Chinese Firms Blindsided By Mexico Decision To Revoke High-Speed Rail Concession Five Days After Awarding It

Two major Chinese rail companies were assessing Friday the fallout of Mexico’s decision to revoke a major high-speed rail project after Mexican lawmakers lashed out at the bidding process. The concession had been granted only five days earlier.

The decision came at an inopportune moment as President Enrique Peña Nieto is traveling to China Sunday to attend the Asia-Pacific Economic Cooperation conference.

“Both sides expressed surprise and were still unaware [of the announcement],” said China’s Caixin financial news agency, which reached out to officials from both companies. An official from China South Locomotive said his company had not “received relevant information” and is currently holding an urgent meeting to “verify the reliability of the message.”

Peña Nieto canceled late Thursday a major high-speed rail concession granted to a consortium led by China’s second-largest state-owned construction company. The concession, announced Monday by Mexico’s Communications and Transport Secretariat (SCT), faced immediate fury from opposition party senators. They charge that the Mexican partners in the Chinese-led consortium received insider information, leading other bidders to pull out a day before the closing date for the tender submission, according to a report Friday in Mexico’s El Universal newspaper.

The $3.73-billion deal was to build a 135-mile high-speed rail line linking Mexico City with the growing industrial city of Querétaro. The winning bid was 18 percent higher than the original estimate for the project, according to the Yucatan Times. But 85 percent of the project was to be financed by the Export-Import Bank of China, according to Reuters.

“Because of the doubts, of the concerns, that have arisen in public opinion regarding the tender process of the [project], the president just now made the decision to revoke the Nov. 3 announcement and restart the process, giving more time for offers from railway manufacturers,” SCT Minister Gerardo Ruiz Esparza announced in a public statement late Thursday.

The consortium is led by China Railway Construction Corporation, China’s second-largest state-owned construction company, and it includes China South Locomotive Co., the world’s largest locomotive manufacturer.

CRCC’s share price fell 5.52 percent to 8.04 Hong Kong dollars ($1.04) Friday after the news was announced.

Mexican companies GIA, Prodemex, Grupo Higa, and GHP Infraestructura Mexicana were part of the winning bid. So is Paris-based Systra, which has been involved in developing Mexico City’s subway system since the late 1960s. The consortium was the sole bidder on the project.

The SCT reportedly sent 16 other bidders letters apologizing for their inability to participate in the bidding process, stating that the project needs to be completed quickly. Companies that considered bidding but didn’t include Canada’s Bombardier, Germany’s Siemens AG and France’s Alstom, according to the Wall Street Journal.

Ruiz Esparza defended the process Monday after the winning bid was announced, saying there are very few companies in the world that can handle high-speed rail projects like this. “Public tenders [like this] frequently receive only two bids on average,” he said, according to El Financiero. The new bidding process is expected to begin within weeks if not days, the president’s office said.

Michelle FlorCruz contributed to this report.