GUADALAJARA Feb 6 Two companies that control
almost all of Mexico's rail freight market said on Thursday that
proposed legislation to open up the industry ignores a
concession granting exclusivity for another 14 years and are
weighing legal action to quash the bill.
On Tuesday, Mexico's lower house of Congress overwhelmingly
approved a reform of the rail freight law, which seeks to open
up a sector controlled almost entirely by two
concession-holders, Grupo Mexico's Ferromex and
Ferrosur railroads, and Kansas City Southern de Mexico.
Under the terms of the bill, which still has to be approved
by the Senate, concession-holders would be forced to share their
lines with other concession-holders or risk losing them. They
would also have to publish prices they charge customers for
interconnections with routes owned by other companies.
The aim, say lawmakers who proposed the bill, is to bring
new investment into the sector, lower prices and broaden rail's
share of the cargo business. It is part of much wider raft of
economic reforms spanning telecoms to energy aimed at boosting
competition and long-lagging economic growth.
But the rail proposal has angered Grupo Mexico's
subsidiaries and Kansas City Southern de Mexico, who say the
bill threatens the 14 years of exclusivity that remain in their
concessions, fails to recognize their sizeable investments and
sets a worrying precedent as Mexico tries to lure new investors
into its oil and gas sector.
Now both companies are mulling legal action.
"We don't want to go down the legal path, but we're
certainly looking at those options," said Kansas City Southern
de Mexico's President Jose Zozaya, who added the company had
already begun looking into using an arbitration panel set up as
part of the North American Free Trade Agreement (NAFTA) treaty.
Speaking at an event in Guadalajara, Ferromex's Chief
Executive Officer Rogelio Velez denied his company was one half
of a duopoly, despite ITM and Kansas City Southern controlling
more than 90 percent of the market, noting that the national
competition watchdog signed off on their concessions and that
the rail freight industry competes with trucks.
He, too, warned of possible legal action, adding that U.S.
railroad Union Pacific Corp, which owns about a quarter
of Ferromex, had written to Mexican President Enrique Pena Nieto
threatening to cut investment if the law were approved.
"In Mexico, we have the injunction," he said, referring to a
legal tool used regularly by companies to stall, often
indefinitely, unfavorable legislation. "It's a resource we have
of course thought about using, but there shouldn't be any need
to get to that point."
Velez said Ferromex and Ferrosur expected to invest $2.2
billion over the next five years, with $506.4 million set aside
for 2014, but the figure could change if the reform gets
"Yes, we would certainly reconsider our investment, for
sure. That's a definite possibility," he said.
The proposed bill also removes any incentive to push ahead
with a long-awaited initial public offering of Grupo Mexico's
ITM transport unit, which groups Ferromex and Ferrosur.
"It's on stand-by," said Ferromex's head of operations
The plan comes at an awkward time for Mexico's rail freight
sector, which was privatized in the late 1990s, but has been
building momentum recently thanks to brisk NAFTA-linked border
trade. Wages in Mexico are higher than pay in manufacturing
competitor China and Mexico has a vibrant auto industry that is
now the world's fourth largest exporter.
"We don't think it's a coincidence that car factories are
installing themselves on our routes," Velez said.
A recently approved energy reform that aims to lure private
investment into the country's ailing, long-shuttered oil, gas
and electricity sectors was expected to bring important new
revenue streams to the industry.
The companies said they will now focus their energies on
lobbying lawmakers in the Senate to try and tone down the
reform, with Zozaya adding that it will be impossible to lure
new entrants without building new lines - something only the
government can do.
"We're sending a terrible message that concessions are not
respected here," Zozaya said.