Mexico Digs Into Ties Between Leader, Builder

Little-Known Government Deals Won by a Contractor Seen Close to President Peña Nieto Emerge, as Opposition Calls for Probes

By DAVID LUHNOW and

SANTIAGO PÉREZ

Dec. 3, 2014 8:38 p.m. ET

MEXICO CITY—A contractor who built and holds the title to President Enrique Peña Nieto ’s family home has won a series of high-profile government contracts since the Mexican leader came to power two years ago, projects increasingly under scrutiny by opposition lawmakers and foreign investors.

The contractor, Juan Armando Hinojosa, is at the center of a political scandal that is rocking the Peña Nieto administration amid questions over the men’s relationship and whether favoritism played a part in Mr. Hinojosa’s companies winning government contracts worth hundreds of millions of dollars.

Until now, much of the focus has been on contracts Mr. Hinojosa won while Mr. Peña Nieto was governor of the state of Mexico and on the contractor’s participation in a deal to build a bullet train that the government canceled last month after competitors said the process was rushed.

Much less known are Mr. Hinojosa’s share of a $3.4 billion contract to build Latin America’s longest waterway and his participation in a $460 million project for a new museum in the colonial city of Puebla, according to public records reviewed by The Wall Street Journal.

Other little-known contracts won by units of Mr. Hinojosa’s holding company Grupo Higa SA include several federal highway projects, a no-bid contract to revamp the presidential hangar at the Mexico City airport, and contracts to ferry around government officials in private jets, the public records show. Another of his companies is part of a bidding group that seeks to build a new $9 billion Mexico City airport.

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President Enrique Peña Nieto lives in this Mexico City house, whose title is held by a developer seen as close to the Mexican leader.AGENCE FRANCE-PRESSE/GETTY IMAGES 

Mr. Hinojosa declined to comment and hasn’t made any public remarks on the matter. A Grupo Higa spokesman said the company respected the government’s decision to revoke the train contract.

Mr. Peña Nieto’s office has rejected any suggestions of favoritism. “Projects awarded by the government are based on rules that seek to guarantee competitive, fair and transparent processes for all the participants,” Mexico’s presidency said in a statement in response to questions by The Wall Street Journal.

But the revelations are hurting the president politically. A poll this week showed Mr. Peña Nieto’s approval rating sagging to 39%, the lowest for a Mexican leader in nearly two decades.

The ruling Institutional Revolutionary Party, known as the PRI, which holds a majority in Congress, has blocked opposition demands to investigate conflict-of-interest allegations surrounding the luxurious home.

Neither the home’s existence or its ownership was publicly disclosed by the president and emerged only after a team of investigate journalists in Mexico wrote about it.

The president’s office says the home—which has been dubbed “The White House” by Mexicans for its white marble interior—is being bought by first lady Angélica Rivera using money from her long career as a successful actress and that the couple keeps their finances separate under the terms of their marriage contract.

But Mexico’s lower house of Congress on Tuesday agreed to form a panel to probe the $3.7 billion bullet-train contract, which was canceled only days after it was awarded to a Chinese-led consortium that included Constructora Teya SA, a unit of Mr. Hinojosa’s Grupo Higa.

And several opposition senators are also calling for the government comptroller’s office to probe all of the public contracts won since 2010 by Mr. Hinojosa’s firms.

“There’s a perception that the president benefited from a company that had multiple government contracts that go well beyond the train to Querétaro,” Laura Rojas, a senator for the conservative opposition National Action Party, said in an interview. “The president’s credibility has been deeply affected.”

Concerns about public contracting come as Mexico prepares its first tenders in more than 70 years for private oil companies to explore and produce oil and gas. The tenders are significant in a country that pioneered oil nationalism when it kicked out private oil and gas firms in 1938.

The Hinojosa contracts have deepened skepticism that many Mexicans show over the energy-sector opening, not to mention foreign companies hoping to bid.

“ ‘Is the process going to be transparent?’ is a frequent question from headquarters,” said a senior executive with an international energy firm in Mexico, also citing deteriorating security conditions as illustrated by a national uproar over 43 missing students.

When Mr. Peña Nieto was governor of the state of Mexico, the country’s most populous state, in 2005 to 2011, units of Grupo Higa participated in the construction of hospitals, highways and a prison. Ties between the politician and the Hinojosa family were widely seen as close.

In late 2007, Mr. Peña Nieto attended the wedding of Mr. Hinojosa’s son, Juan Armando Hinojosa García. When the son died in a helicopter crash in 2012, the future president and his wife attended the funeral.

Mr. Peña Nieto’s spokesman said that during the president’s political career, he has developed “cordial and respectful” relationships with many businessmen, politicians and other members of society.

Last week, the president’s office said that another luxury home owned by Mr. Hinojosa was rented by Mr. Peña Nieto’s legal adviser for use as an office during the politician’s time as a candidate and after he was president-elect.

Since Mr. Peña Nieto became president, Mr. Hinojosa’s companies have won other big contracts. His Concretos y Obra Civil del Pacifico SA has a 37.5% stake in a group that won the rights to supply water to the industrial city of Monterrey for the next 50 years, the public records show.

Like the bullet train project, several global construction giants showed interest in bidding for the Monterrey project. However, the only other bidder to emerge, a unit of Spain’s Abengoa , was disqualified for technical reasons, positioning the group that included Mr. Hinojosa’s firm as the only bidder.

State officials said the bidding process was transparent and that the evaluation of the bidders’ technical capabilities was rigorous.

Write to David Luhnow at david.luhnow@wsj.com and Santiago Perez atsantiago.perez@wsj.com

http://online.wsj.com/articles/mexico-digs-into-ties-between-leader-builder-1417657132