HST consortiums ask for tax reduction

The pressure for reducing taxes related to the import of heavy equipment must centralize the debates in the next weeks between the government and consortiums interested in assuming the bullet train project to connect Campinas to Rio. Yesterday, the government made official the postponement of the high-speed train bid auction by 90 days, as anticipated by Valor Econômico one week ago. The delivery of documentation and opening of proposals – which would occur on April 11 and 29, respectively – were rescheduled to July 11 and 29.

The consortiums also ask for including in the tax reduction package the decrease of equipment nationalization indexes. The current rule defines a gradual increase of components made in Brazil during the construction and operation of the train. The invitation to bid establishes, for example, that at least 15% of materials used in rolling stock (train) are made in Brazil upon operation startup. This nationalization index would reach 60% of the components in the end of the concession term (40 years).

Bernardo Figueiredo, General Director at ANTT (National Agency of Land Transportation), commented that there is room for adjustments in the invitation to bid, but no change has been provisioned to this date.

In the last months, the government has suffered pressure to also  change  the concession model conceived for the project. Contractors and train manufacturers intended to convince the government to assume 100% of the work risks, by contracting all of them as suppliers only, that is, with no direct participation or risk in the business. The alternative has been discarded.
Regarding tax reductions, Figueiredo says that there is no much room for reductions. The bullet train is already included in REIDI (Special Regime of Incentives for Infrastructure Development), in addition to ICMS tax exemption in São Paulo and Rio de Janeiro. “We already discussed with the Ministry of Finance and look for any reduction possible, but the requests will be analyzed,” he said.

Any change in the invitation to bid can be made up to 15 days before the proposal delivery date. The Director at ANTT anticipated that some demands from the entrepreneurs will not even have room for discussion. Among them is the increase of the financing line of US$ 12.5 billion by BNDES, in the MP approved this week in the House of Representatives and forwarded for voting in the Senate. “Interested parties intending to achieve additional funding must look for other lines of credit,” said Figueiredo. Nothing changes also in the funding for the public company Etav provisioned for the enterprise and amounting to US$ 2.1 billion, corresponding to 10% of the total cost estimated for the bullet train (US$ 21 billion). “In case the final value of the project is greater, the government participation will be diluted,” he commented.

Independently from the changes made in the invitation to bid, the next weeks will be characterized by the rush of equipment manufacturers to set partnerships with local contractors. Now, the construction companies must “deal the final hand” in negotiations about HST.

The second postponement of the bullet train – the first one occurred in November – should not change the estimated schedule to start the works, assures the government. Start of construction works is expected to the second half of 2012. In spite of admitting last week that the project could not be completed for the Olympic Games 2016, Figueiredo stated yesterday that the goal should be completing the works before the games.