Government will take on more risk to have HST

Another delay in the schedule and a larger share of risk from the government. This is the current situation of the high-speed train project that will connect São Paulo to Rio de Janeiro. At best, the train will begin to operate in 2017, and at a cost greater than the public budget.


The round of talks with candidates to operate the business and offer train technology led the government to study taking on a minimum passenger demand. If the number of train users goes below the estimated level, the government will compensate the operator.


In addition, director-general of the Agência Nacional de Transportes Terrestres (ANTT) Bernardo Figueiredo forwarded to the state that candidates want a guarantee against possible construction delays. The auction will take place in July.


Here are some of the main highlights from the interview.


When was the bullet train announcement released, which was supposed to have happened in October?


We held exhaustive and deep meetings with all the interested parties for this first phase, which will choose the operator and technology. In probably two weeks, we’ll have a drawing for the bid for public consultation. Today we are very familiar with each group’s limitations, which are the points that include or exclude A or B. We will wrap up our conversations with groups from Germany, France, Spain, Japan, and the Koreans.


Did the Chinese show up?


I don’t know if they’re able to enter into this first stage, with technology transfer. Their focus is more on line construction works.


What are the points that ANTT will take to the Brazilian federal government?


There is a concern for construction delays. We are studying what the alternatives are.


Would the government offer a warranty?


That is what we are discussing. Technically, if there’s a delay, they have to have compensation. They have to have some type of insurance.


Who will pay for the executive project?


The investment comes from state company Etav. This company will capitalize on resources because we understand that the government has to have control. The role of operator in this phase is specifying the necessary infrastructure. The operator will put the train into place and quote the financial structuring. This has a cost and if the infrastructure’s construction takes too long, we’ll have losses.


Will the insurance have something to do with the actual start of the operation? If construction is delayed for a year, will the government compensate this year without profit?
We can compensate the concession for over a year or pay a fine to the operator. This is what we are studying, which are instruments that we can use for minimizing these issues.


How much will the executive project cost?


Around R$600 million. It’s expensive, a high-level investment.


How is the schedule?


The idea is to place the announcement up for public hearing in November. We will have public hearings in all the cities through which the train will pass. We will publish the final version of the announcement in January.


When will the auction be?


The minimum time period between publishing the announcement and presenting proposals is six months. If we release the announcement in January, the delivery of proposals will occur in July.


We will be able to dispute more than one operator with the same technology. What the operator will need to have is the disposition of the owner of this technology to transfer this over to us.
What leads the government to believe that the auction won’t be a failure?


The first auction wasn’t able to take place because the staff wanted a more comfortable situation. Today, the government is taking on this risk. I will contract the operator; I’ll do the executive project. If the construction is more expensive than we were estimating, the risk is then of the government. Should it be cheaper, it’s the government’s gain.


How will the government stipulate the lease price?


The competitors will say what lease price they’re willing to pay.


There won’t be a minimum price?


No. The competitors will have to tell me that they’ll pay X value per passenger. They might estimate transporting 5 million passengers. I think it will be 10 million. If it’s five, they will pay me the equivalent of that value times five. If it’s ten, they will pay me ten times ten.


Isn’t there a demand risk?


One of the issues that the investors are requesting is that the government ensures a demand limit, which we’re going to assess. I don’t see the possibility of having demand frustrations. I think it’s exactly the opposite. The day that we have a high-speed train circulating, this business will explode.


Does the investor have any fee commitments?


They have a fee ceiling, of R$49 per kilometer. What I’ll receive will depend on the demand. And we will contract the infrastructure. These things can be matched or mismatched. The risk of mismatching is public.


Will the announcement have to be explicit about the minimum passenger demand to be financed by the government?


That’s what they want. From a technical point of view, I think this risk is so small that it’s not worth not taking on and allowing the investor to price it, but that is a governmental decision.


What is the ANTT demand projection for the first year?


Ten million passengers.


Is there no way to build the bullet train from only private resources, if a particular business offer is very good, attractive, and profitable?


An offer would be everything you said, except profitable. The best business offer from SNCF (France) is the bullet train. But the company is an operator. The line is financed by the government. Going with the train and transporting is profitable. If money was more abundant, maybe the most practical way would be making the train, like the rest of the world does. But this isn’t the case we have at hand.


Will the government experience financial loss?


I’m going to pay an annual provision for those who build the infrastructure and I’ll start from initial low revenues. At the beginning I’ll have an account deficit, but a surplus at the end. That is what we expect to happen.


How many years will the government be in debt?


I don’t know off the top of my head. But the model change created an opportunity for using real estate valuation to help subsidize our business deal. Since we’re going to do the infrastructure project, we will have time to negotiate with the municipal governments about where the stations will be and define a plan for generating value for the surrounding environment.


But this land will have to be dispossessed, right?


Some yes, other no. There will be a part that’s public. The three main stations are in public assets.


After securing the operator in July, how much time will you need to make the second bid?


One year. We have to know what technical proposal we’ll use to do the project. Some things are already anticipated, such as the bidding part.


The construction bid will happen in July 2013?


Yes. But we can earn more building time. Since we’re going to require that the construction work is contracted in lots, it will be simultaneously attacked on all fronts. The time period of five or six years would be the time taken for construction on another model. In lots, I think four years is a viable time period, which would allow for the start of train operation in 2017.


Is there a calculation of how much money the government will be putting into the project?


I’ll use the calculation of our critics, which is always exaggerated. A Senate consultant said that the financing cost would be around R$5 billion. If the government took this money and applied it to the market, as if th

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