Hidalgo passes legislation regulating public-private partnerships

Though its major motorway and railway infrastructure rivals any state in Mexico, Hidalgo is well aware further works are needed to fully make the most of its privileged geographical position. Improving the state’s infrastructure – in terms of roads, logistics and services – continues to be a priority, with the state now focused on creating the legal framework for funding the works that will keep things moving.

Public-private partnerships (PPPs) have been identified as a key model to employ to this end, with the state government including a law on productive alliances to govern such structures in its second package of legislative reforms in late 2017, which was subsequently passed in March 2018. Projects that emerge from the law are expected to drive economic activity, generating additional and better-paid jobs, according to the government.

Benefits

Under previous regulations, when the government wanted to carry out an infrastructure project, it would have to wait a year before being able to include the costs of a feasibility study in the budget. Further waits of up to eight months were required for projects to be tendered, and the government would assume any interest costs if debt were required. Moreover, the government would then have to maintain the project, adding ongoing costs to the state’s budget.

The new law should speed up the process as projects undertaken via PPP would not be subject to public budgets, and private investors would assume the costs for studies and permits. Furthermore, these investors can participate at all stages of a project – from feasibility studies through to maintenance – bringing additional expertise to the works.

The law offers 12 different financing models, provides scope for projects of up to 40 years – a time frame that public entities have difficulty budgeting for – and allows private investors to propose projects – though state Congress has to approve them.

Other key advantages that the new law brings the state include an increase in the number of studies and projects for productive infrastructure, and freeing up resources for other social needs.

New Standards

José Luis Romo Cruz, secretary for economic development for Hidalgo, stated the new law is “better than the federal law”, because of the level of certainty it offers investors. The state consulted a broad range of advisors – including the OECD – to ensure its law was as robust as could be.

“If I want to bring in French investors, for example, I need to offer them a law with the standards that they expect,” Romo told OBG.

Miguel Donovan, director of consultancy at Currie & Brown, which consulted on the legislation, agrees that the new law is very innovative for Mexico. “It is the first law in Mexico that reflects the complexity of the projects,” he told OBG, though he is keen to emphasise that “being flexible does not mean it is less strict in terms of accountability.”

One innovation of note is that the law does not just restrict the alliances to the private sector, but allows for partnerships with other states, NGOs, or between two public entities, for example.

“The main shortcoming of the previous law was that there was just one type of contract and one way of originating projects,” Donovan told OBG. “Now there are far more ways of modelling projects.”

As well as adding to the range of partners the law applies to, it also expands the types of projects for which partnerships can be developed. PPPs in Mexico have traditionally meant hospitals and roads, but the new law broadens the range of projects that can be bid on and allows features such as bundling.

The range of models included in the new law allows projects in every branch of state activity. This could be public spaces, grant programmes, small business funds, renewable energy generation and public services. The challenge now is to ensure the law is used.