Union reduces grant in the TAV auction

To make the high-speed train Rio-São Paulo-Campinas more attractive to private investors, the government will lower the minimum value of the grant in the project auction, which proposals have delivery date scheduled for August 13. In practice, the Union must give up $ 4 billion to $ 6 billion in the initial bid for the bullet train, in order to increase the rate of return to the private sector.

By the rules of the announcement there will be charging of at least $ 140 per train kilometer. That is, each composition must pay this amount to the government per kilometer. Over the 40-year concession of the enterprise, this means an outlay close to $55 billion, according to the reference price of the auction.

To allow for a higher rate of return to shareholders, the minimum value will be reduced to about $130 per train-mile, anticipates the CEO Planning and Logistics (EPL), Bernardo Figueiredo. If there is no goodwill in the auction, the total amount to be paid by future concessionaire will be between $ 48 billion and $50 billion.

It is a necessary adjustment to improve the internal rate of return, says Figueiredo. The TIR of the bullet train was set in the notice to bid, in 6.32%. According to the executive, the revision of the minimum grant will increase the return to private investors to 7.2% per year, at least. That was the rate established by the government to the highways auction.

The change will occur in the coming days. To avoid disrupting the schedule of the auction, new changes in the announcement must be made at least 45 days in advance, which gives a tight margin to the government: this term expires on June 20.

In the first auction, the results of which will be known only in September, it is defined the operator of the high-speed train and who provide the technology to the undertaking. The money from the grant will fund the infrastructure works, to be contracted in 2014 through an international tender. The need for investment in railroad construction, which should take about 80 miles of tunnels, is not yet known and depends on the technology that wins the auction. But the major Brazilian contractors already assessed as unlikely that the $55 billion estimated by the grant could fully afford the bullet train infrastructure.

To increase revenues of the project, Figueiredo says the government will make the real estate holding of land in the vicinity of future stations. Allowing developers to develop condominium projects and shopping centers in the vicinity is expected to provide $ 10 billion to $ 20 billion, according to Figueiredo, using estimates made by the National Bank for Economic and Social Development (BNDES). This money will help to close the account of the infrastructure construction. I have no doubt that, when put into operation, this train will be a success, rejoices the president of the EPL. Its opening is scheduled for 2019.

Figueiredo anticipates another resolution taken by the government: the future São Paulo station of the bullet train will be in the same in the space currently occupied by Campo de Marte Airport in the North region. He says that the deal was closed with the Municipality of São Paulo. This is where, from the municipal point of view, a new vector of development is created, he says.

With this, Campo de Marte shall stop receiving business aviation operations, starting to serve strictly helicopters. Last year, the airport recorded 144,000 movements (takeoffs and landings). As the bullet train station, it loses much of its functions, since the maneuvering requires considerable space. The original idea of the Union, in the first attempts to bid on the project, was in fact using Campo de Marte.

The team of Governor Geraldo Alckmin (PSDB) wanted the future station in the Água Branca District, where a kind of planned metro-railroad hub in the city is foreseen. There shall operate the starting point of the regional train São Paulo-Jundiaí and one of the main stops of the line 6 – orange of the subway, with bidding underway. After much discussion, this alternative was rejected by the Union, which has the prerogative to define the location of the station. To Figueiredo, Água Branca is already an overly dense region.

With the reduction in the minimum amount of grant increases the attractiveness of the project, says Figueiredo. The cost of $140 per train kilometer, a trip from Rio de Janeiro to Campinas will require disbursement around $70,000 for the future concessionaire responsible for the operation. To pay for this trip, it should put at least 175 passengers in each composition, at the ceiling value of $400 a ticket in economy class. Having to pay less, the margin of the future concessionaire tends to increase.

In the coming weeks, the EPL must complete the bidding to contract the company responsible for managing the executive project for the bullet train. A consortium formed by the French Egis, which manages the Congonhas airport, presented the best price. Eight consortia submitted bids, ranging from $150 million to $ 240 million. Besides the price, EPL will analyze the legal and technical documentation. Therefore, the winner may not be the one which offered the lowest bid. No date was set for the result of the bidding.