JUAN MOLINAR – Mexico is not “a”, but “The” logistics platform for North America

Minister Communications and Transportation Mexico’s Federal Government

IS THERE REALISTICALLY A SOLUTION FOR THE U.S.-MEXICO TRUCKING DISPUTE?

I had a recent meeting with U.S. Transportation Secretary Ray LaHood and I sense a lot more willingness today than a year ago to solve the dispute over the so-called Mexican trucking pilot program in U.S. Highways. I do not want to say that we have a solution forthcoming soon, but I do not want to be pessimistic either. I believe that we definitely made important progress on this subject in our meeting with Secretary LaHood.

MEXICO’S RAIL INFRASTRUCTURE IS LIMITED AND OBSOLETE. ARE THERE ANY SPECIAL INITIATIVES TO IMPROVE IN THIS FRONT

Yes, just recently the two main rail companies in Mexico, Kansas City and Ferromex, reached interconnection and drayage agreements. Today, both companies have efficient access to many locations that they couldn’t access before. There are also important investments in process, such as the bypass in Celaya, Guanajuato which is one of the main interconnection points in Mexico. We also have in process, after 100 years of trying, the first rail crossing in Matamoros, Tamaulipas and Brownsville, Texas Actually, rail freight volumes have increased. So there is more dynamism in this sector. We still have challenges in terms of pricing and security, though.

THERE IS CURRENTLY A LOT OF CONTAINER AND SHIP OVERCAPACITY IN THE U.S. IS THIS AN OPPORTUNITY FOR MEXICO?

The ocean freight transportation industry has undergone significant changes as a result of the crisis. Shipping volumes from Asia to America plummeted last year. And indeed, there is a container and ship overcapacity. And yes, this is a great opportunity for Mexico. Why? because Mexico is not “a”, but “The” logistics platform for North America. For example, if at this time there are three containers on their way from Shanghai to Houston, one via Long Beach, another one through the Panama Canal and the third one via Lazaro Cardenas or Manzanillo in Mexico, the latter will have the fastest delivery and the lowest shipping cost. We are currently bidding works for the expansion of both Lazaro Cardenas and Manzanillo. These routes from Asia to North America’s manufacturing regions and consumer markets will be very busy as world trade continues to recover.

YOU HAVE SAID THAT MEXICO NEEDS TO INCREASE THE PRIVATE SECTOR’S PARTICIPATION IN INFRASTRUCTURE. WHAT ARE YOU OFFERING?

We had a major change in policy after the world recession hit. Before the crisis, there was a big appetite for major projects. The financial mix of equity and debt was very aggressive and leveraged. But after the crisis, the interest of investors dissipated. So what we did was to adapt the projects. I recall that when I just took office in the ministry, we had no bidders for a large highway project in the Pacific region. So we decided to segment the package, but we kept the same overall job scope intact. In a few months, through a combination of private and public funds we were able to place contracts for almost US$500 million for this project. So we are redesigning the projects by combining new works with existing income generating assets, for example, or undertaking the riskier segment of a master project with public funding. In this fashion, we are offering the private investors more attractive packages with less risk. Just recently, we signed the contract for a new important highway from Oaxaca to Puerto Escondido, a project of over US$400 million. The needs are vast and the public resources are limited, so we will definitely continue to encourage the participation of the private sector in Mexico’s infrastructure. In addition, in order to help the speed at which we build infrastructure in Mexico, we are developing a pool or bank of projects. Often times, things do not get done because the projects are very slow to develop. We are also pushing legal schemes that will allow the government to have certainty over the rights of way for infrastructure projects. Many times, a project is halted by a single proprietor, thus hurting the public interest.

IN THE FIELD OF TELECOMMUNICATIONS, FOREIGN INVESTORS COMPLAIN ABOUT THE VEIL OF PROTECTION IN FAVOR OF THE DOMINANT SUPPLIER IN MEXICO. IS THERE A REALISTIC POSSIBILITY OF ATTRACTING SIGNIFICANT FOREIGN INVESTMENT IN THIS SECTOR?

We need to do two things. First, we need to exercise a level field policy, so that everybody knows the government is going to apply the law. And we have been doing this, for example, in my one year tenure at the ministry, the government has recuperated about 105 Megahertz of spectrum that was not properly utilized, including some of it recovered from Telmex. We have also expanded the range of competitors. For example, in mobile telecommunications we have a new competitor, namely Nextel, which formerly was only a radio trunking service company that could not offer telephone mobile service. In their new concession, we extended their original license and expanded it to include mobile service capability. So now we have a new robust competitor who is going to have an impact in the price and quality of telecommunications offerings in Mexico’s market. The other aspect besides having a level field is that we want to create a larger field. Currently, we are bidding additional spectrum band for mobile telephony. In addition, we are also bidding out a main optic fiber to significantly increase our capacity to transport voice and data.

IT SEEMS THAT YOUR WORK IS QUITE GLOBALIZED.

Indeed. In my meetings, with Secretary LaHood for example, we spoke about an integral, overall vision of the U.S. – Mexico border. We have to consider everything crossing and affecting the border. Cargo, people, monetary currency, weapons, drugs, technology…it’s an integral flow. I believe that for the U.S., it is clear that Mexico is “The” logistics platform for many of their international supply chain needs.