Divided tender may not solve the problem of high cost of bullet train

In spite of the changes announced by the National Land Transport Agency (ANTT), the segment still has doubts about the block related to the construction of infrastructure. There are people who are sure that the new format of the tender, divided in two parts, does not solve the problem of the high cost of the development. While the Government is saying that the project would cost R$ 33 billion, some investors say that the final price tag could be as high as R$ 50 billion.

There shall be pressure on the contractors, which shall need to reduce their profit margins. However, the price shall not fall that much, in the opinion of an investor who analyzed the product in the previous format. In his opinion, the financial equation needs to consider passenger demand, income and the total value of the investment.

Most foreign business people, already used to the implementation of the bullet train, say that to make the accounts balance there is no secret: the Government shall have to chip in with more cash. In the whole world this is how things are, in the words of the President of the São Paulo Association of Developers of Public Works (Associação Paulista de Empresários de Obras Públicas – Apeop), Luciano Amadio. The executive is part of a group of investors who say that it is not possible to construct a bullet train for less than R$ 50 billion.

The Government has already said that it shall not be upping its participation in the project. However, the profile of the new model has shown, more and more, that this will indeed occur, albeit indirectly. The strategy of using property developments to make the project more attractive can be a clear sign of this fact. The aim here is to push up the income from the project, being responsible for expropriation.

The good side of the new model is that anyone deciding to enter into this business venture shall know precisely what the cost of the project shall be: whether it is R$ 33 billion or R$ 50 billion. If the company does decide to enter the tender process, it shall be entering into a commitment to bear the brunt of the possible risks of this operation.

Since the start of the discussions about the construction of the bullet train, the figures involved have always been the main source of controversy. The development started with a level of expected investment set at R$ 14 billion ($ 9 billion). In the middle of the process it had leapt to a level of R$ 22 billion ($ 14 billion) and then to R$ 33 billion. However, the cost of the bullet train project has been budgeted at R$ 62 billion in a report prepared by Halcrow. This value includes contingency funds of 30%, as there was no executive project in place.

On receiving the materials, the Government did not like the figures at all and asked for a review, a source said. Without the contingency funds, the cost would be reduced to something around R$ 40 billion. However, this was still a lot of money. Hence, the Government asked the National Bank for Economic and Social Development (Banco Nacional de Desenvolvimento Econômico e Social – BNDES) with the responsibility of adapting the Halcrow project at internal prices. The tunnels would follow the costs of the subway of São Paulo while the track would follow the cost levels of the Transnordestina Railway. Thus, the final figure as reached was R$ 34 billion, which was later reduced to R$ 33 billion by the Federal Audit Court (Tribunal de Contas da União – TCU).