Brazil may lend $11.8 bln for high-speed train

Brazil’s national development bank offered on Monday to lend up to 19.98 billion reais ($11.8 billion) to build a high-speed passenger railway linking the country’s two biggest cities, underscoring the need for massive government guarantees for the project.

The 30-year loan will pay interest of 6 percent plus another percentage point in fees related to credit risk, state lender BNDES said in a statement. Borrowers will only start paying the loan six months after the expected start of the train service between Sao Paulo and Rio de Janeiro by 2016.

The BNDES funding is equivalent to 60 percent of the estimated 33 billion reais cost of the project. The consortium that will build the railway will be picked in an auction scheduled for Dec. 16, the statement added.

By increasing loan guarantees and money available for bidders, the government is seeking to lower underlying risks and speed up execution and completion of the project, which it hopes will be ready for the Rio Olympic Games in 2016.

Some economists have said that the government is forcing the BNDES to shoulder too many risks to accelerate growth in Latin America’s largest economy.

The package is the latest in a series of efforts by the BNDES to provide financing for more than $1 trillion in public works that President Luiz Inacio Lula da Silva, who stands down in December after eight years in office, wants the next administration to undertake.

Such projects, including the “bullet” train, are key to avert bottlenecks that could slow Brazil’s economic growth in coming years by adding to costs for exporters and discouraging investment.

The sleek, streamlined bullet train thundering its way between the cities at 280 kilometers per hour (174 miles per hour) is the image of a modern and thriving Brazil that Lula and his successor, President-elect Dilma Rousseff, want to project.

The bank said that the train will transport 32 million passengers a year and generate revenues of up to 2 billion reais a year.

Consumers will pay up to 199 reais ($117) for a one-way trip. Currently, the cost of a one-way plane ticket could be as much as three times the expected cost of a bullet-train pass.