Parties interested in HST fear exchange rate volatility

The current exchange crisis is now the main concern of foreign investors in the bullet train project. The businesspeople would like the Government to take measures for exchange rate protection so that the fluctuations in the currency do not jeopardize the project, in what is a kind of exchange rate hedge, which could be taken up by the National Bank for Economic and Social Development (Banco Nacional de Desenvolvimento Econômico e Social – BNDES).

“No one knows what is going to happen with the exchange rate over the next few years, so they have given this as a variable that they would like us to analyze: the possibility of creating defense mechanisms against this as part of the project”, explains the General Director of the National Land Transport Agency (Agência Nacional de Transportes Terrestres – ANTT), Bernardo Figueiredo, in an interview given to Agência Brasil. According to Mr. Figueiredo, the decision made by the Government about this issue shall be stated by the end of the month. Apart from the Ministry for Transport, the measures shall also be assessed by the Ministry of the Treasury and the Minister for Planning, and also by the Chief of Staff.

Businesspeople from several countries interested in taking part in the auction have been visiting the ANTT office in Brasília. Last week, there were two meetings, each between four and five hours long, with Japanese representatives, while French and Spanish businessmen are expected over the next few days. This project has also attracted interest from companies based in Germany, China and Korea.

According to Mr. Figueiredo, the purpose of the meetings is that of explaining the new methodology of the tender. “This is an intensive marathon; we are stressing the model with the interested parties to see if there is anything that could exclude one of the parties. The idea is that of having a competitive process which does not exclude any investor”.

At the beginning of July, the Government decided to divide the tender for the project into two separate phases: the first shall define the technology and also the operator of the bullet train, while the second shall choose the company responsible for the construction of the project. This decision was taken after the initial proposal was not taken up by businesspeople. In the opinion of Mr. Figueiredo, the changes have made the development more attractive. “We tried a concession model involving a significant investment with a highly aggressive risk transfer for the businessperson, and the market did not accept it well”, he admitted.

Mr. Figueiredo said that the fare cap for the bullet train shall not be changed, but also, in his view, the cost of the investment could fall due to the lack of opportunities on the international market. “There are large international construction firms which have no prospects of work at present, and this could be a rare opportunity on the market to have a major work project, that could reduce the costs thereof”.

Even though he believes that the work shall not be significantly delayed, the director of the ANTT said that the Government could give more time for the completion of the development, if necessary. “We shall not make the project conditional on time frames. If we have to extend the time frame to avoid problems, then the proposal shall be, indeed, that of giving more time”. The expectation is that the work shall commence at the beginning of 2013, and the time frame for conclusion has been set at six years.