Orient Express jolted on route to Machu Picchu
By Naomi Mapstone
The high-altitude railway to Machu Picchu, Peru's fabled lost city of the Incas, is at the centre of a bitter antitrust dispute between Orient Express, the luxury hotel and train operator, rival rail consortiums and the Peruvian government.
Orient Express, which owns hotels and operates trains and cruises around the world, has with its partners controlled all train services to Latin America's leading tourist attraction since late 1999.
The group, which is New York-listed but has most of its corporate functions in London, operates the concession through Ferrocarril Transandino (Fetransa) and PeruRail. The latter is jointly owned with Lorenzo Sousa, one of Peru's leading businessmen.
But Ositran, Peru's public transport regulator, this month rejected an application for a five-year extension to the 35-year concession, citing competition concerns. It has also opened an investigation into the transfer of shares in Fetransa from Sea Containers, a Bermuda-based transport group, to Orient Express in 2005.
The developments threaten to cast a cloud over one of the most famous names in luxury rail travel. Orient Express operations extend from Peru back to the UK, where it is running a special cross-country New Year's Eve service - complete with champagne and a bagpiper - on a Pullman carriage from London's Victoria station.
Peru's government has ordered Ositran to verify whether the transfer of the Fetransa shares occurred "several months before" the regulator and the transport ministry approved the deal in the dying days of the administration of Alejandro Toledo, who was president between 2001 and 2006.
Confirmation of such an irregularity would cause a lapse in the contract, the ministry said in a letter to Ositran, a copy of which has been obtained by the Financial Times.
Sea Containers transferred the concession for the Machu Picchu line to Orient Express, a former subsidiary, two years ago, before filing for Chapter 11 bankruptcy protection. James Sherwood, founder and chairman of Sea Containers, is also founder and director of Orient Express.
Fetransa rejected the allegations of irregularities. "Fetransa has been and is respectful of all the obligations contained in the contract of concession of the railroads of the south and the south-east that it has with the Peruvian state, and this has been recognised by Ositran on several occasions. The transfer [of shares] Sea Containers had in our company is no exception," it said.
The company also said the allegation of irregularity in the timing of the transfer was "malicious".
Rómulo Guidino, general manager of Fetransa, told the FT that Ositran had already investigated the timing of the share transfer and found everything in order. Mr Guidino said Fetransa had invested $20m to raise the standard of the tracks and old rolling stock.
Andean Railway Corporation, a Peruvian-US group, and Inka Rail, a Peruvian company, have been clamouring for access to the line, which is one of the most lucrative stretches of tourist rail in the world.
The three-and-a-half-hour train ride to Machu Picchu is one of the only ways into the World Heritage-listed site, other than a trek that can take up to four days. There are no roads connecting the site to major towns and preservation rules ban helicopter flights.
Julio Masso, head of Apotur, a Peruvian tourism organisation, said the monopoly on the Machu Picchu line had led to high ticket prices.
"It's been nine years since the Peruvian state gave the concession to Fetransa, and in all this time we have seen other rail operators try to enter the service, each time without success," he said.
In a letter to Mercedes Araoz, tourism minister, earlier this year, Apotur opposed any extension of the Fetransa concession and asked the government to act immediately to end the monopoly.
In its decision to reject Orient Express's extension to the concession, Ositran said Fetransa had imposed "limitations and restrictions" on the entrance of new rail operators to maintain its monopoly. It also said the concession-holder had resisted regulatory rulings in the past.
Fetransa was fined $185,000 last July for operating an illegal monopoly, and was ordered to stop blocking requests to sub-let the rolling stock that it rents from the state.
Rivals allege Orient Express, Fetransa and PeruRail have used "nuisance" litigation to repel newcomers - something Mr Guidino denies.
"Parallel to the legal actions that we have been forced to make because of these changes, and the liabilities we have, the process of entering of the new operator has continued," he said.
"We are not opposed to competition, but we have to do it right. This is the main tourist attraction of Peru."
Richard Webb, of Andean Railway Corporation, said there was "no question at all" that competition on the line had been inhibited.
"In Peru there's a lot of space for nuisance lawsuits," he added. "It's very easy to get stay orders."
Copyright The Financial Times Limited 2008