Mexico goes cold on wastewater funding

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Despite signing a contract for the biggest WWTP in the world, the remainder of the Valley of Mexico water treatment programme is grinding to a halt. Mark Walsh investigates.

When Mexican president Felipe Calderón launched the Hydric Sustainability Programme of the Valley of Mexico in November 2007, the Atotonilco WWTP was only the keystone project in a series of six WWTPs with a combined capacity large enough to treat every drop of the capital’s approximately 4.4 million m3/d of wastewater by 2012. Now that goal has been revised to a modest 60% – in line with the national target during Calderón’s term, but far short of the programme’s original goal.

The problem, according to Valley of Mexico project director Miguel Guevara, is increasing competition from other infrastructure projects for non-recoverable federal subsidies.

Atotonilco, for example, will benefit from a federal subsidy of more than 40% of the total price tag. As subsidies are squeezed, the four remaining plants requiring federal funding in the programme have been frozen.

“Water treatment is just one necessity among thousands,” Guevara told GWI. “These projects were planned before the crisis hit. With Atotonilco we’ve taken a very strong step, but the other plants are in the freezer for now.”

The four plants awaiting federal funding are Nextlalpan (777,600m3/d), Zumpango (216,000m3/d), Vaso El Cristo (345,600m3/d) and El Caracol (259,200m3/d – 345,600 m3/d).

Other funding options are fraught with difficulty. Water services are rarely covered fully by tariffs – particularly in the Mexico City metropolitan area – and raising wastewater tariffs is politically unpopular.

Because few citizens in Mexico pay 100% of their water bill, there’s also a vicious circle: the bills do not cover the service, while raising prices would result in fewer bills being paid.

Cutting the level of federal funding is also unrealistic, as the knock-on effect would also mean a rise in tariffs. Without the federal subsidies, many projects would simply become unviable.

Nonetheless, Mexico’s government under Calderón has worked hard to cushion the credit crunch. The federasubsidies channelled through the NationaInfrastructure Fund (FONADIN) can provide up to 49% of the capital needed for large projects, and national works bank Banobras usually attaches a “pre-approved” credit facility to ease the borrowing requirement.

Taking up the Banobras loan is nomandatory, but it does provide security for firms that might otherwise be worried about borrowing large sums during the current financial climate. Coupled with federal cash to cover large proportions of the budget, so-called “mega-projects” such as the Tunel Emisor Oriente (Eastern Drainage Tunnel) and the Atotonilco WWTP, both in the Valley of Mexico, as well as the El Ahogado and Agua Prieta WWTPs in Guadalajara, have all gone ahead in the last two years.

Banobras credit is still able to support projects that might not otherwise be feasible if the only debt-raising option for tender winners was commercial credit, but the real challenge for project directors like Guevara is attracting the non-recoverable federal subsidies.

Only El Caracol, worth approximately MXN 2 billion in total, would probably face a realistic chance of being tendered in the next 12 months, Guevara indicated to GWI.

“We are working very hard to get El Caracol built but we are waiting for confirmation that federal funds will be released.”

The federal funding proportion is dependent on political will. Calderón steps down in 2012, which leaves the Valley of Mexico projects facing uncertainty.

“Mexico is a country that is reborn every six years,” Guevara told GWI. “The next president might have different priorities.”

Does that mean the Valley of Mexico programme might have to start over from scratch? “I don’t know,” Guevara admits. “We were extremely glad to see that funds remained in place for the Tunel Emisor Oriente and Atotonilco, and we are doing everything possible to get funding for El Caracol. I can’t say any more than that.”