OHL Mexico Probe Seen Crimping Pena Nieto Plan for Economy

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An investigation of one of Mexico’s largest toll-road operators in connection with alleged corrupt business practices threatens to compromise the success of President Enrique Pena Nieto’s economic-development plans, analysts say.

OHL Mexico SAB will have rates frozen on its toll concession on the Viaducto Elevado Bicentenario highway in Mexico State, Governor Eruviel Avila said Sunday, two days after announcing a probe of the company by the state comptroller.

Avila acted after a video posted on YouTube appeared to show OHL Mexico executives discussing how to win government approval for higher tolls by seeking payment for construction costs that may take years to materialize. A separate video purported to show a company executive offering to pay for a state government official’s stay at a luxury hotel. The company’s Spanish parent, Obrascon Huarte Lain SA, began its own inquiry last week.

The matter may slow Pena Nieto’s bid to boost infrastructure spending, a pillar of his push to spur economic growth, said Marco Medina, an analyst at Casa de Bolsa Ve Por Mas. He said the inquiry also serves as a reminder of the separate conflict-of-interest allegations in the past six months involving homes that Pena Nieto, his wife and his finance minister bought from government contractors.

“There’s just scandal after scandal, and we don’t seem to see any intention to improve things,” Medina said in a telephone interview. “This is another roadblock for Pena Nieto. And it could be an obstacle for his ambitious development plans.”

Anti-Corruption Measures

Questions about OHL Mexico’s actions will have no effect on Pena Nieto’s infrastructure development plans, according to his office. The matter does show “the importance of improving anti-corruption and transparency measures, which is exactly what President Pena Nieto has been doing,” the president’s office said in an e-mailed statement.

The president, his wife and Finance Minister Luis Videgaray denied any wrongdoing or conflicts of interest due to their purchases of homes from government contractors. The federal comptroller’s office is investigating the house transactions, it said in February.

OHL Mexico also didn’t respond Monday or last week to requests for comment from Bloomberg News on the matter. The company said in a statement last week that it strictly follows the law, and Chairman Jose Andres de Oteyza told Radio Formula on Friday that OHL Mexico committed no irregularities in setting tolls on the Viaducto Bicentenario road in the Mexico City area.

OHL Shares

During the interview, De Oteyza said that a company executive helped State of Mexico Communications Minister Apolinar Mena get a room at one of its hotels near Cancun at a “reasonable” rate. The executive also invited the minister to stay as OHL’s guest, although the minister declined the offer, De Oteyza said. Mena said in a separate Radio Formula interview that he had declined the offer and paid for his hotel stay.

OHL Mexico tumbled 16 percent last week, its biggest weekly decline in almost three years, and resumed the decline on Monday. The stock fell 5.1 percent to 24.62 pesos at the market’s close in Mexico City for the biggest drop on the benchmark IPC index of 35 Mexican stocks.

Javier Gayol, who covers OHL Mexico at Corporativo GBM SAB, said the shares are falling in part because of the toll freeze in Mexico State.

Potential Damage

While the OHL Mexico probe is unfolding only at the state level, perceptions of Pena Nieto’s administration still may be tarnished, said Andrew Selee, executive vice president of the Woodrow Wilson International Center for Scholars in Washington.

“This particular case could easily damage people around the Pena Nieto government,” Selee said by phone. “There have been a series of stories in the past few months that suggest politicians in the Pena Nieto government and also in other political parties have made undue use, or benefited from their close relationships with private companies.”

Before winning the presidency in 2012, Pena Nieto served from 2005 to 2011 as governor of Mexico State, where OHL Mexico makes most of its sales on toll roads and also owns a stake in an airport operator. He was governor when the Viaducto Bicentenario highway concession was awarded.

Pena Nieto signed a new public information access law last week. He also won backing from lawmakers for constitutional changes to crack down on corruption.

There is no indication that Pena Nieto was involved in the discussions relating to the tolls.

Economy, Support

The OHL Mexico matter comes to light as the Pena Nieto administration seeks to jumpstart a sluggish national economy with public-works spending. Mexico’s economic growth has fallen short of analysts’ estimates in eight of the past 11 quarters. Since September, economists have cut their 2015 economic growth forecasts by almost a full percentage point to 2.9 percent, a central bank survey showed last week.

Pena Nieto’s Institutional Revolutionary Party, or PRI, probably won’t be affected by the OHL Mexico controversy after scandals more closely linked to the president produced little fallout, according to Jorge Chabat of the Center for Research and Teaching in Mexico City.

“There won’t be more impact than what we’ve already seen,” Chabat said in a telephone interview. “The PRI still has its core electoral support.”

The party held a lead over rivals in opinion surveys announced last month by Consulta Mitofsky and El Financiero-Parametria before the midterm elections June 7.

“In the middle of an election cycle, it would be wise for politicians to try and shed the image of collusion and corruption, which much of the public feels hangs over them,” Selee said.

(Updates shares with closing price in 10th paragraph.)
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