The Chinese want to finance High Speed Train (HST)

The Chinese construction firm China Communications Construction Company (CCCC) sent a letter to the Brazilian Government saying that the company intends to participate in the auction, and agrees to ask the Asian Government for 85% of the funds necessary for construction.

The company is currently negotiating with a group of 20 outsourcers connected with the São Paulo State Association for Businesspeople in Public Works (Associação Paulista de Empresários de Obras Públicas – APEOP). The President of this institution, Luciano Amadio, said that the Brazilians shall make a proposal at the auction, even if the auction is not postponed – the Government is already informally considering that they shall be postponing the project for 90 days, the project being originally scheduled for the 11th of this month.

The letter is signed by Deng Hong Ling, who says he is the company’s representative in Brazil. The Chinese say they are interested in participating in the project and could even secure financing. However, they ask for the loan to be guaranteed by the Brazilian Government, which is not a condition mentioned on the Invitation to Bid.

CCCC is one of the largest Chinese companies in the area and has taken part in the construction of major works. The company has 112 thousand employees and a total worth of US$ 268 billion, according to the company website.

However, this company has not built the most important high-speed lines in China, which were the responsibility of the China Railway Construction Corporation – CRCC), with whom the Apeop negotiations went ahead last year.

China is now the country with most bullet train lines in the world (8,000 kilometres), all built within the space of three years. However, this construction has left a deficit of US$ 330 billion and the project, which originally planned the construction of 16,000 km of railways, shall now be revised.

Competition

The Government encourages Apeop to enter the business to increase competition. However, the group is small and would not, on its own, have enough corporate capital to make a proposal. In addition, the country needs technology for manufacturing the trains, and this is still being negotiated.

No-one is going to do this work alone. It is a massive project and needs to be rediscussed. I think this postponement shall serve this purpose, said Mr. Amadio.

The Apeop studies have shown that the project shall cost R$ 53 billion (US$ 32.96 billion), of which R$ 44 billion (US$ 27.36 billion) for civil work, in current values. However, the official value as informed by the Government is much smaller at R$ 33 billion (US$ 20.52 billion), of which R$ 24 billion (US$ 14.93 billion) for civil work, in 2008 values which should be increased by 11% to allow for inflation.

Also according to Mr. Amadio, due to the high price it is important to have other sources of financing, as the Government is limiting its participation to just over R$ 3 billion (US$ 1.87 billion) in direct funding and R$ 20 billion (US$ 12.44 billion) in loans.

There is no guarantee of  funds should the work turn out to cost more than the Government forecast, and the money shall all have to be put up by investors.