Brazil’s $21bn ‘bullet train’ runs out of steam

An auction on Monday failed to attract any bidders for the 511km high-speed rail link between Rio de Janeiro and São Paulo. But the government is undeterred and has decided to split the auction into two distinct phases with construction now earmarked to start in 2013 at the latest.

Monday, July 11, was not a happy day for the Brazilian government. After twice postponing an auction for a high-speed rail line connecting Rio de Janeiro and São Paulo, it was third time unlucky for the government as the private sector failed to submit a bid at the end of a five-hour auction process for the line.

The project, known locally as the “bullet train”, wants to connect Brazil’s two flagship cities and also Campinas, in the state of São Paulo, over almost 511 kilometres. Brazil’s National Land Transport Agency (ANTT) said that the high-speed line’s total cost is estimated at just over R$33 billion (€15 billion; $21 billion). But the private sector has always entertained doubts about its profitability and price, with some suggesting the bullet train could cost as much as R$60 billion.

Undeterred, ANTT has now decided to split the auction process into two distinct phases:  a first phase to choose the operator and the technology supplier for the high-speed line, still to be auctioned this year; and a second phase to select a winner to build the actual line, earmarked for auctioning in 2012. Construction is expected to start no later than 2013, ANTT said.

“We have had long discussions with investors,” Bernardo Figueiredo, head of ANTT, commented in a statement after the auction failed to attract any bidders. “We couldn’t form consortia with national companies, which harmed the tender process. Now, we will remodel the bidding process so that it will be more open and attract more international competition,” he added.

The transport agency did not make clear in its statement whether the consortium responsible for supplying the technology, operating and maintaining the line is the real concessionaire, or how the consortium that will actually construct the line will finance its construction.

But in an interview with Brazilian newspaper Economia, Figueiredo hints that both the winners of phase one and two of the new bidding process will have to secure private funding, using some elements reminiscent of securitisation processes. 

According to Figueiredo, the consortium responsible for building the line could issue receivables against the operating consortium to make it easier for the construction group to access cheaper financing. The idea would be that the tariffs collected by the operating consortium would also be channelled to the building consortium to reimburse their investment. “It would be like paying for right of way,” Figueiredo told the newspaper.

However, Figueiredo didn’t explain which entity will collect the tariffs and pass them on to the construction consortium.

ANTT will hold a public consultation for the new bidding model in August with a view to publishing a new concession model later this year. The transport agency has warned that the maximum tariff to be charged in economic class cannot exceed R$0.49 per kilometre. It also added that any costs incurred above the R$33 billion estimated by ANTT will have to be shouldered by the private sector and not the Brazilian taxpayer.