Mexico Seen Risking Investor Confidence as Rail Plan Stalls Anew

President Enrique Pena Nieto risks eroding investor confidence in Mexico’s public works projects after the second suspension of a high-speed rail line mired in a bidding-process scandal with connections to his own family.

On Friday, the administration said the Mexico City-Queretaro rail project fell victim to broader budget cuts. Earlier this month, the government had been forced to start the bidding afresh amid disclosures that a partner of the winning group built and held the title to a home owned by Mexico’s first lady. The latest move raises questions about the nation’s ability to execute large projects that can withstand public scrutiny, Jorge Chabat, a political analyst, said.

“This could limit the participation for any type of investor,” said Chabat, an analyst with the Center for Research and Teaching in Mexico City. “It raises doubts about whether it was because of economic reasons, or if simply the government is incapable of carrying out a transparent bidding process that’s free of suspicion.”

Shares of builders or suppliers of infrastructure projects tumbled today as the government announced various cuts to public works as part of a 124 billion-peso ($8.3 billion) spending reduction triggered by a global rout in oil prices.

Billionaire Carlos Slim’s Grupo Carso SAB, which operates construction businesses, and Alfa SAB, an autoparts and petrochemical company, both dropped more than 3.6 percent in Mexico City trading. Cemex SAB, the largest cement maker in the Americas, fell as much 3.8 percent.

The new bidding process began after the government scrapped a $4 billion winning proposal from a consortium led by China Railway Construction Corp. in November after it was found that one of the bid partners built home for Mexico’s first lady. The home is valued at 86 million pesos.

Mexico said earlier this week that it was delaying publishing the final terms for the new round of bidding after companies made recommendations to fine-tune the process.

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