01/13/01

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TxDOT to buy South Orient, lease it out
Grupo Mexico to operate rail line; deal will save it from scrap heap

By RASHDA KHAN
Staff Writer

A deal to keep trains running along the South Orient rail line appears on track for completion next week.

Texas Department of Transportation officials are targeting Tuesday for finalizing the deal, which also involves Grupo Mexico, the future operator of the line, and South Orient Railroad Co., which is selling its interest in the line.

The 300-plus miles of South Orient line, which stretches from San Angelo Junction to Presidio, will be purchased for $9.5 million.

Payment will be made in two phases with TxDOT paying the $6 million allocated by the Legislature in 1999 at Tuesday’s closing.

Mexican-based Grupo will pay the remainder about a month later.

Under the agreement, TxDOT will purchase the line from Dallas-based South Orient and lease it to Grupo for 40 years, with an option to renew every 10 years for a total of 90 years.

David Laney, a commissioner with the Texas Transportation Commission, said the agreement will protect the line from abandonment.

Current owners previously had tried to scrap the line but the South Orient Rural Rail Transportation District took legal action to stop abandonment.

“All assets – right of way, the lines, equipment – will be transferred from the South Orient to TxDOT. Then we’ll lease only the operating rights to a U.S. subsidiary of Grupo,” Laney said. “There will be no possibility of abandonment because all the hard assets will be owned by the state.”

Much of the line is in dire need of repair, the worst part of which is between San Angelo and San Angelo Junction.

Grupo has agreed to make significant capital improvements on the line. “(Improvements) could easily be up to or in excess of $10 million,” Laney said. The plan is to upgrade the rail so that trains can move along it with greater speed, thereby making the line a more efficient way to move commercial products.

The lease also allows either party to terminate the agreement in the initial years if it appears not to be working.

Laney, who has been working on the project for about a year, views the agreement as a partnership.

RAIL

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The rail line, completed in 1912, has an unsuccessful history.

It was created with visions of securing trade with East Asia but ran into financial trouble. In 1930, Santa Fe Railway extended it to Presidio but the traffic didn’t materialize and so they sold it in 1990 to a company that wanted to use it for scrap. At that time, the Texas Legislature stepped in and leased it to the South Orient Railroad.

But South Orient Railroad couldn’t make a go of it either.

Laney said it was quite a task to convince somebody to take over a line with no history of success, especially since it needs significant capital improvements just to upgrade it to adequate.

But he said Grupo Mexico has the required experience to make a go of it. Grupo Mexico is the majority owner of Ferrocarril Mexicano, or FerroMex, which owns the tracks connected to Presidio and is one of the largest train companies in Mexico.

As an incentive, TxDOT decided to share the risks with Grupo. At the point of termination, TxDOT will buy back all the capital improvements made by Grupo at a discounted rate.

“That way no one loses everything,” Laney said. “They won’t get all their money back, but at least some of it. But neither of us believes it will come to that.”

State and local officials have been trying to resurrect the line since 1998.

“It’s one of those things that you work very hard on,” said John W. Johnson, current chairman of the commission who succeeded Laney.

The complexity of the deal was increased because of the multiple parties involved and the parties being in two countries, separated by 1,200 to 1,400 miles.

“But at the end of the day when everybody has signed off, you look back and think all the right things were done and all the parties benefited,” Johnson said.

State Rep. Rob Junell, who has a long history of lobbying for the rail line, agreed with Johnson.

He sees the agreement as a strategic strongpoint for the state and the nation as a whole.

Junell said that Presidio can become an important gateway for Texas-Mexico trade, which is on the rise.

According to the Texas Department of Transportation data, trade between Texas and Mexico has gone from $4.1 billion in 1996 to $36.6 billion in 1998. Year-to-date 2000 third quarter figures are already at $38.3 billion.

There are seven border crossings between the two and then only five are served by rail. The more popular crossings like Laredo, El Paso and Eagle Pass currently are congested and plagued with slow traffic flow.

“Presidio would be a very strategic entryway for the U.S. and Texas,” Junell said. “And perhaps it will make San Angelo and other places along the line important inland (trade points) for the Texas-Mexico trade.”

Grupo Mexico and Mexico also will be gaining a trade advantage by acquiring an avenue through San Angelo from Fort Worth all the way to Mexico.

Contact Rashda Khan at rkhan@texaswest.com or 659-8262.