Mexico cancels deal with Chinese-led consortium to build bullet train

Bowing to criticism, Mexico's government yanks bullet-train contract from Chinese-led consortium

Bowing to intense criticism, the government of President Enrique Peña Nieto yanked a contract worth nearly $4 billion from a Chinese-led consortium to build a bullet train, billed as one of Mexico's largest infrastructure projects in recent times.

The government ordered a new bidding process after the awarding of the concession to the Chinese group was attacked by legislators and others for its lack of transparency and apparent favoritism benefiting allies of the president. The bid was uncontested.

The consortium included several Mexican construction companies, one owned by the brother-in-law of former president and Peña Nieto mentor Carlos Salinas, Mexican news outlets have reported. Another won millions of dollars’ worth of projects in the State of Mexico when Peña Nieto was governor there.

In a statement released shortly before midnight on Thursday, the Communications and Transportation Ministry announced the cancellation of the contract, citing “doubts and concerns that have arisen in public opinion.”

Minister Gerardo Ruiz Esparza, appearing on a late-night television news program, added that the government still believed the original bidding process “conformed to the law” but wanted to remove all clouds of suspicion.

The government will “redo the process, giving more time for the presentation of offers by train manufacturers,” Ruiz Esparza said. “The president … desires that a project that is so important for Mexico not be questioned and have absolute clarity.”

The contract was awarded days ago to China’s state-owned CSR Corp. and the China Railway Construction Corp., along with one French and four Mexican firms. The consortium was the only bidder after 16 other groups dropped out, citing, in some cases, untenable conditions and overly rushed deadlines.

The project aims to build a high-speed rail system from Mexico City to the industrial hub of Queretaro, one of Mexico’s more prosperous and less violent cities, about 127 miles north of the capital. It is part of a wider, ambitious infrastructure project that Peña Nieto has hailed as a cornerstone of his administration.

He announced the train plans in his inaugural speech on Dec. 1, 2012. His government has said it would be completed by the end of 2017 and would transport 23,000 passengers daily at up to 180 miles an hour. The Mexico City-Queretaro run would be completed in just under an hour.

In contrast with efforts in the U.S., including California, where high-speed-rail projects take many years and must clear numerous judicial, environmental and legislative hurdles, Peña Nieto’s government seemed to be barreling ahead with its plans.

California’s bullet-train would cost $68 billion and is the largest infrastructure project in the U.S. It would run about 350 miles from Los Angeles to San Francisco, but it has been plagued by numerous setbacks.

Peña Nieto’s abrupt about-face caught Mexicans off guard. His Institutional Revolutionary Party has a long history of rampant corruption in public-works projects, politics and other realms of government. Commentators were saying Friday that they could not remember an awarded bid being revoked, regardless of public suspicions.

The decision comes on the eve of the president’s planned trip to China and Australia for conferences of the Asia-Pacific Economic Cooperation forum and the Group of 20.

It also comes amid rumors that new journalistic investigations were going to reveal more irregularities involving the train project.

Peña Nieto already faces excruciating tests of his credibility and ability to govern his country and restore law and order after the Sept. 26 disappearance of 43 college students last seen being led away by police, and the possible killing in June of 22 people by the army. On Friday, the Reforma newspaper reported on its front page another incident: an alleged killing by Marines of a detained suspect.

Just hours before Peña Nieto canceled the contract, Ruiz Esparza had defended it in an appearance before the Senate, where he had been summoned to explain the questions many legislators had about the bidding process.

The senators cited Mexican news reports that said the 10 largest transportation concessions awarded in the nearly two years of Peña Nieto’s administration had all gone to firms tied to his party.

“It is not about friendships,” Ruiz Esparza responded. “It is about companies.”

During the session, Marcela Torres, a senator from the opposition National Action Party who represents Queretaro, demanded that the contract with the Chinese-led group be canceled.

“There is opaqueness, corruption and a crack in [public] confidence in all Mexican institutions,” she said.

In his later television appearance, Ruiz Esparza said Peña Nieto had decided on the revocation “moments ago.” He said he expected new bids to begin to be proffered by month’s end and to last over a period of six months.

There was no immediate reaction from the Chinese firms to Mexico’s decision. Shanghai shares fell Friday, weighed down by rail company losses after Mexico’s announcement, the Shanghai Daily reported.

China has increasingly sought international markets for rail construction. But it has a mixed record. One of the deadliest bullet-train accidents ever involved a Chinese-made rail car in China’s Zhejiang province three years ago. Shoddy workmanship was blamed for the accident, which killed 38 people and injured nearly 200.

After initially winning the Mexico bid, Chinese industry leaders said their work in the high-speed rail industry was increasingly accepted worldwide.

Dozens of overseas railway projects, along with those across China’s varied geographies, “have made CRCC [China Railway Construction Corp.] highly experienced,” Zhuo Lei, chairman of the company’s international subsidiary, was quoted as saying in the official New China News Agency.

Cecilia Sanchez in The Times' Mexico City bureau contributed to this report.

Follow @TracyKWilkinson on Twitter for news out of Mexico

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