China's CRCC likely to win in new bid for Mexico train project: sources

[MEXICO CITY] China Railway Construction Corp (CRCC) looks poised to clinch a contract to build a US$3.75 billion (S$5 billion) Mexican high-speed train system even after its original winning bid was revoked when it became engulfed in a political scandal, say sources with knowledge of the bidding.

Mexico on Wednesday revealed fresh preliminary bid terms for the tainted train project linking Mexico City with the wealthy, industrial city of Queretaro, which was meant to be one of Mexican President Enrique Pena Nieto's flagship infrastructure investments.

Companies now have six months to prepare their bids until a July 14 deadline, after the government gave them more time. The winner will have five years to have the project up and running. The terms remained broadly the same.

People close to the Chinese rail giant or familiar with rival bids say CRCC is still likely to win, given its broad financing plan, its cheap high-speed technology and political support in Mexico.

Last week, CRCC, which did not immediately respond to request for comment, said it was confident of winning.

In the last tender, state-backed lender Export-Import Bank of China agreed to finance 85 per cent of the project.

Since taking office in 2012, Pena Nieto has courted Chinese money to wean Mexico off its dependency on the United States. China has in recent years expanded its footprint in Latin America and is promising investments of US$250 billion over the next decade.

Both Mexico and China have stressed the importance of the project, which would produce Latin America's first high-speed trains, and showcase China's expertise after it built the world's largest high-speed rail network at home in less than 10 years.

The train will travel the 210km between Mexico City and Queretaro in 58 minutes, and the government hopes it will be the first leg of a project to also include the second city of Guadalajara and stretch north.

After 16 firms, including Siemens, Bombardier and Mitsubishi pulled out of the tender, leaving a consortium led by state-controlled CRCC as the de facto winner, it led to awkward questions last year. "The process was compromised from the outset, that's without question," said a person on the Chinese side of the original bid, who asked to remain anonymous. The source said the tender favored the Chinese.

PRESIDENT'S WIFE

The controversy exploded when it surfaced that Grupo Teya, one of the Mexican firms in the CRCC-led consortium, was a subsidiary of a government contractor that owned a multimillion-dollar home Pena Nieto's wife was in the process of buying.

The government revoked the contract on Nov 6, a few days before the Teya revelations were published. It has grappled with a conflict-of-interest scandal ever since.

Mexico's Communications and Transport Minister Gerardo Ruiz Esparza told lawmakers in late December that none of the Mexican firms in the original consortium will take part in the new tender, and it remains to be seen with which companies CRCC will now partner.

An executive from a major European train manufacturer that pulled out from the earlier tender said the Chinese bid's financing made it highly competitive. He added that his company could only finance building the trains, but not the tracks, stations and other infrastructure like the Chinese. His company is banking on continued public outrage to scupper the Chinese bid. "The financing they have access to allows them to offer much more favorable terms than any other group," said Gerardo Flores, a senior member of the Senate transport and communications committee with Mexico's Green Party, a coalition ally of Pena Nieto's ruling Institutional Revolutionary Party.

"I'm worried it might appear it's a given that this group will win," he said, adding any doubts over the tender would set a bad precedent as Mexico's government seeks to open up its energy sector to foreign investment.

The Mexican government denies the process was designed to benefit the Chinese, and has welcomed the decision by CRCC to bid again.

Specific terms of the CRCC financing could not be immediately learned. This time, though, China will offer less generous terms, said a person with knowledge of Beijing's thinking, as it believes its original winning bid was unfairly revoked over a home-grown Mexican political spat it had nothing to do with.

The executive from the major European train manufacturer said CRCC would be almost guaranteed to win if it joins forces with a less controversial, publicly listed Mexican builder, like ICA. If that happens, he said his firm would pull out.

REUTERS