Why BNDES is likely to impose financing restrictions on São Paulo’s US$670mn train purchase

Brazilian development bank BNDES is likely to impose some restrictions on providing financing for São Paulo state’s 3.74 billion-real (US$668 million) purchase of 44 trains for its subway system.

"BNDES has already given the signal to the state government that it will finance this acquisition. However, we should see some restrictions, such as the companies supplying the trains being required to have operations and production here in Brazil," a source familiar with the matter told BNamericas on condition of anonymity.

There is increasing pressure from companies in Brazil to prevent mainly Chinese firms with no operations in the country from participating in the tender and obtaining financing from BNDES.

 "This pressure seems to be yielding some results as we have information about Chinese companies looking at land in the state to build factories for train production," said the source.

Earlier this year, the state's transport department suspended the auction for the train purchase in order to modify parts of the tender notice.

The auction was scheduled for March 21 and will now be held on September 30. The notice can be seen here. 

The trains will be used for line No. 2 - green, line No. 1 - blue and line No. 3 - red. The contract will be awarded to the company offering the lowest price, with the deadline for the first train to be delivered set at 21 months after signing the contract. The deadline to deliver all the trains is 58 months. 

The rolling stock segment in Brazil has traditionally been dominated by European companies with operations in the country, such as Alstom and CAF - Construcciones y Auxiliar de Ferrocarriles, but has seen the entrance of Chinese players in recent years.

A consortium formed by Brazilian firm Comporte and China’s CRRC won an auction in February for the Trem Intercidades passenger rail link in São Paulo state. The PPP contract to build and operate the 101km line involves investments of around 13.5bn reais, using 15 trains that CRRC will provide.

Companies in the steel and vehicle industries in several countries have this year urged governments to take protective action against Chinese producers that are supported by their government through subsidies and other benefits.