Mexico Potable & Wastewater Issues and Opportunities

Vincent LencioniWEFTEC, October 2011Los Angeles, California

Outline

I. Brief Mexico Economic OverviewII. Mexico Water Overview, Clean Water

IssuesIII. Municipal Wastewater IssuesIV. Industrial Wastewater IssuesV. Opportunities & Market SizeVI. Channel Strategies & Tips

for Doing Business in the Water Segment

I. Key Mexican Indicators Intermediary & Capital Goods Imports up

Intermediary = Full Recovery since 2010 Capital Goods up and growing again, full recovery in 2012 (growth)

2008 = 15%, 2009 = -19%, 2010 = -4.7%, 2011 = 14%

Mfging GDP full recovery since 2010 (Growth) 2008 = -.7%, 2009 = -10%, 2010 = 10%, 2011 (1Q) = 7.6%; (2Q) = 4.7% Exports stable for now, but US 80-85% and US economic situation problematic

Mexico Purchasing Power: Up & Down Peso revalued against dollar following crisis (11 to 16 to 13 to 11.5) Euro crisis = devaluation (11.5 to 13.5); when/if will readjust down again

Government Spending: Up & Down Pemex Income Up = 1/3 federal spending Mexican budget & indicators = healthier than US 2012 Presidential year – how will it impact spending – both public & private?

I. Mexico/Latam Economic Growth2009 2010 2011 2012

4,106 4,820 5,526 6,166-1.7 6.1 4.4 4

0.724 0.91 0.995 1.09Real GDP growthImports (US$ Trilllon)

GDP (US$ bn)Latin American Indicators

GDP Growth %

Country 2010 2011 2012 2009 2010 2011 2012

Mexico 1,040 1,203 1,358 -6.1 5.5 4.1 3.6

Argentina 349 396 467 0.9 9.2 7.0 4.1

Brazil 2,090 2,369 2,649 -0.6 7.5 3.8 3.6

Colombia 288 328 350 1.5 4.3 4.7 4.5

Chile 205 247 273 -1.5 5.2 5.9 4.8

Venezuela 235 315 335 -3.3 -1.4 2.8 2.3

Peru 148 162 185 0.9 8.8 6.2 4.9

Central America 152 167 184 -0.5 3.9 3.9 3.9

Caribbean Area 159 175 194 -1.3 3.9 2.8 3.6

USA 14291 15604 15595 -3.5 3.0 1.5 1.8

I. 4 Mexico Misconceptions Latin America/Mexico is insignificant vs. US market

US Market: Latam = 36%; Mexico/Brazil > 25% Mexico = 10% of US GDP / US Market

Mexico is a less important market than BRIC markets 2011 US Exports as % of total: BRIC 14.9% Mexico 13.1% 2011 US Exports % Increase: BRIC 18.6%; Mexico 22.6%

Brazil is much more dynamic/important than Mexico GDP Growth, Brazil vs Mexico

2010: 7.5% vs 5.5%; 2011: 3.8% vs 3.8%; 2012: 3.6% vs 3.6% Brazil GDP = 2x Mexico BUT Brazil Imports = 2/3 of Mexico

US Exports (2010) to Brazil = $35 B; Mexico = $165 B > 4.5x

Mexico too insecure for business or for business travel

I. Murders per Capita Context (2010)

50 WORST LATIN AMERICA COUNTRIES (ABOVE MEXICO), MEXICAN AND US STATES

HONDURAS 77 Oaxaca 21 New Mexico 8.7 Oklahoma 6.2Chihuahua* 74 Sonora* 20 Mexico City 8 Nuevo Leon# 6SALVADOR 70 Morelos 19 Guanajuato 8 Tabasco 6Durango* 60 MEXICO 18 Jalisco 8 Illinois 6VENEZUELA 48 Michoacan 18 Maryland 7.7 Georgia 5.8Sinaloa* 47 Nayarit 15 Tennessee 7.3 Florida 5.5Guerrero 46 Quintana Roo 13 Puebla 7 Arziona 5.4T&TOBAGO 37 Louisiana 11.8 Alabama 6.9 Texas 5.4COLOMBIA 32 Chiapas 10 Mississippi 6.4 California 5.3BRAZIL 25 Coahuila# 9 Missouri 6.4 Pennsylv. 5.2Wash D.C. 24 Mexico(State) 9 Michigan 6.3 Queretaro 5Baja Calif* 24 Tamaulipas# 9 So Carolina 6.3Puerto Rico 22.6 Colima 9 Arkansas 6.2

1. Mexico better than Brazil, Colombia, Venezuela, & Central America

2. Mexico business travel locations (underlined) similar to US locations

3. Problems in Northwest Mexico states(*) spike Mexico average badly

II. Mexico Water Overview

II. Mexico Water Issues & Challenges

1. Geographical Challenges: North (30/87/75) vs South (70/13/25) Altitude, precipitation, population, urban growth

issues

2. Per Capita Water: 18,000 m3 (1950) to 4,400 m3 (2010)BUT: 15,000 South; 1700 Central, only 500 North

3. Overexploited aquifers: 15%; will reach 25% soon

4. Water Use: 80% Agri (US: 40%) vs 8% Industrial (US: 46%)

5. Delivery Systems: 50% losses: Potable (43%), Agri (55%)

6. Metering: Potable (“obligatory”, < 2/3) vs WW Industrial (0%)

7. Wastewater Treatment: < 40% Municipal; < 20% Industrial

8. System efficiency = Medium to lower half of Latin America

II. Potable & Sewerage Coverage

Potable: 91% 2012: 92%; 2030: 100 Urban: 95 (05), 94 (09) Rural: 72 (05), 79 (09)

90: 51%, 2000: 68% 8 states (25%) < 90% Veracruz, Guerrero < 80%

Challenges Bottled water tendency Compete with other areas Delivery System Pollution

Sewerage: 87% 2012: 88%; 2030: 100 Urban: 89% (05), 94% (09) Rural: 58% (05), 63% (09)

1990: 18%, 2000: 37% 7 states (15%) < 80% 19 states (60%) < 90%

Challenges Comparatively small Rural: Pros & Cons Wastewater treatment next

Increased Irrigation technology

River Basin auto administrationAll rivers % lakes without trash

All treated water reused Contamination sources under

control

Efficient regional orderAll industrial water

treated

Flood zones without habitations

Urban suburbs connected to the

network

Disaster alert systems and preventionAll rural areas with potable water

Operating organisms functioning efficiently

River Basin Equilibrium

Universal WaterCoverage

Habitable areas free from floods

100% Clean Rivers

All municipal water treated

II. 2030 Water PrioritiesII. 2030 Water Priorities

II. Mexico Water Goals: 2012 & 2030

5 Year Plan (2007-2012) Potable water coverage: 92%

Current: 91% Sanitary/sewer coverage: 88%

Current: 87% Wastewater treatment: 60%

Current: 40% (may be) Rehabilitate 500 Dams (420) 8% increase: utility efficiency

Latin America context Water infrastructure Ranking

Mexico 64 vs Chile 35, Pan 46 System Competitiveness

20% < Latam standard below Peru Latam Green City Treatment

Average: 52%; Mexico: 43%

2030 Water Agenda By 2016: all major urban

areas free from risk of flood By 2015, All Irrigation

technified, 100% water reuse 2024: Complete rural potable

water and sewage access 2025: All Industrial and

Municipal wastewater treated 2030: All aquifers and

contamination in balance 2011 Adjustment to Agenda

Target dates moved back Problems vs Ambitiousness

II. Impact of Funding Issues 2011 Total Mexico Water Budget

$6 Billion US = 2x Conagua budget Sources: Federal (Conagua) 49%;

State 18.5%; Local 12%; Other 20.5%

2011 Conagua Water Budget Total: 36.8 Billion pesos ($3 B US)

States: 62%; Federal 38% Urban: 80%; Rural: 20%

Distribution: 48% Projects; 33% Admn; 19% HidroAgriculture

Projects: 39% Potable; 49% Sewerage; 12% Treatment

Growth Up: slowed by economic crisis Since 2002 250% and 2007: 69% 2011: 5.5%; 2010: 14%; 2008: 22% Hidroagriculture: 2008: 46%; 2011: 4%;

Local vs Federal Projects Municipal/State: 95%

64% Federal Matching Funds Federal: Large Projects Only

Funding vs Finance Argument “Funding Sufficient” - Conagua “Financing Available” - Fonadin Still BOT vs Traditional Bid Debate

Payment, Local Government concerns Supposedly $2 Billion US: 2008-2012

Revenue Sources & Water Prices Domestic: Low, not close to costs Industrial: Higher but still too low Agriculture: Almost free

80% total use < 2% revenues Billing vs Collected (See Graph)

II. World Domestic Water PricesII. World Domestic Water Prices

46.44

31.7

28.67

24.2

20.98

20.4

2.76

0 20 40 60

Price (pesos/m3)

46.44

31.7

28.67

24.2

20.98

20.4

2.76

0 20 40 60

Price (pesos/m3)

Mexico City/Federal District = 20 cents

Lisbon

Madrid

Los Angeles

Washington D.C.

Istanbul

London

(13 pesos:$1 USD), 2008 prices

II. Mexican Domestic & Industrial Water Prices

II. Water Revenue ProblemsII. Water Revenue Problems

II. Clean Water Issues

Potable Plants: 650+ 2/3 Convention Clarification 133m3/s capacity; 90 m3/s treated 1/3 Northwest, only 15% in South

Sinaloa = 142 or 22.5% of all plants

Disinfection Coverage 1991: 84%; 2009: 97% Leading Country in Latin America Chiapas & Guerrero only concerns

Infectuous Diseases Tyfoid, Salmonela Problems Population relocation challenges

Water Monitoring 1500: Subterranean Bodies 2000: BOD, COD, TSS

Water sources 2/3 surface vs 1/3 subterranean but

2/3 drinking from subterranean Aqueducts

3000 kms, capacity: 112m3/s 3 major cities (Cutzamala), Rural

Dams & Reservoirs 4500 dams 536-667 large dams = 13th world

Brazil = 635, 40% electricity 90% capacity in 2009 = growth

Altitude Challenges Cutzamala: from 1600 to 2700

meters 50% munis > 1 mile high

Aquifer Replacement & Water Reclamation – Concept Stages

II. Water & Wastewater Regulations Wastewater Regulations

By where water goes: NOM 001: Federal bodies

Rivers, Lakes, Coasts All towns > 2500 inhabs

(2600+) & all companies NOM 002: Municipal

Sewer/Drainage System Translations Available

Discharge “Rights” Fees If NOM 001: Federal If NOM 002: Local

By Reuse Applications NOM 003 = Water Reuse NOM 004 = Sludge/Mud

Potable Regulations NOM 127

Water quality and disinfection rules; treatment options

NOM 179 Monitoring/sampling

NOM 230 Storage rules,

samples, sanitary restrictions

Challenges Metering/Sampling Enforcement Public Indifference

III. Municipal Wastewater Issues

III. NOM 001: Discharges into Federal Bodies

M.A. = Monthly Average; D.A. = Daily Average(1) Instantaneous(2) Simple sample weighted average(3) Absent as per the Test Method defined in the NMX-AA-006.

As of 2010, all companies & municipalites with 2500+ (3200 total) supposed to be compliant; Reality is much, much less, numbers unclear

III. NOM 001 (continued)

(*) Measured in full.D.A. = Daily Average M.A.= Monthly Average NA = Not applicable(A) (B) and (C): Receiving Body type according to Government Service Charges

Law.

III. NOM 002: Discharges into Municipal Systems

As of 2010, all companies are supposed to be compliant

PERMISSIBLE MAXIMUM LIMITS

PARAMETERS (miligrams per liter)

unless specified otherwise

Monthly average Daily Average Instantaneous

Fats and Oils 50 75 100

Sediment Solids 5 7.5 10

Total Arsenic 0.5 0.75 1

Total Cadmium 0.5 0.75 1

Total Cyanide 1 1.5 2

Total Copper 10 15 20

Hexavalent Chrome 0.5 0.75 1

Total Mercury 0.01 0.015 0.02

Total Zinc 6 9 12

III. Wastewater Standards: III. Wastewater Standards: US vs MexicoUS vs Mexico

Significant differences between systems:Standards Levels & Materials Tested

BOD: Fauna, Agricultural Reuse, Fecal Coliform Others: Copper, Nitrogen, TSS, Mercury, Fats/Oils

Samplying FrequenciesMetering RequirementsViable Regulations & Enforcement

Local vs State vs FederalFines, Civil & Penal Liabilities, Closures

III. Municipal Treatment Evolution

# = 2010 Latin America Green City Index Average 52% vs Mexico 43.4%; 2011 estimate Mexico: 44.8%

• = Collected, Treated, Increase = m3 per secondNote: “Collected” amount increases – discrepancy between

Conagua information for this table and 5% flow increases reported elsewhere (see “% Treated @” above)

  2000 2005 2007 2008 2009 2010 2012

Collected* 200 205 207 208 209 210 220

Treated* 46 71.8 79.3 83.6 88.1 91.2 132

%Treated 23.0% 35.0% 38.3% 40.2% 42.1% 43.4%# 60.0%

% Treated @ NA NA NA NA NA 36.5% NA

III. Municipal Wastewater Plants 2010: How Much/Where

43.4% Waste Treated 200% increase since

1992 100% Increase since

2000 Treatment capacity need:

196m3 = 71m3 deficit 5% annual flow Increase

Treatment Areas North > 50% treatment Center: 33% treatment 48% Treatment in Río

Bravo/Lerma Basins

III. Type of Municipal Plants III. Type of Municipal Plants (Total: 2186 plants)(Total: 2186 plants)

III. Municipal Plants by State

III. State Treatment Good & Bad: Refining Coverage & More Basic Needs

Good: 10 States > 2/3 100%: Nuevo Leon, Baja

California, Aguascalientes 75-65%: Guerrero, Nayarit,

Chihuahua, Sinaloa, QR, Tamaulipas, Durango

Evolutions (2003-2010) Aguascalientes: 77 to 100% Baja California: 72 to 100% Chihuahua: 32 to 72% San Luis Potosi: 22 to 63% Tamaulipas: 37 to 65% Sinaloa: 40 to 69.4%

Positive but Reversals Quintana Roo: 73 to 69% Nayarit: 82.6% to 70.3%

Bad: < 25% treatment < 10%: Yucatan, Campeche,

Hidalgo 14.4% Mexico City 20-15%: Zacatecas, Tabasco,

Morelos, Chiapas 22.2% State of Mexico 24.1% Jalisco

III. State Wastewater: Good/BadIII. State Wastewater: Good/Bad Which States are doing better than others

BOD (Oxygen Demand: Urban wastewater) Bad (> 30*): DF, Mexico, Guanajuato, Tlaxcala Good: Jalisco, NL, Tamps, VC, AGS, CHI, BC

COD (Chemicals: Industrial wastewater) Bad (> 40*): DF, Mexico, Jalisco, Guanajuato, Baja California,

Aguascalientes, Chihuahua, Puebla, Tlaxcala Good: Nuevo Leon, Queretaro, Tamaulipas, Veracruz

TSS (Suspended Solids: Both, more urban) Bad (> 150*) only Hidalgo = result of DF/Mexico Wastewater

Overall Good: Campeche, Coahuila, Colima, Chiapas, Durango, Guerrero, Nayarit, Oaxaca, Quintana Roo, San Luis Potosí , Sinaloa Sonora ,Tabasco and Yucatan.

* Miligrams per liter

III. Major Urban Wastewater: Projects, Coverage, Future Trends Mexico City / Valley of Mexico

Atotonilco: 2013 ($785 Million US); El Caracol: 2013 (Cost: $130 Million US) plus Zumpango, Nextlalpan & Vaso el Cristo (2012)

Area Coverage: < 15% in 2011; 40-60% in 2013/2014 Flows: 26m3 dry season; 38m3 wet season.

Guadalajara El Ahogado: 2012 ($150 M US) & Agua Prieta: 2013 ($280 M US)

Area Coverage: < 25% in 2011; 70% in 2012; 100% in 2013 (tunnels) Capacity: 11m3; ability to treat 10,000 liters/second each.

Monterrey Plants 5 & 6 expansion projects: 2012 = 25% increase in capacity

Current Targets: State Capitals, Tourism Centers, Medium-size 2nd Tier: 8 Cities: 2.5 to 1 million; 20 Cities > 750,000; 30 Cities >

500,000; 45 Cities > 250,000; Over 60 Cities > 100,000 population.

IV. Industrial Wastewater Issues

IV.Industrial Wastewater Treated:

0

5

10

15

20

25

30

35

40

(m3/s)

Up 66% since 1999

Industrial Wastewater since 1997: Flow up 195% (64.5 to 190m3 p/s) Treated amount up 592% (5.3 to 36.7m3 p/s) = Good sign Wastewater/BOD Treatment up from 8% to 19% = Not so positive sign

IV. Industrial Plants by State

Operating Capacity & Treatment %: Very low, even in industrial states

Total Treatment: 190m3 flow p/s with 36.7m3 p/s treated = 19.3%

Total BOD: 6.95 million tons with 1.33 million tons treated = 19.1%

CurrentOperating Capacity: 50% (Installed: 72.5m3; Treated: 36.7m3)

IV. Industrial Plants by Type

2010 Total Industrial Plants: 2186 (100%) Primary: 731 (33.4%)

Adjusting PH levels & removing materials > .1mm > 50% in Veracruz & Chiapas: Basic Treatment

Secondary: 1193 (54.6%) Removing colloidal & dissolved organice materials 57% in 4 states: Mexico, Veracruz, N.L., Hidalgo

Tertiary: 88 (4%) Removing dissolved materials, driven by incentives 32 Mexico City/State of Mexico; up 25 a year

Other: 174 (8%)

IV. Industrial Sectors Priorities Sectors Priorities Top Priorities, heaviest polluters

High Frequency & Flow Priorities

1. Sugar – Requires regular, on-going investments, butspending questionable.

1. Pork / Agriculture / Aquaculture – Target area for enforcement, Conagua investment increases. Problems worse than expected

2. Paper - $50 million US* - Highly regulated, improvedMfging processes, maintenance

2. Textile / Clothing / Leather – $40 million US*; many medium & small producerswho are not compliant

3. Metalworking / Automotive – Large & Growing, Tier 1 & 2 issues, OEM compliant

3. Petroleum / Petrochemical (Pemex) – Increasing discussion, some investments, and hope for significant work in wastewater

4. Food & Beverage / Dairy - $50 million US*

4. Chemicals / Pharmaceuticals / Plastics - $50 million US*

V. Wastewater & Clean Water Opportunities

V. Municipal Wastewater Opportunities

2011 Tendencies, Budget and Plant Projects Treatment up: potable reality, urban sewerage needs met, leakage being addressed New: 50 Plants in process, another 25-50 expected: Rehab: 43% Plants ($225 million)

185 New and Rehab Projects programmed with funding for 2011: 55 storm drain, 25 pumping plants 2012: Really unclear some say better, some say worse than 2011 – betting on slow down

Conagua will want to push things through in last year of Calderon; Cities & States will be obstacles 2013: New Presidential Administration: considerable slow down / adjustments

“In Vogue” Treatment Processes / Tendencies 90% of Municipal Treatment in six categories:

Sludge = 46% treatment (546 Plants); Stabilization Ponds = 16% treatment (707 Plants); Advanced Primary = 10% treatment (16 Plants); Aerated Ponds = 8% treatment (32 Plants); Dual Plants (10) & Biological Filters (97) = 10% treatment

Plants with significant numbers but low treatment: RAFA/WASB (162), Wetlands (160) New Plants and Plant Growth (2008 to 2009)

1. Biological Filters (55, up 100%+); 2. Aerated Ponds (up 33%); 3. Sludge (92, up 20%); 4. Wetlands (26, Up 20%)

Info on state preferences for treatment technology (see LGA Consulting website) Problem – Physical/Chemical used over Biological – driven by upfront costs

Medium Size, 2nd Tier Cities and Tourism Destinations: Next/Current Targets 10% of the world`s medium-size cities: 45 Cities > 250,000; Over 60 > 100,000 population

V. Industrial Wastewater Opportunities

- Commercial & Industrial – Traditional Wastewater- 450,000 mfging companies discharging, 15,000 large companies

- Driving Factors: Corporate Culture vs Scarcity vs Cost vs Regulatory- Types of Plants & Technologies

- Secondary Strong - Activated Sludge, Aeration Lagoons, Extended Aeration - Tertiary low but growing (2009: 66 Plants; 2010: 88 Plants = 25 a year?)

- Industry Water Reuse & Savings - Reuse: 5 billion m3 a year, 75% muni vs 25% industrial; 10% of wastewater- Reclamation systems up - higher prices but prices & incentives insufficient

- Infrastructure Projects – Waste & Desal Projects- Resorts, Residential, Hotels, Restaurants, Golf Courses – Small vs Large

- 40 new plants in 2011, 100 New plants in 2012-2014- Real Estate Development was down, coming back in 2011

- States & Cities with best enforcement reputations- D.F., Monterrey, Chihuahua, Guanajuato, AGS, Queretaro- 173 Cities participating in PROSANEAR Program

V. Public Potable Water Opportunities

Municipal Challenges & Drivers: Competition with sewerage & treatment; lower demand, urban

demand met but rural needs; metro challenges:tankers, pressure/elevation Needs - Monitoring, leakage, efficiency, metering, flood, testing, reclamation, aquifer

maintanence & recharge (beginning stages) Potable: 8 states below 90%; Sewerage: 19 states below 90%; 7 below 80%

“In Vogue” Technologies Convention Clarification: 70% treatment, 30% plants Direct Filtration (15% treatment) – Nuevo Leon & Baja California

Patent Clarification ( 22% Plants) – Sinaloa & Tabasco Reverse Osmosis (28% Plants) – Colima, Durango, DF, Guanajuato

Hydro-Agricultural Challenges & Drivers: 77% use but only 3% revenue, metering Needs: Water technifiation, efficiency, reuse, some wastewater 20% of Total Conagua Budget (vs 50% for all other projects)

Funding still insufficient: 2008 up 46%, 2011 up 4%

V. Private Clean Water Opportunities

Industrial/Mfging Processes/Ultra Pure Higher Prices, Greater Need, easier targets Some but lower clean water & high purity demand

US industrial water use: 46% vs Mexico only 8% High use: Paper, Sugar, Agriculture, F&B, Chemicals

Electricity/CFE – Mexican National Utility 90% capacity in 2009, need new and rehabs (750: 2012-2030) High use, commitment to efficiency and 0% discharge Much easier to work with than Pemex or municipal

Residential Business Opportunities with Consumer Barriers

Evangelism but with economic sense and potential Smoking and switch from soft drinks to water in Mexico

V. Muni Wastewater Market SizeSize: $220-546 Million US (Average: $383 Million US)Three Base Models for Equipment Market Size, Five Scenarios:

A. From 2011 Conagua Budget Elements From Total 2011 Mexico Water Budget

Total Municipal Wastewater Market $220-293 Million From 2011 Saneamiento Budget Concept

Total Municipal Wastewater Market = $228-300 Million From 2011 Specific Conagua Wastewater-related Concepts

Total Municipal Wastewater Market = $382-500 Million

B. From 2010 US Embassy Study on Mexico Water & Wastewater Imports Total Municipal Wastewater Market = $280 Million

C. From Latin America Municipal Wastewater Equipment Study (Frost & Sullivan) Total Municipal Wastewater Market (48¨% x 80% x 12%) = $546 Million

V. Industrial Wastewater Market Size Four Models - Size: $280-$455 Million (Average: $367 Million)

A. From 2011 Conagua Budget (with Industrial = 50% of Municipal; 33% Total)Total Industrial Wastewater Market: $110-150 Million

B. From 2005 Mexico Industrial Wastewater Equipment Study (US Embassy)Total Industrial Wastewater Market: $370 Million

C. From Total Mexico Water & Wastewater Equipment Imports (2010) (US Embassy)Total Industrial Wastewater Market: $336 Million (5% Annual Growth estimate).

D. From 2010 Latin America Industrial Wastewater Equipment (Frost & Sullivan)Latam: 2011: $1.12 Billion; 2012: $1.17 Billion; 2014: $1.27 Billion

Mexico: (millions US$) 2011 2012 201425% of market 280 295 32033% of market 375 390 425

Total Industrial WW Market: $280-375 Million________________________________________________________________________________

*Industrial & Municipal Wastewater Equipment Market: $575-750 Million

V. Clean Water Market Size

Public/Municipal Market Size Estimations

Budget: $3 Billion US x 50% = Projects x 40% = Potable Projects = $600 million US; with local funds = $800-900 million US

Construction (domestic) = more than half of spending

Mexican procurement rules = no more than 35% product sales; 60% projects can be foreign

35% = $300 M; 60% = $500 M US Embassy: 2005: $470 million

$370 million in imported products

HydroAgriculture 19% $3 Billion = $570 million US Up 60% since 2008 but only up

4% in 2011

Private/Industrial Market Size Estimation:

25-33% of wastewater treatment $100-120 million US

Drivers Important, in demand, but

generally smaller in value & size than wastewater projects

Good market, less price sensitive Growing with Mexico water quality

problems and water scarcity

Hardest category to judge; least studied area by our firm

VI. Tips for Business

1. Government Procurement National Content Issues

2. Channel Strategy Issues

3. General Water Segment Busines Tips

VI. Problems for NAFTA Companies VI. Problems for NAFTA Companies Selling to Mexican GovernmentSelling to Mexican Government

“Buy Mexican” Rules More, higher % and

enforcement up National Bid Issues NAFTA Ineffective US/Canada vs Mexico

Result: Govt Bid Opportunities down Mexico hypocritical?

Licitation Problems Compranet Bid

System Decisions already made Opening/Closing dates New 5.0 System better?

Low reported vs. high budgeted

Where are projects? Lack of Transparency? Local vs Conagua issue Spent vs budgeted info

VI. Channel Realities

Private Sector Sales – Full Range of Options Pros & Cons: Distributor vs Rep vs Integrator v Direct Private Sector Intermediaries work in Public Sector?

Public Sector Sales – Focus on Integrators Local/State Bids are 95% = Local intermediary need

Early bid knowledge, complex bid process, project servicing Sale will often be based on who you know at that level

National Content Rule = Need for Integrator Products: Must be made in Mexico with 60% local content

Distributors moot: Increased need for integrators/EPCs Projects: 40% local content; more feasible for local content Reports that local enforcement is not consistent, spotty

VI. Tips for Mexico Opportunities Good Market for Imported Goods

Water Sector: 70% Imported, 2/3 from the US Get in/stay in despite insecurity concerns

Follow the enforcement indicators Prosanear (173), Problem areas, Scarcity, Prices

Find in-country sales support….. Local Sales Office or Rep

Service, intermediary support/monitoring; client support (push/pull) Integrators – key for foreign companies in Public Distributors – Viable in Private, not in Public

Don`t rely solely on intermediaries for market analysis, business development: “push & pull” to gain clients

Bring financing/credit plan: Private & Public Can survive without but will thrive with

Contact Information

Vince Lencioni

Email: vlencioni@lgaconsulting.comWebsite: www.lgaconsulting.com

Mexico Water Report Electronic Access: http://www.lgaconsulting.com/water/report.html

Mexico City Toll Free Number in the US: 1-888-750-0988; or 011-52-555-378-3840 or 90