Striving to make the Brazilian High-Speed Train (Trem de Alta Velocidade – TAV) by attracting private capital, the Brazilian Government may end up having to press on with this project with other state companies – but, this time, foreign state-owned companies. With the significant volume of own capital required for this project, the so-called equity, of up to R$ 7 billion, and guarantees that are considered insufficient to attract private investors or to get credit from the financial markets, the foreign groups have knocked on the doors of their own Governments. Considered as the groups which have made most efforts in this bidding process – not to say the favorites – the three Oriental consortiums will have the significant presence of Government funds.
The Korean group, even with more than seven private companies having agreed to enter the consortium, may be led by the Government sector. Sources associated with the companies in the consortiums have said that the expectations are that the Korean Government will have a participation of up to 40% in this society.
Even with names such as Samsung; Hyundai; the Bertin Group; the largest building firm in Argentina, Iecsa; and Italian company Gueller, the group of private development firms should not have a share of more than 25%. The rest of the society should be the responsibility of the golden share offered to all competitors by the Brazilian Government, set at 10%, and also the participation of national pension funds – Funcef, of the employees of the National Savings Bank (Caixa Econômica Federal); Petros, from Petrobras, and Previ, from the Bank of Brazil.
Officially, the main representative of the Koreans in Brazil, Paulo Benites, from Trends Engenharia, says that no deal has been formally closed, and neither have participation targets been set. However, he says that the consortium hopes for a significant presence of the Korean Government as a partner. Among the Korean state-owned companies that should take part, the most important is the Korea Rail Network Administration (KRNA), which is a kind of Valec in Korea. This company is responsible for building the Korean railway network, and also has business in Southeast Asia, China and the Middle East.
As for the Japanese, so far they have just confirmed the presence of some privately owned companies – Mitsui, Mitsubishi, Toshiba and Hitachi. According to a representative of this consortium in Brazil, these companies are producers of rolling stock, and should have a limited participation in the consortium that will manage the Brazilian high-speed train for 40 years.
The competitors of the Japanese consortium, and also local news, state that the participation of the Government is certain. A news report from the correspondent of news agency Bloomberg, at the beginning of March, informs that the group will fight for the Brazilian bullet train with the backing of the Japanese Government and may also have the participation of the East Japan Railway, the largest railway operator in the country with a turnover of about US$ 30 billion. With the Japanese population currently declining, the company would be interested in opportunities abroad.
The participation could also be through the Japan Bank for International Cooperation (JBIC), as was recently announced for the bullet train project in the United States. Apart from credit, JBIC also offers equity for projects carried out abroad with the participation of Japanese companies.
The Chinese consortium, as expected, should be made up almost exclusively of state companies. The leadership is in the hands of the China Rail Construction Company (CRCC), one of the largest construction firms in the country – and responsible for building the local bullet train network -, listed on the Hong Kong stock exchange and with a total turnover of US$ 48 billion in 2009. There will also be the participation of the China North Railway (CNR), a manufacturer of railway material, which last year was awarded a contract for US$ 163 million, to supply the Rio de Janeiro Subway system. There will also be support from the Chinese sovereign fund, the China Investment Corporation, and also possible participation of the China Development Bank (CDB), the Chinese equivalent of the Brazilian National Bank of Economic and Social Development (Banco Nacional de Desenvolvimento Econômico e Social – BNDES).
The local representative of the Chinese Government, Marco Polo Moreira Leite, the President of the Asian Trade Link (ATL), says that they are also negotiating the participation of national private groups, without which it is impossible to seek business in the country – but for reasons of expertise. However, the bulk of the capital required by the project is already guaranteed by Chinese investors. Equity has never really been a concern for us, says Mr. Leite.
According to this businessperson, the Chinese, with significant state funds, are in the best position to win the project – provided the selection criteria help. In Europe there is no money, the United States are just coming out of a recession, and within Asia the most capitalized country right now is China, he says.
The consortium was cheerful with regard to the first criterion in the dispute for the high-speed train, where what counted was a larger percentage of own capital. With discussions about prioritizing lower fares, things can get more difficult for the Chinese. In the opinion of Mr. Leite, the use of the lowest fare is potentially dangerous, as it means cutting costs within the project and also inhibits investments in the network, which are necessary to attract demand from other forms of transport.
European Consortiums still in the running for the High-Speed Train (TAV)
New measures are being studied by the Brazilian Government to improve the business environment for the fight for the High-Speed Train (TAV). In recent meetings with representatives of the candidates to win the contract, the possibility of expanding the volume of credit made available by the Brazil’s National Bank for Economic and Social Development (Banco Nacional de Desenvolvimento Econômico e Social – BNDES) was raised – this would rise from the current level of 60% of the investment to 80% of the investment – and also the entry of pension funds Petros, Previ and Funcef.
The two measures have the same goal, which is reducing the participation of equity – own capital – in the consortiums interested in the project. The high level of investment required of the private groups, initially R$ 7 billion, would decline to R$ 3.46 billion with the increased participation of the BNDES, and even further if the entry of the pension funds was allowed.
The high equity requirement is the main cause for complaints by the interested consortiums, which makes it necessary for the Government sector to enter the fray – whether of Brazilian or foreign origin. The two main European consortiums vying for this project – comprising German company Siemens and French outfit Alstom – have not succeeded in obtaining any sign from their respective local governments that there could be any Government help for this development, just a subsidized credit line.
According to Paulo Alvarenga, who is in charge of the Transport Division at Siemens in Brazil, if there are no changes in the proposal for the bidding process, the participation of this group is threatened. There are also some existential issues in the project, starting from the guaranteed demand, says the executive. In his opinion, the Government needs to offer compensation should the forecast number of passengers not materialize. He believes that, the way things are, the project is not feasible for private enterprise. The banks, in turn, want guarantees, and these guarantees do not exist, he says.
Phillipe Delleur, the president of Alstom in Brazil, points to
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