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Chinese railway interests—in Mexico?

Written by William C. Vantuono, Editor-in-Chief

A Mexican legislator who happens to be a member of the nation’s opposition National Action Party (PAN) has said that the Chinese government is interested in participating in the country’s railroad system, should its structure be drastically altered under a bill now being considered in the Senate (upper chamber) of Mexico’s Congress.

Earlier this month, Mexico’s lower chamber overwhelmingly approved a reform of the country’s existing rail freight legal framework that would force open access upon two concession-holders: Grupo Mexico, which operates Ferromex and Ferrosur, and Kansas City Southern de Mexico. Under the terms of the bill, Grupo Mexico and KCSM would be forced to share their lines or risk losing them. They would also have to publish rates they charge customers for interconnections with routes owned by other companies.

According to a report filed Feb. 26, 2014 by Reuters, National Action Party member Juan Carlos Muñoz, who also heads the lower house of Congress’ transport commission, said Chinese rail companies (as well as some U.S. firms) have expressed interest in the Mexican rail freight market if the reform bill, which seeks to open up the sector to more companies, is approved. He did not disclose any names.

“What’s this proposal aiming to do? Bring new players into the market,” Muñoz told Reuters. “There’s an interest in China to enter Mexico’s rail market, the United States and China.” He said any potential newcomers would benefit from a recently approved overhaul of Mexico’s energy sector, which is looking for foreign investment.

“Rail freight is crucial for Mexico’s fast-growing auto production and manufacturing sectors, which are key to economic growth, and the energy reform is also expected to boost sales,” Reuters said. “However, some customers, like steel producers, say the lack of competition makes for exorbitant freight prices.” (Editor’s note: Sounds a lot like the complaints of so-called “captive shippers” in the U.S.)

“U.S. railroad companies already have investments in Mexico,” Reuters noted. “KCSM is owned by Kansas City Southern, while Union Pacific Corp owns about a quarter of Ferromex.”

Muñoz said the pending bill “could allow these companies to set up their own businesses, without local partners. Union Pacific … has a great opportunity to separate itself, to become a new concession-holder without being involved with Ferromex. It opens an impressive opportunity for them.”

Muñoz said that if the bill is approved, large industrial companies, like cement producer Cemex, could build their own lines, use their own cars and locomotives, and pay the current concession-holders for access. Muñoz added that he expected the Senate to make certain changes to counter the argument made by the current concession-holders that the proposed bill sets a bad precedent as Mexico tries to lure new investors into its oil and gas sector. “[We’re] certainly looking to give legal certainty in all international areas,” he said. “We don’t want to generate a bad impression abroad.”

Ferromex and KCSM are now considering legal challenges to the bill, which they say ignores a concession granting exclusivity for another 14 years.

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