Tender out for $18bn Brazil bullet train

Brazilian president Luiz Inácio Lula da Silva presided over yesterday’s tender launch for a high-speed rail line connecting Rio de Janeiro and São Paulo – a project known locally as the bullet train.
 
The goal is to create a 511-kilometre rail line with trains travelling at a top speed of 300 kilometres per hour between the international airports of Rio de Janeiro, São Paulo and Campinas and at least four intermediate stops. São Paulo and Rio are the Latin American country’s first- and second-most populous cities, respectively, while Campinas is a city about 100 kilometres northwest of São Paulo.
 
The tender launch comes roughly two weeks after Brazil’s federal audit court – the country’s highest body regulating public spending – set the project’s final cost at just over R$33 billion (€14.8 billion; $18.5 billion) – a R$1.5 billion cut from its original price of R$34.6 billion. It also set the maximum economy tariffs for normal and peak time fares at R$149.85 and R$199.73 respectively, to be reviewed every five years.
 
Those interested in bidding for the technically challenging project – it will require 91 kilometres of tunnels and 103 kilometres of bridges and viaducts – should submit initial offers by November 29. The winner for the 40-year concession will then be selected during an auction to be held at the São Paulo Stock Exchange on December 16. The main selection criterion will hinge on the cheapest economy fare, which has a maximum permitted price of R$0.49 per kilometre.
 
As expected, Brazilian development bank BNDES will finance the majority of the high-speed line with a contribution of up to R$19.9 billion, equivalent to 60 percent of the project’s cost. The remainder will come from the winner’s equity and loans provided by other banks.
 
Henrique Pinto, head of project structuring at BNDES, said in a recent interview that the financing package for the winning consortium should come attached with clauses demanding a review of the financing terms at years five and ten. This is to protect investors from lower than expected demand in the first ten years of the project and secure a balance between revenues and cost of financing, he said.
 
President Lula also signed a decree creating a public company called ETAV, which will hold a 33 percent stake in the special purpose vehicle to be incorporated by the winner of the tender. ETAV can contribute a maximum of 10 percent of the project’s value, ANTT, Brazil’s federal transport body, had said in a previous statement.
 
Construction works for the line should start in 2011 and be finished by 2016.
 
New York-based Shearman & Sterling and São Paulo-based Manesco Ramires Perez Azevedo Marques Advocacia are the legal advisors on the contract.