The Government of Mexico obliges to give priority to passenger rail transport service on currently concessioned tracks to private parties for cargo transport
Companies holding concession titles will have until January 15, 2024 to submit viable proposals in terms of investment, construction time and modernization of these railroads to provide passenger transport services.
On November 20, 2023, the President of Mexico issued a decree declaring as a “priority area for national development” the provision of public passenger railroad service on tracks that were originally concessioned private parties for cargo railroad transportation. Current concessionaires must submit to the Ministry of Infrastructure, Communications and Transportation (SICT) projects for the implementation of passenger rail service no later than January 15, 2024
Railroad transportation services in Mexico are regulated by the Railroad Service Regulatory Law, the Railroad Service Regulations and the railroad concession titles granted to private entities by the Federal Government through the SICT. Currently, the main private railroad operators in Mexico operate and exploit the railroads through concessions for the provision of cargo service.
The decree establishes that preference will be given to the provision of public passenger rail service on all general railroad communication routes under concession. In addition, cargo railroad concessionaires are granted a term until January 15, 2024 to submit proposals to the SICT for the implementation of passenger railroad service within the railroads that were granted to them. In the event that cargo railroad concessionaires do not submit viable proposals in terms of investment, construction time and railroad modernization to provide passenger service within the established term, the Federal Government will grant assignment titles to the Ministry of National Defense, the Mexican Navy or will grant new concessions to other individuals interested in providing passenger railroad service.
Finally, the decree announced the first seven passenger rail routes to be concessioned to private parties or assigned to parastatal entities:
Given the scope of the decree, it is likely that cargo railroad concessionaires will file administrative and constitutional control trials.
It is also likely that the Federal Government may choose to grant assignment titles to parastatal entities for the provision of passenger railroad service since, in May 2023, the Railroad Service Regulatory Law was amended to allow assignment titles in favor of parastatal entities to have an indefinite term without being susceptible to be transferred or assigned by any means. However, the Federal Government has no experience in providing rail transport service, so it will probably need to subcontract private parties as shadow operators or partner with private operators.
Cargo railroad concessionaires could suffer an impairment of the rights established in their concession titles. Foreign investors participating in cargo railroad transportation should analyze the possible effects on their investments derived from the implementation of the decree; and whether the structuring of their investments is protected through the network of Bilateral Investment Treaties (BITs) to which Mexico is a party, as well as through the investment chapters in the USMCA and the CPTPP.
For more information, please contact our energy and infrastructure experts in the Garrigues’ Mexico City office.