Mexico’s Water and Wastewater Market
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- Schemes for Private Participation.
Pricing and Metering:Mexican population is not currently charged for sewer collection. As this charge is in theory included in the potable water fees billed to the users. The same situation happens to municipal water treatment in the cities that have installed those systems. Wastewater treatment tariffs charged by private operators to municipalities also vary depending on the structure of each concession or BOT arrangement. Projects financed by FINFRA and NADBANK usually follow the same methodology, being this based in three tariff components: T1 = Amortization of the investment: Private company’s charge a fixed fee based in pesos/m3 of the total plant capacity. This component is paid by the utility for the amortization of the investment made by the private concessionaire. Projects receiving funds from FINFRA or NADBANK have lover T1 tariffs since this is only applied to the operator’s equity in the project. T2 = Fixed operational costs: This fee is based also on the total capacity of the plant since the operator will have to cover fixed fees regardless the amount of water treated. This fee is usually applied to cover operational costs independent to the volume of water treated. T3 = Variable operational costs: This fee is charged to the municipality, based on the volume effectively treated by the wastewater treatment plant on a certain period of time. This volume is based pesos/m3 effectively treated. The final tariff structure is made of T1+T2+T3 = Tariff in pesos per m3. Tariffs vary depending on the technology used, the type of funding received by FINFRA or NADBANK, and the weather conditions of the area. Tariffs tendered by bidders have continuously decreased as more competition has entered the selection processes and financial risks are decreasing.
Private participation in wastewater treatment is takes place mostly in the following two forms:
The first scheme is mainly used for wastewater treatment plants funded by a multilateral organization or by the federal and local governments. For example, the wastewater treatment plants to be built in Baja California with funding of the Japan Bank of International Cooperation (JBIC) will be tendered as turnkey projects. The second scheme is the most commonly used in Mexico since it gives the local government the flexibility of having treatment and paying over time. This scheme has been very attractive for private players specially in those cases where NADBANK and FINFRA funding is included. Private participation in Mexico’s wastewater market dates from the early 1990’s, when Mexico initiated an effort to encourage municipalities to meet their wastewater needs through the granting of concessions for the design, construction and operation of new wastewater infrastructure. While the authority for wastewater treatment resides at the local level, the federal government, principally through the CNA and BANOBRAS sought to encourage and support this program with both, technical and financial assistance. Municipalities, as well as local and international bidders embraced the program. From 1992 to 1994 US$ 744 million, or 30 m3/s in wastewater project concessions were awarded to private concessionaires. The program was effective in awarding concessions, but poor in terms of following on the completion of the projects. The December 1994 crisis crashed the program leaving 34 awarded projects without the possibility of rising funds. The following obstacles plagued the program:
After the failure of the first concession program, many lessons were learned by the Federal and local governments, as well as by concessionaires who were not able to build their plants. Only those international companies which had experience and financial support were able to restructure their projects and go ahead with investments. After the painful experiences of the concession program, wastewater treatment plant projects have decreases in number, but those which are tendered and built, now have learned their lessons and in the majority have been successful. Currently BOT projects in Mexico require a detailed tariff impact study, and only those municipalities which accept to modify tariffs to reflect the cost of wastewater treatment receive funding from BANOBRAS. The federal government is supporting projects by lowering the costs associated with the amortization of the investment (T1). In this way, municipalities are able to pay the concessionaires only for the available capacity and the volume of wastewater treated. New investment schemes and reduced corruption by involving federal, state and local governments, as well as FINFRA or NADBANK has attracted a greater number of bidders, and has lowered the fees tendered in the concession processes. The favorable economic conditions of Mexico, and the trend to index tariffs to inflation have also decreased capital costs for these projects. Indexing tarifs to inflation is also viewed as a good way to hedge the revenues against currency devaluations, which are currently unlikely. Mexican construction firms are not participating in wastewater projects any more, or in the few cases they are is because they have the support of an international water company with experience in wastewater projects. This is explained because local construction firms are not able to raise financing as they almost disapeared as result of the 1994 crisis.
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