Thursday, May 03, 2007

Autopsy of a private toll road

Mexico toll road fiasco

Thursday, May 3, 2007

Copyright 2007

LA AUTOPISTA DEL SOL, Mexico -- This was supposed to be Mexico's toll road to the future, a four-lane, privately built ribbon of asphalt connecting Cuernavaca with the Pacific resort city of Acapulco.

But 14 years after opening, the Autopista del Sol, or "Sun Highway," is a 163-mile mess.

Motorists complain of blown tires and ruined suspensions. A national newspaper last year called the thoroughfare, on which a round trip costs $70, "a calvary of cracks, potholes and risks."

The government has been forced to spend more than $60 million to shore up the crumbling motorway after its operator walked away. Overall, Mexico assumed $14 billion of debt after bailing out nearly two dozen other such projects in the 1990s.

So it may come as a surprise that President Felipe Calderon is touting toll roads as a solution to Mexico's infrastructure woes. His administration is moving aggressively to award contracts to private companies to finance, build and maintain highways -- and charge motorists to use them.

It's a strategy embraced by cash-strapped governments worldwide.

But it's highly controversial in Mexico, where La Autopista del Sol remains a potholed reminder of the potential hazards of privatization.

"Mexico is the poster child for how to do [highway privatization] wrong," said Robert Poole, a transportation expert at the Los Angeles-based Reason Foundation, a libertarian think tank. "Now they have a chance to redeem themselves."

Proponents cite a variety of advantages to involving the private sector. Structured correctly, long-term concessions can shift risks of cost overruns and faulty construction to private operators. For-profit companies have pioneered innovations such as electronic billing and congestion pricing.

The Calderon administration is exploring three types of private-sector investment. It's planning to convert as many as 16 public freeways into toll roads to be managed by private companies. It wants to turn over existing government-run toll roads to private operators. And it's looking to construct 24 privately managed toll roads.

"With private resources we can do more: elevate the quality of the services offered to users, generate more [construction] jobs and ... obtain more resources to construct new highways," said Luis Tellez, Mexico's secretary of Communications and Transportation, in a recent presentation to legislators.

That upbeat assessment belies Mexico's previous disastrous experience.

Calderon's political opponents have criticized the plan and are demanding transparency and vigilance, which were lacking in the past. Some of the same companies that saddled the government with billions of dollars of debt in the 1990s are looking to score new highway projects.

"We are against these concessions because it has been proved throughout the history of Mexico they only represent corruption and fraud," said Sen. Ricardo Monreal of the leftist Democratic Revolution Party.

Proponents counter that there is nothing wrong with privatization --just with the manner in which Mexico went about it.

Poole, who has studied the Mexican debacle, said the nation's biggest mistake was the short duration of concessions granted in the 1980s and 1990s -- some as little as 10 years. The tight time frame encouraged builders to cut corners, knowing they weren't responsible for long-term upkeep. And it forced them to charge high tolls to recoup their investment quickly.

Unwilling to pay the high fees, drivers shunned the pay roads and revenue didn't meet projections. But the death blow was Mexico's 1994 currency devaluation. Interest rates soared, making it impossible for private operators to pay their bankers. In 1997, the government assumed their liabilities as part of a massive bailout.


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