PWF Blog

  • Bechtel Bets On Texas Central’s Shinkansen Bullet Train

    The addition of Bechtel to the blue-chip team guiding the development work on the country’s first privately financed high-speed rail project has raised hopes that the $16-billion bullet train between Dallas and Houston could actually get built.

    Program manager Bechtel is reportedly interviewing quality control, geotech and other construction support firms to get pricing information. It has visited Japan to evaluate Shinkansen trainsets supplied by Japanese National Railway (JNR). And it is meeting with business groups in Dallas and Houston to help shore up support for a project its promoters claim will generate $36 billion in economic development over 25 years.

    Plans are for a fully closed system of 240 miles of steel track and three stations, mostly on flat land along I-45 between Dallas and Houston. Costs are so high because about 60% of the track will be constructed on viaduct.

    ENR reports its sources believe the promoter, Texas Central Partners LLC (TCP), will start construction next year. More likely, a financial close and notice to proceed on a design-build contract are still three to five years off, according to a prominent consulting engineer in Texas.

    “They’re blowing their wad on one throw of the dice,” he says. Tea Party opponents could still defeat the project in the legislature, and high tariffs imposed by President Trump on high-grade Japanese steel could affect a multi-billion-dollar loan promised by the Japanese Bank for International Cooperation (JBIC). Nevertheless, he says, “I think this could actually happen.”

    A major hurdle for TCP will be obtaining a multi-billion-dollar loan from USDOT’s Railroad Rehabilitation and Improvement Financing (RRIF) credit program. Among other things, RRIF will require a firm loan commitment from government-owned JBIC, which has agreed to fund one third of the project cost. Commitments on both the JBIC and RRIF loans prior to a construction start will be required to attract the additional billions in institutional financing needed to cash out TCP’s development-period equity investors.

    For financial advice, TCP is expected to announce soon that Citibank will replace Dublin, Ireland-based Rubicon Infrastructure Advisors. Citibank has advised on a number of transportation project financings anchored by federal loans obtained through USDOT’s TIFIA program, another of TCP’s construction lending targets.

    TCP announced last fall that Irving, Texas-based Fluor Enterprises Inc. and The Lane Construction Corp. had been selected as the preferred team to try to negotiate a sole source design-build contract, with WSP USA conducting engineering work on their behalf. A similar agreement in 2015 with Archer Western Contractors and Ferrovial Agroman fell apart, partly due to rising costs, but mainly because of a lack of confidence in TCP’s ridership estimates, according to one of the principals in the deal.

    In a recent forecast, British management consultant L.E.K. Consulting, TCP’s traffic advisor, estimated that a 200-mph bullet train between stations in Dallas and Houston would reduce trip times by an hour, and capture 25% of the long-distance trips in the corridor by 2026. That assumes construction begins in 2019.

    Most of TCR’s target market are car and light truck drivers. L.E.K. estimates that 90% of the 14 million non-freight trips made annually in the Dallas-Houston corridor are made by road, and 7% by air.

    Cost estimates have risen during the four-year preparation of the Draft Environmental Impact Statement (DEIS) by the Federal Railroad Administration (FRA). A TCP press release in 2015 put the project cost at $10.9 billion. Based on conceptual designs cited in the recently completed Draft EIS, track construction alone now is estimated to cost between $15 billion and $18 billion. Texas DOT’s website, explaining its role in the private project, puts the construction cost at $16 billion.

    . . . RRIF Challenge

    The Railroad Rehabilitation and Improvement Financing (RRIF) Program has never made a loan for a high-speed rail project. A few years ago, All Aboard Florida failed to secure a $1.87-billion loan for its 110-mph Miami-Orlando passenger rail system, Brightline, and issued private activity bonds instead.

    XPress West applied for a $5.5-billion RRIF loan in 2010 to build a high-speed rail line from Las Vegas to Southern California. Citing “Buy America” concerns and loan documentation issues, USDOT tabled the application in 2013. That was a few months after the chairs of both the House and Senate Budget Committees notified USDOT that they opposed the loan as too risky.

    A subsequent attempt by a Chinese rail company to build the same line also ran into difficulties in satisfying the “Buy America” requirements of the RRIF program.

    In a recent report on RRIF, Congressional Research Service analyst David Randall Peterman noted that if loans are extended for construction of private passenger rail lines, “they are likely to be quite large relative to the loans RRIF has extended for freight projects, and may pose different risks. RRIF loans for freight projects typically are for the purpose of improving an operating railroad that already generates revenue from customers. Those existing facilities may serve as collateral for the loans. Some of the private passenger rail projects now under development, by contrast, involve provision of new services on trackage that has yet to be built, potentially leaving the RRIF program with a significant risk of loss if the project is not completed.”

    He explains that RRIF requires borrowers to pay risk premiums up front to offset the risk of a default on their loan. “The credit risk premium helps the program comply with a congressional requirement that federal loan assistance programs operate at no cost to the federal government,” he says.

    . . . FRA Safety Challenge

    TCA can’t operate its trains until FRA finishes its work writing safety regulations. FRA has no regulations governing high-speed rail at 200 mph, but is allowed to develop minimum safety regulations for specific projects under what it calls a Rule of Particular Applicability (RPA).

    The agency is still considering a request made by TCR in April 2016 that it publish a notice of proposed rulemaking under the RPA process. Because an RPA is a “major federal action,” FRA can’t publish its final rule on TCR’s project until a Record of Decision is issued as part of the NEPA process.

    Accelerating that permitting process while FRA is struggling with oversight of Positive Train Control technology nationally, among other things, would be a challenge.

    Meanwhile, five pedestrians and one cyclist have been killed in the past eight months while illegally crossing track used by the privately owned and operated Brightline intercity rail service in south Florida. The deaths occurred during trials of the trains running at 70-mph last fall and at the start of revenue service this year between West Palm Beach and Fort Lauderdale.

    The private railcars run on track in residential areas that were formerly used by much slower trains. Impatient pedestrians going around gates is a concern. And some of the deaths are thought to be suicides.

    The safety issues raised by the deaths are threatening a federal allocation of $1.15 billion in private activity bonds (PAB) that rail developer All Aboard Florida (AAF) needs to finance expansion of its initial operating system with 110-mph service to Orlando International Airport. An earlier PABs allocation of $600 million was used to finance the first leg.

    North Carolina Republican U.S. Rep. Mark Meadows, chairman of the House Oversight and Government Reform Committee’s Subcommittee on Government Operations, sent a letter in mid-May to U.S. Transportation Secretary Elaine Chao, with four Florida Republican congressmen as cosigners. The letter includes a threat from Meadows, the powerful chairman of the House Freedom Caucus: “Please consider carefully the damage to the future of PABs that results from continuing this allocation.”

    Meadows wants Chao to suspend USDOT’s bond allocation until all rail safety hearings are completed.

    Meanwhile, All Aboard Florida submitted an unsolicited proposal to Florida DOT on March 26 to lease land along I-4 for a Brightline link between Orlando and Tampa. FDOT issued an RFP to seek competing proposals on June 22.

     

    William G. Reinhardt, Editor
    Public Works Financing newsletter
    81 Cheney Ave.
    Peterborough NH  03458

     

    (908) 577-8411
    pwfinance.net

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