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Denise Tsang

Rail firm chief says 10b yuan projects will help achieve economies of  scale abroad

MTR Corp has picked up two more metro projects in Shenzhen costing at least 10 billion yuan as it pushes for economies of scale in offshore investments.

The partially privatised urban railway service provider and the Shenzhen municipal government yesterday signed a memorandum of understanding on the investment, construction and operation of Shenzhen Metro Lines 2 and 3.

Following an initial Shenzhen deal 16 months ago marking its first direct investment on the mainland, MTR yesterday also signed a concession agreement  to invest in, build and operate  the second phase of the city's Metro Line 4 for 30 years.

The six billion yuan, 16km extension due  by 2009 is the country's first rail line based on a build-operate-transfer model.

MTR chief executive Chow Chung-kong said fresh investments in Shenzhen were part of a strategy to maximise return and  use resources as the growth-challenged corporation  sought to capitalise on deregulation of overseas rail markets.

'The potential projects [of Lines 2 and 3] mean a solid step further on our investments across the border. We want to build a web of rail lines in a city  where we have a presence,' Mr Chow said. 'Having a single rail line in a city is not meaningful; therefore we want to create  economies of scale.'

He added  the MTR was keen to  repeat  its  proven business model - using profits from property development along tracks to recoup   rail investments - on overseas projects.

The second stage of Shenzhen Metro Line 4 is a test case of what  Mr Chow called 'a rail plus property development model', with 2.9 million square metres of land to be developed along the  line between Shaoniangong in the south and Longhua Town Centre in the north.

The project requires the MTR to  spend 2.4 billion yuan as registered capital of a project  firm. The rest of the funding would come from non-recourse financing,  he said.

The existing first phase of Metro Line 4, a 4.5km section between Huanggang and Shaoniangong in Futian district, will be linked to the Kowloon-Canton Railway Corp's Lok Ma Chau spur line due for completion in 2007.

Chen Biao, a director of the Shenzhen Municipal Planning and Reform Bureau, said  Metro Lines 2 and 3, which would cost at least 10 billion yuan,  would be part of the special economic zone's five core metro lines costing  36 billion yuan.

Citing a continuing  preliminary study on the design of the two lines, Mr Chow said it was premature to reveal the form of investment and timetable of construction.

Metro Line 2 is a 14.4km, 11-station spur off  Line 1 at Window of the World station to Shekou West, serving  western  Shenzhen. In eastern Shenzhen, the 32.8km Line 3 serving 19 stations will run from Honglingzhonglu in Lowu district to Longxingjie in Longgang district.

Mr Chow said the MTR, which in February recorded  its first subway deal in Beijing and is hoping for three more there, did not expect overseas projects  to make material contributions in the near  term.

Analysts are cautious about the MTR's investments outside Hong Kong  because potentially higher returns had higher risks.

Some  contacted yesterday said they would wait and see if the rail-plus-property development model was feasible across the border.  They were also worried by competition from other modes of transport.

Secretary for the Environment, Transport and Works  Sarah Liao Sau-tung said after the contract-signing  that a government decision on the potential  MTR-KCRC  merger would not be affected by the forthcoming  election of Hong Kong's Chief Executive. She said talks on the merger terms  were progressing.



MTR lines up Shenzhen deals