TAV will have national content guarantee

Besides the requirement of technology transfer, the announcement of high-speed train has forecast of a minimum domestic content. The percentage of nationalization is still being discussed among representatives of the Ministry of Transport and the Ministry of Development, Industry and Commerce (MDIC), but its inclusion on the agenda already pleases industry representatives, advocates of the measure – and generates criticism among the companies interested in project.

The definition of the percentage depends on the analysis of the availability of the rail industry to meet local demand, said the newly appointed Transport Minister Paulo Sergio Passos. The industry defends the rate of 60% of nationalization – the same used on lines of credit from Banco Nacional de Desenvolvimento Economico e Social (BNDES), which structures the project financing – but Passos does not ensure that the security will reach that level. The index would ensure the local production of US$ 2.04 billion in equipment and rolling stock.

Vincent Abate, president of the Brazilian Association of Railway Supplier (Abifer), who heads the campaign for the guarantee of national content in the TAV, says that the important thing is to have any requirement for local production, although not mandatory. “We are not inflexible in the 60% rate”.

“What cannot happen is the same as occurred in the bidding for the metro in Rio de Janeiro”, says a representative of the sector. In early 2009 the government opened bidding for Rio to purchase 30 trains for the metro, but gave no preference to domestic production. The winner was Chinese CNR, which will import the trains ready, leaving companies with local production such as Alstom and CAF, or candidates who might nationalize the production.

The rule of domestic content industries may require no presence in Brazil, and Japan’s Hitachi, CNR (China North Railway) and Rotem – a subsidiary of Hyundai – might set up factories here. The three are considered strong candidates for the contract.

For executives involved in the bullet train project, the reserve market for domestic production can cherish its business and even prevent it. Once used, it maintains an executive area, the factory designed to make high-speed trains will be used only for maintenance, making it difficult to amortize the investment. The number of units used for the train, between 200 and 300 cars, do not justifies bringing forth a production unit. In China, where technology transfer was accompanied by the local assembly, it is expected to supply 3 billion high-speed trains.

The problem is not building the high-speed train here, says an industry source, but to nationalize the production of the train, its structure – the most expensive part of the product. Made of aluminum, the train deviates from stainless steel structures used in the local fleet of passenger trains – that is, the unit had few local customers later.

Another question is what is meant by nationalized content – if only the trains or the telecommunication and signaling systems, and power supply. According to government calculations, from the US$ 19.6 billion for the project, US$ 1.9 billion goes to systems and equipment, and US$ 1.53 billion for rolling stock. Since Brazil has a more traditional industry in the country and other applications besides the bullet train, telecommunication systems and power supply could be nationalized more easily.

Another hypothesis for the association is the nationalization of foreign supplier with a factory site. Before opening your unit in Hortolandia last year, Spanish CAF tried to associate with local producers – among them, Amsted-Maxion, which makes freight cars. Maxion has a capacity of 10 thousand units, but their production rarely reaches five thousand. Maxion said that its structure is easily adaptable to the production of passenger trains and keeps conversations with representatives of the sector. The company was listed by BNDES as a candidate to participate in the process of technology transfer of the Brazilian high-speed train.