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Taiwan taxpayers taken for a high speed
ride?
By Michael Taylor
TAIPEI - In the words of the woman who knows
better than anyone else, it was always an "extremely
over-ambitious" project. Nita Ing, heir to a Taiwanese
construction empire, calls the shots at the Taiwan High
Speed Rail Co (THSRC), the primary contractor for the
construction of a modern rail line linking Taipei with
the port city of Kaohsiung in southern Taiwan. More than
10 years in the planning, a project of this scope will
not recur in Taiwan for many decades to come. With final
costs forecast at about US$14 billion, this
345-kilometer rail link is currently the largest
build-operate-transfer (BOT) project in the world.
Or so its builders would like us to believe. The
reality is far more interesting.
What is at
issue here is not the project's size or complexity.
Although it will not rank among the world's longest
high-speed rail lines when completed, it will span the
length of the island and link together its most populous
areas - a total of perhaps 18 million people, or more
than 90 percent of the current population. With the
immense amount of planning, rezoning and coordinating
among all of the various and competing levels of
government (both central and local), thousands of
subcontractors, and of course, the media, no sane person
would submit that Ing's job is easy. And this reporter
will not pretend to have the expertise to judge the job
that the THSRC head has done so far. There are
legitimate questions, however, over whether or not this
project is really BOT at all.
The problem
touches at the heart of the BOT development model, which
theoretically is a mechanism for private capital to fund
public infrastructure projects. Each BOT case is of
course subject to many variables, but generally the idea
is to get private interests to fork out the money to
build public facilities; for example, a bridge. In
return for this largesse, the builder then gets to play
toll-booth keeper for a set amount of time, long enough
(the developer hopes) to generate a fat return on
investment. Regardless, the developer must transfer the
facility to the government at the end of the pre-set
period. The system is commonly used to build highways
and toll bridges in the United States and Britain.
Depending on your viewpoint, BOT in Western
countries is an efficient and cheap way for a government
to develop national infrastructure, or else it's an
efficient and fast way for corporate interests to bilk
the public while maintaining a veneer of
public-mindedness. Both outlooks are probably justified,
but in any case, the theory is likewise gaining
adherents in halls of power throughout much of Asia
ex-Japan, where increasingly democracy-minded masses are
beginning to demand social-welfare spending just as
export-led economies have been hit by a slow US economy.
This dynamic is putting a squeeze on national
budgets and fueling, in Taiwan at least, a burgeoning
deficit and potentially worrisome national debt. In this
context, the private sector is seen as the rescue squad
- and with Taiwan now in dire economic straits, the
government is increasingly looking to attract white
knights with foreign names and crests (such as the
ever-popular "US$") to help build up the national
infrastructure of which the rail link, scheduled for
completion in 2005, is supposed to be the backbone.
But based on the history of Taiwan's first
official BOT case - believe it or not, this massive
railroad project - both foreign and domestic caballeros
are likely to stay high in their towers while keeping
their drawbridges snugly closed. Ing and her
confederates won the contract from the Taiwan government
in September 1997, mainly on a low-bid offer and a
pledge to raise and provide private-sector capital to
build the project. But even at the project's
commencement, the government also promised to pony up
US$3 billion to buy rail-related property, build
supporting road and mass transit systems, and to hand
over a 15km underground rail line into Taipei as well as
platforms at Taipei Main Train Station. "The project was
never BOT in the first place," says People First Party
legislator Norman Yin.
Perhaps not, but these
government concessions were demanded by the THSRC when
it drew up its contract proposal - and, says Ing, were
necessary for the deal to make business sense to her and
her partners. When speaking with planning agencies,
potential investors likewise say that they will only be
interested in BOT in Taiwan if the central government
backs them firmly, including tax breaks and other deal
sweeteners. That's public money - although few in either
government or industry characterize it as such. But
given its second-class (and decaying) infrastructure,
Taiwan might not have any choice.
The rail
project bears this assertion out. After promising to
raise all of its equity from among the THSRC consortium
members, banks or capital markets, the contractor ran
into financial trouble, which forced the government to
fund the project directly. Today, the original investors
together hold about 40 percent of outstanding shares of
the THSRC - but the single largest investor is the
Taiwan government. State-owned Taiwan Sugar Corp owns a
10 percent stake, and the Executive Yuan's Development
Fund, which has been used in the past to fund companies
such as Taiwan Semiconductor Manufacturing Corp, last
year purchased a further 6 percent of THSRC shares.
That 16 percent stake has the potential to get
much higher. The THSRC was unable to secure sufficient
backing on its own, so the government agreed to
guarantee another (roughly) US$9 billion in loans from a
syndicate of 25 domestic banks. In other words, the
government now must take over the entire project,
assuming full financial responsibility, if the THSRC
fails either during construction or at any time during
the following two decades of operations before the
scheduled transfer. The opposition-dominated legislature
made a show of putting the brakes on public
responsibility in June 2001, but it was already a done
deal.
Having a high-speed railway could be a
tremendous boon to densely populated Taiwan. The train,
it is hoped, will allow people to move out of cramped
urban areas, integrating the island's core western
corridor into a modern megalopolis. There is no real
evidence that the THSRC will fail to deliver the final
product or to operate it well and profitably. But the
company is hardly a model of transparency either,
refusing to entertain questions it believes might foster
"controversies" - as if a US$9 billion commitment of
public funds needed the help of media exaggeration to
become controversial.
Judging by the raised
eyebrows among business people at a recent investment
conference when the company made its "private funding"
claim, it does seem likely that the big secret about the
government's guarantee is out.
In establishing
the high-speed railroad, Taiwan has stumblingly followed
a Japanese development model couched in American BOT
terminology. In the end, it might not turn out to have
been such a bad thing, but BOT clearly has not worked in
this vital case. The railroad project, which has at
least another three years before completion, will be
carried out. It is extremely unlikely that the THSRC
will be allowed to go bust - but taxpayers will continue
to fund the project one way or the other.
(©2003
Asia Times Online Co, Ltd. All rights reserved. Please
contact content@atimes.com
for information on our sales and syndication policies.)
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