1. May, 2007 P UBLIC- P RIVATE P ARTNERSHIPS FOR H IGHWAYS IN M EXICO

2. THE NATIONAL HIGHWAY NETWORK

3. MAIN HIGHWAY CORRIDORS

4. INVESTMENT NEEDS IN THE HIGHWAY SECTOR  Each year, Mexico needs about 5 billion US dollars for investments in road construction and maintenance  Public funds allow the federal government to annually invest less than half the required amounts  To close this gap, Mexico has put together two public-private partnership models that seek to attract private capitals to highway investments  The three models are:  Highway concessions  Private service contracts (PPP)  Asset utilization

5. PUBLIC-PRIVATE PARTNERSHIPS FOR HIGHWAY DEVELOPMENT  Through its public-private partnership models, SCT seeks:  To allow an earlier development of Mexico’s toll and free roads  To increase the amount of highway investments with private participation  To add value to services offered to users  To create jobs in highway construction  To increase the efficiency and productivity of public service provision  To create new opportunities for the private sector  To take advantage of existing highways as a source of resources for new toll roads

6. MAIN CHARACTERISTICS OF THE NEW HIGHWAY CONCESSION MODEL  Concessions granted through public bids  SCT provides final designs and rights of way  SCT sets maximum average tolls and the rule for updating them  The time of concession can be the maximum allowed by law (thirty years)  The government provides an initial contribution of public funds paid through Finfra, a trust in Banobras, a public development bank  The government offers a minimum revenue guarantee (CAS) to facilitate involvement by private banks

7. MAIN CHARACTERISTICS OF THE NEW HIGHWAY CONCESSION MODEL  The concession is awarded to the bidder who requests the lowest amount of public funds, measured as the sum of the initial contribution and the net present value of the minimum revenue guarantee  When projects do not require public funds, the concession is awarded to the bidder who complies with the legal, technical and financial requirements of the bid and offers the largest monetary amount to SCT

8. HIGHWAY CONCESSION PROGRAM AWARDED CONCESSIONS AND BIDS IN PROGRESS

9. HIGHWAY CONCESSION PROGRAM BIDS IN PREPARATION

10. HIGHWAY CONCESSION PROGRAM OTHER PROJECTS UNDER STUDY

11. HIGHWAY CONCESSION PROGRAM PROJECTS AWARDED AND BIDS IN PROGRESS MEXICALI BYPASS (IN OPERATION) MATEHUALA BYPASS (IN OPERATION) MORELIA-SALAMANCA (UNDER CONSTRUCTION) NORTHERN BYPASS OF MEXICO CITY (UNDER CONSTRUCTION) AMOZOC-PEROTE (UNDER CONSTRUCTION) MONTERREY-SALTILLO AND SALTILLO BYPASS (UNDER CONSTRUCTION) TEPIC-VILLA UNIÓN (UNDER CONSTRUCTION) TECPAN BYPASS (UNDER CONSTRUCTION) SAN LUIS RÍO COLORADO II INTERNATIONAL BRIDGE (BID IN PROGRESS) REYNOSA-ANZALDÚAS INTERNATIONAL BRIDGE (BID IN PROGRESS) ARRIAGA-OCOZOCOAUTLA (BID IN PROGRESS) PEROTE-XALAPA AND XALAPA BYPASS (BID IN PROGRESS) IRAPUATO BYPASS (BID IN PROGRESS

12. HIGHWAY CONCESSION PROGRAM PROJECTS UNDER PREPARATION LA PIEDAD BYPASS AND ACCESS TO MÉXICO-GUADALAJARA HIGHWAY BOJÓRQUEZ BRIDGE CHIHUAHUA BYPASS IRAPUATO BYPASS COMPOSTELA-LAS VARAS- PUERTO VALLARTA

13. PROGRAM RESULTS  After almost 10 years of not concessioning roads to the private sector, the model has reopened the possibility of involving private resources for highway development in Mexico  The results of the bidding process show that participants have reduced their risk perception and that they are willing to participate in highway projects  The participation of an increasing number of commercial banks also reveals greater confidence by the financial sector  The new model of concessions is a viable mechanism for toll road development in Mexico, and SCT will review and improve it permanently

14. CHARACTERISTICS OF PPP MODEL FOR HIGHWAYS  A concession is awarded through a public bidding process which also grants to the concessionaire the exclusive right to sign the service contract  The duration of the service contract is fixed, from 15 to 30 years  The contract establishes an association between the Ministry and a private firm to design, finance, build, maintain and operate a highway  The private firm provides services in exchange for periodic payments  Periodic payments are based on availability of the road and its traffic levels

15. CHARACTERISTICS OF PPP MODEL FOR HIGHWAYS  Each bidder requests a periodic payment determined as a function of:  Construction, maintenance and operating costs  Rate of return on equity, including financial costs  Estimated annual traffic  Duration of contract  The Net Present Value of periodic payments is the decision criterion used to award the concession, provided that the winner complies with technical, legal and financial requirements  After construction, the modernized road continues operation as a toll- free road  When the model is applied to a toll road, the periodic payment is made with a combination of toll revenues and budgetary funds

16. PUBLIC-PRIVATE PARTNERSHIP PROJECTS AWARDED AND BIDS IN PROGRESS

17. EXAMPLE OF PPP SCOPE: QUERETARO-IRAPUATO ROAD  The private service contract for improving this federal toll-free road includes:  Widening of 48 kilometers of roads to four lanes, including the Salamanca bypass  Maintenance of the 93 kilometer road during 20 years  Construction of 7 interchanges  Construction of 4 overpasses  Emergency assistance for users  Construction of a 4.4 kilometer boulevard in Apaseo el Alto  To adequately specify the services to be provided, the road is divided in 16 sections, 8 in each direction

18. PUBLIC-PRIVATE PARTNERSHIP PROJECTS BIDS IN PREPARATION

19. PUBLIC-PRIVATE PARTNERSHIP PROJECTS (AWARDED, IN BIDDING PROCESS OR UNDER PREPARATION) TAPACHULA-TALISMAN WITH BRANCH TO HIDALGO CITY (UNDER CONSTRUCTION) NUEVA ITALIA-APATZINGÁN (BID IN PROGRESS) QUERÉTARO-IRAPUATO (UNDER CONSTRUCTION) ZACATECAS-SALTILLO (IN PREPARATION) RIOVERDE-CIUDAD VALLES (BID IN PROGRESS) NUEVO NECAXA-TIHUATLÁN (BID IN PROGRESS) IRAPUATO-LA PIEDAD (UNDER CONSTRUCTION) MITLA-TEHUANTEPEC JUNCTION (IN PREPARATION)

20. PUBLIC-PRIVATE PARTNERSHIP PROJECTS (UNDER PREPARATION) APIZACO-CALPULALPAN (IN PREPARATION) ARRIAGA-LA VENTOSA (IN PREPARATION) SALINA CRUZ-HUATULCO (IN PREPARATION) MACUSPANA-STATE LIMIT CAMPECHE/QUINTANA ROO (IN PREPARATION) ACAYUCAN-LA VENTOSA (IN PREPARATION)

21. COMPARISON OF CONCESSION AND PPP MODELS

22. CHARACTERISTICS OF UTILIZATION OF HIGHWAYS ASSETS  SCT terminates the concession of highway assets to Farac in exchange for an indemnization  SCT prepares concessions formed by existing highways with more than 10 years of continuous operation, and new highways to be constructed  SCT grants the concessions to the private sector through public bids and pays Farac  The concessionaire is responsible to operate, maintain and exploit the existing toll roads, as well as to build and later operate the new highways in the concession

23. UTILIZATION OF HIGHWAYS ASSETS  The first bid is all already in progress; it includes a 30 year concession of the Maravatío- Zapotlanejo, Zapotlanejo-Lagos de Moreno, Guadalajara-Zapotlanejo and Leon-Lagos- Aguascalientes toll roads LEÓN-LAGOS- AGUASCALIENTES length 103 km; 4 lanes MARAVATÍO- ZAPOTLANEJO length 309 km; 4 lanes ZAPOTLANEJO-LAGOS DE MORENO length 118 km; 4 lanes GUADALAJARA- ZAPOTLANEJO length 26 km; to widen 6 lanes  The resources obtained as a result of the bidding process will be allocated to build the Durango-Mazatlán highway

24. UTILIZATION OF HIGHWAYS ASSETS OTHER PROJECTS

25. EXAMPLE OF ADVANTAGE OF HIGHWAYS ASSETS SCOPE  Another upcoming bid is of the package formed by the Reynosa- Matamoros highway and the Reynosa-Pharr International Bridge (existing) and the Reynosa bypass and the Rio Bravo Donna International Bridge (to build) REYNOSA-MATAMOROS 44 km; 4 lanes REYNOSA-PHARR INTERNATIONAL BRIDGE 10 km; 2 lanes REYNOSA BYPASS 37 km; 2 lanes RIO BRAVO-DONNA INTERNATIONAL BRIDGE AND ACCESS 7.5 km; 4 lanes

26. CONCLUSION  Public-private partnerships are key to increase highway infrastructure investment levels in Mexico  Today, existing conditions are favorable for road development through public-private models in Mexico because of:  A stable macroeconomic environment  Models and projects that are attractive to the market  Key national and international players are interested  Existing highway assets can support new project development  As a consequence, in Mexico there is a window of opportunity that can be seized to increase competitiveness, promote employment and contribute to regional development

27. FOR MORE INFORMATION  WEB ADDRESS http://dc.sct.gob.mx For general information  José San Martín Romerojmartinr@sct.gob.mx tel.: +52 (55) 5482-4343 fax.: +52 (55) 5482-4392 For PPP projects  Amado Athié Rubioaathie@sct.gob.mx tel.: +52 (55) 5482-4344 fax.: +52 (55) 5482-4392