In Frae Structur A

Q1 2020
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Includes 10-year forecasts to 2028
Mexico Infrastructure Report | Q1 2020
Contents
Key View............................................................................................................................................................................................ 4
SWOT .................................................................................................................................................................................................. 6
Infrastructure SWOT.................................................................................................................................................................................................................... 6
Industry Forecast........................................................................................................................................................................... 7
Construction And Infrastructure Forecast Scenario ...................................................................................................................................................... 7
Transport Infrastructure...........................................................................................................................................................................................................13
Energy & Utilities Infrastructure ...........................................................................................................................................................................................21
Residential/Non-Residential Building................................................................................................................................................................................28
Industry Risk/Reward Index ....................................................................................................................................................33

Mexico Infrastructure Risk/Reward Index ........................................................................................................................................................................33
Latin America Infrastructure RRI: Select Markets Key Amid High Risk Region..................................................................................................35
Competitive Landscape.............................................................................................................................................................43
Company Profile...........................................................................................................................................................................48
Empresas ICA ...............................................................................................................................................................................................................................48
Cemex ............................................................................................................................................................................................................................................50
Infrastructure Methodology ....................................................................................................................................................53
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2019
19 Fit
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Key View
Key View: Mexico's construction industry will see modest growth in 2020, strengthening thereafter supported by improving
macroeconomic conditions in the country. The inability of the government to fully realise its infrastructure agenda will be a key
factor holding back potential growth, as private investor caution will limit appetite for new projects.
Forecast And Latest Updates
• This quarter we have revised down our growth forecast for Mexico’s construction industry which we now expect will grow by just
1.6% y-o-y in 2020 and by 2.6% y-o-y in 2021, down from forecast growth of 2.3% y-o-y and 3.3% y-o-y previously. This will follow
a forecast contraction of 3.6% y-o-y in 2019, revised down from a previous forecast of a contraction of 0.7% y-o-y. We expect
growth will strengthen over the medium term, with the industry growing by at an annual average rate of 2.9% y-o-y between
2022 and 2024.
• On November 26 2019, Mexican President Andrés Manuel López Obrador announced the first package of projects to be
included in a new National Infrastructure Plan: 147 projects requiring a combined investment of MXN859bn (USD43.9bn).
According to the plan, the set of projects, which includes transport, telecommunications, water and sanitation, tourism and
health projects, will be advanced largely via funding from the private sector and will not result in new debt for the government. As
part of the presentation, officials also announced the establishment of a formal process for private firms and government entities
to propose new projects for inclusion into the National Infrastructure Plan as well as mechanisms for project review, selection
and oversight at the presidential level.
• In October 2019, a federal judge removed the suspension orders placed on the General Felipe Ángeles Santa Lucia International
Airport project north of Mexico City, part of an alternative plan to boost airport capacity in the Mexico City metropolitan area
following the government’s cancellation of the USD13bn New Mexico City International Airport (NAIM) project in 2018. Works
began on the project shortly after and were 1.03% complete according to the government as of December 2 2019.
• On October 28 2019, Mexico’s Ministry of Energy (SENER) published changes to rules for which types of electricity generators
can apply for clean energy credits. Prior to the rule change, only low-carbon generators built after 2014, primarily new wind and
solar power projects, were given CELs. The rule change expands CELs to pre-2014 clean energy sources, which primarily includes
hydropower and nuclear power facilities operated by Mexico's state-owned utility Comisión Federal de Electricidad (CFE). Those
awarded CELs are able to trade the certificates to electricity generators that are required to buy renewable power. The rule
change could result in a significant increase in the number of CELs awarded, and ultimately substantially reduce their trading
value. Most solar and wind developers factor trading CELs into their project financials, and a significant decline in their value is
likely to negatively impact the value of operational and proposed projects – posing a significant downside risk to our forecast for
the sector.
INFRASTRUCTURE - CONSTRUCTION INDUSTRY FORECASTS (MEXICO 2018-2028)

Indicator 2018 2019f 2020f 2021f 2022f 2023f 2024f 2025f 2026f 2027f 2028f
Construction industry value,

1,792.4 1,846.0 2,018.3 2,225.3 2,452.8 2,703.1 2,985.9 3,303.9 3,646.6 4,022.1 4,445.2
MXNbn
Construction industry value, real

0.6 -3.6 1.6 2.6 2.9 2.9 3.0 3.1 2.9 2.9 3.1
growth, % y-o-y
Construction industry value, % of

7.6 7.7 8.0 8.2 8.4 8.6 8.8 9.1 9.3 9.5 9.8
GDP
f = Fitch Solutions forecast. Source: Banco de Mexico, Fitch Solutions
Risk/Reward Index
• Mexico returned to third place in the region this quarter in our Infrastructure Risk/Reward Index table behind Chile and Colombia,
as Mexico’s score grew to 52.6 from 52.3 previously, allowing the market to surpass Peru which saw its score fall to 52.2 from
52.9 previously.
• We see rising challenges to the attractiveness of the Mexican infrastructure market under the government of President Andrés
Manuel López Obrador. Since coming into office on December 1 2018, the government has marked a significant shift away from
the previous government's relatively pro-business infrastructure policies, most notably with its decision to cancel the USD13bn
New Mexico International Airport project. This shift has exposed rising risk to firms active in the market and will weigh on private
investor confidence, thus posing an obstacle to investment and limiting the growth of the construction industry over the next
several years.
INFRASTRUCTURE RISK/REWARD INDEX (MEXICO 2019)

Geography Risk/Reward Index Rewards Industry Rewards Country Rewards Risks Industry Risks Country Risks
Mexico 52.6 52.1 45.3 62.3 53.4 60.5 46.3

Note: Scores out of 100; higher score = more attractive market. Source: Fitch Solutions Infrastructure Risk/Reward Index
SWOT
Infrastructure SWOT
SWOT Analysis
Strengths • Mexico's previous government advanced a number of infrastructure projects as PPPs,
strengthening the role of PPPs in infrastructure development in the country and creating a more
established precedent for PPP contracting.
• Regulatory reforms have opened up new pools of capital to the market.
• The 2012 PPP law offers investors greater security and should contribute to unlocking private
investment potential in Mexico.
• Mexico benefits from its exposure to the US economy.
Weaknesses • Several large-scale tenders have been postponed or cancelled numerous times, thus eroding
investor and contractor confidence.
• Poor track record on infrastructure procurement due to limited institutional capacity.
• High corruption levels.
Opportunities • Energy Sector Reform, passed in 2013 and finalised in 2014, will see greater opportunities for
private investors in the hydrocarbons and electricity sectors.
• The López Obrador government has announced a new partnership with the private sector to
advance infrastructure works.
• An investment vehicle developed in recent years, the FIBRA E, will help to provide additional
capital for infrastructure development.
• López Obrador has promised to increase efforts to reduce corruption, creating the potential for
improved anti-corruption standards in the country.
Threats • Uncertainty around policy direction remains elevated.

• Security risks and high levels of violence.
• Institutional delays could continue to impact construction project implementation.
Industry Forecast
Construction And Infrastructure Forecast Scenario
Key View: Mexico's construction industry will see modest growth in 2020, strengthening thereafter supported by improving
macroeconomic conditions in the country. The inability of the government to fully realise its infrastructure agenda will be a key
factor holding back potential growth, as private investor caution will limit appetite for new projects.
Latest Developments
• This quarter we have revised down our growth forecast for Mexico’s construction industry which we now expect will grow by just
1.6% y-o-y in 2020 and by 2.6% y-o-y in 2021, down from forecast growth of 2.3% y-o-y and 3.3% y-o-y previously. This will follow
a forecast contraction of 3.6% y-o-y in 2019, revised down from a previous forecast of a contraction of 0.7% y-o-y. We expect
growth will strengthen over the medium term, with the industry growing by at an annual average rate of 2.9% y-o-y between
2022 and 2024.
• Residential and non-residential building investment will begin to recover from 2020, spurred by improving macroeconomic
conditions, a stabilisation in policy towards the sector as well as a reduction in trade uncertainty with USMCA ratification
increasingly likely.
• We hold a more modest outlook toward Mexico’s infrastructure sector as we expect the government will struggle to draw the
private capital needed to advance its full infrastructure agenda.
• On November 26, Mexican President Andrés Manuel López Obrador announced the first package of projects to be included in a
new National Infrastructure Plan: 147 projects requiring a combined investment of MXN859bn (USD43.9bn). According to the
plan, the set of projects, which includes transport, telecommunications, water and sanitation, tourism and health projects, will be
advanced largely via funding from the private sector and will not result in new debt for the government. As part of the
presentation, officials also announced the establishment of a formal process for private firms and government entities to
propose new projects for inclusion into the National Infrastructure Plan as well as mechanisms for project review, selection and
oversight at the presidential level.
CONSTRUCTION AND INFRASTRUCTURE INDUSTRY DATA (MEXICO 2018-2028)

Indicator 2018e 2019f 2020f 2021f 2022f 2023f 2024f 2025f 2026f 2027f 2028f
Construction industry
1,792.4 1,846.0 2,018.3 2,225.3 2,452.8 2,703.1 2,985.9 3,303.9 3,646.6 4,022.1 4,445.2
value, MXNbn
value, real growth, % y-o- 0.6 -3.6 1.6 2.6 2.9 2.9 3.0 3.1 2.9 2.9 3.1
y
7.6 7.7 8.0 8.2 8.4 8.6 8.8 9.1 9.3 9.5 9.8
value, % of GDP
Infrastructure industry
650.42 671.85 743.68 826.00 909.92 1,003.44 1,110.70 1,232.20 1,360.65 1,502.88 1,660.11
value, MXNbn
Infrastructure industry
0.5 -3.3 2.9 3.4 2.9 2.9 3.2 3.4 3.0 3.0 3.0
value real growth, % y-o-y
e/f = Fitch Solutions estimate/forecast. Source: Banco De Mexico, Fitch Solutions
Structural Trends
Modest Growth In 2020 For Mexican Construction Industry
Mexico’s construction industry will return to tepid growth in 2020 and strengthen thereafter following a sharp contraction in activity
in 2019. This quarter we have revised down our growth forecast for Mexico’s construction industry which we now expect will grow
by just 1.6% y-o-y in 2020 and by 2.6% y-o-y in 2021, down from forecast growth of 2.3% y-o-y and 3.3% y-o-y previously. This will
follow a forecasted contraction of 3.6% y-o-y in 2019, revised down from a previous forecast of a contraction of 0.7% y-o-y due to
the weakness of the sector through the first three quarters of the year, over which it contracted by 4.7% y-o-y according to official
government data. We expect growth will strengthen over the medium term, with the industry growing by at an annual average rate
of 2.9% y-o-y between 2022 and 2024.
Weakened Forecast For Mexican Construction

Mexico - Construction Industry Real Growth, % chg y-o-y
f = Fitch Solutions forecast. Source: Banco de Mexico, Fitch Solutions
Residential and non-residential construction investment will lead the return to moderate growth from 2020, following a sharp
contraction in 2019 driven by a combination of factors including slowing macroeconomic conditions as economic growth has
slowed to a forecast 0.1% y-o-y as well as substantial policy changes impacting the building sector in particular at both the national
and local levels following elections in 2018 which slowed project permitting and weighed on investor confidence. We expect the
building sector will begin to recover from 2020 supported by improving macroeconomic conditions sees a strengthening of growth,
expanding by 1.2% y-o-y in 2020 and by an average of 2.2% y-o-y between 2021 and 2024 (see ‘Mexico Likely To See Modest
Growth Rebound In 2020’, December 3 2019). Residential construction in particular will benefit from greater policy stability as the
market adjusts to policies implemented in 2019, as well as a substantial housing deficit in the country underpinned by strong
population growth.
Non-residential construction investment is also set to strengthen as improving macroeconomic conditions will boost investor
confidence, positively impacting business investment in particular. The ratification of the USMCA trade agreement between the
Mexico, US and Canada, increasingly likely following the announcement on December 10 of a deal on modifications to the
agreement between the Democratic leadership of the US House of Representatives, the Trump administration and the
governments of Mexico and Canada, will also be supportive. Mexico’s economy is highly reliant on trade with the US and the
reduction in uncertainty around Mexican-US trade secured by the ratification of USMCA will positively impact investor sentiment
(see ‘Agreement Between Trump And House Democrats Clearing The Way For USMCA Ratification’, December 11 2019).
Construction investment in manufacturing in particular stands to gain from reduced uncertainty.
Infrastructure investment will see modest investment growth over the coming years, weighing down the overall expansion of
Mexico’s construction industry. We expect the government will prioritise infrastructure development, with the private sector set to
play a significant role given government support highlighted by the recent launch of a new National Infrastructure Plan involving
147 projects requiring a combined investment of MXN859bn (USD43.9bn) to be developed between 2020 and 2024. Nevertheless,
we hold a cautious outlook towards the full realisation of the government’s infrastructure agenda, a view reflected in our modest
outlook for Mexico’s infrastructure sector. In particular, we expect that the large capital investments required for a number of
planned projects, among these the MXN120bn (USD6.2bn) Tren Maya rail project, and caution more broadly towards the market
given erratic policymaking towards the sector in recent months will limit investor appetite for projects.
Financing Unclear For Tren Maya Project

Mexico - Proposed Tren Maya Project Route (Updated)
Source: Fonatur, Fitch Solutions
Additionally, we expect adverse government policies in particular towards the development of non-hydropower renewables will
weigh on investment in the sector, a key driver of infrastructure investment in the market more broadly in recent years. Since
coming into office in December 2018, the López Obrador government has abandoned power auctions, key to spurring investment
in non-hydropower renewables, while also discarding plans to tender two large-scale transmission line projects as PPPs, a policy
which if successful would have been greatly supportive of additional renewables development in the country. Further weighing on
our outlook for the sector, the Ministry of Energy (SENER) in October published changes to rules which would allow generators built
prior to 2014 to apply for clean energy credits, threatening to significantly increase the number of CELs awarded, and ultimately
substantially reduce their trading value. Though the rule changes are currently suspended pending legal action, they pose major
downside risk to our outlook for renewables development in the country (see ‘Near-Term Uncertainty Points To Rising Risk For
Mexico Renewables’, 05 Dec 2019).
Private Capital Key To New National Infrastructure Plan In Mexico
The launch of a new National Infrastructure Plan by the Mexican government marks an important step toward advancing its goal of
boosting infrastructure investment in the market and assures that private investment will play a central role in the advance of
infrastructure projects over the coming years. On November 26, Mexican President Andrés Manuel López Obrador announced the
first package of projects to be included in a new National Infrastructure Plan: 147 projects requiring a combined investment of
MXN859bn (USD43.9bn). According to the plan, the set of projects, which includes transport, telecommunications, water and
sanitation, tourism and health projects, will be advanced largely via funding from the private sector and will not result in new debt for
the government. As part of the presentation, officials also announced the establishment of a formal process for private firms and
government entities to propose new projects for inclusion into the National Infrastructure Plan as well as mechanisms for project
review, selection and oversight at the presidential level.
While former president Enrique Peña Nieto took a number of steps to boost the role of private investment in the country’s
infrastructure sector during his term between 2012 and 2018 including a major energy reform, the launch of new transport
concessions and the development of the Fibra-E financing mechanism, AMLO’s election in 2018 created elevated uncertainty
around the role of the private sector. The National Infrastructure Plan, centred heavily on private investment, provides a clear signal
that the Mexican government under AMLO will continue to support private investment in infrastructure projects, leading to
substantial contracting opportunities for private infrastructure developers.
While the National Infrastructure Plan is a key development for the sector, we note that obstacles will continue to face infrastructure
development in the country, and as such we will await substantive progress on projects included in the plan before adjusting our
growth forecast for the country’s construction industry while highlighting upside risk to the expansion of the sector. In particular, in
our view dampened investor sentiment due to erratic policymaking towards the sector in recent months will continue to weigh on
investor sentiment. For the development of projects via public-private partnerships (PPPs) in particular, Mexico continues to struggle
in the realm of PPP regulation, with the remaining lack of an independent oversight agency responsible for PPP formation and
management.
NATIONAL INFRASTRUCTURE PLAN: INVESTMENT BY SECTOR AND PERIOD MXNMN (NUMBER OF PROJECTS)
Sector Period
2020 2021-2022 2023-2024 Total
Transport (Total) 114,703 (50) 83,279 (27) 85,871 (24) 283,853 (101)
Roads 38,255 (15) 24,957 (9) 36,917 (18) 100,129 (42)
Rail 22,650 (3) 18,840 (2) 26,054 (3) 67,544 (8)
Ports 24,594 (15) 26,227 (4) 22,900 (3) 73,721 (22)
Airports 29,204 (17) 13,255 (12) - 42,459 (29)
Telecommunications 86,561 (2) 31,492 (2) - 118,053 (4)
Water and Sanitation 15,998 (4) 30,502 (8) - 46,500 (12)
Energy 81,780 (6) - 3,200 (1) 84,901 (7)
Power - - 63,560 (6) 63,560 (6)
Tourism 130,964 (9) 102,720 (3) 19,080 (3) 252,764 (15)
Health 1,312 (1) - - 1,312 (1)
Other - 8,000 (1) - 8,000 (1)
Total 431,318 (72) 255,993 (41) 171,711 (34) 859,022 (147)
Source: Presidencia, Fitch Solutions
Lack Of Funding Remains Major Obstacle To Northern Triangle And Mexico Development Plan
The creation of a new development plan for southern Mexico, Guatemala, El Salvador and Honduras marks a step forward for efforts
being led by Mexico's government to increase infrastructure investment into the region, although we remain downbeat regarding
the plan's full realisation. The plan, formulated by the United Nations Economic Commission for Latin America and the Caribbean
(UNECLAC) on the request of the governments of Mexico, Guatemala, Honduras and El Salvador and presented officially on May 20,
aims to improve socioeconomic conditions across the region, in part to limit emigration. The plan, called the Integrated
Development Plan El Salvador-Guatemala-Honduras-Mexico, confirms the central role of infrastructure investment to the
development of the region, with five priority infrastructure projects included:
• Construction of a natural gas terminal and a 300MW power station in Puerto Cortes, Honduras with a total cost of USD1.2bn.
• Interconnection of the electric systems of Mexico and the three Northern Triangle countries, works requiring USD465mn in
investment.
• Improvement of border infrastructure between Mexico and Guatemala to facilitate trade.
• Development of a 710km railway between Ciudad Hidalgo, Chiapas and Puerto de la Libertad El Salvador along with 225 km of
lines linking the main line with cities in Guatemala, Honduras and El Salvador.
• Construction of a 600km natural gas pipeline linking southern Mexico with Central America in order to lower the cost of natural
gas in the region.
We expect the central role of UNECLAC in advancing the plan will increase the probability that the plan will draw funding and
technical support from multilateral development banks and national governments from outside the region, key to the plan's
realisation. The involvement of UNECLAC will give greater credibility to efforts to boost infrastructure investment in the region, given
high standards for transparency and project planning. German foreign minister Heiko Maas recently publicly expressed the
willingness of the German government to work with Mexico to implement the plan and potentially provide funding.
A lack of sufficient funding and a complex project development environment particularly in the Northern Triangle countries pose
major challenges to the full realisation of the plan; hence, there remains upside risk to our growth forecasts for the construction
industries of Mexico, Guatemala, Honduras and El Salvador. Funding for the plan, which will require around USD30bn in investment
according to Mexican officials, has yet to be confirmed; therefore it is still not clear which infrastructure projects, if any, will be fully
realised. In particular, the large-scale funding support needed from the US government for the plan to succeed appears unlikely to
materialise. The US government had previously voiced support for the Mexican government’s efforts to boost investment in
southern Mexico and the Northern Triangle, in December 2018 agreeing to offer USD10.6bn in credits and loans for projects in the
region (see ‘Quick View: Full Realisation Of US-Mexico Investment Package Unlikely’, December 20 2018). Over the following
months, however, the Trump administration has shifted its stance towards the region, with President Trump in March announcing
plans to terminate over USD500mn in foreign assistance to El Salvador, Honduras and Guatemala and increasingly focusing on
tougher border and asylum policies to reduce immigration from the region (see ‘Quick View: Cuts To Aid Pose Risks To Northern
Triangle Economies’, April 1 2019). In this context and also in light of President Trump's recent threat to place tariffs on all goods
imported from Mexico, a large-scale increase in US funding for development in the region seems unlikely.
High Risks A Challenge To Plan Implementation

Selected Latin America Countries - Industry Risks, By Component
In addition to the challenge of funding the development plan, we highlight that the Northern Triangle countries in particular are
home to high risk, which could delay or completely prevent the advance of large-scale infrastructure projects even if the required
investment were secured. These challenges, which include insecurity, relative legal and bureaucratic weakness, as well as high
corruption perceptions, are among the key reasons why infrastructure has not been fully developed in the region in the past and will
deter other investors from supporting the planned projects.
Transport Infrastructure
Key View: Mexico's transport infrastructure sector is set to see modest investment growth over the next several years as the
government's plans for new projects will face significant obstacles, limiting the sector's expansion.
Latest Developments
• In October, a federal judge removed the suspension orders placed on the General Felipe Ángeles Santa Lucia International
Airport project north of Mexico City, part of an alternative plan to boost airport capacity in the Mexico City metropolitan area
following the government’s cancellation of the USD13bn New Mexico City International Airport (NAIM) project in 2018. Works
began on the project shortly after and were 1.03% complete according to the government as of December 2.
• In November, Mexico’s government presented the first package of projects to be included in a new National Infrastructure Plan:
147 projects requiring a combined investment of MXN859bn (USD43.9bn). Transport projects accounted for a large share of
those listed: 101 projects involving a combined investment of MXN283bn (USD14.7bn). Among the projects included was the
Mexico-Toluca railway, a project launched under Mexico’s previous government but largely stalled since 2018. The government
aims to tender the project under a concession, with the winning firm then expected to invest MXN20bn (USD1.0bn) to complete
the project in which the government has invested MXN63bn (USD3.3bn).
• In September, Mexico City’s government announced that a consortium made up of Leitner and POMA had been chosen to build
Line 2 of the city’s Cablebus cable car system, linking Constitucion de 1917 with Santa Martha. The project will involve and
investment of MXN3.17bn (USD164mn)
• Grupo Aeroportuario del Centro Norte (OMA) has broken ground on a MXN4.24bn (USD219.33mn) expansion project at
Monterrey International Airport in Mexico. The expansion will be carried out in two phases. First phase will include expansion of
the public area and check-in areas, which will have 88 fixed and 20 automated counters. Construction of 'Wing 1', which will have
will boarding gates, will also be carried out. In second phase, a new inspection point with 12 new passenger service lines and
'Wing 2' with 15 boarding gates will be built, while baggage claim areas will be expanded. The expansion, due to be completed by
2025, will increase the airport's annual passenger handling capacity to 16.5mn, according to a press release from OMA.
• The Mexican Ministry of Communications and Transportation (SCT) has launched 571 public works tenders worth MXN6.2bn
(USD325.2mn), according to a press release from the SCT. The works will include periodic conservation of sections, routine
bridge conservation, periodic bridge conservation and bridge reconstruction across the country. The ministry is also scheduled
to launch 302 more tenders, worth MXN2.6bn (USD133.5mn), on October 29. The tenders will involve works related to the
routine sections conservation programme. Winning companies are expected to start investing in projects from later in 2019.
TRANSPORT INFRASTRUCTURE INDUSTRY DATA (MEXICO 2018-2028)

Transport infrastructure industry value real

-0.1 -6.8 1.6 2.3 1.6 2.0 2.6 2.9 2.2 2.6 2.7
growth, % y-o-y
Roads and bridges infrastructure industry value

-0.7 -1.8 1.3 2.3 2.2 2.3 2.8 3.0 2.3 2.7 2.8
real growth, % y-o-y
Railways infrastructure industry value real growth,

-0.5 -6.4 2.9 2.5 1.8 1.3 1.4 1.5 1.7 1.6 1.6
% y-o-Y
Airports infrastructure industry value real growth,

9.4 -76.2 28.2 14.3 -18.2 -8.7 2.2 1.6 1.8 1.8 1.5
% y-o-y
Ports, harbours and waterways infrastructure

-0.8 -1.4 -1.3 -2.2 0.3 1.5 0.5 1.5 0.9 2.1 1.4
industry value, real growth, % y-o-y
e/f = Fitch Solutions estimate/forcast. Souce: Banco de Mexico, CMIC, Fitch Solutions
Structural Trends
Transport Infrastructure Sector Outlook
Mexico’s transport infrastructure sector will see modest growth over the next several years as we expect the government’s efforts to
boost infrastructure investment will face significant challenges, limiting the sector’s expansion. While the government of President
Andrés Manuel López Obrador has launched plans for a number of major investments in the sector including rail, road, airport and
port projects, the full realisation of the government’s plans faces significant obstacles. In particular, a large share of investment is
centred on the proposed Tren Maya rail project, which currently lacks clear financial backing from the private sector and has seen
limited progress. The project alone will require an investment of around MXN120bn (USD6.2bn) according to officials. Additionally,
we note continued uncertainty around other planned projects which rely significantly on private sector funding, as we expect that
erratic policymaking in recent months toward the infrastructure sector will weigh on investor sentiment, potentially hindering the
government’s ability to advance new projects with private sector support.
In this context, we expect road and bridge infrastructure investment will remain the largest share of total investment in the sector,
with the government likely to focus efforts on improving road quality in rural areas of the country, particularly in southern Mexico.
Port development will also remain a key driver of investment in the sector, supported by robust private investment through both
already tendered projects as well as projects set to be tendered over the coming quarters. Investment in airport infrastructure will
grow over 2020 and 2021, as works are expected to ramp up on the General Felipe Ángeles Santa Lucia International Airport project
which will involve an investment of total investment of MXN78.6bn (USD4.1bn). That said, investment in airport infrastructure will
remain below levels seen in 2018, following the cancellation of the USD13bn New Mexico International Airport (NAIM) project by
the López Obrador government upon coming into office in December 2018. The rail sector will see some investment growth,
supported by the advance of two metro projects in Mexico City as well as freight rail investments. That said, we have only factored a
small portion of the total Tren Maya project into our forecast, meaning that the project poses upside risk to our outlook.
Modest Outlook For Mexican Rail Amid Uncertainty Around Key Projects
Mexico’s rail infrastructure sector will see moderate growth in activity over the next five years, spurred by investment in metro
extensions primarily in Mexico City as well as improvements to the country’s freight rail network. Mexico has seen the advance of a
number of large-scale rail projects in recent years. These have included public transit projects including the Guadalajara Line 3 light
rail project, the Monterrey Line 3 metro project and Mexico-Toluca commuter line project. Freight rail development has also been a
key focus of investment, driven by strong demand. Following a contraction in activity in 2019 as works largely came to a halt on the
Mexico-Toluca commuter rail project in late 2018, we expect the sector will see moderate increase in activity from 2020, with the
sector set to see average annual growth of 2.0 % y-o-y between 2020 and 2024. We note, however, that our forecasts largely
exclude two of the government’s largest planned projects: the proposed MXN120bn (USD6.2bn) Tren Maya project and the
completion of the Mexico-Toluca commuter rail project, which the government aims to tender as a concession. In particular, we
hold a cautious view regarding the ability of the government to draw sufficient private capital to advance these projects due to the
large capital investment required as well as investor caution more broadly given policy uncertainty in the market.
Rail Infrastructure Sector To See Modest Growth

Mexico - Railways Infrastructure Industry Value, Real Growth % y-o-y
e/f = Fitch Solutions estimate/forecast. Source: INEGI, Fitch Solutions
Supporting the growth of Mexico’s rail sector, we expect a number of small and medium sized projects will see substantial
investment, with public transit and freight rail projects set to stand out. Urban rail development in Mexico City, the country’s largest
city, will contribute to the growth of the sector. Currently underway is a 4.6 km extension of Line 12 between Mixcoac and
Observatorio involving over MXN9.5bn (USD495mn) in investment and expected to be complete in 2021 while a 1.9 km extension
of Line 9 between Tacubaya and Observatorio is also in planning. In addition, we expect Mexico’s freight rail network will be the
target of investment, likely to be driven in large part by investment by Ferromex and Kansas City Southern de Mexico (KCSM), the
two concessionaires in control of most of the country’s freight rail network. In November, KCSM President Jose Zozaya indicated the
company plans to raise its investment in 2020 above USD125mn invested in 2019. Additionally, both KCSM and Ferromex are
reportedly in talks with the government to complete the Celaya Bypass project, a MXN2.5bn (USD130mn) project listed in
November among projects part of a new National Infrastructure Plan to be developed with strong funding from the private sector
(see ‘Private Capital Key To New National Infrastructure Plan In Mexico’, December 3 2019). We expect the likely ratification of the
USMCA trade agreement between the US, Canada and Mexico in early 2020 following the announcement of a deal on
modifications to the agreement on December 10 will support demand for investment in Mexico’s freight rail sector, given the
importance of the network in cross-border trade with the US market.
We also note the growing likelihood that the Tren del Istmo rail project will see major advanced from 2020. The modernisation
project, a key priority of Mexico’s government, involves the upgrade of existing rail infrastructure linking the ports of Salina Cruz,
Oaxaca and Coatzacoalcos, Veracruz across the Tehuantepec Isthmus with the goal of boosting trade links between Mexico’s Pacific
and Atlantic coasts. Civil construction for a 15km stretch of railway has already been awarded while the tender for a roughly 200km
stretch of railway between Salina Cruz and Medias Aguas is reportedly set to advance over the coming weeks. Modernisation of the
railway will reportedly involve a total investment of MXN3.9bn (USD202mn) and will lead to a substantial reduction in travel times
between the two ports.
We note that uncertainty continues to cloud the outlook for two of the largest rail projects being developed in Mexico, informing our
modest outlook for the sector over the coming years. Both the Tren Maya and the Mexico-Toluca railway projects face significant
uncertainty, particularly around how works will be financed, and we have largely excluded the projects from our forecast for Mexico’s
rail infrastructure sector.
The Tren Maya, a combined freight and passenger rail project involving the modernisation and construction of a combined 1,460km
of railway in the states of Chiapas, Tabasco, Campeche, Yucatán, and Quintana Roo, would be one of the largest infrastructure
projects developed in recent decades in Mexico, involving an estimated MXN120bn (USD6.2bn) in investment. Since coming into
office, the López Obrador government has advanced with preparations for the project, contracting engineering studies for the
project earlier in 2019, recently making changes to the project route, and readying tender materials. Nevertheless, we have long
held a cautious view on the government’s approach to advance the project with substantial private investment. While the
government appears set to shift this strategy with comments from officials indicating the government could provide the majority of
investment, the continued lack of clarity around the financing mechanism and the partial reliance on the private sector under any
proposed scenario maintain uncertainty around the project’s future. In our view, private investors are likely to approach the project
cautiously, given the substantial capital investment needed for the project, questions around the project’s demand case as well as
investor concerns around elevated regulatory uncertainty more generally in the market. Additionally, we note potential obstacles to
the project from opposition from environmental groups and local communities, with several indigenous communities in areas
impacted by the project having declared their opposition to its construction according to local reports. In November, the
government launched a consultation process with indigenous communities in areas impacted by the project, with President López
Obrador indicating that the results of the consultation regarding whether to advance with the project will be binding.
Financing Unclear For Tren Maya Project

Mexico - Proposed Tren Maya Project Route (Updated)
Source: Fonatur, Fitch Solutions
Also facing uncertainty is the 57.7km Mexico-Toluca commuter rail project, launched by under Mexico’s previous government but
largely stalled since October 2018, plagued by cost overruns and construction delays. In November, the government included the
project, currently 87% completed, in the list of projects included in the government’s National Infrastructure Plan. The government
aims to tender the project under a concession, with the winning firm expected to invest MXN20bn (USD1.0bn) needed to complete
the project in which the government has invested MXN63bn (USD3.3bn). Similar to the case of the Tren Maya, however, it remains
unclear whether investor appetite will be sufficient for the government to succeed in tendering the project.
Airports: Government Advancing With Santa Lucia Airport Project
Airport investment in Mexico over the next several years will likely be driven by works on the General Felipe Ángeles Santa Lucia
International Airport project north of Mexico City, part of an alternative plan to boost airport capacity in the Mexico City metropolitan
area following the government’s cancellation of the USD13bn New Mexico City International Airport (NAIM) project in 2018. Works
began in October on the Santa Lucia project which is being developed by the National Defense Secretariat (Sedena) backed by
public investment. The project, which will involve a total investment of MXN78.6bn (USD4.1bn) according to officials, involves the
construction of a new terminal building, one runway, a control tower and additional facilities at an existing military airbase and is
planned for completion in 2022. While uncertainty had persisted around the project for much of 2019, after a court ruling in June
forced the suspension of works until the government completed studies regarding the impact of the project on the environment
and on cultural sites in the region, the project now appears more likely to be completed. In October, a federal judge removed the
suspension orders placed on the project and works then began. As of December 2, works were 1.03% complete according to the
government. Nevertheless, the project continues to face a number of legal actions according to reports, posing the threat of
additional delays in the future.
We note that the government’s current plans for airport infrastructure development, centred around the Santa Lucia airport and
including investment in the existing Benito Juárez Mexico City International Airport, marks a significant decrease in planned
investment compared to the previous government’s plans. The NAIM project, which was about 30% complete at the time of
cancellation, would have been one of the largest infrastructure projects ever built in Mexico and one of the largest airports in the
region.
Mexico Emerging As Leading Market Regionally For Cable Car Projects
Cable car projects also appear to be a strong area of growth in Mexico over the next several years, with the country standing out
among markets in the region for its growing project pipeline. In particular, the Mexican cable car market will be driven by newly-
elected Mexico City Mayor Claudia Sheinbaum’s push to build four cable car lines in the city. When completed, the new system, to be
known as the ‘Cablebus’ system, will be made up of the four lines totalling 34km, making it one of the most extensive cable car
systems globally. In May, the municipal government invited four companies to participate in a limited tender for the first line of the
system, the planned 9.4km Line 1 between Cuautepec and Indios Verdes. In June, the government selected a consortium of
Austrian company Doppelmayr Seilbahnnen and local firm Gami Ingeniería e Instalaciones to undertake the project with a bid of
MXN2.92bn (USD151mn). Additionally, in September, Mexico City’s government announced that a consortium made up of Leitner
and POMA had been chosen to build Line 2 of the Cablebus system, linking Constitucion de 1917 with Santa Martha. The project
will involve and investment of MXN3.17bn (USD164mn). Both lines are due for completion in 2020.
Additionally, the government of Mexico State is advancing plans to build two new cable propelled transit (CPT) lines in the state
linking the municipalities of Naucalpan and Ecatepec with Mexico City. The state already operates one CPT line, known as Mexicable
(see ‘Urban Cable Cars To Remain Key Part Of Latin America Transit Development Mix’, May 8 2019).
Roads And Bridges – Rural Roads To Be Key Focus
Road and bridges infrastructure will remain the largest share of transport infrastructure over the coming years with both public and
private investment set to drive growth in the sector. Mexico needs substantial investments in the country’s road network, the quality
of which continues to vary greatly across regions of the country, with rural areas in particular often lacking sufficient road access.
Illustrating the need for investment, the country scores 49th globally in quality of road infrastructure in the World Economic Forum’s
2019 Global Competitiveness Report. Driven by the need to improve road infrastructure connections, we expect road construction
sector will continue to account for most investment in transport infrastructure in Mexico over the coming years.
We expect public investment will play a key role in the continued advance of road and bridge projects in Mexico, with the
government in particular focusing investment in rural areas of the country with insufficient road infrastructure, particularly in
southern states such as Oaxaca. Illustrating the government’s strong commitment in this direction, López Obrador’s team pledged
to boost federal spending on road maintenance to MNX23bn (USD1.1bn) in 2019, focusing in particular on roadways in the south of
the country including in the states of Veracruz, Oaxaca, Chiapas and Guerrero.
Private investment will also play an important role in driving investment into the road sector, as a result of high levels of private
investment in the country’s road network set to be delivered via existing public-private partnerships (PPPs) awarded by the previous
government, mostly concentrated in roadway maintenance and repair. Building on the successful launch of Mexico's first two PPP
road maintenance projects in 2016, the Peña Nieto government awarded an additional nine maintenance PPPs in 2017 and 2018.
In addition, the government also awarded one highway construction PPP, which will involve improvement works to the main
highway between Monterrey and Nuevo Laredo. These projects will inject significant investment into Mexico’s road and bridge
sector, with the Monterrey-Nuevo Laredo project alone set to involve MXN3bn (USD156mn) in investment.
MEXICO - ROAD PPP PROJECTS AWARDED BETWEEN 2016 AND 2018

Project Value Type Status Contractor
(MXNmn)
Campeche-Mérida 1,915 Maintenance and Awarded Calzada Construcciones, Construcciones y Dragados del
repair Sureste, Construcciones Urales, Cointer Concesiones
México, ICAPSA Infraestructura
Arriaga-Tapachula 4,705 Maintenance and Awarded Impulsora de Desarrollo Integral, Gami Ingeniería e
repair Instalaciones, Supra Construcciones, Constructora y
Arrendadora Cañeros
Tampico (Altamira)-Ciudad 1,712 Maintenance and Awarded Mota-Engil México, Construcciones y Mantenimiento
Victoria repair Roca, Desarrollo y Construcciones Urbanas, Grupo Río
San Juan, Grupo R Exploración Marina
San Luis Potosí-Matehuala 2,387 Maintenance and Awarded Omega Construcciones Industriales
repair
Autopista Golfo Centro 2,028 Maintenance and Execution Omega Construcciones Industriales S.A. de C.V., Omega
repair Corp. S.A. de C.V., Egis Road Operation S.A.
Saltillo – Monterrey – La Gloria 2,172 Maintenance and Execution Servyre, Grupo Fervic, Construobreas De La Garza,
repair Construcciones y Carreteras, Constructora Tego
Matehuala-Saltillo 1,590 Maintenance and Execution Prodemex (Promotora y Desarrolladora Mexicana de

repair Infraestructura, S.A. de C.V.), API Movilidad, Desarrollo de
Terracerías
Texcoco-Zacatepec 1,367 Maintenance and Execution ICA Infraestructura, Constructora El Cajón

repair
Pirámides-Tulancingo-Pachuca 2,020 Maintenance and Execution Sacyr Concesiones, Grupo Constructor e Inmobiliario
repair Quarzo
Autopista Monterrey - Nuevo 3,003 Design, Execution Pinfra (Promotora y Operadora de Infraestructura S.A.B de
Laredo construction, C.V.)
operation and
maintenance
Coatzacoalcos-Villahermosa 2,152 Maintenance and Execution Mota Engil Mexico, Calzada Construcciones,
repair Construcciones y Dragados del Sureste, Constructora y
Promotora Malibran
Project Value Type Status Contractor

(MXNmn)
Querétaro-San Luis Potosí 1,893 Maintenance and Execution La Peninsular Compañía Constructora S.A. de C.V,
repair Operadora de Administración Técnica S.A. de C.V,
Constructora y Pavimentadora Vise S.A. de C.V
Source: MexicoProjectsHub, Fitch Solutions
Additionally, we note upside potential from efforts on the part of the current government to bring private investment into a number
of additional projects. The National Infrastructure Plan released by government in November includes 42 road and bridge projects
to be developed between 2020 and 2024 involving a total investment of MXN100bn (USD5.2bn).
Tendered Projects, Demand To Support Ports Investment
Mexico’s ports sector will continue to see robust infrastructure development over the next five years, though the level of investment
will likely fall modestly given high base effects amidst the completion of the first stage of the Veracruz port expansion. Under the
country’s previous government, a number of large-scale port projects were tendered including the Veracruz project but also major
works at Manzanillo, Lazaro Cardenas, leading to strong growth in investment into the sector. While works will continue on a
number of these projects, we expect private sector interest will also support the launch of new port projects over the coming years,
with demand for further port facilities likely to grow given high congestion at a number of the country’s largest ports including
Manzanillo. In addition, the involvement of a number of prominent port operators including Hutchinson Ports and APM
Terminals in Mexico’s ports sub-sector will provide private funding needed to advance expansion projects, via existing concessions
or potentially through the launch of new concessions as well. Over the medium term, we expect Veracruz will likely be a focus of
growth, given existing government plans for a second phase of the port’s development. We also expect López Obrador’s
government to increase focus on the ports in the south of the country, namely Coatzacoalcos and Salina Cruz, which are key to his
goal of developing a modern freight transport corridor across the Tehuantepec Isthmus to rival the Panama Canal. Supporting our
positive outlook on the ports sub-sector, in June, Mexico’s government announced plans to invest MXN100.1bn (USD5.2bn) in the
upgrade and expansion of three commercial ports including the extension of the Port of Manzanillo to the Cuyutlán Lagoon,
expansion of the ports of Veracruz and works on port facilities in Puerto Progreso. The National infrastructure plan presented by the
government in November 2019 includes 23 port projects involving a total of MXN73.7bn (USD3.8bn) in investment.
MEXICO - MAJOR TRANSPORT INFRASTRUCTURE PROJECTS

Project Name Sub- Value Size Unit Companies Time Status
Sector (USDmn) Frame
End
Tren Maya Rail Rail 8,000 1,500 km Secretariat of Communications and 2024 At planning
Project Transportation[Sponsor]{Mexico} stage
Santa Lucia Airports 4,100 na na Secretariat of National Defense (Sedena) 2021 At planning
International Airport stage
Mexico City (Ciudad Rail 3,393 57.7 km Construcciones Rubau[Construction]{Spain}, 2020 Under
de Mexico) - Toluca Thales[Construction]{France}, Grupo construction
(Mexico) Interurban Azvi[Construction]{Spain}, Isolux
Train Project Corsan[Construction]{Spain}, Construcciones y
Auxiliar de Ferrocarriles (CAF)[Construction]{Spain},
Gonzalez Soto y Asociados[Construction]{Mexico},
Prefabricados y Transporte[Construction]{Mexico},
Grupo CAABSA[Construction]{Mexico}, Ingenieros
Civiles Asociados[Construction]{Mexico},
Construcciones y Trituraciones, SA de CV
(Cotrisa)[Construction]{Mexico}, OHL
Group[Construction]{Spain}, La Peninsular Compania
Constructora[Construction]{Mexico}, SENER[Design/
Architect]{Spain}, Secretariat of Communications and
Transportation[Sponsor]{Mexico}
Mexico City - Rail 3,750 209.2 km Secretariat of Communications and na At planning

Queretaro High Transportation[Sponsor]{Mexico} stage
Speed Rail Line
Guadalajara Light Rail Rail 1,771 21.5 km Secretariat of Communications and 2019 Under
Line III, Jalisco Transportation[Sponsor]{Mexico}, Obrascon Huarte construction
Lain (OHL)[Equipment]{Spain}, Alstom
SA[Equipment]{France}, Sacyr
Construccion[Construction]{Spain}, Mota-
Engil[Construction]{Portugal}
Note: Top five projects by value; na = not available. Source: Fitch Solutions Infrastructure Key Projects Database
Energy & Utilities Infrastructure

Key View: Mexico's energy and utilities sector will see strong infrastructure investment over the coming years, with the power
sector in particular set to see robust project development. Nevertheless, we expect renewables development will
underperform potential as a result of a shift away from supportive policies towards the sector and significant regulatory uncertainty.
Latest Developments
• On October 28, Mexico’s Ministry of Energy (SENER) published changes to rules for which types of electricity generators can
apply for clean energy credits. Prior to the rule change, only low-carbon generators built after 2014, primarily new wind and solar
power projects, were given CELs. The rule change expands CELs to pre-2014 clean energy sources, which primarily includes
hydropower and nuclear power facilities operated by Mexico's state-owned utility Comisión Federal de Electricidad (CFE). Those
awarded CELs are able to trade the certificates to electricity generators that are required to buy renewable power. The rule
change could result in a significant increase in the number of CELs awarded, and ultimately substantially reduce their trading
value. Most solar and wind developers factor trading CELs into their project financials, and a significant decline in their value is
likely to negatively impact the value of operational and proposed projects – posing a significant downside risk to our forecast for
the sector.
• In September, the board of state-owned utility CFE approved the construction of three combined-cycle power plants that will be
built in the Center and Northeast regions of the country – the plants will have a combined capacity of 1,720MW once completed.
• Also in September, Mexico's government came to agreements with the developers of seven natural gas pipelines, following a
period of arbitration between the government and the firms over contract terms. The agreements substantially reduce
uncertainty facing the projects and the midstream sector more broadly generated by the dispute.
ENERGY AND UTILITIES INFRASTRUCTURE DATA (MEXICO 2018-2028)

Energy and utilities infrastructure industry value

1.7 2.7 4.8 5.0 4.7 4.3 4.1 4.1 4.0 3.6 3.5
Power plants and transmission grids

2.1 2.4 4.8 4.1 4.6 3.9 4.1 3.8 4.4 3.6 3.8
infrastructure industry value real growth, % y-o-y
Oil and gas pipelines infrastructure industry value

0.6 0.4 0.4 1.6 0.7 1.1 0.0 0.7 -0.6 0.0 0.6
Water infrastructure industry value real growth, %

1.8 4.2 7.1 7.4 6.7 5.9 5.7 5.6 5.4 4.8 4.2
y-o-y
e/f = Fitch Solutions estimate/forecast. Source: INEGI, Fitch Solutions
Structural Trends
Power Sector: Renewables To Underperform Potential Amid Uncertainty
Mexico’s power sector is set to see robust growth over the coming years, adding a net of 26.6GW of capacity between 2019 and
2028, second only to Brazil in Latin America which our Power team expects will add 32.3GW of capacity over the same period. This
will be supported by strong power demand growth in the country, with Mexico to see average growth in electricity consumption of
2.5% y-o-y between 2019 and 2028. Natural gas plants will outperform as an investment target, as a shift away from supportive
government policies and regulatory uncertainty will weigh on the advance of non-hydropower renewables projects.
Mexico To See Robust Power Growth

Net Capacity Added By Market (MW)
f = Fitch Solutions forecast. Source: EIA, Fitch Solutions
Since the López Obrador government came into office in December 2018, we have seen a number of policy shifts which have
weakened the outlook for non-hydropower renewables in Mexico. In January 2019, Mexican power grid
operator CENACE announced the cancellation of the country's fourth long-term power auction, originally scheduled to take place
before the end of 2018. The cancellation of the auction came as a surprise to most industry players and observers. We had
expected the government to resume holding auctions after reviewing the programme, given the positive results past tenders have
delivered in terms of attracting investment and stimulating power industry growth, particularly in the wind and solar sub-sector.
According to Mexico's Business Coordination Council, a major business trade group, the three auctions that Mexico held between
2016 and 2017 attracted USD8.6bn in investment through to 2018 and contributed to contract projects corresponding to over
8GW of renewables capacity, at some of the lowest prices recorded internationally. Also in January, the tenders for two large-scale
transmission lines projects to be developed as public-private partnerships (PPP)s were stopped and appear unlikely to advance.
These projects, the Ixtepec-Yautepec 500kV high-voltage direct current (HVDC) line and the Baja California-Sonora HVDC line,
would have injected a combined investment of over USD2bn into the Mexican electricity grid, greatly improving links in particular to
Oaxaca and Baja California. The projects would have supported stronger development of renewables projects, linking areas with
substantial renewable resources with regions with strong demand for electricity.
Most recently, in October, the government announced rule changes to Mexico’s clean energy certificates (CELs), a move which we
expect will result in increased negative sentiment and heightened uncertainty within the country’s non-hydro renewables market
over the near term. Prior to the rule change, only low-carbon generators built after 2014, primarily new wind and solar power
projects, were given CELs. The rule change expands CELs to pre-2014 clean energy sources, which primarily includes hydropower
and nuclear power facilities operated by Mexico's state-owned utility Comisión Federal de Electricidad (CFE). Those awarded CELs
are able to trade the certificates to electricity generators that are required to buy renewable power. The rule change could result in a
significant increase in the number of CELs awarded, and ultimately substantially reduce their trading value. Most solar and wind
developers factor trading CELs into their project financials, and a significant decline in their value is likely to negatively impact the
value of operational and proposed projects. In late November, a judge backed one of the injunctions filed by an undisclosed
company and granted a provisional suspension against the rule modifications in response to one of the company’s filings.
Nevertheless, the rule change could still be enacted, greatly increased uncertainty around Mexico’s renewables sector.
As a result of these factors, our Power team now expects Mexico’s power sector to see a net capacity addition of 9.3GW for non-
hydropower renewables, still significant but below previous forecasts. Without a strong expansion of transmission infrastructure and
new auctions, non-hydropower renewables capacity will grow below potential, reflected in our forecasts. Risks to our outlook are
weighted to the downside given the potential impact of the CEL rule change on the sector.
Renewables To Underperform Potential

Capacity By Power Source, MW
e/f = Fitch Solutions estimate/forecast. Source: EIA, Fitch Solutions
As a result of the slower advance of non-hydropower renewables, natural gas power plants will take on a more central role in the
expansion of Mexico's power sector. Our Power team now forecasts Mexico's power sector to see a net addition of 15.4GW of
conventional thermal capacity between 2019 and 2028, compared with 9.3GW for non-hydropower renewables. Most new capacity
will be accounted for by natural gas plants, supported by the low cost of natural gas imports from the US and the construction of
new pipelines linking northern and central Mexico with the US. Among the projects underway are the second and third phases of
the Topolobampo power plant project constructed by Iberdrola, supported by the completion of the El Encino-Topolobampo
pipeline linking Sinaloa with Texas, put into service by TransCanada in July 2018. The two projects will add a combined 1.4GW of
natural gas-fired generation capacity through 2019 with each facility consuming upwards of 3.0mn cu m per day of gas, sourced
almost exclusively from the Permian natural gas hub at Waha.
Natural Gas To Drive Power Expansion

Mexico - Generation By Power Source, 2018-2028
e/f = Fitch Solutions estimate/forecast. Source: EIA, Fitch Solutions
Our Power team holds a cautious outlook towards hydropower development in Mexico, with hydropower capacity to see a net
increase of just 1.9GW between 2019 and 2028. While we have included small and large hydropower projects planned by the CFE in
SENER's PRODESEN 2019-2033, we do note that the feasibility of AMLO’s electoral promises with regard to boosting hydropower
remains uncertain as public funding for the sector is dependent on savings obtained by reducing payments to independent power
producers for natural gas generation. Mexico presents a limited pipeline of hydropower projects at planning stage and under
construction, and we expect that hurdles to the development of planned projects will discourage private investment in the sector,
despite the president’s preference for development of this sub-sector.
Agreements With Pipeline Developers Reduce Risk To Midstream Infrastructure Outlook
The completion of a series of agreements between the Mexican government and the developers of seven natural gas pipelines has
removed significant uncertainty facing the projects and the midstream sector more broadly. In September, Mexico’s government
concluded agreements with the developers of seven of the country’s largest natural gas projects, renegotiating payments made by
the government to the developers. In February, President López Obrador had announced that the government would look to
renegotiate contracts for the projects which for various reasons were not in operation, though project owners were receiving
payments from state-owned firm CFE due to a force majure clause in the pipeline contracts. López Obrador criticised the impact of
these clauses, part of contracts awarded by Mexico’s previous government. In line with this position, the CFE in July announced that
it had officially requested arbitration to annul clauses on contracts of the seven projects, which included the large South Texas-
Tuxpan pipeline, completed in June 2019, and the Samalayuca-Sasabe pipeline currently under construction. The agreements,
which have brought the arbitration process to an end, remove uncertainty around the projects, though we note that obstacles still
remain to their development and risk further delays. Among the challenges faced by the projects in recent years we note
community opposition and social conflicts.
MEXICO - GAS PIPELINE PROJECTS FACING ARBITRATION PRIOR TO SEPTEMBER AGREEMENTS

Value Length
Project Developer Status
(USDmn) (km)
Infraestructura Marina del Golfo (TC Energy and

South Texas-Tuxpan 2,111 800 Completed
IEnova)
Under
Samalayuca-Sasabe 571 650 Grupo Carso, IDEAL
construction
Under
La Laguna-Aguascalientes 473 600 Fermaca
construction
Under
Tula-Villa de Reyes 554 420 TC energy
construction
Guaymas-El Oro 429 331 IEnova Completed*
Villa de Reyes-Aguascalientes- Under

294 305 Fermaca
Guadalajara construction
Under
Tuxpan-Tula 458 283 TC energy
construction
*Operations suspended since 2017. Source: MexicoProjectsHub, Fitch Solutions Key Projects Database
Water Infrastructure To Be Key Focus
Substantial demand for improved water and sanitation infrastructure will support continued investment in the water sub-sector
over the coming years. Mexico has a significant deficiency in water infrastructure, with access to clean drinking water of particular
concern. As of 2015, the country trailed most other countries in the region in terms of the percentage of population using safely
managed drinking water services, illustrating the depth of the problem faced by the country. Much of the problem is the product of
poor distribution infrastructure, which leads to losses and fails to provide water to all regions on a full-time basis. In the Mexico City
metropolitan area, these issues are particularly clear given massive demand and substantial losses due to the lack of investment in
the region’s distribution network.
Mexico Faces Water Crisis

Mexico - Percentage Of Population Using Safely Managed Water Services, 2015
Source: WHO/Unicef Joint Monitoring Programme for Water Supply, Sanitation and Hygiene, Fitch Solutions
Compounding these challenges, a number of regions in the country including Baja California and Baja California Sur as well as the
Mexico City metropolitan area also lack sufficient infrastructure to access water supplies, underpinning demand for new investment
as population growth pushes up demand and current infrastructure becomes increasingly inadequate.
We expect to see substantial investment over the coming years both in improving existing water distribution infrastructure in urban
areas to reduce inefficiency. Mexico City will likely be a key focus of these efforts due to the poor state of water infrastructure in the
city. Supporting this view, Mexico City Mayor Claudia Sheinbaum has pledged to request support from the federal government and
from Mexico’s congress for substantial new investments to improve the city’s water network, expanding access to underserved
areas of the city and limiting the overuse of the city’s declining aquifers.
We also expect an uptick in investment in projects to improve access to water, with desalination projects to draw substantial
investment in Baja California and Baja California del Sur, driven by the limited access of the semi-arid region to drinking water.
Among the projects set to stand out is the Rosarito Beach Desalination Plant, a USD500mn project being developed in the Tijuana
metropolitan area by consortium Aguas de Rosarito under a 40-year PPP contract awarded by the Comisión Estatal del Agua de
Baja California in 2016. Once completed in 2019, the facility will be the largest desalination plant in Latin America and will
significantly reduce the dependency of the Tijuana metropolitan area on the Colorado River-Tijuana Aqueduct, the primary source
of water to the region currently.
MEXICO - MAJOR ENERGY & UTILITIES INFRASTRUCTURE PROJECTS

Project Name Sub-Sector Value Size Unit Companies Time Status
(USDmn) Frame
End
Los Ramones (Nuevo Oil and gas 1,980 855 km Government of Mexico[Sponsor]{Mexico} na At planning
Leon)-Cempoala pipelines stage
(Veracruz de Ignacio
de la Llave) Gas
Pipeline Project
Norte III Combined- Power 1,550 924 MW Invex Infraestructura[Sponsor](10){Mexico}, 2019 Under
Cycle Power Plant plants and Infrared, Inc.[Sponsor](35.5){United States}, General construction
Project, Juarez, transmission Electric[Operator]{United States},
Chihuahua grids Techint[Sponsor]{Italy}, Toshiba
Corporation[Equipment]{Japan}, Mexican Comision
Federal de Electricidad (CFE)[Sponsor]{Mexico}
Eolica del Sur Wind Power 1,200 396 MW Macquarie Group Limited[Sponsor]{Australia}, na Suspended
Project, plants and Marena Renovables[Operator]{Mexico}, Inter-
Tehuantepec, Oaxaca transmission American Development Bank
grids (IDB)[Financier]{United States}, Mitsubishi
Corporation[Sponsor]{Japan}, Vestas Wind
Systems[Equipment]{Denmark}
Paso De la Reina HPP, Power 1,075 540 MW Comision Federal de 2020 At planning
Verde River, Oaxaca plants and Electricidad[Operator]{Mexico}, University of stage
transmission Guadalajara[Feasibility]{Mexico}
grids
Tunnel Emisor Water 1,070 62 km Constructora Estrella[Construction]{Mexico}, na Under

Oriente, Ciudad de Lombardo[Construction]{Mexico}, Herrenknecht construction
Mexico Group[Equipment]{Germany},
Poyry[Financier]{Finland}, Ingenieros Civiles
Asociados[Construction]{Mexico}, Comision
Nacional del Agua (Conagua)[Sponsor]{Mexico},
Cotrisa[Construction]{Mexico},
Carso[Construction]{Mexico}
Note: Top five projects by value; na = not available. Source: Fitch Solutions Infrastructure Key Projects Database
Residential/Non-Residential Building
Key View: Mexico’s building sector will see a return to growth from 2020 supported by rising activity across both the residential and
non-residential construction sectors. Improving macroeconomic conditions and a reduction in trade uncertainty will be key factors
supporting the uptick in investment in building construction.
Latest Developments
• On December 10, the Democratic leadership of the US House of Representatives together with the Trump administration and
the governments of Mexico and Canada announced an agreement on modifications to the USMCA trade agreement between
the three countries which should see the US Congress approve the USMCA. We expect the move will bolster investor sentiment
towards Mexico's infrastructure sector, with non-residential construction investment in particular set to benefit as reduced
uncertainty around trade should reflect positively on firms' capital investment plans.
• Refmex along with Caxxor Group is likely to start construction of a privately owned oil refinery in Mexico by Q320, according to
Mexico News Daily. The project, estimated to cost between USD800mn and USD1bn, will come up at Soto la Marina, in
Tamaulipa. The refinery will have the initial capacity to process 60,000 barrels per day (b/d), which can be increased up to
110,000b/d in future. Caxxor will be responsible for financing the project via Mexican investors, while Refmex will undertake the
development and the refining plan for the facility. The company is in the final process of completing the necessary requirements
to start construction and has already secured 17 of the 19 requirements demanded by the law for the project, noted Refmex
CEO Marco Jorge Espinosa.
RESIDENTIAL AND NON-RESIDENTIAL BUILDING INDUSTRY DATA (MEXICO 2018-2028)

Residential and non-residential building industry

0.7 -3.8 0.9 2.2 3.0 2.8 2.9 3.0 2.9 2.8 3.1
value real growth (%)
Residential Building Industry Value Real Growth

1.8 -4.7 1.2 2.8 3.1 3.3 3.4 3.0 2.9 3.2 2.9
(%)
Non-residential Building Industry Value Real

0.3 -3.4 0.8 1.9 2.9 2.6 2.7 2.9 2.9 2.6 3.2
Growth (%)
e/f = Fitch Solutions estimate/forecast. Source: Banco Central de Mexico, Fitch Solutions
Structural Trends
Residential Building: Reconstruction To Be A Priority
Increased investment in residential building will be a key driver of rising building investment overall over the coming years,
particularly from 2020 once the industry adjusts to the substantial changes to housing subsidies to be implemented in 2019.
Reconstruction efforts will be a key priority of the López Obrador government in 2019 and 2020 as we expect the administration,
highly critical of reconstruction efforts under the previous government, will look to speed up rebuilding of homes in areas impacted
by a series of earthquakes in September 2017 including Mexico City, Puebla, Oaxaca and Chiapas. On the one year anniversary of
one of the earthquakes in September 2018, López Obrador announced his National Reconstruction Plan, promising MXN10bn
(USD532mn) in funding for reconstruction in 2019. In addition to increased spending on reconstruction, we expect López Obrador’s
government will boost funding more broadly for the construction of housing as well as public infrastructure in Mexico’s poorest
regions. In line with this goal, López Obrador’s team announced the Urban Improvement Programme (Programe de Mejoramiento
Urbano), a programme focused on improving housing and infrastructure in communities struggling with inequality.
CITIES TO BENEFIT FROM URBAN IMPROVEMENT PROGRAMME

Municipality State
San Luis Rio Colorado Sonora
Tijuana Baja California
Matamoros Tamaulipas
Acuña Coahuila
Juarez Chihuahua
Nicolas Romero Mexico
Chimalhuacan Mexico
Texcoco Mexico
Chalco Mexico
Cuautitlan Izcalli Mexico
Acapulco Guerrero
Los Cabos Baja California Sur
Bahia de Banderas Nayarit
Puerto Vallarta Jalisco
Solidaridad Quintana Roo
Source: Local sources, Fitch Solutions
We expect continued government support for the housing sector, as well as reduced uncertainty as sector actors increasingly adjust
to the government’s policies towards the sector, will see a rebound in investment in residential construction from 2020. This will be
underpinned by a substantial shortage of adequate housing in Mexico and robust population growth, with the country’s population
on pace to grow at an annual average rate of 1.0% y-o-y between 2020 and 2024.
USMCA Deal Supportive Of Non-Residential Building Investment Growth
We also expect non-residential building investment will grow from 2020, underpinned by moderate improvement in
macroeconomic conditions as the country sees an uptick in economic growth with the economy expanding by 1.2% y-o-y in 2020
and by an annual average of 2.2 % y-o-y between 2021 and 2024, up from forecast growth of 0.1% y-o-y in 2019. A substantial drop
in trade uncertainty will also contribute to the growth of non-residential building investment, following the announcement of an
agreement between the Democratic leadership of the US House of Representatives, the Trump administration and the
governments of Mexico and Canada on modifications to the USMCA trade deal between the three countries. Following the
announcement of the deal, the US House of Representatives is set to approve the agreement before the end of December, leading
to its likely approval by early 2020. The completion of the USMCA agreement, itself a replacement of the North American Free Trade
Agreement (NAFTA) between the three countries, marks the conclusion of several years of negotiations which raised substantial
uncertainty around trade relations between the three countries. In particular, the Trump administration’s critical rhetoric
towards NAFTA raised the potential for the US to pull out of the agreement without reaching a new agreement, a possibility which
would have had major implications for trade between the US and Mexico. While such an outcome had been largely discarded
following the announcement of USMCA in 2018, the lack of support from the Democratic leadership of the US House of
Representatives for the USMCA as presented had prevented the deal from gaining ratification, maintaining some uncertainty
around the timing of ratification and ultimate form the trade deal would take.
With USMCA now likely to be ratified in the coming weeks, we expect uncertainty around trade relations will fall substantially,
boosting investor confidence. Given the strong reliance on the US market of key sectors in Mexico, we expect this will support
greater investment in non-residential construction. Mexico’s manufacturing sector, among the most interconnected with the US
economy, is likely to be among the sectors to most benefit from greater investor confidence.
Hospital PPPs To Play A Key Role
We expect investment in social infrastructure, most importantly hospitals, will be a significant driver of non-residential building
investment over the coming years. In part this will be the result of the acceleration of construction works on a number of hospital
projects awarded as PPPs by Mexico’s previous government. The Peña Nieto government awarded a total of eight hospital projects
as PPPs involving a total investment of MXN12.2bn (USD632mn).
MEXICO - HEALTHCARE PPPS

Project Value Status Contract
(MXNmn) Signing Date
Clínica Hospital, Mérida, Yucatán 917 Awarded September 23

2016
Hospital General, Tapachula, Chiapas 1,741 Awarded July 28 2017
Hospital General, Tepic, Nayarit 1,452 Awarded August 30 2017
Hospital General, Zona en Bahía de Banderas, Nayarit 1,585 Awarded September 8

2017
Hospital General, Delegación Regional Sur de la Ciudad de México (Tláhuac) 1,597 Awarded November 6
2017
Hospital General Regional, Municipio de García, Nuevo León 1,963 Awarded November 10
2017
Hospital General, Villahermosa, Tabasco 1,024 Awarded December 12

2017
Hospital General Regional, Tepotzotlán, Estado de México 1,900 Awarded February 13

2018
Hospital General, Acapulco, Guerrero 1,355 In planning na
Hospital General, Tampico, Tamaulipas 1,341 In planning na
Hospital General, Zona Norte de la Ciudad de México 1,547 In planning na
Hospital General, Zona Oriente de la Ciudad de México y Estado de México (Texcoco) 1,933 In planning na
Hospital General, Torreón, Coahuila 1,073 In planning na
Hospital General, Durango, Durango 1,127 In planning na
na = not available. Source: Mexico Projects Hub, Fitch Solutions
Dos Bocas Refinery Tender Cancellation Complicates Project Outlook
The cancellation of the tender for the Dos Bocas Oil Refinery marks a significant setback for the Mexican government’s downstream
infrastructure agenda. On May 9, President López Obrador voided an international tender for the design and construction of a new
refinery in Puerto Dos Bocas in Tabasco, launched earlier in 2019. Obrador announced that none of the presented proposals met
the minimum bid conditions, and as a result, Mexican state-owned oil company Pemex would now design and oversee construction
on the project under the supervision of the country’s Energy Secretariat. According to the government, construction on the project,
which will be largely subcontracted by Pemex, will begin in June 2019 and be completed within three years at a budget of USD8bn
or less. We highlight that the government’s plans regarding the Dos Bocas Oil Refinery have been changed on multiple occasions
and reports from local media indicate the potential for further shifts in the coming days.
López Obrador's Downstream Vision

Map of Mexico's Downstream Network
Note: Numbers denote fuel price liberalisation regions. Source: SENER, Fitch Solutions
The shift towards more state control over the project will reduce the likelihood the project is fully realised. The four infrastructure
groups invited to participate in the tender included KBR, Technip and two consortia comprised respectively
of Bechtel and Techint, and WorleyParsons and Jacobs. Each of these firms would have brought ample experience in the
development of large-scale infrastructure projects including the construction of oil refineries. Pemex, in contrast, has not built a new
refinery in over forty years, raising questions around the firm’s technical capacity to undertake and manage such a project.
The government’s insistence on a tight timeline and budget will further add to the challenges involved in completing the project,
with all bidders apparently unwilling to build the project within the specifications envisioned by the government. Among the
challenges long cited by our Oil & Gas team, we highlight the lack of supportive midstream and storage-related infrastructure near
the project site that risk driving up costs beyond the government’s USD8bn budget. Additionally, an extensive permitting process
could lead to project delays (see ‘AMLO's Policy Shift Poses Upside Risk To Production, Refining Forecasts’, September 17 2018 and
‘AMLO’s Mexican Refinery Strategy Facing Constraints’, July 27 2018).
Industry Risk/Reward Index

Mexico Infrastructure Risk/Reward Index
Key View: Mexico remains one of the most attractive markets in Latin America though we note rising challenges to infrastructure
development in the country from major shifts in government policy which are boosting uncertainty in the market.
Risk/Reward Snapshot
Mexico & Latin America Region - Infrastructure Risk/Reward Index
Global And Regional Ranks
• Global rank (out of 104): 47th

• Regional rank (out of 15): 3rd
Key Features And Latest Updates
• Mexico returned to third place in the region this quarter in our Infrastructure Risk/Reward Index table behind Chile and Colombia,
as Mexico’s score grew to 52.6 from 52.3 previously, allowing the market to surpass Peru which saw its score fall to 52.2 from
52.9 previously.
• Mexico stands out in Latin America for its strong Industry Risks score, second only to Chile. In particular, we highlight the
country's robust bureaucratic environment, supportive labour market dynamics as well as an increasingly open competitive
landscape where a number of large foreign firms are active.
• Also supporting Mexico’s overall score is the country’s large and relatively urbanised population as well as rising incomes
supported by economic growth, factors that make Mexico one of the most attractive countries in the region for investment,
reflected in Mexico's strong score in the Country Risks component of our infrastructure RRI.
• We see rising challenges to the attractiveness of the Mexican infrastructure market under the new government
of President Andrés Manuel López Obrador. Since coming into office on December 1 2018, the government has marked a
significant shift away from the previous government's relatively pro-business infrastructure policies, most notably with its
decision to cancel the USD13bn New Mexico International Airport project. This shift has exposed rising risk to firms active in the
market and will weigh on private investor confidence, thus posing an obstacle to investment and limiting the growth of the
construction industry over the next several years.
RRI Matrix Breakdown

Mexico & Latin America Region - Infrastructure Risk/Reward Index, By Component
Latin America Infrastructure RRI: Select Markets Key Amid High Risk
Region
Key View
• High risks will weigh on the attractiveness of Latin American markets overall, as a large share of markets faces substantial
obstacles including industry-specific risks as well as more general risks including uncertainty.
• Relatively low risk markets will stand out in Latin America as these markets will be best placed to draw on private capital on which
most markets in the region will continue to depend given limited public spending ability.
Chilean Market Stands Out Regionally

Latin America Infrastructure RRI - Risk/Reward Index Heat Map
Note: Scores out of 100; darker countries = higher scores; higher scores = more attractive market. Source: Fitch Solutions Infrastructure Risk/Reward Index
Main Regional Features And Latest Updates
• Latin America moved up one position this quarter in our global Infrastructure Risk/Reward Index, surpassing Sub-Saharan Africa
to become the fifth-ranked of six regions globally in attractiveness. Latin America’s score decreased slightly this quarter to 41.2
from 41.3 previously. Nonetheless, Sub-Saharan Africa saw its score fall to 41.0 from 41.8 previously, Moving the market into last
place among regions globally. High risks across the majority of Latin American markets are the primary reason for the region’s
relative underperformance.
• Chile strengthened its lead among Latin American markets in our RRI, as the market’s score increased this quarter to 66.3 from
64.6 previously. Supported by very low risk and significant rewards, the market is now in among the top 10 most attractive
markets globally.
• Mexico returned to third place in the region this quarter behind Chile and Colombia, as Mexico’s score grew to 52.6 from 52.3
previously, allowing the market to surpass Peru which saw its score fall to 52.2 from 52.9 previously.
• Argentina’s score fell significantly this quarter, dropping to 42.1 from 44.6 previously as the country’s deepening political and
economic crisis weighed on our outlook for the market’s construction industry. Argentina remains the seventh-ranked market in
Latin America in our RRI, behind Brazil and Panama.
High Risk Markets Abound

Latin America Infrastructure RRI - Risk/Reward Index
Note: scores out of 100; higher scores = lower risk. Source: Fitch Solutions Infrastructure Risk/Reward Index
High Risks Dull Latin American Attractiveness
While Latin America is home to several outperforming markets including Chile, Colombia and Mexico, the region’s markets on
average are among the least attractive globally, resulting in Latin America’s poor ranking among regions globally in our RRI. The
limited attractiveness of Latin America’s markets on average is primarily the result of elevated risk, with the region’s markets scoring
an average of 38.2 in the Risks component of our RRI, compared to a global average of 50.0. In comparison, Latin American markets
score on average 43.3 in the Rewards component of our RRI.
Latin America’s relatively high risk environment is the result in part of industry-specific factors, including a substantial risk of delays
on projects across the region, challenging legal environments and weak competitive landscapes in many markets, with corruption
remaining a serious challenge in the region. More general risks also contribute to Latin America’s overall risk environment, with
short term political risk standing out as a major challenge.
Risks A Key Challenge Regionally

RRI Risk Components
Note: Scores out of 100, higher score = more attractive market. Source: Fitch Solutions Infrastructure Risk/Reward Index
Geographically, risks are concentrated in Central American markets with Panama and, to some degree, Costa Rica being
exceptions to this trend. Nicaragua stands out as the highest risk market in the region included in our RRI, driven by substantial
operational risks, as well as major political and economic uncertainty given elevated political unrest over the past two years which
has seen outbreaks of political violence. Belize, Honduras, El Salvador and Guatemala also score among the riskiest markets
globally in our RRI given high operational risks, elevated political uncertainty as well as weak project development environments
characterized by frequent construction delays and challenging legal environments relative to peers. While not as severe, significant
risks also plague markets beyond Central America, including Ecuador as well as Argentina.
With high risks likely to persist across the region, areas of lower risk will stand out as the most attractive overall. Such markets will be
better able to draw on private capital for infrastructure development, often providing the key to the advancement of projects across
the region. Governments will continue to rely heavily on private capital for infrastructure development, given budgetary limits faced
by most governments that will limit public spending. Chile will continue to stand out in this context as the country’s very low risk,
reflected in its region-leading score in the Risks component of our RRI (76.2 compared to a regional average of just 38.2). This will
support infrastructure investment over the coming years via planned concession projects, with the transport sector in particular set
to be an area of focus. Colombia, Mexico and Peru, which round out the top four ranked markets in the region in our RRI, are also
likely to benefit from relatively limited risk project development environments, that will support continued private investment in the
sector.
Argentine Crisis Weighing On Attractiveness
Argentina has seen one of the largest shifts in score this quarter among Latin American markets, as an uptick in political uncertainty
and a deterioration of macroeconomic conditions in Argentina following the country’s PASO primary election have weakened the
attractiveness of the Argentine infrastructure sector. Following the surprising results of the country’s PASO election which saw leftist
opposition candidate Alberto Fernández handily defeat incumbent President Mauricio Macri, uncertainty around policy direction
has increased substantially in Argentina, with Fernández now likely to win the country’s presidential election, the first round of which
will be held on October 27. Driven in part by this uncertainty, macroeconomic conditions have deteriorated significantly, with the
Argentine peso falling about 20% in value versus the dollar since immediately before the PASO vote, which in turn led to both higher
inflation and interest rates. Together, rising uncertainty and deteriorating macroeconomic conditions have raised significant
challenges to infrastructure investment and pose a major threat to the sector.
From the perspective of our RRI, Argentina’s deepening crisis will translate into lower rewards in the market, with fewer projects likely
to advance through 2020 given likely cuts to government spending and falling private investment in infrastructure given
challenging financing conditions. In light of the expected impact of Argentina’s crisis on the construction industry, we have revised
down our growth forecast for the Argentine construction industry, with the sector in our view now set to see a sharper than
expected contraction in 2019, falling by 4.2% y-o-y, and contract by 3.3% y-o-y in 2020 (See ‘Deepening Crisis Prompts Downward
Revision Of Argentina Construction Forecast’, 18 Sep 2019).
Weakening Industry Outlook, Rising Uncertainty Drive Fall In Attractiveness

Argentina - RRI Main Components
Note: Scores out of 100, higher score = more attractive market. Source: Fitch Solutions Infrastructure Risk/Reward Index
High policy uncertainty ahead of a likely power transfer in the country following the upcoming presidential election, will keep risks
high in Argentina over the coming quarters, further weakening the market’s attractiveness. In particular, investor concerns are high
that an anticipated Fernández government could embrace more interventionist policies which in turn would weaken investment in
the sector. Driving these concerns is the likely influence in an anticipated Fernández government of Cristina Fernández de Kirchner,
a former President and current candidate for Vice President running with Alberto Fernández. Under her presidency between 2007
and 2015, Fernández de Kirchner pursued a number of policies which negatively impacted the country’s business environment and
weakened investor sentiment toward the country.
LATIN AMERICA INFRASTRUCTURE RISK/REWARD INDEX

Industry Country Industry Country Regional Global
Rewards Risks RRI
Rewards Rewards Risks Risks Rank Rank
Chile 62.1 56.1 59.7 78.9 73.5 76.2 66.3 1 10
Colombia 63.1 54.8 59.8 50.0 44.3 47.1 54.7 2 40
Mexico 45.3 62.3 52.1 60.5 46.3 53.4 52.6 3 47
Peru 53.2 56.1 54.4 52.4 45.5 48.9 52.2 4 49
Brazil 48.5 64.9 55.1 38.4 43.1 40.8 49.4 5 59
Panama 47.6 49.3 48.3 33.4 53.1 43.2 46.3 6 70
Argentina 35.0 71.8 49.7 32.5 28.7 30.6 42.1 7 80
Costa Rica 33.8 49.3 40.0 39.2 49.7 44.4 41.8 8 82
Uruguay 20.1 52.6 33.1 46.5 53.9 50.2 39.9 9 85
Ecuador 34.0 40.2 36.5 29.9 27.0 28.5 33.3 10 92
Guatemala 30.7 49.9 38.4 21.0 28.3 24.6 32.9 11 93
El Salvador 30.4 36.3 32.8 25.8 25.5 25.7 29.9 12 95
Honduras 29.1 45.0 35.5 17.7 21.8 19.8 29.2 13 96
Belize 29.8 28.5 29.3 21.9 22.5 22.2 26.5 14 99
Nicaragua 18.8 30.1 23.3 19.2 15.0 17.1 20.8 15 102
Global Average 50.0 50.0 50.0 50.0 50.0 50.0 50.0 ~ ~
Regional
38.8 49.8 43.2 37.8 38.5 38.2 41.2 ~ ~
Average
Note: Scores out of 100; higher scores = lower risk. Source: Fitch Solutions Infrastructure Risk/Reward Index
LATIN AMERICA INFRASTRUCTURE INDUSTRY REWARDS

Construction Industry Construction Industry Real Project Pipeline, % of Industry Industry
Rewards
Value Growth Value Rewards
Chile 67.0 39.8 79.6 62.1 59.7
Colombia 68.0 70.9 50.5 63.1 59.8
Mexico 90.3 35.0 10.7 45.3 52.1
Peru 58.3 42.2 59.2 53.2 54.4
Brazil 85.4 12.6 47.6 48.5 55.1
Panama 51.5 61.2 30.1 47.6 48.3
Argentina 64.1 2.9 37.9 35.0 49.7
Costa Rica 22.3 42.2 36.9 33.8 40.0
Uruguay 37.9 18.4 3.9 20.1 33.1
Ecuador 48.5 32.0 21.4 34.0 36.5
Guatemala 25.2 54.4 12.6 30.7 38.4
El Salvador 14.6 22.3 54.4 30.4 32.8
Construction Industry Construction Industry Real Project Pipeline, % of Industry Industry

Rewards
Value Growth Value Rewards
Honduras 13.6 37.9 35.9 29.1 35.5
Belize 0.0 40.8 48.5 29.8 29.3
Nicaragua 4.9 0.0 51.5 18.8 23.3
Global
50.0 50.0 50.0 50.0 50.0
Average
Regional
43.4 34.2 38.7 38.8 43.2
Average
LATIN AMERICA INFRASTRUCTURE COUNTRY REWARDS

GDP Per Urban Population, % of Population GDP Per Capita Country
Population Rewards
Capita Total Growth Growth Rewards
Chile 61.2 50.5 85.4 32.0 51.5 56.1 59.7
Colombia 40.8 73.8 74.8 41.7 42.7 54.8 59.8
Mexico 52.4 91.3 68.9 51.5 47.6 62.3 52.1
Peru 44.7 60.2 65.0 58.3 52.4 56.1 54.4
Brazil 50.5 95.1 84.5 35.0 59.2 64.9 55.1
Panama 63.1 14.6 47.6 71.8 49.5 49.3 48.3
Argentina 48.5 70.9 92.2 47.6 100.0 71.8 49.7
Costa Rica 57.3 17.5 71.8 46.6 53.4 49.3 40.0
Uruguay 62.1 11.7 95.1 24.3 69.9 52.6 33.1
Ecuador 39.8 45.6 42.7 67.0 5.8 40.2 36.5
Guatemala 35.0 46.6 24.3 79.6 64.1 49.9 38.4
El Salvador 31.1 25.2 56.3 31.1 37.9 36.3 32.8
Honduras 17.5 35.9 35.9 74.8 61.2 45.0 35.5
Belize 35.9 0.0 18.4 78.6 9.7 28.5 29.3
Nicaragua 10.7 26.2 37.9 57.3 18.4 30.1 23.3
Global
50.0 50.0 50.0 50.0 50.0 50.0 50.0
Average
Regional
43.4 44.3 60.1 53.1 48.2 49.8 43.2
Average
LATIN AMERICA INFRASTRUCTURE INDUSTRY RISKS

Infrastructure Competitive Construction - Construction - Legal Labour Industry
Risks
Landscape Timeliness Contracts Environment Market Risk Risks
Chile 72.3 86.4 81.6 76.7 77.7 78.9 76.2
Colombia 72.3 52.4 48.5 24.3 52.4 50.0 47.1
Mexico 51.9 48.5 93.2 40.8 68.0 60.5 53.4
Peru 34.0 57.3 79.6 30.1 61.2 52.4 48.9
Brazil 34.0 6.8 73.8 49.5 28.2 38.4 40.8
Panama 34.0 46.6 14.6 41.7 30.1 33.4 43.2
Argentina 51.9 7.8 26.2 35.0 41.7 32.5 30.6
Costa Rica 34.0 47.6 9.7 59.2 45.6 39.2 44.4
Uruguay 51.9 19.4 54.4 70.9 35.9 46.5 50.2
Ecuador 18.4 30.1 27.2 26.2 47.6 29.9 28.5
Guatemala 18.4 25.2 31.1 12.6 17.5 21.0 24.6
El Salvador 18.4 22.3 45.6 20.4 22.3 25.8 25.7
Honduras 18.4 28.2 19.4 15.5 6.8 17.7 19.8
Belize 18.4 27.2 15.5 9.7 38.8 21.9 22.2
Nicaragua 18.4 5.8 42.7 19.4 9.7 19.2 17.1
Global
50.0 50.0 50.0 50.0 50.0 50.0 50.0
Average
Regional
36.5 34.1 44.2 35.5 38.9 37.8 38.2
Average
LATIN AMERICA INFRASTRUCTURE COUNTRY RISKS

Long Term Short Term Long Term
Short Term Operational Country
Economic Risk Economic Risk Political Risk Risks
Political Risk Index Risk Index Risks
Index Index Index
Chile 66.0 72.3 84.5 78.6 69.9 73.5 76.2
Colombia 51.5 56.8 40.8 33.0 41.7 44.3 47.1
Mexico 61.2 51.5 31.1 38.8 47.6 46.3 53.4
Peru 60.2 73.8 42.7 26.2 35.0 45.5 48.9
Brazil 53.4 47.1 52.4 24.3 40.8 43.1 40.8
Panama 58.3 50.5 53.4 53.4 51.5 53.1 43.2
Argentina 29.1 9.7 38.8 18.9 37.9 28.7 30.6
Costa Rica 45.6 41.7 65.0 40.8 52.4 49.7 44.4
Uruguay 55.3 47.1 71.8 51.9 48.5 53.9 50.2
Ecuador 40.8 32.0 13.6 13.6 31.1 27.0 28.5
Guatemala 52.4 53.9 12.6 6.3 22.3 28.3 24.6
El Salvador 34.0 19.9 35.9 12.6 25.2 25.5 25.7
Honduras 36.9 36.9 11.7 4.9 20.4 21.8 19.8
Belize 4.9 2.9 41.7 36.9 24.3 22.5 22.2
Nicaragua 11.7 13.6 8.7 18.9 18.4 15.0 17.1
Global
50.0 50.0 50.0 50.0 50.0 50.0 50.0
Average
Regional
44.1 40.6 40.3 30.6 37.8 38.5 38.2
Average
Competitive Landscape
Domestic and foreign firms are both widely active in Mexico’s infrastructure competitive landscape, with foreign firms strongest in
the power and utilities sector. Spanish firms stand out as the most active foreign contractors in the market, with a large share of
project roles. Financing of construction projects are driven by Mexico’s state-owned banks and US-based multilateral development
banks.
Mexican And Spanish Firms Dominate Mexico's Infrastructure Market
Mexico’s infrastructure market is characterised by a strong domestic component along with a robust involvement of foreign
firms. Domestic companies account for 45.4% of all construction roles in the country according to data from our Key Projects
Database (KPD), which covers power and transport projects over USD30mn in value. While well below levels seen in regions such as
Europe, this level is above the Latin American average of 42.6% (see ‘Latin America Construction Competitive Landscape: Domestic
And European Firms Most Active Regionally’, May 3 2019).
Domestic Firms Hold Competitive Position

Mexico - Share of Construction Roles By Company Nationality
Source: Fitch Solutions Infrastructure Key Projects Database
There is also a very strong presence of foreign firms in Mexico’s infrastructure market, driven in particular by the strong position of
foreign firms in the power and utilities sector, with 70.4% of construction roles compared with just 38.6% of construction roles in
the domestic-dominated transport sector. The relatively strong position of foreign firms in the power and utilities sector reflects the
impact of reforms in recent years, which have liberalised the sector and opened up contracting opportunities for construction firms.
Among these reforms has been the introduction of long-term power auctions, which have drawn substantial private investment
into the non-hydropower renewables development in the country (see ‘Auction Cancellation Prompts Downward Forecast Revision
For Mexican Renewables’, February 4 2019).
Foreign Firms Strong In Power And Utilities Sector

Mexico - Number of Construction Roles By Sector & Company Nationality
Among foreign firms, those based in the EU make up the largest share, accounting for 45.4% of all construction roles in Mexico.
Spanish firms in particular hold a very competitive place in the market, alone accounting for 35.5% of construction roles. Chinese
firms, strong in a number of Latin American markets including Bolivia, Venezuela and Ecuador, have a relatively small hold in the
market with just 2.1% of construction roles.
The relatively strong position of Mexican firms in the market is driven by the activeness of a number of large-scale infrastructure
developers. Among these, Empresas Ingencieros Civiles Asociados stands out, reflecting the company’s position as the
country’s largest construction firm. The company is involved in a number of major projects across the infrastructure sector
including tunnelling projects, hydroelectric dams and transportation projects. Other local firms with a strong presence in the market
include La Peninsular, Grupo CARSO, CICSA and PINFRA.
Empresas ICA Leads Among Firms

Mexico - Top Eight Firms By Number of Construction Roles & Nationality
Among foreign firms we highlight the robust presence in the market of Acciona, a large-scale Spanish infrastructure firm involved
in projects across sectors. Spanish firms Abengoa and Iberdrola also each hold a strong position in the market, driven in particular
by involvement in the development of non-power and utilities projects.
In terms of infrastructure financing, Mexico’s competitive landscape broadly mirrors the market for construction contracts, with
domestic institutions accounting for 41.6% of financing roles on projects in the country included in our KPD. Standing out among
peers for the number of roles are three state-owned enterprises focused on driving investment into the economy. Among these,
the Banco Nacional de Obras y Servicios Publicos, a state-owned enterprise focused on development projects, is the most
active, alone accounting for 15.2% of financing roles in the country’s construction market. Additionally, we highlight the significant
presence of the Fondo Nacional de Infraestructura, a state-owned infrastructure fund, and the Banco Nacional de Comercio
Exterior, a state-owned bank and export credit agency.
State Banks And US-Based Multilaterals Key

Mexico - Number Of Finance Roles By Institution
International firms also play an important role in the market, with US-based institutions accounting for the largest share with 21.9%
of financing roles compared with 8.4% for Japan-based institutions and 7.8% for Spanish firms. The North American
Development Bank, the Inter-American Development Bank and International Finance Corporation account for the vast majority of
roles held by US-based firms (87.2%), highlighting the important position of multilateral development banks in Mexico’s
infrastructure sector, a trend repeated in most markets across Latin America.
MEXICO - KEY PLAYERS FINANCIAL DATA

Name Latest Market Cap Revenue Net Income Total Debt/ Interest Price/
Financial Year (USD) (USD) (USD) EBITDA Coverage Earnings
Earnings Ratio Ratio
Cemex Sab-Cpo Dec-2018 6560.5 14411.2 544.8 4.8 2.6 13.6
OHL Mexico Sab Dec-2018 na 1226.5 498.1 1.9 4.1 na

De CV
Empresas ICA Dec-2016 46.8 1094.6 -476 34.9 0.1 na

S.A.B
Urbi Desarrollos Dec-2018 9.4 23.7 -2.5 na -2 na

Urbanos Sab
Desarolladora Dec-2018 28.7 55.9 68.3 1 14 0.1

Homex Sab De
Corporacion Geo Dec-2017 13.5 48 -230.8 na -17.7 na

Sab-Ser B
Consorcio Ara Dec-2018 310.3 427.2 42.9 2.4 15.6 7.3

S.A.B.-Ser
Promotora Y Dec-2018 4089.4 597.5 264.5 0.8 19.1 15.2

Operadora De
INF
Name Latest Market Cap Revenue Net Income Total Debt/ Interest Price/
Financial Year (USD) (USD) (USD) EBITDA Coverage Earnings
Earnings Ratio Ratio
Carso Dec-2011 na 1158.1 38.2 1.4 8.4 na

Infraestructura Y
Cons
Corp Dec-2018 2726.5 738.3 226.4 0.004 2106.1 12.5

Moctezuma-Ser
Impulsora Del Dec-2018 5200.7 834.7 232.4 8.7 5.2 27.8

Desarrollo Y E
Grupo Mexico Dec-2018 20460.7 10494.8 1300.5 2 5.4 14.6

Sab De Cv-Ser B
Grupo Dec-2018 690.6 3657.5 -97.8 7.7 0.005 na

Aeromexico Sab
De CV
Grupo Aeroport Dec-2018 4734.8 802.2 259.7 1.5 6.3 18.2

Del Sureste-B
Grupo Aeroport Dec-2018 5518.7 735.1 262.2 1.5 9.7 20.9

Del Pacific-B
Abengoa Sa -Cl A Dec-2018 242.6 1538.7 -1769.2 25.1 0.4 na
TC Energy Corp Dec-2018 44537.7 10558 2857.3 7 2 16.4
Iberdrola SA Dec-2018 59531.6 41429 3560 4.4 4.4 16.7
Acciona SA Dec-2018 5799.2 8869.7 387.4 4.5 2.2 15.2
Infraestructura Dec-2018 6591.8 1368.6 430.6 3.3 5.2 14.7

Energetica N
Sempra Energy Dec-2018 35841.1 11687 1050 7.6 1.6 22.3
na = not available. Last updated December 6 2019. Source: Bloomberg, Fitch Solutions
Company Profile
Empresas ICA
SWOT Analysis
Strengths • Mexico's largest construction company in revenue terms.
• A move into the public-private partnership sector has produced major concessions for the company.
• Strategic partnership with Fluor.
• Partnership with MECO in Costa Rica allows it strong prospects in Central America.
Weaknesses • Extremely high debt levels have caused the company to default, which will inhibit its ability to obtain
operational capital.
• Mining sector exposure has weighed on revenues and order backlog.
Opportunities • Mexico's construction sector will see accelerating growth over the coming years boosted by strong demand
and rising government investment.
• Government passed a public-private partnership law in 2012, which will improve investor protection and
regulations surrounding projects.
• Energy sector reform should benefit ICA through its ICA Fluor partnership, which is a major contractor for
Pemex.
Threats • Extremely high debt levels have led to a default. The company is currently going through financial and
operational restructuring; however, the possibility of bankruptcy looms.
• Future operational capacity remains uncertain due to company's current poor financial situation.
• The significant depreciation of the Mexican peso has made the company's dollar-denominated debt
repayment much more expensive.
• Entrance of players into the energy sector could be detrimental for current dominant market position.
• The company is also facing stiff competition from European firms for road projects in Mexico, especially toll-
road concessions.
Company Overview
Empresas ICA is Mexico's largest engineering and construction company. ICA is involved in the construction of infrastructure works,
urban and industrial construction, and the operation and maintenance of roads, bridges, ports and tunnels. Furthermore, ICA
participates in construction contracts, as well as managing water distribution and waste disposal plant deals. ICA's subsidiary, Vive
ICA manages the company's real estate products such as residential developments, malls and offices. ICA has four main divisions:
civil construction, industrial construction, operation of infrastructure and housing.
Activities And Projects
Increasingly elevated debt costs, compounded by a severe exchange loss due to a depreciating Mexican peso versus the US dollar,
have cut into Empresas ICA's profitability. ICA has attempted to free up operational capital by selling non-core assets and seek
additional project opportunities at home and abroad. However, our view that these asset sales would not materialise fast enough
has played out and the company went into default in December 2015. Restructuring efforts are underway, but the outlook for the
company continues to be dire.
Empresas ICA will struggle to find the cash to fund projects in the face of an intensifying debt crisis. The company's biggest
challenge has been managing its ballooning debt load, as already high debt costs have been compounded by the depreciation of
the Mexican peso against the US dollar. Indeed, the company has a large amount of US dollar-denominated debt, and most of its
revenues are generated in pesos. This culminated in a default in December 2015, when ICA failed to make a payment of USD31mn
on a bond interest payment. ICA then suspended payments on USD1.35bn in US dollar-denominated bonds - constituting the
largest default in Mexico in 20 years - and has thus been effectively locked out of capital markets. The firm was able to secure a
USD215mn loan from Fintech, but at a very high cost - the loan carries a 16% annualised interest rate and is backed by ICA's airport
and prison assets.
EMPRESAS ICA FINANCIAL DATA, MXNMN

2014 2015 2016
Revenue 39,428.2 33,124.1 20,400.9
Operating income 6,044.2 -6,395.9 895.7
Consolidated net income (loss) -3,023.5 -20,422.7 -8,870.7
Operating margin, % 15.3 -19.3 4.4
Source: Bloomberg, Fitch Solutions
Cemex
SWOT Analysis
Strengths • Large global presence - geographic diversification reduces country risk.
• One of the three majors in the global cement industry.
• Strong asset portfolio.
Weaknesses • Huge debt load - about USD14.3bn as of December 2016.

• Cement and construction are highly cyclical, a weakness during global economic downturns.
• Lack of sector diversification.
• Exposure to European market has been a persistent source of weakness.
Opportunities • We are forecasting an expansion in construction activity in Mexico over the medium term driven by the USD600bn
National Infrastructure Plan and an uptick in private investment.
• The critical US market will continue to expand, with the concrete intensive transport infrastructure industry as one of
the major drivers.
• Energy sector reform will expand demand for cement, especially in power plant and oil and gas pipeline development.
• Creation of an electricity unit will help to diversify incomes in a high growth market.
Threats • Increased competition in the Mexican market.

• Spending cuts to Mexican infrastructure, especially roads, will hit domestic demand.
• Focus on debt reduction could limit Cemex's ability to respond to changing market dynamics.
Company Overview
Cemex is the leading cement manufacturer in Mexico and one of the world's largest in terms of capacity. It is the world's leading
supplier of ready-mix concrete and one of the largest aggregate suppliers as well.
US Market And Debt Reduction Key To Cemex Improvement
We hold a positive outlook for Cemex, as the company continues to improve performance in the critical US market, and efforts to
divest assets and pay off debt are gradually improving the company's balance sheet. Cemex outperformed analyst expectations by
recording a controlling interest net income of USD75mn in 2015, the first positive bottom line figure reported in six years, and saw a
much greater controlling interest net income of USD750mn in 2016. The US market has been a key driving force behind the
company's recovery since 2011, with revenue and earnings steadily improving. This position in the US has helped to offset the FX
effects of a depreciating Mexican peso and - along with a divestment strategy - put the company in a better position to pay off its
sizeable US dollar-denominated debt load.
With continued growth expected in the company's key markets, and pricing and cost reduction programmes helping to improve
margins, we expect Cemex to continue to improve its operating performance over the coming years. However, risk remains due to
the company's high debt load, which will continue to hinder flexibility and its ability to react to another downturn in the cement
industry.
Bottom Line Turns Positive
Our outlook for the company remains positive as efforts to cut costs, increase margins, and reduce financing expenses finally feed
through to Cemex's bottom line. The firm reported a net income of USD144mn in Q415, up from a net loss of USD178mn in Q414.
This strong result in the final quarter of 2015 brought total net income for the year up USD75mn, providing the company with its
first profitable annual result in six years. 2016 saw a further consolidation of the company's improving position with a net profit of
USD750mn.
Although revenue growth has remained stagnant over the past several years, the company has managed to steadily improve
earnings by increasing margins. Global revenue growth from the company has not increased substantially since dropping off in
2009, and actually fell in 2015, down 9.7% y-o-y. However, EBITDA has been improving gradually since 2012 - from USD2.2bn to
USD2.3bn in 2015 and USD2.9bn in 2016. The stronger earnings came as a result of a cost-reduction programme and pricing
strategies which have increased operational leverage. In Q415 alone, cost reduction strategies netted an additional USD150mn, and
the company was able to increase global EBITDA by 9% y-o-y with a margin improvement of 1.1%.
US Performance Will Remain Crucial
The recovery of its US operations will remain a crucial factor for the overall performance of Cemex, with the country accounting for
27% of net sales in 2016 compared with just 22% in 2014 and sustained US dollar strength (and persistent peso weakness) set to
continue to amplify the impact of US dollar-denominated earnings. In the wake of the financial crisis and the ill-fated 2007
acquisition of Rinker, Cemex's performance in the US plummeted. US revenues dropped by half in just three years - from USD5.0bn
in 2007 to just USD2.5bn in 2010 - and operating income went into the red for seven years (2008-2014). However, since 2010,
Cemex's global performance has improved in line with the US construction industry. The recovery in US earnings was a key factor
on the overall bottom line, highlighted by the fact that a return to a positive operating income in the US market coincided with the
company's first bottom line gain in six years.
We expect the company to be able to maintain its current momentum in revenues and earnings growth in the US, as the
construction industry will continue to post positive growth and strong cement demand should allow the company to successfully
implement its strategy of increasing prices without conceding much market share. Over our five year forecast period, we expect a
normalisation in the US residential market to lead to slower growth rates on average; however, Cemex will benefit from heightened
investment into cement-intensive projects in the transport infrastructure industry. The company has also been heavily exposed to
reduced capital expenditure in the oil and gas industry, an area where we expect to see a gradual recovery over the next several
years after bottoming out in 2016. As such, we have a positive outlook for revenue growth potential.
Mexico Performance Will Remain Buoyant
We expect Cemex to continue to perform well in its home market of Mexico, in line with our positive outlook for construction
industry growth in the country. Growth will be driven by expanded private investment into infrastructure, especially in the newly
liberalised energy sector. While the government has announced more budget cuts for 2016 and 2017 in a bid to consolidate its
fiscal position, we believe this will be offset as the increased use of public-private partnerships and innovative financing structures -
Fibra E trust and project bonds - bring new capital into the sector. As such, we are forecasting 2.0% construction industry real
growth in 2017 and an average rate of 2.8% to the end of our forecast period (2017-2026).
Emphasis On Continued Debt Reduction
By increasing operating income and divesting non-core assets Cemex will continue to gradually pay down its huge debt burden
(total debt was USD14.3bn as of the end of 2016) and improve its balance sheet. Following the financial crisis, net debt and financial
expenses ballooned, placing considerable strain on the company's balance sheet and bottom line. This was further exacerbated in
recent years by the strengthening of the US dollar, as over 75% of total debt is US dollar-denominated. However, through aggressive
debt restructuring efforts, asset sales and operating performance improvements the company has started to bring this debt under
control. In 2015, the company managed to hit its target of a debt reduction of USD1bn, and we expect further reductions to
continue to slowly unburden the company from huge financial expenses.
Debt Load Remains Huge Risk
While the overall outlook for Cemex is currently positive, we highlight the continued risk facing the company due to its sizeable debt
burden. Despite a reduction of nearly USD3bn in total debt since Q114, the company's debt remains over USD14bn, which has
placed considerable strain on the firm's flexibility and balance sheet. Cemex's interest expenses in 2015 alone amounted to over
USD1bn. While the firm's geographic diversity will help to offset some of the risk, the company would face serious problems if faced
with another downturn in one of its key markets within a very cyclical cement industry. With major maturities coming up beginning
in 2018, continue debt reduction will be essential to provide the company with greater financial flexibility.
CEMEX FINANCIAL DATA, MXNMN

2016 2017 2018
Revenue 249,477 257,437 276,855
Operating EBITDA 52,764 48,639 49,277
Controlling interest net income 14,031 15,224 10,467
Source: Cemex, Fitch Solutions
Infrastructure Methodology
Sector-Specific Methodology
Construction Industry
Construction Industry Value
Our data is derived from GDP by output figures from each country's national statistics office (or equivalent). Specifically, it measures
the output of the construction industry over the reported 12-month period in nominal values (ie domestic currency terms). As it is
derived from GDP by Output data, it is a measure of value added within the industry (ie the additional contribution of the
construction industry, less the costs of labour and capital assets). Consequently, it does not measure the nominal value of all inputs
used in the construction industry, which, for most states would increase the overall figure by 50-60%. Furthermore, it is important to
note that the data does not provide an indication of the total value of a country's buildings, only the construction sector's output in
a given year.
This data is used because it is reported by virtually all countries and can therefore be used for comparative purposes.
Construction Industry Value Real Growth
Our final forecasts for Construction Industry Value are a combination of quantitative and qualitative inputs.
The model we apply uses a regression function to forecast the construction industry value against our proprietary macroeconomic
forecasts for Gross Fixed Capital Formation (GFCF). According to our testing this is the most statistically significant macroeconomic
variable for deriving a forecast for a market’s construction sector. Construction industry value in nominal terms is then adjusted for
sector-specific inflation, or, deflator (where available) forecasts to produce real growth rates, year on year.
Other macroeconomic variables that are not statistically significant to include into the regression model, but indirectly flow into our
forecasts through their impact on GFCF, include:
• Government expenditure
• Population
• Lending Rate
• Inflation
Our proprietary model then provides a fundamental basis for further analyst intervention to ensure that our statistical estimates
reflect the actual business environment for the infrastructure sector.
Bearing in mind that other factors need to be taken into consideration, both quantitative and qualitative, our analysts also factor in
sector specific issues in deriving our forecasts:
• Political risk - potential change in leadership, policy continuity

• Regulatory outlook - pricing structures of specific markets, bureaucracy, red tape
• Currency outlook - currency volatility, cost of imports
• Funding availability - fiscal health of the government, openness to private/foreign investment
• Fitch Solutions Key Projects Database - indication of a market’s infrastructure project pipeline by sector
• High Frequency Data – construction permits, starts, confidence etc
• Company developments - reflective of market dynamics and competitive landscape
Construction Industry, % Of GDP/Construction Value (USD)

These are derived indicators. We use Fitch Solutions’ Country Risk team's GDP and exchange rate forecasts to calculate these
indicators.
Capital Investment
Total Capital Investment
Our data is derived from GDP by expenditure data from each country's national statistics office (or equivalent). It is a measure of
total capital formation (excluding stock build) over the reported 12-month period. Total capital formation is a measure of the net
additions to a country's capital stock, so takes into account depreciation as well as new capital. In this context, capital refers to
structures, equipment, vehicles etc. As such, it is a broader definition than construction or infrastructure, but is used by Fitch
Solutions as a proxy for a country's commitment to development.
Capital Investment (USD), % Of GDP, Per Capita
These are derived indicators. We use our Country Risk team's population, GDP and exchange rate forecasts to calculate them. As a
rule of thumb, we believe an appropriate level of capital expenditure is 20% of GDP, although in rapidly developing emerging
markets it may, and arguably should, account for up to 30%.
Government Capital Expenditure
This is obtained from government budgetary data and covers all non-current spending (ie spending on transfers, salaries to
government employees, etc). Due to the absence of global standards for reporting budgetary expenditure, this measure is not as
comparable as construction/capital investment.
Government Capital Expenditure, USDbn, % Of Total Spending
These are derived indicators.
Cement Forecast
Fitch Solutions forecasts Portland cement production (including imported clinker), consumption and net exports, in millions of
tonnes. Our historical national production data is sourced from the United States Geological Survey (USGS), while trade data is
sourced from UN COMTRADE. By calculating production and net exports, we are able to determine historical consumption levels.
These consumption levels are then forecast out over our 10-year forecast period using our proprietary construction industry value
methodology, reflecting the changing demand picture for cement from the industry.
Construction Sector Employment
Total Construction Employment
This data is sourced from either the national statistics office or the International Labor Organization (ILO). It includes all those
employed within the sector.
Construction Employment, % y-o-y; % Of Total Labour Force
These are derived indicators.
Average Wage In Construction Sector

This data is sourced from either the national statistics office or the ILO.
Infrastructure Data Sub-Sectors
Fitch Solutions Infrastructure data examines the industry from the top down and bottom up in order to calculate the industry
value of infrastructure and its sub-sectors. Our construction industry value is broken down into transport, energy and utilities,
residential building and non-residential building. We use a combination of historic data as reported by the central banks, national
statistics agencies and other official data sources, and Fitch Solutions’ Infrastructure Key Projects Database tool.
Where possible we source historic data for the relative portion of either infrastructure spend or value generated by the various sub-
sectors we classify as infrastructure. We seek to segment official infrastructure data into pre-set categories classified by us, across all
countries, in order to optimise the ability to compare industry value across the sub-sectors of infrastructure. We then apply ratios to
the infrastructure subsector value in order to derive the value. Real growth is calculated using the official construction inflation rate.
In those instances where historic data is not available, we use a top down and bottom up approach incorporating full use of Fitch
Solutions's Infrastructure Key Projects Database, in most cases dating back to 2005. This allows us to calculate historical ratios
between general infrastructure industry value and its sub-sectors, which we then use for forecasting. Our Key Projects Database is
not exhaustive, but it is comprehensive enough to provide a solid starting point for our calculations.
The top down approach uses data proxies. We have separated countries into three tiers. Each tier comprises a group of countries on
a similar economic development trajectory and with similar patterns in terms of infrastructure spending, levels of infrastructure
development and sector maturity. This enables us to confirm and overcome any deficiencies of infrastructure-specific data by
applying an average group ratio (calculated from the countries for which official data exists) to the countries for which data is
limited.
• Tier I - Developed States. Common characteristics include:

• Mature infrastructure markets;
• Investments typically target maintenance of existing assets or highly advanced projects at the top of the value chain;
• Infrastructure as percent of total construction averages around 30%.
• Tier I countries: Canada, Germany, UK, US, France, Hong Kong, Taiwan, Singapore, Israel, Japan, Australia.
• Tier II - Core Emerging Markets. Common characteristics include
• The most rapidly growing emerging markets, where infrastructure investments are a government priority;
• Significant scope for new infrastructure facilities from very basic levels (eg highways, heavy rail) to more high value projects
(renewables, urban transport);
• Infrastructure as percent of total construction averages around 45% and above.
• Tier II countries: Colombia, Malaysia, Mexico, South Korea, Peru, Philippines, Turkey, Vietnam, Poland, Hungary, South Africa,
Nigeria, Russia, China, India, Brazil, Indonesia.
• Tier III - Emerging Europe. Common characteristics include:
• Regional socioeconomic trajectories;
• Development defined by recent or pending accession to European structures such as the EU. Infrastructure development to a
large degree dictated by EU development goals and financed through vehicles such as the PHARE and ISPA programmes, and
institutions such as the EBRD and EIB;
• Infrastructure as percentage of total construction averages between 30% and 40%.
• Tier III countries: Czech Republic, Romania, Bulgaria, Slovakia, Slovenia, Estonia, Latvia, Lithuania, Croatia, Ukraine.
This methodology has enabled us to calculate infrastructure industry values for states where this was not previously possibly.
Furthermore, it has enabled us to create comparable indicators.
Fitch Solutions Construction Market Coverage
Source: Fitch Solutions
Infrastructure Risk/Reward Index
Our Infrastructure Risk/Reward Index (RRI) quantifies and ranks a country's attractiveness within the context of the Infrastructure
industry, based on the balance between the Risks and Rewards of entering and operating in different countries.
We combine industry-specific characteristics with broader economic, political and operational market characteristics. We weight
these inputs in terms of their importance to investor decision making in a given Industry. The result is a nuanced and accurate
reflection of the realities facing investors in terms of: 1) the balance between opportunities and risk; and 2) between sector-specific
and broader market traits. This enables users of the Index to assess a market's attractiveness in a regional and global context.
The index uses a combination of our proprietary forecasts and analyst assessment of the regulatory climate. As regulations evolve
and forecasts change, so the Index scores change providing a highly dynamic and forward-looking result.
The Infrastructure Risk Reward Index universe comprises 105 countries.
Benefits of using Fitch Solutions' Infrastructure RRI:
• Global Rankings: One global table, ranking all the countries in FITCH SOLUTIONS's universe for Infrastructure from least (closest
to zero) to most attractive (closest to 100).
• Accessibility: Easily accessible, top down view of the global, regional or sub-regional Risk/Reward profile.
• Comparability: Identical methodology across 105 countries for Infrastructure allows users to build lists of countries they wish to
compare, beyond the confines of a global or regional grouping.
• Scoring: Scores out of 100 with a wide distribution, provide nuanced investment comparisons. The higher the score, the more
favourable the country profile.
• Quantifiable: Quantifies the Rewards and Risks of doing business in the Infrastructure sector in different countries around the
world and helps identify specific flashpoints in the overall business environment.
• Comprehensive: Comprehensive set of indicators, assessing industry-specific risks and rewards alongside political, economic and
operating risks.
• Entry Point: A starting point to assess the outlook for the Infrastructure sector, from which users can dive into more granular
forecasts and analysis to gain a deeper understanding of the market.
• Balanced: Multi-indicator structure prevents outliers and extremes from distorting final scores and rankings.
• Methodology is a combination of proprietary Fitch Solutions forecasts, analyst insights and globally acceptable benchmark
indicators (example: World Bank's Doing Business Scores, Transparency International's Corruption Perceptions Index).
Weightings Of Categories And Indicators
Source: Fitch Solutions
The RRI matrix divides into two distinct Categories:
Rewards: Evaluation of an Industry's size and growth potential (Industry Rewards), and also macro industry and/or country
characteristics that directly impact the size of business opportunities (Country Rewards).
Risks: Evaluation of micro, industry-specific characteristics, crucial for an industry to develop to its potential (Industry Risks) and a
quantifiable assessment of the country's political, economic and operational profile (Country Risks).
Our matrix is deliberately overweight on Rewards (60% of the final RRI score for a market) and within that, the Industry Rewards
segment (60% of final Rewards score). This is to reflect the fact that when it comes to long term investment potential, industry size
and growth potential carry the most weight in indicating opportunities, with other structural factors (demographic, labour statistics
and infrastructure availability ) weighing in, but to a slightly lesser extent. In addition, our focus and expertise in Emerging and
Frontier Markets has dictated this bias towards industry size and growth to ensure we are able to identify opportunities in countries
where regulatory frameworks are not as developed and industry sizes not as big (in USD terms) as in developed markets, but where
we know there is a strong desire to invest.
Industry Forecast Methodology
Fitch Solutions’ Industry forecasts are generated using the best-practice techniques of time-series modelling and causal/
econometric modelling. The precise form of model we use varies from industry to industry, in each case being determined, as per
standard practice, by the prevailing features of the industry data being examined.
Common to our analysis of every industry, is the use of vector autoregressions. Vector autoregressions allow us to forecast a
variable using more than the variable's own history as explanatory information. For example, when forecasting oil prices, we can
include information about oil consumption, supply and capacity.
When forecasting for some of our industry sub-component variables, however, using a variable's own history is often the most
desirable method of analysis. Such single-variable analysis is called univariate modelling. We use the most common and versatile
form of univariate models: the autoregressive moving average model (ARMA).
In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor. In such cases,
we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting.
We mainly use OLS estimators and in order to avoid relying on subjective views and encourage the use of objective views, we use a
'general-to-specific' method. Fitch Solutions mainly uses a linear model, but simple non-linear models, such as the log-linear
model, are used when necessary. During periods of 'industry shock', for example poor weather conditions impeding agricultural
output, dummy variables are used to determine the level of impact.
Effective forecasting depends on appropriately selected regression models. We select the best model according to various different
criteria and tests, including but not exclusive to:
• R2 tests explanatory power; adjusted R2 takes degree of freedom into account

• Testing the directional movement and magnitude of coefficients
• Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value)
• All results are assessed to alleviate issues related to auto-correlation and multi-collinearity
Fitch Solutions uses the selected best model to perform forecasting.
It must be remembered that human intervention plays a necessary and desirable role in all of our industry forecasting. Experience,
expertise and knowledge of industry data and trends ensure that analysts spot structural breaks, anomalous data, turning points
and seasonal features where a purely mechanical forecasting process would not.
Fit
Fitch
ch Solutions, 30 North C
Colonnade
olonnade,, Canary W
Wharf
harf,, L
London.
ondon. E14 5GN, UK
Tel: +44 (0)20 7248 0468
Fax: +44 (0)20 7248 0467
Web: www.fitchsolutions.com
IS SN: 1750-5372
ISSN:
Copy Deadline: December 2019

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oup Limit
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whatsoever for any loss or damage resulting from opinion, errors, inaccuracies or omissions affecting any part of the content.
This report from Fitch Solutions Macro Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch
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Industry Risk/Reward Index ....................................................................................................................................................33

Infrastructure Methodology ....................................................................................................................................................53

Forecast And Latest Updates

INFRASTRUCTURE - CONSTRUCTION INDUSTRY FORECASTS (MEXICO 2018-2028)

Construction industry value,

Construction industry value, real

Construction industry value, % of

INFRASTRUCTURE RISK/REWARD INDEX (MEXICO 2019)

Mexico 52.6 52.1 45.3 62.3 53.4 60.5 46.3

Threats • Uncertainty around policy direction remains elevated.

CONSTRUCTION AND INFRASTRUCTURE INDUSTRY DATA (MEXICO 2018-2028)

Modest Growth In 2020 For Mexican Construction Industry

Weakened Forecast For Mexican Construction

f = Fitch Solutions forecast. Source: Banco de Mexico, Fitch Solutions

Financing Unclear For Tren Maya Project

Source: Fonatur, Fitch Solutions

Private Capital Key To New National Infrastructure Plan In Mexico

2020 2021-2022 2023-2024 Total

Roads 38,255 (15) 24,957 (9) 36,917 (18) 100,129 (42)

Rail 22,650 (3) 18,840 (2) 26,054 (3) 67,544 (8)

Ports 24,594 (15) 26,227 (4) 22,900 (3) 73,721 (22)

Airports 29,204 (17) 13,255 (12) - 42,459 (29)

Telecommunications 86,561 (2) 31,492 (2) - 118,053 (4)

Water and Sanitation 15,998 (4) 30,502 (8) - 46,500 (12)

Energy 81,780 (6) - 3,200 (1) 84,901 (7)

Power - - 63,560 (6) 63,560 (6)

Tourism 130,964 (9) 102,720 (3) 19,080 (3) 252,764 (15)

Health 1,312 (1) - - 1,312 (1)

Other - 8,000 (1) - 8,000 (1)

Total 431,318 (72) 255,993 (41) 171,711 (34) 859,022 (147)

Source: Presidencia, Fitch Solutions

High Risks A Challenge To Plan Implementation

TRANSPORT INFRASTRUCTURE INDUSTRY DATA (MEXICO 2018-2028)

Transport infrastructure industry value real

Roads and bridges infrastructure industry value

Railways infrastructure industry value real growth,

Airports infrastructure industry value real growth,

Ports, harbours and waterways infrastructure

Transport Infrastructure Sector Outlook

Rail Infrastructure Sector To See Modest Growth

e/f = Fitch Solutions estimate/forecast. Source: INEGI, Fitch Solutions

Financing Unclear For Tren Maya Project

Source: Fonatur, Fitch Solutions

Airports: Government Advancing With Santa Lucia Airport Project

Mexico Emerging As Leading Market Regionally For Cable Car Projects

Roads And Bridges – Rural Roads To Be Key Focus

MEXICO - ROAD PPP PROJECTS AWARDED BETWEEN 2016 AND 2018

Matehuala-Saltillo 1,590 Maintenance and Execution Prodemex (Promotora y Desarrolladora Mexicana de

Texcoco-Zacatepec 1,367 Maintenance and Execution ICA Infraestructura, Constructora El Cajón

Project Value Type Status Contractor

Source: MexicoProjectsHub, Fitch Solutions

Tendered Projects, Demand To Support Ports Investment

MEXICO - MAJOR TRANSPORT INFRASTRUCTURE PROJECTS

Mexico City - Rail 3,750 209.2 km Secretariat of Communications and na At planning

Energy & Utilities Infrastructure

ENERGY AND UTILITIES INFRASTRUCTURE DATA (MEXICO 2018-2028)

Energy and utilities infrastructure industry value

Power plants and transmission grids

Oil and gas pipelines infrastructure industry value

Water infrastructure industry value real growth, %

Power Sector: Renewables To Underperform Potential Amid Uncertainty

Mexico To See Robust Power Growth

f = Fitch Solutions forecast. Source: EIA, Fitch Solutions