Major projects under way in San Luis Potosí to keep Mexican industry sector expanding

Of all the places vying to be industrial and logistical hubs, San Luis Potosí perhaps lays the best claim to being in the middle of everything. Geographically, it is more or less equidistant between Mexico’s three most important economic cities: Mexico City, Monterrey and Guadalajara. “Its location is the main reason why national courier and cargo company Estafeta chose San Luis Potosí’s airport as its headquarters,” Raúl Martínez Jiménez, president of the San Luis Potosí branch of the National Chamber of Industry, told OBG. “We are right in the centre of Mexico, making us a logistical focus of the country.”

San Luis Potosí is located on the vertebral column of Mexico and is intersected by the Carretera 57 – the main highway that runs from US border town Piedras Negras to Mexico City. The highway passes through several of the state’s 20 industrial parks, providing easy access for workers and drivers. The Kansas City Southern de México (KCSM) terminal at the World Trade Centre (WTC) industrial park provide further connections to the US market.

Energising Growth

KCSM’s presence in the state has allowed San Luis Potosí to take centre stage in Mexico’s energy distribution. Grupo Valorán, a well-known, regional business that built Mexico’s first multi-storey cement manufacturing facility in the 1970s, has taken the lead role in making the most of the country’s 2013 energy reform. The group, which owns WTC Industrial, officially announced in January 2017 that it had signed on to a joint venture with KCSM and the US transport group Watco Companies to facilitate and expand the export of liquid fuels from the US to Mexico.

The Central Mexican Terminal (Terminal del Centro de México, TCM) is forecast to be completed by the second quarter of 2017, and comprises a liquid fuels train terminal to be located inside the free trade zone (FTZ) in the WTC industrial park, just south of the state capital, requiring an initial investment of $45m. A statement from the parties involved said the joint venture was a direct result of energy reform legislation aimed at opening the country’s energy markets to foreign and private investment. KCSM will utilise the FTZ in the WTC industrial park to supply the TCM with hydrocarbons from Texas, where it will link with 26 other refineries. According to Allan Roach, senior vice-president of network strategy for Watco, the proximity to KCSM’s existing terminal will ensure quick cycle times of customer rail cars, while the location in Mexico’s largest FTZ will provide an economic advantage to rail shippers.

New Generation

This is not the only way that investors are looking to meet anticipated increases in energy demand. Another of Grupo Valorán’s subsidiaries, RANMAN Energy, entered into a joint venture with Canadian firm ATCO to build a power plant in the WTC park planned to provide up to 20 MWh of electricity to tenants of the industrial park by December 2017. The project is designed to be highly scalable, with the possibility of additional capacity as new tenants take up operations in the park.

Valorán plans to take further advantage of the new energy reforms to build Mexico’s first isolated electric power plant, which means the electricity generated by the plant will not necessarily be transmitted via the national transmission network or general distribution networks. The plant will begin with a capacity of 65 MW, with the potential to grow to 400 MW, nearly half of the 900-MW energy consumption of the entire state of San Luis Potosí.

“Not only will we able to alleviate energy scarcity, which is what the energy reform was designed to do, but we will also be able to offer competitive rates – with the number set by the Federal Electricity Commission as the maximum,” Michele Porrino, director at WTC Industrial, told OBG. “Energy is a limiting factor in production, so we are seeing an opportunity to resolve this problem,” he added.

Electricity production is generating significant interest at neighbouring industrial parks as well. “There is important work to be done, as although it is said there is plenty of capacity, the issue lies with transmission and the network of distribution lines,” Bernardo López Ortega, general director of Logistik industrial park, told OBG. “Energy reform is going to be beneficial for everyone,” he added.

Founded in 2003, Logistik is the biggest industrial site in Mexico, which counts the state’s two original equipment manufacturers (OEMs) – BMW and GM – as well as L’Oréal and Continental among its tenants. Logistik has an internal power substation, but the park is looking to bring on another energy provider to give clients choice.

Renewing Efforts

San Luis Potosí’s climate offers additional advantages to manufacturing and industrial groups that settle in the state. BMW, for instance, says its plant will be its most resource-efficient production location worldwide once operations begin in 2019. This is in part thanks to the plant being supplied with 100% carbon dioxide-free electricity, powered by on-site solar generators. Swedish-Swiss industrial technology company ASEA Brown Boveri (ABB) installed 4000 photovoltaic cells at its San Luis Potosí campus that produce 1200 KWh – or 60% of the plant’s electricity needs. ABB, which itself develops solar energy technology, uses the panels as a live platform to display the potential of the company’s clean energy products to clients.

Freeing Trade

Long before recent energy plans, the FTZ in the WTC industrial park was already one of San Luis Potosí’s most significant attractions. The zone was the first of its kind in Mexico and it remains the only one in the Bajío region. It allows clients to avoid physical inspection at the point of entry, preserve original seals from providers, enjoy faster crossings and defer taxes until products are released into the Mexican market – if at all.

Within the San Luis Potosí FTZ, a 100-ha intermodal terminal was established by KCSM in 2002. Moving 450,000 containers per annum, the terminal links the state not just with the US at Laredo, Texas and other Mexican cities, but also with ports on either side of the country. Altamira on the Gulf of Mexico connects the country with the East Coast of the US and Europe, while Lázaro Cárdenas on the Pacific coast connects it with Asia.

The terminal in San Luis Potosí is used by companies based in neighbouring states as well, receiving containers from Honda, for example, which has plants in Jalisco and Guanajuato. According to Gustavo Puente, secretary of economic development in San Luis Potosí, this crucial logistical role is played not just for companies operating within the state, but also for those elsewhere in Central Mexico. KCSM is therefore one of the state’s most significant attractions, and a strategic ally.

Industrial Perks

The readily available infrastructure of San Luis Potosí’s 20 industrial parks is undoubtedly a vital ingredient in attracting foreign companies. “The state government has a very good vision for the orderly development of the region and is making large investments in infrastructure. Industrial parks do not just ensure that giant companies such as BMW find the services they need; they also allow their suppliers to operate nearby,” Carlos Gutiérrez, head of government relations and external affairs at BMW in Mexico, told OBG. “Water, electricity, rail and a number of other infrastructural aspects are crucial, because they mean that some of our suppliers have found conditions accommodating and will appreciate our efforts, and this all bodes well for the future,” he added.

Another contributing factor as to why BMW chose the area is the suitability of the terrain for a construction project of such magnitude in nature. “In some areas of the park the land has a resistance of up to 100-120 tonnes per sq metre,” López told OBG. “That means companies that build here can spend less on the foundations,” he added.

Transport Works

Undoubtedly the most urgent challenge that the business community sees for San Luis Potosí’s development as an industrial hub is one of mobility. However, the government is responding to these concerns. “Key areas that still need attention are road infrastructure and the transport system, especially given the volume of traffic that the roads are going to be seeing in the near future,” Gutiérrez told OBG. “However, the government is working on this and is taking the opportunity to upgrade the infrastructure. An investment of this scale obviously means that the collaboration of the government is very important, and we have found that they are very willing to listen,” he added.

Indeed, as reported, work is being undertaken to widen the Carretera 57 to Querétaro with the encouragement of President Enrique Peña Nieto. However, additional pressing steps need to be taken to solve traffic problems. “Here we are talking about mobility policies, but what we first need to work on is immobility policy,” Ramiro Robledo, secretary of communications and transport of San Luis Potosí, told OBG. “We can take steps so that people do no have to make so many journeys – whether that’s as simple as encouraging online bill payments, or thinking about working remotely,” he added. By mid-2018 the city of San Luis Potosí should have a bus system close in calibre to the ones running on the industrial complexes. The first stage of the metrobus, a preferential lane system with capacity to carry 40,000 passengers per day, will be completed and go from near the city centre to Villa de Pozos at the start of the industrial zone. “Despite challenges in managing the transition of existing transport operators to a 21st-century regulatory regime, there is a willingness among most transporters to agree to the new rules,” Robledo told OBG.

Another development in revamping the transport system is a bid to promote sustainable practices and reduce emissions. San Luis Potosí announced in August 2016 that the urban public transport systems would be switching over from petrol to natural gas, though the timeline for the changeover had yet to be announced at the time of publishing. A number of taxis and the metrobus system have already started using natural gas fuel, not only for environmental reasons, but also to save money; a litre of natural gas is around half the cost of traditional petrol.

Spreading Wings

In order to better deal with the growing numbers of business travellers and tourists to the area, a major transport expansion project has been started at the Ponciano Arriaga International Airport (PAIA) airport. The existing airport infrastructure, located some 16 km from the city centre and 48 km from the Logistik and WTC industrial parks, may soon become unable to provide for a region that has developed into a centre for industrial investment. Passenger numbers have almost doubled in just three years, rising from 262,000 in 2013 to 504,000 in 2016, falling short of the advertised capacity of 450,000 per year.

Seeing both the potential and necessity of expansion, the private sector airport operator Grupo Aeroportuario del Centro Norte (OMA) began work on a MXN400m ($24.1m) investment in November 2016. OMA operates the San Luis Potosí airport alongside 12 others in Mexico. By the fourth quarter of 2018, the PAIA will be more than three times its current size, with the terminal building growing from 4111 sq metres to 12,800 sq metres, and capacity will more than double to around 1.2m passengers per year.

Mexico City is the only other airport in the country undergoing such a transformation. “Our airport is the port of entry for most foreigners when they arrive in San Luis Potosí, so it is very important it reflects the city’s growing importance,” Marco Antonio Camarena, regional administrator of the PAIA, told OBG. “For 2017 uncertainty surrounding US President Donald Trump’s policy towards Mexico may push passenger growth slightly below the double-digit figures of recent years, but the investment comes with the expectation that business will continue to boom,” he added.

More Connections

San Luis Potosí already has direct international flights to Dallas and Houston, and is looking to open new routes in the coming years. Airlines are evaluating the possibility of adding flights to Los Angeles to improve connections with Asia, as well as with Detroit given the continued dominance of the automotive sector in the Mexican state. Additionally, in recent years the airport has added tourist routes to other parts of Mexico in a bid to encourage tourism in the region. Since December 2013 Cancún has been approximately 2.5 hours away thanks to a direct route from airline company Volaris, while Querétaro-based TAR Aerolíneas began operating flights to Puerto Vallarta on the Pacific coast in October 2015.

Team Game

By definition, being a hub implies being the centre of a joint effort, and although healthy competition exists between the states in the Bajío region, San Luis Potosí’s industrial community is very much aware that what is good for neighbouring states is good for the state itself. Industrial hubs are not self-contained entities, and often companies work across parks in different cities. That KCSM works with other companies based in other industrial hubs is a good example, as are the auto parts companies that supply OEMs based elsewhere in the Bajío region. “We host providers of Mazda, Honda and Nissan, for example,” López told OBG. “Obviously it would be beneficial for everyone to base themselves in San Luis Potosí, but the success of other states such as Querétaro, Aguascalientes, Guanajuanto, and Jalisco also benefits San Luis Potosí. The future is still bright,” he added.

 

 

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The Report: Mexico 2017

San Luis Potosí chapter from The Report: Mexico 2017

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