Mexico's long, lonesome highway Privatization: Mexico's billion-dollar Highway of the Sun was conceived as a shining example of how private funds can improve transportation in Latin America. What resulted was a financial disaster.

Sun Journal

June 29, 1996|By LOS ANGELES TIMES

PASO MORELOS, Mexico -- Slumped against his tollbooth on Mexico's "Highway of the Sun," Isaias Arroyo ticks off the virtues of this Cadillac of Latin American roads, a billion-dollar freeway that links Acapulco to the outskirts of Mexico City.

There's the gently curving pavement that permits cars to rocket through the desert scrubland at 70 mph. Four-lane swaths blasted through pink, rock-ribbed mountains to save time. Iron bridges so elegant they seem to be taking flight.

The only thing missing is traffic.

"We're alone out here," admits the young toll-taker, turning to scan the cloudless horizon for drivers on the lonely road to Acapulco.

Impressive though it is, the stunning, 165-mile concrete ribbon is getting attention for the wrong reason: It has become a much-ridiculed illustration of how a reputed breakthrough for developing countries can turn into a financial disaster.

Initially, this seemed a model idea for cash-strapped governments: allow private companies to build the highways, and let them charge tolls. In one of the most ambitious of such programs, Mexico has built more than 3,000 miles of modern roads, stretching from Tijuana to the Yucatan.

But woeful miscalculations pushed up the Mexican tolls. For the three-hour one-way trip from the outskirts of Mexico City to Acapulco, cars paid an eye-popping $70. For 18-wheelers, the toll soared to $630 -- the equivalent, for a minimum-wage worker, of a half-year's salary.

Now, the government is embarked on a $2 billion bailout of the roads. And as countries from Poland to Colombia launch their own private toll road projects, the Mexico experience has become a case study in what not to do.

Mexico "paid a certain price for being innovators," says Jose Gomez Ibanez, a Harvard professor who has studied the roads. "They taught people some mistakes not to make." But despite the rocky experience, he suggests that "toll financing makes sense." Without it, developing countries would have even fewer road projects.

Toll roads have existed in this hemisphere since the early days of U.S. independence. But the idea of having private companies build them, instead of governments, took off in developing countries only in the last few years, as "privatization" became a mantra of reform-minded leaders.

One was Mexico's visionary but now discredited former president, Carlos Salinas de Gortari.

Mexico was hurtling into a new age. Salinas, whose term ended in 1994, wanted highways for the expected boom in trade with the United States and Canada. And with the government-run banking system being sold to private companies, a new concept was catching on: car loans.

"Until 1990, it would be very rare to find an average Mexican who had access to a car," says Laurie Mahon, a project-finance expert at CS First Boston in New York. The government, she says, assumed that more and more people would buy cars. Thus, the need for highways.

Blindly optimistic about growth, the Mexican government also was in a hurry to produce results. In some cases, government engineers drew up specifications for roads without carefully studying the sites. Meanwhile, Mexico granted concessions to construction companies that typically would build and operate the highways for as little as 15 years, then hand them over to the government. The companies were expected to make their money in that relatively short time.

For Manuel Gomez-Daza, president of Grupo Mexicano de Desarrollo, which won the bid to build the Acapulco road, the engineering surprises proved a nightmare.

Sitting in his glass-walled, suburban Mexico City office, he recalled the series of unwelcome discoveries.

There were mountains that were higher than the maps said they were. There was unstable land in an earthquake zone.

By the time the four-year project was completed, it cost about $1.6 billion -- roughly twice the original estimate.

Without a doubt, Highway of the Sun reflects the huge investment. For a driver, it is the First World. In contrast, the alternative, 71-year-old country road that also links the capital to Acapulco is distinctly Third World.

On the toll road, cars zip over smooth pavement that gently rises and falls, with a maximum 6 percent slope and cuts the driving time to Acapulco nearly in half. The two-lane "free road" winds through villages, past restaurateurs grilling chicken outdoors and machete-wielding peasants waiting to slash a coconut for thirsty travelers. But the old road sees brisk traffic; the new road often is empty.

The Highway of the Sun remains the most expensive highway ever built in Mexico. And with only a 15-year concession in which to recover their investment and turn a profit, its developers argued that they had no choice but to charge outrageous -- and ultimately self-defeating -- tolls.

"The first thing a middle-class family cuts from their expenses is their vacation. That means not going to Acapulco," says Sergio Pena, an official at Banca Serfin who oversees one of the main loans for the highway.

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