High-Speed Train: Bullet-train auction expected to attract two consortia.

Bullet-train auction expected to attract two consortia

By Daniel Rittner | Brasília

Two consortia led by French and Spanish companies are willing to present proposals for the auction that will define the operator of the bullet-train line between Rio de Janeiro, São Paulo and Campinas, set for August 13th, saving the government from another setback in its attempt to tender the project. But the groups are making it clear that they expect the creation of a “bride fund” by the government to deliver their bids. The exact format of that fund, which would have “strategic partners” joining the capital of the future concessionaire responsible for operating the high-speed train (known by the acronym TAV), hasn't been detailed by officials yet.

Domestic groups specialized in infrastructure concessions are being or will be sought by the government to join as partners in the investment after the auction. Odebrecht TransPort, CCR, Invepar and Ecorodovias are being eyed by officials. State-owned pension funds – like Previ, Petros and Funcef – are part of the “plan B” as strategic partners if attracting private groups turns out to be impossible.

Initially there were five consortia interested in the TAV. The Koreans, seen as the leading contenders in the first attempt at tendering the project, are now being dismissed. The Japanese still haven't given their final word, but everything indicates they won't join the auction, despite being interested in the venture. People close to the situation say they are not willing to shoulder any risks with passenger demand and already hinted in talks with Brazilians over the last weeks that they have decided to leave the bid.

In the same talks, the French and Spanish revealed willingness in handing proposals that could save the government from another failure – the auction in July 2011 ended without a single interested party. The French consortium is being led by Alstom and state-owned rail company SNCF. The Spanish consortium is headed by Talgo and state-owned rail firm Renfe but includes more companies, like Cobra, Indra and Abengoa.

It isn't clear if the German consortium is still interested in the project. Siemens, which was heading the consortium, signed an agreement with the Spaniards to supply signaling and telecommunication systems through Dimetronic, a company headquartered in Madrid and controlled by Siemens. Deutsche Bahn, the operator of the German railways, is said to have faced restrictions to join as a partner in an international project. No other group wanted to comment on the process.

The concessionaire responsible for operating the bullet train will have state-owned firm Logistics and Planning Company (EPL) with a 45% stake. The other 55% initially will be handed to the auction's winner. On November 20, the tender's result is expected to be announced, according to the schedule released by the National Ground Transportation Agency (ANTT).

After results are announced, there will be a 90-day period for the entry of strategic partners, such as Correios (ECT), Brazil’s state-owned postal service. ECT has expressed interest in up to 5% in the project, reducing the original stake of the auction's winner. The government is already preparing to create a “bride fund” to take on a more relevant stake – talks revolve around 30% - in the future concessionaire.

But less than 40 days from the date set for delivery of proposals, there are still no details on the “bride fund”. And that's what is concerning the Spaniards and French. None of the consortia is willing to take such a big stake in TAV. The foreign players actually want to sell technology – high-speed trains and systems – to Brazil, but prefer a relatively limited equity stake in the project. The concessionaire will have to spend at least R$30 billion, the minimum amount set in the auction, throughout the contract's 40-year term. For that, it will have to take on the project's demand risks – in other words, the risk of having passenger traffic lower than the estimated by the government.

Behind closed doors, the foreign consortia say they prefer having the state-owned pension funds as strategic partners. Their reasoning is that they usually rubber stamp whatever the government wants, but have no great pretensions at interfering in the operation and are only vying to the business's profitability. But the government is sympathetic to private groups because it believes that despite having a small stake in the future concessionaire, they could demand more efficiency and gain experience operating high-speed trains.

Domestic groups’ receptivity to compose this “bride fund” is not very high. They have already studied to take part in other auctions – especially in roads, ports and airports. Given the project menu, they show no enthusiasm for the bullet train, whose return rate was set at 7% per year. Such compensation is below the 8.5% rate set for the first railway to be auctioned (Açailândia-Vila do Conde) and 7.2% for highways. So there is a great chance that state-owned pension funds take the charge. 

Whatever the composition of the “bride fund”, the French and Spaniards keep interested in submitting proposals on August 13th, if the entry of the “strategic partners” is actually known by then. Thus, EPL would have a 45% stake in the future concessionaire, the other partners 30% and, Correios, 5%. The winning bidder would keep a slice not bigger than 20%, reducing demand risks with the project. 

The tender’s result is likely to be announced on September 19th. Wins the auction the group that submits the highest award value. The minimum price is R$68.08 per kilometer travelled. 

As Valor reported last week, there are two requests to postpone the auction to be reviewed by ANTT. The government, at the moment, is strongly inclined to not change the schedule, since postponing the auction could give the wrong impression that the project could be a waste of public money.

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