Mexico’s Water and Wastewater Market

Mexico’s Summary Page

1. Executive Summary:

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  The Mexican economy has performed well over the last five years, under a stable economic environment and the highest growth in Latin America. Growth and price stability should continue over the following years, which will improve project finance conditions in Mexico.
  

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  A new federal administration took office last December ending 71 years of dominance of a single political party and representing the beginning of a real democracy never seen before in Mexico for over a century. The new administration came with a strong mandate to change Mexico for the better. President Fox has defined environmental protection as a national security issue and is expected to deal with the challenge accordingly.
  

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  Financing continues to be the key issue for environmental investments. Since there is simply not enough government funding to pay for the entire necessary water infrastructure, private participation will be strongly encouraged. For this to succeed, the government will continue its efforts to strengthen the institutional and financial structures of municipal water authorities, which are responsible for executing most water infrastructure.
  

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  Mexico invests approximately US$1.4 billion per year in the water sector while the minimal yearly-required investment is estimated at US$ 1.6 billion. The lack of adequate investment over the past several years has created an important backlog of water investments. In order to increase water and sewer coverage to 97% of the population and wastewater treatment to 90% for the year 2025, Mexico would need to invest US$ 2.9 billion per year, and this can only be achieved if private capital is brought to the sector. Most local water utilities are not able to cover even their operational costs, creating a severe obstacle for water investment.
  

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  The government is developing a new financial program called Fund for Infrastructure II (FINFRA II). This program will provide federal government funding to municipal water utilities that incorporate private participation in their operations. This program is the continuation of the Fund for Infrastructure (FINFRA) which succeded in atracting investment into new wastewater treatment plants. FINFRA invested federal monies as risk capital, lowering the amortization payments form the municipality to the concessionaire. FINFRA II is expected to boost private participation in the operation of municipal water systems and at the same time serve as a detonator for private investment in new infrastructure.
  

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  As all federal financial support to the water sector (except investments in rural zones or priority projects) will only be approved if municipalities increase operational efficiency or incorporate private participation. Most opportunities will be sales of equipment and services for improving institutional, commercial, and financial capabilities of local utilities. Additionally, the largest projects will include those considered as priorities, which also will receive funding from multilateral and bilateral organizations as well as from the federal governemnt.
  

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  Large internationally and federaly funded projects in Baja California, Mexico City and Guadalajara which offer approximately US$2 billion in diverse opportunities for services and equipment sales in the potable water, sewage and wastewater treatment sectors. The Baja California project is underway but the largest portions of the project will be tendered soon. The Mexico City and Guadalajara projects face political and technical problems that will delay their tenders for year 2002.
  

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  Potable water, sewer and wastewater projects with financial support from FINFRA or from the North American Development Bank (NADBANK), represent the most solid projects. This not only because of the availability of financing but also the fast approval process they will have. Approximately 15 to 20 projects receive the supported of these organizations every year, totaling investments of over US$250 million.
  

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  Mexico may develop a market for “private operators” in larger cities. These concessions would fuel a countrywide demand for a broad range of potable water, sewage and treatment services and equipment, including system rehabilitiation services and investment. The government is actively developing schemes to make private participation attractive to all parties involved, including municipal authorities and local utilities.
  

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  The U.S. - Mexico border offers substantial opportunities for Build-Operate-Transfer (BOT) projects, as well as for equipment sales and services. These are a series of modest sized projects spread among approximately 30 border urban centers. These projects receive financial support from NADBANK and from U.S. environmental institutions.
  

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  Equipment for operational efficiency, such as macro and micro water meters, billing and collection software, monitoring technologies, equipment for leak detection and repair, as well as services for enhancing water utility operations will see dynamic demand in the Mexican market in the following years.
  

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