By: Adrian López Casab
Public-private partnership (“PPP”) projects are those implemented under any legal structure designed to establish a long-term contractual relationship between public sector entities and private participants. PPPs constitute a legal and financial mechanism enabling the State to access private investment, while allowing private parties to participate in such projects beyond mere financing, taking an active role in their overall development.
In this context, PPPs are intended to promote the development of infrastructure and the provision of public services, particularly in an environment characterized by budgetary constraints and an increasing demand for investment in strategic sectors. Typically, PPPs encompass the development, financing, construction, operation, and maintenance of long-term infrastructure assets, with contractual terms usually ranging from twenty to forty years. Notwithstanding their advantages, the implementation of PPPs has been marked by cycles of expansion and contraction, influenced by shifting public policy priorities, differing perceptions on private sector participation in public service delivery, and fiscal sustainability considerations. In this environment, the proper structuring of PPP projects requires not only technical sophistication but also a careful assessment of regulatory and political risk.
In Mexico, PPPs are primarily governed by the Public-Private Partnerships Law (Ley de Asociaciones Público-Privadas) enacted in 2012, its secondary regulations, and, on a supplementary basis, provisions relating to public works, budgeting, and fiscal responsibility. While such law applies at the federal level, most Mexican states have enacted analogous legislation—aligned to varying degrees with the federal framework—to regulate projects funded with local resources and generating revenues at the local level.
Under the applicable legal framework, any ministry and governmental agency may act as contracting authorities in PPP projects. Given tha, in many cases, these projects involve the provision of public services or the use of assets that are—or will become—State-owned and therefore cannot be subject to traditional security interests or liens, PPPs are typically structured on a project finance structure. This entails the incorporation of a special purpose vehicle (SPV) that receives the project’s proceeds, which in turn serve as the primary source of repayment for the financing provided by development banks or private financial institutions. Furthermore, the implementation of a PPP requires comprehensive legal, technical, and financial feasibility analyses, the rigor of which is critical to the project’s bankability.
From a corporate/transactional standpoint, the negotiation and drafting of PPP documentation typically focus on matters such as: (i) the payment waterfall; (ii) the inclusion of covenants aligned with the project’s cash flow profile; (iii) the scope and enforceability of lenders’ step-in rights; (iv) key performance indicators (KPIs), upon which the developer’s remuneration often depends; (v) compensation regimes; (vi) income adjustment mechanisms; (vii) termination events; and (viii) the treatment of project assets upon expiration or termination of the agreement. In this context, as in most structured transactions, the proper allocation of risks constitutes the cornerstone of any PPP.
In sum, PPPs in Mexico represent a high-potential tool for infrastructure development and the efficient delivery of public services. However, their successful implementation requires a high degree of analysis and sophistication, commensurate with the complexity, scale, and long-term nature of the projects they are designed to support.
