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Josephine Ma

THE yuan's limited convertibility and the central government's reluctance to give foreign investors full operation rights for infrastructure projects will make any build-operate-transfer (BOT) scheme nearly impossible, a light railway developer says.

  Hwa Kay Thai Holdings managing director Edward Chow said China was different from other Southeast Asian countries, where BOT was common, because there was a strict quota on the foreign currency available for conversion.

  'The revenue is in yuan and the loan is in foreign currency,' he said.

  'Necessary currency guarantees are just a must.'    Mr Chow said the support of local governments was the only way out, given the lack of central government guarantees.

   Mr Chow said the Wuhan municipal government had to negotiate with banks to obtain a forex guarantee for his company's BOT project.

  Hwa Kai Thai signed a letter of intent with the Wuhan government last year to build a 16 kilometre elevated light transit railway, but State Planning Committee approval is still pending.

  The government's credit crunch had made it more difficult to get approval because BOT schemes were basically foreign loans, Mr Chow said.

   BOT is a way of attracting foreign investment, in which investors are allowed to operate an infrastructure project for a period as a reward before handing it over to the government.

   It has been encouraged by the Chinese Government to ease the capital shortage, but there has remained a strong reluctance to leave the operation of infrastructure to foreign investors.

  In the Wuhan case, Mr Chow said the municipal government was willing to allow Hwa Kai Thai to operate the light railway under strict supervision.

  But the Wuhan government still had to negotiate with the State Planning Commission.

  'Many projects fizzle out because it is impossible to make everybody happy,' he said.

  Though it seemed ridiculous, BOT investors were not given full operational rights, and Mr Chow said his company was only concerned the project could achieve a profit return of 20 per cent.

  'It does not matter what kind of names they use. BOT is just a concept. What is important is the details of the terms.'   He warned that building railways in China was different from building railways like the MTR in Hong Kong, which could generate huge income by developing the superstructure-related projects.

    Unlike the company's light-railway project in Thailand, Mr Chow said land compensation was necessary because the railway was doomed to be a loss-maker.

   'The land supply in China is much larger than Hong Kong and the market was not that mature,' he said.

  Mr Chow said his company might end up financing two projects instead of one in order to generate profits, seeking a property developer to share the risk.

  Mr Chow said a lack of a legislation framework and fears of a yuan depreciation scared away many international banks.

  He said the company would issue bonds, possibly in the United States.

  'It is a new trend for all BOT projects,' he said. 'The concerns of bond investors are different from banks.' 



BOT scheme faces yuan problem on mainland