In the first week of February 2014, the Mexican lower house of Congress passed a bill that opens the country’s rail freight sector. As a result, lawmakers expect new investments, lower prices, and a broader rail share of the cargo business. This reform will also go hand in hand with other changes President Enrique Peña Nieto’s government suggested to benefit the telecom and energy sectors while boosting competition.
As part of its efforts to improve its infrastructure and grab more foreign investors to the country, Secretaría de Comunicaciones y Transportes (The Ministry of Transportation and Communications) has announced its plan to launch a number of passenger and cargo rail projects that would cost at least 125 billion pesos (USD 9.5 billion).
Approximately 13 projects will take place, three of which aim to improve the passenger trains between Mexico City and Toluca, Mexico City and Querétaro, and the Yucatán peninsula. SCT rail director Carlos Almada told the media that these three projects alone are going to cost 95 billion pesos (USD 7.18 billion).
As for cargo rail, a 30 billion pesos (USD 2.27 billion) estimate has been made, especially for the Aguascalientes-Guadalajara line in Encarnación. Through this new line, the distance between the Manzanillo and Altamira ports will be lesser by 200 km, allowing deliveries to be made 16 hours less than they used to. The construction of this rail tunnel will also allow double the amount of cargo (up to 4 million TEUs).
Similarly, the Celaya and Matamoros rail bypasses will benefit the country by boosting the speed of transport while the Coatzacoalcos project will allow the delivery of hazardous material, without entering the city.
However, despite the potential these projects have to offer, the two companies controlling most of Mexico’s freight market are threatening to take legal action against the bill. Grupo Mexico’s Ferromex and Ferrosur railroads joined forces with Kansas City Southern de Mexico to voice their anger over the proposed legislation to open up their industry, especially since the bill threatens the 14 years of exclusivity awarded to them.
Kansas City Southern de Mexico’s president Jose Zozaya commented, “We don’t want to go down the legal path, but we’re certainly looking at those options.” Meanwhile, Ferromex’s CEO denied monopolizing the market with Kansas City Southern but warned against legal action.
Rogellio Velez said that U.S. railroad Union Pacific Corp which owns 25% of Ferromex, has written to the Mexican president threatening to take back its investment if the law was approved. He also shared that his company may get an injunction, which is a legal tool that allows companies to indefinitely stall legislation that doesn’t satisfy their needs. “In Mexico, we have the injunction. It’s a resource we have of course thought about using, but there shouldn’t be any need to get to that point.”
Both companies are currently working on toning down the reform by winning over lobbying lawmakers in the Mexican Senate. Zozaya also added that the Mexican government would be doing itself more harm since it’s impossible to lure investors into the sector without building new lines. “We’re sending a terrible message that concessions are not respected here,” he said.