FT Energy Newsletters - Global Water Report | January 23, 1999
Enron's Azurix, stalled in Brazil, has bounced back in Mexico to secure operating rights for the resort city of Cancun. The deal should be both profitable in itself and capable of serving as a springboard for the newly-established Azurix in its quest for further acquisitions and concessions in both Mexico and other Latin American countries.
Cancun constitutes a good test for Enron following its withdrawal from the race to control Cedae, the giant Brazilian water authority which serves Rio de Janeiro (GWR 60 4 December 1998). On the one hand, it is already structured on a cost recovery basis, so that there is - at least in theory - no subsidised provision of water to consumers. Moreover, its clientele includes hotels and other tourist facilities which should help ensure the further development of the project on essentially commercial lines. On the other hand, however, the project is plagued with bad debts. Aguakan, the private sector Mexican company which actually holds the Cancun concession, complained a few months ago that it was owed some 56m pesos (GBP 5.3m) by various commercial enterprises - including major hotels, restaurants and shipping centres. When Aguakan threatened to cut supplies, the municipality forbade such action. Azurix has now purchased a 49.9% stake in Aguakan from Grupo Mexicano de Desarollo, which will continue to hold the remaining 50.1% stake. Azurix, which will appoint three of the new five-person Aguakan board, is to pay GBP 13.5m in cash, but will also assume some GBP 25m in financing and operational commitments relating to much needed improvements in the wastewater system. Azurix Cancun, its local affiliate, will be the operator. The deal has yet to secure regulatory and legislative approval, but Azurix hopes these will be secured soon, to allow the deal to be implemented by the end of March.
Aguakan's concession, initially awarded in 1993, runs until 2023. It covers water, wastewater and drainage for Cancun and Isla Mijeres in the state of Quintana Roo. The concession serves a population of some 383,000, with the population growth rate expected to be 3% a year from now to 2015. Wastewater services account for 8% of current revenues, residential water supplies for 22% while the rest comes from hotels.
Azurix told GWR: "We're very excited about being able to work very closely with a regional neighbour and Nafta (North American Free Trade Agreement) partner. Mexico is a very attractive market in terms of the water market."
A spokesman added: "Cancun will help us in additional deals in Mexico in terms of privatisation." The company, said the spokesman, was hoping to secure further ventures in Mexico, but with different local partners. In addition, he said, "it's a springboard for great opportunities in the rest of Latin America ."FT Energy Newsletters - Global Water Report:
