Executive summary

In 1995, the government reformed Mexico’s railways by statute through the Law on the Regulation of Rail Services. This provided for the publicly run rail network to be divided into a small number of exclusive, vertically integrated private freight railway concessions. The 1995 railway reforms achieved a complete turnaround in the performance of the Mexican railway sector. GDP in rail freight transport grew on average 4.1% per year from 1995-2017, outperforming all other modes of transport.

After a series of amendments to the 1995 Law, the Regulatory Agency for Rail Transport (ARTF) was created, with the primary objective of enhancing the government’s capacity for implementing regulations concerning trackage rights and tariff protection, among others.

Main assessment

• Strengthening regulatory capacity through the establishment of the ARTF was an essential step in fostering development of a safe, efficient and competitive rail system in Mexico. ARTF has made consistent progress in filling the gaps in the regulatory capacity required to ensure implementation of the Law on the Regulation of Rail Services. However, many challenges still need to be addressed, including budgeting, regulatory, and governance issues, in order to achieve full implementation of the legal provisions.

• Nevertheless, the time taken to implement some of the main trackage rights mandated in the concession agreements for interconnection and competition suggests inadequate regulatory capacity to enforce the law.

• There is a gap in the regulation to define the process and methodology for determining tariffs when two concession holders do not reach agreement in interconnection services, or for captive shippers in the absence of competition.

• The end of exclusive use of their networks in many concessions poses challenges to competition and regulatory authorities, with implications for the future of the rail system in Mexico.

• The objectives, functions, attributions and duties of the ARTF are scattered between the Law on the Regulation of Rail Services and the decree of creation of the ARTF and are concentrated in its organisational manual. Currently, regulatory and promotion duties are combined, which blurs the role of the agency.

• The ARFT regularly publishes information on safety and other indicators in the rail sector; however, this information is limited in scope. The agency does not currently promote wider public accountability besides reporting to the Ministry of Communications and Transport and the Ministry of Finance.

• The ARTF has limitations on its ability to acquire the funding it needs to accomplish the objectives and functions stated in the legal framework.

Main recommendations

• The ARTF may wish to evaluate if and where the introduction of additional trackage rights could unlock significant gains in network-wide efficiency and competitiveness for Mexican industry without undermining the sustainability of the rail services provided already by the concessions. A good network model would be extremely useful in making these assessments and evaluations.

• In developing capacity to make the provisions for connectivity and competition in the law fully operational, ARTF could concentrate on establishing the basis for tariff regulation for both captive shippers and cases of failure to reach agreement on mandated trackage and haulage rights. Such charges will need to cover marginal costs, as stipulated in the Law. For captive shippers, a guideline for identifying abusive prices is needed.

• ARTF could also examine the availability of interline services and develop procedures for setting regulated tariffs where concessions fail to offer services.

• The Ministry of Communications and Transport and the Mexican government more broadly need to begin work on its vision for the railway system post 2027 without delay, as the investment cycle of railways is much longer than 9 years. ARTF’s expert opinion could be sought in this regard.

• The regulatory framework that defines the role and functions of ARTF could be reviewed to strive for a reform that focus the Agency´s functions in regulatory roles, while allocating promotion duties to General Direction of Rail Development. In the short term, the ARTF could create a strategy document to define its priorities between its current regulatory and promotion duties.

• An assessment of the inspection duties of the ARTF would help define the resources needed to discharge this function properly. Short- and long-term strategies for complying with these duties should be defined, considering formal co-operation agreements with the Ministry of Communications and Transport’s centres while ARTF acquires its own capacities.

• Guidelines and other regulatory instruments are needed to establish an effective sanctioning system.

• The Agency could consider establishing practices on accountability and transparency that go beyond its current obligations that derive from the national framework. For instance, the ARTF should improve the quantity and the quality of information it publishes on its web portal in user-friendly formats.

• In order to strengthen accountability and transparency practices, the ARTF could boost its reporting mechanisms by submitting yearly reports to Congress separately from the reporting of the Ministry of Communications and Transport. Proactive mechanisms could also be adopted to submit the report to other key stakeholders, such as industry association and sector experts, and seek their feedback.

• The Ministry of Communications and Transport, the Ministry of Finance and the ARTF could review the funding requirements of the agency in order to define the budget the agency needs to discharge its duties effectively. In this revision, consideration should be given to implementing the necessary reforms to allow ARTF to propose its budget autonomously and implement it independently within the limits set in the annual budget law for the calendar year. Additionally, these reforms could include provisions to give a portion of the fee currently charged to the regulated entities directly to ARTF.