Payment possible after rail contract revoked

The Mexican government may compensate Chinese firms for its unilateral decision to scrap a $4.4 billion high-speed railway contract with a Chinese-led consortium, according to a news posting Wednesday by the Ministry of Commerce (MOFCOM).

Mexico will negotiate with the consortium on the final compensation based on expenses incurred during the bidding process for the contract, according to a post on MOFCOM's website on Wednesday, which cited a Mexican local newspaper.

The compensation would be no more than 1 percent of the contract amount, according to the post, which means that the consortium could get up to $44 million in compensation.

The Mexican Ministry of Communications and Transportation announced late on November 6 that Mexican President Enrique Pena Nieto had decided to revoke the contract as "doubts and concerns have emerged among the public." It said, however, that the bidding process had been "legal".

The contract had been won just days before on November 3 by the consortium, which was led by China Railway Construction Corp (CRCC) and also included some local Mexican firms. Under the contract, the consortium was to build a 210-kilometer railway linking Mexico City and the industrial hub of Queretaro.

A total of 17 companies were originally involved in the bidding, such as Germany's Siemens, Canada's Bombardier, France's Alstom, and Japan's Mitsubishi.

But the consortium led by CRCC was the only bidder that managed to offer a proposal by the October 15 deadline and that had passed all technological and legal examinations.

Some of the other bidders complained that the two-month preparation time for the bid was not long enough. The new bidding process, which is expected to start at the end of this month, will have a six-month preparation time, the Mexican government said.

"Chinese firms should fight for their own interests as they have been unfairly treated and they did nothing wrong," Niu Baoyuan, a lawyer at Beijing-based Zhong Yin Law Firm, told the Global Times on Wednesday, noting that fighting for its legal rights would not affect CRCC's chance of winning the second bid.

CRCC told the Xinhua News Agency on Sunday that it was "shocked" by the Mexican government's decision and that it might take legal action.

Mexico's decision to drop the deal drew a lot of attention as it came just three days before President Pena Nieto's visit to China. During a meeting with Pena Nieto on Tuesday, Chinese Premier Li Keqiang expressed his regret over the incident and asked the Mexican government to treat Chinese enterprises "fairly".

The National Development and Reform Commission also said the deal had been dropped due to "internal factors" in Mexico, and had nothing to do with the Chinese companies.

Media reports said that Mexican opposition politicians had accused the government of favoring the consortium led by CRCC. Also, Mexican local media reported that the parent company of Constructora Teya, which is part of the consortium, had built a home for Pena Nieto's family in Mexico City.

The Mexican government denied the claim, and said that the house had been bought by the country's first lady before she married the president.

Bai Ming, a research fellow with the Chinese Academy of International Trade and Economic Cooperation, said that although it would be reasonable for the CRCC to fight for its interests, preparing for the new bid is a more pressing issue for the company.

"But Chinese companies are still in an advantageous position [in the new bid] as they are competitive in both price and technology," Bai told the Global Times on Wednesday, noting that the Mexico deal would be an important step for China's high-speed railway technology in gaining greater recognition in overseas markets.

CRCC's overseas deals totaled 114.7 billion yuan ($18.73 billion) in the first three quarters of the year, up 243.99 percent on a yearly basis, the company said in a post on its website on Thursday.

But Zhao Jian, a professor at Beijing Jiaotong University, said that CRCC should offer a higher price if it decides to compete for the contract again, as "CRCC will definitely suffer big losses" if it offers the same price as in the first bid.

Zhao also noted that partisan bickering in Mexico could pose further obstacles for Chinese high-speed railway companies in the future.