Public-Private… Postponed

Mexican government seeks to convert BlackRock’s proposed highway PPP to public works.

BlackRock has operated in Mexico for 12 years under the term of three Presidents and counts a former undersecretary of finance, Gerardo Rodriguez Regordosa, as one of their portfolio managers. In the three years following the Energy Reform, BlackRock had taken direct and indirect control over five energy infrastructure projects, including two pipelines considered to be critical to national security. Before the 2018 elections BlackRock’s founder, chairman and CEO, Larry Fink, had met with all the main presidential candidates, including AMLO. They know this market well.

BlackRock had been working on a highway project linking Cancun to Tulum for some time and led a consortium that submitted an Unsolicited Proposal for the highway section and managed to end up as the sole bidder. They even had Prodemex Construcciones (owned by Olegario Vázquez Aldir, director of Grupo Ángeles and member of AMLO advisory board) as a partner in the consortium.

What could go wrong?

Well, on 7 September, in one of his daily addresses to the nation, “mañaneras”, AMLO slammed BlackRock for their “abusive practices” and a few days later the Mexican government declared the tender void. The President explained that he stopped the tender because it was a Public Private Partnership (PPP) and he felt it would be cheaper for the Government to finance the project with public resources. No hard feeling Larry?

“PPP’s were never liked by the administration but companies took it for granted that they would go ahead.”

Senior official in the Ministry of Tourism, Mexico.

We spoke to a senior official in the Ministry of Tourism to see what actually happened, “PPP’s were never liked by the administration but companies took it for granted that they would go ahead. This decision will not stop the project, it will just be converted into public works. Discussions are ongoing with BlackRock and their associates to see if they can still execute the work. Others will be considered of course but BlackRock should be favoured as it is their project.”

A PPP specialist at Grupo Typsa, an independent consulting and engineering company, with experience of the AMLO administration told us, “The problem with these Unsolicited Proposals is that they are PPP’s and AMLO doesn’t understand them … he just adds up the payments and compares them against paying in cash. He doesn’t understand that PPPs include maintenance, equipment, etc and he doesn’t understand net present value.”

“They will still do the project but as public works and they will probably try to favour BlackRock.”

PPP expert, Grupo Typsa.

Our source at Grupo Typsa agrees with the official at the Ministry of Tourism, “They will still do the project but as public works and they will probably still work with the BlackRock consortium, although recently they had a scheme where they were assigning complicated sections / projects to the army.”

It just goes to show that even with vast experience and market presence, you can still be blindsided in Latin America. You have to do your homework, let us help!

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