Now everything is up in the air, so to speak.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The results are finally in from one of the most controversial voting exercises ever held in Mexico. The people — albeit a tiny fraction of the whole electorate — have voted to scrap a new $13-billion airport for the capital that is almost one-third finished, at least $4 billion over budget, and mired in allegations of corruption and lack of transparency, dealing a hefty blow to some of Mexico’s richest business leaders, foreign construction companies, and the global lenders that have helped finance the project.
Roughly a million people, just over 1% of Mexico’s electorate, participated in the four-day voting exercise. They were asked whether the next government should finish the new airport, called NAIM, to replace Mexico City’s inadequate inner-city hub, or add two runways to convert a military air base in Santa Lucia (30 miles north of the capital) and keep the current airport. Almost 70% of voters chose the latter option.
The NAIM project has come under a barrage of criticism for a host of reasons beyond corruption and chronic lack of transparency, including concerns about the airport’s choice of location — a drained former lake bed — and what it might mean for the structure’s stability, especially in such a highly active earthquake zone, as well as for the region’s water supply, which according to Oxfam is at crisis levels already, due largely to the government’s predilection for mega-projects.
Dubbed a “public consultation,” the vote was non-binding and marred with serious irregularities. Despite that, Mexico’s leftist president-elect Andres Manuel Lopez Obrador (AMLO), who called for the referendum and is against the new airport, has vowed to respect the result, putting him on collision course with some very powerful business interests.
It also could do long-term damage to Mexico’s standing among global investors. The ratings agency Moody’s has cautioned that cancelling the project would have negative credit repercussions, not only for Mexico City’s current airport but the entire national sector. A few days ago, UBS added its voice of caution, warning that abandoning the project at this point would not only be hugely costly but could also put all future private investment at risk.
Fitch has already downgraded the outlook of Pemex’s debt from stable to negative over concerns about AMLO’s plans to sharply increase investment in the state-owned oil company. Now, AMLO risks alienating Mexico’s business elite and their political minders, many of whom have spent well over a decade fantasizing about the huge fortunes that could be made off the back of this massive, largely publicly funded infrastructure project, which is already almost one-third finished and at least $4 billion over budget.
No one is more invested in the project than Mexico’s richest man, Carlos Slim, whose son-in-law, Fernando Romero, together with British architectural superstar Norman Foster, designed the airport, at great cost. Slim-owned companies such as Grupo Carso are leading consortia on three big contracts, allegedly worth 94 billion pesos (around $5 billion).
Other large Mexican companies participating in the project include ICA, Prodemex, GIA, and Grupo Hermes, which is owned by Carlos Hank, a billionaire banker with ties both to Mexico’s outgoing president, Enrique Peña Nieto, who launched the NAIM project, and the Atlacomulco Group, a secretive, hyper-connected political network operating in Estado de Mexico, the State in which the new airport is being built. Peña Nieto served as governor of the State before becoming president.
There are also some major foreign companies involved in the project, including the English systems company Arup (which drew up the masterplan), the Boston Consulting Group (which designed the business plan), the Spanish infrastructure giants Acciona and Slim-owned FCC (which are helping build the terminals), and the Netherlands Airport Consultancy (which is in charge of the design of the runways, terminal building, taxiways, platforms and support buildings).
Given how much money is at stake in the project, not just in its construction but also in its future maintenance, the bill for which has purportedly already reached a staggering $29 billion, these companies, their investors and lenders will fight tooth and nail to ensure that AMLO does not upset the apple cart. As Mexico’s secretary for communications and transport said last year, almost all of the contracts for the construction and maintenance of the airport had been assigned by the end of 2017, making cancellation next to impossible, or at least eye-wateringly expensive.
But this is not only about the airport. Also at risk are long-hatched plans to build an “aerotropolis” — a vast multimodal “airport city”– around the NAIM airport, which investors hope will become the biggest transport/infrastructure hub in the whole of Latin America, occupying over 4,000 hectares of potentially extremely valuable land. According to the Mexican journalist Javier García Soto, it is this juicy prize that is most coveted by the Atlacomulco Group:
This is a huge project worth up to 20 times the total cost of the new airport whose development and funding will provide continuous multi-billion-dollar business for the next 50 to 100 years. It will involve the construction and development of shopping centers, hotels, motorways, industrial and business parks, free-trade zones, barrios of luxury accommodation, sports clubs and golf courses, even a theme park.
The new city will connect to the new port under construction in the oil-rich region of Veracruz, which has quintupled its capacity since Peña Nieto took office. “This is the Atlacomulco Group’s real business interest,” one of the group’s insiders told García Soto. “That’s why they want the new airport there and why they will defend it by hook or by crook, regardless of its technical or financial viability.”
No doubt, the Group’s members will be able to count on the assistance of the ratings agencies, which, as mentioned earlier, have already begun piling the pressure on AMLO’s spending plans. If AMLO honors his pledge to respect Sunday’s vote and cancels Latin America’s biggest infrastructure project, jeopardizing tens, if not hundreds, of billions of dollars of investment, he risks reaping a whirlwind of financial blow back. As UBS ominously notes, the honeymoon period between AMLO and the markets is well and truly over, and AMLO hasn’t even taken the reins of power yet. By Don Quijones.
AMLO’s team will have its work cut out. After decades of endemic corruption and mismanagement have bled Pemex of its financial resources, the Mexican state is trying to rebuild Mexico’s oil industry and develop a more nationalistic approach to energy policy. Read… Defiant Energy Policy of Mexico’s President-Elect Rattles Moody’s and Fitch
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