Rail consortium gears up for 2nd chance in Mexico

A CRH (China Railway High-speed) bullet train travels on the Lanxing (Lanzhou-Xinjiang) High-speed Railway in Hami, Northwest China's Xinjiang Uygur autonomous region, Sept 14,?2014. [Photo/IC]

Experts say hopes are high that Chinese-led group will win revised tender, reports Zhong Nan.

Analysts say that a Chinese-led consortium is still a strong contender to win a landmark contract to build Mexico's first high-speed railway, in a bidding process being rearranged for next year after the country decided to withdraw an earlier offer to the group.

Mexican President Enrique Pena Nieto canceled the original $3.7 billion concession granted to the consortium early last month, amid criticisms that it was the only bidder.

The consortium's bid team has since stayed in Mexico and both the Chinese companies involved and the government have demanded the Mexican authorities restart the bidding, hoping that the tender process can be properly settled this time, and as soon as possible.

Eager to secure the deal, Siemens AG of Germany, France's Alstom, Canada's Bombardier Transit Corp and Mitsubishi Corp of Japan have all now said they will participate in the rearranged tender, which is scheduled to be held in eight months, according to China CSR Corp, one of the country's largest train makers and a partner in the bidding consortium.

The original eight-company group for the new railway project, planned to connect Mexico City and the central city of Queretaro, was led by China Railway Construction Corp and CSR.

Wang Mengshu, an academic specialized in rail and infrastructure projects at the Chinese Academy of Engineering, said even though there are competitive rivals, the advantage the Chinese companies have is they are able to offer the whole package of services needed to complete the project, including infrastructure construction, rail vehicles, maintenance and professional training for local staff.

Wang, who is also a member of the team that is modifies the original bid document, said CSR is planning to establish "a new manufacturing and maintenance base to serve the needs of Mexico, as well as its neighboring markets if the consortium won the bid next year".

Operating in Mexico can be tricky for foreign heavy industrial companies, faced with high labor, logistics and manufacturing material costs, as well as an imperfect industrial chain.

Queretaro is the center of Mexico's aerospace industry and the new railway will be used to carry some 23,000 daily commuters from the city at speeds of up to 300 kilometers per hour. The original bidding process began in the middle of August.

"High-speed trains with operational speeds of over 300 km/h have been running in China for more than five years in various terrain and climatic conditions, and foreign competitors are fully aware that Chinese rail products have significant price advantages," said Wang.

"It won't take us long to prepare the next bidding document."

Wang said the Mexican government plans to offer compensation based on the initial contract, but no accurate figure has been acceptable so far to the Chinese-led group.

Even though the final cost for the connection is still unclear, the investment package has been estimated at $3.75 billion to $4 billion. The Mexican government previously wanted to start construction in December and the line is expected to be operational in 2017.

The high-speed project is part of the Mexican president's campaign to bring back passenger trains, which all but disappeared more than a decade ago, except for some tourist lines.

Dong Yan, a rail transportation researcher at the National Development and Reform Commission, said the Chinese group should pay attention to the likely rival tender being submitted by Canada's Bombardier, which has years of industrial experience in Mexico.

After building bullet trains, light-rail vehicles and subway cars for the domestic market over the past decade, China's train makers and rail infrastructure companies have begun to work together in recent years to take advantage of the huge opportunities being offered globally.

Dong said although it is the second bid, the Chinese rail construction companies are attractive to the Mexican government and its business partners because unlike their competitors from Canada, Germany, South Korea and Japan, they can come with their own funding.

"They are capable of coordinating finance for projects through Chinese institutions such as the Export-Import Bank of China or China Development Bank," said Dong. "They also do not generally seek sovereign guarantees when working with local partners."

China is currently in talks with more than 20 countries such as Singapore, the United Kingdom, the United States, Russia and India on potential high-speed train projects.

So far it has secured three overseas deals, including the second phase of the Ankara-Istanbul high-speed rail line in Turkey, and parts of the Haramain high-speed rail project in Saudi Arabia.

Zhao Jian, a professor of rail transportation at Beijing Jiaotong University, said one significant factor in their favor is that Chinese rail infrastructure companies are currently more inclined to adopt a "build-transfer" business model to carry out projects in overseas markets, instead of using the "build-operate-transfer" model as they might have in the past.

Because the projects are being built on foreign soil, operating them may bring yet-unknown additional political, social or environment risks, said Zhao.

Under the present circumstances, Zhao suggested that this time, if it becomes a matter of who is paying for it, Mexico could use its mining resources to underwrite any loan needed.