High Speed Rail in Brazil: The Need for Guarantees

In an article entitled Fourth Time Unlucky, The Economist wonders why Brazil, with "a long list of more worthwhile infrastructure projects", does not dismiss high speed rail "out of hand."

After three unsuccessful attempts to attract international bidders to build its Rio de Janeiro to Sao Paulo and Campinas line for a bargain basement price, the nation has decided that taxpayers will foot some (probably all) of the bill.

The Economist continues:

"Everywhere, new-build rail projects are horribly likely to come in way over budget and to be used much less than expected. A 2009 paper by Bent Flyvbjerg of Oxford’s Saïd Business School, ominously entitled "Survival of the Unfittest: Why the worst infrastructure gets built—and what we can do about it."

As Flyvbjerg and others have noted, promoters, whether private or public, often seem to have a simple goal: to get the line under construction. That positions the projects for taxpayer bailouts when they run into problems.

With bidders able to call upon other people's money (taxpayer's money) this time, it seems likely there will be takers. And, based upon the experience with major infrastructure projects around the world, that will be just the start of the taking.

If elsewhere provides any guidance, the winning bidder can be confident that, down the road, the captive customer (the taxpayers) will pay any cost overruns. At the same time, the routine could be repeated in which a government kicks and screams, claiming it had no warning.

They did. In this day and age, a link to the Economist's warning is forever. A wise government will obtain the unlimited guarantees any company involved in the winning joint venture. Only then will Brazil's taxpayers be protected.