Lopez Obrador Commits to Unorthodox Vote on $13 Billion Airport

(Bloomberg) -- Mexican President-elect Andres Manuel Lopez Obrador said he’ll abide by the will of voters who will decide for themselves whether to proceed with the construction of a $13 billion Mexico City airport or cancel it altogether.

The two options will be put up for public consultation the last week of October, Lopez Obrador said Friday. Such a vote would be unprecedented, since referendums aren’t described in Mexico’s constitution. And Lopez Obrador won’t even be president until December.

The incoming president made the future of the airport one of the key issues of his campaign. He has said the project is a waste of taxpayer’s money and mired in corruption, and that he would request halting construction as soon as he wins, although he hasn’t done so.

While there’s not enough time to create a legal vehicle to formalize the referendum, it will be exercised in “good faith” by the next president, said Ricardo Monreal, the incoming Senate leader of Lopez Obrador’s Morena party. In that way, the referendum will serve as binding.

The state-owned group managing the construction, known as GACM, has sold $6 billion of bonds to finance it and also raised an additional $1.6 billion in an initial public offering of Fibra E shares -- a hybrid between a master-limited partnership and a REIT. The sale was aimed at involving more investors in the project and securing more capital to ramp up construction, making it harder for a future administration to unravel it.

Despite investor uncertainty after Mexico’s July 1 election surrounding the fate of the airport, bonds maturing in 2047 have gained. Since election day, yields on the 2047s have dropped nearly 1 percent, only narrowly underperforming the sovereign. After today’s press conference, the bonds erased the day’s gains, falling 0.2 percent immediately after the announcement.

According to data compiled by Bloomberg, the largest shareholder of the Fibra E is Operadora Inbursa, an investment vehicle backed by billionaire Carlos Slim, whose construction company is in charge of some of the main building contracts at the airport and whose son-in-law helped design the terminal with renowned British architect Norman Foster.

Ending the $13 billion project would mean using the existing airport and adding two runways to a nearby military base, future transportation minister Javier Jimenez Espriu said in a press conference Friday with Lopez Obrador. Although experts at Mitre Corp. have deemed that plan not viable, Jimenez said advisers at his own party and other Chilean experts say it can be done and a five-month study costing as much as 200 million pesos will be done to investigate further.

There would also be benefits to continuing the construction, Jimenez said, like the 70 million passengers it will be able to handle and the fact that it already has almost all the financing it needs. He also said a cancellation could trigger a market drop.

“Lopez Obrador has painted himself into a corner with this project and the consultation is the staircase that will pull him out,” said Carlos Bravo, a political scientist at Mexico City’s Center for Economic Research and Teaching. “It’s his way out so he can change his mind without really saying so. It’s likely the consultation is going to be planned in a way where it would be absurd to vote against the construction.”

The official timeline for the new airport’s start of operations is October 2020, but in a document posted to Lopez Obrador’s website, Parsons consultants said that date has been moved to the second half of 2022. The construction is about 31 percent done, Jimenez said.

Last month , GACM indefinitely suspended four tenders until the incoming administration resolves the project’s future. The tenders included the construction of a fuel-distribution network and runway lighting. The move did not affect any contracts that had already been awarded or the construction itself, the group said at the time.

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