Subsidy for the High Speed Train may reach R$ 8 billion (€ 3.54 billion)

The package of benefits provided by the Federal Government to make the High Speed Train (HST) more attractive to the private sector should include a special subsidy in the credit lines that shall be granted by the National Treasury. The current cost of the loan for the construction of the bullet train, as defined in terms of the TJLP (currently at 6% per annum) plus 1% may fall as low as the TJLP minus 3% if there is frustration with regard to the passenger demand as established on the bidding documents.

This is a decision taken by the Government to eliminate the demand risks present in the project, says the Minister for Transport, Paulo Sérgio Passos. In his view, the aim is to create a variation band for the interest rates, to ensure that the demand shall be covered for a period of ten years. This is a measure that, as we see it, shall only increase the security for the investor. However, we hope that the demand shall be achieved in the first year of operation.

The National Treasury shall also be financing, through the National Bank for Economic and Social Development (BNDES), a sum of about R$ 20 billion (€ 8.86 billion) during 30 years – the whole development shall cost R$ 34.6 billion (€ 15.32 billion). In a simple simulation, considering that the flow of passengers shall remain below expected levels for the whole period of ten years, and that an interest rate of TJLP minus 3% is used, then the Government subsidy shall reach the level of R$ 8 billion, according to calculations made by the professor of the Getúlio Vargas Foundation (FGV – Fundação Getúlio Vargas), Fábio Gallo.

However, we must also stress that the interest rates shall vary according to the variation in passenger volume. If demand rises, then the rate shall also rise, according to specialists. The expectations are that, in the first year of operation, the bullet train between Campinas, São Paulo and Rio de Janeiro shall transport some 32.6 million people. Experienced professional people in this area have also observed, however, that in other countries the estimated demand has not been reached in the first few years.

Roadshow

The proposal for reduction of interest rates has been presented in a kind of roadshow, for investors interested in this venture. Some have considered this to be a positive move to reduce the risks of the project. According to the President of the Trends Group, Paulo Benites, who helps the Korean consortium, the Government proposal to establish this band for passenger flow is a bit like the model used in Line 4 of the São Paulo metro. The lower the demand, the higher the subsidy. This is additional protection for the business developer. We see the proposed measures in a good light.

Apart from the reduction in the interest rates, the Government is also looking into the possibility of increasing the financing period from 30 to 40 years, or of creating an additional loan to balance the company accounts in the event of a fall in income. This is all to give greater competitiveness to the tender process for the concession of the bullet train service. Several countries have already expressed their interest in this project, including Japan, Spain, China, France and Germany, as well as Korea. They are waiting for the clearance of the process by the Federal Audit Court, to decide whether they shall take part in the tender process or not.

In the opinion of specialist Gerson Toller, the director of the Business on Rails trade fair, one of the main difficulties that investors have to face is the fact that there are almost no parameters for historical comparisons. He explains that, in almost all countries, who built the bullet train was the Government of the country, who then passed the management on to private enterprise. The only two private ventures of this type, Eurotunnel (now a state company) and Taiwan, did not work. Brazil should follow the example of the São Paulo metro system and establish a Public-Private Partnership (PPP).