The year 2012 was an important one for believers of public-private partnerships (“PPPs”) in Mexico; in January 2012, a new federal PPP law, Ley de Asociaciones Público Privadas, was enacted. Those regulations became enforceable in November 2012.

Because Mexico had no PPP laws at a federal level, these new PPP statutes had been expected for several years. Prior to 2012, a series of administrative regulations and public procurement laws existed but generally were considered inadequate on a long term basis.

Some years ago, the federal government decided to include PPPs within the federal system, but only through some budgetary measures and guidelines that complemented public procurement acquisition law (not public works law), used the concept of private finance initiatives, and provided a basis for the so-called “rendering of service projects.”

At the beginning, these guidelines were neither well understood nor well implemented, and the first projects under this system generally were perceived as unsuccessful from an investor’s point of view. In addition, the banks were reluctant to provide financing, and some found positions taken by the federal government difficult or even unacceptable. Thereafter, some effort was made to make PPPs more successful, mainly in the development and construction of highways. Finally, in the last three years, some prison projects were awarded, constructed, and commenced operation using this system, but under the pre-2012 paradigm.

So Why Was a New Model Needed?

A new model was needed because PPPs are formed using a specific structure with unique characteristics. Moreover, PPPs often are found in civil law countries where administrative law has a significant impact. Therefore, a model was needed that established clear rules for each of the following: the PPP concept, public procurement procedures, non-solicited proposals, characteristics of a PPP administrative contract, a special regime for the expropriation of land, and dispute resolution. The foregoing could not be regulated as other forms of contracts, but rather require solutions specific to PPPs.

In addition, PPP projects can only be taken seriously with the participation of the federal government since the budget originates with the federal government rather than with the states. Although many states now have PPP regulations, very few have implemented PPP projects successfully or, at the very least, without challenging issues arising.

Future of PPPs

All of the above must be considered in light of the fact that a new president has taken office and the governor of a key Mexican state has promoted important schemes for fostering infrastructure.

Mexico will be interesting to watch in the following years regarding infrastructure, not only because of this PPP law but also because of other factors, including a slow down of Brazil’s growth. A positive factor is that Mexico seems to have a natural reluctance to adopt immediately international regimes, and that reluctance may allow the experience curve of others to be considered, including in the area of PPP law.