Looking at the effect on investment first, oil-producing countries have seen a massive drop in their revenues. As we report this month, Middle East countries have largely pledged to maintain investment in rail projects as they form a key element in their attempt to diversify their economies away from a dependence on oil and exploit their mineral wealth.
However, this is not the case in Mexico where around one-third of government spending is derived from oil revenue. The government has responded to the drop in income by slashing $US 9bn from this year's national budget and along with it two rail projects: the 210km high-speed line from Mexico City to Queretaro and a new 278km line across the tip of the Yucatán peninsula from Mérida to Puerto Venado. This leaves just one project remaining in president Enrique Peña Nieto's passenger rail revival programme: the 55.7km new line from Mexico City west to Toluca on which construction has already started.
President Peña Nieto came to power in December 2012 and one of his pledges was to reinvigorate the Mexican economy. In mid-2013 the president announced ambitious plans to boost infrastructure investment by 50% to Pesos 4 trillion, or around $US 300bn at 2013 conversion rates, for the period up to 2018. The president said this could trigger additional public and private investment of up to Pesos 1.3 trillion. "The size of these figures reflects the government's commitment to make transport and communications a strategic engine for national development," Peña Nieto said at the time.
In February 2014 the government unveiled a plan to invest Pesos 125bn in 13 passenger and freight railway projects. As studies for the high-speed line were already underway, the Federal Secretariat of Communications and Transport (SCT) was able to invite tenders to design, build, operate and maintain the 300km/h line in July 2014. SCT announced in October that a Chinese consortium was the sole bidder. The fact that 16 companies, including some of the leaders in high-speed rail technology, chose not to participate should have raised alarm bells at SCT. Three months was far too short a period to prepare technical and financial proposals for such a major project. SCT also wanted to commission the line by 2018, an ambitious target which may also have unnerved prospective bidders.
Nevertheless, SCT confirmed on November 3 that it had selected a Chinese-Mexican consortium to proceed with the project. But just three days later Peña Nieto annulled the tender and instructed SCT to launch a new one. SCT said in January that it would issue preliminary bidding documents by January 14 for a revised tender, but announced on January 28 that it had postponed publication of the bidding documents to accommodate feedback from prospective bidders and the competition authority.
Just two days later the government pulled the plug on both the high-speed and Yucatán projects citing a worsening economic situation and falling oil revenues. One cannot help thinking that SCT's poor handling of the high-speed project made it an easy target for indefinite suspension when the government decided it needed to cut spending.
Mexico is not alone in making a hash of trying to implement a high-speed rail project. Brazil is in a similar situation with its numerous attempts to kick start its Rio - São Paulo - Campinas scheme. High-speed rail is by its very nature at the cutting edge of railway technology and such schemes need careful planning and technical expertise to implement them successfully. Nations lacking high-speed rail expertise would do well to obtain advice and guidance from countries with good experience to avoid the mistakes which have been made in both Mexico and Brazil.
Turning to the effect of the oil price fall on current operations, railways are vulnerable to increased competition from road vehicles which now cost less to run. As always, railways need to be fully aware of changes in the market and must be ready to react to avoid traffic haemorrhaging away.
Long-distance passenger traffic is most vulnerable to cheaper motoring if rail fails to respond through things such as special promotions, increased marketing or simply by cutting fares. Irish Rail and Portuguese Trains have both reported modest increases in traffic for the first time since the financial crisis which affected their countries so badly, so it would be a great pity if these signs of revival are snuffed out due to lower fuel prices and a failure to react.
Some railways can ill afford to see further reductions in traffic. Our news analysis report on Poland makes grim reading, where reluctance to modernise infrastructure and rolling stock after the end of communism was compounded by a failure to change the passenger service into a commercial business focused on the needs of customers resulting in a steady decline in traffic. The situation in Poland is similar to that in western Europe after the Second World War, where railways did not adapt to the rapid growth in car ownership and air travel and lost a large amount of traffic and market share, which took decades to recover. One has to ask if it is the curse of the railway industry to continually repeat the mistakes of the past?