The private Rio-São Paulo high-speed rail project, budgeted at R$50 billion, seeks a Chinese investor to get off the drawing board, but runs into the government’s lack of commitment and the complex viability equation.

What we are looking for, which is difficult, is an investor. The phrase, spoken with the frankness of someone who knows the tracks and the misadventures of the sector, belongs to Bernardo Figueiredo, president of TAV Brasil and one of the main architects of the project that aims to restore to the country the dream of a high-speed rail link between Rio de Janeiro and São Paulo. The plan, forged entirely in the private sphere, under an authorization regime, estimates a colossal investment of R$50 billion just for the construction of the track, to which are added another R$10 billion for expropriations and real estate development along the 400-kilometer stretch.

The technical ambition is remarkable: a pure passenger train, designed to operate at speeds that would shorten the distance between the two metropolises to about an hour and a half, rivaling the total time spent on commercial flights when adding transfers, boarding, and waiting. The business model, however, rests on a financial foundation that remains in the realm of intentions, since TAV Brasil defines itself as a project structuring company, not as an investment fund capable of providing the necessary capital. The solution, pursued for years, lies in international financing, with advanced talks with a Chinese group that has shown interest in supplying trains and structuring the debt.

The contractual engineering chosen for the High-Speed Train is the authorization regime, a legal framework that allows a private company to build and operate a railroad with its own capital, without the need for a concession auction and without direct shareholding participation by the federal government. The model differs radically from the Public-Private Partnerships (PPPs) that underpin the intercity trains in São Paulo, where the State enters as the payer of consideration and guarantor of minimum revenues. Here, the demand risk, the construction risk, and the responsibility for expropriations fall exclusively on the entrepreneur, making the task of balancing the books an exercise in financial craftsmanship.

The viability deficit, a technical term that haunts any passenger rail project in the world, is the neuralgic point of the HSR. In PPP models, such as the SP-Campinas Intercity Train — whose contract was won by a consortium of Comporte with the Chinese manufacturer CRRC —, the public sector covers part of the gap between the fare charged to users and the real cost of the service. In the absence of state subsidies, TAV Brasil needs to seek robust ancillary revenues, such as real estate exploration of areas around stations and urban development along the railroad axis, a classic value capture mechanism that worked in Japan and France, but which requires extreme scale and population density.

The Chinese presence hovers over the project as a potential solution and, at the same time, a geopolitical unknown. The same impetus that led Beijing to invest heavily in the New Silk Road and finance the port of Chancay, in Peru, to transport South American commodities through the Pacific, could materialize in the HSR as a platform for technological exhibition and economic influence. A recent memorandum of understanding between Brazil and China, focused on long-term railway planning, signals that the Chinese are not only targeting freight corridors for grains and ores, but are envisioning a complete ecosystem of mobility on rails in Brazilian territory.

However, business diplomacy has not yet translated into signed checks. According to Figueiredo, the talks with the Chinese group have hit a non-technical bottleneck: the absence of a clear government signal that the project is welcome and strategic for the country. The federal government, in turn, has limited itself to mentioning the BNDES as a channel of incentive for railroads of this nature, without any commitment to guarantee financing or public participation in the venture. The position is understandable from a fiscal point of view, but leaves the most ambitious private project in Brazilian railway history orbiting in a vacuum of legitimacy in the eyes of potential Asian creditors.

From an operational point of view, TAV Brasil has achieved concrete progress in the environmental sphere, with the preliminary license under way with the competent bodies, a fundamental step to demonstrate legal certainty to investors. But the challenge of expropriating a 400-kilometer strip in one of the most densely populated and highly valued regions of the Southern Hemisphere is a variable that adds billions of reais and years of litigation to the schedule, a cost that real estate management plans need not only to cover, but to turn into net profit.

The market skepticism is due, in large part, to the previous history of the Brazilian bullet train itself, which was tendered in 2011 and ended up canceled for absolute lack of interested parties. The difference now is the disconnection of the project from the state machine, but perhaps there also lies its greatest weakness, as pointed out by the analysis of the national railway sector: the projects that actually advance in Brazil — such as the TIC Campinas by Comporte-CRRC — have a strong State in structuring, in sharing the track with the freight network, and in mechanisms to protect against demand risk. Without this, the HSR flirts with the same fate as the high-speed plans that ran aground in advanced economies, from California to Florida, for underestimating the harshness of private financing without public backing.

The reality taking shape for the Rio-São Paulo bullet train belongs to a world in which Chinese capital needs to find a comfortable regulatory environment and indirect state counterparts, even if disguised as BNDES credit or tax exemptions. Brazil tries, once again, to expand its railway network beyond iron ore and soybeans, and high speed represents the top of the chain of technological sophistication on rails. But as long as the dream of linking Rio and São Paulo in 90 minutes does not find a solid backer, it remains exactly that: a technically viable, economically challenging, and politically orphaned dream.