Wants to Privatize its Highways — Again
On March 1, Communications and Transport Secretary
Luis Téllez announced plans to re-privatize Mexico’s major highways.
He said he’s going to lease 4,240 kilometers
of highway for 30 years, a move he believes will bring in revenue of $275 billion pesos (about US$25 billion) — close
to a quarter of this year’s federal budget.
As expected, critics and political opponents were
soon reminding people of the disastrous highway privatization of the 1980s and 1990s.
In that privatization, it turned out that traffic
was much lower than expected. Many motorists chose to travel on slow, bumpy, and crowded but toll free roads. Revenues were
disappointing right from the start.
peso crisis gave the highways program its coup de grâce. It was followed by defaults,
inadequate maintenance, and finally a takeover by Mexico’s National Bank of Public Works and Services (Banobras), which
has administered the tollways and unpaid loans ever since.
This time, we’re told, it’s going to
work — and it can, if the government has learned from past mistakes.
A few days after Téllez’s announcement, President
Felipe Calderón defended the decision. He said it’s the only way Mexico can build and maintain the highways needed to
meet the growing transportation needs.
“No matter how much we may wish it did, the
truth is that the budget doesn’t stretch far enough,” Calderón said.
Mexico needs a first-class highway system if it wants
to compete with China by cashing in on its main advantage — geographical proximity to the enormous but demanding U.S.
market. The high cost of transporting goods on inadequate roads and delays in getting goods to market on time is allowing
China to crowd Mexico out of that market.
Téllez says the government will use $160 billion
pesos of the new revenue to pay off the debts from the earlier debacle. The other $115 billion pesos will be used to build
or upgrade other highways.
He says taxpayers have not had to pay for the debts
run up by the bankrupt highwaymen. Since Banobras is running the tollways, highways are being maintained and the debt is being
paid down from user tolls. Under the reprivatization scheme, the debt will be retired by 2013, six years ahead of schedule.
Before concluding that this is another disaster-in-the-making,
it’s useful to remember that privatizing a public service needn’t be a disaster, even when it involves a monopoly.
However it must be done carefully, to respond to
political opposition and to make sure the system enables all stakeholders — concessionaires and their bankers, users,
and the government — to gain something.
The anti-privatization critics are not totally wrong.
It must be acknowledged that there are plenty of examples of privatization gone awry, including the earlier highway initiative.
The most dramatic example is the one involving the banks, where laissez-faire meant
letting anyone with the money to purchase a bank buy in, and then standing back while the new bankers ran the system into
How can the Calderón administration make privatization
work effectively for the highway system? How can it provide a reasonable return to concessionaires while making sure that
users get the level of service they must have?
Four things must be done.
First, the government must strictly regulate highway
tolls. As with any monopoly, the goal must be to provide a reasonable, agreed upon but limited rate of return while preventing
Second, rigorous standards of maintenance must be
set, and these must be backed up by regular inspections by engineers immune to corruption — and severe penalties for
Third, toll booths must be monitored by federal authorities
to discourage pilferage, something that’s been known to take place in Mexico. It would be even better if revenues were
subjected to public audits.
Fourth, the agreement must be reviewed from time
to time, to make sure the economic assumptions under which it was made were not in error, and to determine whether the parameters
have changed. If they have, reasonable adjustments must be made.
From the standpoint of ownership, it doesn’t
matter whether the private sector or the public sector controls the highway system. As has been amply demonstrated in jurisdictions
worldwide, either way corruption can sabotage efficient and effective management if appropriate controls are not in place.
Highway privatization may not be easy, but it can
work if steps are taken to make sure it is operated safely, effectively, and efficiently, and to the benefit of all. We await
Kenneth Emmond, an economist, market consultant and
journalist who has lived in Mexico since 1995, is also a columnist with MexiData.info.
He can be reached via e-mail at Kemmond00@yahoo.com.