Chinese rail firm threatens legal action after Mexico cancels contract

Company reacts with shock and China’s media with scorn as the parties to Mexico’s $3.7bn high-speed rail deal survey the wreckage.

China Railway Construction Corporation (CRCC) said on Sunday that it was shocked by the Mexican government’s annulment of a $3.7bn contract to build a high-speed rail line, and indicated that it would take legal action in response.

CRCC’s statement said it had launched an emergency plan and formed a team of legal experts, and would “resort to legal means to safeguard the legal rights of the company”.

“The company is extraordinarily shocked by Mexico’s decision,” said the statement published on China’s Weibo social media service, The Wall Street Journal reported.

“The bidding for the high-speed rail project complied with the requirements of the Mexican government. The Mexican side bears whole responsibility for scrapping the deal. It has nothing to do with our company. We are closely watching any further developments.”

The Ministry of Communications and Transport announced that the contract would be retendered.

The decision to stop the deal just days after it was signed was reportedly taken by Enrique Peña Nieto, the president of Mexico, and was in response to complaints made by members of the Mexican parliament over the way the deal had been done, and the fact that the Chinese-led consortium was the only bidder for the project.

According to reports, engineers Siemens, Bombadier, Alstom and Mitsubishi had all expressed interest in the scheme, and had asked for more time to prepare their submissions. 

The ministry said that it expected to rerun the tender under the same terms, and would keep it open for six months.

The ministry said Peña Nieto’s decision was aimed at dispelling “any doubts about the legitimacy and transparency” of the bidding process.

Members of Mexico’s political opposition accused the government of providing information to help the CRCC consortium and its Mexican partners. 

The Chinese responded to this claim by saying that CRCC had strictly followed the bidding procedure. The Ministry of Communications has also acknowledged that CRCC’s bid was legitimate and, according to a report by the BBC, the government conceded that CRCC could be eligible for compensation.

A spokesperson from China’s state planning agency, the National Development and Reform Commission, told the Xinhua news agency that the contract had been torn up “because of domestic factors”. He said: “It had nothing to do with the Chinese enterprise, and the Chinese government hopes that the case could be settled properly as soon as possible.

“It is surprising, as the Chinese enterprise has been strictly following the public bidding procedures and requirements, and the bidding content complies with the requirements of the Mexican government. The Chinese government hopes the Mexican government could create a fair competition environment for these enterprises.”

The timing of the breakdown comes at an awkward time for Peña Nieto, who is about to begin an official visit to China and Australia. Judging from the reaction in the Chinese media, his reception could be frosty.

The Global Times asked: “How can the tender for a project worth billions be pulled so carelessly?” and the Beijing News called it the “broken promise of Mexico’s high-speed rail”.

When it is eventually built, the rail line will run 220km between Mexico City and the industrial centre of Querétaro. It was to have been built by CRCC in conjunction with Mexican companies Prodemex, Constructora y Edificadora GIA, GHP Infraestructura Mexicana as well as Constructora Teya. 

The rolling stock was to have been manufactured by the China South Locomotive & Rolling Stock Corporation (CSR), which makes the CRH series of high-speed locomotives.

Another twist to the story was added by the revelation on a Mexican news website that Peña Nieto’s $7m private house is owned by one of the companies involved in the CRCC consortium. 

According to the Associated Press, the president’s office said Mr Peña Nieto’s wife, the actress Angélica Rivera, signed the contract for the house on her own almost a year before he took office. Ms Rivera hired a company called Ingenieria Inmobiliaria del Centro to build the house. 

This company is part of the Higa Group, which also owns Constructora Teya, one of the members of CRCC’s consortium.

Photograph: Mexico’s president Enrique Peña Nieto, and Chinese president Xi Jinping, during Nieto’s visit to China in April 2013 (Wikimedia Commons)