Monday, 25 July 2011

High Speed Rail in Brazil

I'm not surprised that the bidding for a new high speed rail line between Rio de Janeiro and Sao Paulo has been suspended due to lack of interest.  Anyone who thinks that you can build a new, electric passenger railway between two major urban areas across rugged and mountainous terrain for less than $80million a kilometre is dreaming¹.  In fact, it may cost even more if there are lots of tunnels.  The state bank BNDES (the state-owned development bank) suggested a price of about $60million per km.

The Latin American Herald Tribune, reporting the decision to suspend bidding, quotes the President of Brazil as saying, "I don’t believe the staff of the BNDES could have been so mistaken”.  Why not, Dear Sir? They were probably acting in good faith, but I suspect they ignored project, political or security risks and didn't count financing costs in the commercial money market.  What you might think the actual construction and equipment will cost and what a bidder, in the form of an international consortium, will charge in his price is quite different. In this case, 30% different.

This proposal for a Rio to Sao Paulo high speed rail link has been around for 10 years to my knowledge and it's always been regarded as a high risk project, with the stop-go politics of the region, local and international recessions and the construction and security problems of the area all worrying possible bidders.

If there is a consistent approach, political will at all levels and a commitment from the government to support the project, come what may, then you might get more interest from potential investors and bidders. Without it - no chance.

Footnote 1:  The Chinese quote a cost of $25million/km for their Beijing-Shanghai high speed line but they wouldn't include finance and risk.  The line was also very long, at 1302 kms, providing substantial economies of scale.

1 comment:

  1. I'm Brazilian and I hear about this project for more than 20 years.

    This project is a big dream and a waste of money. Not that a high speed link between São Paulo and Rio de Janeiro is not desirable. It would be very important for both cities and would help to develop other minor cities that would be in the way.

    In my opinion the biggest flaw in this project is the public transport in both cities. Taking Paris as an example, when the passenger arrives in any of the TGV stations, he/she can take the metro and reach any part of the city. In São Paulo there might be a possibility (depending where would be the arrival station) to also take the limited metro and go somewhere in the city but in Rio there is a single metro line with just a few stations that links nothing to nowhere.

    What is absurd is that until today there is no rail link between the airports and the city centre in São Paulo neither in Rio. That's another project that I hear about since 20 years ago. In every local election the candidates promise to build the airport link.

    All this money that the beloved and populist government is planning to spend with the high speed rail should be spent first locally, to improve the transport infrastructure in the cities instead of keep creating this illusion to the Brazilians and the rest of the world that Brazil is a serious country.

    At the end the Brazilian government is doing what they know the best: a big and expensive joke.