Senate Consultant Once Again Criticises High Speed Train (HST)

The most expensive work project on the Growth Acceleration Plan (Programa de Aceleração do Crescimento – PAC), the High Speed Train project presents a high degree of risk for Government accounts. This is what has been found by the report prepared by the Senate Study Group which looked into the feasibility of the project. The HST, which has a price tag of around R$ 34.6 billion (€ 15.03 million), which is almost twice the cost of the hydroelectric plant at Belo Monte which cost R$ 19 billion (€ 8.26 billion), is the Federal Government’s bet to sort out bottlenecks in the airports of São Paulo, Rio de Janeiro and Campinas. According to this project, by 2016 a railway system will have been built, having the potential to transport 35 million people per year at a speed of 300 kilometers per hour.

The Government’s reason for carrying out the work, in spite of the high cost involved, is that most of the cost would be borne by private investors. However, the Senate Consultant, Marcos Mendes, who was the author of the report, has now concluded that the Federal Treasury would indeed have a high financial involvement with a potential to grow over time.”The possibility that the project will be sustained exclusively by private investors and that it will pay off alone is remote and also based on fragile grounds”, he says. According to the rules of the concession tender, the companies that win the auction will receive a loan of R$ 20 million (€ 8.69 million). However, Provisional Measure No. 511, which ensures the possibility of public financing and also gives the National Treasury responsibility for providing guarantee of the loan, also opens the possibility that the Treasury may have to make the payment thereof at a later date, if the concessionaire does not honour this debt with the National Bank of Economic and Social Development (BNDES).

In the opinion of the consultant, the counterguarantee offered by the concessionaires, which include the delivery of shares of the company set up to manage the HST project and also the income generated by this development, has a high element of risk and may break the Federation coffers. “If the development gets into a bad situation, which could threaten the repayment of the debt, then this is a sign that the company is not able to generate sufficient income to cover costs”, he says.

The President of the National Land Transport Agency (Agência Nacional dos Transportes Terrestres – ANTT), Bernardo Figueiredo, defends the project. He says that the fact that the Treasury provides guarantees for the payment of the loan is the very reason why the project is in existence. This means that, if the concessionaires come up against difficulties in paying off the debt, then the BNDES will take over the management of the High Speed Train project and the companies will then lose the money they invested. “This type of financing is quite common in this type of business. This is nothing new”, he says.

In countries that have high speed trains in operation, such as Japan, Taiwan, Korea and Italy, the system has consumed a high volume of public funds.  The private companies responsible for the management of the trains have not managed to proceed with the projects and obtained financial help from their respective Governments, which took on the outstanding debts. The low passenger demand was not able to produce sufficient income so that the concessionaires could pay even the interest of the loans obtained for the execution of this project.

The study of the Senate also observes that passenger demand is below the necessary levels. Considering the stretch between Rio de Janeiro and São Paulo, the expected clientele is around 6.4 million passengers per year, when international experience suggests that the minimum should be 20 million. According to Mr Figueiredo, of ANTT, the estimated demand already satisfies investors. “This project can easily generate cash flow because it has a very low operational cost and high income. In this topic, there is also risk for public accounts and also for the taxpayer: if there is any frustrated demand for the project, then the National Treasury will ensure a subsidy of up to R$ 5 billion (€ 2.17 billion) for the companies. Apart from the loan granted by the BNDES, the Government will also set up Etav, another state company that will be responsible for the compulsory purchase of the land through which the trains will pass, and which will have to meet all environmental costs. For this, the company will invest at least R$ 3.4 billion (€ 1.48 billion).

The appraisal made by Mr Mendes, from the Senate, suggests that the project has underestimated costs of construction and also those of maintenance of the tracks. In other countries, the average construction costs per track kilometer lies between US$ 35 and US$ 70 million, while the Brazilian project has calculated US$ 33 million. “This is an evidence of underestimation of costs”, he says. Mr Mendes also observes that, in the financial plan for the construction of HST, there has not been any estimate of the costs with the maintenance and replacement of locomotives and carriages along the 511km of track connecting the three cities, and the replacement of equipment during the 40 years of concession for operating the line. “Nothing is said about who will pay for the line or who will finance this expense”. Therefore, there is a risk that the Government will also have to foot this expense which, according to the study, can get up to R$ 23.4 billion (€ 10.17 billion) over 30 years. Mr Figueiredo, from the ANTT, counterargues that all maintenance and replacement costs are indeed included in the project.

The consultant from the Senate also warns of the fact that, on winning the tender process, the concessionaire company will be responsible for the project and also, having taken on the work and being in possession of the technology for the construction of the train, may make any demands to the Government.

The concessionaire company will then be in an excellent position to make additional demands to the Treasury”, says Mr Mendes.

Fonte: Época