A Retrospective on the Mexican Toll Road Program (1989-94)

Abstract

Mexico's private toll road program more than doubled the national toll road network from 1989 to 1994. The investment of approximately US$13 billion in the program was sourced from local commercial bank debt, concessionaire equity, and federal and state government grants and equity contribution. However, gross miscalculation of investment costs and operating income led to an unsustainable set of operating conditions for these limited recourse financings. The financial equilibrium of the sector was further undermined by the Mexican currency crisis of December 1994. All these brought the project development to a standstill and resulted in widespread financial and economic repercussions. Some industry observers have characterized the toll road program as a poorly designed effort to develop the infrastructure the country needed to compete effectively in an era of free trade. From a private investment perspective the impact was to shut off capital flows to the sector and to add to the Mexican banking system s non-performing loan portfolio. This Note presents a diagnostic of key policy, regulatory, and institutional gaps that undermined the financial equilibrium of the sector. A checklist of recurrent problems illustrates how the failure to address these issues manifested itself in the course of implementation.