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7/9/2007



Rail News: Rail Industry Trends

Railroad Development Corp. to suspend Guatemalan rail operations Oct. 1


Railroad Development Corp.'s (RDC) decade-plus in Guatemala appears to be over.

Declining business and mounting operating challenges driven largely by Guatemalan government interference has prompted RDC to suspend operation of Ferrovías Guatemala (FVG) by Oct. 1, RDC Chairman Henry Posner III told customers and employees in a July 6 letter.

In 1997, RDC landed a 50-year concession to operate FVG. In August 2006, the Guatemalan government issued a presidential decree declaring the lease of the national railway rolling stock — a key component of a 1998 privatization agreement — was against the interests of the state, RDC said. In March, RDC filed a notice of intent for international arbitration against the Republic of Guatemala on behalf of FVG. Submitted under Chapter 10 of the Central America-Dominican Republic-United States Free Trade Agreement, the filing triggered an arbitration process to enable RDC to present its claims at the end of a three-month waiting period.

But since the declaration was issued, FVG's shipments have declined while the railway's operating difficulties have increased, wrote Posner, who also is FVG's chairman. Among the problems: an inability to obtain credit, an increase in squatters, police indifference and neglect, Posner wrote.

"Our ability to attract additional investment and revenue from various uses of our right of way has disappeared," he said. "... It is therefore impossible for FVG to continue operations under the current circumstances."

FVG has a commitment to move traffic for the next 12 weeks, during which RDC will be able to "satisfy any other customer needs" and "enable our employees to plan for the future," Posner wrote, adding that FVG will continue rail operations until Oct. 1, at which point rail operations will be suspended until further notice.

"As one who has personally dedicated himself to the cause of railways in Guatemala since 1995, I felt that I should be the one to deliver this news," he wrote. "This has been a personal burden as well as a financial one, but because of the government's action and the lack of rule of law in Guatemala, we have no other alternative."

A private railway management and investment firm, RDC also owns railroads or is part of railway ownership joint ventures in the United States, Argentina, Peru, Malawi and Mozambique.



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