Korean group changes to compete for the HST

The TAV Brasil Consortium, first known as the Korean group that shall participate in the bidding for the bullet train service between Rio de Janeiro, São Paulo and Campinas, could have the reinforcement from a financial partner. The company signed a declaration of commitment with an investment fund established by EDLP (Estação da Luz Participações), which will be managed by Credit Suisse.

The business deal still depends on the completion of a kind of due diligence on the engineering project for the undertaking. The fund is already in the road-show stage and is moving across the globe to try to get investors for this project, which shall (officially) cost around R$ 33 billion (US$ 20.68 billion). When requested for an interview, the President of EDLP declined to comment.

If this business deal goes ahead, this shall be a significant advance for the company to make a proposal, says the President of Trends, Paulo Benites, a consortium representative. According to the government calendar, the expectations are that the proposals for the bullet train service shall be made on  July 11th and that the envelopes shall be opened on July 29th. In the beginning, up to the first postponement last December, TAV Brasil had 12 Korean companies and 9 Brazilian companies (CR Almeida, Constran, Engesa, UTC and SA Paulista, among others). With the postponements, some companies withdrew from the process, especially the Korean building firms. Now the consortium structure is more balanced, with 9 Brazilian and 9 Korean companies. However, the trend is that the company shall become more nationalised.

Over the last few months, since the last postponement, sources connected to the process say the group is looking for new investors. There have even already been meetings between the consortium and the five largest construction firms in Brazil that are looking into the bullet train project (Odebrecht, Andrade Gutierrez, Camargo Corrêa, OAS and Queiroz Galvão). However, there has been no agreement so far.

Another change in the consortium concerns technology. In the beginning, as there had been a prevalence of Korean companies, the train that would be used in Brazil would follow the standards used in Korea, should the group win the bid. This condition now no longer exists. The consortium is conducting talks with other train manufacturers — particularly with those based in Europe– which could even represent another prospective partner for the group, which says that it is now ready for the bidding process.

In the meantime, the building firms are trying to negotiate with the federal government to have some changes made to the project and also to the  announcement bid. At the beginning of the week, the five largest building firms had meetings with executives from the National Bank for Economic and Social Development (Banco Nacional de Desenvolvimento Econômico e Social – BNDES) and presented a list of requests. A similar meeting took place at the president’s office.

The main difference of opinion concerns the value of the work. Reliable sources say that the company has reached a value different from that set by the Government. Their cost would be closer to R$ 50 billion (US$ 31.33 billion) rather than R$ 33 billion (US$ 20.68 billion) as set in the bid announcement. All parties involved will have to wait to see if the dispute shall be once again postponed.