The case of the México-Querétaro high-speed rail or how to sustain a derailed investment.

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In an odd act for the way in which PRI governments handle protocol, President Peña withdrew the bidding for the México – Querétaro high speed rail (HSR) that the Secretariat of Communications and Transportation (SCT) had awarded to the consortium led by China Railway Construction just a few days ago. This Chinese public enterprise, along with several other Mexican companies –which includes one of the construction companies that won  more infrastructure projects during the time of Peña as Governor of the State of Mexico -were the only participants in the process. Arguing that, due to its lack of participants, the process (formally indisputable) had been questioned by various companies which could not participate as well as other political forces, the Presidential withdrawal sought to restore the lost credibility in order to provide certainty for other investors wishing to participate in different areas of the Mexican economy. Nevertheless and at least in the short term, the reckless way in which this issue was handled may have the opposite effect on investors. What kind of certainty can be provided for these investors if the government will engage in bidding projects when it feels like it and whenever the legitimacy of the latter is put into question? An image of uncertainty is the last thing the Federal Government needs when the entire economic project of this administration is anchored in attracting investments.
The revocation for the HSR ruling is simply the culmination of a bidding process that raised many questions for having a single participant and for the haste in which it wanted to close the project due to political reasons. On one hand, PAN Senators had urged SCT to suspend the tender a few days before the ruling because the proposal exceeded the financial ceiling contemplated by the government in more than 10 billion pesos. Additionally, Senator Marcela Torres argued that since the number of daily users on the similar bus route was 5 times lower than expected by the consortium, the ticket price would not be enough to cover the project costs. On the other hand, the small timeframe for companies to present their projects –and without taking into account the time extensions requested by several of them – enabled the situation of a single competitor. The speed of the process was explained because, according to Secretary Ruiz Esparza’s appearance at the Senate, there was a risk that the Chinese consortium would have declined its offer if the deadline was extended for an additional six month time frame, thus declaring the bidding process as null, something that would have been catastrophic for the government as well as its electoral purposes. However, because of its desire of subordinating economic projects for the President’s political project, the government will have to compensate the Chinese consortium with 590 million pesos (1 percent of the project’s total value) in order to cancel a bidding process that had already been won. The cure might turn out to be worse than the disease.
The current federal administration appears to recreate a Mexico that has long been gone. However, time has proved that reality cannot bend at will without consequences. Mexico’s country risk indicator has increased in recent weeks and even the Chinese Premier Li Keqiang told the President that he expects Chinese companies to be treated fairly when investing in Mexico; this statement was discussed during the XXII Asia-Pacific Economic Cooperation (APEC) Leaders’ Summit. If the government has gotten used to the lack of accountability within the budget, perhaps a decreasing number of investments will make them change its mind.


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