Mexico City’s planned new mega-airport smells of ditchwater. Not in a bad way, mind. Reports earlier this month carried the announcement from the country’s president that the country’s biggest airport, Benito Juarez, is to be replaced as it can’t be expanded much further to accommodate passenger growth. The project underlines yet again how other countries are using different solutions to the UK to create new airport capacity.
Who is this in charge of deciding precisely how the airport (incidentally designed by Lord Foster, whose firm did visualisations of the now-abortive Thames estuary airport) will be delivered and paid for? Step forward Federico Patiño, finance director of the state-owned Mexico City Airport Group as well as head of Mexico’s national infrastructure fund Fonadin. The ditchwater smell comes from the last mega project in the Mexico City area Patiño worked on – the US$820 million Atotonilco wastewater treatment plant (I interviewed him about it for this report last year). Under construction since 2011 using public funding and public and private finance, it’s the costliest infrastructure project yet in Mexico – but still, the airport could be a challenge for Patiño, as it will cost over ten times more.
The total projected cost of the new airport, he tells us, is 169 billion pesos (US$12.8 billion) – that includes non-airport works but his company will have to pay for those too. The presidential website boasts that the finance raised “will not constitute public debt”. This is curious, given that the company in charge of financing and delivering the new airport is the current Mexico City airport operator, which is state-owned. How can it be?
Basically and uncharitably, it’s a bit of a fudge, slightly similar to the UK’s Network Rail (except that really is public debt now). The airport company is at arm’s length from government and, blissfully free of the European Union’s ESA 95 rules, the government doesn’t count its debt as public sector. This loophole was previously exploited in 2005 when the airport company raised US$400 million to build a second passenger terminal from a syndicate of Mexican and Spanish banks plus Citi. It was done through project finance – a sort of public-public rather than public-private partnership, because the equity investor was the public sector. Revenues from the second terminal were securitised to repay the loan.
Now, reading between the lines, they want to do it again. The presidential website talks of interest from private banks to finance the project, although Patiño says public funding will cover over half the costs.
This sort of makes sense if the government in question is really restricted in its ability to raise finance on the international markets. But for Mexico, a country with considerable petrodollars flowing into state coffers from the nationalised oil company, it seems a dubious way of disguising public debt and incurring a higher cost of financing to do so. There can be no doubt that if the airport delivery ran into difficulties, the government would be obliged to fix the project from its own resources – and that those private banks would want their money back, in full, with interest.
So, what are the lessons for the UK and its ongoing airport expansion saga? The Mexico city project looks more feasible than both Heathrow expansion and a new Thames estuary airport, aka Boris Island (but I already told you why the latter’s never going to happen). This is because the Mexican state already owns the land for the airport, saving on the high land acquisition costs in London, and also because the cost of infrastructure is a helluva lot cheaper over there.
Also, the dodgy off-balance sheet treatment means they can raise money with an implicit/explicit state guarantee, and leverage the current airport’s balance sheet (as if the borrower was just the airport, without the state standing behind it) at the same time – having their cake and eating it. This doesn’t look exactly like either Heathrow expansion or Boris Island, but the one it looks more like is Heathrow expansion, because that involves an existing airport.