations center and we process part of the
in managing and providing the links and this company
information. The client can then isolate the important
specializes in equipment provision for offshore facilities,
information through our systems to send to the mainframe,
we feel this will be a promising partnership.
unloading significant capacity from its own site. We are providing services at a considerably lower cost than what is available on the market, at easily 40 percent
Globalsat is providing services at 40 percent less than the average rate
less than the average rate, and I believe this will be an extremely successful initiative. These companies also require more bandwidth every day and in Mexico the options are limited. There are solutions such as KA band that can provide a higher bandwidth at a lower cost but it is extremely susceptible to rainfall and adverse weather conditions, so it is not the most
Q: How is GlobalSat reacting to the drop in oil and
appropriate option for oil and gas activities. However,
commodity prices?
we are working closely with Intelsat to provide services
A: At GlobalSat, we have developed new solutions to help
with high-throughput KU band satellites, which means we
our clients with their economic situation. We have a tariff
will be able to provide lower costs with coverage across
where the client pays only for the amount of bandwidth
all of Mexico and the Gulf, with higher bandwidths and
used and if the initial purchase limit is exceeded, more
more reliable service when faced with extreme weather
can be bought. We have also given clients flexibility and
conditions.
power through the cloud to login to their account to monitor usage levels. The solution can be used to limit
I believe this strategy will be an attractive offering for the
costs and transmit only the required information instead
sector, particularly for those operators in the Gulf of Mexico.
of a steady stream that could not be closely controlled.
We have been relatively active in the onshore oil market,
Admittedly, pricing factors affect our industry but we are
whereas we have not had much of a presence offshore.
still growing, due largely to the support and services we
Therefore, this is our strategy for entering this market.
INSIGHT
SATCOMS NOW AN EFFICIENT COST SAVER JORGE VILLARREAL CEO of Elara Comunicaciones
As the Mexican oil and gas industry and its most prominent
a seamless integration between the satellite and the rest
operators
of the technology and we connect our interoperable
traverse
consolidation
under
the a
rocky
oil
coordinated
price
landscape,
exploration
and
production strategy to rein in costs becomes increasingly
systems with a range of technologies, such as fiber optic and mobile networks,” he says.
urgent. The effective integration of daily operations requires adequate communications resources but the
Although Elara has focused its oil and gas operations
remote worksites that characterize the onshore and
on PEMEX and its contractors, Mexico’s new regulatory
offshore settings of the sector can make these resources
environment has created a spectrum of opportunities
either prohibitively expensive or decidedly unreliable. An
for a company that sells itself as a world-class service
erroneous choice in this regard has consequences that go
provider and also an insightful local player knowledgeable
beyond an inability to integrate. Communications failures
of conditions exclusive to the Mexican market. As Villareal
in any minutely planned exploration or production activity
points out, however, that the new regulatory environment
can not only represent an unacceptable security risk but
is not limited to the provisions of the Energy Reform.
also easily lead to downtime that can quickly become
The Telecommunications Reform also has allowed Elara,
financially untenable.
as a relatively small company, to move quickly in taking advantage of opportunities.
The satellite communications technology provided by Elara Comunicaciones allows customers to drastically
Despite new possibilities created by an increasingly multi-
reduce costs, an advantage that cannot be overlooked.
client environment, Villareal also wants the company
For more than a decade, the company has operated
to play a role in PEMEX’s modernization. “We can be an
an internationally high-ranking teleport in Mexico that
invaluable asset in optimizing its networks and ensuring
provides telecommunications coverage throughout Latin
it operates more efficiently. As PEMEX’s landscape begins
America in a concerted operative effort with various
to change dramatically, we can help it convert into a much
satellites and ground-level infrastructure. “Year on year, we
more efficient company.” The attractiveness of satellite
have achieved greater efficiency and cost-effectiveness,”
technology as a cost-effective option for operators
says Jorge Villarreal, CEO of Elara. “Satellite technology is
seeking further integration and coordination in the pursuit
becoming an attractive solution, especially in light of the
of decisively more efficient operations will only increase
current environment.” Remarkable developments in recent
in the coming years, Villareal says. “By 2017 we anticipate
years have made the technology an efficient option for
a major change in the satellite services that are available
operators, he says. “Satellite communications technology
and eventually the goal is to use more powerful satellites
as a whole has been evolving tremendously over the last
that can transmit higher megabytes (MB) to the customer.
few years, meaning that we can provide greater efficiency
As a result, the cost per MB will drop dramatically, by up
and higher bandwidth to the customer at a much more
to 50 percent in some instances, so eventually satellite
competitive price.”
connectivity will be a much more attractive option in terms of cost of bandwidth,” he says.
Elara provides communications and networking services for Mexican wells and platforms. Its oil and gas systems
As these technological developments unfold, Elara’s position
implement voice and data communications over Internet
and expertise as a communication services provider to
Protocol (IP) and also access to File Transfer Protocol
the Mexican oil and gas industry will continue to broaden,
(FTP), among other services backed by its private
Villareal says. “As Elara, we have been a leader in the sector
networks connected to its teleport. Villarreal highlights
in Latin America, meaning that many service providers
the technological range of these systems: “We can deliver
approach us as a platform to integrate their solutions.”
229
230
INSIGHT
COMPLETE SOLUTIONS FOR SATISFIED CUSTOMERS ARTURO GÓMEZ CEO of Solet Soluciones Eléctricas y Tecnológicas
In a world where innovation seems to travel at the speed
Companies also have to grow internally to expand their reach.
of light, keeping up can be a challenge. Customers expect
Solet’s flagship project is its work with Goldcorp, for which
results yesterday and their suppliers face growing pressure
it is helping the mining operator install telecommunications,
to be faster and better. “Staying up to date with ever-
lighting rods and an overall security system. Gómez says the
changing technological trends is our biggest challenge,”
project has taken Solet to another level. To expand its services
says Arturo Gómez, CEO of Solet Soluciones Eléctricas y
to mining companies, the company invested in certifications,
Tecnológicas, which provides complete telecoms solutions.
evaluations and special licenses. “We are willing to carry out
The country’s Telecommunication Reform is opening up
this type of expenditure to grow,” he says. “Mining companies
the sector to competition. According to data from the
tend to operate in extremely isolated regions and they are
Ministry of Communications and Transport (SCT), private
the ones that need telecommunications services the most.
investment in the telecommunications sector exceeded
Initiating a relationship with a mining company is one of our
US$10 billion in the first three years after the reform.
biggest achievements.”
As competition broadens, businesses must adjust and
On the public sector side, Solet has worked with
Gómez says companies like Solet have the capabilities
PEMEX, CFE, IMSS and SEDENA. It is in charge of
to rise to the challenge. He cites the example of Huawei,
the communication towers for the New Mexico City
which asked Solet to redesign its engineering system to
International Airport (NAICM) and government projects
include its new technology in its telecommunications
like “Connecting Mexico,” which brings internet to the
design. “To satisfy clients, we have to be able to meet this
low-income population. “This has been very satisfying. It
type of benchmark,” he says.
has been our opportunity to help the community,” says Gómez. Sustainability is another area where Solet sees
Solet acts as an industry one-stop shop, manufacturing
potential for the telecoms market. It manages renewable
everything from telecommunications towers to antennae
energy through LED technology and solar cells. Adopting
accessories. It has a plant in Morelia and another under
sustainable technology can minimize energy consumption
construction in Queretaro, which will be ready in late
and lead to cost reductions. It also helps companies
November 2016. Its wide range of products include radars
become socially responsible, says Gómez.
for residential use to help control speeding residents and avoid accidents. It even sells the tools it uses to
Solet knows it may eventually need partners and
build towers. “Clients appreciate our support along the
is interested in alliances but first wants to finish its
entire project cycle. We help them in each part of the
Queretaro plant to increase its production capacity. “We
construction process, and adapt our services to their
are interested in long-term alliances and we decided to
needs and vision,” he says.
build another plant to make sure we can meet this type of service demand,” says Gómez.
Besides Huawei, the company works with CFE, Telmex, PEMEX and AT&T, among other private companies. Gómez
As the industry evolves, so too will Solet, says Gómez.
says the more companies that enter the market the better
The company would like to deepen its involvement with
it is for Solet. “Our projects involve a middleman or occur
the government and is also looking to expand its exports,
through direct contact,” says Gómez. “We manufacture
which now only target some countries in South America.
for a wide variety of industries throughout Mexico and we
“We are strengthening our inventory control to be able to
are even collaborating on a wind park in Zacatecas. All
take this next step,” Gómez says. “In the future we would
businesses need to have a telecommunications system,
like to export, but are not in a rush to do so. We are taking
which means new businesses increase demand.”
it step by step.”
231
VIEW FROM THE TOP
FOREIGN INVESTMENT AN OPPORTUNITY FOR LOCAL INFRASTRUCTURE RAMÓN GARCÍA Director General of Emerson Network Power de México
Q:
232
How
has
Mexico
evolved
in
its
technological
taking too long. Many companies are interested but finding
infrastructure?
the amount of money the project requires to be executed
A: Mexico’s main evolution over the last three to five
is quite slow and clients and cash flow are not guaranteed.
years has been centered on telecommunications. We are
The government has already created an economic plan for
moving toward international standards as we have many
this but success depends on an alignment of political and
gaps to fill and companies are eager to adopt technology
economic factors.
that can improve economic growth. When it comes to telecommunications, we offer teledensity, which improves
Ultimately, I prefer a slight delay that will boost efficiency
coverage and adapts to new smartphone and wireless
over a quick execution full of costly errors that could
technology and can provide the industry with greater
potentially delay a project for many years. Demand
business opportunities.
changes constantly thanks to mobile applications, which need more bandwidth and speed due to the use of music
Companies cannot afford to have downtime in their
applications and video streaming. Clients do not realize
operations
largest
providers
the increased amount of data they now use in comparison
are
need
of
with a few years ago. The market will have to adapt to
telecommunications and market services. Emerson can
the higher demand by creating infrastructure such as data
provide energy-efficient solutions. We are trained to offer
centers. The change in the market is excellent business for
preventive and corrective maintenance that can upgrade
telecommunications providers.
and
and
participants
networks. of
the
The
industry
in
the services companies offer, backed by our human capital. Q: How is Emerson preparing for changes in the industry? On the technological side, telephone and broadband
A: We have to evolve quickly under the changing market
services led by telecommunications operators such as
and current trends. Emerson has solutions for companies
Telmex, Telefonica and AT&T increasingly need their
of any size, whether it is for telecommunications service
ongoing operations to be free of electrical disturbances.
providers, big IT companies or small data centers. We also
We offer services such as precision cooling, a thermal
adapt to how close our clients need to be to their users,
management system that is critical because humidity
which is the purpose of the “edge concept.” The idea is
can endanger electrical machinery to help ensure more
to deploy small data centers in strategic locations that
fluid operations. For data centers, we offer thermal
can replicate content closer to the user and maximize
management,
(UPS)
the use of core and edge networks. Smart modes are our
and transfer switch units to provide a perfect balance
solutions based on small or tiny data centers on the edge
between availability and performance. Hosting companies
of a network.
uninterruptable
power
supplies
are starting to attract attention in Mexico, which is motivating medium to small businesses to enter private
Q: To what extent do you work with both the private and
or public clouds. Companies that do not have their own
public sectors?
IT infrastructure can gain access to new services by using
A: We work with both sectors. Our projects with the public
vendors.
sector incorporate an integrator in charge of bringing together development and the construction site itself. We
Q: How would you evaluate the Red Compartida project
target InfoTec, PEMEX, UNAM, CFE and INE among other
to increase telecommunications coverage across Mexico?
public institutions. When it comes to size, the vast majority
A: In theory it is an excellent idea but in practice Red
of the investment we receive comes from the private
Compartida has a steep mountain to climb. Attracting and
sector as all companies need a data center, no matter
defining who is going to invest capital into the project is
their size. No one can afford to ignore data centers. On
the telecommunications side, Emerson is participating in
Only a few industries can handle running their IT
new network deployments as well as in the modernization
infrastructure. The market is heading toward hosting
of wireless sites to have more energy efficient operations.
and collocation services so companies can focus on
This includes the remote monitoring and management of
their specialties. Even smaller companies are starting to
the site infrastructure.
discover the benefits of data centers out of necessity. Companies cannot afford to be out of the digital world
Q: How are NIP projects using technology?
and left behind in the market but they like payment
A: There is a need for infrastructure investment in
flexibility that allows them to pay only for what they need.
the country, in particular technological infrastructure.
These companies cannot afford to invest a large amount
Investment would benefit the country and improve the
of capital and prefer to only pay for what they need. Small
quality of healthcare. It is easier to use technology to get a
data centers are pre-established solutions and can easily
diagnosis and share knowledge with patients than forcing
be adapted to SMEs.
people to travel long distances and waste time. Electronic banking is another example of what technological
Q: What impact can Emerson have on Mexico’s evolving
infrastructure can bring to Mexico. It may be harder for
infrastructure?
older generations to understand but most millennials
A: Our goal is to ensure our continued relevance and
do not physically visit the bank anymore. Fortunately,
make sure that we can provide sufficient solutions so
technological gaps between countries are starting to
that companies do not have to worry about the IT and
diminish. Mexico greatly lags in infrastructure but the shift
telecommunications world. We are even involved in
will be faster and easier than 20 years ago.
production. Most assembly lines need to run constantly and our backup solutions can reduce operational delays
Q: What mistakes do companies make when they
and save our clients money. We also want to be part of
incorporate Data Center infrastructure into their business
the opportunities that Red Compartida, CFE and PEMEX
strategy?
are creating in the market, along with other incoming
A: A common mistake is to minimize errors. Offering the
public investment. We want to participate through
greatest amount of quality from the beginning should be
partners and integrators to maintain our position in the
a priority for all companies. For instance, cooling is often
public sector.
overlooked. A lack of temperature control can cause humidity and put IT equipment at risk. Latin America is not strict
The new Energy Reform will bring many new players to
enough on maintenance and reacts only when problems
the market and that will impact the critical infrastructure
arise. This strategy can damage business. The market is
industry. It is important for us to be present as the
changing so quickly companies would benefit greatly from
infrastructure industry is bound to grow in all sectors
keeping control over their business through clouds. The
over the next five years. We are working to provide
market can depend on host companies to safeguard its
solutions that make companies energy efficient and
information and focus more on its core business.
sustainable.
233
VIEW FROM THE TOP
COOLING VITAL FOR DATA SYSTEMS EMMANUEL CASTILLO Regional Manager Mexico City and Southern Mexico of Chatsworth Products (CPI)
Q: How has the culture and usage of IT infrastructure
crucial miscalculation as data centers are the heart of
evolved in Mexico?
the company.
A: Mexico is experiencing exponential growth in data
234
centers thanks to globalization. Any company that
Considering data centers when designing a building is
wants to maintain its competitive edge needs to have
important as they need cooling systems. The issue is that
all headquarters running on the same system whether
the standard height of buildings in Mexico City is not likely
based in Mexico, Chile or China to ensure availability. It
to meet the requirements of cooling systems. The gap
can be challenging as data centers are constantly evolving
between architecture and data centers is due to a lack
and becoming more specific. The market is demanding
of information sharing among consultancies. Fortunately
companies be increasingly optimized in their support and
this is changing as many companies are starting to include
manufacturing mechanisms, no matter their specialty. If
these norms into their structures. On another note,
companies do not catch up to these trends, they run the
skyscrapers that house a number of companies need to be
risk of losing clients, sales and profit.
able to handle a data center for each one and make sure that it can distribute enough electricity.
Data centers and robust telecommunication are essential for companies that strive to maintain their market
Q: In what ways can clients optimize their IT infrastructure?
positions as they assure system availability. Brazil used
A: Location is important for clients that are interested in
to be seen as a benchmark for Latin America but Mexico
optimizing and reducing operational costs. Statistics show
holds the prime position as it has proven to be a more
the main consumption of data centers revolve around the
stable country. Infrastructure demand has grown as a
type of machines used such as switches and servers and the
result of a flow of incoming companies. The country is an
second main point of consumption are air conditioners within
appealing region for these industries. China used to be
the cabinets. We have a few strategies to minimize these
attractive but it stopped being a viable option and this
expenses, even if we do not directly sell cooling systems.
has shifted focus to Mexico. Automotive companies such as Nissan and Mazda are either building new plants or
Considering air conditioners are a main energy consumer,
expanding them. Aviation and aerospace are additional
cooling systems have been developed with a freecooling
areas of opportunity as Mexico recently opened up
solution that saves energy. For this reason, location is
manufacturing for these industries. Queretaro and Bajio
essential as freecooling can only be achieved if the site
are going through a boom.
has adequate climate conditions. It is not the same to install a data center in an industrial park in Monterrey, an
Q: What are the main challenges from Mexican data
area with a history of hot periods, to Toluca that is an ideal
center norms?
freecooling region as most of the year it has balanced
A: Maintaining availability throughout a company’s data
temperature levels, which allows freecooling and energy
center is crucial. Operators of data or telecommunication
savings of up to 90 percent. For companies in hot areas,
centers are always looking for best practices to
we recommend other solutions such as adaptable cooling
optimize their installations. Globally, there are several
systems. This can offer savings but not as much as data
standards and norms that regulate data centers on
centers in cooler areas.
every level from construction to data transition and security. A company designing a new building takes into
Q: What innovative technologies are you offering to help
consideration parameters such as the number of work
clients with cooling systems?
stations, dining halls and management offices but often
A: We specialize in working with support infrastructure and
forgets to think about data center requirements. It is a
design metal and mechanical systems to optimize cooling
systems in data centers with passive cooling, a registered
alliances and strategic accounts there. When one of those
concept. This optimizes the cooling systems with physical
companies gets the opportunity to enter and start a project
barriers such as cabinets with a chimney. The majority of
in Mexico, we use our already established agreements with
the data centers have the freshest air passing through the
them to open up a space for regional business. The market
cabinet and servers while the hot air exits through a door
is wide and we dedicate our business to AAA clients. We
in the back. We do not let the air leave from the back as
manage accounts mainly for the telecommunications
it can combine with the air of the room. Instead, we install
sector as well as the financial sector, banks and retail such
a solid panel with vertical exhaust ducts and we move
as Walmart, Coppel and Palacio de Hierro.
the air into a chamber that eventually returns it to the air conditioner to cool and then back to the room. We divide
Entering the manufacturing industry is quite a challenge.
the hot and cold air into cycles.
These industries are revising their production plants’ installations. They tend to have small data centers with
We also split hallways into hot and cold areas. Our cabinets
six to eight cabinets with an isolation system that is not
are created to face each other so that in the front, a cold
viable for us. We see more business opportunity with their
hallway is created, while in the back a hot one is isolated.
cabinets in the production area. We developed recent
With isolation, we manage to encapsulate hot and cold air
products such as the cabinets that are designed to be
to maximize the refrigeration system. These are passive
installed in walls or floors as part of the production chain
elements, or barriers that isolate and reduce operational
for a company. Our strategy is to penetrate the sector. We
costs. We can then generate savings of 40-90 percent. We
have new products in a trial phase to be certified. Some of
achieve 40 percent when we only optimize the machines
our products focus on anti-explosion technology and we
that are already inside the data center and we can meet
have some cabinets for exterior use we are beginning to
90 percent when we can intervene in the center’s location
develop. We are expecting the market to welcome these
and install a new cooling system.
products.
Q: What research and development is CPI incorporating into its services and products? A: Innovation is one of our most significant characteristics along with finding strategies that create added value in the market. Our vertical exhaust ducts were developed 10 years ago and last year finally acquired a concept patent. Any manufacturer that uses the concept of vertical exhaust ducts is at risk of running into conflict with our patent. A concept patent differs from a design patent, as the latter allows companies to change a few elements of the product and still be legally allowed to commercialize it, while a concept patent does not permit our design to be replicated in any way. It is an innovative and revolutionary concept. Many of our clients do not have a clear idea of how isolation works and believe it is too complicated. It is not as complicated as it seems. Cabinets with vertical exhaust ducts are actually simpler than isolating hot or cold hallways. Large companies like Microsoft and Intel use our cabinets and exhaust ducts. They trust our products and our ability to solve the issue of high-density heat in small spaces. The market trend is to have the least amount of space with the greatest amount of processing capacity. It makes increasing sense to have isolating systems either through exhaust ducts or hallways. Q: What new market would CPI like to enter? A: Our organization is quite small and based in the US. We depend on the US and have a strong network of corporate
235
VIEW FROM THE TOP
CYBER SECURITY NEEDS ON THE RISE PEDRO NORIEGA Director General of Consultoría y Asesoría de Redes (CAR-SA)
236
Q: How has CAR-SA transformed its business model to
company then realized our product portfolio was too big,
meet the the evolving needs of the industry?
which increased our operational costs and made it more
A: CAR-SA started out as a systems integrator and has
difficult to deliver quality results. We had to drastically
been in the telecommunications market for 14 years. One
narrow down our portfolio and began to focus solely on
of our first business partners was the Chinese company
data networks. This radically changed our business to
Huawei and we were one of the few companies in
a services model, which by default became a financial
Mexico that distributed its products at that time. Huawei
business model. Now we invest in the technology our
was just beginning to take off in Mexico and we began
customers need and offer a managed services solution for
working with its data communications division, which
our clients moving from a CAPEX model to an operating
represented routers and LAN switches for networks. Our
expenses one.
first mayor project was with 7-Eleven back in 2003 when we participated in connecting its more than 300 stores
Q: What challenges hinder the growth of telecom
and created an online nationwide data network. We have
companies?
managed and operated 7-Eleven’s network for 12 years
A: It has been a challenging year for the company because
with third-party business partners and our own resources.
Mexican banks do not offer financing for technology as easily as they do for other industries such as automotive
After a couple of years, Huawei formed a joint venture with
and real estate, especially for small players like us. Our new
3Com after a legal dispute with Cisco and with this joint
business model allows us to offer our different services
venture, our portfolio expanded to security, telephony and
from a common-frame contract and it changed the financial
other solutions Huawei did not have. It was much easier
perspective of the company that investors and customers
doing business with 3Com because it was a local company.
had. These service contracts give us long-term security and
This joint venture allowed us to grow exponentially and
have allowed us to grow as a company since December
along the way 3Com bought Huawei’s shares, which were
2014. It was difficult to adapt our traditional business
later bought by HP. HP allowed CAR-SA to enter a brand
partners to this new program because they are used to
new area of solutions including servers and storage but the
transactional deals and CAR-SA’s service model is a long-
term business opportunity that does not necessarily match
established a pricing standard for cloud storage that offers
the time objectives of our technology partners. We have
a much cheaper, higher quality cloud service than other
staff in more than 16 cities nationwide and are expanding
companies. Cloud servers and storage services will grow
to 54 cities to reach actual and potential customers looking
in Mexico and even though they are low-margin profits,
for a single provider across Mexico. We divided our services
the sales volume is extremely high. The services CAR-SA
offer into three different types of categories, data networks,
offers create added value for companies and allow us
unified communications and security.
larger profit margins in the unified communications cloud market but will not address the cloud market for servers
Q: What are the competitive advantages of CAR-SA’s
and storage.
service portfolio? A: Companies, especially in retail, needed to integrate their
Q: What are the trends in the telecommunications
various stores from across the country and there was only
industry?
one company that could provide service to them, which was
A: Two trends that allowed our company to grow were
Telmex. Telmex continues to dominate the Multiprotocol Label
the necessity for a larger bandwidth and the rapid growth
Switching (MPLS) networks in Mexico and the necessity of a
of e-commerce. More than 35 percent of retail store sales
larger bandwidth limits the growth of the business because
are online. This trend makes it necessary for companies to
of its cost. Many operators offer commercial services and
have multiple connections to ensure they always have a
large companies do not want to convert to these commercial
working network. It does not matter how many availability
services because there are no Service Level Agreements
contracts a company has signed, there is still the possibility
(SLAs) to guarantee service availability.
that the network will fail and when it does, our connection will be there to keep the networking going.
These large retail companies that manage thousands of transactions a day will not take the risk of the service working incorrectly. CAR-SA guarantees a percentage of availability to these companies, ensuring the client will be connected to the network by adding a second commercial grade link to an existing commercial grade link. We became an intermediary for these customers to have access to SLA services. The odds of both connections failing is extremely low and the bandwidth available is higher than that in an MPLS link at a fraction of the cost. Most of our clients look to us as their service provider
CAR-SA participated in connecting 7-Eleven's more than 300 stores and created an online nationwide data network
because it lowers their operational costs, especially for retail businesses. The connections we offer are through the main mobile networks for backup services in retail
Q: How will the demand for new security solutions change
networks and primary services in the M2M industry.
the way companies create their business models? A: By being able to integrate all of these different types
Q:
What
opportunities
will
arise
from
the
of communications, we have become an important
Telecommunications Reform?
service provider and have gained the trust of our clients,
A: Our main service provider for cellular services is Telcel
allowing us to offer other types of services and solutions.
and the service is strong but in a couple of years AT&T
We are strongly pushing for security and integrated
will become a strong competitor and services will further
communications for both our existing and future clients.
improve. The infrastructure AT&T bought needs to be
Security is an extremely complicated subject due to
restored and enhanced and it is doing so. AT&T is number
evolving technology. Hacking is an intangible problem for
three in the market and we hope it will rapidly grow in the
many companies because they only become interested in
next couple of years to a position where it can go head-to-
acquiring these services once they have been attacked. This
head with Telcel. Eventually I hope Telefonica and smaller
is becoming an important subject in leading companies
players can benefit from the Telecommunications Reform
and they are searching for new ways of protecting their
and play a solid role.
valuable assets. This will be one of our strongest services this year and although it is risky, we will be able to give
Q: How have cloud services evolved in Mexico?
companies the monitoring information they need to
A: CAR-SA attempted to enter the cloud services market
ensure the security of their information systems. Years
but it is extremely challenging in Mexico. Nontraditional
ago, hacking was a personal attack but now anybody is
operators such as Amazon have been successful as they
vulnerable to cyberattacks.
237
238
INSIGHT
CONNECTED FROM PLANT TO PLUG ENRIQUE GONZÁLEZ Country President of Schneider Electric
While some businesses struggle to implement the rapid
industry into the internet would result in a great deal
innovations of an increasingly connected world, others
of innovation and development,” explains González.
have been ahead of the curve from the beginning.
“These industries could offer greater advantages than
Schneider Electric belongs to the latter group and says
the traditional automation industry and we stood to
its history shows why Mexico’s industries must have the
benefit.” That model was called Transparent Ready and
foresight to adapt to emerging telecommunications
since then Schneider has built all its products on ethernet
trends. “Our world is rapidly becoming digital and that
and internet-based standards. “As the costs of these
is impacting a variety of countries like Mexico,” says
internet technologies dropped and maturity increased,
Enrique González, the company’s Country President.
we could adapt our products to integrate the Information
“We need to take better control of the digitization of our
Technology (IT) and Operational Technology (OT) worlds,”
world and this includes everyone across the value chain
he says. “Connectivity redefines everything and there is no
from plant to plug.” Schneider is a global specialist in
bigger testament than Schneider Electric’s success.”
energy management and automation. It has four main end markets: nonresidential and residential buildings (34
Digitization leads to connectivity. Connectivity produces
percent), utilities and infrastructure (25 percent), industry
two-way energy and information flow. “This results
and machine manufacturers (27 percent) and data centers
in a more efficient world,” says González. “But one
and networks (14 percent).
of the biggest problems facing us today in Mexico is the disconnected grid and high-energy consumption.
González says that connectivity can give a company an
Our country is experiencing a nodal point in energy
advantage that leads to savings. He cites Schneider’s
consumption. The country recorded its highest ever level
energy efficiency programs that had been deployed
of electricity consumption on June 16 this year, according
across many of Schneider’s global supply chain sites for
to the Federal Electricity Commission (CFE).” On that day,
several years. Its solution was to digitize its data, which
electricity use jumped to 40,693MW. Mexico’s installed
now allows it to capture relevant information for efficient
capacity is 54,000MW.
use of energy. “We are able to anticipate energy usage needs, anticipate increases in energy costs, renegotiate
The rise in the cost of fossil energy sources also has
energy contracts and make decisions fasters based on
intensified pressure for more efficiency and for strategies
the recommendations of our StruxureWare resource
to achieve a balance between operating expenses and
management software,” González says. “This was the start
capital expenditures. “We need a digitally connected
of a digitized experience in energy efficiency for Schneider
energy grid, from generation to transmission to distribution
and additional savings in energy and energy costs.”
to consumption, to drive increased efficiency,” González says. “We have developed the solutions and technology
As more SMEs in Mexico become interested in data and
to take the energy grid to the next generation but we
telecommunications infrastructure, Schneider is ahead
need connectivity to make them a reality.” González says
of the curve in adapting to new trends. Its past provides
that electricity companies must stress the importance of
a good illustration. In 1997, at the dawn of the internet
communication and connectivity compatibility with the
age, Schneider was one of the first companies to drop its
technologies they offer. “Today more than ever, Schneider
traditional proprietary automation standards and move
Electric has a responsibility to raise awareness of the
everything to ethernet and internet standards. “We knew
issues related to energy efficiency and technology and a
the internet was too slow, too expensive and too difficult
responsibility to integrate solutions that meet the specific
to manipulate but we knew that in the near future the
challenges faced by Mexico and that are impacting society,
massive investments by the IT and telecommunications
businesses and industry as a whole,” he says.
239
PEMEX Installation, Bay of Campeche
ENERGY
10
The biggest opportunities for infrastructure development that the Energy Reform has created are in midstream and deepwater. As the country shifts to natural gas, the country must expand its pipelines and inner city infrastructure to reach the end user. CENEGAS’ Five-Year Plan looks to optimize the country’s natural gas system and storage and the NIP contemplates the construction of more pipelines to import natural gas from the US and expand the National Natural Gas Pipeline System by 80 percent by 2020. Solar energy is making its way into the market as residential and industrial solar power providers enter the market. Experts are optimistic about the future of the country’s energy sector, although instruments like Fibra E must be improved. Construction companies that specialize in energy are feeling the crunch and are beginning to diversify into new sectors.
This chapter encompasses the opinions of experts on the Energy Reform and the changes they have seen in the country’s infrastructure. Key stakeholders share their views that although the Energy Reform is moving along slowly, it has triggered investment in commercial, logistics and housing infrastructure but all eyes are on the oil and gas rounds and pipeline tenders. Experts believe the industry will pick up slowly but surely, bringing with it countless opportunities.
241
CHAPTER 10: ENERGY 244
VIEW FROM THE TOP: Eduardo López, EY
245
VIEW FROM THE TOP: Vicente García, Isolux Corsán México
246
MAP: Natural Gas Pipelines
250
ANALYSIS: Expected Developments in the National Natural Gas Pipeline System
252
VIEW FROM THE TOP: Javier Díaz, S&P Global Platts
254
VIEW FROM THE TOP: Reynaldo Yruegas, Microsoft
256
VIEW FROM THE TOP: Ernesto Marcos, Marcos y Asociados
258
PROJECT SPOTLIGHT: El Encino-Topolobampo Gas Pipeline
260
INSIGHT: Rodrigo Calderón, Energetika
Alejandro Chico, Energetika 261
VIEW FROM THE TOP: Carlos Sandoval, Arendal
263
EXPERT OPINION: Agustin Humann, Marcos y Asociados
264
VIEW FROM THE TOP: Giacomo Bonfanti, GDI
265
VIEW FROM THE TOP: David Arelle, ILIOSS/SolarCity Mexico
267
VIEW FROM THE TOP: Julian Willenbrock, Enlight
268
INSIGHT: Kevin Gutiérrez, Ingeteam
269
VIEW FROM THE TOP: Mario Budebo, EXI
Luis Villalobos, EXI
243
VIEW FROM THE TOP
FIBRA E TO STIMULATE ENERGY INFRASTRUCTURE OPPORTUNITIES EDUARDO LÓPEZ Executive Director Oil and Gas at EY
244
Q: How do investment opportunities in Mexico’s oil and
debt instruments. In this vein, the new Fibra E has been
gas market compare globally and which areas hold most
designed as a Mexico-registered trust fund, which can
promise?
issue energy certificates via the stock exchange, and
A: By effectively abolishing the monopoly of the state-
which will be backed by specific types of assets. Holders
owned oil and gas company, the new legal framework has
can claim ownership over the trust fund in proportion to
the potential to unleash significant business opportunities
their investment and hence a share over future cash flows.
for private investors, both domestic and foreign, and both upstream and downstream. Moreover, the country has
A significant amount of new infrastructure remains to
one of the world’s most promising resource bases, stable
be built. As a result, Mexico’s energy industry should
politics and an open and large economy. Few oil-producing
become an attractive investment, especially compared
countries
Upstream
to developed markets like the US. According to some
activities hold arguably the greatest promise. Downstream
estimates, total investment could be as high as US$70
areas will also offer investment opportunities, derived from
billion by the end of the decade, which would go a long way
the gradual liberalization of the retail market.
to solving Mexico’s infrastructure bottlenecks. Processing,
feature
similar
characteristics.
transportation, refining or storage of crude oil, petroleum Q: What is your perception of Mexico becoming Latin
products or natural gas, power generation, transmission
America’s powerhouse and the main economy in the
and distribution, among others, are areas most likely to
region?
take advantage of the new instrument. The challenges will
A: Mexico currently has the second largest economy
consist of selecting and properly structuring the assets to
in Latin America after Brazil but whether it will become
be monetized. PEMEX will be able to capitalize some of its
the largest will depend on a number of domestic and
existing assets and eventually invest in new infrastructure.
international factors, as well as the relative performance of
It should also be noted the new instrument contains
other countries. Mexico, however, has distinct advantages
several fiscal advantages designed to nurture long-term
in that its economy has been opened to the world for the
investments.
past two decades and it has become a major global trading player and strong manufacturer. Also, its population is
Q: How should PEMEX’s financial burden be adapted to
young, which should help sustain growth for decades
reflect its new position as a productive enterprise of the
to come. The country is closely integrated with the US
state?
and Canada and North America is clearly emerging as a
A: Under the reform, PEMEX’s fiscal obligations will be
dynamic economic area.
gradually reduced. In addition, the company will be able to migrate some of its upstream assets to the new contractual
Q: What is the background of Fibra E and how has it
framework to benefit from the fiscal regime applied to
adapted to the needs of the Mexican oil and gas industry?
private players. As for the government’s dependence on
A: Fibra E is primarily intended to finance the construction
PEMEX revenues, it will gradually decrease as non-oil tax
of new energy infrastructure in Mexico, such as pipelines,
receipts increase and as private oil and gas players start
terminals,
to
their own production. The new PEMEX administration has
complement the country’s Energy Reform. Fibra E has
power
plants
and
transmission
lines,
put in place a new plan to reduce wasteful expenditures
largely mimicked the Master Limited Partnership (MLP),
and to focus on profitable operations. PEMEX has the
which was launched in the US in the 1980s. In general
potential to become a company mostly focused on
terms, by bundling together assets that generate stable
upstream activities, able to capitalize on its knowledge
cash flows, MLPs allow companies to raise capital at
of the Mexican geology and to engage in numerous joint
lower cost and offer higher returns than traditional
ventures with private partners, both local and international.
VIEW FROM THE TOP
EXPERIENCE INVALUABLE FOR FUTURE INVESTMENT VICENTE GARCÍA Director of Business Development at Isolux Corsán México
Q: Why is Isolux Corsán focused on participating in
A: Mexico has to go through the same challenges other
Mexico’s transmission lines?
countries have in the past and we can learn from them.
A: Private participation in transmission lines is our focus
Having the experience of working in Mexico and a team
right now because it is something we know well in Mexico,
devoted to providing security make safety challenges
this type of investment for private companies is new here
manageable. Another challenge is convincing private
and we have the experience. Renewable energy is also
investors to participate in the Mexican power sector
something in which we are very strong outside of Mexico.
as it is new for them. We remain confident because
Here, we have been involved in the wind sector but the
many companies are interested in coming to Mexico.
boom is now in solar power. We also are heavily involved
As a company that has been successful here for many
in thermal energy because the Energy Reform is focused
years in the electrical industry, we provide reliability to
on pipelines, although gas will still have a vital role in the
investors.
future. We know how CFE works and we are trying to focus more on private companies. We are also participating in
Some hesitate to back new investments like transmission
bids for highways and are interested in hospitals, prisons
lines, which used to be a monopoly. We are in talks
and buildings in the water sector.
with some companies but we are waiting to receive the tender documents for the lines. There are two projects at
In the past, we were a Spanish multinational company but
the moment, one of which is a US$1.2 billion investment
we are now a global company with headquarters in Madrid,
that will connect Sonora to Baja California. Private
even though Spain represents only 10 percent of our
companies are worried about the legal framework,
business. Around 50 percent of our operations are carried
tender documents and repayment details among other
out in Latin America with the five main global subsidiaries
aspects of the investment because it has not yet been
being Mexico, Argentina, Brazil, Algeria and India.
made clear.
Q: How can the private sector bridge the gap between
Q: To what extent can Isolux Corsán have an advisory role
infrastructure needs and the public sector’s ability to
in the government’s decision-making?
deliver?
A: We are not official advisers but we have a lot of
A: In one aspect, the balance of power is changing with the
experience. We have 5,000km of high-voltage transmission
Energy Reform and it seems the private sector will have a
lines in Brazil and transmission line concessions in Peru,
bigger role. This is what we are trying to focus on as the
the US and India. About nine months ago we began
market will be opening to other private energy generators.
conversations with CFE about our experience in other
CFE will continue to be important in the power generator
markets and provided them with advice on how similar
sector but I believe that the private clients will be the main
countries have handled the same projects.
players in the future. We began working in Mexico many years ago, which It seems renewable energy power is going to be increasingly
provided us with in-depth knowledge of the market
important in Mexico. In the past, we were focused on
while some other companies may have been focusing on
thermal and petrol power but moving forward we will turn
other local markets. Because of this experience we are
our attention to private generators and renewable power.
well-established in Mexico. We are a global contractor but we have our own teams and people here that help
Q: How much further must Mexico go to alleviate the
us be more competitive. We may have not been the first
problems that hinder companies from choosing to work
contractor in Mexico but we must be one of the first for
in the country?
transmission lines.
245
NATURAL GAS PIPELINES
1
38
2
a
4
3
5
40
39 7 6 8 42
9
43
41 246
46
Natural gas pipelines in operation Diameter (inches) 48 36
49
12 47
44
11
10
45
48
24 16 12 4 and under or unknown Natural gas pipelines planned, proposed
52
or under construction
17
Diameter (inches) 48 36
16
c
24 16 12 4 and under or unknown Natural gas processing plant LNG terminals in operation LNG terminals proposed Border crossing Natural gas power plants Natural gas power plants planned, proposed or under contrstrution Source: S&P Global Platts
28
LNG terminals in operation
Natural gas processing plant
LNG terminals proposed
a. EnergĂa Costa Azul
d. Burgos
m. Salina Cruz
b. Terminal LNG de Altamira
e. Arenque
c. Manzanillo LNG
f. Poza Rica I & Poza Rica II g. Matapionche h. Pajaritos i. La Venta j. Cactus k. Nuevo PEMEX l. Ciudad PEMEX
247
50
14
13
51
15
d
b
22 e
54
21
19
53 18
23 20
f
24 55 25 57
36
56 26
27 34
g h
30
8
i
j
58 32 k
29 m
31
33 l
59 35
60 37
NATURAL GAS PIPELINES MAP (cont.) NATURAL GAS POWER PLANTS
1
2
248
Name
Approx. capacity (MW)
La Rosita I
700
Presidente Juárez
Name
Approx. capacity (MW)
19
Bajio
500
550
20
El Sauz Plant
800
Rosarito III
500
21
Tamazunchale
1100
147 CCC Baja California
250
Petroquímica Escolin
50
Presidente Juárez GT
200
Altamira Cogen
25
Termoeléctrica de Mexicali
500
Altamira II
500
La Rosita II
300
Altamira III & IV
1000
22
San Luis Río Colorado
500
Altamira V
1000
3
Aise México
20
Enertek
100
4
Naco-Nogales
300
Tuxpan II
500
5
Samalayuca
300
Tuxpan III & IV
1000
Samalayuca II
600
Tuxpan V
500
6
Puerto Libertad
600
24
Refinería Miguel Hidalgo
100
7
La Caridad I & II
500
25
LFC Distributed Generation GT
400
8
Hermosillo
300
PEMEX-Exploración y Producción
20
Huinala
500
La Costeña Jumex
5
Chihuahua
500
Minsa Tlanepantla
10
Norte II
500
Empaques Modernos
15
Chihuahua III
350
Durango EcoMethane LFG to Energy
20
El Encino Chihuahua II
200
Baja California Sur III
20
Modelo Anahuac
10
29 CCC Norte
500
Lomas de Chapultepec
10
Durango Kraft
10
Gresaise SA de CV
10
La Laguna II
500
Papel Bidasoa Power Plant (Teotihuacan)
10
Gómez Palacios
200
26
PEMEX- Petroquímica Complejo
50
Saltillo
250
27
Celfimex Apizaco
10
Ramos Arizpe Fersina
5
Planta Apizaco
50
Monterrey III
700
28
Ispat Mexicana
30
Pegi
550
29
500
Complejo Procesador de Gas La Venta
30
Monterrey II Monterrey
500
30
Petroquímica Morelos
150
Petroquímica Cangrejera
150
Procesador de Gas Área Coatzacoalcos
75
Petroquímica Pajaritos SA de CV
60
CPQ Cogeneration
10
Petroquímica Cosoleacaque
100
Refinería Gral Lázaro Cárdenas
75
31
Refinería Ing Antonio Dovali Jai
100
32
Nuevo PEMEX
350
Complejo Procesador de Gas Nuevo PEMEX
100
PEMEX Planta Eléctrica Cárdenas
50
33
Campeche
350
9
10 11
12
13
14
23
Vitro Cogen
250
Ing Hector R Lara Sosa
50
Planta Monterrey
50
Famsa-Titan
40
Propasa Monterrey (1103880)
25
Monterrey Waste
25
Monterrey Biogas
25
Promex Energía Nuevo León
25
Planta Nuevo León
5
Presidente Emilio Portes Gil (Río Bravo)
350
Río Bravo II
500
Río Bravo III
500
Río Bravo IV
500
34
Cantarell
500
16
Manzanillo I & II
1600
35
PEMEX Terminal Marítima Dos Bocas
150
17
Arancia Cpc Ingredion San Juan
20
36
Mérida III
500
18
LNG Antonio M Amor
80
37
Valladolid III
500
15
NATURAL GAS POWER PLANTS PLANNED, PROPOSED OR UNDER CONSTRUCTION Name
Approx. capacity (MW)
38
Baja California VI
500
39
Baja California II
300
40 41
Baja California III
300
Baja California IV
500
Baja California V
500
San Isidro-Samalayuca: July 2017
1000
Empalme I
800
Empalme II
800
Guaymas CC I
800
42
Noreste V
1000
43
Norte III & IV
1300
Norte IV Lerdo
1000
Norte VI
1000
La Paz CC
100
Baja California V
50
45
Todos Santos CC
46
44
47
Name
Approx. capacity (MW)
48
CC Mazatlán
900
49
Norte V
1000
Noroeste II
1000
AHMSA Monclova
150
Techint Pesquería CC
800
Noroeste (Escobedo - 1077659)
800
Dulces Nombres CC
500
Monterrey Pwr
100
50 51
52
Guadalajara I
500
53
Salamanca
600
54
Occidental I & II
1000
55
Bordo Poniente Biogas Plant
50
56
Grupak Igsapak Hidalgo
70
57
CC Centro
600
58
Complejo Procesador de Gas Cactus Cogen
500
100
59
Ramos Arizpe Cogen
50
Topolobampo II
850
60
Mérida Enerkin CHP Power Plant
10
Topolobampo III
700
Mérida IV
350
CC Noroeste
600
Mérida V
500
249
ANALYSIS
EXPECTED DEVELOPMENTS IN THE NATIONAL NATURAL GAS PIPELINE SYSTEM CENAGAS’ Five Year Plan includes more than 5,150km of
Salina Cruz-Tapachula. The last set of projects will cover
pipelines related to projects mentioned in the National
high-demand regions in Northern Mexico. The pipelines in
Infrastructure Plan. These are divided in three categories.
this class are San Isidro-Samalayuca, Colombia-Escobedo,
The pipelines that transport natural gas from the north
Salamayuca-Sásabe, and Eherenberg-Algodones-San Luis
of the country to the central region are La Laguna-
Rio Colorado.
Aguascalientes, Los Ramones-Cempoala, Southern TexasTuxpan. The project is aimed at increasing supply capacity
The Ministry of Energy determined that the Lázaro
for the central region to compensate for fluctuations
Cárdenas-Acapulco and Salina Cruz-Tapachula pipelines
resulting from demand in the southeast, while providing
are projects of social importance, and their development
redundancy to branches in this route.
depends of the Ministry of Finance’s favorable opinion. It also deemed the following projects as strategic: Colombia-
250
The second category comprises pipelines that connect
Escobedo, Jáltipan-Salina Cruz, Southern Texas-Tuxpan,
the Gulf and the western regions, which will alleviate
Tuxpan-Tula, Tula-Villa de Reyes, Samalayuca-Sásabe,
congestion in ducts supplying the central and western
Los Ramones-Cempoala, Villa de Reyes-Aguascalientes-
regions, as well as providing redundancy in the supply for
Guadalajara, and La Laguna-Aguascalientes. Finally, the
places with significant populations and economic activity.
Ministry of Energy has instructed PEMEX and CFE to
These include Tuxpan-Tula, Tula-Villa de Reyes, Villa de
launch tenders for the Colombia-Escobedo, Tuxpan-Tula,
Reyes-Aguascalientes-Guadalajara.
Samalayuca-Sásabe, and Jáltipan-Salina Cruz pipelines.
The third class, pipelines that connect the system with
In order to determine the feasibility of the projects that
new demand hubs, are meant to expand the system’s
CENAGAS proposed to address natural gas supply needs
coverage in order to detonate new markets and contribute
in its Five Year Plan, the technical system operator relied
to their economic development. The projects included
on CRE’s assistance to create a model that assessed the
are Lázaro Cárdenas-Acapulco, Jáltipan-Salina Cruz, and
impact of the interconnection of those projects. The flow
Natural Gas Plant
PROJECTS IN THE FIVE YEAR PLAN APPROVED BY THE MINISTRY OF ENERGY Project
States served
Length (km)
Estimated investment (US$ million)
Estimated date of tendering
Estimated completion date
Tuxpan-Tula
Hidalgo, Puebla, and Veracruz
263
400
2015
2017
La Laguna-Aguascalientes
Aguascalientes, Zacatecas, and Durango
600
1,000
2016
2017
Lázaro Cárdenas-Acapulco
Michoacan and Guerrero
331
456
2016
2018
Tula-Villa de Reyes
Hidalgo and San Luis Potosi
295
420
2015
2017
Villa de ReyesAguascalientes-Guadalajara
Aguascalientes, Jalisco, and San Luis Potosi
355
555
2015
2017
San Isidro-Salamayuca
Chihuahua
23
109
2015
2017
Salamayuca-Sásabe
Chihuahua and Sonora
650
571
2015
2017
Jáltipan-Salina Cruz
Oaxaca and Veracruz
247
643
2015
2017
Salina Cruz-Tapachula
Chiapas and Oaxaca
440
442
2016
2018
Southern Texas-Tuxpan
Tamaulipas and Veracruz
800
3,100
2015
2016
Colombia-Escobedo
Nuevo Leon
300
N/A
2016
2018
Los Ramones-Cempoala
Nuevo Leon, Tamaulipas, and Veracruz
855
1,980
2017
2019
El Cabrito Compression Station
Chihuahua and Nuevo Leon
N/A
60
2015
2016
Source: Ministry of Energy with information from CENEGAS, CFE, and PEMEX
model considers the current state of the National Natural
proposals, CFE decided Howard Midstream’s proposal had
Gas Pipeline System as well as existing privately owned
the most favorable technical and economic terms, as it
ducts that have an impact on the system’s conduction
represents savings of US$25 million.
capacity. The effect of pressure and velocity variations in certain segments of the pipeline system have been
The Ministry of Energy authorized the tendering of the
simulated in the model, enabling the regulators to
Southern Texas-Tuxpan project, which will be launched by
determine potential congestion points.
CFE. This project will ease demand from the Gulf section of the National Natural Gas Pipeline System and part of
The results of this exercise led the authorities to conclude
the demand estimated for the Los Ramones-Cempoala
that if the system remains as it is today, it will be necessary
pipeline, ultimately saving US$7 billion. CFE published the
to develop infrastructure to transport natural gas from
bases for the tender on October 2015, and the project will
the north of the country to the Gulf, central, and western
ideally begin commercial operations in June 2018.
tariff regions in the 2015-2020 period. Between 2016 and 2017, the capacity to import natural gas through pipelines
In August 2015, CFE issued the bidding bases for the
has to be complemented with other options, such as
Tula-Villa de Reyes and Villa de Reyes-Aguascalientes-
importing LNG, in order to ensure stability in the system.
Guadalajara pipelines, which are scheduled to start
If more pipelines are interconnected to the system before
commercial operations in 2017. In September 2015, CFE
2020, potential congestion will be reduced, supply will
launched the bases for the La Laguna-Aguascalientes
be diversified, and the system will be stable without the
pipeline and assigned the project to the consortium
need to import LNG. However, the impact on tariffs will
composed of Carso Electric and Promotora de Desarrollo
be significant.
de América Latina to provide natural gas transportation services through the Samalayuca-Sásabe pipeline.
The risk of destabilizing the system due to the time it will take for new projects to begin operations calls for
CFE awarded the contract for the construction of the San
reinforcement of the supply of imported natural gas,
Isidro-Samalayuca pipeline to Gasoductos de Agua Prieta,
which is why the Colombia-Escobedo and Los Ramones-
a subsidiary of IEnova, and operations are expected to start
Cempoala
CFE
in 2018. The Tuxpan-Tula project was won by Transcanada
participated in KM and Howard Midstream Energy Partners
in November 2015. In addition, CENAGAS included the El
open season schemes in the US to transport natural gas
Cabrito compression station in its project pipeline, which
from Webb County in Texas to Escobedo and Monterrey
will be located in Coahuila in order to increase natural
in Nuevo Leon. This endeavor is part of the Colombia-
gas transportation in the northern region. The Ministry of
Escobedo project. After thoroughly evaluating both
Energy assigned this project to PEMEX in July 2015.
projects
have
been
reprogrammed.
251
VIEW FROM THE TOP
MEETING MEXICO’S FUTURE OIL & GAS DEMAND JAVIER DÍAZ Manager, Energy Analyst and Consultant at S&P Global Platts
Q: What type of infrastructure must be constructed to
to provide our clients with enough information to enable
meet future natural gas needs?
them to make confident decisions.
A: The natural gas pipeline infrastructure is the key. LNG
252
terminals were vital when there was less capacity for
Our division S&P Global Platts was selected by the
importing and distributing gas from the US to Mexico.
government to provide prices to be used as benchmarks
Now, to guarantee sufficient access to US supply, there is
in the Energy Reform. Another unit, Platts Analytics, can
an extensive buildout in pipelines across the border and
provide companies with the market intelligence such as
to ensure this supply reaches the demand areas. Platts
fundamental analyses and forecasts. Our consultants
Bentek is tracking over 20 major pipeline projects here
can help them evaluate specific projects for viability and
that are expected to begin service within the next five
potential returns. Platts has recently launched the Mexico
years. With an estimated combined investment of over $16
Energy Monthly, a Platts Analytics report that delivers
billion, these projects will fully interconnect all regions of
data-driven coverage of natural gas and LNG, crude oil
Mexico from north to south, east to west.
and liquids and electric power markets. Platts Mexico Energy Monthly provides insights that allow an enhanced
In the near term, the completion of the Los Ramones
market outlook, the building of more robust models and
pipeline will connect South Texas production and Mexico
validation for investment and strategic decisions.
City. Los Ramones I, which was completed in December 2014, has already mostly displaced LNG imports at Altamira.
Q: What goals must the government establish to achieve
When Los Ramones II is finished it is expected to reduce
the energy industry of the future?
Mexico’s dependence on LNG imports at the Manzanillo
A: The main goal is to ensure market conditions and
terminal. Next year, growth in US natural gas imports is
infrastructure development that guarantee quality energy
expected to shift from the northeast and central Mexico
is supplied to the residential, commercial and industrial
to the Permian Basin in northwest Mexico. The proposed
sectors at competitive prices. It must also ensure supply of
Comanche Trail, Trans-Pecos and Roadrunner pipelines
electricity throughout Mexico, expand the use of clean and
were primarily designed to serve new power demand in
renewable energy and promote energy efficiency. Mexico
the Mexican states of Chihuahua, Sinaloa and Sonora. In
is creating more long-term auctions like that in which CFE
2018, the pipeline buildout will again shift focus back on
awarded tenders for 5.4GW of energy. New energy plants
South Texas to the northeast and central Mexico corridor.
are also being auctioned with a total 2.1GW, 1.7GW of solar
Further down the road, it will be important to develop more
and 0.4GW of wind generation, and Clean Energy Certificates
storage facilities since the only storage facilities are at the
(CELs), which total 1MW each, have been established. The
LNG terminals.
role of natural gas will be to create balance in the market and continue to displace fuel oil from the power-generation
Q: What are the main challenges companies face when
mix. Access to cleaner and cheaper energy will increase
developing these projects?
competitiveness for Mexican industries. One example is the
A: Bureaucracy, local opposition, rules of land tenure
new Intergen power plant installed in San Luis de la Paz,
and crime and insecurity are some of the challenges.
Guanajuato that will receive gas from the Los Ramones
The price of debt is significantly higher than in other
pipeline, supporting industrial growth in the region.
countries. Companies and investors must be prepared with market intelligence to mitigate Mexico’s social and
Q: How will the shift from oil to natural gas impact
economic risks. There are several ways a research and
Mexico’s oil and gas industry?
analytics company like S&P Global can assist companies in
A: Round One created various opportunities for private
developing exceptional infrastructure projects. We strive
companies to participate in the exploration and production
activities here for the first time in 70 years. The Mexican government hopes to maintain hydrocarbon revenues as a pillar of the federal budget so the requirements for bidders in each block are high. The first two contracts were awarded in Round One. In R1-L01 and R1-L02, the government offered profit-sharing contracts, which were overly complex, and the authorities did not disclose the government minimum take until the day of the tender. In R1-L01, only two contracts were awarded out of the 14 exploration blocks tendered and in R1-L02, three shallow water production fields out of possible five were awarded. In R1-L03, the government switched the contract structure from production sharing to licensing, which contained much more favorable terms for operators. Moreover, the minimum government take was established two weeks in advance, allowing operators to plan bids that were higher
Platts Analytics expects prices to slowly rebound over the next five years, with Maya and Brent averaging $71/b and $79/b respectively in 2021.
than this amount. In this phase, where 25 contracts were awarded, only six failed to sign and the government is now
an average of 5.3bcf/d of natural gas, which equates to
trying to sign with the second-highest offers.
about 58 percent of Mexico’s total demand. In the short term, domestic natural gas production in Mexico will
On the demand side, Platts Analytics expects that between
continue to decline. However, this reduction in Mexican
the end of 2015 and the end of 2021, Mexico will have
natural gas production does not represent a significant
retired about 4GW of fuel oil and diesel power plants as
supply risk, since the plans for strategic infrastructure
the country makes way for nearly 21GW of new gas-fired
development will ensure there is enough capacity for US
generating capacity. By 2018, CFE plans to reduce fuel oil
imports and these volumes will have a large impact in
consumption by 90 percent from the level in 2012. Fuel oil
balancing the US market.
capacity that is not retiring will be retained for reliability and to meet peak summer demand. Platts Bentek expects
Platts Analytics expects Henry Hub prices to average
that the phase-out of fuel oil generation from 2015 to 2021
$4.51/million BTU in 2021. On the oil side, Platts Analytics
will be equivalent to 0.5bcf/d of annual gas consumption.
expects prices to slowly rebound over the next five years, with Maya and Brent averaging $71/b and $79/b
Q: What is Platts’ forecast for oil and gas prices?
respectively in 2021. Price rebound is projected to drive
A: Platts Analytics expects Mexican natural gas demand
exploration and production activities for the awarded
to grow and that natural gas imports from the US will
blocks in the bidding rounds, which are expected to
continue to displace LNG imports from Manzanillo and
focus on oil production over natural gas, contributing to a
Altamira. Platts Analytics expects the US will be exporting
reversal of production trends in recent years.
253
VIEW FROM THE TOP
DIGITAL INFRASTRUCTURE FOR A NEW ERA REYNALDO YRUEGAS Director Energy Lead / Public Sector of Microsoft
254
Q: How is Microsoft’s digital infrastructure helping PEMEX
A: The industry is becoming more complex and the
become a more productive enterprise?
volume of data generated continues to rise. This stems
A: We have created a collaboration platform for PEMEX
from different sources, from financial and transportation
and CFE. In the past there was no efficiency or economies
to production and storage. Having all this information
of scale but now the trend is segmentation and we see
available, analyzed and presented in a tangible manner
different users rising up in both organizations. There are
will
users working on oil platforms at sea, users in corporate
by improving their decision-making processes. If the
offices and others in the field, all with different needs.
information is not shared across the whole platform,
We have adapted to their unique requirements and this
efficient planning and production would be impossible
allows users across different segments to collaborate,
to achieve. The drop in oil prices means it is crucial that
ultimately improving their communication process. We are
companies invest in information assets since this will allow
connecting the threads and making the energy company
them to operate in an optimal manner according to market
more intertwined within its business divisions to help it
conditions.
help
companies
overcome
economic
pressures
reach its objectives. We want to guide PEMEX to a new era where the key terms are operational efficiency and
Q: How can Microsoft develop and improve reservoir
cost reduction. We can adapt our solutions to all areas
models and help players enhance their oil recovery
of the industry, from exploration and production to
techniques?
transportation and commercialization.
A: The industry has a series of needs that must be addressed and areas of opportunity to be tackled.
Q: How can Microsoft ease PEMEX’s concerns regarding
Companies must maximize oil production without the
the transfer of knowledge to its entire workforce?
risks and costs that come with developing new oil
A: The global oil and gas industry is suffering a loss of
fields and they need improved analytics that will enable
experienced human capital spurred by retirement and
them to predict production and maximize recovery.
PEMEX is not exempt. We are transferring knowledge to
Unfortunately, some players do not have access to real-
the cloud and this means any user can gain access, analyze
time drilling and production data to improve their models
the data and see what is happening in real time. From
in a timely fashion. Through our solutions we can help
extraction to point of sale, there are different processes
oil companies monitor equipment and processes in real
that require operational efficiency and through our
time, help them evolve and change their models based
solutions we can help companies become cost-efficient
on updated production information and enhance their
and agile.
recovery methods. Microsoft can help eliminate bad habits like making recovery decisions based on outdated
In this digital world, oil companies wonder how a refining
information, prevent long cycles for coordinating supply
plant can be kept in optimal condition, how predictive
chains as production changes and ultimately eliminate the
maintenance can be carried out without impacting
early closure of wells.
production and how resources can be efficiently extracted. All these questions are answered with the solutions we
Q: What solutions does Microsoft have for companies
provide. We are the creators of a communication platform
facing issues of safety and security for their physical and
that PEMEX and CFE are exploiting as they transition into
digital assets?
productive enterprises of the state.
A: A pressing concern is the security of assets and we have many solutions to narrow the safety gap a company
Q: How can digital infrastructure help companies deal
like PEMEX may experience. Some oil platforms have
with economic pressures?
experienced fires and explosions while theft of resources
can be commonplace. It is important to tackle these
it has logistical benefits. Half the world’s population lives
issues by having tight control of the supply chain, which
within 200km of the ocean and subsea systems may be
is achieved by increasing the visibility and availability of
easier to deploy if extra capacity is required. These can
information. Another important development is that new
be placed close to oil platforms. An interesting location
competitors will stand against PEMEX and this means
would be Galveston, Texas because there are many
Mexico needs to foster trained human capital and ensure
platforms there and the information could be immediately
the availability of information.
transferred to oil companies onshore.
The non-oil companies must grow and become more
Q: How can companies like PEMEX implement remote
competitive in this open market and as such it must train
pump monitoring and oil field optimization solutions?
its workforce. Microsoft is following the course of the
A: A flagship project that Microsoft highlights is that with
reformed Mexican energy landscape by creating new
Rockwell Automation. This noted leader in the sector
divisions. The first tackles the oil, gas and energy sectors,
needed a solution to streamline all of its production
the second caters to the regulatory bodies that work
decision processes ranging from where to drill, extraction
within these industries, and thirdly we have a new business
strategies, when to change production methods and
division that looks at market entrants.
control of the movement of equipment and personnel. The solution we provided entailed Rockwell’s SCADA
Q: What are the implications of data centers being
system reporting back to a central system using IP-
located underwater?
based communications and the cloud. This allowed the
A: Early in 2016, Microsoft Research unveiled an ambitious
automation of all workflows and improved decision-
experiment to plant a data center in sea water. This vessel
making processes. Players in the industry stand to benefit
weighs 17,236kg and contains enough room to hold
from this since our solution significantly improved uptime
approximately 300 PCs. One would think that electrical
and efficiency, enabled real-time equipment diagnostics
components and water would not mesh but placing data
and prognostics and provided a multi-well performance
centers underwater can help keep the contents cool and
optimization.
Poza Rica Oil Reserve
255
VIEW FROM THE TOP
INVESTMENT CONSULTANCY SEES BIG UPSTREAM OPPORTUNITY ERNESTO MARCOS Founding Partner at Marcos y Asociados
Q: What opportunities are coming to infrastructure
owned and operated by PEMEX, meaning that tariffs are
development from the introduction of the bidding
set based on PEMEX’s capacity and availability. Private
rounds?
investors must build their own infrastructure before the
A: Upstream is the single most important activity of the
market can become truly dynamic.
oil industry and farm-outs especially present a great 256
opportunity but there is a great deal of infrastructure
Another aspect to consider is that price margins are
that must be built for the development of some of these
extremely small or even negative today because the
fields. When Marcos y Asociados estimated the potential
Ministry of Finance established the maximum price of
additional private investment the opening of the oil and
gasoline and diesel based on PEMEX’s transmission,
gas industry represented, we projected a necessary
importation and distribution costs. The NOC's costs
US$6billion to US$10 billion for the development of
are low for commercial purposes so there is no margin
each of the deepwater blocks. There are requirements
for private companies, especially given the IEPS, which
for subsea infrastructure, including valves and tiebacks,
is designed to absorb the difference between the
which
oil
reference price and importation and distribution costs
companies start developing these fields, there will then
Mexico
has
not
yet
developed.
When
with respect to the maximum price. In 2018, the law
be an incentive for manufacturing companies to expand
states the government will no longer regulate the price
their expertise to this kind of equipment.
of gasoline and the market will be liberated. Depending on international pricing at this point, there will be
It is important to remember that a legal responsibility
greater competition and PEMEX will have to adjust to
of the previous state monopolies, both in electricity and
this new reality.
oil and gas, was to supply the local market regardless of the cost. Rather than being a business opportunity,
Q: What area of energy infrastructure do you think
this was a legal obligation for CFE and PEMEX to supply
holds the most potential?
the domestic market. In Mexico, we have an average
A: I think the distribution and commercialization of
of two days’ storage capacity for gasoline and diesel.
fuels and electricity will be most important. Commercial
There is no natural gas storage capacity and the only
opportunities can now emerge for electricity and oil and
availability is that in the pipelines. Now, investors are
gas, whereby operators can seek out companies with
pursuing projects to develop storage capabilities due to
additional capacity that is not being dispatched and act
the seasonality of supply and demand. This will allow
as the intermediary in purchasing this and supplying it
production of natural gas to increase because even in
to the public.
seasons of low demand, the storage capabilities will allow continued profitability.
PEMEX’s available pipeline and terminal infrastructure is strictly the minimum required. Additional investment
Q: How will private companies participate in the
is needed in product pipelines in transportation and
importation of gasoline and diesel?
distribution, whether that be at the ports or close to the
A: Excess oil and gas production in the US means prices
borders. The market is importing over 50 percent of the
are low. When buying there and selling in Mexico, the
country’s consumption but now that anyone can own
margin improves. We are importing around 600,000b/d
and operate pipelines, there are several development
of gasoline and diesel and there are authorized import
projects underway.
permits for a further 800 million barrels but we can’t capitalize on that because the appropriate infrastructure
I
is not yet in place and the present infrastructure is
infrastructure just to satisfy existing demand. One of
expect
an
increase
in
the
construction
of
this
the most highly consumed fuels in Mexico is liquefied
A: In terms of market balance, 50 percent of national
petroleum gas (LPG) and in the past, distributors of
consumption is provided by imports, so there is definitely
this resource have invested in pipelines and terminals to
an urgent need for additional capacity. The issue then
provide PEMEX with the infrastructure that it could not
lies in the need to install new refineries and upgrade
include in its budget. Several facilities were built along the
the existing ones. The regional market must then be
border and on the Pacific and Gulf of Mexico coasts by
examined to gauge whether there is excess refining
private investors and these facilities were then leased to
capacity in the US and Canada, for instance, because this
PEMEX. Now that they are free to import independently,
may not justify installing extra capacity in Mexico.
they are reclaiming this infrastructure. In January, the market was officially opened and in May, all LPG imports
At some point, PEMEX will have to decide what to do
were carried out by private investors. Because there is no
with the existing refineries, the last of which was built
special tax (IEPS) on LPG, these private investors only
in the 1970s. There will be additional investment in
had to pay VAT so the situation was extremely beneficial
refining but rather than focusing on commodities like
for these players. They quickly captured the market that
gasoline and diesel, there will be a focus on the impact
was previously exclusive to PEMEX.
for petrochemicals and the chemical industry. PEMEX has upgraded three of its large refineries but the
Q: What are the opportunities for PEMEX to work
improvements to the remaining three are pending and
alongside private companies through PPPs?
I do not believe PEMEX will have the budget to carry
A: There is uncertainty at the moment because PEMEX
out the necessary renovations itself. I expect this to be
has not yet defined its strategy. For the time being,
carried out through joint ventures with private investors.
PEMEX’s intention is to protect its existing assets and it is not considering divesting and allowing the
Q: What financing options are available for companies
private sector into certain regions. For example, in Baja
that want to invest in Mexican energy infrastructure?
California, there are port facilities with tanks that may
A: In the US, Master Limited Partnerships (MLPs) have
prove beneficial for PEMEX to sell or lease to the private
worked well to help the market finance the required
sector and allow it to service the region. However, PEMEX
infrastructure, especially in the midstream. Mexico will
could protect more productive markets, like the central
need a great amount of investment just to supply the
Mexican market, to allow for maximum profitability.
local market. The government issued the new Fibra E
Capacity could also be reserved in pipelines that are
financial vehicle, which is an adaptation of the MLPs,
being built by private investors. The new administration
and I expect this instrument will be used to finance
is discussing the strategy and I expect this to be defined
some of the additional infrastructure. Waiting for
before the end of 2016.
private companies to raise equity creates delays that are mitigated by mechanisms like Fibra E. We need this new energy
instrument to be operational as soon as possible. When
infrastructure and what risks will private companies
PEMEX and CFE define strategies, they can take these
encounter with this infrastructure?
to the market and secure additional funds.
Q:
How
well
preserved
is
the
existing
A: Firstly, private companies must approach the Energy Regulatory Commission (CRE) to obtain permits and a
Q: How will deepwater benefit the Mexican industry in
tariff. There have been intense negotiations between
terms of infrastructure?
PEMEX and CRE to agree on a tariff that will provide
A: Mexico does not have the manufacturing capacity
PEMEX with a return on investment for the investment
to produce most of the specialized equipment needed
it has made while also fostering the construction of the
for deepwater and ultra-deepwater, which means the
new infrastructure that is required, allowing the market
infrastructure initially must be imported. Most of the subsea
a reasonable margin. Some tariffs already have been
equipment must be built specifically for the project that is
announced for natural gas and oil products but the
being developed. Some capacity for this exists in Mexico,
market’s response remains to be seen. A strategy will
which can be seen in the national content requirements of
then have to be defined that allows PEMEX the greatest
these contracts. There are large international oil companies
profitability as a business. It is difficult for PEMEX
that have supplied platforms for Africa that were built in
to delegate responsibility of a given region or state
Mexico. Therefore, the capacity is there, we just need to
because it still is responsible for supplying the market,
wait and see if this can be used to supply the requirements
even though this is no longer mandated by law.
of the blocks for deepwater development. The benefit of the deepwater rounds is completely dependent on
Q: To what extent has the private sector expressed
national content and the capacity of the national industry
interest in being involved in refining infrastructure?
to cover these new markets.
257
PROJECT SPOTLIGHT
258
EL ENCINO-TOPOLOBAMPO GAS PIPELINE Since 2014 GDI has been working on a natural gas pipeline to connect Encino in northern Chihuahua and Sinaloa’s Topolobampo port on the Pacific Ocean. The project, due to be completed in late 2016, will not only send and receive natural gas but will also generate clean electrical energy via compression stations in the two states. The project is 556km long and adds to the more than 3,000km of gas pipelines that have been constructed in Mexico in recent years. Like many gas pipeline projects here, the El Encino-Topolobampo pipeline traverses diverse, challenging terrain, including a 250km stretch of the Tarahumara region in the Sierra Madre mountain range. This created a series of logistical challenges related to transportation, construction, accommodation and accessibility. In response, GDI used a combination of specialized trencher chains and state-of-the-art raise bore drilling technology to cross directly through and underneath the mountains without damaging surrounding ecosystems or endangering workers. The many rivers, streams and highways that crisscross the region provide their own unique set of logistical challenges, as infrastructure can become sodden and inefficient. Horizontal Directional Drilling (HDD) and Horizontal Boring (HB) were employed to extract fluid from the ground and maintain a firm footing to facilitate construction and prevent the ground from caving in. The pipeline also meets the great RĂo Fuerte on the border of Chihuahua and Sinaloa, and GDI used a Sikorsky s-64 Sky crane helicopter, which can hold up to eight tons of freight, to transport the tubing required to construct this phase of the project. Once completed, the pipeline will reduce energy use and trade costs for companies in the region. Thanks to the numerous clean energy compression stations installed at strategic locations along the pipeline, the construction will also emit less harmful gases into the atmosphere than traditional natural gas pipeline solutions. As well as protecting regional ecosystems, this will reduce safety concerns for workers and local communities. Such a large project will inevitably require significant manpower and the El Encino-Tapolobampo project is no exception. It has already created a large number of jobs, many of which will still be required once the project reaches a conclusion, and the new source of energy will provide a welcome boost to a host of companies throughout northern Mexico in a variety of sectors.
259
INSIGHT
MAKING WAVES WITH ENERGY INTELLIGENCE
Rodrigo Calderón Director General of Energetika
260
Alejandro Chico Chief Technology Officer of Energetika
A surge in industrial and commercial electricity tariffs hit
technology into their solutions. Calderón adds that the
the Mexican landscape in 2016 when CFE announced a new
Energy Intelligence concept can be applied in all sectors
tariff structure that increases up to eight percent the price
where energy is used. “We have three core business areas:
of electricity depending on the amount of consumption per
retail, buildings and Smart Cities. Energetika uses the power
user, in particular in the commercial and industrial sectors.
of the internet and data science to improve energy efficiency,
The unexpected bolt placed the country’s rates among
while gathering information that might be useful for other
the highest in the world and provided further incentive
decision-making processes such as the itinerary of visitors
for companies to more closely monitor and control energy
and the amount of time spent in a store.”
consumption, according to energy efficiency consultancy Energetika. Rodrigo Calderón, the company’s Director
The road toward energy efficiency has not been smooth
General, says that context is causing the country’s energy
because most companies are unaware of their total energy
efficiency culture to undergo a positive evolution. “When
usage, explains Calderón. “They do not know how to
we started the company six years ago, we had to put a
identify the highest consumption points,” he says. “The first
great effort into raising awareness about energy efficiency
congruent step toward sustainability requires a cautious
in the industry,” he says. “But the enactment of the new
control of energy usage. Saving one megawatt will always
regulations and the opening of the electricity market have
be more effective than producing it, even if it comes from
contributed enormously to increasing knowledge about
renewable sources,” agrees Chico. Companies should
energy efficiency in Mexican industries.”
only consider alternative sources after minimizing and optimizing energy consumption. It is a favorable choice as
Energetika’s energy technology helps companies measure
it prevents clients from signing long-term energy contracts.
and analyze usage and to identify their highest points of consumption. “It represents a new and smarter way
Energetika is involved in emblematic projects in the
of approaching energy efficiency,” says the company’s
country that have created significant change in areas
Chief Technology Officer, Alejandro Chico. “It consists of
like Chalco, State of Mexico and the Mexico City subway.
taking operational technologies, such as LEDs or sensors,
“Replacing 13,000 regular lamps with LEDs in Chalco
and combining them with information technology that
made it the largest project of its kind in Mexico. We made
corresponds to a software platform. Analog devices in this
sure to follow governmental guidelines and it allowed the
system allow us an in-depth view of factors involved in
municipality to obtain financing from BANOBRAS and
energy management such as usage or market behavior. It
CONUEE, which provided MX$9 million (US$474,000) for
can bring energy savings of up to 95 percent.”
the project,” says Calderón.
Energetika emphasizes that the only way to ensure correct
For the Mexico City subway, Energetika is collaborating
energy management is with an integrated solution such as
with the government to improve the metro’s energy usage
Energy Intelligence. It allows users to identify and monitor
and providing tools that can measure operational data. “If
the energy consumption of each center they own. Energy
the project is successful and the government can see its
Intelligence is the company’s flagship product. The internet of
value, we expect to install our system in the entire subway
Things (IoT) permits the company high levels of connectivity
network,” says Chico. “This project is special for us because
that can provide efficient energy solutions. “The best service
it is considered the most modern transportation lighting
that can be provided to a client is an integrated system that
system in the world. We are using 150 patents that interact
can meet the present and future energy requirements of the
with each other and are controlled by Energetika’s platform.
company,” says Chico. It is one of the biggest advantages
It delivers four times more light while using 85 percent less
of the IoT and few companies know how to integrate this
energy, which are incredibly attractive numbers.”
VIEW FROM THE TOP
DOWNTURNS PART OF AN EVOLVING PROCESS CARLOS SANDOVAL Commercial Vice President of Arendal
Q:
How
has
the
Energy
Reform
accelerated
or
the industry. We need to convince the existing market
deaccelerated infrastructure development?
that we want to play fair, add value to the sector and
A: The market was hoping the sector would accelerate
complement its abilities.
quickly but it did not predict the period of adjustment the drastic changes brought on by the reforms would
Q: How does Arendal work with PPPs in infrastructure?
require. The drop in oil prices is an additional bump in
A: Development has two main pillars, technical and
the road. As a builder, we realize that downturns are part
financial. On the technical side, we make sure we do not
of the process and the situation will eventually improve.
jump into a project unless we have the right expertise or can find a partner to fill any knowledge gap we may have.
The sector has gone through an evolution. We used to
To finish building a hospital, we partnered with technical
offer PEMEX 50 percent of our proposals and now it
experts who had experience operating hospitals in
only encompasses 20, with the rest allocated to private
South and Central America. Their expertise ensured the
companies. The shift is part of an open sector in which
project’s success because they bridged the gaps in our
more players are entering. Local businesses need to take
construction knowledge.
advantage of this new phase and actively seek contact with international companies. The market is looking
On the financial side, Arendal provides liquidity to the
for cyclical sectors to mitigate the risk of bear market
market and looks for operators with the right expertise
conditions. For instance, if the oil sector is falling, our
and reputation for delivering solutions and projects
projects in the rising infrastructure market can balance
to the final client. We are closely connected to this
the workload.
community and can provide case-by-case solutions for different types of projects. Arendal ensures the money
Q: What infrastructure is the company betting on?
flows to the project and that it is executed efficiently.
A: We have an appetite for PPP projects as we are experts in putting together complex projects and
Q: How does Arendal see the market evolving and what
financial structures. Arendal is using its strengths
challenges lie ahead?
to approach and execute projects. The company is
A: The main challenge is dealing with the landscape
sending proposals to hospitals and the New Mexico City
roller coaster. As seen in previous crises, the economy
International Airport (NAICM). The megaproject requires
suffered and employment dropped. The funny thing
world-class international firms with expertise because it
is that during the recovery, Wall Street won back its
is the biggest airport in Mexico’s history. Our company
previous position but employment levels continued
can participate by sharing local knowledge with foreign
to languish. The phenomenon implies that companies
companies that are not familiar with the Mexican context.
found strategies to become more productive with fewer
NAICM truly is impacting the country because it shows
employees. Higher productivity means a change in
the government’s commitment to create intelligent
mentality and processes. Our next step is to maintain the
bidding rounds.
same margins and to do more with less. That does not necessarily mean having fewer employees but producing
PPPs are a necessity here because many sectors
more without increasing expenses. Productivity in
are demanding more social infrastructure that the
Mexico is relatively low in comparison to other countries
government
main
and the economic landscape is forcing companies to
challenge is to gain a foothold in the market because
reduce costs and somehow manage to maintain their
some companies already have a strong position in certain
levels of productivity. We envision the Mexican market
sectors due to the length of time they have worked in
will become increasingly efficient.
cannot
afford
to
provide.
The
261
262
EXPERT OPINION
FOR ENERGY INVESTMENT, THE TIME IS NOW AGUSTIN HUMANN Partner at Marcos y Asociados
Mexico faces many developmental challenges in oil and
are developed. Established legislation requires investors
natural gas. The opening of the hydrocarbons industry
to provide resources to the communities and domestic
has implications for the sector’s storage and infrastructure
industry-related services must evolve because developers
capabilities and private participation in the energy sector
must meet local content requirements.
has been welcomed through Rounds One and Two tenders for oil fields in the Gulf of Mexico. After the rounds, contracts
The transparency with which CNH has operated in
will be issued to the winning bidders by the National
coordination with the Ministry of Energy has given great
Hydrocarbons Commission (CNH), an organization which
confidence to investors who have participated in the
was created to oversee the transportation, storage and
various stages of tenders and bids. This is a guarantee
marketing of hydrocarbons in Mexico in the short, medium
that must not be neglected. All projects related to
and long term.
energy development have risks and opportunities so the offer of safe investment is a prerequisite for sustainable
The Energy Reform ended state-owned oil giant PEMEX’s
development in the industry. Safety is also an aspect that
76-year monopoly and foreign investors now have attractive
must be considered. The federal and state governments
opportunities to invest in the country’s oil and gas arena. But
must take action to ensure security for people and the
PEMEX still has a strong hand to play. The production fields
safety of the facilities so that infrastructure can develop.
allocated in Round Zero to PEMEX were awarded along with exclusive rights that enable the parastatal to exploit
As
the fields either by itself or through partnerships with
infrastructure will be required. In the short term, it is clear
noted
above
more
hydrocarbon
transportation
private companies. All those assigned fields hold proven
that storage infrastructure should also be developed to
reserves so production success is guaranteed. However,
guarantee continuity in the supply of oil for the industrial
any investment will require time to start commercial
sector. The storage of natural gas is a priority that must
exploitation. More time also is needed before the results
not be overlooked. The private sector is willing to invest
and major risk factors for deepwater production come to
in the development of facilities such as hydrocarbons
light. The interest we have seen from foreign investors to
storage stations to store oil, natural gas, liquefied
partner with Mexican companies suggests the immediate
petroleum gas (LPG), gasoline, diesel, jet fuel and all liquid
future will see continued investment, which will have a
and gaseous hydrocarbons. This will allow us certainty of
significant economic impact. Through farm-outs, PEMEX
supply and the country will be able to balance availability
also has a tremendous opportunity to truly become a
against price swings to develop a stable market for these
productive enterprise of the state.
hydrocarbons. A major challenge is to ensure this storage infrastructure is developed with transparent conditions
Energy demand in the country is growing. This an
of physical and operational. An industry like oil and gas
inescapable fact and it is important that in parallel
in Mexico that currently cannot guarantee its supply of
to the development of new oil and gas fields, the
energy does not develop healthily. Experience has taught
necessary infrastructure for transport and storage also
us that it is essential to instill confidence and to do that,
must be built. Today, pipeline construction projects are
investment is required.
focused on meeting current demand but it is clear that in the future these needs will rise, creating attractive
Mexico is offering invaluable opportunities to participate
investment opportunities in the medium term. Regional
in the oil and gas market and that of its infrastructure
development is a sector that will surely attract a large
to develop a strong and sustainable energy sector for
outlay of resources that encourage improvement in the
the first time in the country’s history. The time to take
quality of life of the localities where new production fields
advantage is now.
263
VIEW FROM THE TOP
SOCIAL INTEGRATION FACILITATES PIPELINE CONSTRUCTION GIACOMO BONFANTI Commercial Director of Grupo Desarrollo Infraestructura (GDI)
Q: GDI participated in the La Laguna-Villa de Reyes
situation since the projects were finished on time and the
pipeline project. How did the process develop?
locals perceived our presence positively, as a job provider,
A: We have participated in the development of the
making it a safer working environment for our employees.
400km
This formula has been successful in our projects in
Cuidad
Juarez-Chihuahua
and
the
450km
Encino-La Laguna pipelines. Our next projects will be the
Chihuahua, Coahuila, Sinaloa, Sonora and Tamaulipas.
construction of the La Laguna-Aguascalientes and the 264
Aguascalientes-Guadalajara pipelines, which have a total
Q: How has GDI worked with ejidos and right of way
length of 470km. When examining the first bids for CFE’s
issues during its infrastructure operations?
electricity auctions, it is clear that CAPEX and NPDs were
A: At GDI we have a team of 150 people managing
extremely high, although it was the appropriate price for
communities and permitting falls under its scope. This
the time. For the last four years, our team has learned how
team is in charge of creating dialogue between both parties
to become more efficient and has been able to translate
to give a voice to the communities and communicate the
this into cost reductions of up to 60 percent in some cases.
solutions the operator will then provide. We always must
It is possible that the price of these projects may even
ensure that communities see us as a visitor bringing value
be lower in the end, despite right of way issues. We are
and work to the region. This is an area where contractors,
making processes extremely efficient and doing more at a
operators and governments must work together to change
faster pace. Many companies are focusing on cost control,
the mindset across Mexico. It is important to remember
but in the wrong way. Our expertise and knowledge allows
that the land belongs to the communities and it is positive
us to control costs in a critical way, traveling the country
that reforms take this into account.
constantly to understand and participate in the projects. The industry must also nurture the technological thinking
Q: What role will GDI play in the development of Mexico’s
of Generation X because with the technology available
midstream energy sector?
today, young workers can produce a report at a fraction of
A: At the moment, Mexico has 19,000km of pipelines and
the time it would otherwise take.
to the 40,000km that Texas has, it is clear we must create teams of young people who are able to work quickly and
Q: What have been your experiences regarding security
efficiently to guarantee that projects will be executed in the
problems?
shortest time possible. GDI is developing a team of 70-100
A: Security is intrinsically linked with communities. At the
people with a common goal, which is reaching a point where
moment Mexico’s security is an issue not only in locations
we can jump from one project to another seamlessly. The
with pipelines but across the entire country. Throughout
company also is looking to become more involved in the
the development of a project, building a relationship with
development of railroads and it will be crucial to create an
the community is crucial and in high-risk zones it may
alliance with a specialized company to build faster and more
even increase the complexity of the project. It is important
efficient railroads. With energy infrastructure and the Energy
as a contractor to find a balance between the execution
Reform, there has been a learning curve in which we have
of the project and having the least impact possible
adapted to the quotation requests for solar and wind farms.
on the surrounding communities. GDI purchased 250
We want to gain more knowledge about the mining sector
containers to build mobile camps with all basic services
and apply that to wind and solar projects since these require
for our teams as a way of guaranteeing the integrity of the
a great amount of land preparation in short periods of time.
environment. We implemented rules that raised awareness
We also are evaluating opportunities in the expansion of
among our teams about the importance of respecting
ports and marine works because our team already has ample
local communities, the people and the environment.
experience in these areas. GDI is a young company that is
Compliance with these rules created a mutually beneficial
an expert in its field and not afraid of innovation or change.
VIEW FROM THE TOP
MAKING ENERGY ONE SOLAR PANEL AT A TIME DAVID ARELLE President & Chairman of ILIOSS/SolarCity Mexico
Q: Why did ILIOSS and SolarCity decide to join forces in
has achieved economies of scale and can secure extremely
the Mexican energy market?
competitive
A: ILIOSS was created four years ago after we identified
integration. All our employees must be certified by the
numerous opportunities in the segment. ILIOSS started
“SolarCity University,” where they receive both technical
not only as a response to these opportunities but also
and safety training to install our systems. Mexico has
because we had a responsibility as Mexicans to contribute
various advantages, one of them being that labor costs
to the development of the country. Although ILIOSS was
are lower than in many countries.
rates
for
customers
through
vertical
already a large solar business in Mexico, its capacity to grow was limited due to the company’s financial status.
Q: How is SolarCity giving back to the community?
The acquisition gave the combined firm the ability to
A: SolarCity will focus on specific areas in Mexico City,
become what we hope will be the most important player
as well as commercial and industrial projects. To expand
in the solar power industry in Mexico.
our presence, SolarCity will continue spreading light across the country through its GivePower Foundation. The
The country’s energy sector has endless opportunities and
foundation has been successful in countries around the
people are looking for alternatives to save money and are
globe including Nepal, Haiti, Nicaragua, Kenya, Mali and
making an effort to use eco-friendly solutions. ILIOSS is
more, and now we will start here in Mexico.
already present in the commercial and industrial segments in Mexico, working alongside companies like Soriana. Now
For the foundation’s first big project, we are partnering
we want to follow SolarCity’s carefully designed business
with Soriana. Hidden between the mountains of northern
model and enter Mexico’s residential solar sector. SolarCity
Veracruz is a community called Huixtlamaya, which did not
has installed solar systems with a capacity of nearly 2.1GW
have access to energy. The daily lives of the community
for more than 260,000 customers across the US as of the
began with the sun’s rise and ended as soon as it set
end of March 2016. Building solar systems on rooftops
each day. We were excited about this project and when
rather than on solar farms presents different opportunities
we arrived the community already had high expectations
and obstacles and it gives people the opportunity to make
because Soriana had previously worked with them on
the shift to using sustainable energy in their own homes.
another social project.
Q: What made ILIOSS the right choice for SolarCity?
To reach this community, you come to Poza Rica and
A: There are many companies in Mexico that just install
from there drive four hours down dirt roads. It then
solar systems, which is a small section of the overall
takes another hour to walk up the mountain. When we
solar process. SolarCity chose us because we were
arrived, the community greeted us with a band and
the only company in the Mexican arena dedicated to
organized a banquet.
selling energy. The process consists of engineering, maintenance, due diligence and finance sections that are
We want these projects to become an essential part of
all crucial to complete a quality installation. We make a
doing business in Mexico and we have been inviting
strong team because SolarCity knows how to sell energy
other important companies to join in. We provided the
and we have the expertise and contacts to extend that
community with enough solar energy for basic necessities
business in Mexico.
and organized a committee that is led by women, who will be in charge of system maintenance. The company
This company is headed by energetic innovators with a
is excited to take part in these projects and knows that
common mission. ILIOSS began operating in both the
each solar power system that is installed in Mexico will
industrial and commercial sectors with Soriana. SolarCity
contribute to a cleaner environment.
265
266
VIEW FROM THE TOP
PUTTING HOMES ON THE SOLAR SYSTEM JULIAN WILLENBROCK Co-Founder and CEO of Enlight
Q: What are the paradigms Enlight had to break when
integration, drastically elevates the risk for both the
entering the Mexican market?
company and the client. Each roof and project is different,
A: We started operations in Mexico with German
which creates even more hurdles since Mexico does not
technology and trained local staff on how solar panels
necessarily have the qualified human capital to install
work and how to install them properly. We have shifted
and maintain these types of systems. Enlight’s customers
the company’s focus onto the residential and small
can log onto our platform and monitor the results of the
commercial markets, which have huge potential here in
systems from any mobile device or computer. They can find
Mexico. One of the largest hurdles we encountered was
energy production indicators and levels of consumption
that the vast majority of the population did not know how
that can help them understand how they can reduce their
solar power worked and was unaware of the benefits that
monthly energy costs.
it could bring. There are various technical challenges that arise from catering to these markets. It is more demanding
Q: What role is Enlight playing in providing rural
to develop a hundred projects of 5kW systems for homes
communities with energy?
than building one 500kW project for an industrial plant.
A: We have launched a couple of social projects to bring
There are ample benefits from converting to solar power
light to rural communities. We worked closely with Iluméxico
but few businesses or homes have the ability to make such
to develop a program called “Refiere y Ayuda” as a way
a large initial investment.
to reduce the number of people who do not have access to light. Around 3 million Mexicans do not have access to
Q: What is the importance of establishing a unique
electricity in their homes and we believe that it is our duty
method of financing?
as a solar company to help these communities. Companies
A: Within the residential market, companies must find
usually establish a referral program in which they give
more creative ways to differentiate themselves apart from
their clients gift cards or other monetary rewards. Instead
offering financing alternatives. All energy companies must
of following the traditional system, we decided it would
have various forms of financing to be successful in the
have a greater impact if we used that money to donate
market and if the company does not offer these services,
solar systems to these communities. We are also part of
it cannot compete. At first when we were developing our
another program in which we assist our larger clients in the
financing system we began by using SOFOMES, which led
completion of their own social development projects. We
us to create our own financial vehicles, as well as solar
have worked with industrial parks and have participated
leases that adapted to the unique needs of our customers.
in their social projects. Vesta has its own Adopt a School
Our clients make a monthly fixed payment for the lease
program and we participate by installing our solar panels in
and pay a monthly electricity bill according to how much
various public schools around the nation.
they use, which is a lower amount than what they used to pay before installing the solar system. Solar costs are
Q: What is the outlook for Enlight and other solar energy
continuously dropping, especially with rising electricity
providers in Mexico?
tariffs, and we can guarantee the energy production of our
A: We will continue our search for capital in the next few
systems every year.
years. Last year, we partnered with venture capital fund ALLVP and we are looking for new investors to help us
Q: How does Enlight’s value proposition differ from other
expand our reach. Investors are highly interested in Enlight,
solar companies?
especially because we have continuously exceeded our
A: Over the years, we have learned that focusing on the
quarterly growth. We are growing at a rate of 50 percent
financing aspect of solar energy alone and outsourcing
per quarter. The solar market is expanding rapidly and will
the technical aspects, such as installations and system
continue to do so in the coming years.
267
INSIGHT
OPPORTUNITIES IN EV DEVELOPMENT KEVIN GUTIÉRREZ Director General of Ingeteam
268
The Energy Reform has not taken hold as quickly as many
industry that is attracting the entrance of many players.
had hoped. There is slow progress as companies work
“The issue is that some of the entering companies are not
through the large number of regulatory changes being
properly trained to enter the residential market,” he says.
implemented. It may take time to adapt to the new plans
“This phenomenon always occurs in new business areas,
but one area that is ready to take off is renewable energy.
where a technician that may have experience installing air
Kevin Gutiérrez, Director General of Ingeteam, believes the
conditioners is now attempting to install a photovoltaic
regulatory framework is adequate and can positively impact
system. It does not mean that the new areas are particularly
the industry. “When it comes to renewable energy, solar
complex but there are details that need to be considered
actions have been particularly successful and projects are
to install it properly. Without a trained team, homeowners
expected to start this year as more companies are joining
may not be able to correctly evaluate the cost of these
the movement,” he says. A market leader in electrical
projects.”
equipment, Gutiérrez says sales of power inverters are on the rise in Mexico.”We are working on the inverter brand
The market has a way of filtering out companies that are
with an installed capacity of 90MW that has been growing
not offering adequate services, he says. Major players are
fast,” he says. “In 2015, we sold 50MW and so far this year
starting to enter Mexico and local businesses have to adapt
we already have contracts for 210MW.” The company
to survive. One way to survive the initial rough waves of the
expects to add another 200MW before the end of the year.
industry is through partnerships. Gutiérrez believes there are many smaller domestic companies that could be a fit for
According to Gutiérrez, renewable energy can secure
Ingeteam. “When it comes to the residential sector, we value
income for 15 years due to the relatively low risk associated
each client but a great deal of time needs to be invested
with it. “The prices may always be tight but since the
toward selling our product,” he says. “To reach every installer
risk is low, all companies want a slice of the pie,” he says.
in Mexico, we would have to spend sales resources for each
“Mistakes occurred during the first round of auctions but
one. We find it easier to work with distributors that have
people have to realize that changes of this magnitude
a pool of products and brands.” Ingeteam seeks partners
always experience initial complications. Authorities are
who can help create win-win situations and Gutiérrez views
learning and making improvements to motivate serious
these kinds of initiatives as an effort to provide support to
participants. Overall, the country is adapting well to the
the local economy. “Our company is quite willing to help
new plans but there is always room for improvement.
clients that have large projects but who do not understand
Certain variables such as surplus conditions are causing
the mechanisms thoroughly.”
confusion among players." Ingeteam not only works in the solar or wind power industry but also in power electronics
The company also is entering the electric vehicle (EV)
and as a result, does not depend completely on the Energy
business in Mexico and this year finished an installation
Reform. “We are the first inverters in the private industry
for CFE. The sector is starting to grow and many electric
with utility-scale projects,” Gutiérrez says. “We invest
car-charging stations have already been developed.
around 7 percent of our total income in R&D, and always
Gutiérrez believes there is a dire need for investment in
strive to improve the quality of our work. After our success
EV infrastructure to make it easier for people to make the
with utility-scale projects, we have gone into other low-
transition to the vehicles. Tax deductions would be another
power business areas.”
incentive. “The government and manufacturing companies need to provide attractive incentives for these projects,”
The company began commercial development in 2015
he says. “Changing paradigms is not easy and the entrance
and residential in 2016. For residential, Gutiérrez says the
of EVs will take time but adequate infrastructure can be an
most common mistakes revolve around it being a new
influential factor.”
VIEW FROM THE TOP
MOBILIZING CAPITAL TO FORTIFY INFRASTRUCTURE Mario Budebo Director General of EXI
Luis Villalobos Director of Business Development of EXI
Q: What role is EXI destined to play in facilitating
energy sector for which we designed action plans. We
infrastructure investment and optimizing its impact?
are a private equity fund with a long-term perspective on
LV: Mexico has an immense backlog of infrastructure
our investments. Our fund has a term of 12 years, but we
projects and an even bigger one in the energy sector. The
can hold it as long as 14 years. Another added value EXI
key element that will facilitate and accelerate the country’s
offers is that we are an independent fund with no conflicts
development is the participation of the private sector in the
of interest. We like to work together with investors and
industry, which is why the government began implementing
developers to discover the most promising opportunities
new reforms. EXI’s role in the country’s development is in
in the industry. Finally, we see ourselves as integrators
mobilizing capital through the private sector and integrating
by offering project and risk management, which also
projects so that the adequate capital can be raised to make
represents a value add in this market.
these plans a reality. EXI’s leading investors are the Mexican workers through pension funds.
Q: How do you ensure cash flow and the adequate allocation of resources?
MB: Since the opening of the system in 1995, the investment
MB: We successfully deployed our investments and within a
of pension funds has been limited to infrastructure debt,
record time of 18 months have invested 100 percent of the
but now it is open to investment in other sectors, including
EXI 1 fund. We established a balanced portfolio combining
energy. EXI is an intermediary between resources that have
brownfield assets and a project under construction close
accumulated over time and the development of infrastructure
to the operation date. The existing assets have a long
projects with these assets. Pensioners will greatly benefit
operating period and are not subject to demand risk as
from these investments because it will help build necessary
they have contracted revenues. They also have a high-credit
infrastructure that cannot be financed by the government,
quality future cash flows, reflecting a combination of the
allowing for increased growth of the Mexican economy.
credit quality of the counterparty and credit enhancers.
Q: What kind of added value can EXI offer to investors
LV: We are increasing EXI 1 with the establishment of
and operators?
reopening Series B to allow our investors additional
MB: EXI’s team has worked in the infrastructure industry
investments in our existing projects. We also are launching
for more than 25 years, participating in more than 100
EXI 2 and expect to reach closing before year-end.
projects in 18 countries across the globe, totaling about US$100 billion. Half of those projects were carried out
Q: What requirements must be met and what processes
in Mexico. Our accumulated experience here provides us
do companies have to carry out to gain access to funding
the advantage of knowing the regulatory framework, as
through EXI?
well as how to work in the different industries. By fully
MB: EXI has an accelerated decision-making process due
understanding the market and sectors, we recognize the
to our straightforward company structure. Our structure
main players and risks in both the national and international
is composed of three elements: an internal investment
market. When a fund plans to enter a new market it can
committee, a technical committee and an assembly of
be complicated and it must collaborate with locals to gain
investors. During the first stage, the investment committee
knowledge on how to assess risks and negotiate. Having
analyzes the proposal and makes sure the objectives of
more than 50 million Mexicans as stockholders provides a
the project are aligned with the objectives of the fund
natural protection to the assets to be developed.
and if they do then it undergoes a due diligence process. When the proposal is approved by the committee, it is
LV: A couple of years ago, we looked into the infrastructure
transferred to the technical committee, which will then
industry and realized that there was an opportunity in the
decide if it is approved or not.
269
PTAR Tierra Negra, Ticsa, Tamaulipas
WATER & WASTE MANAGEMENT
11
Mexico City alone gulps down more than 34,430 liters of water per second and although 95 percent of Mexicans have access to water resources, the quality is greatly compromised. The city’s intricate water infrastructure system is estimated to leak at a rate of 12,000l/s as it pumps water over mountains from neighboring states. SACMEX estimates the city has approximately 50 years of water left, raising concern. CONAGUA’s 2030 Water Agenda, along with the NIP, have various water treatment plants and pipe projects. The main challenges arise from the new wave of reforms that look to tender concessions and integrate the participation of the private sector more than before. Federal budget cuts have stunted the development of some projects, requiring capital from other investors to ensure the country has the infrastructure it needs to quench its growing thirst.
This chapter navigates the insights of the sector’s experts on how Mexico’s water infrastructure system could be improved and the impact increased private sector participation would have on optimizing its use. Technology developers discuss their arrival to Mexico to treat its black waters and the innovations needed to efficiently utilize water for irrigation systems. This chapter talks about the challenges of treating industrial waters and the opportunities available in water recycling.
271
CHAPTER 11: WATER & WASTE MANAGEMENT 274
VIEW FROM THE TOP: Ramón Aguirre, SACMEX
275
INSIGHT: Emilio Soler, Aqualia
276
ANALYSIS: Mexico’s White Elephant
278
TABLE: Strategic CONAGUA Projects Under the NIP
282
VIEW FROM THE TOP: Carla Casanova, GE Water
283
INSIGHT: Antonio López, Aclara
284
VIEW FROM THE TOP: Federico Jaramillo, Ticsa
284
VIEW FROM THE TOP: Jaime Contró, ADS Mexicana
286
VIEW FROM THE TOP: Carlos León, Verdek
287
VIEW FROM THE TOP: Sergio Rico, Solid Rain
288
PROJECT SPOTLIGHT: Atotonilco
290
INSIGHT: Braulio Campos, Hercules Construcciones de Monterrey
291
INSIGHT: Rogelio Mora, Nabohi Internacional
292
EXPERT OPINION Carlos Salas, INAH
273
VIEW FROM THE TOP
WATER SCARCITY THREATENS MEXICO CITY’S FUTURE RAMÓN AGUIRRE Director General of Mexico City Water Systems (SACMEX)
274
Q: How is SACMEX responding to water scarcity problems
A: Mexico City is often mischaracterized as the driver of the
in the region?
valley’s high population density and the country’s fastest
A: SACMEX created a 25-year plan that incorporates
growing city. Its political city limits are often misunderstood.
expert recommendations with scientifically backed data
The true origin of the megacity’s growth rates comes
to help ease Mexico City’s water scarcity issues. It is
from more than 20 neighboring municipalities in the
divided into phases that include rain water collection, pipe
State of Mexico, while Mexico City alone has surprisingly
leakages, the use of treated wastewater for activities that
low population growth. The capital is home to 9 million
do not require potable water and the reduction of water
people and the surrounding municipalities encompass the
consumption. We also are considering reinserting water
remaining 13 million. The capital is a strong economic center
into the aquifer and using more advanced technology to
but many people must live outside the city limits where
optimize extraction rates. The point is to use the largest
there is cheaper housing. The city has a potable water
number of tools and strategies possible to attack the
system that relies on the exploitation of an aquifer with a
issue. In the short term, the aquifer is our only option. We
limited capacity, which experts estimate will last 50 years
cannot halt extraction and leave the population without
at the most. It is being overexploited at a rate of 25,000l/s.
water. We have to accept it as temporary solution until
Aquifers take thousands of years to develop and the city
we find more permanent alternatives. SACMEX strives to
has managed to drain it in a short period of time. People
create a permanent water system that does not rely on a
tend to see it as a permanent system when it is only a Band-
limited source like an aquifer.
Aid solution. Satisfying the water demand in Mexico City is trickier than other regions due to its central geography
Before cementing our plan, the city has to fix its water leaks.
and its high altitude of 2,200m above sea level. Its position
The amount of leakage is proportional to service hours and
makes most solutions complicated and expensive.
water pressure. We can import water from outside sources but it will only increase the number of leaks in the system.
Q: What role is the private sector playing to bridge the
Our network gives an average of 13 hours of service per
gap in water infrastructure?
day with average water pressure of 90kPa. Developing
A: The private sector has always had a presence in the
countries have on average 200kPa and 24-hour service. If
city’s water system, providing construction, spare parts
we had the same amount of pressure and service hours
and services. SACMEX’s 24/7 project promotes contract
with our current pipeline system, the percentage of water
services from private companies to guarantee 24-hour
lost would rise from 40 percent to 74 percent. We cannot
accessibility and to lower the rate of water leaks. We prefer
strategically adopt alternatives before fixing the leaks. The
to use contracts over bidding rounds, choosing specialized
agency needs to monitor 13,500km of pipelines to find
companies that have the technology and experience to
the leaks. Depending on the severity of the deterioration,
determine the best methods for solving pipe failures. Mexico
a plug or the installation of completely new pipes will be
has relatively few companies dedicated to this. Mexico City
required. Forty percent is not an acceptable percentage
is far from privatizing its system. Commercializing water
but we have a realistic goal of diminishing the leaks by 20
availability would be incongruent with the idea that it is a
percent as every pipeline in the world has some level of
human right. Even though the city enjoys a relationship with
exposure. It will take about seven years to accomplish the
private companies and the maintenance services they offer,
work and the amount of water saved could be distributed
that does not mean we are considering water privatization.
to areas that are severely lacking.
SACMEX is negotiating finance with FONADIN, the World Bank and BANOBRAS to fund our projects. We see credit
Q: What are Mexico City’s largest water infrastructure
as the one of the best strategies for medium to long-term
challenges?
projects when used adequately.
INSIGHT
ROOM FOR THE PRIVATE SECTOR IN WATER EMILIO SOLER Latin America Manager of Aqualia
Budget cutbacks have impacted Mexico’s ability to build
through alternative mechanisms by federal entities with
the infrastructure it sorely needs. In the water sector, the
operator income,” he says. “This model, which is attractive
country must invest at least MX$19.8 million (US$1.04
for the private investor, is becoming scarcer and the private
million) during the current administration to guarantee the
sector should take on projects with fewer guarantees and
availability of water, according to CONAGUA. As funds dry
less involvement from the federal government.”
up, the private sector should be given a bigger role, says water management company Aqualia. The government
With CONAGUA preparing to launch three tenders for
appears inclined to agree. Among CONAGUA’s catalog
water projects for NAICM, Aqualia is readying itself for
of 150 drinking water, sewage and sanitation projects, 10
participation. “We are interested in PPP projects for the
are planned under the PPP scheme, which increments the
construction and exploitation of 21 treatment plants
private sector’s participation by 56 percent in comparison
on the NAICM peripheries,” he says. “We have the best
to the previous presidential term.
technology for these projects, our experience is significant and we have built more than 100 of these types of plants.
Emilio Soler, Director of Latin America at Aqualia,
We now operate approximately 250 plants.” Aqualia was
believes the economic environment and budget cuts
involved in designing, building and equipping the Caracol
have significantly impacted the country’s ability to
pumping plant in Mexico City. The long-term contract
construct, improve and fix its water infrastructure systems.
model and financing is one of Aqualia’s strengths and
“CONAGUA was one of the federal entities worst affected
Soler believes the company can provide all the necessary
by the budget cuts and this has seriously affected
guarantees to CONAGUA and NAICM for the success of
investment in hydraulic infrastructure in the country,” he
the airport project.
says. “Not only have CONAGUA’s federal projects been limited but so too has the capacity of municipalities
The company, a unit of Spanish construction group FCC, is
to obtain investment. This is because the majority of
also delving into new areas of water treatment technologies.
operators are not self-sufficient and they depend a great
In July 2016, Aqualia signed an initial 18-month agreement
deal on federal support.”
with CENTA for the use of algae in water treatment, a process that could revolutionize the industry. Micro algae
The private sector could hold the key to solving funding
are an emerging biological resource in countries like the US,
issues and getting water infrastructure back on track,
France and Israel due to their many unique properties and
suggests Soler. He is confident about the willingness of the
applications. Some years ago, Aqualia began an innovative
private sector to contribute the necessary development
technological project to use micro algae for purification and
because there is great confidence in Mexico. “Companies
bioenergy, which allowed the company to obtain biofuels
like Aqualia can bring not only technology and experience
through the purification of residual water.
but also resources,” he says. “Private participation in water infrastructure is highly valued and is generally extremely
“Among the advantages and innovations of the project
successful. The potential is enormous but in Mexico the
is improved efficiency due to the rapid growth culture
political will to carry out these projects must be enhanced.”
provided by the micro algae,” says Soler. “Also, bacteria from wastewater can be eliminated and biomass can be
Most cases of successful private participation in water
simultaneously collected and processed for oil and other
saving and treatment were in Build-Operate-Transport
chemical extraction. This project was applied on a real
(BOT), says Soler. These were developed with partially
scale in the Chiclana municipality in Spain. The biofuels
recoverable private funds and supported by FONADIN.
produced by this technology equates to the annual
“The obligations to pay the private sector were guaranteed
consumption of a fleet of 400 vehicles.”
275
ANALYSIS
MEXICO’S WHITE ELEPHANT When it comes to water, the common refrain across the
the Caribbean have an average 91 percent. In sanitation,
country is simple, don’t drink it. This is good advice yet
81 percent of Mexico’s population has access to improved
the deeper issue may be rooted in a lack of infrastructure
facilities, such as toilets, a piped sewer system, septic tanks
and a dwindling resource that leaves many without proper
and latrines. But data from the National Water Program
access to the resource. As the government battles to fix a
for 2014-2019 tells a slightly different story. Of 34 states
dilemma that affects everyone, it believes the private sector
surveyed, 13 were classified as having deficient global
may hold the answer. In response to Mexico’s leaky water
access to basic water services. Guerrero, Oaxaca and
system, the government has introduced constitutional
Chiapas notched the lowest scores while Aguascalientes
reforms with the approved 2015 General Water Act, which
and Mexico City were out front with “adequate” services.
seeks to promote the participation of the private sector
276
in water management services. The general public, wary
Ramón Aguirre, Director General of Mexico City Water
that this means privatization, higher prices and adverse
Systems (SACMEX), says the country’s consumption levels
impacts on communities, has not welcomed the plan.
are 50 percent above the average rate of European and
But the financial resources that private companies can
Latin American cities. “Bogota satisfies its demand with
grant might be the extra boost the country’s punctured
29m3 every two months per household, while Mexico City
infrastructure needs, as long as it is coupled with proper
uses 32m3,” he says. “The water supply system will slowly
regulation and follow-up to guarantee access and viability.
start to deteriorate if we cannot lower consumption.” Considering the data, it is no surprise the Guardian
The regulatory changes are significant considering the
newspaper has labeled Mexico City the biggest consumer
released economic package for 2017 will have a much
of water in the world.
smaller budget than expected at the beginning of President Enrique Peña Nieto’s administration in 2012.
The context of Mexico’s water system also has a
“CONAGUA was one of the federal entities most affected
secondary impact. Not only is the country one of the
by the public budget adjustment and this has seriously
largest consumers of bottled water in the world, research
affected the amount of investment in the country’s
from UNAM showed Mexico City ranks first in the world
hydraulic infrastructure,” says Emilio Soler, Director
for gastrointestinal infections from water consumption,
of Latin America at Aqualia. The Water Commission
mostly due to pipe leaks that permit the entrance of
estimates that infrastructure projects require around
deadly bacteria. “The administration of water resources
MX$306 billion (US$16.1 billion) to sustainably meet the
falls on the shoulders of each municipality in Mexico,” says
country’s water demand by 2030, a steep mountain to
Santiago Ortiz, Director General of GBM Infraestructura.
climb considering the weaker economic landscape. The
“Often, these municipalities lack the necessary economic
Bank of Mexico in late August lowered its growth outlook
or
for 2016 to between 1.7 and 2.5 percent from 2-3 percent,
efficiently.” To address the problem, the government has
which would be the lowest in decades.
decided to tap into private sector expertise, a move that
technical
resources
to
manage
these
systems
does not sit well with the country’s population. Either way, something must be done soon as the water supply could be running out, says Jeremy Josephs, a
RIPPLES FROM MEXICO’S WATER REGULATION
contributor to Water and Wastewater International. He
In March 2015, waves rippled across the nation with the
believes Mexico City’s pipe system loses 11 cubic meters
approval of the constitutional reforms that included the
of water per second to leaks. The metropolis is also
amendment of the National Water Act. The amendments
unsustainable as it extracts “water from its aquifers at a
established
rate that is more than twice as fast as they are replenished,”
and the Basin Agencies, organizations that manage the
he says. “A wholesale review of the city’s approach to
country’s groundwater. Combined with the 38 initiatives
water management is required – and fast.”
and 32 programs of the 2030 Water Agenda, the result is a
the
responsibilities
between
CONAGUA
national effort to reduce the country’s water shortage. The
THE SYSTEM TREMBLES
mission of the National Water Act is to improve Mexico’s
The World Bank says 95 percent of the Mexican population
drainage system, provide for clean sources of freshwater
has access to an improved water source, which are
and protect the nation from natural disasters and floods.
structures that adequately protect water suppliers such as piped water, protected springs and rainwater from
CONAGUA has a special interest in promoting the
outside contamination. By comparison, Latin America and
participation of the private sector in municipalities that
have over 50,000 inhabitants as it believes these areas
The inclusion of the private sector is highly misunderstood
would benefit the most from the participation of the private
by the general public as seen by protests and a declaration
sector, as mentioned in its guide to PPPs. The focus on
from an group of civil society organizations that are
larger municipalities has caught the eye of environmental
concerned about the impact of the National Water
and human rights organizations that worry the new projects
Act. The Wharton Business School of the University of
will ignore smaller, more impoverished communities. The
Pennsylvania has added its voice, saying that as long as
Mexican Center for Environmental Rights (CEMDA) says
private participation is coupled with a commitment from
almost 9 million people in Mexico lack access to potable
the authorities to regulate outcomes, assure accessibility
water and of this number, 5 million are in rural areas. The
and viability and promote the inclusion of surrounding
biggest challenge the government faces on its path toward
communities, advances can be made.
closing the water availability breach and in complying with its promises on water infrastructure improvements is
Not surprisingly, such investments benefit the bottom
finding the financial resources and obtaining community
lines of private companies. The WHO estimated in
approval. This is where the controversial PPPs can help
2012 that investment return rates around the world for
bridge the gap between projects and investment.
sanitation facilities stood at US$5.5 per dollar invested. For potable water it was US$2 per dollar. The Wharton
PRIVATE INVESTMENT
Business School of the University of Pennsylvania
Considering the government had to create deep changes
suggests
in Mexico’s system, many fear that the National Water Act
attracting private investors, the promotion of projects
implies the complete privatization of the country’s water.
that go above and beyond to improve the efficiency of
CONAGUA created a guideline for the private sector’s
services in the community and the country, and lastly,
participation in water and sanitation facilities that explains
the inclusion of affected neighborhoods and indigenous
the details of the mechanism. It clarifies the distinction
groups to assuage their fears of being shortchanged. A
between privatization and private participation. The
cultural transformation could be emphasized as well to
former implies the sale of assets and the latter involves
avoid an irreversible water scarcity conflict and create an
collaboration with the public sector to provide services in
ecological consciousness among new generations. Most
water and sanitation that are based on agreements and
importantly, authorities could ensure the improvements
set time periods. The Water Commission allows private
created by PPPs improve water availability not just
participation specifically through service delivery contracts
for the wealthy but also for communities. A positive
and concessions. Privatization is allowed in the mechanism
relationship between the private and public sector
as a type of concession through the sale of assets but it is
and social spheres are the key to facing Mexico’s white
one of several types of participation the authorities permit.
elephant.
reducing
legislative
barriers
to
continue
INDICE GLOBAL DE ACCESO A LOS SERVICIOS BASICOS DEL AGUA GLOBAL INDEX OF ACCESS TO BASIC WATER SERVICES
1.0 0.8 0.6 0.4
0.0
Aguascalientes Baja California Baja California Sur Campeche Coahuila Colima Chiapas Chihuahua Durango Guanajuato Guerrero Hidalgo Jalisco Mexico City Michoacan Morelos Nayarit Nuevo Leon Oaxaca Puebla Queretaro Quintana Roo San Luis Potosi Sinaloa Sonora State of Mexico Tabasco Tamaulipas Tlaxcala Veracruz Yucatan Zacatecas National
0.2
Adequate: More than 0.79 Source: INEGI Source: xxxxxxxxxxxx
Regular: Between 0.64 and 0.79
Deficient: Less than 0.64
277
STRATEGIC CONAGUA PROJECTS UNDER THE NIP Project
Atotonilco Wastewater Treatment
State
Total Investment (MX$ million)
Participation Scheme
Valley of Mexico
9,564
Eastern Drainage Tunnel (TEO)
Valley of Mexico
39,034
Not disclosed
Western Drainage Tunnel II (TEPII)
Valley of Mexico
2,228
Not disclosed
General Channel Tunnel
Valley of Mexico
1,381
Not disclosed
El Zapotillo Dam (Phase 1)
Jalisco
Plant
DBOT1 with a concession for operation
278 Not disclosed
16,162
El Zapotillo Dam (Phase 2)
Jalisco
Not disclosed
El Purgatorio Dam (Phase 1)
Jalisco
In accordance with Mexican Public Works Law 6,788
El Purgatorio Dam (Phase 2)
Jalisco
El Realito Dam (Phase 1)
Guanajuato
In accordance with Mexican Public Works Law
Not disclosed
3,527 El Realito Dam (Phase 2)
Guanajuato
Not disclosed
Built with the Mexican Public Works Law La Laja Dam (Phase 1)
Expected to be built with service provision
Guerrero
contract with an operating concession for 23 years 1,537 Built with the Mexican Public Works Law
La Laja Dam (Phase 2)
Guerrero
Expected to be built with service provision contract with an operating concession for 23 years
Winning Consortium
Status
Funding Sources
Completed
51% Private Investment
49% National Infrastructure Trust Fund
Not disclosed
81.7% Federal Resources
18.3%
Under construction
100% 1928 Trust Fund
Not disclosed
100% 1928 Trust Fund
• Promotora del Desarrollo de América Latina • Controladora de Operaciones de Infraestructura • Atlatec • Acciona Agua • Desarrollo y Construcciones Urbanas • Green Gas-Pioneer Crossing
Not disclosed
• Proacon México • Construcciones Aldesem • Regiomontana de Construcción y Servicios
• Ingenieros Civiles Asociados • Construcciones y Trituraciones
1928 Trust Fund
279 • La Peninsular Compañía Constructora • FCC Construcción
Suspended
• Grupo Hermes
93.8% Federal Expenditure (PEF)
6.2% State Resources
58.7% Private Investment
41.3% National Infrastructure Trust Fund
• Abengoa México • Abeinsa Infraestructuras Medio Ambiente • Abeinsa
Suspended
• Ingeniería y Construcción Industrial
• Isolux México • Corsan-Corviam
Scheduled to
• Ayesa Ingeniería y Arquitectura
begin 1Q18
• Ayesa México
56.6% State Resources
21.5%
21.9%
Other
Federal Expenditure
Sources
Budget (PEF)
• Isolux México • Corsan-Corviam
Scheduled to
59.6% Private
40.4% National
• Ayesa Ingeniería y Arquitectura
begin 1Q18
Investment
Infrastructure Trust Fund
Completed
100% Federal Expenditure Budget (PEF)
Under
58% Private
42% National
construction
Investment
Infrastructure Trust Fund
Not disclosed
Not disclosed
100% Federal Expenditure Budget (PEF)
Not disclosed
Not disclosed
• Ayesa México • Constructora de Infraestructura Latinoamericana • Carso Infraestructura y Construcción • Desarrollo y Construcciones Urbanas • Pavimentaciones, Caminos y Compactaciones • Construcciones Zugusa • Tecnología y Sistemas • Conoisa (ICA) • Aqualia (FCC) • SAT (Mitsui)
61.3% Private
38.7% National
Investment
Infrastructure Trust Fund
STRATEGIC CONAGUA PROJECTS UNDER THE NIP (continued) Project
State
Chapultepec Aqueduct
Guerrero
Total Investment (MX$ million)
Participation Scheme
In accordance with the Mexican Public Works Law 2,164
Chapultepec Complementary Work
Guerrero
Not disclosed
Will be built under a service provision Monterrey VI Project
San Luis Potosi
18,283
contract with an operating concession for 30 years (3 years of construction and 27 years of operation).
280
Vicente Guerrero-Victoria City
Tamaulipas
1,260
Riviera Veracruzana System
Veracruz
979
Picachos-Mazatlรกn
Sinaloa
521
Hobomรณ-Campeche
Campeche
446
El Carrizal-La Paz
Baja California Sur
160
La Paz Wastewater Treatment Plant
Baja California Sur
443.3
La Paz Desalination Plant
Baja California Sur
545
Ensenada Desalination Plant
Baja California
517
In accordance with the Mexican Public Works Law
Expected to be built with a service provision contract with a concession operation
Expected to be built with a service provision contract with a concession operation
In accordance with the Mexican Public Works Law
In accordance with the Mexican Public Works Law
Not disclosed
Expected to be built with a service provision contract with a concession operation
DBOT1 with a concession for operation
Winning Consortium
Status
Not disclosed
Completed
Funding Sources
49% Federal
51% State
Expenditure Budget
Resources
(PEF)
Not disclosed
Under Construction
49% Federal
51% State
Expenditure (PEF)
Resources
80% Private
20% National
Investment
Infrastructure Trust Fund
55% Federal
45% State
Expenditure Budget
Resources
• Concretos y Obra Civil del Pacífico • Controladora de Operaciones e Infraestructura • Desarrollos y Construcciones Rogar
Under review
• RECSA Concesiones • Productos y Estructuras de Concretos
Not disclosed
Under construction
(PEF)
Not disclosed
Contract not assigned
51% Private
49% National
Investment
Infrastructure Trust Fund
Not disclosed
Contract not assigned
61% Private
39% National
Investment
Infrastructure Trust Fund
55% Federal
45% State
Not disclosed
Suspended
Expenditure Budget
Resources
(PEF)
Not disclosed
• Controladora de Operaciones de Infraestructura • FYPASA Construcciones Urbanas
Not disclosed
• OHL Medio Ambiente • Inima
Under construction
Not disclosed
Under review
Under review
76% Federal
24% State
Expenditure Budget
Resources
(PEF)
100% Federal Expenditure Budget (PEF)
60% Private
40% National
Investment
Infrastructure Trust Fund
69% Private
31% National
Investment
Infrastructure Trust Fund
1
Source: CONAGUA DBOT Scheme: Design, Built, Operate, and Transfer
281
VIEW FROM THE TOP
COMPANIES TAP WATER TECH TO SOLVE SHORTAGES CARLA CASANOVA Head of Sales for Mexico, Central America, Colombia and Venezuela at GE Water
282
Q: What companies or clients are interested in GE Water’s
which a considerable number face the same limitations
technologies that enable the reuse of water?
as our Monterrey client in terms of water use. Due to
A: Water availability in Mexico has drastically changed
the increased scarcity of water in Mexico, we perceive
over the past 20 to 30 years and this unfortunate
a trend toward the recycling of water and GE Water
trend has forced many companies to reuse their own
is here to meet this demand, as our main focus is on
industrial effluent or resort to recycling municipal water
developing and offering water recycling solutions. Most
to compensate for shortages. There are several types of
of the large multinational companies have clear corporate
customers who want our technologies. The first are those
sustainability goals, so it facilitates our objective of
companies and organizations with specific sustainability
promoting water recycling.
goals. Another client might not have access or sufficient access to water when starting a project or expanding a
Q: What strategies has GE Water deployed to stay ahead
plant. This was the case with the plant we developed in
of the technology curve?
Monterrey where we treated the residual water and turned
A: Our best practices are found in our water recycling
it into demineralized water, which is purer than drinking
technologies and that has made us leaders in the segment.
water. The third and final type of customer we deal with
GE invests significant amounts of money into R&D of new
simply wants to use GE Water’s technologies to help
technologies for water recycling because innovation is at
the environment. These clients do not approach us with
the core of our business. The company is constantly on the
financial goals in mind but simply out of their dedication
lookout for new opportunities and new niches that have
to contributing to a healthy environment.
yet to be fully explored. GE Water bought IMP, a company that produces membranes, and we also acquired Monsal,
Q: What impact is the Monterrey water plant having on
a company that makes anaerobic wastewater treatment
the potential for similar projects?
systems. There is a constant interest in growing with new,
A: Monterrey is situated in northern Mexico so it
innovative technologies. That is not to say that it is easy to
experiences
local
compete with companies that continue to use conventional
government granted the company permission to build
significant
water
shortages.
The
technologies but our unique selling point lies in the fact that
the plant on condition we use wastewater from the
we seek to differentiate ourselves through innovation.
municipality and implement drainage systems to prevent effluent being released into the rivers. We provided our
Q: What factors favor using the company’s water reuse
client with a technological solution in which all municipal
technology?
residual water could be processed through a zero liquid
A: GE Water has a particular focus on water recycling
discharge system so that no liquids would leave the plant.
projects
Through this process, liquid waste is replaced with a solid
technologies are produced with materials that are not
mass, which is much easier to handle in terms of disposal.
harmful to the environment and our philosophy on
This allowed our client to meet the regulations imposed
environmental conservation permeates all our business
by the government and means the plant will not consume
decisions. Regarding water recycling as a partial solution
freshwater from the municipality, creating an added social
to complex water issues, we see three main factors on a
benefit. This is the biggest combined cycle project in
global scale, scarcity being the first. Secondly, water is
Mexico, equipped entirely with GE technologies for power
difficult to treat. And thirdly, regulations regarding water
and water facilities.
usage are becoming more stringent around the world.
that
favor
the
environment.
Our
water
While certain countries may not yet realize the importance We are seeing a significant increase in interest for this type
of using water sustainably, those that are dealing with the
of project. CFE has launched several energy projects, of
reality of water scarcity are willing to pay for our services.
INSIGHT
WHOLESALE CHANGES NEEDED TO TACKLE WATER SHORTAGE In a country like Mexico that suffers from severe water
“Unfortunately many companies want the cheapest
shortages, adequate treatment is essential. Mexico City,
available solution when they decide to invest in water
where one out of every six Mexicans lives and works,
treatment but the cheapest options on the market are
does not have any natural water source and must pump
particularly poor quality,” says López. “Few companies
it in from neighboring states. As the shortage becomes
design plants that comply with all the necessary
more pronounced, the private and public sectors
regulations and provide a quality, fairly priced service.”
have a responsibility to work together to develop the infrastructure and technology needed to maximize
To thrive in the market here, Aclara has had to be
the available resources, says Antonio López, Director
adaptable and flexible. Verticalization, an increasingly
General of Aclara.
popular phenomenon in Mexico City as building space within the capital’s volcanic perimeter runs out, has
The Mexican water treatment plant manufacturer and
forced the company to pivot away from their standardized
designer, which has installed more than 500 plants
designs, models and plants to provide unique solutions
across Mexico, the US and Latin America, is well aware
to its clients’ specific challenges. 283
of the scale of the problem. López believes that water handling processes in Mexico require wholesale changes to
sufficiently
tackle
the
issue.
“Water
treatment
processes in Mexico are not sufficiently developed,” he says. “Currently only 37-40 percent of the country’s
“We have developed new plant models, including the
water is properly treated. It is a big problem.”
Aclara Plantas PAQUETE,
For López, an important contributing factor is that
which are portable and more
companies in Mexico are simply not clued-up on how to handle their water supply. Although executives may have good intentions to maximize their resources, without the necessary knowledge, technology and infrastructure this cannot be achieved. This is true for the public and
compact than our traditional solutions” Antonio López, Director General of Aclara
private sector in equal measure, according to Lopez. “We have developed new plant models, including the “Most of our clients are not aware of the regulations with
Aclara Plantas PAQUETE, which are portable and more
which they have to comply, the standards they have to
compact than our traditional solutions,” López says.
meet and the potential sanctions they could be subjected
“These designs are completely adjustable to a project’s
to if they do not act accordingly,” he says. “Many
size, location and specification, allowing the user to
government officials, particularly at a municipal level,
handle water in a much smaller space than previously
also are oblivious to the resources available to them.”
possible.”
One of the most important requirements that Mexican
Despite the significant strides the company has made,
companies have to meet is detailed in the NOM 003
López insists that the country lacks the infrastructure
SEMARNAT 1997, which states that treated water must
that Aclara and its competitors need to design their
be safe for indirect and direct human usage. To help
treatment plants. The government must support water-
corporates comply, Aclara has developed the Aclara
handling companies through maintenance and operation,
003 treatment model, which enables users to apply
as well as building and designing new plants themselves.
the treated water to a whole range of services from
Only then will the country provide a more reliable water
gardening and car washing to washrooms and showers.
service and be in a position to get on top of the problem.
Thanks to its multifunctional characteristics, this is the most popular of the company’s six treatment models but
“The government helps corporates fulfill the water
López believes that the Mexican culture of opting for the
requirements,” he says. “But unfortunately it does not
most convenient option has to change if the country is to
support companies like Aclara that design and construct
emerge from its water crisis.
the treatment plants. This has to change.”
VIEW FROM THE TOP
QUENCHING AN INDUSTRIAL THIRST FEDERICO JARAMILLO President of Ticsa
Q: Why did Grupo EPM decide to establish its Ticsa
state of Tamaulipas near Tampico through which we will
sewage management subsidiary in the Mexican market?
become suppliers to PEMEX in the area for 25 years. These
A: Since Grupo EPM is funded publically, we take an
types of projects are interesting because PEMEX will pay
extremely cautious approach to investing. Before entering
less for their water usage and the municipality can sell
Mexico, we had already studied the market for over five
its sewage water to PEMEX. This is a mutually beneficial
years. The country has one of the world’s most important
situation that sets the example for the recycling of sewage
economies and the opportunities here are numerous.
water for industrial use.
Mexico’s 284
Energy
Reform
is
introducing
regulations
similar to those in our home base Colombia as both were
Q: What steps is the government taking to improve the
modelled after the Chilean and UK regulatory frameworks.
country’s water management system?
These have been successful with well-established goals.
A: The number of projects developed in 2015 was much
In energy sector development, water treatment is an
lower than expected but the government is preparing for
important element. We are constructing a plant in the
changes in water management. The government is revising
VIEW FROM THE TOP
VISION NEEDED FOR LONG-TERM WATER SOLUTIONS JAIME CONTRÓ Director of Engineering and Industrial Relations at ADS Mexicana
Q: How significant is the infrastructure sector for ADS?
applications. ADS is also starting to manufacture the same
A: Infrastructure accounts for 60-65 percent of ADS’s
products with polypropylene resin (PP).
business because our core business is in sewage and drainage. Sewage entails sanitary and storm systems
Besides these, we have many other product lines,
within cities whereas drainage includes solutions for
including underground structures like manholes, which
agriculture, highways and commercial developments,
complement our pipes. Through these complementary
both from the public and private sector. The rest of our
products we are able to provide a complete solution rather
business comes from mining through piping sold to mining
than simply manufacturing the pipe. We also treat storm
companies for leaching processes. Our piping can also be
water, eliminating sand and debris and we work with both
applied to agriculture, with piping for canals and drainage
the public and private sectors.
to increase land efficiency. We also provide conduit and Q: What is the balance of your portfolio between the
telecommunications piping.
public and private sector? The original product we produce is corrugated high-
A: We have seen an important shift in the balance for
density
for
infrastructure because the amount of government funding
infrastructure applications. We manufacture diameters of
polyethylene
(HDPE)
piping
mainly
has been reduced to 25 percent from 50 percent of total
4-60in, meaning our piping has a great deal of outdoor
project expenditure in Mexico. Most of the spending now
several policies with which it wants to implement higher
A: We see PPPs in Mexico as an opportunity and they
quality standards and make processes more efficient. This
are gaining momentum in the industry. Many companies
redesign of existing programs also will create many more
are talking about working through PPPs but in reality
opportunities for CONAGUA to support municipalities. We
the number of available projects is lacking. There are
have identified this as an important niche in the market
challenges to working in these types of partnerships and
that will require management and strategic planning. In
if a company does not have a long credit history, gaining
Colombia, a person can safely drink tap water but that
financing becomes a difficult hurdle to overcome. As it
is not recommended in Mexico. It is crucial that there is
stands, we are looking for alternative financial resources
continuity among municipalities, especially when it comes
and we believe that there will be many opportunities for
to the distribution and pumping of water by truck. This
us in the future. We want to demonstrate the abilities and
method of water distribution consumes excessive amounts
values of a public firm, which can work as a reference for
of energy and because the quality of water cannot be
the international market on how a public company can
monitored, it is sometimes unsafe to consume. The storage
work as a private one.
of water in tanks also reduces water quality and makes the distribution process more complex. There are many
Grupo EPM also pays close attention to the environmental
areas of opportunity in these processes and institutions
aspects of projects, especially when talking about water
such as CONAGUA and IDB are becoming more involved
management. Many regions lack sufficient water supply
in methods to improve the quality and the distribution of
while others have a surplus. The country’s infrastructure
water. Significant investment and the development of new
and communities are not prepared for the changes in
regulations are required to make the necessary changes.
water supply that will demand a change in habits and practices in the future. These changes will require a great
Q: How will the development of PPPs improve Mexico’s
amount of commitment and infrastructure and we are
water management sector?
ready to help the country make this transition.
goes toward flagship projects like the New Mexico City
pipes are completely watertight, meaning they prevent
International Airport (NAICM). The problem is that there
soil contamination caused by leakages. The cost of the
is little left for the majority of infrastructure projects and
finished project may be similar to using concrete piping
the private sector must assume the financing and the risk.
but when factoring in the product’s lifespan, we can help
Mining is a cyclical industry and experiences many peaks
to reduce costs not in terms of the initial outlay but over
and troughs. Similarly, the housing segment has faced
the entire lifetime of the infrastructure.
turmoil since 2008 but is now beginning to rebound. The automotive industry boom in the Bajio region has created
Q: How deeply has ADS penetrated the market for
a lot of business for our solutions. The few infrastructure
infrastructure piping?
projects the government is investing in are coming
A: ADS Mexicana accounts for almost 80,000km of
through PPPs, instead of full government investment, and
installed piping in Mexico. We have four plants in the
the budget is not used efficiently.
country and our market share is around 50 percent despite the number of competitors that have tried to replicate
Q: What advantages do HDPE and PP piping bring to the
our success. As an example, ADS supplied and installed
infrastructure sector?
around 80 percent of the storm sewers in Guanajuato’s
A: To manufacture 1m of HDPE or PP piping, the carbon
automotive cluster.
footprint is much lower than manufacturing the same amount of concrete piping. Secondly, the installation and
We are providing piping for the Mexico-Toluca train project
construction is by far the fastest, meaning fewer delays
and we are prepared to begin working on NAICM. In Mexico’s
and cost and time savings. Moreover, concrete pipe lasts
largest wastewater treatment plant in Hidalgo, we provided
between 20-25 years whereas our pipes have passed
considerable amounts of piping. Moreover, 90 percent of
laboratory testing that shows they can be used for over
the piping installed in Nuevo Leon’s new KIA facility is ADS
100 years.
Mexicana piping. The turf drainage installed in the country’s new soccer stadiums, including in Aguascalientes, Torreon,
Our technologies can also resolve the issues faced in
Monterrey and Guadalajara, was provided by ADS, as well
Mexico City in terms of pipe leakage and lost water. This of
as the storm water drainage in the Formula 1 Hermanos
course has a knock-on effect on the environment since our
Rodriguez race track in Mexico City.
285
VIEW FROM THE TOP
CONQUERING MEXICO’S WASTE MATERIAL CHALLENGES CARLOS LEÓN CEO & Partner of Verdek
286
Q: What are the main challenges of recycling waste
and sustainable bathrooms to help solve the lack of
material in Mexico?
proper sanitary facilities in marginalized regions of Latin
A: In Mexico, Tetra Pak is created with white, long-fiber
America. We have a prototype that is easily transported
cellulose, which we recover and sell to the paper industry.
and assembled in rural areas. Considering that a large
Recycling waste material is important because producing
percentage of our target population does not know how
a ton of virgin cellulose requires 13 trees, which is a concern
to read, we have included color-coded instructions for
considering the amount of cellulose used in the world.
assembling the product. Verdek also is considering the
We also lower carbon emissions by reducing the need
construction of self-assembled rooms for impoverished
to import this material, which is not produced in Mexico.
areas, with the public Un Cuarto Más (One More Room)
Designing a process that incorporated the thousands of
program. The goal is to build 400,000 extra rooms
tons of multilayer packages thrown out annually in the
for low-income families to diminish overcrowding and
country, 85 percent of which are Tetra Pack, was the first
abandonment.
challenge we faced. In 2008, only 8 percent of these
modules also can be used for educational facilities. We
packages were recycled. The number has increased to 18
also help by formalizing recycling. We do not work with
percent thanks to initiatives like Verdek’s.
companies that do not provide invoices, giving us stricter
These
sustainable
and
high-quality
control over our expenditures and resources. Cleaning Tetra Pak waste was another obstacle we faced because that entailed the separation of different layers,
With these initiatives, we are looking to transform Verdek
which traditionally required expensive equipment. After
into a socially responsible company. We have plans to build
several trials, we found a cost-competitive process to
a new factory in Monterrey in partnership with a successful
clean the Tetra Pak and efficiently separate the plastic
waste management company already operating in the city.
and aluminum layers from the cellulose. We avoid using
Guadalajara is also a potential location for our business
chemicals, which makes our process even cheaper by
but we still need to analyze elements such as the presence
eliminating the need for wastewater treatment equipment.
of cellulose consumers in the region.
Now, Tetra Pak factories in Mexico are starting to shift
Q: What have been the company’s biggest achievements?
to brown cellulose, which represents a new challenge
A: One of our biggest achievements has been certifying
for us. Globally, its subsidiaries are encouraged to
our recycled building panels under the SCS Global Services
increase recycled materials, which motivates them to
seal, becoming the first company of our kind to earn this
support initiatives like Verdek’s as part of their corporate
recognition. The certification considers different aspects
sustainability strategy. It is difficult for them to support us
of the process, including water usage, which is one of our
here because Mexico does not have the proper regulations
strengths. Verdek’s process uses the same water five times
in place. Mexico lags behind other Latin American
before disposal. The wastewater contains only traces of
countries that are planning to pass laws holding companies
cellulose that can be used as a fertilizer in agricultural
accountable for the residue of their products. Argentina,
fields. Local farmers usually come to collect the remaining
Bolivia and Brazil are among the nations considering these
water, which can otherwise be discarded in drainage
measures.
without negatively impacting the environment. Generally, recycling companies tend to use artisan practices while we
Q: What social impact is Verdek having in the country?
rely on a system that is 90 percent automated. We even
A: In Mexico, 1.1 million families do not have access to
reject a certain amount of materials due to the lack of
decent bathrooms, which negatively impacts their quality
capacity. It is a positive sign that we might soon have to
of life. We are considering the production of affordable
expand thanks to our success.
VIEW FROM THE TOP
A SOLID SOLUTION FOR WATER INSECURITY SERGIO RICO Director General of Solid Rain
Q: Which characteristics make the Solid Rain product
from the roots nor from surrounding plants, functioning
environmentally friendly and value added?
solely by absorbing liquid water. The purpose of watering
A: Solid Rain is a product derived from petroleum and the
systems is to keep the roots of the plants humid. Using
polymers are composed of carbon atoms, which are held
Solid Rain as a watering system maximizes the use of water
together by electric charges. When this product comes
because the water does not evaporate or filter through. As
in contact with water, the bonds begin to detach and
a result of eliminating various wasteful factors, the plant
undergo a molecular adhesion process. This converts liquid
can absorb almost all the available water, allowing farmers
water into solidified water fragments. Many believe that
to save up to 90 percent of their water. Most plants using
because it is derived from petroleum it will contaminate
Solid Rain are watered after an average of every 165 days,
the environment but because it is not soluble in water,
reducing water usage by almost 99 percent.
it does not contaminate its surroundings. The product contains carbon, nitrogen, potassium and hydrogen, which
Q: What applications does Solid Rain have for other
are nonpolluting elements and could actually be used as
industries?
nutrients if the product was soluble. It is important that
A: Solid Rain has been used to help restore vegetation in
the product is not soluble because its main purpose is to
certain ecosystems, strengthening the food chain. Some
retain humidity. Each particle has the ability to retain up to
companies also have adapted our product into their
500 times its own weight in water, so 1kg can hold up to
business models. One company combines ice with Solid
250l of water. As humidity decreases Solid Rain returns to
Rain to ensure the ice keeps its solid form during food
its original dust-like state and continues to absorb water
delivery. This keeps the merchandise from getting wet
for up to 10 years.
and maintains the cold temperature it needs to stay fresh. The product also has been used to stop bushfires from
Q: How much water could Solid Rain help conserve in the
expanding. Firefighters create a perimeter of Solid Rain
long term?
around the fire. When it reaches the boundary, the fire dies
A: We have conducted many different experiments over
out on its own.
the past 11 years with a variety of plants. One example involved placing plants in pots along with soda bottle
Q: What impact can Solid Rain have on the usage and
caps filled with our product. We use those caps as our
management of water resources in Mexico?
measuring unit because in rural areas they do not have
A: Solid Rain can help reduce poverty, migration and
measuring weights and we use what is most appropriate
hunger worldwide and we are achieving these goals in
for the end user. For every liter of water, one bottle cap
many regions. When ejidos cut down trees, stopping the
of product is used. In our experiments, we would place
filtration of water, they are left with undrinkable water,
a plant in 5l of soil and 5l of water along with 5 bottle
causing various health problems. These communities
caps of Solid Rain to create a uniform distribution. The soil
are automatically resistant to change but we have
absorbs the Solid Rain and it is no longer necessary to
begun to help them develop more appropriate rainwater
water the plant until the plant’s leaves demand it.
management and collection systems. The majority of the population does not collect rain water and in large cities,
Another study conducted on the trees of Mexico City
the water is wasted as it runs off into drains and mixes
showed they did not need to be watered for five months
with sewage. These communities now store rain water
unless there was a drop in humidity of more than 50 percent.
with Solid Rain in cloth sacks for the dry seasons of the
The soil around the trees remained dry throughout those
year. They are able to grow their crops using last year’s
months because the product retains the greatest amount
rain without having to depend on the amount of rain that
of water possible. Solid Rain does not extract humidity
will fall that year.
287
PROJECT SPOTLIGHT
288
ATOTONILCO Mexico City was not always the concrete jungle it is today. During the reign of the Aztecs, the city was built on an island in the middle of Lake Texcoco, with canoes used to navigate the connecting canals and advanced water management techniques to mitigate damage to the area’s biodiversity. It was only when the Spanish settlers arrived and built over Tenochtitlan, extending its area to cover the expanse of water without taking the proper precautions, that the city began to experience problems. As a result of the mistreatment of the land and overpumping from the lake bed, Mexico City now finds itself sinking into a chasm of its own making, in the face of chronic flooding, a shrinking infrastructure budget and a shortage of clean water. As the population increases, so too does the amount of waste water. The overpumping of water from the city’s aquifer also has intensified, and the fact that the city is covered by asphalt and cement means that replenishment is limited to only 8 percent of annual rainfall. With a problem that involves both flooding during wet season and a shortage of clean drinking water, several initiatives have been attempted to address these inherently linked issues. At the beginning of the 20th century, President Porfirio Diaz inaugurated the 47.5km Gran Canal to carry sewage from the city. Additionally, the Cutzamala water system carries clean water from other states, flowing through seven dams and several hundred kilometers of pipes. This is still not sufficient to meet demand and around 40 percent of the clean water is lost through inefficient piping. As a response to Mexico’s growing water crisis, CONAGUA constructed the Atontilco wastewater treatment plant, the largest of its kind in Latin America and one of the largest in the world. The plant in Guanajuato state has an average capacity of 23,000l/s, with the potential for an extra 12,000l/s during the rainy season. The system digests anaerobic sludge through 28 points measuring 13,500m3 each, with which methane can be derived to be used for generation of electricity. This allows the plant to power itself, reducing greenhouse gas emissions and sludge volume. The project is designed to mitigate the contamination of the Valle de Mezquital, which has been an unrelenting problem over the last 100 years. Not only will the treatment plant improve living conditions for more than 700,000 people, it will lead to diversified cultivation of more than 80,000 hectares of land and will allow for the exploration of new economic sectors such as ecotourism.
289
INSIGHT
PUBLIC INVESTMENT URGENTLY NEEDED IN PROJECTS “There is a high demand for
In fact, the main problem Campos perceives across the
water treatment plants but
coming from both federal and local authorities. “The few
there is not enough capital to
infrastructure industry is the lack of public investment resources that are invested are allocated to projects that are sometimes not necessary or that will only provide a
invest. The government has
temporary solution to a perceived problem, rather than
different priorities”
by the authorities in terms of infrastructure investment.
Braulio Campos, Director General of Hercules
target the development of the most urgent projects. If
Construcciones de Monterrey
federal authorities cannot allocate the required resources
long-term solutions,” he says. “Few states are being favored The government needs to participate in more PPPs that
to meet infrastructure demands, then local authorities
290
One measure of the degree of development in a city is
must try to combine efforts with the public sector to
its water management infrastructure. Braulio Campos,
construct the needed projects.” He believes that Monterrey
Director General of Monterrey-based construction firm
would benefit from this kind of partnership. “As part of
Hercules Construcciones de Monterrey, says that more
the private industry, whenever we try to provide a solution
than 90 percent of the water in the city goes through
for specific infrastructure problems the authorities often
water treatment processes. This, he says, is a strong
overlook our solution,” he says. “Solutions should always
sign of development. Hercules has participated in the
come from the authorities, regardless of the functioning
construction of water treatment plants across various
or practicality of the proposed option.”
municipalities in Monterrey, including a small watertreatment plant near Cadereyta that treats 150l/s and
As a result, Hercules’ participation in public sector
the Dulces Nombres plant that treats up to 14,000l/s.
projects has been substantially reduced in recent years.
The company’s expertise also extends to other states.
“A few years ago, around 50 percent of our income came
“In Puebla we worked on the construction of storm
from projects with the government whereas now, this
drainages,” says Campos. “When carrying out this
would be impossible,” Campos says. “For construction
project, we noticed that to avoid paying for public
companies it is important to find new clients.” This has
services, people connect their house drainage systems
pushed Hercules to broaden its scope and take an interest
with storm drainage, contributing to clogging problems.”
in participating in new sectors. “At Hercules, we are interested in participating as investors in new real estate
Despite promises made by the NIP, Campos believes that
projects,” he says.
actions have fallen short in terms of water and waste infrastructure. “There has been investment in drainage
Despite the lowered level of public investment in
systems and water treatment plants but we cannot say
infrastructure projects, the gap is quickly being filled by
that plant construction is a growing business,” he says.
instruments like Fibras and this is beginning to create
“There is a high demand for water treatment plants but
greater traction for the real estate industry. Campos
there is not enough capital to invest. The government
expects this to quickly trickle down to benefit construction
has different priorities.” The situation in Monterrey has
companies like Hercules. “We are taking place in a project
reached the point where it is becoming common for
to build the Torre Obispado tower in Monterrey, which will
associations of private citizens to buy water collectors
be the tallest building in Latin America,” says Campos.
with the purpose of trying to perform very basic water
“We are contributing with land preparation and we hope
treatment so the water can be recycled, according to
we can continue our participation in the next stages of
Campos. “In Mexico, bottled water is economical when
the project.” Nevertheless, he maintains the federal and
compared to the necessary investment that is required
local authorities must start investing more resources in the
to run water treatment plants,” Campos says. He believes
construction industry across all of Nuevo Leon where the
this may go some way to explaining government
company primarily operates. “Currently, private industry
reluctance to spend on this kind of infrastructure,
is keeping the infrastructure sector afloat and this is
especially in light of budget restrictions caused by low
not sustainable,” he says. “We need the government to
oil prices.
continue investing in projects.”
INSIGHT
CREATING A CULTURE OF WATER AWARENESS Problems
with
infrastructure
can
be
far
reaching.
Uninformed decisions now can create big problems down the road. Take the construction of Mexico City. The sprawling metropolis was built on shaky foundations and now finds itself steadily sinking into the remains of Lake Texcoco. “When a municipality builds a street there is a general lack of oversight, meaning that construction is not carried out in a properly sustainable manner,” says Rogelio Mora, Director General of Nabohi, a consultancy and manufacturer of sewage and wastewater treatment equipment that works with public authorities across the country and also has a strong distribution network in the US.
“When a municipality builds a street there is a general lack of oversight, meaning that construction is not carried out in a properly sustainable manner” Rogelio Mora, Director General of Nabohi
Internacional
Mora believes that services like those provided by Nabohi must become essential for municipalities to avoid later
public, authorities do not want to spend on it, preferring to
complications. “In Mexico there is no prevention culture.
spend on more striking and eye-catching infrastructure.”
To avoid floods, for example, a consultancy service would inform local authorities that the sanitation network needs
Drainage infrastructure is not only necessary but also
to be constructed first, then the stations for re-pumping
represents an important source of employment for locals,
wastewater to treatment plants. This infrastructure not only
who can easily build sanitation networks. Water treatment
prevents flooding but also allows the recycling of water.”
plants, however, need to be constructed by electro-mechanic specialists. Municipal authorities also need to enforce
Prevention can be a cure that comes in many forms, Mora
regulations, Mora says, particularly on illegal settlements
says. For example, cities with large urban concentrations
that are the most effected whenever there are floods.
that impede the reconstruction of infrastructure would benefit from aqueducts or pipelines with larger diameters
Mora believes the government’s role in this kind of
that allow the passage of larger volumes of water. “Mexico
infrastructure development is necessary to spark a change
City and the adjacent municipalities from the State of
in culture. “The government needs to promote prevention
Mexico keep growing and expanding but discharge pipes
campaigns that target the public’s awareness of the dangers
are not growing,” he says. “This means whenever it rains,
of throwing garbage and food down the drain,” he says. “The
the city floods. Here, prevention plays an important role,
dangers and disadvantages of neglecting the sanitation of
especially considering that year after year the floods get
the city, such as the proliferation of rodents and cockroaches,
worse.” He points out that climate change is generating
need to be emphasized. The city and its corresponding
more rain and if rain patterns are changing then the
political divisions need to invest in sanitation.” A water
infrastructure needs to change accordingly. Mexico City is
treatment plant in the Iztapalapa area of Mexico City would
gradually upgrading its sanitation network but Mora does
require a MX$800 million (US$42.1 million) investment but
not believe this is being done fast enough. “Unfortunately,
the benefits would surpass the cost, especially if it could
there is no quick-fix solution,” he says.
recycle water. The construction of a water treatment plant would provide the city with the necessary water when the
Due to territorial extension, population density and
Cutzamala system is undergoing maintenance.
the amount of garbage generated, the city also needs constant maintenance. Frequent protests in the streets
Mora calls on the authorities to prioritize the topic of water.
generate garbage that clog storm drains. The expenses
Private companies can participate in the construction of
related to regular maintenance of sanitation networks and
water management infrastructure but water sanitation
establishing re-pumping wastewater stations are high but
processes are managed entirely by local governments.
necessary, says Mora. “One of the most common problems
“Although providing concessions to private companies
we face is trying to convince the authorities of the need for
might seem like a good idea this might have negative
drainage infrastructure, regardless of the price,” he says.
consequences since it could hike water prices,” he says. “We
“Since this kind of infrastructure is usually hidden from the
need to make sure that every person has access to water.”
291
EXPERT OPINION
THE CHALLENGES OF THE BASIN OF MEXICO CARLOS SALAS Title C Professor of Scientific Investigation at the National Institute of History and Anthropology (INAH)
292
The Basin of Mexico is an endorheic cavity, as it has no
the north arrived to the central highlands. The last to arrive
natural outlet. This immense bowl filled with lakes formed
was the Mexica culture, founding Mexico-Tenochtitlán in
from a confluence of runoffs after the emergence of the
1325 after uniting with Texcoco and Tacuba against the
Chichinahuatzin mountain range. It was then enclosed by
people of Azcapotzalco. The basin has been exploited and
mountain ranges in the north, east and west, forming an
man-made since then because of its natural resources.
elongated depression where volcanic elevations can be
People took advantage of the local flora and fauna through
observed. These clearly demonstrate a fracture within the
chinampas, a humidity crop system that reached its peak
19 parallel that extends to the Revillagigedo Islands in the
between the 14th and 16th centuries. Since fresh water was
pacific. This fracture formed secondary faults that led to
of the essence, the locals devised a series of projects, or
volcanic eruptions. During the Pliocene Epoch, tensional
albarradas, with the purpose of containing, regulating and
fissures were formed from N-NW to S-SE, giving birth to the
draining the lakes.
th
Sierra Nevada volcanoes including Tlaloc, Telapón, Papayo and Itztaccíhualt. In parallel, the Ajusco and Sierra de las
Springs located at the foot of the mountain were the
Cruces emerged to create what is now called the “Valley of
source for drinking water, which was transferred through
Mexico,” irrigated by the water that poured from the Sierra
open aqueducts. One of the most important Mexica
de las Cruces, Guadalupe and Sierra Nevada. These streams
hydraulic infrastructure projects was the Albarradón de
formed lakes where large amounts of volcanic ash were
Nezahualcóyotl, built between 1440 and 1503 to honor
deposited, causing new variations in the environmental
Texcoco’s king. Its main function was to separate fresh and
characteristics of the basin.
brackish waters, starting from the Cerro de la Estrella and ending in northern Atzacoalco. This infrastructure permitted
The lake system of the basin was made up of five bodies
the development of the chinampa system in places where
with waters of different character. Chalco and Xochimilco
they could not be previously installed due to the water’s
are
human
high mineral content. During Mexica rule, several albarradón
consumption due to the large amounts of debris they
projects were constructed as a part of a grand hydraulic
contain. Zumpango, Xaltocan and Texcoco were brackish
control system, all of them leading to Tenochtitlán.
freshwater
lakes,
though
not
safe
for
lakes. During the rainy seasons, the surrounding mountain ranges would merge these five lakes because the basin did
During the conquest of Tenochtitlan, Hernán Cortés took
not have a permanent internal source that would contribute
advantage of the lake and its water systems to siege the
to level of the lakes.
city for 90 days, retreating on Aug. 13, 1521 after capturing Cuauhtemoc. Cortés sought to construct his new Spanish
Archeological findings in Tlapacoya provide evidence
city in Coyoacan. However, he changed his mind in favor
that this region had been inhabited by hunters and
of Tenochtitlan’s ruins to avoid an uprising. The materials
gatherers more than 25,000 years ago, supported by the
of the ancient temples and natives’ homes were used to
Tepexpan Man and the Peñon Woman whose remains date
build the new city, including part of the aqueducts since
back approximately 6,000 years. The consolidation of
Cortés did not think they were useful. By 1521, the water
agriculture in the formative period (3000 B.C to 200 A.C)
levels began to decrease as a result of the over-exploitation
encouraged the formation of urban sprawls. After Xitle’s
of the forests surrounding the lakes.
eruption in the 2
nd
century, people from Cuicuilco migrated
to the northeast lakes, laying the ground for Teotihuacan,
In 1555, the city suffered its first major flood followed by
one of the most important cities of Mesoamerica. After
another in 1579. By 1580, a “general drain” was designed
its demise in the 7th century, its habitants spread to other
but the project did not go through in full due to elevated
century, groups from
costs. However, after the flood of 1604, the city looked
areas of the lake region. By the 9
th
for a definitive solution, leading to the implementation
initiating the quick sinking of the city. Through the 1940s to
of the general drainage system. Among other proposals,
the 1970s, rivers that once disembogued in the basin were
cosmographer Enrico Martínez proposed a tunnel running
sealed and their ancient channels were transformed into
toward the north of the basin, passing through Huehuetoca,
avenues.
that would drift the waters of the Tula River, which connects to the Panuco River and then empties into the Gulf of Mexico.
“During Díaz’s administration,
The project was not completed as only the waters of the
the country finally achieved
Cuautitlan River were diverted. In 1623, the Marquis of Galvez shut down the Huehuetoca tunnel but in 1627 the basin flooded again, followed by three more disasters in 1627, 1628 and 1629, which lasted until 1634. After this eternal flood, the general drainage project was restarted but with a plan to direct the flow into an opencast instead of a tunnel. The construction was concluded in 1789. Although not as severe, the floods nonetheless continued, aided by urbanization that shortened the lakes’ banks.
economic stability and Mexico City initiated a period of growth mainly toward the occidental region” Carlos Salas, Title C Professor of Scientific Investigation at the National Institute of History and Anthropology (INAH)
In the first half of 19 century there was not much progress th
due to the Independence War in 1810 and a long period
In the 1950s, the drainage system went through a great
of political instability that ended with Porfirio Díaz’s
expansion even though the city continued to have grave
government in 1876. By the second half of the century,
problems in managing rain and waste water. The General
another alternative for general drainage was proposed
Direction of Hydraulic Works was created in 1953 and
by engineer Francisco de Garay. He proposed a series of
established the “General Plan to Solve Subsidence, Flooding,
connections between the lakes in the basin starting at
and Drinking Water Supply in Mexico City.” This plan was
Chalco Lake and ending at Zumpango Lake, draining the
modified as years passed until it was able to offer a definite
excess water in the Tula River with a tunnel running next to
solution to flooding and drainage. In 1975, the “Mexico City’s
Tequisquiac. Unfortunately, this project was not carried out
Deep Drainage Project” was instated and because of the
due to insufficient financial resources. In 1856 the Chalco
constant work to drain the basin from the mid-20th century,
Channel, now known as the Garay Channel, was built to
as well as the exponential growth of the city during the
connect Xochimilco with Texcoco to prevent flooding in
‘60s, ‘70s and ‘80s, the lakes disappeared almost entirely.
the south. During Maximiliano of Hapbsburg’s reign, the
Xochimilco had to be rehabilitated in 1951 by diverting
Emperor gave the green light to Garay’s project which
the channel of Churubusco to salvage the chinampa area.
began construction in 1866. However, with the ending of
Meanwhile, the Texcoco disappeared completely and
the French invasion, the initiative was again cancelled.
artificial lakes were created for the ecological recovery of the region. Zumpango and Xaltoca were also drained entirely
During Díaz’s administration, the country finally achieved
and replaced by countless housing units. Mexico City’s deep
economic stability and Mexico City initiated a period of
drainage has contributed to flood control but the problem is
growth mainly toward the occidental region, creating new
still present. After the overflow of the Compañía Channel in
colonies along the ancient road to Tacuba. The construction
Chalco, a new tunnel had to be planned. Ecological projects
of the Great Channel was revisited by opening the tunnel
to restore the lakes of Texcoco, Xochimilco and Tláhuac have
of Tequisquiac and completing its construction on March
also been carried out.
17, 1900. After the Revolution in 1910, the country fell once again into chaos until the 1930s. The city began expanding
Mexico City and the metropolitan area are an example
into the previous lakebeds, creating a challenging situation
of bad urbanization and grave subsoil problems due to
in the city’s planning and service provision. The year 1937
indiscriminate groundwater extraction, pollution and bad
sparks the construction of the second tunnel towards
water usage. More water has to be brought from another
Tequisquiac finished by 1954. However, even with these
basin to meet the needs of the city and groundwater
projects the flooding was not completely suppressed.
continues to be extracted with obvious consequences. Now, the project for the New Mexico City International Airport
The city continued to grow expeditiously, occupying
(NAICM) intends to exploit land that once was devoted
areas that were once dedicated solely to agriculture.
to tillage and was traditionally the lakebed. Although the
This increased the need for drinking water, leading to
project is intended to be self-sufficient, what will be the
the meticulous extraction of water from the subsoil and
repercussions inherited by future generations?
293
MATERIALS & TECHNOLOGY
12
Innovation is key to the construction of sustainable and resilient infrastructure of the future. As the challenges become more complex, companies are innovating to find new solutions to the construction of infrastructure. When it comes to materials, Mexico’s rich mining deposits offer a steady supply to steel and cement producers and as for commerce, its numerous FTAs and proximity to the US make it the perfect destination for manufacturing new products. Infrastructure companies are integrating new technologies, such as drones, to assist in the construction and maintenance processes of large projects. Mexico is known for its rich heritage and companies are integrating artisanal materials and designs into their products. Companies are facing the challenge of adapting their prices to rising commodity costs and the depreciation of the peso, without compromising profit margins.
This chapter provides insights from a combination of innovative companies that are providing the industry with materials and technologies that will transform the country’s infrastructure in the future. These companies provide services to different sectors within the industry and have found unmatched opportunities in Mexico. Stakeholders share the strategies the companies adopt to put their human capital first and to improve their products or services.
295
CHAPTER 12: MATERIALS & TECHNOLOGY 298
VIEW FROM THE TOP: Juan Romero, CEMEX México
301
VIEW FROM THE TOP: Guillermo Álvarez, Cooperativa La Cruz Azul and CANACE
302
VIEW FROM THE TOP: Jonathan Benitez, Mabey Bridge
302
INSIGHT: Gustavo Vanzini, Grupo Vanzini
Gustavo Vanzini Hernández, Grupo Vanzini 304
VIEW FROM THE TOP: Yuri Avitia, Ferreplus
305
VIEW FROM THE TOP: Fabricio Menegoni, Gerdau Corsa
306
INSIGHT: Takeshi Yamamoto, Hypertherm
307
VIEW FROM THE TOP: Fernando Pérez, Maccaferri México
308
INSIGHT: Liliana González, Luminográfica
309
INSIGHT: Ramiro de León, MASISA
310
VIEW FROM THE TOP: Mauricio De Silva, Concrete Canvas
310
VIEW FROM THE TOP: Sebastián Zepeda, Delair-Tech Mexico
312
INSIGHT: Bruno Pinotti, IMI Precision Engineering
313
VIEW FROM THE TOP: Alfonso Calderón, Wells Commerce Group
314
INSIGHT: Norma Garibay, LADIP
Juan García de León, Detaller 315
VIEW FROM THE TOP: Guillermo Peña, PPG
297
VIEW FROM THE TOP
SUSTAINABLE CONCRETE FOR STRONGER FOUNDATIONS JUAN ROMERO President of CEMEX México
Q: How can Mexico bridge its infrastructure gap in the
resources worldwide. Developing countries have much
next few years?
lower percentages because the waste is not preselected.
A: The greatest challenge is to incentivize the development
CEMEX developed a method of separating different types
of quality infrastructure throughout the country that will
of waste to be transformed into fuel.
withstand Mexico’s particular climate and environment.
298
The money destined for infrastructure at the moment
The second option involved electrical energy, which
is being used more on improving existing structures
traditionally comes from fossil fuels. In Mexico, companies
rather than building new ones. It is important to take into
are switching to clean energy sources. CEMEX began by
consideration the quality of the infrastructure project
constructing the 250MW capacity Eurus wind farm in
before allocating funds. Last year’s Public Works reform
Oaxaca and later participated in the La Ventika projects
bill that is now awaiting Congressional approval will
in Nuevo Leon. These developments have allowed us to
require that investors consider not only the initial cost but
generate 35 percent of our electrical energy from renewable
also that of the structure’s entire lifecycle when bidding in
resources, which is a great advancement since CEMEX is
a tender. That will allow companies to plan the long-term
one of the top consumers of electrical energy in the country.
operating and maintenance costs. The key to developing infrastructure is a long-term vision and investment through
Q: How has CEMEX innovated its processes to create
project management. The private sector will play an
more sustainable infrastructure?
important role bringing new and innovative infrastructure
A: Mexico is rich in resources for creating additives, such
throughout Mexico. Establishing clear regulations and
as volcanic rocks known as pozzolana, steel slag and fly
processes will not only speed up development but will
ash, which we have integrated into our products to reduce
also save money by reducing the need to constantly inject
CO2 emissions. Apart from improving our materials, we
funds into repairing and improving existing infrastructure.
have developed methods to recycle waste from other industries that have eliminated over 8 million tons of
Q: What steps has CEMEX taken to become a more
CO2 from our products, which equals the emissions of 1.5
environmentally conscious company?
million cars a year.
A: CEMEX faced the challenge of lowering the environmental impact of its global operations by developing a greater
CEMEX also has created laboratories in several countries,
variety of environmentally friendly materials. When we
such as the Centro de Tecnologia del Cemento y Concreto
first started down this road, we could either modify the
(CTCC) in Mexico, to conduct research on cement, concrete
elements used to create the materials or change the
and the application of various additives. These labs are
formula of the products themselves. The first option
part of our R&D collaboration network, headed by Swiss-
involved changing the type of fuel the company used. We
based CEMEX Research Group. Roads made using concrete
began incorporating less aggressive fuels, which drastically
instead of asphalt are 8-10 percent more expensive but
decreased our carbon footprint. Managing inorganic waste
concrete’s durability drastically reduces repair expenses,
is the number one challenge in urban cities, especially since
making it a wiser investment. Traditional concrete is more
it is growing at an annual rate of 1.6 percent. CEMEX began
durable, absorbs less heat, is cheaper and saves around
recycling the waste and not only did we reduce the amount
3 percent of fuel consumption in the long term. Concrete
but also added value to it by converting it into fuel that
has the ability to lower heat 3-12 percent in large cities by
reduced the company’s CO2 emissions. About 17 percent
reflecting sunlight, which would otherwise have translated
of CEMEX’s fuel usage in 2015 came from alternative
to higher energy consumption. It can also reduce lighting
fuels, such as FIRSU, which is a type of inorganic waste.
expenses up to 30 percent due to its lproperties that reflect
CEMEX consumes around 27.7 percent of alternative fuel
three times more light compared to asphalt.
On occasion, water can infiltrate concrete and damage
CEMEX works together with the authorities to find the most
infrastructure. We developed water-resistant products
efficient forms of transportation that require the lowest
that reduce this phenomenon. These types of innovations
amounts of investment without compromising the overall
will improve the construction of green areas, such as
impact. The two main barriers are problems involving
roof gardens, and increase the efficiency of homes while
road infrastructure and urbanization. Cities are growing
reducing humidity. Our contribution to acoustic and
much faster than original urban plans had foreseen and
thermal additives allows concrete to act as a natural
are failing to meet the demands of the population. We are
barrier, lowering temperatures by around 35-40 percent.
developing roads in which we substitute more than half of
We will continue to create solutions that contribute to the
the aggregates with recycled car tires. CEMEX completed
development of sustainable cities.
a road in Guanajuato built with more than 2,000 recycled car tires mixed with concrete. Not only will this reduce
Q: What opportunities does CEMEX expect in the energy
the amount of waste tires but this material is more skid
sector?
resistant, increasing user safety. In Mexico, CEMEX recycles
A: Mexico has made the decision to reduce its electrical
as much as possible from original roads. In Europe, the
energy emissions and the Clean Energy Certificates (CELs)
recycling of waste from larger infrastructures is rapidly
are related solely to emissions generated from producing
gaining popularity, especially since these countries have
electrical energy. There is speculation regarding the way
more advanced recycling methods.
in which these certificates could affect companies and if these certifications might require divestments. We do
Q: How is CEMEX involved in the transformation of
not plan on becoming an energy supplier but instead look
Mexico’s infrastructure?
to meet our own energy needs. Nevertheless, we see a
A: CEMEX focuses on the construction of new resilient
significant opportunity in collaborating on these types of
infrastructures, as well as protecting the country’s aquifers,
projects.
reducing the city’s waste management problems and helping the government develop more efficient projects.
Q: What role has CEMEX played in the development of
We offer solutions to this repair cycle by developing
efficient and quality transport infrastructure?
quality products that will prevent the problem from the
A: CEMEX has been working closely with the relative
outset. We have participated in PPPs alongside the Mexico
authorities to develop sustainable transport. The usage
City government to develop various infrastructure in
of Rapid Transit Bus (BRT) systems in Mexico has grown
which we built the pavement, water drains and gardens,
rapidly, since the cost of investment of a traditional metro
and maintained the infrastructure for the duration of the
subway system is around 10-15 times higher than a BRT,
contract. One of the largest problems with infrastructure
and they can reduce transit times within a city by up to
development is that a great deal of money that is originally
50 percent. Various cities are also using traditional diesel
assigned to infrastructure is wasted or used inefficiently.
buses but Monterrey has incorporated hybrid units that
Smaller states and local governments do not have the
use natural gas instead of diesel, reducing pollution by
budgets for transport or sustainability departments, so
approximately 20 percent.
CEMEX helps them by offering various types of support.
Landscape, Anzures, Mexico City
299
Cruz Azul Plant, Hidalgo
300
VIEW FROM THE TOP
A SOLID GRIP IN THE CEMENT SECTOR GUILLERMO ÁLVAREZ Director General of Cooperativa La Cruz Azul and President of the National Chamber of Cement (CANACEM)
Q: How have Mexico’s macroeconomic conditions and
Q: The cement industry has a reputation as a polluter.
budget cuts affected the cement industry?
What is being done to improve that?
A: When Mexico faces a slower economy or recession the
A: Players around the world are working to restore the
budget for public spending is reduced and municipalities
cement industry’s reputation by proving that most of
and
Federal
the industry is in compliance with ecological norms and
infrastructure like highways and railroads may remain in
guidelines. Mexico significantly contributes to the use of
place but the government is generally forced to focus
alternative fuels, the saving of water and efficient energy
on other priorities such as schools and hospitals. These
use. It is concerned about generating pollution and strives
projects do not require large volumes of cement but they
not only to meet norms but to go above and beyond
still greatly benefit society's wellbeing. The construction
compliance. Green cement might seem like a marketing
industry is a significant part of the Mexican economy
slogan but it requires the certification of laboratories
and its deceleration can negatively affect the country’s
that focus on preserving the environment. The cement
GDP. The cement industry alone represents 1 percent of
industry used to place electrostatic filters in pre-heaters
the economy. Each government has the right to decide
to capture fine particles with water and make sure they
what material will be used in their projects but they should
were not expelled into the atmosphere. We implemented
understand that cement requires minimal maintenance
this measure even before environmental norms became
when it is applied to roads. It can last up to 50 years and
so stringent. Cruz Azul has replaced these filters with a
generates long-term savings. A diverse range of products
technology that uses air instead of water to cool down
and services are needed to keep the industry moving during
the particles. Per plant, this new technology saves up to
an economic slump. Mexico’s economy has maintained
1 million liters of potable water daily. The industry also is
a strong and reasonable demand for concrete products
working on eliminating contaminants by adopting efficient
and services in real estate and other markets thanks to
methods and SEMARNAT is obligated to certify plants
dynamic metropolitan areas like Mexico City. Developers
that want to remain operational as Clean Industry. Cruz
such as Be Grand are growing and implementing vertical
Azul is a pioneer in replacing horizontal mills with vertical
projects that are 40-50 floors high. The central Bajio
mills that reduce noise by 75 percent. We mitigate noise
region is also expanding horizontally with houses and low-
pollution so efficiently that visitors often are surprised by
rise buildings.
the silence. The rest of the industry is gradually following
states
must
postpone
some
projects.
in our footsteps and adopting the same technology. Q: How does sustainability optimization and compliance come into play across industries?
Q: What innovative products is the Mexican cement
A: All companies can optimize things like plant facilities that
industry creating?
not only lower overall production costs but contribute to
A: Concrete can be designed according to the nature of
a more rational use of water and energy. Our plant in the
each project in terms of resistance, weight and fluorescence
Isthmus of Tehuantepec in Oaxaca is number one in the
or porosity. The industry is trying to design and introduce
country for energy savings. Sustainability does not only
porous concrete into the Mexican market since it is ideal
imply adopting simple elements like efficient light bulbs
for pedestrian or heavily populated areas. It allows water
but also analyzing each phase of the production process
fluidity, prevents flooding and helps to reinstate the aquifer.
to identify areas of opportunity. Companies should take the
Porous or permeable concrete is already being used in
time to ensure each step in their process reaches and exceeds
Europe. The construction industry in Mexico is accustomed
the average level of quality. If all companies and industries
to traditional methods and also is a strong creator of jobs.
committed to efficiency in terms of energy consumption, the
The problem is that innovation in construction could reduce
country’s energy demand would be greatly reduced.
labor demand, which would endanger family incomes.
301
VIEW FROM THE TOP
BUILDING THE BRIDGES THAT TRANSPORT DEMANDS JONATHAN BENÍTEZ Regional Manager Latin America at Mabey Bridge
302
Q: What impact have changing regulations and standards
to manufacture them, gives us the confidence to meet this
had on the bridge business?
requirement. Due to the increased importation of steel and
A: Today’s market demands reliable and cost-effective
recent changes in dumping practices, the Mexican steel
solutions
in
industry has pushed for the implementation of new tariffs.
transportation weights. The transportation of cargo
that
are
resistant
to
constant
shifts
These tariffs were developed as a form of protection from
requires a design that is far more robust and providers
steel coming mainly from China. This excludes steel that
must have the ability to work in a timely manner. Mabey
comes from countries that are part of Mexico's free trade
Bridge has adapted its products to the specific needs
agreement. Mabey Bridge imports its steel from within the
of the Mexican market. We promote work conducted
European Union making these tariffs inapplicable to us.
with federal road authorities on the development of specifications for steel bridge superstructures.
Q: How does the company ensure its products meet transportation demands?
The Mexican Public Works Act stipulates domestic content
A: Mabey Bridge optimized its designs and today offers
as a percentage of project value. The design of our modular
a variety of options that incorporate the original modular
bridges, combined with the cutting-edge technology used
essence but meet the needs of our clients with greater
INSIGHT
PAVING A SUCCESSFUL PATH IN CONSTRUCTION
Gustavo Vanzini Castellanos CEO & Founder of Grupo Vanzini
Gustavo Vanzini Hernández CFO of Grupo Vanzini
From a single truck transporting asphalt for PEMEX
opportunities for companies like Grupo Vanzini. “They
over 20 years ago, Grupo Vanzini has grown to become
began creating hard asphalt for hot processes, leading to
a leading supplier and hauling service for both private
the construction of various asphalt-emulsion factories,”
and public entities, including the Ministry of Transport.
Vanzini
“Our expertise has allowed Grupo Vanzini to improve its
emulsion plant was among the first four in Mexico. We
operations, timings and services,” says Gustavo Vanzini,
then opened plants in Toluca, Durango, Cancun and La Paz
the company’s President. “Quality is a pillar in our
to improve our supply network.”
says.
“Our
Salamanca,
Guanajuato
asphalt-
business vision and it has led us to a leadership position in the market.” Grupo Vanzini started out hauling asphalt
This rapid growth and emulsion technique quickly
for PEMEX, which at the time was the country’s sole
attracted more competitors to the market and PEMEX
supplier. But the state-owned group’s decision to halt the
decided to offer a discount for any consumption
production of its polluting FM-1 and FM-3 asphalts, both
superior to 1 million liters or 1,000 tons, which boosted
of which had a high concentration of naphtha, created
competition. Grupo Vanzini then bought 15,000-20,000
efficiency. It is vital that we maintain the quality of our
most important considerations. For provisional and
products because we want to cover the largest cargo
emergency applications, the surface is made of steel
weights and farthest distances possible while minimizing
decks with stamped corrugations. For permanent bridges,
the number of intermediaries.
the steel deck surface is covered with a proprietary mix of polyurethane and crushed bauxite to give it a grainy
One of our competitive advantages is that we can easily
texture and more strength.
transport our solutions because they are modular and can be assembled at the site in a short amount of time. Bridges
Q: How do modular bridges benefit communities that are
arrive in standard size containers at the job sites and do not
affected by natural disasters?
require specialized assembly equipment or labor. All of our
A: In 2013, Mexico was hit by two tropical storms that
solutions are manufactured in the UK and are then exported
demolished more than 300 bridges. Mabey Bridge
to over 140 countries. Delivery costs remain low for Mexico
has developed a close relationship with the Ministry of
and we continue to seek local alliances to develop formal
Communications and Transport (SCT) throughout the
distribution channels in the country. This will help us keep
years, which now has a detailed inventory of our emergency
stock and improve our response rate.
bridging solutions so that in the case of an emergency it can reconnect areas and resources in a matter of hours.
Q: What changes does Mabey Bridge make to adapt its products to fit an ever-evolving market?
Our bridges connect communities, allow the transportation
A: In terms of technology and innovation, manufacturing
of rescue supplies and improve quality of life for
processes
continued
communities that have been affected by these natural
development. During the design process, we consider
are
the
most
important
for
disasters. Mexico has a long way to go in terms of fulfilling
the effects of a range of temperatures from -20 to +60
the needs of rural communities, and even though these
degrees Celsius and from there we adapt the bridge
communities are located in remote areas, the fact that our
depending on the requirement. When choosing materials
bridges are so easy to adapt and install has a substantial
for our bridges, the carriageway surface is one of the
impact on their quality of life.
liters of asphalt from PEMEX on a monthly basis, obtaining
Grupo México. The company’s President is optimistic
the discount, and was paid in machinery by the clients
going forward thanks to the exponential industry growth
to which it distributed the asphalt, allowing it to evolve
of industry in the past couple of years in Guanajuato. “The
into a construction company. Grupo Vanzini now boasts
automotive industry in that region and the development
a wide array of projects in its portfolio, including the
of new industrial parks will encourage even more projects,
noted Cuernavaca-Acapulco highway, as well as the
which will increase our business,” he says.
Mexico-Guadalajara, Leon-Aguascalientes and TorreonDurango highways. “While some construction companies
Grupo Vanzini also introduced foamy asphalt, which gives
or suppliers gravitate toward either the public or private
molecules a higher adhesion. But the company is not
sector, Grupo Vanzini collaborates with both,” says CFO
averse to incorporating innovations from other companies,
Gustavo Vanzini Hernández. “The diversification of the
like PEMEX’s soft asphalt that makes roads less vulnerable
company has allowed it to become a construction player.”
to oxidation, meaning they remain stronger for longer. “Although it is more expensive, it is proven to create
The younger Vanzini says the company has worked on the
longer-lasting roads and some municipalities have begun
Kukulcan Boulevard in Cancun thanks to the support of the
to make it a requisite for tenders,” the President says.
Ministry of Tourism (SECTUR) and it is now working in the Benito Juarez municipality in Quintana Roo. “We also have
The company’s innovative vision has helped bolster the
government projects in Guanajuato, and one in La Paz,
competition over the years, according to the company’s
and we are working on the road from Valle de Santiago
CFO. “At times, employees leave the company and take
to Salamanca in Guanajuato, as well as refurbishments
our processes and innovations to our competitors,” he
and maintenance projects,” he continues. “We have just
says. “But thanks to our constant innovation, quality
received an 80km-long project called La Herradura in
and fair prices, Grupo Vanzini has enjoyed stable growth
Penjamo, Guanajuato for maintenance and releveling.”
throughout the years. The construction sector is extremely
Grupo Vanzini is also working on the construction of
complicated with big wins or huge losses. This is where
industrial parks and other projects with companies like
the optimization of processes helps maximize resources.”
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VIEW FROM THE TOP
SHAPING SUCCESS PIECE BY PIECE YURI AVITIA General Manager of Ferreplus
Q: What differentiates Ferreplus from the competition?
more competitive and demand higher volumes but offer
A: Ferreplus has been in the industry for 10 years and
smaller profit margins. These tenders usually require
forms part of Grupo Industrial Monclova. The company
specific countrywide distribution, increasing the project’s
was created to provide services to the group’s metal-
complexity and need for in-depth analysis. Although we
mechanical companies such as COMMSA Tampico. After
have greater involvement with the private sector we are
a year, we expanded into other sectors and companies.
looking to become more active in the public sector.
We offer services to the north and central regions of the 304
country, with 10 strategically located stores. We began
It also is extremely important that we are able to adapt to
with specialized welding materials and technology and
new companies entering the Mexican market. We worked,
we grew according to client needs. Ferreplus supplies
for example, with Hyundai MOBIS throughout its extensive
everything from machinery and spare parts to raw
manufacturing trials where we offered our support and
materials. Our catalog has more than 5,000 products
product knowledge.
related to cutting and welding processes. Q: How does Ferreplus position its brands in the market? Over the years, we have established three brands of our
A: We are the second largest distributor of ESAB in Mexico
own: Warden welding equipment, Blackset conventional
and one of the top 10 distributors for Lincoln Electric. When
machines and welding consumables and Esguard safety
we go to a company to present a product, a specialized
equipment. We analyze the evolving needs of the market
technical team from each of our brands goes along so the
to innovate our brands and product offerings. The quality
client has the highest level of customer support and all the
of our products and customer service differentiate us from
information needed to make a decision. There are many
our competitors. The vast majority of our clients belong
different welding products in the market, from which
to the rail car manufacturing sector, such as Greenbrier
we carefully select to complement our own hard goods.
and Gunderson. The construction sector holds countless
Although our brands have only been in the market for five
opportunities for Ferreplus because all our products can
years, we are confident their share will grow exponentially
be used in the sector, especially metal beams.
in the next few years.
Ferreplus’ catalog now has more than 5,000 products related to cutting and welding processes
Q: What goals and opportunities are ahead for the company? A: Our short and medium-term goals are to increment our sales volume and increase our list of domestic suppliers. We manufacture around 250 products and of those, 210 are made in China. We are looking to produce more of our products in Mexico, starting with one of our core products, flux core wire. We strive to improve each of our existing products and services while simultaneously developing new innovative products that will optimize our clients’ processes. We are evaluating the possibility
Q: What are the differences in working with the public
of expanding to more states, such as Puebla, and there
and private sectors?
are many more business opportunities to open in the next
A: We are working with the Government of Coahuila
year. One challenge we face is finding the qualified and
and we want to participate in more tenders on both the
specialized human resources we need to further expand in
municipal and federal levels. Federal level tenders are
the construction industry.
VIEW FROM THE TOP
REINFORCING THE DOMESTIC STEEL MARKET FABRICIO MENEGONI Executive Director of Gerdau Corsa
Q: How does Gerdau Corsa address the industry’s gaps
than 1,000 people. In 2012, our initial plans projected a
and trends?
two-year window for construction plus two more years
A: The Mexican infrastructure sector has experienced
for product development. The company pushed itself to
dramatic shifts over the years. Public investment is falling
finish construction on budget and on time and to develop
while private investment is rising. Vertical construction is
the products in less than one year. The idea was to create
similarly taking off and as a result, construction companies
a portfolio of 86 beam sizes but we ended up developing
need to have better technology and more agility. On
110 products in only eight months.
average, construction grows at a 3 percent rate per year in Mexico and demand for steel beams is rising at an annual
Q: What impact has steel dumping and overcapacity had
rate of 8 percent. One challenge is that Mexico imports 70
on the Mexican market?
percent of its steel beams, which take a minimum of three
A: Any type of change will always create an impact.
months to arrive. The whole chain from manufacturing to
Without a doubt, the supercycle of commodities has
distribution and construction is delayed, hiking project
buffeted the steel industry, which is affected by market
costs. National steel production would smooth these rough
downturns in China, Brazil and Russia. China controls 50
patches and shorten the production cycle significantly. For
percent of worldwide steel production with a total of 1.4
that reason, we have invested US$600 million to construct
billion t/y. Two years ago, the country was growing on
a mill in Ciudad Sahagun, Hidalgo. The mill has an installed
average 12-14 percent annually and this attracted plenty
capacity of 1 million t/y of steel and 700,000 tons of
of investment. Unfortunately, the economy’s deceleration
structural steel shapes that give us a strong grip on the
caused
market. We also have technology that shortens average
companies are scrambling to figure out how to work with
production cycles and our clients can order over 110
that. Businesses in China also partner with the government
sizes and specialized cuts to satisfy special requirements.
to guarantee a functional society and employment at the
The mill’s beam production varies from 6-24in to cover
cost of fair play. Steel is not an easy market as it competes
national needs and our products and technical services
with many countries, particularly China’s mass production.
can improve efficiency and infrastructure development.
Gerdau Corsa decided to invest in Mexico because of its
Ultimately we want to turn Mexico into an exporter instead
growth opportunities and competitive strength.
oversupply
in
the
market
and
now
many
of an importer. Q: What role does the company want to play in the local Q: How did the plan to build the mill unfold?
infrastructure industry?
A: Before deciding to create the plant in Ciudad Sahagun,
A: The company strives to be our clients’ first choice by
the company thoroughly analyzed the area’s social
proving our professionalism. We want to help players
context and potential because developing communities
evolve and to promote the industry. Another objective
creates stronger relationships with supply chains. The
is to turn the country into an export platform in a fair
company found the city already had been relatively
market. Our ability to compete does not depend on
developed,
industrial
subsidies but high-quality material and service. We also
park, but several factors and conditions caused it
develop the communities where we work and foster local
to deindustrialize. Still, important infrastructure was
talent. We hope to grow into other segments in light and
already in place, such as electric transmission lines, gas
heavy infrastructure such as bridges, where steel can
and water networks, and the region is well-connected
be an alternative. Our three main challenges revolve
to freeways and railways. We intend to kick-start the
around balancing our exports with quality, creating a
community and the company already has implemented
relationship with the domestic market and being a leader
17 social volunteer programs that have impacted more
in the steel industry.
having
hosted
Mexico’s
first
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INSIGHT
A CUT ABOVE IN THE STEEL SECTOR TAKESHI YAMAMOTO Country Manager at Hypertherm
Hypertherm started as a garage business and has since
stainless steel manufacture, from structural steel to heavy
carved a path around the globe, delivering its innovative
equipment and everything that is eventually cut or welded.
cutting and gouging systems to OEMs. The company now
The company says its products are used for constructing
has a presence in over 93 countries, including Mexico.
and repairing ships, skycrapers, trains, trucks, tunnels and even roller coasters.
The
306
company´s
Mexico
Country
Manager
Takeshi
Yamamoto says innovation is at the heart of Hypertherm.
In the local market, the company’s plasma systems for
“We have a strong relationship with companies like
manual and mechanized applications are in high demand.
Caterpillar that continually push us to provide more
“On the manual applications side, our Powermax systems
advanced technologies and better services,” he says.
are the leading portable air plasma machines with different
“Hypertherm does not traditionally sell to end users
capabilities to cut or gouge in the field or in the fabrication
directly. We have distribution channels that work with the
process,” Yamamoto says. “The Powermax30 Air has a
public and private sectors. Our customers are in many
built-in compressor that only requires electricity.”
sectors, including telecommunications, power distribution and the railway industry.”
For
mechanized
applications,
Hypertherm’s
SureCut
Solution allows the industry to cut holes with plasma Hypertherm has a wide variety of technologies for
with a higher level of quality and precision that was not
cutting different materials and applications. In Mexico,
possible before. It involves the elimination of secondary
most of the company’s business is in metal fabrication,
operations to prepare the plate. Infrastructure projects
with the majority of its customers focused on mild and
that involve steel structures use plates for bolt mounting and Hypertherm’s technology helps save time and money without compromising the quality and reliability of the end product, says Yamamoto. Yamamoto believes the industry needs to push itself more toward innovative solutions and that collaboration is key. “If the presence of a technical committee and the involvement of machine manufacturers were standard practice among the owners of infrastructure projects, best practices could be incorporated to increase productivity and narrow technology gaps,” he says. “A coordinated effort would be beneficial because many companies limit their offering based on the capabilities of their distributors, engineers or the final customer.” Even though the final solution might be efficient, Yamamoto maintains that market dynamics do not always allow companies to adopt state-of-the-art technologies. The goal for Hypertherm, he says, is to continue developing efficient distribution channels that are capable of commissioning high-end technologies and to push for innovation.
VIEW FROM THE TOP
MESHING WITH THE LANDSCAPE FERNANDO PÉREZ Director General of Maccaferri México
Q: What are the biggest hurdles to adapting Maccaferri’s
throughout the central region but less so in the northern
products to Mexico’s landscape?
and southern states. Mexico’s intricate landscape poses a
A: This is an extremely challenging task for any civil
challenge for building companies and since wire meshing
engineer. In a construction project, the engineers know
is not as well known, Maccaferri sees an opportunity to
exactly the weight of the construction, how resistant
grow in this market. The biggest hurdle is convincing
the soil will be and how to efficiently transfer all of that
engineers to start applying it in their projects. There is
weight onto the soil. The concrete market often has all
also a lack of knowledge about gabions so Maccaferri
this information for the design process. When working
is teaching recent graduates how to properly use these
with projects on beaches or river beds, that data is not
types of materials in construction.
available and can be laborious to calculate. Since concrete is predesigned to fit specific dimensions, it cannot adapt
Q: What are the challenges in working with local
to a change in force or the elements. Gabions are wire
governments
mesh panels sold in cubic meters that are flexible, do not
management practices?
break and adapt to unexpected force, such as earthquakes
A: The geosynthetic products used in landfills are called
and floods. They adapt to various situations and can be
GEOMATS,
which
used in a variety of projects and construction.
Whenever
trash
and
developing
have
sustainable
impermeable
becomes
wet,
it
waste
characteristics. leaks
a
highly
contaminating liquid, known as leachate, and if landfills are Q: Why is it important to coordinate the manufacturing,
not sealed, this liquid will seep into the ground and into
design and installation processes of these products?
aquifers. To avoid this, the landfill is made impermeable
A: We must be present in all stages of our products’
with the use of these GEOMATS and then a new landfill
lifecycle and given that many engineers do not know how
is built over top so that no matter how much leachate
to use our mesh products, we have to assist them in the
accumulates, it will remain contained.
design process. The market sees us as problem solvers and not just product providers thanks to our engineering
Building a landfill on top of a closed one with the use of
solutions. Gabions can deeply impact the performance of a
geosynthetics is called a piggyback landfill. Collaborating
project. These products solve a great variety of difficulties
with local governments on the process for implementing
that concrete or other materials cannot. For instance,
these types of products can be difficult, partly because the
the products used in the completion of the Cuernavaca-
majority of Latin American countries worry more about other
Acapulco highway are gabions and rockmesh. These
issues such as reducing poverty and malnutrition. Developed
products served as protective barriers, stabilized the rocks
countries have already covered these basic necessities so
in the slopes and increased safety.
they are more concerned with ecological issues.
Q: How much of an opportunity do wire mesh and
Latin American countries usually only install one GEOMATS
geosynthetic products represent?
layer, which is helpful for preventing further contamination,
A: Wire products are commonly used in Mexico and
but European countries are installing multiple layers of
gabions are favored for infrastructure developments.
GEOMATS and sometimes even final layers for growing
They have applications in railways, channels, highways,
vegetation on top of the trash. We develop products that
dams and a variety of other civil engineering projects.
allow municipalities to convert what used to be wasteland
Gabions come in many varieties to fit the specifications
into playgrounds. Our goal is to produce more sustainable
of different terrains and projects. Although these
products like hydro seeding. This allows the growth of
products have been in the country for over 40 years,
vegetation on slopes and the regeneration of land in short
they are not used across all regions. They are prevalent
amounts of time.
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INSIGHT
HIGHLIGHTING LIGHTING INEFFICIENCIES Lighting used to mean having one lightbulb in the middle
people and controlling natural light allows infrastructure
of the room. How times have changed. Today an array
to save money on cooling and heating systems. These
of bulbs, lamps and accessories can transform a room,
technologies also generate data on consumption levels and
creating a new environment for the user. LEDs are a
money saved in each part of a building.”
big part of that evolution. Liliana González, Director General of lighting systems company Luminográfica, says
González acknowledges that since Luminográfica products
competition in the industry is heating up, especially since
can be expensive, the company’s services are sometimes
companies with little to no experience in the market began
out of reach for many people. “We seek to bridge this gap
manufacturing and selling LEDs.
by educating the market and providing training for end users, companies and designers,” she says. “The industry’s
“The market is becoming saturated with countless LED
main challenge is ensuring that with so many technological
products, but there is no comprehensive legislation that
advances, consumers are able to obtain the information
lays out the rules due to the rapid growth,” she says. “On
necessary to make the right decision.”
an industrial scale, companies must choose between
308
hundreds of different brands that may or may not be of
No two projects are the same, González says. The
the highest quality. A look at the LEDs installed along
company worked with Hyatt Hotels on a project in which
some freeways in Mexico City shows more than half are
it automated the majority of the rooms, suites and spaces
no longer functioning.” The situation is driving demand for
in one of the company’s buildings over the course of
stricter regulations to bring order to the market, she says.
two years. “Spaces have different types of regulations and suggestions as to how they should be lit,” she says.
Comfort and environmental health are the key goals
“The first step in a lighting project is to sensitize the user
when using LED technology. “Spaces can be transformed
and space, absorbing the largest amounts of information
and adapted to any type of event or situation, such as
possible. In a hotel it is important to understand what
presentations or parties,” says González. “Design needs to
the end user needs and the ambience the room should
seamlessly integrate security, entertainment, comfort and
provide.”
Red Bull Offices, spAce, Mexico City
INSIGHT
LEFTOVERS PERFECT FOR FURNITURE MAKER RAMIRO DE LEÓN CEO of MASISA
Furniture maker MASISA does not mind leftovers. In fact, it
of Panel Board Manufacturers (ANAFATA) to focus on
prefers them. When the Chilean company arrived in Mexico
environmental factors facing the sector. This program will
it brought its environmentally friendly philosophy of using
launch at the end of 2016 and due to new regulations, all
scrap material from other companies and industries in its
industries that produce panel boards must comply with
panel boards. It was a philosophy that initially went against
low emissions standards for formaldehyde.
the grain. At the time, Mexico was not using a great deal of panel board products compared with other Latin American
“This is a positive change in Mexico. It not only applies
countries. Solid wood was the key ingredient, meaning
to products manufactured here but also to imports,
an intensive use of the country’s natural resources. “Our
helping to guarantee the safety of those interacting
arrival to Mexico was challenging,” says Ramiro de León,
with the components,” de León says. “Little by little, the
MASISA’s CEO. “We had to break paradigms in the way
mentality in Mexico is changing.” MASISA also considers
that furniture was produced. Simultaneously, MASISA
the environment in powering its plant. It uses a technique
found that a great deal of furniture was imported, which
that maximizes the use of clean energies.
hurt Mexico’s local industry and greatly affected the economy. From the outset, our strategy was to try to change the mentality to produce more environmentally
“From the outset, our strategy
friendly furniture using local products.”
was to try and change the
MASISA entered the Mexican market in 2012 through the
mentality to produce more
acquisition of Arclin Mexico’s assets and settled in Durango. The company developed relationships in the community and now locals are suppliers of the components MASISA uses. “We collect the material that will be used in our processes, and in this way, we are involving the small
environmentally friendly furniture using local products” Ramiro de León, CEO of MASISA
artisanal companies in the economy and getting the most use out of the products,” he says. “The local and municipal governments have been cooperative in allowing MASISA
Mexico typically produces furniture using plywood or
to develop this business model.”
solid wood, so when MASISA introduced panel board, this was revolutionary for the industry. “We sell design as
The company is also determined to meet the needs of
part of our price and we apply automated machinery and
a variety of customers, such as millennials. “We have
processes, whereas a carpenter has to spend a great deal
noticed that millennials tend not to invest in furniture for
of time on this part of the process,” he says.
the long term. They want furniture they can replace or sell in a short period of time and also want it to be ergonomic
Although the company’s original scope was to provide
and economical,” de León says. “Keeping this customer
panel boards, MASISA is now a factor in technology,
base in mind, we try to include those characteristics in our
design and innovation in the furniture industry. “We
products. Our results indicate we are extremely successful
combine our products with other industries to create
in these sectors.”
turnkey solutions and we are constantly trying to make alliances with other sectors such as electronics,” says de
MASISA environmental philosophy extends to others in
León. “We piloted our turnkey solutions this year and
the segment. The furniture maker launched an initiative
have seen great success and we expect to replicate those
with industry members such as the National Association
types of models.”
309
VIEW FROM THE TOP
CONCRETE ON A ROLL CEMENTS INFRASTRUCTURE MAURICIO DE SILVA Director General of Concrete Canvas
310
Q: What are the unique technological qualities and
Q: How have companies reacted to the product?
applications of Concrete Canvas’ product?
A: The first customer to adopt this technology was
A: Concrete Canvas originates from the UK and has
Goldcorp. It was a difficult process due to the high price
launched a revolutionary new construction material called
of the dollar and because the project was located in a
Geosynthetic Cementitious Composite Mats (GCCM), a
risky zone, in Iguala, Guerrero. Since then, we have had
flexible, concrete impregnated fabric that hardens when
additional installations that have opened the door to new
water is poured onto it to form a thin, durable, waterproof
business ventures in Mexico. At the beginning we spoke
and fire resistant concrete layer. In simple terms, it is
only to mining companies but we swiftly realized that
concrete on a roll. It can be extended over slopes as a
other industries stand to benefit from this technology. In
way to prevent landslides or to create water channels. It
Mexico, construction companies traditionally use cement
is easy to use and can be adapted to any terrain. After
and steel rods that are complimented with a cheap labor
setting the product down for a couple of hours it dries
force but this product is unique to the market. During
and is unmovable. Depending on the project multiple
natural disasters, Concrete Canvas can deliver quality
layers can be used or it can be sealed to prevent leaks.
solutions in a short period of time and for a great variety
The advantage of this product is that it is able to resist
of terrains. It is easy to install and it is possible to make
up to 407kg/cm and it uses less water than traditional
emergency shelters or spaces within 24 hours. This
methods. While Concrete Canvas may be more expensive
product may be more expensive but the results are much
than regular concrete products, the benefits are greater
greater and it optimizes structures. In Mexicali, CFE has
and it can be used in emergencies.
created a geothermal plant called Cerro Prieto that has
2
VIEW FROM THE TOP
DRONE FLYBYS BOLSTER DECISION-MAKING SEBASTIĂ N ZEPEDA President of Delair-Tech Mexico
Q: What are the benefits of using drones in the
infrastructure is being built, we can see the evolution
development and maintenance of water infrastructure?
of the construction site and how it is progressing. This is
A: In water infrastructure fresh, quantitative, detailed and
extremely useful for construction project managers because
reliable information on how the water is behaving can be
infrastructure projects are usually several kilometers long.
used to optimize resources, which translates into huge savings. A drone has the operational flexibility and cost-
Q: What prompted Delair-Tec to bring its long-range
efficiency to allow weekly surveys of a river, for example, over
drone solutions to the Mexican market?
a long period of time. Among other key indicators, drones
A: Oil industry giant PEMEX has around 15,000km of
can obtain and cross-reference water levels to characterize
pipelines in Mexico, which must be closely guarded due
overall behavior. They can be used to see the effect rainfall,
to security issues. The company loses hundreds of millions
drought and other phenomenon have on rivers. If water
of dollars to pipeline theft every year. This is a highly
kilometers of concrete canals and we have conducted
deciding which product to use. In Spain, there have been
several trials with our products, efficiently transporting
studies on the viability of using it for building underground
water for the development of clean energy.
tunnels but that research is ongoing. This product is useful for temporary mine walls but it may not be the best option
GCCM is a flexible, concrete impregnated fabric that hardens when water is poured onto it to form a thin, durable, waterproof and fire resistant concrete layer
for tunnels, especially going through mountains and other rough terrain. The construction of temporary walls with Concrete Canvas is much faster than traditional methods. Q: How can this product contribute to the development of infrastructure resistant to natural disasters? A: Companies place anchors and spray concrete wherever it is needed but it wears rapidly. If the concrete gets soft, cracks begin to form, which allows vegetation to grow. Our product prevents these occurrences. Unlike spray concrete, our product has a 50-year guarantee. The high quality of the material and the installation method make
Q: How is GCCM applied to unique and complex
infrastructure safer and durable. The correct installation
infrastructure like open-pit installations?
will help prevent water penetration or keep plants from
A: One of the most complex engineering constructions
breaking through. In water management infrastructure, it
is the entrance of a mine. Miners have to travel in heavy
can anchor slopes and prevent water leakage. We also have
trucks for several kilometers and under dangerous
a new product that allows companies to lay down layers
conditions. During the rainy season, landslides cause
of concrete, creating a stronger seal. It has been proven
downtimes and this can be extremely expensive for mining
to work efficiently in building water management and
companies. Instead of using cement or other materials,
tailings infrastructure. We also are working on a residual
with the assistance of three or four people a company can
water treatment in which we will conduct a study of one
install our product to secure roads and wall. For Goldcorp,
of the water tanks. As years pass, water tanks deteriorate
we placed the product at the entrance of its mine where
and cracks form on the surface. Placing Concrete Canvas
landslides were common. It is available in three thicknesses
on top would protect and increase the lifetime of these
and it is essential to have the help of a civil engineer when
expensive infrastructures.
complicated problem because the perpetrators are not
A: The market is in dire need of regulation because there
amateurs but rather an organized crime group. We believe
are many dangers associated with the use of drones.
drones can play a key part in the solution and we see a lot
For example, if a drone falls from the sky it becomes a
of potential demand for this technology here.
threat to anybody or anything below. The government should intervene by introducing specific, smart regulation.
Q: How can drones help optimize resources and reduce
At the moment there is very little regulation, not only in
costs for infrastructure projects?
Mexico but globally. For years the US completely blocked
A: CONAGUA is working on a project that has been delayed
the use of drones and began losing market share, which
several times because of complications with contractors.
allowed Europe and Asia to emerge as leaders in the
This project requires multiple civil engineering work spread
technology. If a government implements regulations
across long distances in a coordinated, simultaneous
that are too stringent, it could stunt industry growth.
manner. Cases like this are quite common in infrastructure
If drones are banned completely, people will fly them
projects. Drones are invaluable management tools for
illegally and if the regulations are too lenient, security
the planning, execution and follow-up of such projects
could be compromised. The government here should take
because they rapidly provide quantitative, cost-efficient
into consideration the regulations other countries are
and reliable information that gives decision-makers both
implementing and at the same time learn from and avoid
a perspective of the project’s status and detailed data on
repeating the mistakes they make. The country should
any blockages they need to address.
follow the path of European market leaders such as France and Germany. Proper regulations will foster the growth of
Q: What role should the government play in regulating
the market and ensure the safe integration of drones into
drones?
Mexican airspace.
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INSIGHT
OIL AMBITIONS FOR ENGINEERING FIRM BRUNO PINOTTI General Manager of IMI Precision Engineering
IMI Precision Engineering believes in competition. It also
concerns, so they do not mind investing more in a solution
believes it has an edge. The company, which delivers motion
that will eventually help them reduce operational costs,” he
and fluid control solutions, says the more competitive
says. “The energy sector is similar since maintenance and
an industry is, the more efficient its processes become,
repair costs are equally high. Most companies prefer to
which leads to higher quality and lower prices. The key to
invest in a strong platform from the outset.”
success, says company General Manager Bruno Pinotti, is
312
adapting. In a market where companies are increasingly
In 2015, IMI Precision Engineering developed a five-year
streamlining their supplier base, diversity is another
strategy wherein it identified the key developments in
necessity. “We have a wide portfolio of products that most
each of its markets. “In line with that plan, we will launch
of our competitors lack, meaning customers can purchase
new pneumatic products for the automation market in
a complete solution from only one company,” Pinotti says.
2017,” he says. “In the automotive industry, we are already
Markets geared toward general automation also demand
working with most Tier 1 companies and OEMs, although
low prices but Pinotti says sectors that require traceability
we also want to establish a closer relationship with new
and predictability, such as the automotive industry, value
automakers. For infrastructure, we are focusing on the oil
the higher quality of IMI’s products. “Most OEMs and Tier 1
and gas segment now that the market is open to private
suppliers prioritize efficiency and productivity as their main
investment.”
VIEW FROM THE TOP
SECURING THE INDUSTRY’S SAFETY ALFONSO CALDERÓN Director General of Wells Commerce Group
Q: What should the industry do to reduce safety risks in
appropriate. It implements the lowest cost solutions that
the workplace?
meet minimum requirements for infrastructure safety. On
A: The demanding nature of the Mexican market means
the other hand, the skyscrapers on Mexico City’s Reforma
companies must keep up by developing new production
avenue are built using top-of-the-line safety equipment
methods, often using complex and high-risk compounds.
and comply with the highest possible standards. Although
Because of the inherent risks associated with these
both are following the exact same regulations, the amount
elements, it is essential that companies adapt faster, more
of money and time that is invested in implementing the
efficient and well-planned safety standards and strategies
solution differs drastically. The North American safety
and adopt or develop new risk-reducing technologies.
framework is much more stringent and demanding but it
In doing so, they can establish quicker response and
also helps that the culture has adapted to these regulations
efficiency rates in dangerous situations such as fires.
and has fully integrated them into its infrastructure. Both
According to the Mexican Association of Automatic
the public and private sectors here must ensure they
Sprinklers against Fires (AMRACI), 36.5 percent of every
follow all regulations and even surpass the requirements.
100 fires in urban zones occur in industrial settings, commercial warehouses and workshops and 63.5 percent in residential homes. In the case of industry more people are exposed due to the number of employees, so industrial accidents are responsible for 73.1 percent of the total deaths in fires in Mexico. Q: How does Mexico compare with other countries on safety compliance? A: There is a significant gap between emerging and
36.5 percent of every 100 fires in urban zones occur in industrial settings, commercial warehouses and workshops, and 63.5 percent in residential homes
developed countries in safety procedures and standards. Queretaro has various state-of-the-art industrial parks that
Q: What are the ideal fire safety products for industrial
have all of the transportation and basic infrastructure, as
parks or construction sites?
well as safety infrastructure and culture that allows for
A: Companies that must install fixed fire-extinguishing
faster responses to accidents. However, in Ecatepec in
equipment in accordance with NOM-002-STPS-2010 face
the State of Mexico, there are many old warehouses and
an investment of about US$1.8 million in addition to the
factories that do not comply with new safety regulations
costs of adapting the building, water storage and other
and certifications. In developed countries, companies
factors. We can help offset the cost with our ecological,
follow around 85 percent of the safety framework, whereas
modular fire-safety system that does not require a pump,
in an emerging country like Mexico businesses meet 45-
engine or pipes because it works only with air tanks.
50 percent of the minimum safety requirements and
The system’s hoses give the product a reach of 150m,
regulations. As a result, this country is far more prone to
which is impossible with a fixed system. It uses less water
accidents, fires and other safety hazards.
because it is mixed with an agent that is more efficient in extinguishing fires of any class. Combining agents with
Q: How closely do the public and private sectors follow
smaller doses of water extinguishes fires faster and with
the regulations?
the least damage possible. These modular systems can
A: The public and private sectors must adhere to the
be moved when necessary to new buildings, are easy to
same regulatory framework but the public sector at times
install and require only a few people to recharge, adapt
seeks the cheaper safety alternative rather than the most
and operate them.
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INSIGHT
INTEGRATING LOCAL CRAFTSMANSHIP INTO PRODUCTS “Traditional artisanal
Potential clients can also visit LADIP’s commercial space in Santa Fe. “Often is it difficult to truly grasp the quality
techniques inspire our design
of a product until it is seen up close,” García says. “Renders
process at every step”
design and how it will perform in the real world. We work
Norma Garibay, Director General of LADIP
samples every step of the way for review. With design, it is
and photos can only speak so much on the quality of a closely with each client on every project, even sending often the small things that elevate the quality of a product
LADIP draws inspiration from a variety of sources but the
such as stitching, finishes and connections.”
company’s primary muse is the material itself, namely
314
leather, metal and stone. Its design approach honors the
LADIP and Detaller have a close working relationship as
elegance of these raw ingredients. “In the conception phase,
both share the same philosophy, design and aesthetic.
we challenge our team to imagine these elements in a new
“The collaboration between the two companies gives us
context: bringing leather into wall surfaces, utilizing copper
the freedom to approach projects from various angles,”
as the main element in lighting, creating an intimate object
says García. LADIP can work closely with designers and
out of stone,” says Juan García de León, Director General of
architects from the beginning stages of a construction
LADIP’s distributor Detaller. “Converting these raw materials
project to accessorizing spaces. Detaller, although it still
into functional pieces in a space is where it all begins for us.”
has its own original line, can bring any idea LADIP has to life. “At Detaller we also take on production projects on
While LADIP’s designs have an international sensibility
any scale,” says García. “We can produce quickly and in
and appeal, they are rooted in Mexican craftsmanship.
large quantities for hospitality projects but we are also a
“Mexico has an extremely talented labor force that is
resource for many blue chip artists. Here we have worked
highly qualified,” says Norma Garibay, Director General
closely to conceive works of art that would be otherwise
of LADIP. “Traditional artisanal techniques inspire our
impossible to create in an artist’s studio.”
design process at every step. The fusion of innovation with tradition not only keeps this art alive but also influences our creative process.” The company takes great pride in keeping its products as national as possible and it was a pioneer in integrating onyx into lighting. “In a previous project we were working with Spanish lamps made from alabaster,” says Garibay. “They were extremely expensive to import into Mexico and the Spanish government would
“The collaboration between the two companies gives us the freedom to approach
only allow the export of alabaster as a finished product.
projects from various angles”
While troubleshooting we discovered that onyx was a
Juan García de León, Director General of Detaller
wonderful alternative. We used it as a replacement and continue incorporating onyx into many of our designs.” Garibay believes that now is an exciting time for Mexico García agrees the richness of Mexico’s natural resources
due to the attention it has commanded as an emerging
keeps the company’s products truly original. “There is easy
market. “Mexico has become popular with architects
access to the highest quality of leather, metals and wood,” he
and designers because we have a little more creative
says. “We love to work with tzalam, nogal and encino wood.
freedom,” she continues. LADIP is excited to continue
We think that great design comes from envisioning a new
working with architects and the hotel industry as many
context for familiar materials.” LADIP tailors its approach
promising projects are developing in Mexico’s tourism
to meet the needs of its customers, from residential to
sector. On the design front, Garibay says the company
commercial, and believes the company’s client roster speaks
would like to focus more on lighting and integrating
volumes about the quality of its work. “We work with many
innovative components into its lamp designs. “We
luxury hotels and savvy clients that have access to the
have three different types of market, the end users,
international market,” Garibay says. “Architects, designers
institutions who need a mass solution for their business
and homeowners have a vision and they come to us because
and architects and designers who are looking for unique
they trust we can make their vision a reality.”
and personalized pieces,” she says.
VIEW FROM THE TOP
EXPOSED: TREATING AND PROTECTING STEEL GUILLERMO PEÑA Director of PMC Mexico and Central America at PPG Protective & Marine Coatings
Q: What trends are spurring opportunities for companies
A: There are intumescent coatings for two types of fires:
like PPG, outside the marine sector?
cellulosic and hydrocarbon. Intumescent coatings for
A: New infrastructure projects have more exposed steel
hydrocarbon fires must resist up to 2,000 degrees. These
as part of the architectural design, which must have a
fires, which can take place in refineries and oil rigs and
modern appearance. This is why protective products
are called jet fires, can reach high temperatures in short
can no longer be just functional, they must also be
periods of time.
aesthetically attractive. A good opportunity for us is NAICM. The terminal floor, which is the area transited by
Bridge infrastructures also require these products because
passengers, will be coated while the “backstage” area,
they must withstand a wide array of conditions for many
where employees work, will have uncovered concrete. Our
years. These structures must be recoated and maintained
products are meant for steel structures and for coating
periodically so that the steel structures do not deteriorate.
areas that are visible to the end user.
Applying a coating will increase its resistance to erosion, UV rays and make the structure more robust. Our products
To participate in that construction we must provide a quote
are also used in rail projects. The Guadalajara Train and
to each company that is bidding for the Terminal 1 building.
Toluca-Mexico Interurban train both used a vast amount of our protective coatings. Projects like these have a lot
Q: Why is it important to apply protective coatings on
of steel beams and supporting structures that must also
steel structures, such as in malls or airports?
withstand extreme conditions throughout their life spans.
A: Steel structures require fire-retardant products, also known as passive protection or intumescent coatings. Buildings that have high human traffic levels, such as airports and commercial centers, prioritize the safety of people. The special technology in these solutions activates a kind of sponge that isolates the steel structure from the heat so that it does not lose ductility or mechanical resistance that could cause it to fall. Airports require coatings that can resist at least two hours of continuous exposure to heat. The main purpose is to give people enough time to evacuate and for the rescue units to arrive.
Airports require coatings that can resist at least two hours of continuous exposure to heat
At our research facility in Mexico City, the Industrial
Q: How could Mexico’s water infrastructure benefit from
Technology Innovation Center (CITI), we invite our clients
the use of protective coatings?
to see first-hand how our products perform under extreme
A: Deep tunnel sewage systems are infrastructures that
conditions. We have an oven in which we place a steel
often go unseen. They consist of large concrete tubs that
beam covered in our protective coatings and expose it to
are attacked by corrosive agents, while waste creates
flames as hot as 500 to 600 degrees Celsius. There is a
large amounts of hydrogen sulfide acid. We worked on
large market for these types of products, especially with
the first phase of the Tunel Emisor Oriente, Mexico City’s
the boom of the commercial real estate sector in Mexico
newly constructed sewage system, where we applied a
City and Monterrey.
strong chemical coating.
Q: How are these protective coatings used in other types
We see many opportunities in the construction of water
of infrastructure?
infrastructure, both sewage and drinking water.
315
Ă ngel de la Independencia, Reforma, Mexico City
FINANCE & INSURANCE
13
Few projects can be completed without a proper financing structure and risk allocation. PPPs are designed to distribute the risk between parties and include project finance. The private sector is ready to jump in but cuts to the federal budget that have reduced the portfolio of available projects and a lack of a clear regulatory framework have left investors skittish. Mexico continues to be among the most attractive countries to invest in Latin America. International banks have set their sights on Mexican infrastructure and commercial banks continue to improve their financial products. Insurance companies’ AFORES are investing in Fibras and CKDs but the implementation of Solvency II has made them cautious about which projects to invest in.
This chapter serves as a window into Mexico’s finance and insurance sectors. In the first half of the chapter, experts discuss the industry’s pressing needs in terms of financing, the impact budget cuts have had on the completion of infrastructure projects and what private equity and commercial banks are expecting from the NIP. This chapter also offers a view into the insurance and reinsurance sectors, where opportunities have been identified in the energy sector.
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CHAPTER 13: FINANCE & INSURANCE 320
VIEW FROM THE TOP: Héctor Pérez, Scotiabank
322
VIEW FROM THE TOP: Jonathan Davis, MIRA
324
INVESTMENT VEHICLES: The Industry’s View
326
INSIGHT: Alejandro Diez, DILA Capital
327
VIEW FROM THE TOP: Juan Alberto Leautaud, BlackRock Infrastructure
328
VIEW FROM THE TOP: Santiago Ortiz Monasterio, GBM Infraestructura
330
VIEW FROM THE TOP: Manuel Rodríguez, Ainda Energía e Infraestructura
331
VIEW FROM THE TOP: Luca Piccolo, VENIT Investments
332
VIEW FROM THE TOP: Víctor Calderón, ArCcanto Recursos Financieros
333
VIEW FROM THE TOP: Franco Capurro, CAAAPITAL
335
VIEW FROM THE TOP: Franco Hamdan, EIM Capital
336
INSIGHT: Pablo Crain, XL Catlin
337
VIEW FROM THE TOP: Juan Segura, Aon Risk Solutions Mexico
339
INSIGHT: Alberto Garcia de Alba, Kepler
319
VIEW FROM THE TOP
MEXICO IN STRONG POSITION AFTER REFORMS HÉCTOR PÉREZ Managing Director & Head Corporate Banking & Capital Markets of Scotiabank
320
Q: What challenges have you found in Mexico’s financial
A: Every instrument can be improved but there has to be
sector?
a level of prudence in the type of instruments allowed in
A: More than challenges we have found a tremendous
the market. Nowadays, the project financing instruments
opportunity, especially given the lack of global economic
available locally and internationally are more than
growth. Mexico stands out as a destination where growth
adequate for the development of various projects. Like
can be obtained. Every industry has its challenges so the
most players, we would like to see the pace of growth
key is to focus on the areas with the greatest opportunities
in the oil and gas sector accelerate. Nevertheless, the
to offset this. There is a great deal of foreign investment
government is going at the right speed because when the
entering Mexico and major global multinationals are
reforms were launched oil prices were at a different level.
investing here, especially in infrastructure, oil and gas and electricity, manufacturing and automotive, which
The oil market is a global market with a great number
present considerable opportunities because of the need
of foreign investors looking at Mexico. They are also
for infrastructure development within these segments.
suffering because of commodity prices. Everyone is
We not only work locally with clients in Mexico but we
being cautious about jumping into investment in the
work on a global scale with major companies. We also are
country because there is still too much volatility in the
consistently bringing in foreign investors to meet with
global context and prices remain relatively depressed.
the Mexican central bank, the Ministry of Finance and
When looking at this market, there is a lot of activity
other relevant authorities to showcase the attractiveness
geared toward partnerships and potential brownfield
of investing here.
assets rather than greenfield projects. The midsized players around the world that are struggling have
Q: How effective is the current regulatory framework?
become targets for larger companies. In the oil business
A: In general, the implementation of the electricity
there is always price risk but businesses are increasingly
reforms should be separated from the oil and gas reforms
looking at more ways to mitigate that risk and brownfield
because the contexts in each market have changed
assets can present better opportunities in this regard
drastically since those were introduced. We should
than greenfield projects.
also remember the reforms were only implemented two years ago and, when compared to the trajectory of
Q: How are Mexican interest rates impacting the
other global economies that have already experienced
infrastructure market?
this transition, Mexico is in a strong position. Today, the
A: Road infrastructure has developed at a slow pace in
regulations are favorable and this can be seen especially
Mexico. We are seeing a lot of activity in electricity and
with the number of bidders attracted in the different
electricity-derived subsectors like pipelines importing
phases of Round One. The electricity system is not
gas from the US to supply CFE’s electricity production.
subject to international prices so more activity has been
Interest rates are still relatively attractive and to some
seen there. All the large infrastructure players are trying
extent the global volatility and the potential rate
to win pipeline tenders and electricity plant contracts
increase in the US has caused local investors to be more
so CFE has done well in attracting investment to its
prudent about buying debt locally. When examining the
infrastructure. The availability of more projects would
debt capital markets, local issuance of debt this year has
be positive but those that are being tendered are well
seen a 50 percent drop compared to the first half of last
planned and executed.
year. This is not because of liquidity issues but because investors are being cautious ahead of a potential rise in
Q: What impact are new financial tools like Fibras, CKDs
rates. Issuance in emerging markets is starting to regain
and CerPIs having?
its pace because of negative yields around the world due
to low interest rates so global investors are again looking
country and we are investing resources in all our business
at emerging markets.
lines as well as in technology where we are completely changing
our
core
technological
and
operational
Q: How would you evaluate the New Mexico City
platform. Our market share has gone from 4.5 percent
International Airport (NAICM) development?
to around 5.5 percent in the last two years, which is a
A: We are part of the bank group that is financing this
considerable organic gain. We have expertise in different
project. It is an extremely promising development and
industries like infrastructure, mining, retail, media, oil and
despite criticisms the details have been well-planned so
gas and energy with professional teams in each country.
far. A decision must be made with the most information
To create a greater global footprint, we have teams
available and that is the best the government can do.
located in key bases like New York, Toronto, London and
The airport is badly needed by the population and the
Asia, covering all the important markets.
government is doing well to make strong decisions and forge ahead. The financing of the airport is being carried
In Mexico, we do not have a set market share target but we
out in an efficient way and as one of the banks involved,
are looking to expand all our business lines. We are a large
we believe this will be a success.
player in the mortgage and auto finance sector and we are building a successful franchise in corporate and commercial
Q: What is Scotiabank’s strategy to boost its presence
banking. The bank’s digital transformation is becoming a
in Mexico, especially in the infrastructure sector?
key focus and this mostly impacts our personal clients. We
A: The franchise has been growing in Mexico in the last
are digitalizing our internal processes so we can provide a
two years as a result of the importance placed by the
unique digital experience to our clients. We want to become
group on the Latin American strategy, particularly the
an elite digital bank within the next five years. The banking
Pacific Alliance countries of Mexico, Colombia, Peru and
penetration is around 35 percent of Mexico’s population,
Chile. Under that strategy, Mexico is the most important
therefore the room for growth here is significant.
Landscape, Downtown, Mexico City
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VIEW FROM THE TOP
FUND SEES MEXICO AS A PROFITABLE ASSET JONATHAN DAVIS Chairman of Macquarie Infrastructure and Real Assets (MIRA)
Q: What conditions led Macquarie to establish its
decision-making process while others relinquish that
infrastructure fund in Mexico?
decision to the CKD’s manager.
A: In late 2008, a group of Macquarie executives came
322
to Mexico after learning about the NIP launched by
In
President Felipe Calderón. They believed it would be a
certificates (CerPIs) are more in line with global practices
good opportunity around which to raise capital and create
where the general partner is the ultimate decision-maker
a footprint in Latin America. After a thorough process
within the defined terms of the fund mandate. This new
of due diligence in which political, environmental and
vehicle was designed with a necessary requirement for
macroeconomic stability and market risks were assessed,
a co-investor to participate with the 30 percent of the
a decision was made in favor of Mexico and we decided to
total equity stake of the CerPI. We saw an opportunity
initiate operations.
to raise a Mexican REIT. Previously, anybody that wanted
contrast,
the
newly
created
investment
project
to invest in real estate typically had to go and physically The legal framework was in the making to allow for
buy property or land and then lease this to a third party
institutional investors, especially for pension funds to
with all the management burdens that come alongside.
diversify their investment portfolios. Starting in 2009,
This new vehicle was designed to allow for a range of
the Mexican Pension Funds Administrators (Afores) were
international and domestic institutional and retail investors
allowed to invest in new asset classes such as real estate,
to participate in the real estate market, delegating the
infrastructure and private equity. The authorities created
management responsibilities to a professional fund
the CKD as a new investment vehicle. Macquarie became
manager. There are several Fibras in Mexico that specialize
the second issuer in the market and raised the first
in different real estate segments such as hotels, office
specialized infrastructure fund in the country. Investments
buildings, retail or industrial properties. Macquarie buys
in infrastructure are made over a long period of time. Our
and manages industrial properties that it leases mostly to
fund term of 10 years was designed to match the long-
medium and light industry tenants. Our Fibra is comprised
term outlook of this asset class and the long-term savings
of approximately 75 percent industrial properties and 25
that characterized the Afores. This structure was also
percent commercial retail properties.
consistent with the population pyramid, which has a large base of young people.
Q: How has the devaluation of the peso affected the real estate portfolio?
Q: In what instances is it more appropriate to use a Fibra
A: In general terms, Mexico has distinguished itself from
or CKD?
other countries because of its macroeconomic stability.
A: A CKD is a vehicle that was designed specifically for
The currency volatility we have experienced in the
pension funds that wanted to invest in alternative assets.
last year has been lesser than many other developing
Alongside this, we established a parallel vehicle that
countries of similar size. We have a sound and responsible
enabled us to channel other target investors, including the
monetary policy that has kept inflation under control.
NIP in Mexico. When we issued our CKD the rules were
The devaluation of the peso has had a limited impact on
tighter than they are today, so the Afores had to prefund
the real estate portfolio as most of the rents we collect
their full commitment. This prefunding commitment has
from our tenants are denominated in US dollars. To some
since been reduced to 20 percent with remaining capital
degree currency devaluation tends to be reflected as a
calls more in line with international practices. In CKDs,
revaluation of our assets.
the Afore’s technical committee reviews projects that represent more than 5 percent of the fund’s commitments.
Q: What is the value of the public and private sectors
Some of our investors like to actively participate in the
participating in PPPs?
A: Six years ago the PPP Law was passed by Congress
necessary to constantly search for opportunities and,
and implemented in Mexico. There is a generalized
with appropriate rates of return and risk-adjusted prices
understanding the government should not participate in
in mind, we look for the most appropriate locations. We
every economic activity but instead should concentrate its
always take concentration risk into account. We are willing
efforts in strengthening its role as a developer of adequate
to go where we see market potential as we are in the
public policies that will foster economic growth and
business of making sound investments and increasing the
development. With the drop in oil prices the government
price of our certificates for the benefit of our clients.
must allocate its scarce resources more intelligently and concentrate its efforts on core activities. There is an
Q: What risks could threaten Macquarie’s performance in
enormous opportunity that opens up the private sector
Mexico?
with the approval of the structural reforms. The private
A: I do not foresee any external or internal unknown risks
sector can participate more than ever in activities such as
that we should be especially worried about. A vital part
energy.
of our business model is to understand risk, measure and manage it. We take a structured approach in the evaluation
Q: How are your strategies changing to adapt to industrial
of each potential investment opportunity and we carefully
offerings?
consider the identifiable risks associated with it and seek
A: Many of our industrial properties are leased to
to implement policies to manage it appropriately.
companies in the automotive supply chain, meaning we are benefiting from the boom. However, there are
There are a variety of risks we must consider such as
other appealing industries such as medical devices
liquidity, market, legal, foreign exchange, operations and
and aerospace. We are interested in companies that
security risks. For each, we seek to implement the most
produce and supply domestic and foreign markets. It is
effective mitigation measures.
Parque Guadalupe, FINSA, Monterrey
323
INVESTMENT VEHICLES: THE INDUSTRY’S VIEW Mexico has embarked on a series of reforms to open markets and boost private sector involvement in the economy. Energy and infrastructure are among the targets and investment vehicles are available to allow national and international players to participate, especially in real estate projects. These include the new Fibra E, CKDs and CerPIs. Mexico Infrastructure Review asked leaders in infrastructure financing how these instruments will impact the country’s investing environment.
JORGE AVALOS CEO of Fibra Mty
FIBRA – INVESTMENT AND REAL ESTATE TRUST (first issued 2004) • At least 70 percent of investments must be in real estate assets with a portfolio of
One of the most popular vehicles in
the
US
for
infrastructure
investment is the master limited partnership (MLPs), which is very similar to the structure of CerPI and the Fibra E. The only difference between both vehicles is that CerPI will take on development risks associated with higher expected
offices, hospitals, commercial and industrial real estate located in Mexico • 95 percent of earnings must be distributed to the CBFI holders • Information must be transparent for tax purposes • Duration: Project Life
returns and the Fibras are more associated with stable infrastructure projects such as highway concessions. There will be a high capital allocation to infrastructure as part of 324
Mexico’s National Infrastructure Program and this will also benefit CKDs and Fibras. Other strategic industries such as tourism need airports, water plants, highways, health institutions and so on. There is almost US$23.7 billion in capital from the Mexican pension funds targeting those projects. The Fibra regulation has certain fiscal benefits whereby if a portfolio is paid out with Real Estate Stock Certificates (CBFIs), private investors can defer their tax gains until they sell their CBFIs.
JONATHAN DAVIS Chairman of Macquarie Infrastructure and Real Assets Mexico (MIRA)
FIBRA E – INVESTMENT AND REAL ESTATE TRUST FOR THE ENERGY AND INFRASTRUCTURE SECTORS (first issued 2016) • At least 95 percent of its taxable income
The rules for CKDs were much stricter years before, meaning Mexican pension funds had to prefund their full commitment. Today this prefunding commitment has been reduced to 20 percent with remaining capital calls more in line with international practices. In CKDs, a pension fund’s technical committee
must be distributed to holders of CBFIs • Can invest in new projects, only if it represents less than 25 percent of its total investments • 75 percent of investment must be destined to mature projects • Can be used in roads, airports, ports, rail and
reviews projects that represent more than 5 percent of
hydraulic projects
the fund’s commitments. In terms of Fibras, we saw an
• Duration: Project Life
opportunity to create a Mexican Real Estate Investment Trust (REIT). Previously, anybody who wanted to invest in real estate typically had to go and physically buy property and then lease this to a third party with all the management burdens that come with that. This new vehicle was designed to allow for a range of international and domestic institutional and retail investors to participate in the real estate market, delegating the management responsibilities to professional fund managers.
CKD - EQUITY DEVELOPMENT CERTIFICATES (first issued 2009)
JAVIER DÍAZ Manager, Energy Analyst and Consultant at S&P Global Platts
• At least 80 percent must be invested through capital or debt of Mexican entities • At least 80 percent of profits must be
CerPIs are were designed by
distributed at the end of each project
CNBV and the Ministry of Finance
• Information must be transparent for tax
to focus on the development of
purposes
large
greenfield
infrastructure
• To appoint a technical committee, one must
projects, including energy assets. S&P Global believes these
have 10 percent of the outstanding CKD
instruments will not only be attractive to a broad range of
• Duration: 10-14 years
international and local investors, but also pension funds and insurance companies whose needs are long term. Another instrument that will boost energy infrastructure development is the Fibra E, which was floated on the Mexican Stock Exchange (BMV) in October 2015. Fibra E will incorporate activities related to hydrocarbons, energy and infrastructure assets. Along with its subsidiaries, they are “pass through” entities for tax purposes and there are tax shields that enable a substantial portion of distributions to be exempt. It will also offer entities like PEMEX and CFE an option for monetizing existing assets to focus on new opportunities. Fibra E is intended to capitalize on the value of mature assets that are already generating flows within the infrastructure industry.
CERPI - INVESTMENT PROJECT STOCK CERTIFICATES (first issued 2016) • For qualified institutional investors and
EDUARDO GÜEMEZ Vice President of Investments and Finance at Mexico Retail Properties (MRP)
co-investors must contribute the majority of the money • It is not obligatory to publicly disclose
The authorities used an existing
project information that represents more
structure
than 10 percent or more of trust assets
legislation that prevents pension
to
get
around
the
• To appoint a technical committee, an
funds in Mexico from investing in private vehicles. A CKD is
investor must have 25 percent of the
a publicly traded vehicle that never trades. At the moment,
outstanding CerPI
CKDs are a work in progress, both for the pension funds and
• Does not require approval of technical committee to invest • Duration: To be determined
the authorities. Since the original instrument was formed, it has improved in leaps and bounds. I think CerPIs provide a solid input, the only issue being the establishment of an instrument that is attractive to both managers and investors. With CerPIs, the government has tried to create a more negotiable document since the participation of investors in the technical committee is more static. With CKDs, a 10 percent share automatically allows the investor a seat on the technical committee, whereas this is not the case with CerPIs. Nevertheless, this system is open to negotiation and no-one is precluded from having a seat on the committee.
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INSIGHT
ENVIRONMENT IMPROVING FOR MEXICAN ENTREPRENEURS “As Mexican investors, we
“When we started our first business in 2005 we realized
want to invest in a business
that we were not protected by law,” says Diez. “Now,
that will bring economic development and new jobs to the country” Alejandro Diez, Partner and Director of DILA Capital
that being a small investor was complicated by the fact various financial instruments have been created, such as anonymous investment promotion societies (SAPIs) and private capital investment funds (FICAPs), which make life as a minor investor much easier.” Last year, DILA Capital received a total of 450 proposals from businesses throughout the country and in a variety of sectors, from shoe-makers to printer ink suppliers
326
Life as an entrepreneur in Mexico has not always been
and Diez shares that DILA's portfolio contains promising
smooth sailing. Labor crises in 1982, 1984 and 1992 and
infrastructure projects. The group completed investments
domestic economic volatility made things tricky for
in just nine of the 450 proposals submitted. This 2 percent
startups, which found risk-averse investors unwilling
applicant success rate can be attributed to the group’s
to part with their cash against such an unpredictable
stringent, painstaking approval process and investment
backdrop. For a country in which over 99 percent of
criteria, which involves a face-to-face interview followed
all businesses are micro to medium-sized enterprises
by a series of internal meetings. It can take up to six
(MSMEs), according to the OECD, the good news is that
months for an investment to be approved but, according
things are beginning to change. Access to capital is a vital
to Diez, there is one crucial characteristic that connects
consideration for any young company in the infrastructure
them all.
industry and Alejandro Diez, Partner and Director at venture capital fund DILA Capital, is optimistic about what
“There must always be a link to Mexico,” says Diez. “As
the future holds for would-be entrepreneurs in Mexico.
Mexican investors, we want to invest in a business that will bring economic development and new jobs to the country.”
“When I was looking for investment for my business in
Supporting startups does not simply offer enticing returns
2005, there were no venture capital funds whatsoever,”
for short to-medium term investors like DILA Capital.
says Diez. “Now there are more than 20 investing actively
Fostering a strong entrepreneurial spirit can also play a
and every year we receive more business and investment
pivotal role in the development of Mexico’s economy in
opportunities.” Diez also recognizes the impact of the
the long term by creating stable jobs and boosting big
government in removing some of the legal hurdles that
businesses that are often slow to lend a helping hand to
young businesses have faced in Mexico in recent years.
startups.
VIEW FROM THE TOP
PINPOINTING BLUE CHIP INFRASTRUCTURE INVESTMENTS JUAN LEAUTAUD Managing Director at BlackRock Infrastructure
Q: What are the prospects for infrastructure development
kilometers of new roads are being tendered, both in urban
given Mexico’s economic environment?
and intercity environments.
A: The opportunities in the infrastructure industry are not new, nor are they improvised. Rather, they have been
The
developing and maturing throughout the years. BlackRock
significant potential through USPs, which will become
is actively participating in Mexican industry projects and
a
ensures all parties are winning through mechanisms like
infrastructure. Companies in the sector are developing
retirement funds. The country’s development widens
their own USPs and we are constantly in contact with
alongside these projects, which boost employment
them to provide the insight they need. In addition,
rates and economic performance. In our view, the three
social infrastructure has significant potential in Mexico,
pillars that underpin this industry are identifying the right
especially with PPP plans in the health sector. We believe
projects to invest in, designing the optimal investment
that it is more efficient to have a strong hospital network
structure to bring them capital and deploying sufficient
than two or three extremely large hospitals.
development
powerful
tool
of for
mobility the
infrastructure
construction
of
has
critical
technical depth to add value to each project along its entire life cycle.
Q: What are the industry’s most pressing needs? A: The majority of the problems we see in the infrastructure
Finding the right opportunities for investment capital is
industry are small but because they are not given the
the main challenge and this capital must be generated
proper attention they tend to grow out of proportion. We
through international and national institutions. These
develop strong relationships with our business partners
investments must be managed by seasoned professionals
in each of our projects and given that we have technical
since infrastructure requires a long-term strategy and
knowledge and a keen eye for successful projects, this
patience to guarantee a generous rate of return. The
increases our competitive advantage. The majority of
recent federal budget cuts have increased the difficulty
funds approach projects when they are at maturity but
of directly developing projects under traditional methods
BlackRock works with its business partners from the early
so alternative financing is on the rise. Now more than ever,
stages of development.
the government must manage a portfolio of projects that is viable, solid and adheres to timelines and budgets. We
Q: What contribution can BlackRock make to Mexico’s
have seen improvement in this sector and the government
development?
is working toward developing more attractive programs
A:
and financial structures.
support to the projects we invest in, we believe we
In
addition
to
bringing
capital
and
technical
can contribute to give Mexico greater visibility within Q: Where does BlackRock see the greatest potential for
the international community as an ideal location for
infrastructure investment?
investment. We want to develop the technical and
A: As the Energy Reform comes to fruition, the country’s
economic relationships between various players in the
capacity will increase substantially and so will the need for
sector. By doing so, we are encouraging transparency
related infrastructure. Private capital will play a critical role
and directly impacting the development of the sector.
in this development and BlackRock wants to play its part.
The country would benefit greatly from collaboration
We also are interested in participating in transportation
between government institutions and the private sector
infrastructure and there are many companies in the market
to ensure transparency and efficiency in processes.
that will be looking to reinvest their capital in mobility
BlackRock has an extremely strong global presence and
projects. The government has released several road and
has taken on the responsibility of demonstrating the
highway packages that have great potential. Hundreds of
immense potential of our country.
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VIEW FROM THE TOP
IMPROVING MEXICO’S WATER USAGE SANTIAGO ORTIZ Director General at GBM Infraestructura
Q: What does GBM Infraestructura look for when selecting
extended the concession of our two brownfield water
projects for its portfolio?
projects and road infrastructure also has caught our
A: Our investment philosophy is to use the highest quality
eye, although these are high-risk projects due to rights
operators and over the years we have developed close
of way. At the moment storage, generation or energy
relationships with companies such as PINFRA and Aldesa.
transportation and transmission projects are limited but
Our first filter is a set of requisites that projects must
the risk is lower as long as the company can adequately
meet. They must be working on long-term developments
manage the construction.
with inelastic demand, protected against inflation and 328
barriers of entry through capital expenditure that can
Q: What drove GBM Infraestructura to invest in Mexico’s
be integrated with a partner and with an attractive
first private water operator?
payoff. Once the project passes the first filter, an indepth
A: At a constitutional level, the administration of water
financial model reflecting the legal validity of the project
resources falls on the shoulders of each municipality in
is created. If it were a project for an energy auction, we
Mexico. These municipalities commonly lack the necessary
would be selling electricity to CFE for 15 years and energy
economic or technical resources to manage the systems
certificates for 20 years.
efficiently. There are two main factors in these types of models, namely the commercial and the physical efficiency
The agreement we make with the partner must protect
of the systems. Physical efficiency is defined by how much
us through an Engineering Procurement Construction
water extracted is actually received by the end user. When
(EPC) contract. If there is a counterpart through which the
a municipality experiences low physical efficiency due to
project will be leveraged, the partner must be creditworthy
leaks within its infrastructure, not only does that increase
and the structure of the debt must be aligned with the
its cost of repairs, but it also increases operational costs.
interests of the equity. It is a long process that includes
If system operators could find a way to increase physical
analysis, due diligence, financial structure and asset
efficiency, it would have a drastic impact on not only costs
management.
but also regional, social and environmental health.
Q: Which sectors are stoking the appetite of investors for
Mexico’s physical efficiency is lower than 50 percent,
infrastructure development?
which means that most of the water is lost before it
A: The fund is divided into three sections: road,
reaches the population, and it has a commercial efficiency
communications and transport infrastructure, water and
of around 60-70 percent. Our concession operates with
energy. We are seeing an increase in energy projects in
a 97 percent commercial efficiency in Cancun and we
our pipeline and there are many great opportunities in
are on our way to reach our goal of increasing physical
energy infrastructure, whether in midstream or power
efficiency to 70 percent in the next five years. To meet
generation. For many years, the country has experienced
this goal, we are dividing the areas to identify, analyze
an infrastructure deficit in more than one sector in relation
and repair all inefficacies within that perimeter. It is a long
to the size of its economy. The federal government has
and tedious process going from area to area but thanks
limited resources since it began to lower its dependency
to the technology available we can now use systems
on oil and gas so PPPs will play a vital role in bridging the
similar to ultrasound that allow us to see the leaks before
country’s immense infrastructure gap.
breaking ground.
Our emphasis for investment has been these three sectors
Placing a concession on water is often controversial
but we are opportunistic and if we see an opportunity
because people link it to raising tariffs and privatization
that represents a profit, we will not limit our reach. We
of natural resources. When the water system is operated
through a concession, tariffs are established according
used to innovate and create databases that will ensure the
to the average price throughout the country. Prices
pricing and quality of the service provided to the people.
only vary depending on consumption and are strictly regulated according to usage throughout the country.
Q: How will the Indios Verdes elevated viaduct impact
The benefit of turning water systems into a concession
mobility in Mexico City?
is that concessions guarantee long-term investment and
A: We are extremely excited about the Indios Verdes
ensure the resources are used efficiently. Often, water
project in which we now have 45 percent equity in the
operators have low physical and commercial efficiencies,
MX$6 billion (US$316 million) total investment. The
along with high operational costs due to improper
project will be an 8.5km elevated viaduct from Circuito
management of human resources and high electricity
Interior to the Mexico-Pachuca highway. These areas
costs. In this case, most water operators are government
are highly congested and more than 177,000 vehicles
entities, meaning they accrue losses and therefore must
pass through this area each day. Indios Verdes is an
use other resources to rectify the inefficiencies within
important stop on the city’s public transport system
the system.
and this viaduct will relieve the traffic by allowing cars to pass above the public transport. Our partner in this
As a concessionary we give the government 20 percent of
project is PINFRA and we will begin construction at the
our revenue, provide the security of long-term investment
end of 2016. This project is among the most important
and increase the efficiency of the water system way above
for this administration and it will have a tremendous
the country’s average. There are many examples all over
impact on the population. It will be developed as a PPP
the world where these types of concessions have had a
and we have seen great interest from commercial banks
positive impact on society by increasing the quality of
to participate in the financial structure of the project.
the service provided and at the same time maintaining
GBM Infraestructura favors structuring the financing
a fair price. Nevertheless, these paradigms are difficult
with both commercial and development banks because
to break. We have a five-year concession with Quintana
the former provides companies with long-term financing
Roo in which we will invest a total of MX$4 billion (US$210
whereas commercial banks offer short-term conditions
million) into the water infrastructure and incorporate the
but take leadership in terms of the financial structure.
share the state receives from CONAGUA to optimize the
Investment funds are 100 percent committed and GBM
entire system’s infrastructure. The amount of investment
Infraestructura’s CKD will offer attractive levels of risk
that is being injected into the water infrastructure is
and return. We already have a head start by buying
reaching quantities never seen before and this is being
materials such as steel to ensure stable prices.
Salamanca-Leon, Guanajuato
329
VIEW FROM THE TOP
BREAKING NEW GROUND IN INFRASTRUCTURE FINANCING MANUEL RODRÍGUEZ Director General at Ainda Energía e Infraestructura
Q: What are the most significant challenges fund
benefit greatly from having a local team that knows how
managers face when choosing projects?
to identify and manage potential projects.
A: In Mexico, even though toll roads appear to be a
330
mature business, revenues are not efficiently managed.
Q: Why is it important to establish a formal investment
Businesses that are elastic to prices and that cannot store
process for potential projects?
capacity must apply price discrimination and establish
A: It is necessary because we believe the fiduciary
various pricing structures to ensure adequate revenue
responsibility
management. There are several toll roads in Mexico that
administrator must be well defined from the outset.
have the ability to generate larger cash flows but lack
Establishing
revenue management. Companies cannot re-establish
ensures the investor is well aware of the fund manager’s
their pricing because they have structured bonds that
responsibilities. Ainda was the first fund manager in Mexico
do not permit new price structures and thus they must
to join the United Nations Principles for Responsible
prepay debt to implement revenue management. Private
Investment and implement a code of conduct and ethics.
equity funds can play an important role in the transition
These components were put in place as a way to establish
until previous leverage is refinanced.
a more transparent relationship between investors and
between the
detail
the of
investor the
and
the
investment
fund
process
fund managers for how activities would be carried out. Q:
What
patterns
have
emerged
in
energy
and
The role the government plays in ensuring that these
infrastructure that make it optimal for investment?
types of measures are put in place by investment funds is
A: The new legal environment will produce opportunities
as important as sectoral cooperation.
not only in oil and gas but also in power. With the new PPP law, there are opportunities for many new projects
Q: How will financial vehicles and project partnerships
such as the relocation of existing infrastructure, large rail,
impact the development of Mexican infrastructure?
multimodal developments and airports. The government’s
A: Fibra E is an excellent financial instrument but there are
weaker financial situation is caused by accounting for
very few potential assets that can actually be transferred
cash flow liabilities instead of assets. It is optimal for
into a Fibra E. There are many physical assets that have
the government to monetize brownfield assets and then
yet to produce cash flow under the new legal system and
use the proceeds to build new infrastructure. The last
thus have no proven track record. Although those assets
administration carried out the privatization of the FARAC
may be old, they should not be considered mature. Fibra E
toll roads and it is likely that these actions will continue
and CKDs are not mutually exclusive but complementary,
with airports as well as toll roads.
and in the future CKD investors could divest into a Fibra E. These financial vehicles are far more effective when used
Q: What strategic alliances is Ainda creating as it positions
together to invest in diverse infrastructure projects.
itself in the energy and infrastructure markets? A: Ainda has joined forces with Goldman Sachs Merchant
Joint ventures and USPs are generating a presence in the
Banking Division and we are preparing a package of CKDs
Mexican infrastructure market and will increase the number
for energy and infrastructure valued at over MX$21 billion
of projects in the country. If an investor proposes a joint
(US$1.1 billion). We formed this strategic alliance with
venture to PEMEX or CFE, the project can go forward without
Goldman Sachs to meet our fiduciary responsibility to
a bidding process as long as the company’s board approves
our investors and as a way to embrace the opportunities
the project. When carrying out a project with the Ministry
that present themselves. The countless prospects that
of Transport, the project could fall under a PPP scheme as a
are developing in Mexico will create demand for our
USP and the company that took the initiative could have an
expertise in the Mexican market and Goldman Sachs will
advantage in the bidding process.
VIEW FROM THE TOP
INVESTING IN THE REAL ESTATE ROLLER COASTER LUCA PICCOLO Director General of VENIT Investments
Q: How has Mexico’s macroeconomic situation affected
important element of our company because we are not
the sector and the company’s decision-making?
trying to create landmarks, but instead make a profitable
A: It is difficult to predict the changing landscape of the
investment. The company looks to build homes that have
market but it is important to mitigate risk by adapting
a balance between attractiveness and cost.
our business models to changing conditions. If exchange rates and prices skyrocket from one day to another, our
Although it has many risks, the hotel sector has high
business model is flexible enough to handle the impact
potential, which means companies must be agile in
of some of these changes. VENIT strives to anticipate
the decisions they make. For instance, Monterrey is a
these situations. When the US dollar-peso exchange rate
challenging location for a new hotel project because it has
becomes unfavorable, for example, we try to buy elevators
more than 10 different hotels in the pipeline for the next
and other elements or materials at a cheaper rate to
couple of years, such as the Four Seasons, JW and Fiesta
reduce the impact on our budget.
American Grand. Even though the upcoming years will be challenging for the industry, Mexico has made it through
Successful companies create flexible business plans and
turbulent times before. They may not be the best years
always prepare for the worst-case scenario. If rates rise
but we have solid expectations for the company.
then prices likely will too, forcing the market to react and adjust to the new conditions. It is important to learn
Q: Why is it important that developers incorporate
from mistakes, learn that each project has its unique
sustainability into their business models?
risks and know that real estate development is utterly
A: It is crucial that companies take sustainability seriously
intense and volatile. Constructing an office building can
and not just as a passing trend. Building methods and the
sometimes take 18 months, during which time anything
materials and technologies used in the construction of real
can happen. Companies must be prepared for these
estate are vitally important. The idea of sustainability is
types of changes and learn from their past experiences.
trying to find a balance between the clients’ needs and
Although our portfolio is small, we can ensure that our
the wellbeing of the surrounding environment. In a project
quality is far superior, which in the end keeps both us and
in Queretaro, the objective was to make the development
our investors happy.
as clean as possible, which does not mean expensive and complex materials must be used but rather that materials
Q: What is the company’s approach to growth and what is
should be used in an innovative way.
the outlook for the medium term? A: VENIT Investments wants to grow while keeping a
We have a clear budget for what we can spend in
tight rein on overhead, especially because this business is
certain areas and we have a good understanding of how
extremely cyclical. When companies have large overheads
various factors influence each other. It seems as if LEED
they must undertake as many projects as possible to
has become a seal of luxury but it only takes careful
keep people working. This then changes the business
research to fully understand alternative ways of building.
model and companies begin to focus more on how much
Companies should innovate and search for new methods.
money they can make by developing the company than
The green building process also does not end at the
by investing in it, which impacts the way the company
door of the building. The Santa Julia district in Mexico
operates and invests its capital.
City is a great example of going beyond boundaries and making an impact on the surrounding areas as
VENIT will continue to expand in our niche market and
well. Sustainability is more than just a certification, it is
although our projects are not the most ostentatious, there
building better structures without sacrificing productivity
is less risk and the projects are of high quality. This is an
or functionality.
331
VIEW FROM THE TOP
LOOKING FOR MONEY? DEBT IS BEST VÍCTOR CALDERÓN Director General of ArCcanto Recursos Financieros
332
Q: How can the private sector help small and medium-
Q: How are you helping companies become better
sized Mexican companies grow?
structured?
A: The services granted to large companies and medium
A: Every three months we offer financial workshops
companies are vastly different. We executed a total of
where the Director and the financial team of our client’s
2,000 financial diagnostics and found that only 8 percent
company can learn about finance, the latest products and
of Mexican companies have formal access to financial
how to make financial evaluations. It helps companies
resources like banks. We found that almost 80 percent of
determine their optimal cost policies, cycles and growth
the businesses we interviewed have inefficiently structured
strategy. ArCcanto considers this an important part of
credit lines. Some larger companies offer training programs
the business strategy, as companies without adequate
for
or
financial information often use credit incorrectly. If we give
financing programs like factoring. It is not a perfect system
their
suppliers
to
support
entrepreneurship
them follow-up services and help them choose the best
but the private sector is increasingly choosing more small
projects to enter, company strategies improve drastically.
and medium-sized suppliers as long as they can provide
Sometimes long-term contracts can cause companies to
products and services on time. On the downside, large
lose more money than they earn if the profit percentage
corporations are making payment periods longer. This
or operational costs are not properly defined.
negatively impacts small suppliers as they cannot accept more projects or grow without being able to finance
Q: What role do you envision for ArCcanto in the Mexican
them. The idea is not only to provide financial support but
financial world?
also to grant training and create a financial culture. This
A: At the moment, we have a strategic alliance with a
combination is what ultimately helps companies grow.
multiple-purpose financial institution (SOFOM). ArCcanto
We are involved with Endeavour Entrepreneur to provide
is in the process of developing a CKD especially for
entrepreneurs with the right financial tools to make their
mezzanine debt that differs from the senior debt granted
businesses more professional.
by traditional banks. Companies that grow extremely quickly and are in need of capital to keep up with the
Q: How are you helping decrease cases of late payments
accelerated growth often have to use private equity, which
in Mexico?
is expensive. Fortunately, mezzanine debt is the perfect
A: Large corporations receive the most profit from their
middle point between senior debt and private equity. It
supply chain and corporations are choosing to extend
helps to financially boost companies in a flexible way as
payment contracts from 30 days to 60 and even 180 in
it allows 10-year plans, with a three-year grace period,
extreme cases. To counterbalance payment issues, we
among other complementary details that can be added to
designed our consultancy to offer suppliers a way to
the negotiation. It is a way to create a financial plan based
advance payments from big companies. The principal
not on history but the future flow of cash. Our CKDs based
advantage of our programs is that they are transparent for
on mezzanine debt have tickets of MX$50 million (US$2.6
the big companies and do not require any type of contract
million) and MX$200 million (US$10.5 million) that are only
with them. The balance does not consume a company’s
for small and growing companies. We are creating them
credit line and it does not put our clients in debt with
with the support of possible partners that are interested in
banks. It allows us to help suppliers that collaborate with
helping small companies grow. Even though various CKDs
large corporations such as Pepsi that do not offer financial
centered around mezzanine debt already exist, they are out
factoring. We have over 60 cases of successful companies
of reach for small companies because their tickets start at
that have grown substantially thanks to our services. Many
MX$200 million (US$10.5 million). It may be more expensive
have outperformed their sales expectations thanks to the
than senior debt but it is ultimately much cheaper than
increased cash inflow.
private equity, which is attractive to smaller companies.
VIEW FROM THE TOP
DEMOCRATIZING ACCESS TO CAPITAL FRANCO CAPURRO CEO of CAAAPITAL
Q: What are the barriers to financing innovation in
because transparency there is an issue. Building a platform
infrastructure?
that can make the industry transparent through screening
A: Innovation can be characterized in a number of ways,
of investors facilitates the industry’s growth.
such as how infrastructure is financed through webbased mechanisms and by innovating in the projects
We have over 150 funds globally, from Blackstone and
constructed. Our company is innovating by providing
Carlyle to smaller local funds. The average developers
a platform that allows projects to be financed but other
are engineers who are adept at developing projects but
companies innovate by type of project. Those companies
do not understand banks or investors. We understand
have very different barriers. Innovation is capital-intensive
the needs of these actors and the needs of the investors
so many businesses face a financing barrier. Financing a
and we are the middle ground between them. We put all
US$50 million project generally consists of 30 percent
the information into a transparent platform, which has
equity and 70 percent debt but banks will not finance
never been done before. Another problem we are solving
debt for companies that lack a credit history. Financing
is networking. Even the well-connected do not have the
can mean the difference between providing 30 percent
entire industry in their network. In this case, we monitor
and 100 percent equity for a project.
the industry and create dialogue between industry players and banks.
Traditionally, real estate development in Latin America is done through investment by companies with specific
Q: What are the biggest benefits for investors using this
mandates. Even wind power projects can become less
platform?
profitable because wind power is still classified as a new
A: We screen roughly 90-95 percent of the proposals
technology and therefore assumes more risk according to
we receive so that the number of projects an investor
bank policies. The innovative financing sector is enabling
needs to assess goes from 20 to two. Even though these
new technologies and CAAAPITAL falls into this bracket.
investors have a great deal to invest, they normally have
We obtained financing in Boston because finding local
no more than five staff and many are focused on Latin
financing would have taken much longer. In the US, there
America. Chile, Peru, Mexico and Colombia have 12,000
is a great number of venture-based startups and the
new projects per year and each project is substantial. With
financing rounds are much larger. Normally, innovation is
our service, all the proposals sent to investors meet their
driven by knowledgeable people like a managing partner in
investment profile because we have these on record and
a fund but these individuals are expensive to recruit. There
can match projects to the appropriate funding in terms of
are few startups that can recruit the caliber of personnel
size, structure and phase.
CAAAPITAL has obtained because staffing costs alone can mount considerably. People also assume greater risk
We carry out this procedure once and 150 funds can
moving to a startup and therefore need greater financial
potentially benefit whereas traditionally, each fund would
incentives.
have to go through this process individually. This also lowers the cost of the transaction substantially. Our team is
Q: What key factors shaped the development of
made up of the foremost experts across a variety of fields,
CAAAPITAL’s business model?
including the former Country Manager of Garrad Hassan,
A: We reached a crossroads at a certain point in our
the former Country Manager of Barlovento and the former
growth where we had to decide whether to become
Head of the IDB for Infrastructure and Energy. For this
a people-intensive company like Deloitte or a more
million-dollar team, funds only need to pay on a variable
transparent, innovative firm. This has worked even more
basis, lowering the overall barriers for foreign players and
effectively in Mexico than in our initial base of Chile
providing substantial cost advantages for investors.
333
Garden Santa Fe, Arquitectoma, Mexico City
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VIEW FROM THE TOP
UNCONVENTIONAL OPPORTUNITIES IN ENERGY FRANCO HAMDAN President of EIM Capital
Q: Being a young firm, how has EIM Capital solidified its
Q: What segments of the energy industry offer the best
position in the energy sector?
opportunities for EIM Capital?
A: We have a number of recognized people on our board,
A: Prior to the reform, we were paying almost twice as
including former President Vicente Fox, who joined the
much for access to power than US consumers, despite
firm at the end of 2013. This is among our main highlights
having access to the same technology and energy sources
because Fox focused not on how young the firm was but on
such as wind, solar and natural gas. Unfortunately, because
our values and vision. Having him on board was beneficial
the system was previously a monopoly, a large portion
early on since it provided us with credibility, invaluable
of our power generation technologies are outdated and
experience and leadership. EIM’s goal is to be a platform
inefficient. A third of Mexico’s power will be replaced with
that attracts international investors and operators to
more efficient sources and these projects can attract a
Mexico, helping to mitigate risk associated with entering
lot of investment. E&P will contribute many traditional
the market here. In this we have been tremendously
infrastructure developments, such as pipe and road
successful. Despite the Energy Reform, investors still have
infrastructure, and so too will power because it requires
a long list of concerns, including security issues, corruption
transmission lines, gas pipelines and generating plants.
and infrastructure. Because energy is contingent on the government, we decided that having a strong government
The pipeline system is not only old, it is also lacking
presence was the only way to really understand it. We
capacity compared with the US. Mexico has around
have solidified our position due to our expertise and have
12,000km of pipelines while Texas alone has 90,000km.
become a trusted partner to some of the most prestigious
To develop midstream infrastructure, EIM will likely back
energy companies in the world.
a management team experienced in infrastructure from a greenfield perspective. Mike Stice built Chesapeake’s
Q: How do you convince investors their investment will
midstream infrastructure and he will help us to identify
bear fruit in the long term?
and develop the best opportunities for our investors. While
A: Despite Mexico’s problems, the country is tremendously
EIM could focus on gathering and processing systems
promising. We are located next to the US, we are a NAFTA
and long-haul pipelines, it will probably focus on special
partner and have strong commercial ties with the US
opportunities with a higher return.
market and business practices. Mexico also has a stable economy, strong reserves, strong demographics and
Q: What has been EIM’s experience with its power plant
skilled labor, which are all attractive features for investors.
investment in Leon, Guanajuato?
The reforms have been transformational and they explain
A: We started this project in 2013, largely due to the opening
the sudden flood of interest in the country.
of the industry even though we were not experts in building power plants. Due to several inefficiencies, we modified our
Unconventional resources constitute a significant industry,
strategy by recruiting the most experienced management
which has so far only been developed in the US and
teams from around the world. The ideal off-takers are large,
mostly have been overlooked by Mexico. Large-scale
stable entities with long-term projections that want to ensure
developments and top-quartile operators are required to
a long-term competitive or predictable cost. The Bajio region
achieve efficiencies that make unconventional resources
has a thriving automotive industry and ideal off-takers are
profitable but it has been difficult for us to attract them.
Ford, Toyota and Mazda. Mexico as a manufacturing hub
With its vast resource base, Mexico could produce the
already is competitive but it is hampered by costly power
same levels of oil and gas as our neighbors, which could
generation and supply. Once energy is made more efficient
ultimately translate to US$500 billion of annual additional
and cheaper, Mexico will become even more competitive and
economic activity within 10 years.
a growing number of companies will begin operations here.
335
INSIGHT
SCOPE FOR GROWTH IN INSURANCE SECTOR PABLO CRAIN CEO & Country Manager Mexico of Insurance at XL Catlin
336
The Chinese character for “crisis” is a combination of
and the types of building materials used,” says Crain. To
the characters for “danger” and “opportunity.” The
provide a helping hand, XL Catlin has customized a series of
infrastructure sector contributes an average of 6 percent
products and innovative solutions specifically designed for
to developing economies around the world, and given
the Mexican market, such as crisis management, to enable
that this number has dropped to as low as 2 percent in
companies to mitigate the inherent risks of operating
Mexico, it would be easy to focus on the dangers the
within the national infrastructure sector. Such products
industry faces today. Pablo Crain, CEO & Country Manager
are particularly pertinent for foreign enterprises entering
Mexico of insurance giant XL Catlin, prefers to focus on
the industry in Mexico for the first time.“Companies are
the opportunities. “The infrastructure insurance sector has
expanding to new countries, and we created products that
a fantastic opportunity to thrive,” says Crain. “The sheer
cater to their specific needs, such as crisis management
size of Mexico’s population provides a large domestic
solutions,” says Crain. “Companies must be alert because
market, considering that local consumption has exploded
each country has different jurisdictions, insurance-related
due to the middle class’ accelerated growth of 80 percent
processes and accounting that need to be understood.”
since 2000.” The Mexican economy is expected to grow at a rate of between 1.7 and 2.5 percent in 2016 and
Along with the private sector, public institutions also have
this, coupled with Mexico’s geographic position, should
important responsibilities to meet regarding infrastructure
increase opportunities for infrastructure projects.
risk management. The federal government must ensure that education, health, transport and hydraulic infrastructure
Perched atop three tectonic plates and sandwiched between
is adequately protected from natural disasters and that
the Pacific Ocean and the Gulf of Mexico, the country is
reparation funds are provided when required. This task
threatened by a wide range of natural phenomena and
is handled by FONDEN, the natural disaster fund, which
is a regular victim of earthquakes, hurricanes and floods.
repairs damage using modern, resilient techniques and
This puts great stress on the national road and hydraulic
materials. While this is an important step, Crain believes
networks, but also has spurred improvements in risk
that the government should also consider transferring
management. “Patricia was the largest hurricane in history,
risk through insurance and reinsurance instruments.“In
and luckily nothing major happened but it drastically
the case of public infrastructure, the government has
raised awareness of insurance in the country,” says Crain.
adapted mechanisms to finance risk with FONDEN,” says
“Companies are beginning to prepare for these types of
Crain. “The transfer of risk is an important method that
events and improve their risk management culture.”
allows both private and public sector institutions to have a clear understanding of what they are insuring, where it is
According to Crain, one effective method of reducing risk
located and how much it costs to rebuild.”
and increasing profit is through the implementation of sustainable infrastructure. Meanwhile, climate change has
Above all else, Crain believes that the key to companies
increased sensitivity toward environmental protection as well
protecting themselves from natural disasters lies in
as generating usual weather patterns. The use of sustainable
education and XL Catlin uses its international standing
materials and more efficient solutions can drastically reduce
and experience to play a leading role in fostering a more
the risk for construction companies and garner support
sustainable, efficient and profitable insurance sector
for infrastructure projects from the international business
in Mexico. “XL Catlin is highly involved in educating the
community, particularly the insurance sector.
sector and developing strategies to establish a better insurance culture in Mexico,” says Crain. “Combining our
“Sustainable buildings generally have lower risk than
global footprint and local expertise allows us to reach out
traditional buildings due to lower energy consumption
to larger numbers of people and companies.”
VIEW FROM THE TOP
MITIGATING FUTURE RISKS JUAN SEGURA President & Director General of Aon Risk Solutions Mexico
Q: How is Aon adapting its insurance services to disaster
communal or ejido lands. Various projects have been
risks?
blocked in Mexico and there have been substantial losses
A: In any developed country the vast majority of losses
because companies failed to foresee the implications
brought about by a natural disaster are covered by the
of land tenure. Negotiating with tenants is highly
insurance market. In many instances the government
complicated. Another problem is that information systems
does not have the capacity or the resources to provide
such as the National Transparency Institute (INAI) do not
compensation for losses. We recommend that all citizens
work adequately. Oftentimes, properties are not registered
and companies that have the capacity to buy insurance
correctly or information is mistaken or not updated, which
should seek proper consultation on the risks and coverage
can lead to ill-informed investment.
337
that exist and understand how to protect their assets. All individuals, companies and every asset or investment needs
Q: How are insurers mitigating the threat to telecoms
to be protected in case of a natural disaster or accident.
from cybercrime and hacker attacks? A:
The
telecommunications
industry
is
generating
Q: What strategies can be applied to ensure competitive
significant investment for the development of new
and transparent bidding processes?
technologies and every day new risks arise for which
A: It is crucial that a bidding process elicits trust to attract the
insurance companies are developing coverage. Companies
most suitable vendors. We believe that direct assignments
in this sector should always analyze their assets, calculate
should
overlook
how much risk the company can absorb and transfer as
companies that could add value in the development and
be
eliminated
because
they
often
much as possible to insurance. Cybercrime is one of the
implementation of new technologies or services in the
biggest concerns not just for the telecommunications
industry. It is essential to hold open transparent bids that
industry but for all companies, especially banks and the
guarantee valuable vendors are not eliminated before the
financial sector. Companies must protect client information
process starts. There should also be open meetings to clarify
and there is specialized coverage for these particular risks.
information so that the service providers fully understand the terms, implications and risks of the requirements. In this
Q: What challenges must the infrastructure industry face
way, the offer will be clear and will meet both the technical
and how can Aon help?
and pricing needs. The final assignment should always be
A: In the short term, the infrastructure industry must
audited by an independent party, which should also take
experiment and develop a great deal of knowledge in
full responsibility throughout the tendering process to
almost every field. Regulatory schemes, such as PPPs, are
ensure complete transparency. This optimizes the process
facilitating the creation of partnerships between the public
and ensures the proposals truly meet the requirements and
and private sector. As for the insurance of private assets,
provide the greatest added value. Companies tend to give
the rapid evolution of technology keeps pushing demand
greater importance to the financial side of proposals but we
for new products. Mexico has a favorable geographic
emphasize that the same importance, or even more, should
positon, a large population and promising opportunities.
be given to the technical offer.
The country should be able to grant security to Mexican and foreign investors. The development of Mexico’s
Q: What hazards are prevalent in land acquisition for
middle class will play an important role in accelerating
infrastructure projects?
the development of the economy, which will generate
A: Land rights and title security are two of the greatest
even more investment, especially in the infrastructure
problems.
railroads,
segment. The government’s task is to continue supporting
highways and bridges normally require large tracts of land
Infrastructure
projects
such
as
infrastructure improvement across the country because
and the vast majority of these projects will run into either
that will be the foundation for further economic growth.
338
INSIGHT
BANKS NEED TO RETHINK CONSTRUCTION FINANCING APPROACH ALBERTO GARCIA DE ALBA Director of Finance and Administration at Kepler
The construction industry has a perception problem.
With tough economic times in the sector and a low-price
Banks seem to think they are all the same. For specialized
market, Kepler has adapted by offering flexible payment
businesses like Kepler, it is a trickle-down effect that
terms and conditions for its services. Clients appreciate
goes beyond misunderstanding.
alternatives that allow them to expand projects they would otherwise have to delay due to a lack of capital, to
Garcia says. The company mitigates risk by using its
finding finance because construction companies are
experience to foresee common issues that can affect the
not considered the ideal client to fund,” says Alberto
financial side of a project.
“There
are
several
challenges
when
it
comes
Garcia, Director of Finance and Administration at Kepler. “Finance depends greatly on the type of development
Garcia acknowledges that some projects entail greater
that is being built and as many banks do not have staff
risk than others when it comes to flexible financing.
with construction knowledge, those companies are not
“On the one hand, low-risk projects such as highways
getting proper follow-up.” That can quickly become
or housing can quickly repay capital,” he says. “On the
an issue for an operator like Kepler. “Although these
other hand, sectors like mining have higher risks from
businesses are open to installing the designs we present,
the inherent dangers of its industry.”
our clients often say they are unable to pay.” Kepler participates in the development, contracting, supervision and execution of heavy industrial and urban construction. It also has a niche in energy generation, specializing in the installation of turbines, mills and other motion-generated devices such as steam and gas Financial institutions and banks often lump specialized construction players into general categories such as highway and housing projects, neglecting that there are major differences. “Construction projects need tailored financial support that is not found in the financial categories banks offer,” Garcia says. “The bank should
“On the one hand, low-risk projects such as highways or housing can quickly repay capital. On the other hand, sectors like mining have higher risks from the inherent dangers of its industry”
grant financing according to the project’s contracts and
Alberto Garcia de Alba, Director of Finance and
documents because developments are complex and
Administration at Kepler
unforeseen details that inflate the original budget are common.”
Although the Energy Reform opened possibilities in its energy generation niche, Kepler is not in any hurry
A company may realize during construction that the site
to join the bidding process for PPPs, which require an
needs a different type of mill, for example. This changes
amount of capital and commitment the company is not
the estimated budget and creates financial obstacles.
yet prepared to offer. “We have to carefully analyze
“Companies need financers who can wait to receive
the market dynamics to decide which companies to
payments until the project is completed, instead of
collaborate with,” says Garcia. “Kepler is not entering
constantly requiring payment throughout the process,”
any bidding rounds but we envision transitioning into
Garcia says. It gives businesses a window to recuperate
self-financing
the borrowed capital.
projects to auto-generate work.”
through
short-term
five
to
six-year
339
Finishes Market Offices, spAce, Mexico City
DOING BUSINESS
14
Mexico’s prosperous economy and countless opportunities are flooding the market with new players. Whether it is international players entering Mexico for the first time or national players diversifying into a new sector, it is important to create alliances with businesses that can help facilitate that transition. According to the OECD’s June forecast, Mexico’s GDP is expected to strengthening to 3 percent in 2017 due to the structural reforms this administration has implemented. That would be up from the Bank of Mexico’s lowered outlook for this year to between 1.7 and 2.5 percent. Expenditure budget cuts for 2017 are threatening the completion of the NIP but new financial mechanisms and PPPs could give the industry hope for the remainder of the government’s term.
The book closes with expert advice on how to steer through the labyrinth of the Mexican infrastructure industry. Stakeholders discuss how they are creating productive working spaces, developing software to improve construction and building bridges with concrete blocks. As the market grows more competitive, these industry leaders share the importance for companies to find new methods of differentiation, with both sustainable and socially responsible certifications.
341
CHAPTER 14: DOING BUSINESS 344
INSIGHT: Juan Carlos Baumgartner, spAce
346
VIEW FROM THE TOP: José Alarcón, PwC
347
VIEW FROM THE TOP: Edmundo Gamas, IMEXDI
348
VIEW FROM THE TOP: Juan Rodríguez, Mac Arquitectos Consultores
Gonzalo Montaño , Mac Arquitectos Consultores
348
INSIGHT: Luis Doménech, MILA
350
VIEW FROM THE TOP: Rafael Diez , Grupo ITISA
Gabriel Santana, Grupo ITISA
351
VIEW FROM THE TOP: César Moreno, ENTEC
352
VIEW FROM THE TOP: Roberto Mikse, Autodesk
353
VIEW FROM THE TOP: Luis Pernia, PROA
355
VIEW FROM THE TOP: Ricardo Chávez, Intelligent Group
356
VIEW FROM THE TOP: María Elena Rigoli, Collectron International Management
357
INSIGHT: Eduardo Vidales, CSL
358
INSIGHT: Eloy Rodríguez, ACCSE
359
VIEW FROM THE TOP: Enrique Garza, Crecimiento Programado
Eduardo Díaz Lozano, Crecimiento Programado
343
INSIGHT
EFFICIENT SPACE FOR EFFICIENT WORKERS JUAN CARLOS BAUMGARTNER Managing Director of spAce
Architectural design consultancy spAce has noticed
based design strategy. SpAce is basically the only firm
that most offices are designed by architects with no
in the country completely dedicated to building high-
background in the science of productivity and happiness.
performance spaces and to workplace education,” says
It wants to change that. “We try to deeply understand
Baumgartner.
the companies we work with and their culture,” says Juan Carlos Baumgartner, the company’s Managing Director.
Many countries and architects are adopting the open
“Happiness has become an obsession for us.”
office concept because it is less expensive than closed areas, says Baumgartner. They must be combined with
344
To get to the crux of the matter, SpAce created a research
a set of alternative spaces. People cannot arbitrarily
department
and
be arranged into an open-space environment without
researchers who specialize in space efficiency. The firm
being given casual meeting spaces and areas where
has an alliance with the head researcher of MIT’s media
they can concentrate. If they are only given open offices,
lab, which focuses on the future of education and strives
employees feel they are losing more than they are gaining
to discover how the environment impacts the way people
and it detracts value from their work, says Baumgartner.
process and store information. It also has an alliance
“Space can be a powerful tool for an organization as long
with Deft University in the Netherlands that is especially
as time is invested into understanding the company’s
concerned with wellbeing and its relationship to the
culture and vision.”
that
collaborates
with
institutions
physical environment. Because all companies have a different opinion on Deft has a theory called Positive Emotional Granularity
productivity, spAce finds it more efficient to connect the
that researches people with a deeper capacity to share
benefits achieved to happiness levels. To measure results,
feelings than the average person. SpAce is developing
the firm identifies basic elements within each company
this theory with Deft and is in the process of creating an
that best reflect productivity. It then measures the impact
alliance with Harvard to delve even deeper into the topic
design brings to these factors.“Our work impacts deep
with the prestigious academic institution. The firm also has
layers of the company. Our 20-year experience has proven
partnered with an Australian lab that analyzes the impact
that our projects can increase engagement from 25 to 30
different lighting can have on performance.
percent, on average. Satisfaction is equally improved by up to 40 percent,” Baumgartner says. Both elements reap
The company uses electronic tools to measure happiness,
more profit for clients as employees are willing to give
performance, health and engagement. It employs a system
more to the company.
that allows it to interview 10,000 people in 15 minutes. “This gives us an amazing, big picture of the client’s business,”
“One of the reasons we have a great deal of success is
says Baumgartner. SpAce also can use its database for
because we take the time to adapt our designs to their
cross-referencing, dividing people into categories such
needs. Our mission is to give our clients what they need
as age and company areas. “This lets us find groups of
to complete their work and it is often not an office.
people within the company that are happier than the rest
Beauty and functionality alone are not enough to create
and we can then analyze the reasons behind that,” he says.
significant change,” says Baumgartner.
The trend of open offices is geared toward raising
An efficient workplace design also can produce savings.
employee satisfaction and productivity but this is only a small piece of the puzzle. “The problem is that Mexico
SpAce helps reduce costs by using fewer square meters
does not have enough experts who focus on evidence-
and by defining internal mobility. Effectively, only 70
percent of a space is used because offices are empty when
In addition to taking on corporate clients, spAce carries
employees are in meetings or with clients. “Our tools can
out four or five pro bono projects a year. “As our objective
measure how often people leave the office to define the
is to transform spaces and the way they impact people,
company’s mobility profile,” says Baumgartner. “We find
we decided that our best bet was to bring added value to
that some people only use their office space briefly to
education. The hardest part is finding suitable pro bono
check emails or arrange meetings and they do not truly
clients because we need them to have enough resources
need a workstation.”
to build the project and to avoid wasting time in designs that will never become a reality,” says Baumgartner.
Based on the company’s profile, spAce offers alternative spaces such as lounges or bars where people can drink
SpAce’s main focus is education because the sector is
coffee and check their emails. Employees who are
going through a major revolution. Mexico’s 200-year-old
frequently in meetings with clients may only need the
system is being reformed but its physical aspect remains,
workspace to make friends and feel like they are part of the
says Baumgartner. He believes an educational revolution
company’s bigger picture, Baumgartner says. “It is more
cannot happen without a deep change in space design.
efficient to invest in common areas than workstations
Many studies have proven that the worst way to learn is
that will be underutilized, or to implement a hot-desking
by facing all the desks forward with a teacher at the front,
system. Some of spAce’s most innovative ideas include
he says.
working cafes, in which people do not have a defined working space. Offices can implement open terraces and
“We strive to shrink the gap between the educational
install tables so employees can sit wherever they please.”
system and the real world,” says Baumgartner. Mexican universities like UNAM are facing a deep infrastructure
Baumgartner remarks that working with international
gap as the physical environment has not changed in 50
companies in Mexico is easier because they come from
years. This implies that students are studying in spaces not
countries with priorities similar to workplace happiness.
connected to where they will be working after graduation.
“Clients from Europe and the US do not need to be coaxed
“The biggest problem is that corporate industries evolve
into seeing the importance of space design and the value
quickly, while other sectors move more slowly,” he says.
of the investment. When we decided to expand into Latin
“The only way to reduce the gap is by pushing those that
America and created our headquarters in Mexico, our
are at the forefront of design to bring the educational
first client in the region thought we were crazy for talking
system closer to current technology and workplace trends.
about topics like sustainability. Our use of space was
It is not easy as many teachers are not open to changing
confused with practices more akin to Feng Shui because
their paradigm but the generations to come have new
the concept was completely new,” Baumgartner says.
mentalities that will soon force the system to shift.”
Red Bull Offices, spAce, Mexico City
345
VIEW FROM THE TOP
STRIKES AND BUDGET CUTS COULD PROVE BENEFICIAL JOSÉ ALARCÓN Partner and Lead of Health Services at PwC
Q: Considering the dual budget cuts in the healthcare
infrastructure and the development of strategic demand
sector, what infrastructure challenges are ahead?
linked to consolidated purchases.
A: It can be viewed in an optimistic or pessimistic way.
346
Pessimistically, it can be said that healthcare is cut and
Q: Are doctors in pharmacies an appropriate solution to
it is frozen, in which case the only way to move forward
delayed services in public hospitals?
is with pressure from organized society, the private
A: I think it has been a good alternative for society but
sector or even international organizations. Optimistically,
by taking that alternative the population is not receiving
considering the intelligence of leaders such as Mikel
access to public healthcare as is their right. It also relieves
Arriola at IMSS and Minister of Health José Narro, we may
pressure on hospitals in terms of demand and mitigates
now be more united and integrated. In an integrated view,
the stress on the current infrastructure that is in need of
the pressure caused by the budget cuts can be used as
development. It is positive as long as the public sector sees
an opportunity to change things for the better, meaning
it as a sign for improvement. As for private spending, there
becoming more efficient and creating more appropriate
is too much out of pocket. The public sector does not have
infrastructure. If politicians and leaders in the public
the resources to comply with all demands and an alternative
sector share this view these cuts can be used as leverage
is to shift to an innovative public-private partnership. This
for improvement and new models can be introduced
would allow the development of infrastructure financed by
using public-private cooperation, such as pay for results,
the private sector to meet public sector needs, as long as
risk-sharing agreements, development of appropriate
the public sector assumes the majority of the risk. Q: How do you expect Mexico’s healthcare changes to unfold? A: In the near future, I do not think there will be anything revolutionary, just evolutionary actions to maintain the status quo and maybe some relevant steps focused on efficiency on the public sector side. In the private sector, I see a more united voice pushing to have it seen as a competitiveness tool for the government and the country as a whole, and hopefully this will drive big reform in the early years of the next administration. After the next eight years, I think a reform will be implemented and the focus will shift to trying to stabilize a united national health system until 2030. Most of this will be employed through PPPs since resources will be scarce at both sides of the spectrum. Afterward by 2034, a better healthcare system may be a reality with some room for improvement. Another way to view it is in terms of supply and demand. To avoid a crisis, supply must be increased through efficiency and demand must be lowered with the help of private sector innovations. We must get the reform right so the gap between supply and demand does not become a predicament.
VIEW FROM THE TOP
CREATE CENTRALIZED AUTONOMOUS BODY FOR INFRASTRUCTURE EDMUNDO GAMAS Director General of the Mexican Institute of Infrastructure Developement (IMEXDI)
Q: What initiatives are needed to optimize cooperation
through the drafting of model laws, the design of toolkits,
between levels of government?
the establishment of protocols and the foundation of
A: Mexico is in need of a national planning and delivery
autonomous authorities.
system for infrastructure. Our institute’s members are all participants in the infrastructure ecosystem and they
Q: What is impeding the success of CompraNet and how
all have a vested interest in ensuring that we have more
important is Infranet?
high-quality infrastructure projects. We are fighting for
A: In its early stages, CompraNet was envisioned as a
the creation of an autonomous organization within the
transactional information model to streamline government
government, responsible for the planning and delivery
purchasing processes. It was a successful tool and won
of infrastructure projects. The processes required in
international recognition but since then it has atrophied
infrastructure planning and delivery are complex and
due
time consuming. In practice, this means that government
with CompraNet is that its use has become entirely
entities, tied to electoral cycles, are simultaneously
discretionary since officials decide what is uploaded, what
planning and tendering their infrastructure projects,
is removed and there is no obligation to post the complete
leading to poor quality, delays and cost overruns. Other
historical documentation of all infrastructure projects.
countries have centralized the planning and/or delivery
Even documentation proven to be erroneous, or that
of
governmental
which is superseded, should not be removed because civil
organization. Such centralized bodies are directed and
society has a right to see how purchase processes unfold.
infrastructure
in
an
autonomous
to
inefficient
monitoring.
A
related
problem
staffed by technical professionals who are not tied to any particular political project. They integrate a project bank
InfraNet was developed to ensure efficiency, control,
containing shovel-ready infrastructure developments so
accountability and transparency in the planning and
the government can simply draw on them. In Mexico, an
delivery of infrastructure. This is a necessary system due
autonomous organization like this could plan and deliver
to the complexity of infrastructure projects. This software
infrastructure projects for all levels of government and
will have to be designed ad hoc because it must display
would be open to evaluating USPs.
the complete life cycle of infrastructure projects, from planning, through delivery, operation and maintenance, to
Q: How do you perceive the NIP as the administration’s
periodic performance evaluation.
term winds down and what will be your role? A: If PPPs had been established sooner projects in the NIP
Q: How attractive is Mexico as an investment destination
would have generated a lot more interest and bidding.
compared with other emerging Latin American countries?
The government’s planning departments are saturated
A: Our main competitors for investment into Latin America are
with work as the end of their six-year term approaches,
the countries in the Pacific Alliance. Investors are paying less
meaning there will be an increase in the number of
attention to other countries due to the problems inherent in
infrastructure projects left on the “to be planned” list
their economies and development models. Brazil’s economy
when the administration’s term concludes. There also are
has drastically slowed down and it is not clear how long it
significant institutional bottlenecks, such as the Ministry of
will take for it to readjust or what type of system will emerge.
Finance’s Investment Unit, which must evaluate and sign
Mexico’s biggest competitors at the moment are Chile, Peru
off on each infrastructure project. Allowing the private
and Columbia. That is concerning because Mexico is behind
sector to participate in the planning and evaluation of
in its institutional framework, while countries like Peru and
infrastructure projects would ease these bottlenecks but
Columbia already have central infrastructure authorities that
there has been no inclination in this direction. IMEXDI is
make their bidding processes more transparent and uniform,
attempting to help streamline infrastructure planning
which makes investors happier.
347
VIEW FROM THE TOP
TAILORED MALLS TO FIT PUBLIC NEEDS
Juan Rodríguez Managing Partner of Planning at Mac Arquitectos Consultores
348
Gonzalo Montaño Managing Partner of Architecture at Mac Arquitectos Consultores
Q: How can shopping malls distinguish themselves and
can put a mall in a different light, where it is viewed as an
boost customer traffic?
entertainment space rather than just somewhere to buy
JR: There has to be constant innovation and no two
clothes. But these events need to be tailored to the public.
shopping centers can be the same. A shopping center we
Innovation is essential but a balance needs to be struck
developed in Coacalco, State of Mexico has a big screen,
between this and what the market can pay. In our shopping
which means people will go there on a Sunday to watch
center in Venezuela, the managers organized a mass
football. There are also terraces in the restaurant so their
wedding. The shopping center agreed to pay for the party
customers can see the screen. It is always essential to
and it attracted around 100 couples with their friends and
understand the target market because sophisticated
family. This was something attractive to this demographic
audiences require more complex features, whereas some
because it is an important ceremony and many did not have
demographics require simple shopping centers with nice
the resources to pay for their own reception. That generated
architecture.
a great deal of loyalty in the community. This shopping center also runs a beauty pageant and the entrants must
GM: There is an old saying: “Some buildings talk, some
be customers.
buildings sing and some buildings stay quiet.” Today’s commercial centers have to sing but many of the new
Q: What have been the successful strategies for malls in
shopping centers remain quiet. The attraction of a
low-income areas?
shopping center is increased by the events it holds for the
GM: Covered spaces are successful because in low-income
public. Besides increasing foot traffic, events like these put
areas most shopping is carried out in street bazaars. This
INSIGHT
DOORS OPEN TO FOREIGN INVESTMENT LUIS DOMÉNECH Co-Founder and Managing Director of MILA
Mexico has flung open its doors with reforms that have
and Latin America, says that companies wanting to enter a
turned international attention to the country’s industry
highly competitive sector or industry, such as infrastructure,
potential. Propositions such as the National Infrastructure
should establish adequate local partners, hire local labor and
Plan and Energy Reform have broadened the landscape for
build relationships with local technology suppliers.
competition. As international companies begin formulating their plans to participate in the numerous opportunities that
“In some cases, international companies can come up
are arising, Luis Doménech has a warning: it might not be as
against more competition in Mexico than they would
easy as you think. Doménech, Director General of MILA, a
back in their country,” he says. “Mexico is replete with
consulting firm that specializes in market research for Mexico
competitive infrastructure groups that are compelled
means the commerce is extremely unstable and weather-
Q:
How
are
you
incorporating
SMEs
into
your
dependent, so there is a push toward more covered retail
developments?
spaces. Parking also is beneficial as this creates more comfort
JR: We want to do so but it is a question of whether
for the customer. Large spaces are popular because the mall
they have the product and the administrative capacity
can organize events. In Santiago Tianguistenco, State of
to provide greater efficiency. The problem here is that
Mexico the shopping center we helped plan is close to a high
a large percentage of SMEs are not really SMEs in the
school and the managers of the center discovered the kids
traditional sense, but rather tiny family-run companies
in the school play chess. The managers invited the young
that do not have the management capabilities to work on
people to play at the food court area of the mall. Things like
such a large scale. In Mexico, 30 percent of new companies
that will incentivize loyalty and with the time spent in the
fail within one year, and this is not due to poor market
food court, those kids also are likely to buy food or drinks.
conditions, but because of a lack of business knowledge. We are open to working with these companies if they are
JR: We opened a Cinépolis there with five theaters and it
able to provide the right product at a competitive price.
has become the most successful and profitable low-profile
Bringing professional retail to small towns will also bring
Cinépolis across the entire chain because people need this
higher quality and lower prices to the people who need
facility. People were already going to the cinema regularly
them most.
but the difference was the lack of convenience due to poor public transport links. The MX$50 (US$2.60) each way
GM: Most of the time, the reaction to large multinationals
they would have spent in the taxi can now be spent in the
entering small towns is due to a small number of caciques
shopping mall. When we began developing this mall, we
(bosses) who monopolize the local trade and do not want
held a recruitment fair and received over 1,000 applications
to see prices being lowered by professional businesses. This
from people eager to find employment. This is another
was the case when Walmart entered Teotihuacan. We invite
need we are meeting.
mom and pop stores to our shopping centers so there is still a place for those types of retail outlets but the price must
GM: We also offer greater security. Five years ago, we
reflect the rest of the market. This also allows shoppers to
developed a shopping center with only one public entrance,
maintain the comfort they want. At the recently opened
and this provided increased security especially for parents
shopping center we developed in Zinacantepec, State of
whose children would normally socialize in a park or another
Mexico, more than half the retailers are local with no more
potentially dangerous environment. There is a police officer
than five stores. This is a viable growth strategy for SMEs
stationed at the exit to ensure no unaccompanied minors
because they are in the same arena with major outlets and
leave the building so the protection is tangible.
facilities like Cinépolis.
to compete with the low prices of Spanish companies
energies. It is said that players in this industry are endowed
and with Germany’s state-of-the-art technologies.” He
with an inordinate amount of patience as they endure
adds that although the competition is tough, Mexico is
prolonged processes but with successful projects already
opening its doors to all investment and is creating new
under their belts, there is great untapped potential for the
opportunities for any number of businesses. Doménech
hydropower, biomass, wind and solar sectors.”
expects an expanded market of competition will also bring improved technology into the market. Firms can tout
Reform in the energy sector also will underpin the oil and
advances that may be slightly more expensive but deliver
gas industry in coming years, he projects. “The Energy
better results in the long term as they vie for government
Reform has become a gateway for many international
contracts that traditionally have gone to the lowest bidder.
oil and gas companies to enter the Mexican market for the very first time,” Doménech says. “Now, international
Thanks to new plans and reforms, opportunity is knocking in
companies can venture into various areas within the
industries such as railroad and energy but the government
industry, including the opportunity to sell directly to
must do more, says Doménech. “The railroad industry is
PEMEX. This would drastically increase the number of
filled with countless new projects but due to the large
private oil companies in Mexico.” He believes that small
investment needed, it is essential that the government
equipment suppliers also will expand their businesses
provides incentives by subsidizing the biggest projects,”
because participants in the oil and gas sector will no longer
he says. “The energy industry also offers a significant
want to return to PEMEX’s bidding process, spurring sales
number of prospects, for both conventional and renewable
to private companies in the sector.
349
VIEW FROM THE TOP
PRECAST CONSTRUCTION FOR ADAPTABILITY
Rafael Diez Director of Prefabricated Buildings and Integration at Grupo ITISA
Gabriel Santana Director of Business Development at Grupo ITISA
Q: What challenges has Grupo ITISA encountered in
such as acting as subcontractors for consortia. The secret
assembling the Autopista Urbana Sur?
is learning how to be a team player.
RD: The construction of the Autopista Urbana Sur, which
350
will connect the second level of the Periferico beltway to
Q: Which sector is most inclined to use precast materials?
the Mexico-Cuernavaca highway, has presented logistical
RD: The commercial real estate sector is creating
challenges. Carrying out the construction of such an
opportunities for the use of precast. Building commercial
immense project in a city that never sleeps is strenuous.
malls with this requires more than 8,000 pieces to construct
A project of this magnitude requires the collaboration
150,000m2, which is like assembling a project with LEGO
of authorities, citizens and workers. The plan we created
pieces. Grupo ITISA has to create, transport and assemble in
had to ensure that each piece for the second level arrived
the time allotted, which involves coordination and although
safely and on time. This project is located on Mexico’s
it is not as immense as installing a concrete column for a
largest roads so we had to work nights to avoid ensnaring
second floor, it requires teamwork and an even greater
traffic or creating hazardous situations for commuters.
logistics plan. The advantage of constructing commercial
This meant we had an average of six hours a day, five days
real estate using precast is that while the developers are
a week, to fully assemble the second floor. We could only
excavating the site, their mall is being constructed in a plant
work from 10pm to 6am each day and during this time
that is miles away. When they begin construction, more than
we had to use one to two hours in the evening to position
60 percent of their mall is ready for assembly. Our product
the trucks for assembly and then stop building for one or
quality is ISO certified. Our engineering departments are
two hours in the morning to clear the way for commuters.
always innovating and integrating the newest materials and
Working under these conditions requires congruous
concretes on the market.
processes to finish on time. The second level is expected to open around September 2016.
Q: What materials and processes are best when constructing mixed-use real estate projects? GS: Commercial real estate has complex infrastructure because there are various levels with different weight requirements. The weight of a Home Depot is different than any other type of store. Only a pre-stressed concrete structure can hold variable weights but it must be cast on the spot, which is a disadvantage. Steel has excellent
Building commercial malls with precast requires more than 8,000 pieces to construct 150,000m2
characteristics but if it has considerable weight to support, it becomes a lot more expensive to construct. Urban projects are renewing cities by disassembling old buildings and regenerating them as new city centers. A great example of this is FUNO and PARKS’ project on
GS: A similar project we are working on is the 1.2km stretch
the old training fields of Guadalajara’s soccer team. They
that will connect the second floor of San Fernando with
decided to construct a unique mixed-use project that
the second floor of El Caminero in Mexico City. This was a
includes offices, a tower, malls, a hotel and parking. The
joint project with the federal and state government, which
country is demanding the construction of mixed-use
required efficient communication. Working with different
projects and those demand the use of precast. Not only
governments on various projects has made Grupo ITISA
is it easier to use but it is one of the few materials that
a more flexible company that can adapt to various roles,
resisted the 1985 earthquake.
VIEW FROM THE TOP
MAINTAINING MEXICO’S STRUCTURAL DIAMONDS CÉSAR MORENO Director General of Enlace de Tecnología, Proyectos y Servicios (ENTEC)
Q: What challenges does ENTEC face in its maintenance
and structures. Now, they are outsourcing to keep a
services, especially with high-rises?
tighter focus on their core services. The authorities are
A: Our 13-year-old company has five business units,
collaborating with private companies to efficiently care
including the aerospace unit that does heliport design
for their buildings. They allow external companies to take
and construction. We also provide information regarding
care of details such as maintenance and air transportation.
governmental
required
The parastatals are now striving to reduce the tasks they
documentation. Aerospace is our most active area. In
approval
processes
and
its
juggle to serve the country more efficiently, thereby giving
second place is our height-access equipment and services
the private sector more opportunity and equality when it
that focus on exterior maintenance such as window
comes to services.
washing on high rises and work-site safety. ENTEC oversees the care and maintenance of some of the tallest
Q:
What
maintenance
issues
are
most
commonly
buildings in Mexico, including Torre Reforma, which is
overlooked?
special in terms of space, architecture and structure.
A: Maintaining the quality of a building is a clear challenge. Funds like Fibra Uno acquire a great number of buildings
New high-rise construction benchmarks are coming into
that all come with considerable responsibilities, such
the market continuously. Torre BBVA Bancomer and Torre
as the collection of rent. Owners have to be particularly
Reforma, in particular, grew alongside each other with
organized to distribute shareholder profit correctly. Users
different construction systems. The emblematic towers
need to be assured a decent level of quality. High-rise
represent a challenge when it comes to deep cleaning.
buildings are especially difficult and many complaints
In the case of the BBVA Bancomer tower it has a second
center on parking accessibility, elevator congestion, waste
skin that makes it difficult to reach important parts of the
management and cleanliness. The maintenance and care
glass. On the other side, Torre Reforma has two walls of
of each structure directly affects the asset’s value, which is
concrete with two long beams in the center of the building
important considering that Fibras are based on trusts and
that create a clear division of the internal space.
assets, not just rent. Funds like Fibra Uno invest in quality to increase and sustain value.
Q: How do Mexican companies view their investment in building maintenance?
Q: How is the entrance of international companies
A: Unfortunately, maintenance is seen as an expense when
affecting Mexico’s safety standards?
it should be considered a service. New buildings often age
A: International companies enter Mexico and end up
more quickly than they should due to a lack of maintenance.
readjusting the country’s standards with their global
The real estate market is quite aggressive with developers.
expertise
It attracts clients to our company that prioritize structural
guidelines. Our company prepares for these shifts by
cleanliness. They request our maintenance services to
studying international and local standards. ENTEC’s
keep up with the competitive market.
experience
while
in
respecting
other
traditional
countries
helps
construction
us
measure
Mexico’s international competitiveness and find areas of On the public sector side, there is a paradigm shift
opportunity to develop. Even though many of the safety
under way because the government is starting to see
products we are introducing are new to Mexico, people
the importance of caring for offices and structures and
must realize they were adopted by other regions a long
is acknowledging the private sector’s ability to increase
time ago. Companies need to adapt to the country’s
the durability of these spaces. In the past, entities such
quickly changing landscape. New generations have an
as CFE and PEMEX managed all their services internally
incredible amount of access to global information and
and developed and controlled their own heliports
they are using it to break paradigms.
351
VIEW FROM THE TOP
ADD DESIGN TO MADE IN MEXICO ROBERTO MIKSE Country Director of Autodesk
352
Q: How are Mexican companies adapting to 3-D modeling
software for free to universities for academic purposes.
technology?
Professors and students now have access to our entire
A: All infrastructure projects are complex and require
portfolio but this is not for commercial use. Autodesk
exhaustive
of
transitioned to a subscription model three years ago,
miscalculation can cause delays and inflate budgets. Our
control
which helps diminish noncompliance rates. We facilitate
company has a portfolio of 170 products for electronic
access by reducing costs and promoting accessibility. In
simulation. Autodesk’s 3-D technology creates visual
the past, Autodesk sold perpetual licenses that granted
models using Building Information Modeling (BIM). As
usage rights. Now, instead of a licensing fee, customers
construction
increasingly
pay for the amount of time they are subscribed to the
interested in implementing new technology, companies
software. This benefits construction companies because
are beginning to implement important shifts internally. It
now a developer with a three-month project and a limited
is now more common for directors to ask project leaders
budget can use advanced technology at a more accessible
to submit a 3-D BIM model to acquire information. The
price for the required time.
project
and
technology.
managers
The
become
risk
problem is that at this level, employees may not know how to make a BIM model and end up turning in a traditional
Q: What significant trends is the infrastructure industry
2-D model. The progress of 3-D models here is delayed
facing and how is Mexico keeping up?
because companies and users are still in a learning curve.
A: There is no doubt mass consumption trends influence infrastructure projects. In China, developers can build a
Mexico in some cases is a follower and late adopter. Before
20-storey tower in 18 days under a prefabrication process
deciding to take on innovative technology, we tend to wait
that is efficient and uses lightweight material. These are
and observe the success of that tech’s growth in every region
more sustainable because they not only use less material
from Europe to Asia and South America. Our company
but can also adapt to climate change. Shanghai has a spiral
has actively promoted BIM technology to government
tower that can catch enough wind to create a turbine
agencies over the last three years and the discussions
effect and generate electricity. Few Mexican companies
have motivated authorities to include it as a requirement
are striving to satisfy these new trends.
for structural bidding rounds in public construction. The public, private, social and academic spheres also are slowly
Q: What strategies can Mexico follow to stand out in the
starting to adopt BIM. We may not adopt technology before
international market?
other countries but when Mexico pushes the gas pedal, the
A: Mexico stands out with its manufacturing. The country
landscape quickly adapts to the new changes.
has the potential to become a logistics hub. There are two issues that are keeping Mexico from reaching its full
Q: What role does Autodesk play in the new technological
potential. First, products around the world are typically
landscape?
labeled as “Made in Mexico,” but few are tagged “Designed
A: The company works with the government to foster
in Mexico.” Its global power could increase dramatically
cooperation with private initiatives that can push the
in the coming years if the country would promote more
country to the next level of technological progress. We
internal design and technology that satisfies current
have constant dialogue with different people and sectors,
trends. The second problem is the need for infrastructure.
including CEOs and universities, to discuss the direction of
Mexico’s positioning means that despite its potential as
global trends. Autodesk University is an important element
a logistics hub it does not have the right structures to
in this. It has been sharing innovative information over the
take advantage of its geographic location. The National
last four years in Mexico and the US, allowing people to
Infrastructure Program is beginning to provide glimpses of
try and test new technology. Our company also gives its
infrastructure development but more progress is needed.
VIEW FROM THE TOP
SMART INFRASTRUCTURE FOR SMART CITIES LUIS PERNIA Director General of PROA
Q: How willing is Mexico to innovate and integrate
Another example is highways. Automation means people
technology into its processes and infrastructure?
would no longer have to waste up to 15 minutes waiting
A: Mexico should be proud of its creative and innovative
in line to pay highway tolls. Video analytics software
potential. It is making an effort to move beyond
would make the roads safer as the data can be used to
manufacturing. PROA is small in comparison to large
identify car license plates and validate the corresponding
international
and
car’s characteristics. Our technology can automatically
innovation, yet we are perceived as exemplary due to
companies
focused
on
security
evaluate vehicle compliance with regulations on weight
our agility, creativity and innovative culture. Business
and dimensions.
owners should see the significance of investing in people, technology and process development and stop seeing
Businesses and society in general need to run on values
them primarily as expenses. We have to be creative and
that emphasize innovation and efficiency. If the private
make business models that can reap benefits. Companies
sector desires a more honest landscape, it must be willing
need to make sure we are not simply selling but creating
to comply with regulations.
value for every stakeholder. Q: What cutting-edge technology is PROA developing? Q: What is the target market for your security and
A: At our Security and Efficiency Innovation Lab in Monterrey,
efficiency systems?
PROA is developing unique algorithms based on Big Data
A: All buildings that are occupied tend to be more
applications that will help companies lower their operational
sensitive toward safety and cost-efficiency systems.
expenses for safety, security and energy consumption.
Builders and developers are often significantly less
This is achieved by integrating technology and correlating
so because they do not have to deal with issues that
information captured through our Intelligent Platform to
appear after the property is sold. They do not care if
monitor, control and command activities and processes.
the owners spend more money on energy and security or about the durability of the structure. Our solutions
PROA also is developing a Smart City model within
and services are applicable to every kind of building
the Terralta residential development in Monterrey that
because the entity living or working in the building
will showcase the significance of safety and efficiency
will want a safe environment and lower operational
technology. The complex has sensors that can detect cars
expenses. Residential complexes, however, do not worry
above the speed limit and uses automatic speed bumps
about how much they spend on security and operational
to slow them down. It includes technology to supervise
efficiency since these costs are passed to renters or
a worker’s physical location to increase productivity and
individual owners.
lower the risk of theft. Intelligent video monitoring systems and drones detect abnormal conditions and trigger real-
Q: What kind of relationship does PROA have with the
time alarms.
public sector? A: We do not directly work with the government but we
Terralta mimics a small city with 1,000 houses, a golf
have provided solutions and services to some government
course and a capacity for about 6,000 daily workers.
entities that required high-security installations. We are
Water and energy consumption are important resources
convinced the public sector would greatly benefit from
for the complex’s operations. PROA’s solution consists of
systems that boost efficiency and security in structures
a complete system that manages traffic, flow, supply and
like hospitals to increase patient safety, track expensive
demand, energy and waste consumption. Managing this
and critical medical equipment and increase surgery room
residential ecosystem is an amazing opportunity to create
occupancy and efficiency.
value for everyone involved.
353
BIM software render, Autodesk
354
VIEW FROM THE TOP
SEE THE BIGGER PICTURE TO CREATE OPPORTUNITY RICARDO CHĂ VEZ CEO of Intelligent Group
Q: How would you describe the context of Mexican
created to set a benchmark and encourage a new market
infrastructure?
that incorporates a different set of standards. Not all
A: Profit is the center of infrastructure development in
companies have the ability to compete, as the benchmark
Mexico and quality is quite low. Only a few have acquired
has been set quite high. Companies with lower capacities
LEED platinum certification and the rest have no interest
tend to focus more on receiving rents and not making a
in meeting these international standards. Investors often
bigger effort in adapting to the market.
end up selling structures that are not adequately designed as they prioritize low investment per square meter without
Q: How is technology advancing in Mexico in comparison
considering efficiency or durability. Unfortunately, Mexico
to other countries?
has gained a reputation for being behind on trends. This
A: Technology is progressing in Mexico but it is not being
is reflected by the quality of infrastructure in the country.
targeted adequately. The issue is that clients are confused
Developers tend to not care about creating a crisis as they
by the mass market and premium clients start to doubt
find these situations to be an opportunity to obtain cheap
the necessity of buying higher quality products that are
square meters that can be sold in three to four years at a
more expensive. Other countries such as the US commonly
higher price. Companies sometimes acquire up to 1 million
build structures financed by joint ventures and are used
square meters at a devalued price.
to investing a higher percentage to create better-quality structures that comply with international norms. These
Consultancies can help them realize that investing only 15
clients do not question having to pay slightly more for
percent more in a project can place a structure easily within
durable and efficient material. It may require more capital
international standards. We focus on making sure that our
but they recognize the value of being LEED certified.
projects emit less carbon dioxide in the atmosphere by
Mexico is more focused on creating cheaper projects
creating buildings that consume less energy and retain
without considering the level of quality. Companies may not
less heat to require less air conditioning. It is favorable to
realize that they are a few points away from being platinum
create structured projects that have a larger capacity in
or gold LEED certified and miss investment opportunities.
terms of the integration of technologies that will obtain
Specialists in Mexico need to understand the bigger picture
a better cost-benefit ratio. Intelligent Group recently
before offering their clients a construction budget.
implemented a lightening control and energy savings system to achieve a LEED Platinum Certification in in the
Q: What challenges does the infrastructure industry face?
Reforma 180 tower.
A: We find it difficult to convince developers to invest in higher quality material because they are not worried
Q: What role can the government play in creating a new
about the durability of the projects. After construction is
consciousness in Mexican culture?
completed, all responsibility is handed to administrators,
A: The government does not regulate the market strictly
who
enough but it is starting to set a limit of greenhouse gas
efficiency. Intelligent Group is building a 270,000m2
emissions. The authorities need to adopt a sustainable
commercial center in Cuernavaca. Our client ignored our
conscience and find the significance in investing time to
recommendations and opted to buy inexpensive lights
ensure the construction of well-planned structures that do
from China that only last six months. Developers need to
not completely revolve around profit. Fortunately, Mexico is
know the requirements of the certifications to move their
starting to actively participate in the global paradigm shift.
structures in the right direction. Technology facilitates
Situations such as an earthquake and an unstable political
the work and companies need to take advantage of this.
context are activating a transformation that is creating new
We need to demand a higher standard of quality before
vertical markets and technology. LEED certifications were
selecting developers.
are
not
concerned
about
durability
or
cost
355
VIEW FROM THE TOP
SHELTER EASES FOREIGN TRANSITION MARÍA ELENA RIGOLI President & CEO of Collectron International Management
Q: How has Collectron and its Original Shelter Plan
companies coming to Mexico but our government must
Program helped shape the manufacturing landscape?
increase its efforts to train technicians.
A: Collectron International Management created the
356
Original Shelter Plan Program 48 years ago in Nogales,
Q: What contributions have shelters such as Collectron
Sonora to counteract the fact that foreign companies
made to Sonora’s economic growth?
were wary of entering the country because they were
A: Shelters have been of the utmost importance. In
unsure of how to properly integrate into the market.
comparison to other border areas, Sonora has fewer
Many companies throughout Mexico use us now because
companies but due to the efforts of many players, we are
we have a model that simplifies their entry. Foreign
one of the most competitive states across many industries.
companies can sign a contract with Collectron wherein
We have aerospace companies such as B/E Aerospace,
we legally represent their business here. Their paperwork
which grew from 50 employees to 1,100 under our Shelter
and legal presence are then under the name of the
Plan Program. This is significantly greater growth than
shelter. Sonora was home to some of the first maquila
other companies that entered Nogales at the same time.
manufacturing companies in Mexico and subsequent
Other companies include Figeac Aero and Radiall. We help
businesses started entering the area after seeing the
our shelter clients to find technicians by visiting schools,
initial success.
recruiting and training young professionals before they start working.
Collectron now operates in seven cities: Nogales, Hermosillo, Ciudad Obregon, Agua Prieta and Santa Ana in Sonora; San
Companies in Mexico also are facing a challenge from
Luis Potosi; and Santiago de Queretaro. We have helped
changes to fiscal regulations. These, while necessary,
over 260 companies enter Mexico and we represent a total
were not properly implemented and placed a significant
of 30 firms. Our client portfolio includes mostly Fortune
burden on companies that have used specific processes
500 and Fortune 200 companies in addition to privately
for decades and are now forced to overhaul these
owned businesses. Collectron’s marketing department
processes rapidly. We are supporting companies through
identifies potential companies that complement industry
this transition. As soon as a client finds a problem, we
gaps and that have the necessary infrastructure to expand
address it personally. Our main competitive advantage
their operations into Mexico. Our goal is to find businesses
is our attention to detail in all services, from training to
that can help create a more integrated supply chain, one of
logistics. Companies can trust our reliability and efficiency.
the largest areas of opportunity here.
They know they can contact us directly whenever they run into a problem.
Q: How are shelters changing the negative perception of Mexico’s security and manufacturing skills?
Q: How is Collectron attracting companies to Mexico and
A: Human capital in Mexico is one of its most important
what are its growth expectations for 2016?
improvements as 90,000 engineers graduate every year.
A: To attract companies it is necessary to analyze the
Despite this, the country still severely lacks qualified
economic conditions of the national and international
technicians. In the case of Sonora, its greatest strength is
markets to thoroughly understand the factors affecting
human capital but it needs a larger number of incoming
companies. We are focusing on strengthening the
technicians as the state becomes one of the world’s
aerospace supply chain in Sonora. In 2016, we will
manufacturing centers. Some companies are going to
incorporate four more companies into Mexico, two of
smaller less-industrialized areas to avoid competition for
which are in the aerospace industry. It is important for
labor in the main manufacturing centers. We invest in
us to help them weather the uncertainties in the Mexican
training to provide the necessary human capital to the
market that arose with the 2014 regulatory changes.
INSIGHT
BONDED WAREHOUSES KEY TO TRANSPORT INFRASTRUCTURE EDUARDO VIDALES CEO of Central Star Logistics (CSL)
In a world of increasing connectivity and globalization,
Around 60 percent of CSL’s clients are in the automotive
one of Mexico’s central selling points to international
industry, while it also works with a number of businesses
companies is its ability to manufacture low-cost quality
in
merchandise on the doorstep of the world’s biggest
these clients are small and medium-sized enterprises
market, the US. To complement this, Mexico needs to
(SMEs), which can use RFEs and ZEEs to help establish
have an efficient, well-established logistics network to
themselves in Mexico. For Vidales, SMEs represent the
handle the sheer quantity of goods that pass through
country’s “biggest neglected market” and CSL has been
the country.
shaped specifically to support their development. The
the
electronics
and
textiles
markets.
Many
of
company does this by simplifying logistics to bring down The federal government has set up a web of Strategic
fixed costs for delivering to and from the US, with a view
Bonded Warehouses (RFEs), which operate as free-trade
to levelling the playing field when it comes to competing
zones where materials can be stored tax-free, exempt
with more established industry names.
from Mexican import duties. These zones can be found throughout the country, strategically placed at airports
“We want SMEs to have the same opportunities as
and land junctions as well as sea ports. Given its proximity
their larger competitors,” says Vidales. “Once we do
to NAFTA routes, the first RFE was set up in the state of
this, the smaller companies will be able to compete in
San Luis Potosi in 2009 and is operated by Central Star
the market, which they are unable to do under current
Logistics (CSL). Citing the importance of RFEs to Mexico’s
circumstances.”
transport infrastructure sector, CSL CEO Eduardo Vidales is encouraged by the government’s commitment to develop more over the coming years. “RFEs will promote Mexico as the leading destination for international companies, especially due to the country’s proximity to the US market,” says Vidales. “RFEs facilitate customs processes and promote simplicity for crossborder business.”
“RFEs facilitate customs processes and promote simplicity for cross-border business” Eduardo Vidales, CEO of Central Star Logistics (CSL)
In May 2016 the government enacted a federal law to create four Special Economic Zones (ZEEs) to support
However, Vidales acknowledges that support from CSL
the RFE program. The most significant ZEE will be at
alone will not be enough to make a significant change to
the Lazaro Cardenas port in Michoacan and will help
the outlook for SMEs here. As well as cooperation from all
international companies navigate Mexico’s complex web of
levels of government, which can contribute by promoting
customs regulations and tax duties. Vidales believes these
and facilitating infrastructure development including RFE
zones can complement CSL’s work toward simplifying
projects, Vidales believes that the private sector must
international trade processes through automation for
work in unison to improve the efficiency of the Mexican
companies that are new to doing business in Mexico.
supply chain.
“We understand the needs of the Mexican market and we
“We need alliances with major transportation companies
have opened up more opportunities for US companies,”
from around the world,” says Vidales. “The more RFEs we
says Vidales. “They use our ports and unload at our
have the better our industrial parks will be. The private
warehouses, which lowers their freight and process costs.”
sector holds the key to this process.”
357
INSIGHT
SOCIAL RESPONSIBILITY NOW A PILLAR FOR BUSINESS ELOY RODRÍGUEZ Executive President of Acción Social Empresarial (ACCSE)
Social responsibility has become a pillar for doing
planned and sustainable projects, particularly when they
business around the world. Businesses increasingly are
are directed to the improvement of the local economy.”
conscious about the negative impact their operations
358
can have on the surrounding environment and are taking
One problem often faced in construction projects is
concrete steps to optimize the positive while minimizing
directly related to the impatience of developers. When
harm. Engagement in these practices is widely accepted
local groups are left out of negotiations, developers put
in several sectors. The infrastructure industry, however,
themselves at risk of community takeovers. “In Mexico, it
is lagging. “Construction companies urgently need to
has become a relatively common practice for ejiditarios to
generate formulas for promoting highly sustainable
halt construction when they feel pushed aside, causing the
projects that reuse materials and use a minimal amount of
company to lose a great deal of capital,” says Rodríguez.
energy,” says Eloy Rodríguez, the Executive President of
“For construction companies, the only way to ensure
Acción Social Empresarial (ACCSE).
credibility and profit is to reach out to local communities to gain their approval.”
Social responsibility began as an act of voluntary goodwill but it snuck its way into several companies’ business
It is not just the health of physical spaces that is a concern.
strategies, says Rodríguez. “The concept was created after
Gender inequity and informal labor are also topics that
companies started to realize the harmful impact they were
need to be addressed. “Construction companies that
causing in the environmental and social spheres of their
do not prioritize the issue of non-qualified employees,
projects,” he says. “Over the last 10 years, the concept
child labor and work conditions that guarantee basic
has gained an extra boost as businesses realized it could
rights harm the industry and its image,” says Rodríguez.
bring added value to their assets, actions and marketing
Socially responsible companies are also taking it upon
campaigns.” Rodríguez believes that companies do not
themselves to ensure those they work with are on the
have to be officially labeled as socially responsible but they
same page. Large companies, especially multinationals
must go above and beyond their legal obligations because
such as supermarkets, will audit their suppliers to evaluate
it is not enough to simply comply with regulations.
if they meet the minimum requirements of environmental and social standards. Evaluations are quickly becoming
The destruction of a mangrove in Cancun at the beginning
an industrial standard and the market is turning more
of 2016 only exacerbated the negative perception that
responsible thanks to these practices, Rodríguez says.
hangs over the industry. “Businesses once could easily sway communities with economic contributions but they
The public sector must also do its part. “The government
have overplayed that card and it is now frowned upon,”
plays an important role in promoting social consciousness
says Rodríguez. “Construction companies must now
through incentives that make businesses equal, safer and
prioritize dialogue and communication with surrounding
more ecological,” says Rodríguez. “Incentives are always
communities and authorities.”
more efficient than regulations as they foster a true sense of social responsibility.”
In any socially responsible construction plan, the promotion of community dialogue to share the idea of the project
Rodríguez says that if industries continue to consume
should always be the first step, Rodríguez says. “A company
natural resources at the present pace, by 2030 they
cannot randomly insert a massive infrastructure real estate
would need 2.5 planets to satisfy the demand. But if
project without establishing agreements with interested
the advantages of adopting sustainable practices are
parties,” he says. “When communication is prioritized
attractive enough, he says, companies and communities
communities can be surprisingly welcoming toward well-
can reap the harvest for the long term.
VIEW FROM THE TOP
FUNDING THE NEEDS OF THE MEXICAN MARKET
Enrique Garza Managing Partner of Crecimiento Programado
Eduardo Díaz Lozano Managing Partner of Crecimiento Programado
Q: What is the Crecimiento Programado fund’s main
that assets are worth more when they are operational.
differentiator?
The fund is not just selling a bus or a ship, but 50 years
A: The Crecimiento Programado fund specializes in
of experience working with successful companies. We
financing adapted to the needs and characteristics of our
structure our program differently than the rest because
clients. We mitigate risk by making sure our financing plans
we not only factor in debt but also capital and the viability
suit the client’s operation. Banks impose strict payment
of a company. In certain cases, we even help companies in
plans and conditions but we play with payment periods,
bankruptcy to mitigate the damage.
methods and mechanisms, balancing these factors so that our clients do not feel trapped in a structure that does
Q: What role does the program want to play in the
not work.
Mexican market? A: Crecimiento Programado is looking to expand into
We give the market what it needs while showing
portfolio administration as structures are often not
investors ways to make a less risky product. Crecimiento
explained deeply or clearly enough. There must be a
Programado assesses every potential risk our clients
much more significant outreach to investors. The Mexican
might face and although we may not be able to foresee
market also demands professional services of high quality.
everything, deep evaluations are efficient preventative
Many portfolios have made purchases without gaining the
strategies. We make sure to avoid structures that put our
requisite knowledge and are now facing issues they do not
clients at risk of noncompliance and our plans are built
know how to fix.
with space for economic contingencies. That flexibility has brought us success. By making a solid structure that can flow according to the needs of a business in a viable manner we generate more profit. Q: How does the fund select its clients? A: We thoroughly analyze a company’s history and operations before accepting it. The fund does not have the capacity to take on many projects because we dedicate a great deal of time and effort to each company. Our fund has never faced a nonpayment situation, even though some of our clients have undergone difficult economic periods. This proves the functionality of the structure we have built because it allows investors time to fix their
Crecimiento Programado has never faced a nonpayment situation, even though some of its clients have undergone difficult economic periods
issues without restrictions. We also pay attention to each of our allocations by following up as much as possible. The
We also are involved in restructuring the Mexican
process is long and conditions are continuously changing
Commercial Bankruptcy Law because our experience,
but one of our best advantages is that our funding is not
including mergers and acquisitions, can be of value. In
subject to taxes.
Mexico, insolvency is not meant to push companies into bankruptcy but to provide more viability. A business that
Q: In what projects is Crecimiento Programado currently
is approaching insolvency must make a map of options to
participating in?
decide its next move. Even if owners cannot recover the
A: Our program finances projects that previously were
business, it is better for them to clearly understand their
viewed as impossible. We showed the market and assessors
position rather than leave the situation up in the air.
359
GLOSSARY AICM
Mexico City International Airport
AMEFI
Mexican Association of Fibras
ANILLO PERIFÉRICO
Peripheral ring that surrounds Mexico City
BANSEFI
National Savings and Financial Services Bank
BOT
Build Operate Transfer
CAPUFE
Federal Road and Bridges
CBFI
Real Estate Stock Certificates
CERPI
Investment Project Stock Certificates
CIEN
Certificate for National Educational Infrastructure
CONAVI
National Housing Commission
CONOREVI
National State Housing Organisms Council
DBO
Design build operate
EPC
Engineering, Procurement and Construction
FIBRA
Mexican Real Estate Investment Trust
FIBRA E
Mexican Real Estate Investment Trust for the Energy and Infrastructure Sectors
FONHAPO
National Fund for Social Housing
FOVISSSTE
Housing Fund for the Institute of Social Security for Civil Servants
INFONAVIT
Institute for the National Housing Fund for Workers
MLP
Master Limited Partnerships
NAICM
New Mexico City International Airport
NIP
National Infrastructure Program
PPP
Public Private Partnerships
SEDATU
Ministry for Agrarian, Territorial, and Urban Development
SEDUVI
Ministry of Urban and Housing Development
SCT
Ministry of Communications and Transport
SIEFORES
Pension Fund Administrators
SOFOME
Multiple Purpose Financial Institutions
USP
Unsolicited Proposal
VIADUCTO TLALPAN
A viaduct that crosses through the central belt of Mexico City from west to south
ZEE
Special Economic Zones
INDEX A-E Accenture 32
Bodycote 158
ACCSE 358
Bx+ 19
Aclara 283
CAAAPITAL 333
ADS Mexicana 284, 285, 361
CANADEVI 92, 96-97, 361, 365
Advance Real Estate 146, 147, 150
CapCity 66
AECOM 193
CAPUFE 179
Aeroméxico 49, 203, 205
CAR-SA 236-237
Ainda Energía e Infraestructura 330
Casas GEO 92, 93, 94
Aldesa 328
Caterpillar 32, 306
Altea Desarrollos 125, 127
CEMEX 198, 207, 298-299
Alto Desempeño 82
Central Star Logistics 357
Amazon 225, 237
CFE 9, 41, 42, 49, 51, 153, 176, 227, 231, 232, 233, 239,
AMDETUR 31
245, 250, 251, 252, 253, 254, 256, 257, 260, 264, 268, 282,
Amefi 28, 110
310, 320, 325, 328, 330, 339, 351
American Industries 146, 147, 149
CH2M 198
AMF 164-165
Chatsworth Products 234, 361, 366
AMIP 214-215
Cisco 236
AMPIP 144-145, 147
CMIC 9, 15, 18-19, 24, 25, 68
Amistad Industries 150
CNBV 28, 111, 224, 325
ANIPPAC 48
CNSF 28
Aon Risk 337
COFOCE 49
APM Terminals 10, 212, 217
Coldwell Banker Commercial 128, 129
Aqualia 275, 276, 279
Collectron International Management 343, 356
ArCcanto 332
CONALEP 158
Arendal 11, 261
CONAVI 12, 24-25, 55, 73, 85, 87, 93, 95, 99
Arquitectoma 100-101, 119, 123
Concrete Canvas 310, 311
ARRENDAVIT 24
CONDUSEF 28
Arup 115, 188, 201
CONSAR 28, 227
ASA 22, 194, 196, 197
Control Risks 53
ASUR 22, 194, 197
CONVIVES 99
AT&T 219, 222, 231, 232, 237
Corpus Christi 41
Autodesk 352
Crecimiento Programado 359
Avianca 207
Cruz Azul 301
Baker & McKenzie 52
Currie & Brown 62-63, 69
Ballesteros Mureddu 68, 72, 76, 84
Delair-Tech 310
Banamex 19, 154
Detaller 314
Banco de México 28, 97
DGAC 22, 190
Banco Inmobiliario Mexicano 90
DILA Capital 326
Bancomer 19, 61, 101, 351
EASA 22
Bancomext 30
ECOBICI 71
Banorte 93, 94, 101
E-Group 131
Banregio 19
EIM Capital 335
Banxico 13, 28, 111
Elara 229
BBVA 12, 101, 351
Ellison Surface Technologies 158
Bimsa 215
Emerson Network Power 223, 232
BIVA 28
Energetika 260
BlackRock 49, 327
Enlight 267
BMV 28, 94, 111, 121, 124, 325
ENTEC 351
INDEX E-M EXI 269
IMF 28
EY 244
IMI Precision Engineering 312
FAA 22
INAH 100, 292-293
FEMCIC 42
INBA 100
Ferreplus 304
Incertec 158
Fibra Mty 13, 112-113, 324
INFONAVIT 27, 73, 92, 94, 95, 96, 97, 99, 101
Fibra Uno 13, 110-111, 131, 202, 351
INSAR 102
FINSA 146, 147, 148
Ingeteam 268
FOA Consulting 46-47
Intel 32, 235
Foster + Partners 188
Intelligent Group 355
FOVISSSTE 27, 101
Intergen 252
GACM 22, 185, 187, 188-189, 190, 193, 194, 197, 201, 361,
Interjet 203
365, 366, 367
International Parking Institute 135
GBM Infraestructura 276, 328-329
Interpuerto Monterrey 147, 152
GDI 259, 264
IOS Offices 159
GDU 69, 79, 362, 365
Isolux Corsán 245
GE Water 273, 282
ITDP 134
Gerdau Corsa 305
ITISA 139, 350
Gicsa 125
Jica Construcciones 83
Globalsat 228
JLL 124
Goldcorp 231, 310, 311
Jonas Day 192
Goldman Sachs 330
KCS 171
Grupo Acerta 130
KCSM 171, 212
Grupo Copri 122-123
Kepler 339
Grupo Desarrollo Infraestructura (GDI) 264
KfW 25, 26
Grupo DRT 104
KONE México 134
Grupo EPM 284, 285
LADIP 314
Grupo GMI 207
LEED 79, 80, 81, 101, 115, 119, 128, 148, 201, 206, 215, 331,
Grupo Hermes Infraestructura 174
355
Grupo Sordo Madaleno 60-61, 104
LEGORRETA 75
Grupo Vanzini 297, 302-303
Ludens 68, 73
Guanajuato Puerto Interior 146, 157, 214, 215
Luminográfica 308
Hábvita 95
Mabey Bridge 302, 303
Haynes and Boone 41
Mac Arquitectos Consultores 348
Hercules Construcciones 290
Maccaferri 307
Hogan Lovells 50
Macquarie Infrastructure and Real Assets 40, 122-123,
Howard Energy 41
322-323, 324
Huawei 231, 236
Maersk Line 213, 217
Hypertherm 306
Marcos y Asociados 256-263
IBM 32
Marinas JMH 214
ICA 54, 172, 173, 198, 212, 279
MASISA 309
ICIC 18, 24-25
MasterCard 227
I+D 178
Maza Servicios 96-97
IDB 25, 65, 285, 333
Mazda 12, 234, 335
Ideurban 78
McBains Cooper 54-55
Idom 65
MEJORAVIT 24
ILIOSS 265
Mexican Parking Association 135
IMEXDI 347
Mexican Retail Properties (MRP) 116-117, 325
INDEX M-X MEXTYPSA 176
Schneider Electric 239
Meypar 72, 134-135
Scotiabank 320-321
Microsoft 235, 254-255
SCT 8, 10, 13, 14-15, 44, 176, 177, 179, 183, 198, 210, 217,
MILA 348
227, 231, 303
Mira Companies 120
SEDATU 11, 12, 33, 92, 93, 96, 99
MIT 32, 344
SEDUVI 16-17
Multiva 19
SEMOVI 16, 23
Nabohi 291
Serrano Monjaraz 76-77, 98
NAFIN 18, 19, 21
SHCP 8
NAICM 10, 13, 14, 15, 22, 45, 47, 65, 67, 167, 175, 177, 185,
SHF 12, 26, 27, 90, 95, 99, 101
188, 190, 191, 193, 197, 198, 199, 200-201, 202, 203, 205,
Solid Rain 287
206, 231, 261, 275, 285, 293, 321
SITA 199
Netherlands Airport Consultants 188, 201
Smith West 158
NH Hotel Group 137
SOFTEC 100
Nissan 12, 234
SolarCity 265
OACI 22
Solet 231
OECD 11, 15, 65, 92, 97, 164, 222, 326, 341
spAce 344, 345
OHL Toluca 202
S&P Global Platts 252, 325
OMA 22, 194, 196, 197
STC 67
OPI 226
SUMe 80-81
Oracle 32, 224-225
TAR 203
Orange Investments 103
Tecnopeaje 182
Parks Desarrolladora 104, 131
Telcel 222, 237
Parque Aerospacial Queretaro 155
Telecomm 227
Parque Industrial Querétaro 154
Telefonica 232, 237
Parsons 188, 189, 198
TeleVía 178-179
PEMEX 9, 20, 21, 41, 42, 49, 97, 176, 229, 231, 232, 233,
Telmex 223, 231, 232, 237
244, 247, 248, 250, 251, 254, 255, 256, 257, 261, 263, 284,
Tetra Pak 286
302, 303, 310, 325, 330, 349, 351
The Green Building Council 79
Peñoles 176
The Offshore Group 146-147, 158
PINFRA 172, 173, 177, 328, 329
Ticsa 284
Pirelli 215
Transconsult 44-45
Planigrupo 121
Transportación Maritima Mexicana 171
Postensa 125
Transport Canada 22
PPG 315
UN 93
PROA 353
UNAM 68, 139, 232, 276, 345
ProMéxico 32-33
VENIT Investments 331
Prudential 146, 147, 215
Verdek 286
Puerto Interior 146, 151, 157, 214-215
Vertical Farms 80-81
PwC 8, 10, 38-39, 346
Vesta 155, 215, 267
Quiero Casa 100
Volaris 203, 207
Revitaliza Consultores 44, 206
Walmart 235, 349
Roca Desarrollos 153
Wells Commerce Group 313
SACMEX 271, 274, 276
White & Case 49
Sacyr 166-167
WHO 134, 277
Santander 19, 101
Williams Scotsman 181
SAP 32
World Bank 25, 28, 65, 84, 92, 93, 212, 274, 276
SAT 111, 171, 224, 279
XL Catlin 336
PROJECT & TECHNOLOGY SPOTLIGHTS 70-71
Cycling Fits Into Mobility Puzzle
114-115
Mexico City: A Fine Balance
118-119
Breathing New Life Into Reforma
126-127
Altea Desarrollos: Paseo la Fe Invites Nature Inside
132-133
The Antara Mixed-Use Masterplan
138-139
ITISA: Building Shopping Malls On Time, On Budget
156-157
Inland Port Sports An Enviable Bag Of Tools
200-201
NAICM: The Project Of The Century
204-205
POSTENSA: Assuring A Smooth Takeoff For NAICM
216-217
TEC II To Optimize Operations In Lazaro Cardenas
258-259
GDI: El Encino-Topolobampo Gas Pipeline
288-289 Atotonilco
ADVERTISING INDEX 6 SCT 36 AMDETUR 47 Transconsult 58 CEMEX 73
Currie & Brown
85
Ballesteros Mureddu
88 ADI 108
Coldwell Banker Commercial
142 AMPIP 153
General Cable
162 VISE 186 CMIC 208-209 GACM 221 Vertice 242
S&P Global Platts
253 Kepler 272 IMEXDI 296 LADIP 312
Grupo Bursรกtil Mexicano
318 Ternium 326 AON 343 MBE
PHOTO CREDITS 4
Lourdes Legorreta
84 MBP
14 SCT
86 Arquitectoma
16 SEDUVI
90 MBP
18 CMIC
91 BMV
19
94
GACM
Casas Geo
20 PEMEX
95 MBP
22 DGAC
96
CANADEVI
23 SEMOVI
98
Serrano Monajaraz
24 ICIC
99 MBP
24 MBP
100 MBP
26 SHF
100
27
102 MBP
Quiero Casa
Quiero Casa
28 MBP
103
30 MBP
104 MBP
31 MBP
105 DRT
32 MBP
106 Parks
33 ProMéxico
110 MBP
34
Mexico Tourism Board: Photo-Ricardo
111 Parks
Espinosa-reo
112-113
Orange investments
Fibra Mty
38 PwC
114-115 Arquitectoma
39 PwC
116 MRP
41
116-117 GSM
Haynes & Boone
42 FEMCIC
118 Arquitectoma
43
119 MBP
Cruz Azul
44 MBP
120
44 Revitaliza
121 MBP
46 MBP
122
48 MBP
124 JLL
49
White & Case
125 MBP
50
Hogan Lovells
Mira Companies Grupo Copri
126-127
Altea Desarrollos
51 FINSA
128-129
Coldwell Banker Commercial
52
Baker & Mckenzie
130 MBP
53
Control Risks
132-133 GSM
54-55
Mcbains Cooper
134 Meypar
56 Parks
134 Kone
60-61 GSM
136-137
NH Hotel Group
63 MBP
138-139
ITISA
64 MBP
140
Amistad Industrial Developes
65 IDOM
144-145 AMPIP
66 MBP
148 FINSA
67 STC
149
American Industries
69 GSM
150
Advance Real Estate
70-71 MBP
150
Amistad Industrial Developes
72 MBP
152
Interpuerto Monterrey
72 Meypar
153 MBP
73 MBP
154 ABB
74
Lourdes Legorreta
155
Parque Aeroespacial Querétaro
75
Maria Beckmann
156-157
Guanajuato Puerto Interior
76 MBP
158
The Offshore Group
76
Serrano Monajaraz
159
IOS Offices
78 MBP
160
Grupo Hermes Infraestructura
79
164 MBP
GDU
80 MBP
165
82 MBP
166 Sacyr
Guanajuato Puerto Interior
167 Sacyr
258-259
170-171
Kansas City Southern
260 MBP
174-175
Grupo Hermes Infraestructura
261 Arendal
Grupo Desarrollo Infraestructura
176 MBP
262 Octopus
177 MBP
263
Marcos y Asociados
178 MBP
264
Grupo Desarrollo Infraestructura
179
265 ILIOSS-SolarCity
Grupo Hermes Infraestructura
180 Carrot
266
181 MBP
267 Enlight
182 Tecnopeaje
268 MBP
183
Grupo Hermes Infraestructura
269 MBP
184
GACM
270 TICSA
188
GACM
274 MBP
189
GACM
275 Aqualia
192
Jones Day
282 MBP
Gauss Energía
193 MBP
284 TICSA
196-197
284 MBP
GACM
198 CH2M
286 Verdek
199 SITA
287 MBP
200-201
288-289 CONAGUA
GACM
202 MBP
292 INAH
204-205 Postensa
294 ProMéxico
206 Revitaliza
298 CEMEX
206
GACM
299 MBP
207
Grupo GMI
300-301
Cruz Azul
212
APM Terminals
302
Mabey Bridge
213
Maersk Line
302 MBP
214 MBP
304 MBP
214
Guanajuato Puerto Interior
305
216-217
APM Terminals
306 MBP
Gerdau Corsa
218 GlobalSat
306 Hypertherm
224-225 Oracle
307 MBP
226 OPI
308 SpAce
227 MBP
309
228 GlobalSat
310 MBP
229 MBP
310
230 Oracle
312 MBP
231 Solet
313
232 MBP
315 MBP
233 Oracle
316 NEC
234-235
320 MBP
Chatsworth Products
MASISA Delair- Tech Wells Commerce Group
236 CAR-SA
321 www.freeimages.com
236 Oracle
322 MIRA
238 Oracle
323 FINSA
239
Schneider Electric
324
240
Grupo Diavaz
324 MIRA
Fibra Mty
244 EY
325
245
Isolux Corsan
325 MRP
249
TAG Pipel
327
250
Rodríguez Dávalos Abogados
328 MBP
252
S&P Global Platts
329 SCT
S&P Global Platts Black Rock
254 MBP
330
Ainda Energía e Infraestructura
255
331
VENIT Investments
Tekna Services
256 MBP
332 MBP
333 CAAAPITAL
350 MBP
334 Arquitectoma
351 MBP
335 MBP
352 Autodesk
336
XL Catlin
353 PROA
337
AON Riks Solutions
354 Autodesk
338
Grupo México
355 MBP
339 MBP
356
340 SpAce
357 MBP
344 MBP
358 MBP
345 SpAce
359
Collectron International Management
Crecimiento Programado
346 PwC 347 IMEXDI
Inner Front Cover GACM
348
Inner Back Cover Grupo Sordo Madaleno
Mac Arquitectos, Mac Aquitectos
348 MBP
CREDITS JOURNALIST AND INDUSTRY ANALYST: Brenda Salas JUNIOR INDUSTRY ANALYST: Alejandra Gómez JOURNALIST AND INDUSTRY ANALYST: Alexandra Brandt Corstius JOURNALIST AND INDUSTRY ANALYST: Michelle Adams EDITORIAL MANAGER: Sara Warden ASSOCIATE EDITOR: Mario Di Simine EDITORIAL DIRECTOR: Vanessa Buendía COLLABORATOR: Alejandro Salas COLLABORATOR: Alicia Arizpe COLLABORATOR: Sophie Murton COLLABORATOR: Dominic Pasteiner COLLABORATOR: Gabriela Mastache COLLABORATOR: Nicolás Román PUBLICATION COORDINATOR: Paulina Fernández PUBLICATION COORDINATOR: Sofia Niño de Rivera JUNIOR PUBLICATION COORDINATOR: Franco Romero JUNIOR PUBLICATION COORDINATOR: Itzel Soto COMMERCIAL MANAGER: Laurens Schöningh COMMERCIAL DIRECTOR: Jack Miller DESIGN DIRECTOR: Marcos González GRAPHIC DESIGNER: Ailette Córdova WEB DEVELOPMENT: Arturo Madrazo DIRECTOR GENERAL: Jeroen Posma PUBLICATION ADMINISTRATOR: Alena Lipková ADMINISTRATIVE ASSISTANT: Gabriela Róman CIRCULATION MANAGER: Ana Cristina Garantón
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