Loss on credit
The high-speed Eurasia (Beijing-Moscow-Berlin) project will not pay off for investors at a market rate of credit (above 5.75%, this percentage is taken as a basis for calculating the financial model) and the share of attracted financing at 60% Chinese engineering corporation China Railway Eryuan Engineering Group (CREEC). The source in the government told about the content of the RBC document, its origin was confirmed by a source close to RZD.
According to one source, the document was submitted in September, but at the moment it is the latest relevant financial assessment from the Chinese company. The presentation containing a description of the financial model of the project implementation is at the disposal of RBC.
The press service of RZD told RBC that this presentation "was considered in the preliminary discussion of the project at the Russian-Chinese working group on cooperation in the SCM field, and the data presented in it are not final." RBC sent requests to CREEC and the Ministry of Transport of Russia.
The order to work out the possible participation of Russia in the Eurasia project in August 2017 was given by the then First Deputy Prime Minister Igor Shuvalov. After that, RZD prepared a preliminary feasibility study for the "Eurasia" BCM. The Ministry of Transport oversees this work.
The Chinese company in the presentation notes that for the implementation of the project consensus is important between the countries, in whose territories the route will pass. "It is necessary to provide strong, including political, support from the government of each country," the document says.
The RZD agreed: "The implementation of the Eurasia project and its profitability for the participants directly depend on the measures of state support from the governments of the countries participating in the project."
China Railway Eryuan Engineering Group recognizes that in the construction of the transport corridor "there are still political and technical aspects that require in-depth study in the near future."
"Eurasia" on the Silk Road
Last summer, RZD presented the infrastructure project "Eurasia" - a high-speed railway that will pass from China to Europe through the territory of six countries: Germany, Poland, Belarus, Russia, Kazakhstan and China. The length of the SCM will be 9.5 thousand km, and the total cost - 7 trillion rubles. The cost of the Russian section is the highest - 3.58 trillion rubles. It is assumed that the future SCM Moscow-Kazan will become part of the overall project "Eurasia".
"Eurasia" will be integrated into the global infrastructure project "One belt - one way", which is developing China (the cost is estimated at $ 100 billion). Within the framework of the Economic belt of the Silk Road, it was decided to develop the transport corridor China-Kazakhstan-Russia-Belarus-EU.
Payback in question
CREEC estimates total costs for Eurasia at 9.8 trillion rubles, so "each country needs government support and comprehensive measures". Chinese financiers note that, in addition to investments by investors, the project requires a large amount of funding from states. "Based on the premise of weak profitability, the ability to repay the amount and pay interest is also weak," the presentation said.
According to the financial model developed by CREEC, if the construction will be carried out at a ratio of 40 to 60-40% equity of the project company and 60% of the attracted financing - the internal rate of return of the project will be negative taking into account the cost of borrowed funds. This means that the investment in the project will not pay off at a loan rate of 5.75% per annum, on the basis of which the Chinese company makes its calculation. Without taking into account the cost of borrowed funds, the internal rate of return is positive and is 2.88%. With this indicator, the full payback period of the project before taxes is 28 years, including the construction period.
The Chinese company also conducted a financial assessment of the Moscow-Kazan railway as part of the Eurasia project. The financial estimate is based on the parameters: 40/60 (capital / attracted financing), the financing rate is 5.75%. Prior to the payment of the cost of borrowed money, the internal rate of return before tax is 4.81%, and the payback period is 22.5 years, including the construction period. After paying the cost of borrowed loans, the internal profitability of the project (excluding income tax) is 3.2%, and the payback period is 31 years, including the construction period.
A spokesman for RZD insists that the first stage of the Eurasia Sea Fleet - the pilot Russian section of the Moscow-Kazan SCM - will pay off in 22 years, even without a capital grant from the state.
Managing Partner of Veta Group Ilya Zharskiy notes that "all over the world VSM are on the verge of payback, but the purpose of such projects is not profit, but integration of regions into a single logistical and economic space."
For payback, you need either to reduce the rate, or to reduce the amount of borrowed funds, or to increase the cost of tickets for future passengers and the cost of transporting goods, he lists. "On the way of issuance of bonds in this case is unlikely to succeed. But transport is one of the ideal niches in which various models of public-private partnership are developing, "Jarski concluded.
The head of the research group InfraONE Alexander Galaktionova recalls that the project of the Eurasian Armed Forces "Eurasia" will be implemented in parts, in priority areas in a densely populated territory.
In Galaktionova's opinion, the profitability of the financial model of Eurasia could be provided by soft loans from the Silk Road Fund. "And Russian sites could apply for the allocation of funds from the Development Fund and the EDB. If you approach globally, then this whole huge project is not a market one, the sites with good traffic will pay off, "she notes.
The CREEC study notes that one of the highest passenger and cargo flows will be on the Moscow-Kazan section.