Mexico Continues to Entice Private Investment in Infrastructure With a New Public-Private Partnership Act

by Sheppard Mullin Richter & Hampton LLP

On January 16, 2012, Mexico enacted the Law on Public-Private Partnerships (Ley de Asociaciones Público Privadas) ("PPP Law"). The new PPP Law is intended to regulate the formation of partnerships between the public and private sectors in an effort to provide services and build infrastructure to improve social welfare and increase investment levels in Mexico.

Since assuming office in 2006, President Felipe Calderon has aggressively lobbied for increased investment in infrastructure in Mexico. In 2007, President Calderon launched the National Infrastructure Program ("NIP") to increase the competitiveness of Mexico's infrastructure. For President Calderon, investing in infrastructure is the way to economic and social development. In November 2009, President Calderon proposed the PPP Law as a compliment to NIP. It took two years for the Mexican Congress to approve the law. We reported on NIP and President Calderon's proposal for the PPL Law here.

The PPP Law implements a framework for public-private partnerships to allow better cooperation between the Mexican government and the private sector regarding the construction of infrastructure. The PPP Law is limited to new projects and implementation of its methods are optional. However, it cannot be applied to certain projects and activities reserved for the government, such as the oil industry.

Under the PPP Law, the private sector is permitted to submit its own proposals to relevant government agencies, either when opportunities are identified by the private sector or in response to a government agency's identification of the types of proposals it is willing to receive. The proposed project may not be awarded directly to the proposing party without undergoing customary tender procedures. However, in order to generate interest in the private sector, when a proposal leads to a tender offer, the promoter is reimbursed for the costs of project feasibility studies and is afforded a premium of up to 10 percent in the evaluation of the offer.

The PPP Law allows the government to enter into contracts with a private company for up to 40 years. In order for a private company to enter into a public-private partnership agreement, its sole corporate purpose must be to carry out the activities necessary to fulfill the agreement and develop the corresponding infrastructure project.

The PPP Law provides more legal certainty for private investors. It contemplates equal distribution of risk, access to financing, step-in rights of the government agency involved, the circumstances under which an agreement may be amended, and contractual penalties and sanctions in the case of default by one of the parties to the public-private agreement. Finally, under the PPP Law it is foreseen that disputes concerning a public-private agreement, as well as the permits and approvals necessary for the development of the project, will be resolved by arbitration.

With the implementation of the PPP Law, President Calderon anticipates that Mexico will be able to increase development of its infrastructure by enticing private investment with improved legal protections. The PPP Law is intended to address the need for schools, hospitals, and other infrastructure projects which will be developed with better quality and in areas that the government has been unable to fulfill.

Sheppard, Mullin, Richter & Hampton LLP has been at the forefront in representing developers and investors in "public/private partnership" projects. There is a wide variety of potential forms of public/private ventures so it is essential to retain a law firm with the actual experience to address every issue that arises in the course of implementing a successful project. We have negotiated, documented and implemented transactions pertaining to developments ranging from malls and shopping centers, stadium and convention centers, theme parks and manufacturing and industrial complexes to the development of infrastructure including roads, sea and airports, marina complexes, bridges and low income or senior housing projects, among others. We understand what it takes to negotiate, document and close public/private ventures, making us a leader in this area of the law.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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