The International Finance Corporation (IFC), the private sector arm of the World Bank Group, will provide a partial credit guarantee of up to Ps130.5mn to support the expansion, upgrading, operation and maintenance of a 74.3km road between the cities of Irapuato and La Piedad in central Mexico.

IFC will grant the guarantee to Banco Santander, who will be joined by other banks in a syndicated financing  to provide up to Ps580mn to Concesionaria Irapuato La Piedad, a wholly-owned subsidiary of Empresas ICA.

This operation is the first project in Mexico offered in concession to the private sector under an innovative programme for public private partnerships (PPP) developed by the government in the last three years. The programme’s main objectives are: developing critical public infrastructure in Mexico; increasing the quality and efficiency in the rendering of public services; creating new financing sources from the private sector in the development of productive infrastructure; and achieving an efficient risk allocation of resources between the government and the private sector.

IFC has played a critical role supporting the government of Mexico developing its public-private partnership programme by funding a technical assistance programme that helped develop the new framework.

Atul Mehta, IFC’s director for Latin America and the Caribbean, says: “This financing is part of IFC’s integrated strategy for Mexico in the infrastructure sector, which included helping develop the necessary framework for the PPP programme, and providing financing for the first project to be launched under the programme. IFC expects that this project would set a positive precedent that will encourage further private sector participation in the transport sector in Mexico.”

The modernisation of the Irapuato-Piedad road is being done in accordance with a competitively tendered 20-year concession and a 20-year services contract entered into by the Mexican Ministry of Communications and Transportation (SCT) and the company on October 2005.

Unlike traditional toll road concessions, under this agreement the ministry will make quarterly payments to the company for the services effectively rendered based on its performance as well as on the number of vehicles that use the road.

Francisco A. Tourreilles, IFC’s director of the infrastructure department, also notes: “IFC is pleased to be working with ICA and Banco Santander in this path breaking PPP transaction in Mexico, which will have an important demonstration effect for PPP infrastructure projects in that country and, more broadly, in Latin America. We believe that the successful development of effective private-public partnership models such as this one will play an important role in helping attract critically needed private investments in infrastructure in the region.”

“IFC’s participation in this project confirms PPPs structure’s strength and viability. The Mexican government has been developing the PPP mechanism for the past three years, and ICA has participated actively in the process,” says Alonso Quintana, ICA’s administration and finance director.