Ministry of Railways loosens grip on projects

Rail ministry, realising it can't fund all its plans, takes smaller share of five projects as Shanxi Energy steps in with major investments

PUBLISHED : Wednesday, 19 September, 2012, 12:00am
UPDATED : Wednesday, 19 September, 2012, 3:06am

In a further sign that the once-powerful Ministry of Railways is losing its monopolistic grip, Shanxi Energy & Transport Investment announced it would invest in rail projects where the ministry will take a smaller share than usual.

Shanxi Energy, wholly owned by the Shanxi provincial government, will invest in five rail projects with a total investment of 218.72 billion yuan (HK$267.8 billion). Shanxi Energy's share is 33.2 billion yuan, of which 12.3 billion yuan has been invested and the rest will be invested in the next three years. The firm plans to issue 1.7 billion yuan of five-year bonds to repay debt and replenish working capital.

The company, the ministry and local governments will jointly invest in these five projects, the bond prospectus says.

"The joint rail investment model breaks many years of our nation's railway being invested in by only one entity [the railways ministry], stimulated the central and local governments to be more proactive in rail investments and broadened financing channels, thus diversifying rail investment," it says.

Previously, the ministry accounted for more than 90 per cent of rail investment.

One of the five projects is the 103.8 billion yuan central and southern Shanxi coal railway, with an annual freight capacity of 200 million tonnes. Spanning 1,260 kilometres from Watang city, Shanxi province, to Rizhao port in Shandong, it is the world's longest heavy freight railway and China's first dedicated heavy freight line. Construction will begin in 2014.

The ministry will take only a 34.29 per cent share of this project, while Bank of China will invest 7.5 billion yuan for a 14.45 per cent stake and Shanxi Energy will invest 10.38 billion yuan for a 20 per cent stake. The remaining budget for this project is being borne by local governments and coal companies.

Another of the five projects is the 8.6 billion yuan Taixing coal railway, where the railways ministry will take a 70 per cent stake and the Shanxi government 30 per cent.

Jefferies analyst Julian Bu said coal rail services were more profitable than high-speed passenger rail. He said coal accounted for 60 per cent of the freight on the mainland's railways.

A third project is the 96.33 billion yuan Datong-Xian high-speed passenger railway, where the Shanxi government will invest 15.11 billion yuan for a 40 per cent share, while the ministry will contribute 32.46 billion yuan. The 859km railway will allow speeds of 250 km/h.

"The railways ministry is starting to let go of some rail projects," Bu said. "It's a new trend. In the past, the ministry had a tight grip on the whole market, but it realised it could not fund all its projects."

On July 30, the State Council called for private investment in major infrastructure projects, including railways.

The ministry will issue a record amount of bonds totalling 150 billion yuan this year to settle unpaid bills owed to railway companies, Bloomberg reported.

Separately, financing was secured last month for the 158 billion yuan Mengxi-Huazhong coal railway. This is the first time the ministry has taken a minority stake of 20 per cent in a major rail project.