Government rises to 45% the stake in HSR

The government decided to yield to the demands of entrepreneurs and will elevate its risk exposure to ensure the building of the high-speed rail. Empresa de Planejamento e Logística (EPL), which will be the state arm within the bullet train consortium, will have a 45% stake in the project, well above the 33% rate that had been planned initially.

Throughout the public hearings phase of the bullet train, conducted in August and September, the National Land Transport Agency (ANTT – Agência Nacional de Transportes Terrestres) had resisted yielding to the plea of companies and had maintained the decision that the EPL would have only one-third of the business. On Wednesday, a few hours before closing the final text of the notice to bid, the government decided to put more chips in the project.

The decision has a direct impact on the financial support that, in fact, will be implemented by the private partner that wins the auction for the operation of the train, which is scheduled for September 2013. By the government’s calculations, $3.69 billion will be injected by the consortium that wins the auction. By the rules of the notice to bid, 70% of that amount – $2.58 billion – may be drawn from the coffers of the BNDES, through funding that will be paid during the 40 years of the bullet train concession. Therefore, $1.10 billion are left to be invested by the partners directly. With 45% stake, EPL will ensure $497.9 million of that contribution. This means that, to own 55% of the bullet train, a project that will cost at least $16.83 billion, the private partner is committed to disburse $608.6 million.

The business may become even more attractive to the private sector if the government takes, on its own, the building of the bullet train infrastructure, which can occur in the second stage of the project. In this first auction, the government is hiring the company that will be the supplier of train equipment and technology, taking over the project operation. In 2014, the hiring of the most expensive phase of the project will take place: the civil construction services. So far, the government planned to make a second auction to grant the work to a group of contractors, which would be paid by the commercial operation of the train.

Yesterday, at a press conference, the CEO of EPL, Bernardo Figueiredo, said the model for the second stage has not yet been closed, and the government is considering making a direct hiring of services through a bidding process. In practical terms, this means that the construction companies were no longer partners of the bullet train, but just a service provider. If that is the chosen path, the government would yield to what it was the main demand of the construction companies, which since the beginning of the project had asked to execute the works and receive for that, without shareholding in the enterprise.

For the government, it makes sense. With revenues from operation of the train, the Federal Government would pay the construction companies and still would pay the operator consortium, which is a minority partner, but with veto power over any decision related to HSR. We are evaluating, nothing is closed on this yet, Figueiredo said.

The notice to bid of the bullet train, published yesterday by ANTT, brings changes regarding the inauguration of the project. Until then, the government argued that stretches of the 511 kilometers connecting Rio de Janeiro to Campinas could come into operation if they were completed. The expectation was to have something in operation already in 2016. This possibility was discarded. According to Figueiredo, the bullet train will only come into commercial operation when 100% of the enterprise is ready. Our expectation is to have everything ready by 2018, he said, adding that the deadline in the notice to bid is June 2019, schedule that admits one more year of delay.

Changes in the notice to bid also included increasing the minimum price of the grant, which jumped from $31.80 per km traveled by train to $33.82. The price of the grant functions as a kind of toll that the bullet train concessionaire will pay to run its trains on the rails. The bid bonds which shall be made by the consortia were also changed from $36.08 million to $37.04 million.