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Mexico's PPP project: Maya train

So lets be amused for a few minutes.  Today, the Mexican government announced that they will, with the help of private enterprise build the Mayan Train, 1,490 km of rail track to take the foreign tourist across the Yucatan peninsula, all of it. 

So the government announced that this train project, which will cost between US$ 7 and 11 billion will start operations in 4 years (from right now), never mind that there is no consortium in place or traffic for that matter.  Population density in the peninsula is very low. 

Today you can drive from Cancun to Chichen Itz in about 90 minutes, there is an excellent (and very straight road that links the two).

The tour bus tour from your hotel to Chichen Itza and back cost about $75.00 but also includes entrance tickets.

Let's assume that you can sell train tickets (return) for $100.00.  It would be unreasonable to think that you can sell tickets for more.

Lets further assume that 20% of all road travel will be replaced by rail.  6,000 cars a day use the highway between Merida and Cancun.  That means that for that segment there is a potential for 600 users, we have to assume that the bus companies will give up that traffic that currently pays about $40 dollars one way. That means there is a potential for 400,000 users per annum.

This would imply a total revenue of US$ 20 million per annum (just for the Cancun to Merida) or Cancun to Chichen Itza.  The cost of building the project will be around $ 9 billion, at 5% interest rate that means that debt service based on 90% debt would be US$ 450 million per annum...and this is by far the busiest route of the entire project.  Kalacmul receives around 200 visitors a day (in the far south on the border of Yucatan and Quintana Roo).

Now lets be a little honest here and say that the Cancun to Merida route should only account for about 20% of the total costs, and therefore the amount of interest due on that segment should only be 20% of the total...its still $80 million and with that none of the debt is being serviced -- nor are operating costs being covered, nor is there any room for capital expenditure.

The sad fact is that rain links are uneconomical...even in Japan, the railway system runs a deficit.  This project is just insane.  On the bright side the Mexican government wants private enterprise to shoulder 90% of the cost in a 30 year BOT project.   I just don't see any of the serious players participating in this project without massively large investment by the Mexican government.

Finally, all three states involved in the project are dead set against it....so it could take a while



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