Mexico Cancels $4.3 Billion China Deal on Doubts Over Bid

Mexico will open a new competition for its first high-speed rail project before month’s end after scrapping the winning $4.3 billion Chinese-led bid, citing “doubts and concerns.”

Mexico will allot six months to the next round of bids after opposition lawmakers complained companies didn’t have enough time to participate in the first competition.

President Enrique Pena Nieto “is sensitive to the fact that such an important project with such high benefit for society not raise any doubt,” the Communications and Transportation Ministry said in a statement.

The surprise revocation on Nov. 6 came three days after the project was awarded and ahead of Pena Nieto’s visit to Beijing next week, a trip intended to deepen ties between the two countries. The contract for China Railway Construction Corp. and four Mexican partners marked Mexico’s first large investment in transportation by a Chinese firm.

China Railway Construction tumbled 5.8 percent yesterday, the most since July 2013, to HK$8.02 at the close in Hong Kong. The Beijing-based company said by e-mail that it hadn’t received an official cancellation notice from Mexico. The company can participate in the new round, Gerardo Ruiz Esparza, the transportation minister, said on Radio Formula.

The Chinese-led team was the only group to submit a plan for Mexico’s first high-speed train, which the government says will initially shuttle 27,000 passengers a day between the capital and the industrial hub of Queretaro City in 58 minutes.

The China Railway group plans to bid again in the new round, the Mexico City newspaper El Universal reported today.

Political Criticism

The bidding had come under scrutiny by the opposition National Action Party, with lawmakers accusing the government of favoring the Chinese proposal and saying the sole bid was too expensive.

In canceling the contract, Pena Nieto is seeking to portray his government as more transparent after police involvement in the disappearance of 43 college students in western Mexico sparked international concern over corruption, said Jorge Chabat, a political and security analyst.

Pena Nieto “doesn’t want Mexico to be associated again with any irregularity,” said Chabat, a professor at the Center for Economic Research and Teaching, a Mexico City-based university. Redoing the process “could create an image of little certainty for companies. But the president is now more concerned about public opinion.”

Sixteen Companies

Sixteen companies decided against entering the contest, the transport ministry said, including Mexico’s Empresas ICA SAB, Japan’s Mitsubishi Heavy Industries Ltd., Alstom SA of France, Bombardier Inc. of Canada and Germany’s Siemens AG. Only the China Railway Construction group submitted a proposal by the Oct. 15 deadline. The contract was awarded on Nov. 3.

Alonso Quintana, the chief executive officer of ICA, Mexico’s largest construction company, said in an e-mail that he’s studying the possibility of bidding once a new process opens. Bombardier is also looking into a bid “with great interest,” spokesman Marc Laforge said in an e-mail.

China Railway Construction had said it would turn to the Export-Import Bank of China to help finance its $2.9 billion portion of the contract.

“We’ll start a process so that there’s more participation and involvement and we can receive, we hope, more offers,” Pablo Suarez, head of railroad and multimodal at the transportation ministry, said in an interview yesterday with Milenio TV. “That way, when the new ruling is made, there won’t be any doubt in public opinion about transparency and the use of resources for this project.”

Construction Budget

Ruiz Esparza, the transportation minister, had said earlier the construction cost of $3.2 billion is less than originally budgeted and Mexico had given companies since last November to prepare, while denying any favoritism. The $4.3 billion contract included payment for construction, operation, maintenance and taxes.

The ministry said in its statement Nov. 6 that the process had always been done at the proper time and adhered to legal terms.

“A more exhaustive review of all of these projects that will be bid on in the coming months will be very good for the companies participating and for the market because it will lend more transparency,” Roberto Solano, an analyst at Monex Casa de Bolsa, said in a telephone interview. “There isn’t any negative effect apart from” the impact on China Railway Construction.

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