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Vital elements of infrastructure are improving exponentially, as government body Fonadin encourages more and more PPPs in Mexico


Mexico’s National Infrastructure Fund (Fondo Nacional de Infraestructura, or Fonadin) is the influential and dynamic Mexican government agency set up to manage the development of national infrastructure in Mexico via public-private partnerships (PPPs), focusing on the highways, ports, airports, environment, urban mass transportation, water and tourism.

Today, Fonadin is one of the most important conduits for PPPs in Mexico. Fonadin does this by providing support – financing and know-how – for the planning, design, construction and final transfer of projects developed by the private sector. To be elegible by Fonadin, projects must offer the country significant positive social impact and the prospect of major economic gain.

In pursuit of its goal of nurturing PPPs in Mexico, Fonadin extends support to organisations in the public and private sectors. It supports Public sector bodies including agencies and departments of the Mexican federal government, and similarly agencies and departments of Mexican state and municipal governments. Private sector organisations Fonadin supports include the recipients of concessions, permits or contracts as part of PPPs in Mexico.

Fonadin support of PPPs in Mexico consists broadly of two types of investment: recoverable (which Fonadin would be looking to get back in due course) and unrecoverable (which Fonadin would not necessarily expect to get back). Recoverable funding would typically include subordinated debt (debt with a lower priority for the collection), guarantees and in some cases even equity. Unrecoverable funding usually involves financial support for studies, consultancy and subsidies to support PPPs in Mexico that have a social and/or economic benefit but which offer the prospect of only low financial returns.


Fonadin and its work with PPPs in Mexico is becoming an increasingly important and dynamic part of Mexico’s economic resurgence. The sheer scale of the Mexican economy (which is the thirteenth largest in the world and eleventh largest by purchasing power parity, according to the World Bank), the size of the population (112m, making Mexico the world’s eleventh most populous country), the sheer size, industriousness and skill of Mexico’s workforce, close economic connections between Mexico and the US (which receives about 78 percent of Mexican exports) and the abundance of Mexico’s natural resources (Mexico is a major non-OPEC oil producer) means Mexico offers major opportunities for organisations seeking involvement in PPPs in Mexico.

Mexican growth

Overall, the past decade has seen Central and South America making exciting economic strides. While poverty is unfortunately still a major problem in Mexico, as throughout Latin America (and indeed the US), evidence suggests that Latin America can look forward to a brighter economic future. The creation of new infrastructure, through PPPs in Mexico, provides a boost to business activity and quality of life for individuals. It also improves public morale and encourages foreign financing, as investors observe the physical evidence of economic improvement.

Recent years have seen the government of Mexico allocate greater proportions of its budget to infrastructure development projects. The government has correspondingly expressed more and more interest in encouraging PPPs in Mexico. Overall, project finance is well established as an economic tool in Mexico, particularly in the electricity, oil and gas industries. Evidence suggests that, for the Mexican government, project financing is a preferred way to finance the necessary creation of infrastructure in Mexico. The creation of Fonadin was itself evidence of the government’s commitment to PPPs in Mexico and the creation of new infrastructure using these PPPs, as well as through direct investment by the Mexican government.

Private sector sponsors of PPPs in Mexico typically include, on the sponsors’ side, major organisations from Europe, the US and Japan, though – surprisingly, perhaps – South Korean companies also feature prominently in PPPs in Mexico. Lenders normally come from major Europe-based international commercial banks – with France and Spain especially well represented – as well as Asian banks, particularly from Japan and South Korea.

Today, Mexico is unquestionably one of the most exciting investment markets in the world, and Fonadin’s activities are understandably coming under the spotlight of many major investment organisations that seek to make the most of the opportunities the country has to offer, including PPPs in Mexico.

Regulatory issues

Today there is a full legal framework for the enactment of infrastructure projects by PPPs in Mexico. This came into being in 2012, following the introduction of new regulations to the Public-Private Partnership Law (PPP Regulations) and new guidelines that have set out provisions for assessing the social benefit accruing from a project, as well as whether actually implementing the project under a PPP scheme is appropriate in the first place (PPP Guidelines) published in the Federal Official Gazette (DOF) on November 5 and 22, 2012.

In more detailed terms, the Public-Private Partnership Law, published in the DOF on January 16 2012, aims to regulate development schemes – arising from PPPs in Mexico – that involve long-term contractual relationships between the public and private sector, with the objective of these relationships being the provision of services to the public sector or end-user.

The Public-Private Partnership Law gave eagerly anticipated clarity, as it promotes legal certainty in all areas of PPPs in Mexico. It covers: provision of optional alternatives for the awarding of projects, these being additional to those given in previous legislation; an initial review, in public bids, of all technical and legal documentation, apart from the financial proposal; submission of unsolicited project proposals; reimbursement for non-recoverable expenses if the bidding process is cancelled; balanced risk allocation in contracts for PPPs in Mexico; and acquisitions of rights-of-way by the developed and commercial appraisals to establish the price of the acquisition.

Note that this is not a complete list of the provisions of the Public-Private Partnership Law, which should be consulted in detail for more information. The PPP Regulations and PPP Guidelines should be consulted as these regulations and guidelines are also part of the legal framework relating to PPPs in Mexico.

Foreign investment

It is clearly important for foreign investors interested in involvement with PPPs in Mexico, via Fonadin, to have a practical understanding of the foreign investment regime in Mexico generally, and the project finance regime in particular.

In the past, the build-own-transfer (BOT) and the build-own-operate (BOO) financing structures have been the most commonly used ways of financing infrastructure projects that have been sponsored by the Mexican government. Now, however, PPPs in Mexico have become a more common way of developing local infrastructure.

For a foreign company becoming involved with PPPs in Mexico, while Mexican law does not impose any kind of nationality restriction, in practice it is advised that foreign organisations involved in infrastructure projects should organise the project company under Mexican law – even if non-Mexican sponsors control the company. It is also important to note that in some cases, where the Mexican government is sponsoring the project, the guidelines for bidding stipulate the incorporation of the project company in Mexico.

Under Mexican law, non-Mexican investors are welcome in most industries, and their involvement with various PPPs in Mexico is welcomed. There are also no restrictions on a parent company maintaining offshore foreign currency accounts. It is generally the case that, under Mexican law, there are no specific restrictions on the repatriation of funds by foreign investors to their home nations. Repatriated funds are, however, subject to Mexican corporate and tax laws that govern the payment of dividends. Tax, of course, must also be paid as applicable.

Fonadin in action

Fonadin is continually developing new projects with a PPPs scheme in Mexico. Since its creation, Fonadin has authorized more than USD $7,924m for studies and projects, which will foster investments for over USD $17,553ms. Many of Fonadin’s projects fall under the umbrella of major programmes that incorporate PPPs in Mexico.

The toll road programme supports projects involving the construction of toll roads by financing studies and investigations into rights of way. Fonadin makes grants available to advance these initiatives. As an example of this, in a recent major venture, Mexico’s national development bank, Banobras, and Fonadin have authorised 2.76bn pesos ($218m) for the development of the new Autopista Toluca-Naucalpan highway. The new 39km, four-lane highway is expected to effect significant improvements in the connections and communications between Mexico City’s valley and Toluca valley. Completion of the new highway is expected during the second half of 2015.

PROMAGUA water operators’ modernisation programme focuses on advancing infrastructure projects broadening the number of locations that have access to drinking water. Fonadin will typically support – or help to develop PPPs in Mexico that support – the complete water cycle. This includes, where necessary, the construction of aqueducts and plants for purification and desalination, and onwards to the construction of wastewater plants. The Atotonilco wastewater plant, supported under this programme, is actually under construction and will be the largest wastewater treatment plant in Mexico and one of largest in the world. With a capacity to treat up to 35 m3/s, it will improve the sanitation conditions of over 300,000 people who live in the zone.

PRORESOL municipal solid waste programme is designed to stimulate the participation of private organisations in some of the most significant public services infrastructure development projects in Mexico. Specifically, the PRORESOL programme concerns solid waste infrastructure projects covering such activities as the collection, sorting, recovery, recycling and end-stage disposal of municipal waste.

Finally, PROTRAM – the Federal Urban Mass Transportation programme – is the conduit at Fonadin for the financing and support for projects and PPPs in Mexico that create new infrastructure and initiatives to develop the country’s urban public transportation. Under this programme, Fonadin has been active in funding transport PPPs in Mexican cities that have more than 500,000 inhabitants, leading to massive infrastructural developments in cities and municipalities such as Chihuahua, Mexicali, Monterrey, Chimalhuacán and Pantitlán.