The new Metro Line 4 will be a principal commuter route that runs southwest to northeast through metropolitan São Paulo, connecting residential neighborhoods to important commercial districts adding approximately 21 percent in additional capacity to the metro system across low, medium and higher income populations.
The project includes two main contracts: (a) a turnkey contract for the provision of civil works and electrification for the 12.8 km of metro line14 and (b) a concession to operate the system for 30 years, in exchange for the provision of the rolling stock and systems, financed mainly by the private sector and the State. This case study analysis focuses on the latter PPP project component.
Total project costs are estimated at US$ 398.55 million with about US$ 82.95 million equity contribution from sponsors (21%). Total debt of US$ 315.60 (79%) is split in two tranches, a $69.2 million, 15-year A loan from the IADB, and a $240 million, 12-year B loan, and led by IADB, from Banco Santander, SMBC, KfW, Banco Espirito Santo, BBVA as lead arrangers and Société Générale and WestLB as co-lead arrangers. The project was not eligible for support from the Brazilian government's development bank, BNDES, because the trains for the project were manufactured outside of the country.
The Project was awarded in November 2006 to a consortium (Via Quatro)15 led by Companhia de Concessões Rodoviárias (CCR) pursuant to an international public bidding process with the Government of the State of Sao Paulo. This was a landmark event, and the first PPP signed by any public sector agency in Brazil since the passage of the new Brazil's PPP legislation in 2004. Under the terms of the PPP contract, operator ViaQuatro will be responsible for the provision of rolling stock, trains and technical equipment, and the operation and maintenance of a 12.8 km metro line (Metro Line 4) in Sao Paulo during a 30-year concession term. The state of São Paulo's government, under its civil works authority, is responsible for the construction of the required civil infrastructure works which includes various stations, tunnels and railways. The state performs such civil works before turning over the supply, operation and maintenance to ViaQuatro.
The concession was awarded on the basis of a low bid for required availability payments; it also benefits from a minimum revenue guarantee and revenue-sharing threshold, protecting the concessionaire from low revenues, but providing the state with revenue sharing if use is higher than projections. Most of the consortium's income will come from passenger tariffs, but should this fall below the projected levels the government must top it up. However, if income is greater than expected the consortium must share the proceeds with the state.
BUSINESS | CONSTRUCTION OBLIGATIONS | PRIVATE FUNDING | SERVICE DELIVERY | SOURCE OF REVENUE |
BUSINESS - New: The project involves the construction of a new line for the current metro system in Sao Paulo. The demand for the metro is known, traffic on the new line is unknown. The project company is responsible only for this new line.
CONSTRUCTION OBLIGATION - N/A
PRIVATE FUNDING - Finance: The project financing includes equity contribution from sponsors of about US$ 83 million (21%). There is also a substantial portion of debt in the form of an A loan from IADB and a B loan, led by IADB, from several commercial banks. The project therefore is classified as Finance.
SERVICE DELIVERY - User: Project operator will deliver service directly to the metro's customers; it is also responsible for collection and billing obligations as well as customer service.
SOURCE OF REVENUES - Tariffs: Most of the consortium's income will come from passenger tariffs, with a minimum revenue guarantee and revenue-sharing threshold, protecting the concessionaire from low revenues, but providing the state with revenue sharing if use is higher than projections.
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14 This component is finance by the World Bank, JOBIC and State of Sao Paulo
15 The consortium (and sponsors) consists of CCR (58%), Mitsui (10%), Montgomery Participações S.A. of Portugal (30%), Benito Roggio Transportes S.A. of Argentina (1%), and RATP Développement S.A of France (1%)