Mexico Puts Its Railway System on the Block, Says It Has Suitors : Transportation: Government offers to separate unprofitable local routes from three major regional divisions it is creating.

The Mexican government officially put its national railway system on the auction block Monday, offering a series of concessions it hopes will entice billions of dollars in domestic and foreign private investment and streamline its extensive, aging railroads.

Announcing the official guidelines for the ambitious privatization program, Communications and Transport Secretary Carlos Ruiz Sacristan said the goal is twofold: to raise hard currency for a crisis-ridden national budget and to transform the nation’s 16,250 miles of inefficient, costly and in some cases dangerous tracks into “a safe, efficient, competitive and reliable source of transportation.”

Already, he confirmed, the government has received firm interest from many domestic and foreign potential bidders. He named three large Mexican conglomerates in joint ventures with U.S. corporations: Kansas City Southern Industries; Bethlehem, Pa.-based Union Pacific Railroad, and RailTex of San Antonio.

But to make investment more attractive in a transport system that now carries just 1.5% of all passengers and 20% of all cargo moving through Mexico, he and his aides announced that the government is willing to separate “short lines”--including unprofitable local routes--from the three major regional divisions it is creating and selling to the private sector.

Many of Mexico’s regional lines are highly profitable, particularly those connecting key Mexican ports and cities to U.S. freight lines at the border. But others, among them those covering the impoverished southern states of Oaxaca and Chiapas, are dilapidated, dangerous and unprofitable, and U.S. rail company executives were hoping the government would separate the losers from the winners.

In doing just that--announcing that the state-owned Ferrocarriles Nacionales de Mexico would continue to operate those short lines--the government also said it was assuming full responsibility for the railway system’s $400 million in bank debt, as well as the pensions of its retired rail workers--about half of the 100,000 employees on the railway payroll.

Ruiz said the government will formally open bidding for the three regional divisions during the second quarter of next year--the next major step in a process he said he expects to complete by the end of 1996.

Under other guidelines unveiled Monday, the government said it will permit the private rail companies to hold 50-year concessions. Foreign investment in each venture is set at 49%, although larger percentages will be considered.

Bob Thruston, managing director of Mexico operations for Southern Pacific Rail Corp., which is among the potential bidders, praised the Mexican government for the reorganization it announced Monday.

“By separating the short lines and the trunk lines, they’re making the regional concessions more attractive,” he said. He stressed, however, that the guidelines do not address all the industry’s concerns.

“Our major concerns are labor and passenger services,” he said. “There isn’t a passenger service in the world that is attractive, financially speaking. And the existing labor agreements do concern us. Mexico’s entire railway is about the size of ours [in the United States] but employs three times as many people and earns a third of the revenue.”

Amid a deep recession that already has thrown more than 1 million Mexicans out of work this year, Ruiz indicated that he is aware that the labor issue is controversial. Senior Mexican railway officials stressed Monday that the state has already made personnel cuts.

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Times Mexico City bureau researcher Shasta Darlington contributed to this report.

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Mexican Rail System

There’s a good reason the 15,000-mile Mexican rail system has a north-south orientation: much of it was built by U.S. railroads before the network was nationalized in the 1930s.