China Railway Group’s project in Venezuela hits snag

China Railway Group’s railway project in Venezuela is suffering delays because the Venezuelan government is unable to pay the entire US$7.5 billion contract.

When the deal was announced in August 2009, it was China’s largest overseas rail construction project and the Latin American nation’s largest non-oil contract.

Venezuela is a major oil exporter to China, which pays for its imports partly through infrastructure projects.

The Venezuelan government owes China Railway US$400 million to US$500 million, said Li Changjin, the chairman of China Railway, which is listed in Hong Kong and Shanghai.

“The reason is the Venezuelan government has no money,” Li said. “We are in talks with the government.”

Owing to the funding crunch, the 475.1km railway, originally scheduled to be completed next year, would be delayed, he said. “They are short of funds, so we stopped work.”

Nonetheless, the company was making profits from what the Venezuelan government had already paid for the project, he said.

China Railway won its biggest overseas deal in December last year, when it signed a US$9 billion contract in Cambodia to develop an iron mine and a port and build a railway to link them, said Yu Tengqun, the firm’s joint company secretary.

Despite its problems in Venezuela, the state-owned company was confident it would do well with its Cambodian project, Yu said. “This is a good project.”

The project, in which an iron mine in northern Cambodia will be connected by a 404km railway to a port off the Gulf of Thailand, is the Southeast Asian nation’s biggest investment.

“Most of our mines will start business in 2015, which will bring stable cash flow,” Li said.

Until then, China Railway would continue to suffer negative cash flow from the cost of diversifying its business from railways to mining, toll roads and property, he said.

“This is a very painful period. By 2015, we will have positive cash flow,” Li said.

Last year, China Railway had an operating cash outflow of 4.19 billion yuan (HK$5.2 billion).

During the first quarter, the company gained nearly 200 billion yuan of new contracts, including 70 billion yuan of railway jobs, Yu said.

Last year, new contracts rose 28 per cent to 731 billion yuan.

Capital expenditure would be 12 billion yuan this year, up from 10.87 billion yuan last year, said Li Jiansheng, the company’s chief financial officer.

China Railway’s net profit rose 9.9 per cent to 7.35 billion yuan last year, which was above consensus estimates. Turnover grew 5.3 per cent to 465.63 billion yuan.

The company’s shares yesterday rose 1.89 per cent to HK$3.78.


Source : scmp

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