Tem-bala: Company seeks even “Chinese BNDES” to make it viable – 03/04/2023 – Market

In times of inflation and high interest rates in the world, TAV Brasil tries to attract investors capable of injecting at least R$ 50 billion, over ten years, in the construction of a high-speed train between Rio and São Paulo. In the crosshairs are foreign resources and national pension funds —an old formula of PT administrations to boost major works.

Market agents say they were consulted by TAV and that the group’s idea is to raise at least 80% of the necessary resources with funds and institutional investors in Brazil and abroad.

State pension funds are also targeted, especially Previ (from Banco do Brasil) and Funcef (Caixa Econômica Federal). The fear, according to technicians from these institutions heard on condition of anonymity, is that past cases will be repeated in which billionaire investments in unsuccessful projects left a gap for future retirees.

For the president of TAV, Bernardo Figueiredo, the investment in the project can be paid off in six to ten years, if they can get financing with low interest rates and long term.

In an interview, Figueiredo told Sheet which already had initial conversations with EximBank, the “Chinese BNDES”, and there were signs that the bank is willing to join as a partner.

Figueiredo assesses that there is interest in high-speed trains and that foreigners look at this project in Brazil in a different way. “In the past, there were already five interested parties. It didn’t go ahead because of a political decision.”

The construction of the bullet train between São Paulo and Rio is an old project that never got off the ground. The theme motivated the creation of a state-owned company during the Dilma Rousseff government, but, even so, it did not work.

Analysts in the infrastructure sector view the current initiative with distrust and recall that the project did not prosper in the past because it was considered too large and because it faced resistance from airlines and bus companies —which would have a rival on the Rio-São Paulo bridge.

Today, with the price of airline tickets on the rise, TAV believes it will find partners to take the work forward.

The new Railroad Law, sanctioned in 2021 by then-president Jair Bolsonaro, ended the concession regime —with more intervention by the public power— and began to issue permits. There are already almost 40 new requests with ANTT (National Land Transport Agency).

To obtain them, you must meet the requirements set by the agency. Once the license is approved, the group has up to one month to sign a contract with ANTT. The initial deadline for approval of the engineering project is two years.

TAV signed the contract with the agency on Thursday (2). From now on, conversations and agreements with mayors and governors will begin on which the railroad will pass for the issuance of environmental and installation licenses.

There will also be conversations around the departure and arrival stations. Figueiredo said that there will be a connection, in São Paulo, with CPTM trains that make the connection with the region of Campinas (SP), where the Viracopos airport is located.

In Rio de Janeiro, a station is planned on SuperVia, in Santa Cruz. “This will require investment by the concessionaire in its network. It may be that the mayor of Rio wants to take the train further to the center or take it to Barra da Tijuca. This will change as negotiations progress”, said Figueiredo.

In the initial layout, four stations are foreseen. They are: São Paulo, São José dos Campos, Volta Redonda and Rio de Janeiro. The 380 km trip will take 1h30. A commercial flight between the two cities takes 50 minutes. By car, the stretch can be done in up to four hours at a speed of 100 km/h and without stops. TAV’s idea is to make the maiden voyage in December 2032.

To build the railroad, the company plans three types of partnerships. In addition to financial investors, they target a road builder; another group specializing in the manufacture of trains and, finally, an operator. In this business, everyone is a foreigner.

The Chinese have an advantage because they are interested in financing infrastructure in Latin America. In almost all projects, financing required, as a counterpart, the hiring or purchase of inputs from Chinese manufacturers.

China already has the largest high-speed rail network in the world, covering 22,000 kilometers. The country’s first magnetic levitation bullet train is also from the country – the fastest in the world. At 460 km/h, it covers the 30 km that separate Shanghai airport from the city center in just seven and a half minutes.

“Projects of this magnitude always end up relying on public money”, says Cláudio Frischtak, a partner at Inter.B, a consultancy for infrastructure groups. “There is no place in the world where high-speed trains were made with private capital.”

For him, the volume of resources to be consumed during the construction of the work —in general, more than ten years— takes too long to be amortized with the sale of tickets when the trains start operating.

“Besides, will there be demand?” asks Frischtak. “The feasibility studies of the past were not very reliable. Ten years from now, airfares will be high enough to justify going from São Paulo to Rio by train?”

The analyst considers that, instead of a bullet train, the most reasonable thing would be to revive an old project by Brazilian contractors to transform the Rio-Santos railroad into a medium-speed line — up to 190 km/h. “They would be passenger trips during the day and, at night, cargo transport would work.”

Former executive secretary of the Ministry of Infrastructure Natália Marcassa believes that there may be an appetite for a high-speed train making the Rio-São Paulo connection, especially among real estate groups.

However, he considers that the moment is not good because the economic situation abroad leads investors to prefer to keep their money in investments in safe countries where interest rates are at high levels due to inflation.

“The big difference compared to the past is that this time this project [do trem-bala] it will be 100% private”, he said. “The whole risk of the business rests with the entrepreneur and this helps in the search for partners because nobody wants to make an investment and be too tied to the State.”

bullet train around the world

The vast majority of high-speed trains in operation around the world are powered by electricity. Developed mainly by Alstom (France) and Siemens (Germany) for state railway companies, the trains have been improved (to become even faster) and exported to several countries with more emphasis in the last decade.

The Spanish InterCity, for example, started its AVE fleet using Alstom trains, which were also exported to Switzerland, South Korea, Taiwan, Italy and the USA. The most modern and fastest trains used today are Talgo and Bombardier.

In 2018, Morocco was the first country in Africa to inaugurate a section of its high-speed railway with French trains. The project, which provides for a network of 1,500 km, will cost US$ 2 billion (R$ 10.4 billion).

In Saudi Arabia, the Haramain High Speed ​​Railway was built to serve 60 million passengers a year, including up to 4 million pilgrims who, once a year, clog the roads between Mecca and Medina.

Despite the financial crisis caused by the coronavirus, the operations of these trains are profitable. The French SNCF, for example, which operates the TGV, announced last year a profit of 2.4 billion euros (R$ 13.3 billion), compared to 890 million euros (R$ 4.9 billion), in 2021.

The company, however, had the help of the French government in a refinancing program that cut its debt by 35 billion euros (R$ 193 billion).

Market analysts claim that this model only stands up because of the volume of travel. This is explained, especially, by the ramification of routes across countries and the connection between capitals by train.

It is this particularity that makes the Brazilian project more risky. “We’re talking about the country’s main stretch of movement”, says Frischtak. “There are planes, cars and buses making the Rio-São Paulo axis.”

TAV Brasil considers that it is in line with the last plan released by ANTT, which prioritizes rail transport in the country to reduce dependence on highways — in the transport of cargo and also passengers.

“There are 40 million potential passengers for the stretch,” said Figueiredo.