This article will explain the blurring that has taken place between National and International bids in general and especially with new and stricter national content regulations, as well as how ineffective NAFTA has been in protecting US and Canadian companies from this new Mexican protectionism. It will also discuss how and why foreign companies and companies trying to provide non-Mexican made product should be concerned about remaining viable in the Mexican public water sector.

Evolution of National Content Regulations in Mexican Government Procurement
In November of 1994, six months after NAFTA went into affect, Mexico established a rule that 50% of the contracts of federal, state, and municipal governments should be with small or medium Mexican companies, an interesting, progressive measure that for the most part was not enforced or enforceable. Ironically, although the NAFTA chapter on government procurement was supposed to create opportunities for US and Canadian companies and protect at least them from protectionist procurement measures in Mexico, said rule served as a precursor for much more protectionist measures in this area that would come from the Mexican federal government in November of 2000 and even more strongly in October of 2010.

In November of 2000, Mexico published its first Rules for the Determination and Accreditation of the Amount of National Content for Federal Government Procurement. In these rules, the Mexican government established that all federal government procurement goods purchases needed to have at least 50% national content. While procurement laws established that public works contracts could only be bid on by Mexican based companies, said contracts did not have any national content requirements. While said regulations allowed Mexican federal dependencies to establish national content minimums, this was something that was rarely done.

While these new national content requirements for the purchase of goods (but not on public works) now existed, said regulation (a) was not implemented with a heavy hand at the federal level, (b) state and municipal procurement officials virtually ignored these stipulations, and (c) federal officials looked the other way at these state and municipal transgressions. As a result, despite the creation of these 2000 Rules foreign companies could find a viable way to do business in the Mexican procurement system. Perhaps for this reason, the US and Canadian governments seemed to also look the other way rather than try to challenge the Mexican government on this measure back in 2000.

In October of 2010, the 2000 Rules were modified to make it even more difficult if not impossible for foreign companies to participate in the great majority of government bids at the federal, state, and municipal levels. And more importantly, the implementation of these rules appears to be real and consistent this time, unlike in the case of past procurement and national content laws and regulations. Prior to the October 2010 National Content rules changes, the opportunities for foreign companies could be understood to be generally viable and even somewhat ample. If a foreign company had a Mexican subsidiary or sold its products through a Mexican intermediary, then they could participate freely in all bids, including national bids. However, the new 2010 regulation and its heighthened implemention dramatically affected this viability. With the extension of national content to public works and the more strict enforcement of the national content regulations, foreign companies are effectively excluded from being able to participate in national bids even via a Mexican intermediary because said bids now require 55% national content, and they will require at least 65% national content in less than 18 months (in July 2012). And, the 2010 regulations are being interpreted so that even international bids are subject to national content requirements when Mexican products and technology can meet bid requirements.

Analysis of the Changes Resulting from the October 2010 Regulations*
The most important change for the water sector brought about by the October 2010 National Content rule changes was related to the establishment that all municipalities and states that used any federal funding (80-90% of these cases or more) would have to abide by these new regulations as well. This change at the municipal level is something new and particularly damaging for foreign companies in the water sector since more than 95% of Mexican bids in this sector are municipally procured, and since municipal and state government bodies are exempt from NAFTA protection. It is interesting to note that while the Mexican federal government insists on the exclusion of municipal and state procurement from NAFTA protection, arguing that said entities are not truly federal and therefore exempt, it nonetheless conveniently uses municipal dependence on federal funding to insist that said entities have to comply with these federal regulations. This makes these entities de facto federal bodies from a national regulatory perspective but evidently and conveniently not from a NAFTA perspective. Is this a legitimate legal loop hole or a classic example of having your cake and being able to eat it – we see it as the later.

Another negative has emerged from this heightened enforcement and percentage increases in national content rules. Foreign companies and/or their Mexican intermediaries or partners, are being forced to decide between being excluded from the Mexican government procurement system altogether or lying and stating that their products meet national content minimums and bribing local officials to look the other way, hoping that federal oversight will not catch their digression. LGA Consulting is already aware of a few cases of this type of behavior by foreign companies. This is not only inappropriate and illegal in Mexico, it also goes against US export practice laws that the US federal government promotes and enforces, thus providing US companies with another barrier to remaining viable in its second most important export market, a market where NAFTA was supposed to mean the elimination of old trade barriers and not the creation of new ones. We fear that too many local Mexican water procurement officials will become more aggressive in the future at using this national content rule as a tool for corruption, being able to function even more effectively and efficiently with it as gate keepers approving or eliminating bids at the beginning of the process using this legal “ruler” more adeptly than previous more onerous and questionable instruments.

It is important to mention that foreign manufacturers and Mexican intermediaries who sell foreign products into the Mexican public water sector are now beginning to see the implementation of these changes, that is, a commitment by the Mexican federal government to enforce these regulations and subsequently a new adherence by municipal and state governments to these regulations. Some companies who sell components to Mexican integrators, where a large part of a public work is labor or construction, seem to be less affected so far by these regulations. However, in 18 months when the percentage of minimum national content is 65%, this could and probably will change. And, it is important to clarify that these percentages are MINIMUM requirements and that foreign companies and Mexican distributors of their products are saying that they are now routinely running into bids where the percentages are above 65% and has high as 100%. For a company trying to sell product via a Mexican distributor to the Mexican government in a bid only for that product, virtually any national content requirement, as is the case in Mexico, will serve as an effective way to exclude these products from the market.

Analysis of NAFTA Government Procurement Provisions
Above we mention that NAFTA Chapter 10 Government Procurement does not seem to offer US and Canadian companies adequate protection from Mexican protectionist government procurement policies. This is evident in a number of areas and is made clearer when one reads the key articles in the Chapter, which we will explain below.

In the case of international bids, it is now illegal, not to mention completely impractical as the system exists today, for a foreign company to bid on any international bids without a Mexican corporation, partner or intermediary as the formal bidder. As a result, any foreign company hoping to employ a rep or agent for this purpose can no longer do so. If NAFTA was supposed to help in this area, it absolutely has had no effect except to deceive US companies into believing that somehow they were better protected from these types of issues and problems after 1994 than before 1994.

Any problem lies with the Mexican government procurement system. Said system is structured so that effectively three types of bids are permitted: (a) national bids in which only Mexican-based companies can participate, (b) international bids where companies from countries with free trade agreements (like NAFTA) with Mexico can participate, and (c) open international bids where companies from any foreign country can participate. However, foreign companies cannot participate in any of these bids without a Mexican entity, despite what NAFTA seems to establish. One might argue that foreign companies should be content to be able to participate in the international bids and agree to set up Mexican corporations to participate in national bids or simply allow Mexican companies to have these national bids that one might assume are of lower value and probably fewer in number than the international bids. However, LGA Consulting analyzed all public sector water bids between July 2009 and June 2010, and found that during that year period, only 2.28%of all such bids were international in nature. In speaking with Mexican water government officials involved in procurement bids, it appears that this is a trend that will continue and by no means an exception.

Articles 1003 (National Treatment and Non-Discrimination) and 1001 (Scope and Coverage) , the core articles of NAFTA Chapter 10 seem to offer straight-forward, effective protection from the above mentioned national and international bid problems or the national content rules discussed throughout this article:

“Article 1003 – National Treatment and Non-Discrimination
1. With respect to measures covered by this Chapter, each Party shall accord to goods of another Party, to the suppliers of such goods and to service suppliers of another Party, treatment no less favorable than the most favorable treatment that the Party accords to (a) its own goods and suppliers; and (b) goods and suppliers of another Party.
2. With respect to measures covered by this Chapter, no Party may treat a locally established supplier less favorably than another locally established supplier on the basis of degree of foreign affiliation or ownership, or discriminate against a locally established supplier on the basis that the goods or services offered by that supplier for the particular procurement are goods or services of another Party.”

“Article 1001 – Scope and Coverage – This Chapter applies to measures adopted or maintained by a Party relating to procurement: (a) By a federal government entity set out in Annex 1001.1a-1 ….., or a state or provincial government entity set out in Annex 1001.1a-3 in accordance with Article 1024; (b) Of goods in accordance with Annex 1001-1b-1, services in accordance with Annex 1001.1b-2, or construction services in accordance with Annex 1001.1b-3; and (c) Where the value of the contract to be awarded is estimated to be equal to or greater than a threshold, calculated and adjusted according to the U.S. inflation rates as set out in Annex 1001.1c, (i) For federal government entities, US $50,000 for contracts for goods, services or any combined thereof, and US $6.5 million for contracts for construction services; ( ii)For government enterprises…or (c) state and provincial government entities, the applicable threshold, as set out in Annex 1001.1a-3 in accordance with Article 1024.”

Even US federal government officials responsible for NAFTA issues confirm that said articles do not protect US and Canadian companies from unjust Mexico government procurement procedures, specifically prohibiting US companies to bid directly without Mexican intermediaries and prohibiting Mexican government entities from using restrictive national content regulations to exclude US companies from the sector.

Likewise, Article 1024 (Further Negotiations), referenced extensively above in Article 1001, which discusses the initiation of negotiations for improvements in Chapter coverage to include local/state entities under Chapter 10 provisions, has NEVER taken place even though said article mandated that negotiations were supposed to start between the three parties no later than 1998 – 12 years of no activity on the issue.
These Chapter 10 articles have been ignored or Mexican officials have found ways to change their meaning and circumvent their enforcement so that Chapter 10 is completely ineffective and out of step with if not contradictory to the spirit and purposes behind the inclusion of a government procurement chapter in NAFTA. As a result, one has to ask, does Chapter 10 have any merit or help protect US and Canadian companies in any way from Mexican government protectionism in government procurement – we have to conclude that it does not.

US and Canadian Procurement Laws vs Mexican Procurement Laws
The above information in this article demonstrates that Mexican government procurement laws and regulations are clearly protectionist in general and even towards US and Canadian products, something clearly not in the general spirit of NAFTA nor the spirit or evidently the reading of Chapter 10 . An easy but incorrect assumption might be made that the US and Canadian government procurement laws and regulations are probably just as protectionist as those in Mexico. While LGA Consulting has not studied this issue exhaustively, from conversations with US federal government officials and from some investigation of some applicable regulations, it seems that the US does not treat NAFTA partners, nor for that matter countries with whom it does not have free trade agreements, in the same negative way that Mexico does. The US does offer protection for some metal/steel producers in government procurement bids, but said protection is clearly temporary in nature. These US measures neither apply to all products that are procured by the federal government nor are written into the law as something intended to be permanent, as is the case with the Mexican National Content Regulations published in October of 2010.

It is important to mention that all of Canada´s provinces and almost 2/3 of US states have ratified the GATT Agreement on Government Procurement, which establishes that these entities cannot discriminate against foreign products the way that the Mexican federal government is currently doing. And, to our knowledge, not a single Mexican state has made any effort to look into the ratification of this GATT Agreement. One has to ask why this is so and why the Canadian provinces and 2/3 of the US states should adhere to these more stringent, non-protectionist GATT policies if their NAFTA partner counterparts have expressed no interest or willingness to pursue similar actions.

Conclusion
Many US and Canadian manufacturers who were expecting government procurement opportunities to come from NAFTA and the supposedly more liberal, open Mexican economy have to be feeling deceived. One can easily argue that Mexican laws and NAFTA have not only not created procurement opportunities, they have restricted if not eliminated most opportunities that existed before NAFTA. This claim is serious because It comes with three very negative implications: (1) NAFTA is almost useless and even detrimental for government procurement opportunities in Mexico, (2) in the area of government procurement there exists a serious lack of commitment by Mexico to trade relations with its most important trade partners, and (3) Mexico`s government procurement policies demonstrate serious contradictions in the loud and proud stance of the Mexican federal government that if a country signs a free trade agreement with Mexico, its market will be opened to the products of the companies from these nations.

In 1994, the US and Canada signed NAFTA in recognition of the important role that both had with Mexico in each others trade and economic development. One has to conclude that what the Mexican federal government is doing with regards to government procurement is incompatible with US-Canada-Mexico trade relations in the context of Nafta. Of course Mexico has the right to regulate its international commerce. However, shouldn´t Mexico exclude countries that have signed free trade agreements with Mexico, especially the US and Canada, from these blatantly protectionist measures? And, if it does not see the reasoning and prudence of doing so, shouldn´t the US and Canadian federal governments be more vocal in public and more active in bilateral and trilateral negotiations with Mexican officials about these concerns. If the job of the federal government is to protect its exporters from unfair commercial practices abroad, then the answer is a resounding yes. In the next edition of the Quarterly, we are going to discuss options for how US and Canadian water-focused companies and their respective associations can work together with their respective governments to get these measures modified if not repealed. If any foreign companies or Mexican intermediaries would like to interface with LGA Consulting to discuss these issues and future lobbying efforts, please do not hesitate to contact us.

I. Principal industries that generate industrial discharges

We have selected the following industries/sectors to analyze based on feedback from different officials at Conagua (the Mexican Federal Water Commission) concerning enforcement targeting because of volume or toxicity of their discharges. In the majority of these cases, these sectors are made of 10-20 large companies that are discharging 75-80% of the contaminants – companies that the authorities are targeting and visiting with some regularity. However, Mexican water officials have established that there are about 500,000 companies that are discharging wastewater, only a few thousand (currently monitoring 1387 companies) directly into federal bodies of water and the great majority into municipal water systems that eventually flow into these federal water bodies.

Treatment of industrial discharges is growing thanks in part to improved enforcement and implementation of wastewater standards, industrial water price increases and related reuse strategies, some general and sector-specific fiscal incentives, and other related sector specific programs that focus on the five below target sectors. There are two Mexican wastewater standards that companies are supposed to comply with depending on where they are discharging: NOM 001 (for discharges into federal bodies of water) and NOM 002 (for discharges into municipal systems). NOM 003 regulates the treatment of wastewater for agricultural, recreational and industrial reuse. Later in this Report, we will be analyzing the state of Mexican industrial discharge enforcement and provide some analysis of the three above mentioned NOM wastewater standards. As mentioned in the introduction of the Report, if you would like a translated copy of these standards, please contact us.

II. Analysis of the Five Targeted Sectors

Conagua has identified the following five sectors as priorities for ensuring not only compliance with NOM 001 or NOM 002, but also with other, additional, higher standards:

1. Sugar Mills
2. Paper Mills
3. Chemical Factories
4. Petroleum and PetroChemical Factories and Refineries
5. Pork Industry

We will try to analyze each sector by its size, its growth dynamic, and its discharge problems to help determine the extent to which these sectors are viable targets for equipment sales and other solution providing products and services.

1. Sugar Mills

Conagua officials have identified the sugar industry as a target for prioritized enforcement to try to control the extensive polluting of rivers from sugar wastewater discharges. There are about 60 sugar mills in Mexico. One third of these are located in the state of Veracruz with the rest of the states all having between 1 and 3 mills. The process and technology that these mills use is 80-90 years old which means that their processes are very inefficient which leads to considerable organic contaminant discharges. During the first half of the past decade, sector programs were created and enforcement was enhanced both to cut down on BOD discharges and to get companies to buy into water reuse strategies. In the majority of these cases, Solutions focused on the manufacturing process have been the priority rather than setting up treatment plants to treat the discharges. Reportedly, about 1/3 of the sector is still non-compliant. Providing solutions to this 1/3, and helping the other 2/3 stay compliant should allow for considerable business opportunities.

While this is a good sector to focus on from a discharge and regulatory point of view, it is one of the sectors that has been hit hard by NAFTA with the increase in imports of fructose from the US. In light of price, quality, and logistical issues, fructose has made important in roads in food and beverage segment, areas that used to be solid, protected markets for the national sugar industry. The current trend towards low or no sugar products, especially with Mexico being having the 4th largest problem of diabites in the world, has also hurt the sector. Nonetheless, Mexico remains one of the principal sugar consuming nations of the world with per capita sugar consumption of almost 60 kg. a year, double the world average. And, Mexico maintains a sugar quota of 250,000 tons a year to protect the industry although the local soft drink industry has lobbied hard to allow for an increase in the quota. As a result, while there are threats to the industry, there remains great demand for national sugar in Mexico and therefore it remains an important although troubled sector that requires cost effective assistance to meet increased requirements and enforcement.

However, the sector is hardly one of high growth and effeiciency. Not only are manufacturing processes poor and inefficient, but the sugar harvest last year was poor as well, virtually requiring an increase in the sugar quota just to meet local demand. Normally, Mexico produces enough sugar to meet local demand. Production should go up in 2011 and there are plans to expand production facilities, but it would be hard to characterize the industry as one of growth and security in the future. The sugar industry in Mexico seems to be on the decline and the only way it will stay competitive will be via slow but steady improvement in sugar harvesting as well as increasing field and factory technological improvements to low costs, improve margins – and to stay compliant with wastewater standards in an ever increasing enforcement environment.
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2. Paper and Cellulose

The paper industry in Mexico generates more than 64,000 direct and 235,000 indirect Jobs. National paper manufacturing represents $10.3 billion annually, equivalent to 7.1% of the Mexican manufacturing GDP and almost 5% of the industrial GDP. National paper companies manufacture about 70% of all the paper products consumed in Mexico. In terms of production and discharge volumes, about 20 companies produce virtually all of the waste product with the top 10 companies response for approximately 80% of the entire sector. Recycled paper is the strength of the Mexican paper industry. Also, the Mexican consumption of recycled paper is one of the highest in the world with Mexico ranked 3rd in the world in this category.

So far in 2010, paper product has increased by more than 30% although part of this growth is the recuperation of production lost during the 2009 economic downturn. However, like in most Mexican industries, the Mexican paper industry is very dependent on the US for all types of process inputs.

Like in the case of sugar mills, Conagua recognized that they had to step up their vigilance of the paper industry to eliminate the extensive discharge problems that the industry presents to the environment worldwide. As a result, they created a specialized program to prioritize vigilance to ensure compliance well beyond NOM 001 and 002 levels. However, unlike the sugar industry, while the paper manufacturing processes employeed in Mexico are fairly modern, their discharges are still of great concern and require extensive treatment plant infrastructure. 90% of the companies that belong to the Mexican Paper Chamber have at least secondary biological treatment plants and several of them count with the somewhat exclusive Mexican Secretary of the Environment Water Quality Certification (Certificado de Calidad de Agua). Many companies in the sector have taken advantage of fiscal incentives whereby they receive free water for their manufacturing processes if they meet levels sometimes significantly above NOM 001 and 002 discharge standards that would meet or surpass even US EPA standards. While the top 10 Mexican paper companies are fully compliant with Mexican regulatory requirements, the next 10 companies, considered the medium-size producers, need assistance to get or stay compliant while lots of smaller producers remain non-compliant and will likely be future targets for Conagua regulatory enforcement efforts in the sector.
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3. Chemical

The Mexican chemicals industry, like the Mexican sugar industry, is dealing with the challenge of trying upgrade process technologies from the 1920s and 1930s to become more efficient and to be able to comply with Mexican environmental regulatory standards. At the same time, they are a bit more like the paper industry in that 80% of production and discharges are generated by 10-20 companies, and their solutions require treatment plant infrastructure. In fact, the larger manufacturers tend to have activated carbon and tertiary rather than secondary treatment systems to deal with solvent, hormone, and other BOD discharges, with solvents being the top problem. A secondary problem that both these companies and water authorities are dealing with are the cleaning of the aquifers that have been heavily and historically polluted by chemical company discharges. Conagua maintains specialized programs to ensure that chemical companies surpass NOM 001 and 002 standards and assist in the rehabilitation of aquifers affected by historic company discharges.

The 230 companies in the Mexican Chemical Chamber represent close to 90% of the sectors production and discharges. This association also includes the great majority of companies that manufacture chemicals for the water treatment. According to Conagua officials, the majority of the problematic companies in the segment are found in and around the Valley of Mexico (including Tlaxcala) and in the state of Veracruz which also has the majority of the mills and discharge challenges associated with the sugar industry.

Annually, the Mexican chemical industry manufactures over $17 billion which represents close to 12% of the manufacturing GDP and 8.5% of the industrial GDP. Annual investment in the industry is more than $1 billion a year although these amounts were not reached in 2008 or 2009 with the economic crisis. While there is some growth potential for this segment, the chemical industry is considered to be somewhat depressed, losing 20% of its production during the economic crisis. Pre-crisis production levels are not expected to be reached until late 2011 or possibly late 2012.
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4. PetroChemical and Petroleum

The Mexican petrochem and petroleum industries face similar challenges as the chemical industry, with the greatest problems being solvents and toxicity. However, there is one important difference. There are only 4 private petrochemical companies in all of Mexico, located in Veracruz, northern Tamaulipas (Poza Rica), and Chihuahua, while Pemex has 8 petrochem complexes and 39 petrochem plants throughout the country.

The only petroleum company in Mexico is Pemex, the Mexican state owned and run national petroleum company. Pemex has almost 7000 wells and 400 production fields, over 230 marine platforms, 11 gas refineries and 6 oil refineries, making it one of the most important worldwide oil companies: #3 oil producing company and #11 in oil sales, #6 oil producing country, #12 in natural gas production, #13 in oil refining capacity, and #17 in oil reserves. 2009 Pemex investment was over $20 billion (100% more than in 2005) with over $2 billion destine for refinery infrastructure (65% more than 2005). Total Pemex sales in 2009 were $87 billion although production, currently at 2,600 barrels a day, has fallen annually since 2005 with a 14% decrease from 2005 to 2009.

Conagua officials say that Pemex has been targeted for enforcement during the last few years and that they will remain a priority target for them in the next few years and beyond. While it appears that Pemex has all of the money it would ever require to obtain technology and equipment to remain compliant, this point of view is a bit too simplistic. We see four important limitations when considering Pemex business in this area: (1) maintanence of its infrastructure is no small or cheap matter and with over 1/3 of all federal spending coming directly from Pemex funds, Pemex does not have the liquidity or funds to meet these required exprenses so readily; (b) Pemex might be generating a lot of revenue but it is also generating a lot of debt and not a lot of profits; (c) when Pemex is generating so much revenue for the federal government, it is unclear to what extent Pemex violations are conveniently overlooked, and (d) doing business with Pemex is complicated, often requiring the right contacts and is far from being corruption free.
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5. Porticulture Industry

The Mexican pork industry is the second livestock industry only to the very large cattle industry, producing over 1.1 Billion tons of product each year. The states with the most production are the following: (1) Sonora (20%, principal export state), (2) Jalisco (19%, no exports), (3) Guanajuato (9%, no exports), (4) Puebla (9%, no exports), (5) Yucatan (8%, important exporter).

However, the market appears to have little growth prospects in light of low production trends (2009 production figures are equal to 2006 figures) and increased imports during the last 5 years. In fact, while production in 2009 was flat, imports increased during that time by over 25% and went from 25% of total sales in 2003 to 33% in 2009. While growth might be limited in the sector, discharge problems are extensive and therefore despite low growth it appears that there will be a need and probably a demand for equipment and services for this sector for many years.

The porticulture sector has serious discharge and waste problems, compounded by its small and decentralized nature. Conagua is stepping up its enforcement of this decentralized sector despite the rural enforcement challenges and has established a specialized program to monitor this underinfrastructured, relatively unsophisticated industry. We will analyze this sector`s environmental problems and business potential in the next edition of the Report in our analysis of the Mexican agriculture sector.
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Several other segments are also important consumers of equipment, products, and services for clean and wastewater problems and solutions: food & beverage (including bottling, baking and dairy), metalworking, cement, pharmaceutical, textile, hotel/restaurant, and construction, all of which are important Mexican sectors and produce considerable discharge, will be analyzed in the next Report. Likewise, next month we will deal with the challenges of the agricultural sector, which represents only 4% of GDP but where over 83% of Mexican water resources are destine, almost double the percentage in the US. Conagua increased funding for agricultural-related wastewater and infrastructure projects by 60% in 2010 recognizing the need to address both the high water consumption and pollution/discharge issues of this large, important, declining, unwieldy and often highly inefficient sector.

According to a study done by the Mexican National Water Commission (Conagua), the quality of the superficial water in Mexico is:
• Not contaminated (6%)
• Acceptable (20%)
• Lightly contaminated (51%)
• Contaminated (16%)
• Very contaminated or contains toxic substances (7%)

Mexico is among the top countries in the world for the consumption of bottled water. Consumption statistics for 2004 in the first table below show that Mexico is the second largest market behind the United States. In fact, 2009 figures show that Mexico (8.6% increase) was third in overall bottled water revenue growth behind only China (71.5%) and right with the second place U.S. market (8.8%). Some industry sources have reported that Mexican revenues for bottled water could be close to equaling those of the United States. Considering that Mexico has only 33-40% of the population of the United States, these consumption and revenue figures are even more noteworthy.

The second table below shows that Mexico also was the second largest consumer of bottled water per capita, well ahead of the United States and other countries and only behind Italy. The Trade Office sees no significant trends that have occurred since 2004 that would suggest that the nature of these indicators and figures would be dramatically different today.

Top Countries
Bottled water consumption in liters in 2004

USA – 26,000 million
Mexico – 18,000 million
China – 12,000 million
Brazil – 12,000 million

Top Countries
Bottled water consumption per capita in 2004

Italy – 184 liters
Mexico – 169 liters
Belgium – 145 liters
France – 145 liters
Spain – 137 liters

Major Bottled Water Players in the Mexican Market
The retail bottled water market in Mexico is dominated by multinationals but there is considerable competition. Unlike the U.S. market where Nestle (>50% of the market) and D&S Waters (25-33% of the market) control most of the market, the three major competitors in the Mexican retail market (Danone, PepsiCo, and Coca-Cola) account for only 40% of total sales. Surprisingly, Nestle, the U.S. bottled water leader appears to have less than 2% of the Mexican market. In 2006, Coca Cola reported that 20% of its revenue came from bottled water sales, and there is every reason to believe that that figure today represents as high as 25%, if not 30%, of its sales today.

There are almost 6,000 bottled water manufacturers in Mexico, with 10 large consortiums, 150 large companies, 300 medium companies, 600 small companies, and 5,000 micro-companies in the mix. The National Association of Purified Water Distributors estimates that close to 85% of bottled water comes from small/micro bottlers. The lead companies have strong national distribution and sales support thanks to other major channel synergies, and they count on extensive promotional and advertising campaigns to position their brands. Smaller companies have strong regional components that help them compete in some market segments, especially with 20 Liter containers known as garrafones, which is the standard way to go to market for household drinking water use for upper, middle, and even lower class consumers although some lower class consumers simply drink water from the tap. Many of these local, micro companies, perhaps even 50%, do not currently meet Mexican minimum quality standards yet find a way to avoid regulations and government or sector oversight and standard implementation.

Although Mexico has traditionally been, and continues to be, one of the most important consumers of soft drinks, bottled water volumes have surpassed those of carbonated water, milk and beer since 2003. Bottled water’s revenue share among beverages (alcoholic and non-alcoholic) went from 19.7% in 2002 to 28.2% in 2007.

Bottled Water: Costs and Prices

Bottled water is relatively cheap in comparison with other beverages. However, it is interesting to note that 1,000 liters of tap water in Mexico would cost between 1.70 and 2.50 pesos (15-20 U.S. cents) to deliver to the end-user while the same amount of bottled water could have a retail price of 2,500 pesos, or close to US$200. One day, the reality that purifying tap water is much less expensive than bottled water options will impact the viability of this industry but this might not happen for decades, or more, considering the current Mexican water “culture”. However, as bottling prices go up, the need for adapting to this option will begin to change and perhaps faster than we can imagine under the current national water reality.

In Mexico, bottled water represents a third of the cost of carbonated waters and soft drinks. A recent study from the Mexican Institute of Consumer Protection shows that the price of soft drinks and carbonated waters is 67% above that of bottled water (does not include garrafones). Nonetheless, in 2009, bottled water prices increased 13-14%. Therefore, while one liter of soft drinks costs 7.12 pesos (US$0.55) to produce, bottled water costs only 4.27 pesos (US$0.33). It is interesting to note that in the United States, one gallon of bottled water costs almost 1/3 less than in Mexico, or about US$0.13. Nonetheless, Mexicans still consume considerably more soft drinks than bottled water. The average Mexican family spends 211 pesos (US$16) per month on soft drinks vs 135 pesos on bottled water (US$10).

Bottled water consumption is expected to grow by 5% annually between now and 2014. If this 5% growth figure is met, it should mean annual production equal to 33,000 million liters and annual sales of $169 billion pesos or US$13 billion by 2014.

If it is a challenge for the US business culture to realize and adopt these points, it feels as if Mexican business culture is a generation away from where US business culture is today. Some or many Mexican business people might recognize the truth in these dysfunctions, but very few have a clear idea about how to effectively implement them and ensure that once adopted, they don´t disappear when the next corporate administration arrives.

Having lived and worked in Mexico during the past 20 years, I have wondered how well these points from my younger brother apply to Mexican corporate teams, how difficult it might be for Mexican teams of this nature to overcome these dysfunctions, and therefore how applicable and realistic Pat´s advice is in what many would conclude is a fairly dysfunctional team environment. Below is my attempt to analysis these five dysfunctions in the context of the Mexican business “team” environment.

(a) Absence of Trust. Pat describes the absence of trust as a “fear of being vulnerable with team members” and something that “prevents the building of trust within the team”. Most people who have lived and worked in Mexico for any period of time recognize that Mexican bosses and male employees in general have a fear of being vulnerable. Mexican workers in general do not feel comfortable giving their opinions and look at doing so as a no win situation – either they give a bad opinion which they believe their bosses will potentially hold against them in the future, or they give an insightful opinion that they believe could show up their boss, especially if he is a male. Also, in Mexico, the “blame game” for mistakes tends to be the rule more than the exception, and in the case of male employees, who are particularly defensive, this is even more evident. And, even when bosses or male employees are not afraid of being vulnerable, their staff has to be untrained about what they should say and how their boss will react to it if one hopes or expects to get staff members to trust their superiors and say what they think.

(b) Fear of Conflict. Pat describes the fear of conflict as “the desire to preserve artificial harmony” and emphasizes that this “stifles the occurrence of productive, ideological conflict”. Fear of conflict, even more so than absence of trust, is a classic Mexican social dysfunction that is seamlessly carried over into the Mexican business environment. And, once again, the Mexican male employee mentality perpetuates this condition in the Mexican workplace. As a result, staff meetings in Mexico tend to be unproductive and less than compelling. Staff show up to meetings waiting to receive orders and, I they are lucky to get some clarity about how to carry-out these orders. Problems in Mexico are not generally confronted, instead Mexicans tend to find ways around problems because of the fear of conflict and because they believe that conflict in Mexican society does not and cannot resolve their problems. Mexican females, at work and too often at home, believe that they must avoid confrontation, especially with other males, at almost all costs in order to succeed socially or in the business world. As a result, bosses do not welcome conflict and most Mexican staff reject it as a tool or acceptable method, which makes situations doubly problematic and that much more difficult to overcome.

(c) Lack of Commitment. Pat describes lack of commitment as “the lack of clarity or buy-in” and says that this “prevents team members from making decisions they will stick to.” Like absence of trust and fear of conflict, another destructive Mexican characteristic, related to the question of lack of commitment, is its tolerance for ambiguity. In Mexico, clarity is a luxury that Mexicans neither demand nor are they willing to give. And, if Mexicans make a commitment, it tends to be based on subjective loyalty to a person/boss and not to an objective idea or business plan. Why? Because so often, when a political or business leader/boss leaves, all of his ideas go with him – and many of the staff that he brought with him. So, the safe thing to do is to never trust anyone, avoid conflict, and not commit too strongly to ideas, not even those of your boss. Foreigner business people also notice that while they might be able to get their Mexican staff to commit to their plans, once these same staff members have to deal with other Mexicans inside or outside of the company to get things done, they will generally revert back to their traditional business habits.

(d) Avoidance of Accountability. Pat describes avoidance of accountability as “the need to avoid interpersonal discomfort” and explains that this “prevents team members from holding one another accountable for their behaviors and performance.” This issue is somewhat convoluted in Mexican business but also a classic Mexican dysfunction socially and politically. Mexicans are loath to judge or act against each others actions unless these actions directly impact them. The main reason why Mexicans do not judge or hold others accountable for their actions is because they want this same “privilege”. In fact, this is one of the reasons why Mexican Presidents generally do not criticize or investigate deeply into the actions of past Presidents. In the context of Mexican business, avoidance of accountability is certainly not a problem between bosses and their employees. Bosses are generally put on a far higher and unreachable pedestal in relation to their subordinates and, as a result, they will generally not have any fear of insisting on the accountability of these people who are probably not in their circle of friends However, these same bosses often do not provide their subordinates or teams with the vision or authority to reach their often lofty and unrealistic goals. On the other hand, between coworkers, the traditional Mexican avoidance of accountability is the rule. Mexican coworkers would consider it inappropriate and far too ambitious to challenge the results of their coworkers with their bosses and they would NEVER confront their coworker with the issue. This is generally the rule even if a coworkers´s inaction or poor performance impacts them. In general, employees in Mexico are not interested in helping a company find and resolve its problems. They are more interested in ensuring that they cannot be blamed for the problem and thus ensuring their continued employment.

(e) Inattention to Results. Pat describes inattention to detail as “the pursuit of individual goals and personal status” which “erodes the focus on collective success.” Mexican males are probably over 90% of the bosses in Mexico. And, Mexican males, who are all about status in their social lives, have to find it particularly difficult, distasteful and often unnecessary to put results over status in their business lives. One of the reasons why Mexican associations and chambers are almost completely unproductive is because Mexicans play politics amongst their colleagues in order to become President of these organizations strictly for the status of the position. They have no intention of spending their own time and effort to make the organization better, and the members do not demand this of them because, as mentioned above, they want to have this same privilege of having the status without the results sometime in the future. Mexicans, especially males, are also very concerned about others using their professional titles of Doctor or Architect or Engineer or even their BA when being addressed. And, in many cases, not only do these people not have their degrees, others know it and go along with it because they require a favor from the person or simply to avoid conflict. Also, the fact that the great majority of Mexican businesses are privately held, and that the majority of these are family run, also leads to an inattention to results in the Mexican business world. That being said, of all the dysfunctions, this is probably the one that Mexicans are most likely to eventually overcome since one can only live on status for so long. Also, unlike in the US, every Mexican has a bit of entrepreneur in his blood that makes him believe that he can buy something low and sell it high and make a profit, which is mentality very attentive to results.

Conclusion – Without a doubt, Mexican teams have significant barriers to overcome. These problems seem to pose greater challenges to team building in Mexico than in the US. Clearly, the first three of Pat`s points (Absence of Trust, Fear of Conflict, and Lack of Commitment) are not only fundamental problems but characteristics of Mexican employers and employees, and culturally Mexicans in general. The last two points (Avoidance of Accountability and Inattention to Results) are areas of concern put areas where Mexican teams have barriers that can probably be addressed and overcome. That being said, the problems associated with the first three issues are so profound in Mexican business, as well as political and social areas, that one has to conclude that team building and successful teams in business in Mexico are, and will be for some time, by far the exception and not the rule.

“Mexico, without a doubt, took a very hard hit in 2009. Virtually everyone north of the border wrote off Mexico in 2009 and pretty much for the next couple of years. Brazil and most of the rest of Latin America were supposedly already recuperating from the crisis and growing again in the black, even in the last quarter of 2009. Therefore, both Latin America and the BRIC markets (Brazil, Russia, India, and China) were supposed to greatly out pace Mexico in trade during the next few years, and therefore they were supposed to be better markets for US products and services.” 

This very negative absolute and relative perspective about the Mexican economy was untrue for 2009 and is further borne out for the first half of 2010 when one analyzes the Mexican economy and Mexican import figures for that period.  And, these half year trends should only get better and stronger in the second half of 2010 and 2011.  This article, on the 2010 Mexican economic situation thus far, will be an effective update of the analysis of these same 2009 parameters which should help us understand to what extent the Mexican economy has improved since 2008, prior to the arrival of the economic crisis in Mexico, and since 2009 during the worst of the crisis.

Mexico Macroeconomic and Growth Figures – In the last quarter of 2009, Mexican economic growth for 2010 was expected to be 2.9%, somewhat similar to the 2.5% estimated economic growth in the US.  However, shortly after the beginning of the year, the figure for Mexico was increased significantly to 4.5% and as of October, that figure continues to hold true.  Economic growth in 2011 is expected to be more or less the same at 4%.  By the end of 2011, Mexico should be able to return to pre-crisis GDP and per capita income figures.  Although year end 2010 and first half 2011 estimates are very positive for Mexico, a slump in the US economy could still affect the economy. 

Likewise, Mexican international commercial activity is dynamic again.  To date (through August), Mexican imports are up 33% since the beginning of the year.  Total exports (including oil) are up 35.6%, total exports excluding oil are up 34.5%, manufactured exports are up 35.2%, and machinery and equipment exports are up 40.7%.  These are strong signs of the commercial recovery in Mexico.  However, with the US consuming over 80% of Mexican exports, a slump in the US economy could seriously impact Mexican export activity.    

US Exports as an indicator – If export volume and growth are good indicators of economic dynamic, one must conclude that the Mexican economy is experiencing a strong recovery from the economic crisis. In the first half of 2010, US exports to Mexico were up 32% while US exports to China were up a very similar 35.2%.  It is important to note that US export growth to Mexico in 2008 was positive and that in 2009 it fell by only 14.5%, meaning that US exports to Mexico are already up in absolute terms 10-15% over pre-economic crisis levels. US exports to Mexico increased from 11.75% of total exports in 2008 to 12.2% in 2009 to 12.64% in the first half of 2010.  During the first half of 2010, the only top 25 export destinations where US exports experienced greater than 30% growth were in several Asian countries, Brazil (38%), Colombia (35%) and Mexico (32%).  Also, while 9 of the next top 10 Latin America export destinations had US export increases of greater than 23% with half actually greater than 35%, US export growth to Mexico was still slightly higher than the average increase for these next top 10 Latin America export destinations (31%).

A lot of corporations judge growth potential against the export volumes and growth figures for the BRIC countries: Brazil, Russia, India, and China.  During 2009, total US exports to all of the BRIC countries totaled $118 billion while total US exports to Mexico were over $10 Billion more at $129 Billion. In the first half of 2010, US exports to Mexico represented 12.4% of total exports while US exports to BRIC countries represented 11.4%, a full percentage point less  US export growth to Mexico (32%) also stayed on par with the dynamic average growth in the BRIC countries (32.7%).  So, Mexico is not only more important than BRIC countries in terms of current US export volumes it is also keeping up with BRIC export growth figures which no one expected. 

Wisconsin Exports as an Indicator – In the State of Wisconsin, the numbers are even more pronounced in favor of the Mexican market in 2009 and 2010. In 2009, Wisconsin exports to Mexico did drop like US exports to Mexico and the rest of the world, but only by single digit figures. Also, even with this decrease, like total US export figures, Wisconsin exports to Mexico as a percentage of total Wisconsin exports increased from 7.9% in 2007 to 8.6% in 2008 to 9.5% in 2009.  In 2010, Wisconsin exports to Mexico represent 10.3% of total exports, and considerably more than the 6.6% figure for China.  In 2009, Wisconsin exports to China fell more than they fell to Mexico.  And, in 2010, Wisconsin exports to Mexico grew by and impressive 34%, three times the 10.5% growth in Wisconsin exports to China. 

In relation to the growing Latin America region, 2009 Wisconsin exports to Mexico decreased less than the average decrease to the top 10 Latin America export destinations.  In 2010, Wisconsin export growth to Mexico (31%) was well above the average increase to the next top 10 Latin America export destinations (14%) and still double the figures to the five top Latin America export destinations (15%).  Nonetheless, it is important to note that exports to Brazil are up 57% and to Colombia up 88%.  Nonetheless, it is important to note that first half 2010 Wisconsin exports to Mexico ($963 million) remain more than a third more than total Wisconsin exports to the next top 10 Latin American export destinations ($640 million).

It is also important to note that while Wisconsin exports to the four BRIC countries (11.1% of total exports) were somewhat more significant than Wisconsin exports to Mexico (10.4% of total exports), Wisconsin export growth to Mexico (34%) was almost double average Wisconsin export growth in these supposedly much more growth-orientated BRIC countries (18%).  

Conclusion – The above figures demonstrate that during the worst of the economic crisis in 2009 and during this year of recovery, Mexico has demonstated to its doubters and critics that it could endure the economic crisis (2009) and recover (2010) with or even more vibrantly than most of the rest of the developing and growing world.  Mexico has always been a good market for almost all US goods and it should not be overlooked nor underestimated now. So, for those companies that decided to look elsewhere in 2009 and thus far in 2010, LGA Consulting would like to suggest that they reconsider Mexico, still the US´s #2 export destination and one that is more than keeping pace with the rest of the world markets, including the important Chinese market.

Conagua and municipal enforcement realities

Enforcement of these two standards is somewhat confusing at best.  There are about 150 Conagua officials, based in each Mexican state, who are in charge of the implementation of NOM 001 with companies and municipal entities that discharge municipal and/or industrial waste into federal bodies.  NOM 002 is regulated exclusively by each municipality without state or federal supervision.  And, Profepa, the Mexican “environmental police”, really do not have any current role in enforcement of these NOMs.  

Conagua is currently monitoring on a regular basis 1387 companies that are discharging waste into federal bodies of water, companies who register and pay for a right to discharge certain flows and levels of contaminants and who supposedly pay fines when the volume or contaminant level of discharge surpasses these limits.  While the universe of companies that are discharging waste into federal bodies of water is much larger than these 1387 companies, and although 150 nation-wide officials to monitor these companies and their discharges, Conagua officials seem to be doing a reasonably good job with the limited resources on hand. 

NOM 002 municipal system monitoring is often described as a pre-treatment phase for NOM 001 federal system implementation, where efforts are focused mostly on removing metals and toxic substances and leaving organic waste in the system for later federal treatment and testing.  Unfortunately, monitoring and enforcement of municipal discharges is tricky and very political. NOM 001 establishes that by January 2010, all municipalities with more than 2,500 inhabitants are supposed to be 10% compliant with NOM 001 and all of its 17 parameters.  However, Conagua does not have the manpower, legal faculties, nor probably the fire in the stomach to try to enforce NOM 001 with the municipalities – or, as mentioned earlier, to insure that the municipalities are monitoring and enforcing NOM 002. 

Municipalities often lack adequate legislation, knowledge and training, manpower, and/or funding to carry-out this function – and to insure that bribery and corruption is prevented.  Another main problem is Article 115 of the Mexican Constitution which gives the municipalities almost exclusive responsibility for local water infrastructure development and effectively excludes uninvited state and federal involvement, thus insulating municipalities from federal (Conagua) controls, supervision, and even fines.  One Conagua official confirmed that the way that the law reads today, the only thing that Conagua can do is fine the municipality since they cannot deny them water nor funding, nor can they threaten anyone in the municipality with any penal actions.  As a result, under current legislation, if Conagua tried to take legal action against a Mexican municipality, it would be futile and only lead to additional resistance from the municipality to work with Conagua in the future.

And, few municipalities are interested in working with Conagua to help with enforcement or with statistics from their municipalities.  As a result, Conagua officials honestly have no idea about the level of industrial discharges into municipal systems or, for that matter, the level, frequency, or efficiency of municipal enforcement of NOM 002.  NOM 001 establishes that municipalities with more than 50,000 inhabitants are supposed to test monthly and report results quarterly with smaller municipalities testing quarterly or twice a year and reporting twice a year or annually respectively.  However, it appears that municipal cooperation and compliance in this regard is irregular at best.   

Testing Procedures and their Problems

The procedure for testing to NOM 001 and NOM 002 is roughly the following.   Depending on the discharge volumes, the company is “required” to take samples of their discharges every quarter, semester, or year and provide them to one of 29 private laboratories certified by Conagua.  These laboratories run a variety of tests on these discharges, provide the results to the company, and maintain the samples on file.  The company is then responsible for sending these results to responsible Conagua officials in each state. 

While it is the responsibility of each company to auto comply with these standards, Conagua officials do make regular visits to targeted and to randomly chosen businesses.  Mexico City officials determine 80% of the priority visits while local/state officials are responsible for determining the other 20%, with local/state officials (about 5 in each state) for carrying out these visits. 

There are four fundamental problems with the current industrial wastewater monitoring process.  First, there are not enough Conagua enforcement staff to adequately visit all of the companies that need to be visited and therefore companies do slip through the cracks.  One Conagua official said that during the Fox Administration, he believed that Conagua officials were able to visit and adequately monitor all of the companies that are discharging waste into federal water bodies once during the 6 year administration rather than once, twice, or three times a year as NOM 001 establishes.       

Second, there is no supervision of the obtaining of samples to insure that they are the actual discharges of the companies in question.  As a result, it is possible that these laboratories are testing samples that are not representative of regular wastewater flows.  In fact, one Conagua official said that there is no current way to know if a company is supplying a sample of its water from the coffee machine and submitting it to laboratories as representative of their official industrial discharges. 

Third, while NOM 001 provides test parameters for 17 different materials or conditions, in reality Conagua only requires companies to test for and pass two tests, one for BOD (referred to as BDO in Mexico) and one for Total Suspended Solids (referred to as SST).  The other 15 materials or conditions mentioned in NOM 001 but evidently not tested for and enforced routinely, or at least not in non-priority sectors, are: (1) temperature, (2) fats & oils, (3) floating matter, (4) sediment solids, (5) total nitrogen, (6) total phosphorus, (7) arsenic, (8) cadmium, (9) cyanide, (10) copper, (11) chrome, (12) mercury, (13)  nickel, (14) lead, and (15) zinc.  The parameters for these 15 categories have different compliance levels or conditions, organized in three areas: rivers, reservoirs, and coastal waters.  If you would like to receive information on these details, we can provide your firm with a translated copy of NOM 001 or NOM 002. 

Fourth, even if there is adequate enforcement and even if all of the above parameters were tested for, the test levels in Mexico are well below US parameters.  As a result, many US products, services and technologies suggest and provide for “overkill” solutions.  Please request and consult our English translations of these two wastewater standards to determine to what extent they are similar or dissimilar to US EPA wastewater discharges – we would appreciate receive this feedback as well. 

Conclusion – From the above information, we can conclude that Conagua monitoring and enforcement of industry discharges to NOM 002 is improving but still inadequate.  And, the ability of Conagua to monitor and enforce NOM 002 with municipalities is very difficult and political and therefore even more problematic.  The good news on this front is that the federal government has proposed changes to legislation that could come on line in 2011 that would allow Conagua and perhaps even states to have a much more truly shared role in municipal water infrastructure development.  Said legislative changes would allow for much more effective punishment of municipalities, and their water utility directors, if they chose to not comply with NOM 002, not enforce NOM 001, and/or not provide access to and information about flows and activities.

Regarding municipalities, we are unable to make a judgment about municipal monitoring and enforcement of NOM 002 in general because no one is gathering and/or analyzing this information and it appears that municipalities are probably loath to share this information at this time.  Nonetheless, the top 12 states, and in general the municipalities from these states, with the best reputations for wastewater compliance, according to a number of sources, have been the following (in no particular order): Nuevo Leon, Aguascalientes, Puebla, Tlaxcala, Quintana Roo, San Luis Potosi, Jalisco, Queretaro, Sinaloa, the Yucatan, Chihuahua, and the Federal District.

The states with the most number of plants are not necessarily those with the most installed capacity or water treated.  Sinaloa is the top state with 142 plants but it has only the 7^th most installed capacity and the 5^th most water treated.  Similarly, the 2^nd (Zacatecas – 54 plants), 6^th, 7^th, and 8^th states in plant numbers have insignificant installation and water treated amounts suggesting that the plants in these states are small and/or handling very low flows.   The three states with the largest installed capacity and treated flows (State of Mexico, Jalisco, and Nuevo Leon) are also in or around the three largest cities in Mexico.  The 47 plants (less than 7.5% of the total) in these states represent about 40% of installed capacity and 35% of all water treated. 

Ironically, while none of these three very important urban states were in the top 10 for number of plants, the Federal District, with 38 treatment plants, had the fifth most plants but treats 40% of the treated flows by Jalisco, a little over 30% by Nuevo Leon, and less than 18% by the State of Mexico.   In fact, although Guadalajara and Monterrey have considerably smaller populations, they have 15% more installed capacity than the State of Mexico and Federal District combined, the two states that contain the over 25 million people in the Valley of Mexico.     

Over 80% of the treatment processes used in the 631 potable water treatment plants fall into one of the following three categories: (1) Conventional Clarification (195, 31%), (2) Reverse Osmosis (174, 27.5%), and (3) Patent Clarification (140, 22%).  However, 67% of installed capacity and 69% of treated water are handled by Conventional Clarification plants, with Direct Filtration a distant second (18% of installed capacity and 16% of flow treated) and Patent Clarification an even more distant third (less than 8% of installed capacity and flow treated).  It is important to note that while there 27.5% of potable water plants use reverse osmosis technology, they make up less than 1.5% of installed capacity and flow treated.   

Only three states do not rely on conventional clarification for less than 75% of their potable treatment plant technologies: (a) Nuevo Leon (less than 20%), (b) Baja California (20%), and Sinaloa (just over 40%).  The following states also have made commitments to the following “alternative” process technologies for potable water:  Reverse Osmosis (but with very minor flows: Zacatecas, Colima, and Durango), Patent Clarification (Sinaloa), Direct Filtration (Baja California, Nuevo Leon and to a lesser extent the Federal District and Tamaulipas), and Iron/Manganese Treatment (Sinaloa).       

B. Wastewater Plant Infrastructure (December 2009)

In the article on treatment plants in the last Report, wastewater plant infrastructure was described at length so only new or additional wastewater information will be analyzed here.  At the end of 2008, Mexico had 1,833 wastewater plants in operation with an installed capacity of 113,024 liters per second (l/s) with a treated flow of 83,640 l/s, equivalent to 40% of all generated municipal wastewater.  At the end of 2009, Mexico had added an additional 196 plants, representing a 10% increase, which resulted in a 5.4% increase in treated flow (to 88,127 l/s) and an almost 7% increase in installed capacity (120,862 l/s). 

In the wastewater plant article in the previous Report edition, the number of plants, installed capacity and treated flows were described and discussed.  While some of the numbers we found in the Conagua Inventory document differed from those that we provided, these differences were not significant and  therefore these figures will not be discussed again here.  However, it is worth noting that unlike the potable water plant situation, wastewater treatment capacity and treated flow amounts are much more equally distributed throughout the country with only 25% of the treated flows and installed capacity in the four states around the three main urban areas of Mexico City, Guadalajara, and Monterrey (State of Mexico, Federal District, Jalisco, and Nuevo Leon).   

Concerning treatment processes used by Mexican wastewater treatment plants, over 80% of the treatment processes used in wastewater treatment flows fall into one of the following four categories: (1) Sludge (546 plants, 46% of treated flows), (2) Stabilization Ponds (707, 16%), (3) Advanced Primary (16, 11%), and (4) Aerated Ponds (32, 8%).   The breakdown of “alternative” technologies is as follows.  Ten dual plants (4.75%) and 42 biological percolating technology plants (5.25%) together are responsible for the treatment of 10% of wastewater flows in the country.  Mexico has 162 RAFA or WASB plants are used to treat less than 1.5% of flows.  Likewise, Mexico has 158 septic facilities and 81 Imhoff tank facilities but these plants altogether treat less than 1% of flows.   Aerobic (7 plants), anaerobic (52 plants), and biological (18 plants) technologies combined are used in these plants also to treat less than 1% of flows.      

While every state except Chiapas has significant sludge facilities, two thirds of these states have a significant numbers of plants or flow treatment unrelated to sludge operations.  Here is a list of the technologies where states have a number of plants or significant flow treatment usage:

• Aerated Ponds – Baja California, Durango, Sonora, Tlacala
• Stabilization Ponds – All states except Baja California, Campeche, Federal District,
• Hidalgo, Morelos, Queretaro, Quintana Roo, Yucatan.
• Advanced Primary – Baja California, Chihuahua, Guerrero, Puebla, Sinaloa
• Anaerobic – Jalisco and Veracurz
• Dual – Aguascalientes, State of Mexico, and San Luis Potosi
• Biological Filters/Percolators – Chiapas, Jalisco, Morelos, Nayarit, Queretaro, Tabasco.
• Septic Systems – Sinaloa and Aguascalientes, Queretaro, Veracruz, Colima
• RAFA or WASB – Colima, Guanajuato, Jalisco, Puebla, Queretaro, Tlaxcala, Veracruz
• Enzymatic Reactor – Sinaloa, Zacatecas
• Oxidation – Baja California, Jalisco
• Wetlands – Oaxaca, Chihuahua
• Primary/Segimentation – Guanajuato
• Imhoff Tanks – Tabasco

 C. Updated Wastewater Plant Information (for 2010 and 2011)

During the last four years, Mexico has constructed 244 plants and rehabilitated 50 plants.  We underestimated this figure in the last edition of the report.  In 2009, Mexico built 99 plants and rehabilitated 11.    In 2010, once again, approximately 100 plants were scheduled for construction.  At the end of 2009, 59 plants were still under construction and 36 went out to bid in the 1^st Quarter of 2010.  And, in the late summer, 64 plants were still on schedule for bids in 2010.  However, at the half way point this year, only 24 plants were still planned for construction and only three had actually been built. 

We asked Conagua officials about the existence of so many discrepancies between plants programmed for construction and plants out to bid with plant awards and construction in 2010, and in general the low number of plants being built vs 2009.   First, they clarified that it had nothing to do with lack of budgeted money or budget outlay delays, stressing that the availability and attractiveness of funding and financing were even better in 2010 than it was in 2009 when 100 plants were constructed.  In 2009, Conagua generally provided only 50% funding to municipalities for the construction of plants.  In 2010, APASO program funding allowed the federal government to provide up to 64% of funds for construction and with the special Fondo Concurable, this federal funding availability increased to 70% of plant costs.  These progressive financing and funding options will remain in vigor in 2011 and into the foreseeable future. 

Second, evidently, with the midterm elections, many states (Zacatecas, Hidalgo, Puebla, Veracruz, Aguascalientes, Sinaloa, Oaxaca, others) postponed bids and construction and two states, Hidalgo and Oaxaca, returned significant amounts of funding for plant construction to Conagua.  Also, several plants (Queretaro, Jalapa, Poza Rica, Veracruz, Juarez, Parral, San Juan del Rio) that should have come on line in the first half of the year were delayed.  Also, the large Caracol and Zumpango plants in Central Mexico, which were slated for late 2010 are almost certainly going to be pushed back into 2011.  As a result of these political and delay situations, and because of plant construction plans for next year, 2011 should be as good of a year or better than 2009, especially for medium-sized plants, and 100 plus plants should again be bid and built during 2011.

Of equal concern, in relation to wastewater treatment needs, is the fact that of the 653 aquifers in the country, 104 are considered to be overexploited and 68 are on the verge of overexploitation. In light of these problems with 30% of Mexico’s aquifers and the limited availability of water, especially in the northern part of the country, the Mexican government is making treatment and reuse activities a priority so that it can meet its goal of 60% wastewater treatment by 2012 and the more lofty goal of 100% treatment by 2030.

Mexico has recently announced several major projects that will help alleviate some of these problems. It looks as if Mexico could have 2000 wastewater treatment plants in operation by the end of the year. Following is a review of the current public and private sector treatment plant infrastructure in the country, and a discussion of the trends for treatment plants during the next few years.

Since 1992, the number of municipal wastewater treatment plants has increased more than 450% from just under 400 plants to 1833 in 2008. From 1992 through 2000, treatment plant construction increased by just under 100%, while from 2000 to 2008, Mexico had a much more dynamic 230% increase. However, most of this increase appears to have come during the Fox Administration (2000-2006) rather than during the first part of the Calderon Administration (2006 – present). Since 1995, when installed capacity began to be monitored in Mexico, this indicator has increased by over 235% . Likewise, the amount of actual treated wastewater has increased from just over 30 m3 per second in 1992 to 83.6 m3 per second in 2008.
(See the Municipal Wastewater Treatment Plants 1992-2008 Table in the Spring Quarterly Mexico Water Report)

The above table shows the municipal wastewater treatment plants by state, providing a better understanding of where coverage and capacity are greatest at this moment in Mexico. The sparsely populated state of Durango, located in a somewhat dry area in northern Mexico, has the most municipal treatment plants in operation (167), representing almost 10% of all of the plants in Mexico. Sinaloa (136) has the second most plants and Chihuahua (119), also a very dry state, has the third most plants. Somewhat surprisingly, the Mexico City/State of Mexico area, where close to 25% of the Mexican population is located and where wastewater issues are most severe, has only 105 total plants in operation. While the second most important population area, the Greater Guadalajara area, has a comparable 96 treatment plants, this area has only 1/3 of the population of the Valley of Mexico, which makes the Mexico City situation look even more severe.

At first glance, the low number of plants (61, 14th by state) in the third most populated urban center, Monterrey, would seem to be problematic as well. However, the state of Nuevo Leon, where Monterrey is located, has the highest installed capacity (13,244 l/s), treats the most amount of municipal wastewater (11,645 ls) and is only one of two states that reportedly treats all of its municipal wastewater. In fact, the only other states that treat more than 2/3 are Baja California (93%), Chihuahua (71%), Sinaloa (68%), and Quintana Roo/Cancun (67%). The 10 states with less than 25% of municipal wastewater treatment coverage, all of which should be targets for considerable future wastewater treatment activity, are:
• Yucatan (2.1%)
• Campeche (3.8%)
• Hidalgo, (7.5%) (where all Mexico City wastewater currently is directed)
• Zacatecas (12.1%)
• Federal District (12.9%)
• Tabasco (18.3%)
• Morelos (18.9%)
• Queretaro (22.7%)
• Jalisco (24.7%)
• State of Mexico (21.1%)

While the very important State of Mexico has a relatively low number of plants and low percentage of total treatment coverage, it nonetheless has the third most installed capacity (7,090 l/s) and the fourth most volume treated (5,190 l/s). On the other hand, installed capacity and volume treated figures for the Federal District/Mexico City and Jalisco/Guadalajara areas are almost as problematic, demonstrating clearly the extent of the problem in these two very populous states.
(See the Spring Quarterly Mexico Water Report for the State Municipal Wastewater Plants Coverage Table)

The following table shows the distribution of municipal wastewater treatment plants by water basin, offering another way to look at the infrastructure and the problem.  (See the Spring Quarterly Mexico Water Report for this table)

The Rio Bravo River Basin, is the top basin in terms of the volume of treated water with 26.5% of total treated municipal wastewater. This basin, despite only having the third most number of municipal treatment plants, counts with the greatest amount of installed municipal treatment capacity. This river basin includes the state of Nuevo Leon, one of the most industrial in Mexico, with the highest percentage of municipal wastewater treatment in Mexico.

The Mexican River Basin districts, broken down by the percentage of all of the municipal wastewater treated in the country are:
• Rio Bravo (26.5%)
• Lerma-Santiago-Pacífico (21.5%)
• Pacifico Norte (8%)
• Aguas del Valle de Mexico (7.4%)
• Peninsula de Baja California (7.3%)
• Balsas (6.5%)
• Cuencas Centrales del Norte (4.8%)
• Noroeste (4%)
• Golfo Centro (3.7%)
• Frontera Sur (3.1%)
• Golfo Norte (2.7%)
• Pacifico Sur (2.3%)
• Península de Yucatan (2%)

In the river basins located in the northern and central parts of the country, which include the top five basins listed above, we find over 75% of all treated municipal wastewater. In light of the serious water supply problems in these regions, especially in the arid north, and the high water availability in the southern part of the country, these statistical differences are more than understandable and give a clear idea about where future treatment plant construction can be expected.

While current infrastructure figures might present more concern than assurance about the municipal wastewater treatment plant situation in Mexico, there are some positive signs about recent and upcoming plant plans and new projects. In the last four years, 202 municipal wastewater treatment plants were built and 43 were rehabilitated. At this time, 59 plants are under construction throughout the country. During this year, another 100 plants are scheduled to be built with 36 already being put out to bid during the 1st Quarter. By the end of 2010, Mexico will have over 2,000 treatment plants either operating or under construction. And, when the three most important treatment plants in Mexican history come on line in the next few years ( “El Ahogado” and “Agua Prieta” in Guadalajara, and “Atotonilco” in the Valley of México), approximately over 50% of wastewater in the Greater Mexico City area and 100% of the wastewater in the Greater Guadalajara area should be treated. So, while there is a lot more to be done, there is quite a bit of activity and apparent commitment to expanding the wastewater treatment plant base in Mexico.

Number of Plants in Operations Installed Capacity (m3/s) Treated Water (m3/s)

Aguascalientes           53                  0.26             0.13
Baja California          179                 0.67             0.15
Baja California Sur       7                 0.01             0.01
Campeche                     49                 0.50             0.16
Chiapas                          66                 0.88              0.61
Chihuahua                      8                  0.47             0.31
Coahuila                       34                  7.37             0.72
Colima                          20                  0.66              0.29
Distrito Federal      120                  0.40             0.39
Durango                       31                   0.68             0.34
Guanajuato                 45                   0.40            0.18
Guerrero                        8                   0.06             0.04
Hidalgo                        43                    2.42             1.29
Jalisco                          34                    1.51              1.51
Mexico                      319                    4.57             3.21
Michoacan                 50                    3.81             2.70
Morelos                      83                     2.75             2.64
Nayarit                          5                     0.16             0.16
Nuevo Leon              91                     4.13              3.00
Oaxaca                        15                     1.22              0.90
Puebla                        96                      2.87             2.62
Queretaro              107                       1.10             0.51
Quintana Roo            2                       0.01             0.01
San Luis Potosi      74                       1.27             0.63
Sinaloa                     47                        3.16              0.85
Sonora                     23                        0.36              0.16
Tabasco                 115                        1.28              0.15
Tamaulipas            46                        1.64               1.12
Tlaxcala                106                       0.25              0.22
Veracruz               161                     11.62               8.65
Yucatan                  36                       0.11               0.07
Zacatecas                 9                       0.16               0.04

Total                 2,082                     56.75            33.78

The above table shows that the State of Mexico, Mexico’s most industrial state, has a leading position in industrial wastewater treatment with 319 plants. The State of Mexico industrial plants represent 15% of all industrial plants in Mexico, and when combined with those in the Federal District/Mexico City, represent 21% of industrial plants nationwide. Baja California, with a heavy concentration of maquiladora operations, has the second most industrial plants with 179. Veracruz, a center for paper, sugar, and petroleum industries, has one of the most extensive river networks and the third most industrial plants with 161 plants. Veracruz has more installed capacity (11.62 m3 per second) and volume treated (8.65 m3 per second) than any other state, representing over 20% of national industrial installed capacity and over 25% of total industrial water treated. As a result, the 439 industrial plants in the State of Mexico/Mexico City area represent only 15% of the national installed capacity (4.97m3) and 10% of national volume treated (3.6m3). It is interesting to note that despite the fact that the State of Mexico has the second most installed capacity and volume treated and twice as many industrial plants as Veracruz, it has less than 40% of the industrial plant capacity and treatment of Veracruz.

Mexico is far from meeting its wastewater treatment needs and requires considerably more funding and prioritization for Mexico to meet 2012 and 2030 public and private sector treatment plant goals. The increase in public and private treatment plant construction is a clear example of Mexico’s attempt to make water treatment and reuse a higher priority within the context of Mexico’s water infrastructure. The significant increases in federal/Conagua funding and local/state water sector investment during the Calderon Administration seem to reinforce the credibility and viability of treatment plant construction as a core focus of Mexican water infrastructure efforts.

It is also important to mention that we are seeing the beginning of a trend away from government officials requesting traditional technology towards considering slightly more expensive technologies with much better returns and treatment benefits. This is an important sign that Mexico might be beginning to address and resolve not only its quantitative but also its qualitative treatment problems and challenges. This should also mean that in the short term, Mexico will need considerable foreign company products and equipment in order to meet these quantitative and qualitative goals and to maintain the current and expanding treatment plant infrastructure.