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The Tequila Crisis
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You know that moment when a government says: “We’re launching a massive PPP program.” Or… “We are going to partner with the private sector to build roads”! ​ Everyone claps like seals because… wow… private money, shiny highways, “international best practice,”. Re-election secured. ​ Mexico did that in the early 90s. Fifty-two highway concessions. I repeat. 52 PPP fever everywhere. The “future” of infrastructure. And we’ll build Speedy Gonzales speed. ​ Spoiler: It didn’t end well. ​ Actually, it ended with one of the biggest PPP collapses in the history of Latin America. Twenty-three concessions bankrupt. Kaput. Hasta la vista amigos. ​ Billions in public bailouts. A nice tequila hangover paid by taxpayers… as usual. ​ Let’s start! ​ The Setup: A Dream Built on Fantasies ​ The Mexican government wanted highways. Fast. But they didn’t want to pay for them. So they launched BOT concessions like candy. Build, Operate, Transfer. ​ The logic was simple: Let the private sector design, build, finance, operate… And let traffic revenues pay the debt. Brilliant. ​ Except someone forgot in the Power Point to add common sense to the model. ​ Because every concession was built on the same three pillars of magical thinking: ​ Pillar 1: Traffic will grow forever Double-digit growth. Perpetually. Infinity. No elasticity. No downturns. Nothing. ​ Traffic models looked like motivational posters: “Believe in yourself and you will grow.” ​ Pillar 2: The private sector can take all the risk ALL. Of it. Traffic risk? Check Construction risk? Check Interest rate risk? Check Currency risk? Check Geotechnical risk? Check Political risk? Check ​ If risk were calories, the concessionaires were morbidly obese. ​ Pillar 3: Debt in USD, revenue in pesos what could go wrong, amigos? No hedging. No buffers. No guarantees. Just raw exposure. ​ Apparently, back then, people thought optimism could hedge currency risk. ​ Then Came 1994: The Tequila Crisis ​ Optimism went straight out the window. The peso collapsed. Dollar-denominated debt doubled overnight. Traffic dropped. Toll revenues tanked. And banks started sweating like construction managers during the LTA (Lenders Technical Advisor) inspection. ​ Imagine this Piña Colada: Peso melts Revenue shrinks Debt explodes Toll freezes because… politics Interest rates go wild ​ And you still have to keep the highway running ​ It sounds like a bloodbath. ​ The Domino Effect By 1997, 23 concessions were insolvent. Let’s say that again: Twenty-three. Out of fifty-two. Or in numbers: 23 out of 52. Or XXIII out of LII. ​ Half the program. Gone. ​ Claims everywhere. ​ And the PPP model? It became a PFP… ​ “Por Favor, Paguen”. ​ The Rescate Carretero ​ The government had to step in. Debt was socialised. Private losses were absorbed. And taxpayers ended up paying USD $7–12 billion depending on whose accounting you believe. ​ This was not a PPP failure. It was a design failure dressed up as a PPP. ​ Let me be clear. If you give the private sector unbankable risk, unrealistic demand, mismatched currencies, and a political environment that freezes tolls the moment the public gets angry… you don’t have a PPP. You have a financial suicide note. ​ The Irony Mexico wanted to build faster and cheaper. They ended up with: bankrupt concessions a massive rescue program billions in public debt and a PPP reputation crisis that lasted a decade ​ And the funniest part? Many of the same people who designed the original program later wrote reports titled: “Lessons Learned.” I always laugh when I see those. Because nothing screams “we messed up” louder than a 300-page lesson-learning exercise. ​ The Real Lesson of the Tequila Crisis PPP doesn’t mean “transfer all risks to the private sector.” PPP doesn’t mean “traffic will magically pay everything.” PPP doesn’t mean “debt in dollars and revenue in pesos will work if we manifest hard enough.” ​ PPP means: shared risk, realistic assumptions, real equity, real due diligence, and governments that don’t freeze tolls every election year. ​ More about PPPs in the links below. ​The top 15 Lessons of a successful project​ ​The top 15 lessons of a nightmare project​ ​Don't be embarrassed. ​ ​ PD 1: If you liked this email, don't keep it in secret and forward it to a friend. They will thank you enormously one day. PD 2: If somebody has sent you this email and you want to receive emails like this yourself, visit vicentevalencia.com PD 3: If you want unsubscribe, click the link below. ​ ​ |
Vicente Valencia
I talk about Personal Growth, Management, Infrastructure and More | 👇JOIN +2k readers 👇
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