Mexico scraps $3.75 billion China rail deal ahead of state visit

November 8
7:04 AM 2014

Mexico has revoked a $3.75 billion high-speed rail contract from a China-led consortium after its uncontested bid prompted an outcry from lawmakers, souring a state visit to Beijing next week by President Enrique Peña Nieto.

After the contract to build the link was awarded on Monday, opposition politicians accused the government of favoring the group led by China Railway Construction Corp Ltd (601186.SS), the sole bidder.

Mexico's Communications and Transport Ministry, which has defended the bidding process, said on Friday it expects to re-run the tender in late November under the same terms, and would keep it open for six months to enable all interested parties to participate.

"The president wants this project which is so important for Mexico to not be questioned, to have absolute clarity," Transport Minister Gerardo Ruiz Esparza said. "We expect more participation from train makers in the new tender."

China Railway Construction can take part in the new tender and could be eligible for compensation since Mexico's government withdrew the contract, he added.

French engineering group Alstom SA (ALSO.PA) and Canada's Bombardier Inc (BBDb.TO) said they would consider taking part in the new tender.


Since Peña Nieto took office in late 2012, he has tried to forge closer ties with China after years of rivalry between the two countries seeking to supply the U.S. market.

Announcing the contract on Monday, Mexico's government said the 210-km (130-mile) line to connect Mexico City and the central city of Querétaro would cost an estimated 50.82 billion pesos ($3.74 billion), which includes the construction and five years of operations.

The proposal came with a 20-year, China government-backed credit to cover most of the project's value, at interest rates below those available even to Mexico's government.

News of the contract's cancellation helped to drag down stocks in Shanghai on Friday and it came as an embarrassment for Peña Nieto ahead of his trip to China.

He is also due to unveil a joint investment fund with China, which has so far invested a tiny fraction in Mexico of the billions of dollars it has spent in Latin America as a whole.

The fund could be worth up to $5 billion, officials say.

China's CSR Corp Limited and China Railway Construction, both involved in the bid, could not immediately be reached for comment by Reuters. Chinese financial news magazine Caixin, however, reported that both companies said they were unaware of the news and surprised when contacted for confirmation.

Shares in China Railway Construction slid nearly 5 percent after the news in their biggest drop since June 2013.


Opposition lawmakers on Thursday questioned Ruiz Esparza over the deal, accusing the government of providing information to help the Chinese-led consortium and its Mexican partners.

Senators asked how 16 companies had pulled out of the bidding on such a prestigious project. Javier Corral of the center-right National Action Party (PAN) accused the government of sharing information with the winning team ahead of time.

Ruiz Esparza denied the accusations, but barely an hour later, the government said it would revoke the contract.

Senator Francisco Burquez, a PAN legislator who had attacked the deal, said he believed the about-face was due to domestic political pressure and media reports that noted Mexican winners of the bid were friends of Peña Nieto, but not outside intervention.

"I don't see anything beyond this," he told Reuters, calling the cancellation a major victory for transparency in Mexico.

Germany's Siemens AG (SIEGn.DE) and Bombardier were among the companies to express an interest in the project, which is meant to move 27,000 passengers daily from Queretaro at speeds of up to 300 km per hour (186 mph).

Siemens' Mexico rail chief told Reuters last month that the company, along with Bombardier and Alstom, had asked for more time to prepare a bid, a request he said was denied by the Transport Ministry.

An Alstom spokeswoman said the group would consider a tender relaunch, but would need six to eight months to draw up an offer. Bombardier spokesman Marc Laforge said the company would look into it "with interest."

Siemens declined to comment.

© 2023 VCPOST, All rights reserved. Do not reproduce without permission.


Join the Conversation

Subscribe to VCpost newsletter

Sign up for our Deals of the Day newsletter.
We will not spam you!

Real Time Analytics