Mexico’s First Try at Privatizing Rail Lines Is Shunted Onto Sidetrack

Mexico’s ambitious program to privatize its railroad system got off on the wrong track Wednesday.

In what was the second recent setback for Mexico’s plans to raise billions of dollars in a sell-off of public facilities, the government was forced to cancel a planned sale of rights to a northern railway line because the sole bidder didn’t offer nearly enough money.

Just last month, the ruling Institutional Revolutionary Party formally opposed the government’s plans to privatize state-owned petrochemical plants. Mexico also hopes to sell shipping ports and airports.

“This is not an insurmountable setback,” deputy transport secretary Aaron Dychter said at a news conference held to open the lone bid for the 900-mile Chihuahua-Pacific rail line.

Nonetheless, disappointment was written all over his face as the just-opened bid for the railroad line was flashed onto a screen at the news conference. The offer, by Grupo Mexico in partnership with a Texas firm, was $27.7 million.

The government had privately established a $50-million minimum price after learning that only one company would bid for the 50-year rights to the line.

Officials declared, however, that Wednesday’s failure will have little impact on the privatization process. They noted that foreign and domestic companies had expressed keen interest in other, longer railroad lines that link the U.S. border to Mexican cities, ports and industrial centers.

“We’re looking at a line that represents less than 2% of the total” of cargo moved in Mexico, said Luis de Pablo, director of Mexico’s railways. “Those who were interested in participating in this line have shown interest in participating in the bigger trunk lines.”

Mexico is inviting private companies to run its railroads in an effort to modernize a creaky, highly inefficient system. The rail network--much of it built at the turn of the century--carries just 1.5% of all passengers and 20% of all cargo moving through Mexico.

Many foreign investors, however, believe the system could blossom, thanks to increasing commerce generated by the North American Free Trade Agreement.

The Chihuahua-Pacific railway stretches from Ciudad Juarez, on the Texas border, to Los Mochis, on the Gulf of California. The route passes through the Copper Canyon, one of Mexico’s great natural wonders. It has 400 bridges and 100 tunnels and showcases some of the country’s most spectacular scenery.

But the line’s potential for tourism was of little interest to most potential bidders. Grupo Tribasa, a Mexican construction firm, said it pulled out of the bidding for the Chihuahua line last week because it wasn’t attractive for shipping cargo.

Javier Garcia de Quevedo, director of development for Grupo Mexico, indicated that the government minimum price was too steep.

“We are surprised by the government’s high price. We made a great effort to consider the market, the rail line and current ticket prices,” he said. Grupo Mexico had bid along with a Texas partner, South Orient Railroad Co.

The government said it still hadn’t decided whether it would hold another round of bidding for the Chihuahua line or attach it to the larger northern Pacific route, which will also soon go on the auction block.

Mexico City bureau researcher Helena Sundman contributed to this report.