Chinese hi-speed rail for Mexico

SASAC, a Chinese government agency that oversees state-owned assets, said on Wednesday in Shanghai that state-owned China Railway Construction Corp (CRCC) would tender a bid for a contract to build Mexico's and Latin America's first high-speed rail line, which will run between Mexico City and Queretaro, a manufacturing hub northwest of the capital.

CRCC will offer to build a complete package, including the 210-kilometer rail track, railway stations, fast trains and other equipment. Once built, the rail line will carry about 25,000 passengers a day between the two cities at speeds of up to 300 km/h, and reduce the commute between them to 58 minutes, down from two and a half hours today.

CRCC had previously led a consortium of Chinese and Mexican companies bidding on the same project. The consortium was set to win the contract, but the deal was interrupted on November 6 last year, when a conflict of interest controversy erupted.

It transpired that Grupo Teya, one of the Mexican companies in the consortium, was a subsidiary of a government contractor that owned a multi-million-dollar house that the wife of Mexican president Enrique Pena Nieto was in the process of buying.

When the controversy derailed the contract, the CRCC-led consortium was the only remaining bidder, at a bid price of $3.75 billion (currently 3.18 billion euros). 16 other firms had already pulled out of the bidding, saying they could not compete with the highly favorable financing package the Chinese government had promised to CRCC. China's Export-Import Bank had agreed to finance 85 percent of the project.

The firms that pulled out included Germany's Siemens, Canada's Bombardier and Japan's Mitsubishi.

Chinese bullet train maker CSR, which announced it would merge with its Chinese rival CNR in late December, was also part of the original CRCC-led consortium. It is not yet clear whether or not the same Chinese and Mexican firms will be members of the new bid consortium - other than CRCC itself, which will again lead the bid.

A favored bidder?

Sources close to CRCC or familiar with rival bids said CRCC is still likely to win in the renewed bidding process, given its generous Chinese government backed financing, inexpensive high-speed rail technology, and political support in Mexico.

"The financing they have access to allows them to offer much more favorable terms than any other group," said Gerardo Flores, a member of the Mexican Senate's transport and communications committee. "I'm worried it might appear it's a given that this group will win," he said, adding that any doubts about the tendering process would set a bad precedent as Mexico prepares to open up its energy sector to foreign investment.

For China, the rail project is an opportunity to showcase its high-speed railway building prowess in Latin America. Chinese companies built the world's largest high-speed rail network in China in less then ten years. The Mexico City to Queretaro line could prove the calling-card that leads to further contracts in the Americas.

China is aggressively pursuing high-speed rail projects worldwide. The recent merger between China's two state-owned bullet train making companies was a move intended to focus resources on a single national champion capable of outcompeting European and Japanese rivals.

CRCC also recently won a major railway construction tender in Nigeria - though it wasn't for a high-speed rail line.

Now bidding for the Mexican line has been reopened, with bid terms largely unchanged. Mexican authorities said companies will be given until July 14 to submit an offer. The winning bidder will have five years to get the project up and running.

A source with knowledge of Beijing's thinking told Reuters news agency that China will likely offer less generous terms for the renewed bid. The reduced generosity will be Beijing's way of expressing its displeasure over what it sees as the unfair revocation of the previous bid, over a minor domestic Mexican political tempest which China had nothing to do with.

NZ / sri (Reuters, AFP)