The new passenger train decree that puts the industry in jeopardy

It’s official. The Mexican government has the objective of reviving passenger rail transport in the country, through a decree that will launch seven routes. However, the new presidential goal and the regulatory modifications bring with them more questions than answers, and put in check the companies that have concessions on the roads for freight transportation.

As part of the new rules of the game, the current concessionaires, concentrated mainly in CPKC of Mexico and Grupo México Transportes (Ferromex-Ferrosur), will have until January 15 of next year to present a plan aimed at the reactivation of passenger transportation , which intrinsically will involve modifying their operations.

The details surrounding the decree are not clear, but the effects of not carrying it out are: if the companies do not present said plan within the indicated period, it will be the Armed Forces who will be in charge of President Andrés Manuel López Obrador’s new project.

The measure seeks to use existing infrastructure for freight trains. According to Mexican Quality in Railway Development, a consultancy in the sector, there are 8,000 kilometers of track that are initially being contemplated, that is, 35% of the existing infrastructure in the country.

Passenger trains are a business that almost everywhere in the world needs subsidies to be profitable. Benjamín Alemán Castilla, former head of the Rail Transport Regulatory Agency (ARTF), highlighted that current concessionaires could seek a public-private partnership.

“The most sensible thing would be for the railway companies to say yes to a public-private partnership in which they would provide the passenger system, but to tell the State to help them finance the subsidy, because clearly this is not profitable (… .). The best balance would be for the railway company to say that they are going to do it, but that the money they are going to give to the army would now have to be given as a subsidy to maintain the operation,” he said in an interview with Expansión.

As it concerns the coexistence of cargo and passenger transportation, prioritizing the latter as indicated in the decree, the measure will imply changing the daily operations of the railway companies. That is to say, if they previously made 10 trips on a certain route, they would have to reduce them.

According to information provided to Expansión, Grupo México Transportes, of Germán Larrea, is preparing a position that will be published in the following days, since it is still evaluating the measure, while CPKC of Mexico is carrying out a study in conjunction with the government for its viability.

For Juan Carlos Miranda, a railway expert from the College of Civil Engineers of Mexico, the time given by the Government to carry out the corresponding studies of the new direction that the sector will follow is “extremely limited”, since the economic viability has to be analyzed, even more so taking into account the growing dynamism in the exchange of goods due to phenomena such as nearshoring.

“It is an extremely limited period to be able to do the studies. This generates a risk of inadequate decision making. In the event that the Secretariat of National Defense or the Secretariat of the Navy provide the service through rights of way on the concessioned roads or by building independent roads, the problem will be the same: they will require adequate studies for the relevant design of the infrastructure of the passengers service.” says Miranda, a railway expert.

But, beyond the operational complications, the legal tools for its implementation are already provided. After the constitutional reform of 1995, the regime of exclusive participation of the State in the railways was replaced, with a view to allowing private participation through the granting of concessions.

In this modification, published in the Official Gazette of the Federation (DOF), the government left open the possibility that rail transport would be for passengers and cargo, so, from the perspective of Luis Rodríguez Alemán, specialist in constitutional law and administrative, there are legal mechanisms to implement the new presidential objective. However, there are still some legal remedies that companies could file, such as amparos.
Source: Expansion