Grupo Mexico says negotiations with government more difficult after railway expropriation

MEXICO CITY (Reuters) – Grupo Mexico said on Sunday its negotiations with the government are facing difficulties after the Mexican Navy took over part of a railway in southern Mexico operated by a unit of the company last week.

Grupo Mexico Transportes said negotiations with authorities about the railway concession spanning from Coatzacoalcos to Medias Waters (NYSE:) in the western Veracruz state would continue.

The statement noted the government had scrapped a previous 2022 deal between the company and ministries of the interior, communications and transportation.

Both sides have continued negotiating, but the company emphasized in Sunday’s statement that last week’s move made talks more “difficult,” calling the decision to send in Navy personnel “surprising” and “unusual.”

The move sent shares in the mining and infrastructure company tumbling more than 4% after the expropriation on Friday.

The company assured it would continue to operate trains and maintain infrastructure under the supervision of the armed forces.

President Andres Manuel Lopez Obrador has clashed frequently with big business, accusing political opponents of rigging the economy in favor of corporate elites, and sparking disputes with the U.S. and Canada over his bid to tighten state control over the energy market.

Earlier, his government issued a decree ordering a “temporary” takeover of around 120 kilometers (75 miles) of the firm’s network in the area around the Gulf coast, home to a key area for a major infrastructure project.

Known as the Inter-Oceanic Corridor, the project centers on modernizing the rail link between Mexico’s Pacific and Gulf coasts on the Isthmus of Tehuantepec to create a trade route the government hopes will compete with the Panama Canal.

The “expropriated” section generated 20.3% of the parent company’s revenues in the last 12 months and is about 1.1% of the total track run by Grupo Mexico’s transport division, analysts at brokerage Vector said in a client note.

The official decree declared the section to be of “public utility,” citing an expropriation law stating such measures could only be taken in exchange for compensation.

Last week Mexico’s Supreme Court struck down a government order declaring key infrastructure projects as matters of national security. The court said the measure violated freedom of access to information rights.

Hours later, the government hit back with a new decree declaring various flagship projects including the Inter-Oceanic Corridor areas of national security.

The government has allocated a swathe of public works to the armed forces, including part of the “Mayan Train,” another of the president’s projects aimed at developing the poorer south.

(Reporting and writing by Sarah Kinosian in Mexico City; Editing by Chris Reese)