Mexico Takes Capitalist Road to Spur Highway-Building

WHEN it comes to private toll roads, Mexico takes a back seat to no one - not even its capitalist northern neighbor.

"With over 600 miles of private toll roads in operation and 2,700 miles planned and under development, Mexico is on its way to becoming a world leader," enthused United States Federal Highway administrator Thomas Larson at a conference this month in Manzanillo, Mexico.

The Mexican government invited about 85 US state and federal highway administrators, investment bankers, and construction companies down for a closer look at a privately funded bridge and highway program begun in February 1989.

It is a program born of necessity. Most of the bone-jarring 22,000-kilometer (13,750-mile) Mexican highway system desperately needs repairing. But government funds are tight. So private Mexican investors have been given two- to 10-year concessions to build and operate new four-lane stretches of highway and bridges.

Concession rights to 3,661 kilometers (2,288 miles) have been sold. The goal is to build another 2,941 kilometers (1,838 miles) by 1994.

"It's impressive. They've accomplished a lot in a short amount of time, says Peter Freeman, treasurer for Dillingham Construction, an international engineering firm based in Pleasanton, Calif. "They're clearly further along than the US is on this idea."

A new federal law was just signed in December allowing similar private partnerships in the US for the first time. California has seized the initiative with four private toll projects in the planning stages.

But the Mexican government is not sharing its expertise for purely altruistic reasons. Domestic funding appears to be drying up and Mexico hopes to lure foreign investors to continue the the construction program, which includes port facilities.

The burgeoning trade between the US and Mexico is another impetus for better infrastructure (and investor interest). Truck crossings of the border have doubled in the last four years.

"With our trade expanding even more under the North American Free Trade Agreement, we can expect this trend to accelerate," notes Mr. Larson.

Victor Mahbub Matta, secretary of Communications and Transport (SCT), estimates that US firms may invest $1.5 billion this year.

"The steps for international firms to come to Mexico and understand the programs and decide to invest in infrastructure projects are already quite advanced," he says.

But US participants cited a dearth of salient facts at the conference.

"There were a number of potential investors, my firm included, which got no information on anticipated rates of return, historical or projected. There was no detailed information," notes Mr. Freeman. For example, although Mexican law allows concessions of up to 20 years, no toll road so far has a concession of more than 10 years.

"Thirty years is the benchmark for most projects. Very few people in the US have amortized roads over less than 20 years," says John Foote, president of Toll Partners Inc., a vender of toll-collection equipment based in Wayne, Penn.

High tolls may explain why short concessions can be lucrative. For example, the 21-kilometer (13-mile) road between Mexico and Toluca costs about $5 dollars. "You can travel the length of Pennsylvania, which is more than 300 miles, and pay less than $10. Given the per capita income of Mexicans, who can afford to use these roads?" Mr. Foote wonders.

But an SCT spokesman says the Toluca road has a three-year concession and is paying for itself. The Mexican government will not guarantee debt servicing of infrastructure projects. But if the SCT's estimates of traffic and revenues prove inaccurate, it will extend (or shorten) the concession.